[Title 17 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2013 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          Title 17

Commodity and Securities Exchanges


________________________

Parts 1 to 199

                         Revised as of April 1, 2013

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2013
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 17:
          Chapter I--Commodity Futures Trading Commission            3
  Finding Aids:
      Table of CFR Titles and Chapters........................    1163
      Alphabetical List of Agencies Appearing in the CFR......    1183
      List of CFR Sections Affected...........................    1193

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 17 CFR 1.1 refers to 
                       title 17, part 1, section 
                       1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
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    To determine whether a Code volume has been amended since its 
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EFFECTIVE AND EXPIRATION DATES

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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PAST PROVISIONS OF THE CODE

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this volume.

[[Page vii]]

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    Charles A. Barth,
    Director,
    Office of the Federal Register.
    April 1, 2013.







[[Page ix]]



                               THIS TITLE

    Title 17--Commodity and Securities Exchanges is composed of three 
volumes. The first volume containing parts 1--199, comprises Chapter I--
Commodity Futures Trading Commission. The second volume contains Chapter 
II--Securities and Exchange Commission, parts 200--239. The third 
volume, comprising part 240 to end, contains the remaining regulations 
of the Securities and Exchange Commission, and Chapter IV--Department of 
the Treasury. The contents of these volumes represent all current 
regulations issued by the Commodity Futures Trading Commission, the 
Securities and Exchange Commission, and the Department of the Treasury 
as of April 1, 2013.

    The OMB control numbers for the Securities and Exchange Commission 
appear in Sec.  200.800 of chapter II. For the convenience of the user, 
Sec.  200.800 is reprinted in the Finding Aids section of the volume 
containing part 240 to end.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.

[[Page 1]]



              TITLE 17--COMMODITY AND SECURITIES EXCHANGES




                   (This book contains parts 1 to 199)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Commodity Futures Trading Commission.............           1

[[Page 3]]



             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION




  --------------------------------------------------------------------
Part                                                                Page
1               General regulations under the Commodity 
                    Exchange Act............................           7
2               Official seal...............................         151
3               Registration................................         152
4               Commodity pool operators and commodity 
                    trading advisors........................         196
5               Off-exchange foreign currency transactions..         309
7               Registered entity rules altered or 
                    supplemented by the Commission..........         339
8               [Reserved]

9               Rules relating to review of exchange 
                    disciplinary, access denial or other 
                    adverse actions.........................         339
10              Rules of practice...........................         350
11              Rules relating to investigations............         382
12              Rules relating to reparations...............         386
13              Public rulemaking procedures................         426
14              Rules relating to suspension or disbarment 
                    from appearance and practice............         427
15              Reports--general provisions.................         430
16              Reports by contract markets and swap 
                    execution facilities....................         436
17              Reports by reporting markets, futures 
                    commission merchants, clearing members, 
                    and foreign brokers.....................         440
18              Reports by traders..........................         445
19              Reports by persons holding bona fide hedge 
                    positions pursuant toSec. 1.3(z) of 
                    this chapter and by merchants and 
                    dealers in cotton.......................         448
20              Large trader reporting for physical 
                    commodity swaps.........................         450
21              Special calls...............................         466
22              Cleared swaps...............................         470
23              Swap dealers and major swap participants....         482
30              Foreign futures and foreign options 
                    transactions............................         523
31              Leverage transactions.......................         542

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32              Regulation of commodity option transactions.         575
33              Regulation of commodity option transactions 
                    that are options on contracts of sale of 
                    a commodity for future delivery.........         581
34              Regulation of hybrid instruments............         591
35              Swaps in an agricultural commodity 
                    (agricultural swaps)....................         592
36              Exempt markets..............................         592
37              Derivatives transaction execution facilities         609
38              Designated contract markets.................         610
39              Derivatives clearing organizations..........         649
40              Provisions common to registered entities....         704
41              Security futures products...................         721
42              Anti-money laundering, terrorist financing..         746
43              Real-time public reporting..................         746
44              Interim final rule for pre-enactment swap 
                    transactions............................         775
45              Swap data recordkeeping and reporting 
                    requirements............................         776
46              Swap data recordkeeping and reporting 
                    requirements: Pre-enactment and 
                    transition swaps........................         815
48              Registration of foreign boards of trade.....         832
49              Swap data repositories......................         865
50              Clearing requirement........................         897
100             Delivery period required....................         903
140             Organization, functions, and procedures of 
                    the Commission..........................         903
141             Salary offset...............................         929
142             Indemnification of CFTC employees...........         933
143             Collection of claims owed the United States 
                    arising from activities under the 
                    Commission's jurisdiction...............         934
144             Procedures regarding the disclosure of 
                    information and the testimony of present 
                    or former officers and employees in 
                    response to subpoenas or other demands 
                    of a court..............................         937
145             Commission records and information..........         940
146             Records maintained on individuals...........         954
147             Open Commission meetings....................         963
148             Implementation of the Equal Access to 
                    Justice Act in covered adjudicatory 
                    proceedings before the Commission.......         970
149             Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the Commodity 
                    Futures Trading Commission..............         977
150             Limits on positions.........................         983
151             Position limits for futures and swaps.......         989

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155             Trading standards...........................        1013
156             Broker Associations.........................        1016
160             Privacy of consumer financial information 
                    under Title V of the Gramm-Leach-Bliley 
                    Act.....................................        1017
162             Protection of consumer information under the 
                    Fair Credit Reporting Act...............        1046
165             Whistleblower rules.........................        1057
166             Customer protection rules...................        1087
170             Registered futures associations.............        1090
171             Rules relating to review of National Futures 
                    Association decisions in disciplinary, 
                    membership denial, registration and 
                    member responsibility actions...........        1093
180             Prohibition against manipulation............        1108
190             Bankruptcy..................................        1108
191-199         [Reserved]

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PART 1_GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT--
Table of Contents



                               Definitions

Sec.
1.1 [Reserved]
1.2 Liability of principal for act of agent.
1.3 Definitions.
1.4 Use of electronic signatures.
1.5 [Reserved]
1.6 Anti-evasion.
1.7 Books and records requirements for security-based swap agreements.
1.8 Requests for interpretation of swaps, security-based swaps, and 
          mixed swaps.
1.9 Regulation of mixed swaps.

          Minimum Financial and Related Reporting Requirements

1.10 Financial reports of futures commission merchants and introducing 
          brokers.
1.11 [Reserved]
1.12 Maintenance of minimum financial requirements by futures commission 
          merchants and introducing brokers.
1.13 [Reserved]
1.14 Risk assessment recordkeeping requirements for futures commission 
          merchants.
1.15 Risk assessment reporting requirements for futures commission 
          merchants.
1.16 Qualifications and reports of accountants.
1.17 Minimum financial requirements for futures commission merchants and 
          introducing brokers.
1.18 Records for and relating to financial reporting and monthly 
          computation by futures commission merchants and introducing 
          brokers.

                 Prohibited Trading in Commodity Options

1.19 Prohibited trading in certain ``puts'' and ``calls''.

               Customers' Money, Securities, and Property

1.20 Futures customer funds to be segregated and separately accounted 
          for.
1.21 Care of money and equities accruing to futures customers.
1.22 Use of futures customer funds restricted.
1.23 Interest of futures commission merchant in segregated futures 
          customer funds; additions and withdrawals.
1.24 Segregated funds; exclusions therefrom.
1.25 Investment of customer funds.
1.26 Deposit of instruments purchased with futures customer funds.
1.27 Record of investments.
1.28 Appraisal of instruments purchased with customer funds.
1.29 Increment or interest resulting from investment of customer funds.
1.30 Loans by futures commission merchants; treatment of proceeds.

                              Recordkeeping

1.31 Books and records; keeping and inspection.
1.32 Segregated account; daily computation and record.
1.33 Monthly and confirmation statements.
1.34 Monthly record, ``point balance''.
1.35 Records of commodity interest and related cash or forward 
          transactions.
1.36 Record of securities and property received from customers.
1.37 Customer's name, address, and occupation recorded; record of 
          guarantor or controller of account.
1.38 Execution of transactions.
1.39 Simultaneous buying and selling orders of different principals; 
          execution of, for and between principals.

                              Miscellaneous

1.40 Crop, market information letters, reports; copies required.
1.41-1.44 [Reserved]
1.45 [Reserved]
1.46 Application and closing out of offsetting long and short positions.
1.47-1.48 [Reserved]
1.49 Denomination of customer funds and location of depositories.
1.50-1.51 [Reserved]
1.52 Self-regulatory organization adoption and surveillance of minimum 
          financial requirements.
1.53 [Reserved]
1.54 Contract market rules submitted to and approved or not disapproved 
          by the Secretary of Agriculture.
1.55 Distribution of ``Risk Disclosure Statement'' by futures commission 
          merchants and introducing brokers.
1.56 Prohibition of guarantees against loss.
1.57 Operations and activities of introducing brokers.
1.58 Gross collection of exchange-set margins.
1.59 Activities of self-regulatory organization employees, governing 
          board members, committee members, and consultants.
1.60 Pending legal proceedings.
1.61-1.62 [Reserved]
1.63 Service on self-regulatory organization governing boards or 
          committees by persons with disciplinary histories.
1.64 Composition of various self-regulatory organization governing 
          boards and major disciplinary committees.
1.65 Notice of bulk transfers and disclosure obligations to customers.
1.66 No-action positions with respect to floor traders.

[[Page 8]]

1.67 Notification of final disciplinary action involving financial harm 
          to a customer.
1.68 [Reserved]
1.69 Voting by interested members of self-regulatory organization 
          governing boards and various committees.
1.70 Notification of State enforcement actions brought under the 
          Commodity Exchange Act.
1.71 Conflicts of interest policies and procedures by futures commission 
          merchants and introducing brokers.
1.72 Restrictions on customer clearing arrangements.
1.73 Clearing futures commission merchant risk management.
1.74 Futures commission merchant acceptance for clearing.
1.75 Delegation of authority to the Director of the Division of Clearing 
          and Risk to establish an alternative compliance schedule to 
          comply with futures commission merchant acceptance for 
          clearing.

Appendix A to Part 1 [Reserved]
Appendix B to Part 1--Fees for Contract Market Rule Enforcement Reviews 
          and Financial Reviews
Appendix C to Part 1 [Reserved]

    Authority: 7 U.S.C. 1a, 2, 2a, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 9, 10a, 
12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as amended by 
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 41 FR 3194, Jan. 21, 1976, unless otherwise noted.

                               Definitions



Sec.  1.1  [Reserved]

[66 FR 42269, Aug. 10, 2001]



Sec.  1.2  Liability of principal for act of agent.

    The act, omission, or failure of any official, agent, or other 
person acting for any individual, association, partnership, corporation, 
or trust, within the scope of his employment or office, shall be deemed 
the act, omission, or failure of such individual, association, 
partnership, corporation, or trust as well as of such official, agent, 
or other person.



Sec.  1.3  Definitions.

    Words used in the singular form in the rules and regulations in this 
chapter shall be deemed to import the plural and vice versa, as the 
context may require. The following terms, as used in the Commodity 
Exchange Act, or in the rules and regulations in this chapter, shall 
have the meanings hereby assigned to them, unless the context otherwise 
requires:
    (a) Board of Trade. This term means an organized exchange or other 
trading facility.
    (b) Business day. This term means any day other than a Sunday or 
holiday. In all notices required by the Act or by the rules and 
regulations in this chapter to be given in terms of business days the 
rule for computing time shall be to exclude the day on which notice is 
given and include the day on which shall take place the act of which 
notice is given.
    (c) Clearing member. This term means any person that has clearing 
privileges such that it can process, clear and settle trades through a 
derivatives clearing organization on behalf of itself or others. The 
derivatives clearing organization need not be organized as a membership 
organization.
    (d) Clearing organization or derivatives clearing organization. This 
term means a clearinghouse, clearing association, clearing corporation, 
or similar entity, facility, system, or organization that, with respect 
to an agreement, contract, or transaction--
    (1) Enables each party to the agreement, contract, or transaction to 
substitute, through novation or otherwise, the credit of the derivatives 
clearing organization for the credit of the parties;
    (2) Arranges or provides, on a multilateral basis, for the 
settlement or netting of obligations resulting from such agreements, 
contracts, or transactions executed by participants in the derivatives 
clearing organization; or
    (3) Otherwise provides clearing services or arrangements that 
mutualize or transfer among participants in the derivatives clearing 
organization the credit risk arising from such agreements, contracts, or 
transactions executed by the participants.
    (4) Exclusions. The terms clearing organization and derivatives 
clearing organization do not include an entity, facility, system, or 
organization solely because it arranges or provides for--

[[Page 9]]

    (i) Settlement, netting, or novation of obligations resulting from 
agreements, contracts or transactions, on a bilateral basis and without 
a central counterparty;
    (ii) Settlement or netting of cash payments through an interbank 
payment system; or
    (iii) Settlement, netting, or novation of obligations resulting from 
a sale of a commodity in a transaction in the spot market for the 
commodity.
    (e) Commodity. This term means and includes wheat, cotton, rice, 
corn, oats, barley, rye, flaxseed, grain sorghums, millfeeds, butter, 
eggs, Irish potatoes, wool, wool tops, fats and oils (including lard, 
tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and 
oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, 
livestock, livestock products, and frozen concentrated orange juice, and 
all other goods and articles, except onions (as provided by the first 
section of Pub. L. 85-839) and motion picture box office receipts (or 
any index, measure, value or data related to such receipts), and all 
services, rights and interests (except motion picture box office 
receipts, or any index, measure, value or data related to such receipts) 
in which contracts for future delivery are presently or in the future 
dealt in.
    (f) Commodity Exchange Act; the Act. These terms mean the Commodity 
Exchange Act, as amended, 7 U.S.C. 1 et seq.
    (g) Institutional customer. This term has the same meaning as 
``eligible contract participant'' as defined in section 1a(18) of the 
Act.
    (h) Contract market; designated contract market. These terms mean a 
board of trade designated by the Commission as a contract market under 
the Act and in accordance with the provisions of part 38 of this 
chapter.
    (i) Contract of sale. This term includes sales, purchases, 
agreements of sale or purchase and agreements to sell or purchase.
    (j) Controlled account. An account shall be deemed to be controlled 
by a person if such person by power of attorney or otherwise actually 
directs trading for such account.
    (k) Customer. This term means any person who uses a futures 
commission merchant, introducing broker, commodity trading advisor, or 
commodity pool operator as an agent in connection with trading in any 
commodity interest; Provided, however, an owner or holder of a 
proprietary account as defined in paragraph (y) of this section shall 
not be deemed to be a customer within the meaning of section 4d of the 
Act, the regulations that implement sections 4d and 4f of the Act and 
Sec.  1.35, and such an owner or holder of such a proprietary account 
shall otherwise be deemed to be a customer within the meaning of the Act 
and Sec.Sec. 1.37 and 1.46 and all other sections of these rules, 
regulations, and orders which do not implement sections 4d and 4f of the 
Act.
    (l) Delivery month. This term means the month of delivery specified 
in a contract of sale of any commodity for future delivery.
    (m) Eligible contract participant. This term has the meaning set 
forth in Section 1a(18) of the Act, except that:
    (1) A major swap participant, as defined in Section 1a(33) of the 
Act and paragraph (hhh) of this section, is an eligible contract 
participant;
    (2) A swap dealer, as defined in Section 1a(49) of the Act and 
paragraph (ggg) of this section, is an eligible contract participant;
    (3) A major security-based swap participant, as defined in Section 
3(a)(67) of the Securities Exchange Act of 1934 andSec. 240.3a67-1 of 
this title, is an eligible contract participant;
    (4) A security-based swap dealer, as defined in Section 3(a)(71) of 
the Securities Exchange Act of 1934 andSec. 240.3a71-1 of this title, 
is an eligible contract participant;
    (5)(i) A transaction-level commodity pool with one or more direct 
participants that is not an eligible contract participant is not itself 
an eligible contract participant under either Section 1a(18)(A)(iv) or 
Section 1a(18)(A)(v) of the Act for purposes of entering into 
transactions described in Sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii) of 
the Act; and
    (ii) In determining whether a commodity pool that is a direct 
participant in a transaction-level commodity pool is an eligible 
contract participant for purposes of paragraph (m)(5)(i) of this

[[Page 10]]

section, the participants in the commodity pool that is a direct 
participant in the transaction-level commodity pool shall not be 
considered unless the transaction-level commodity pool, any commodity 
pool holding a direct or indirect interest in such transaction-level 
commodity pool, or any commodity pool in which such transaction-level 
commodity pool holds a direct or indirect interest, has been structured 
to evade subtitle A of Title VII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act by permitting persons that are not eligible 
contract participants to participate in agreements, contracts, or 
transactions described in Section 2(c)(2)(B)(i) or Section 2(c)(2)(C)(i) 
of the Act;
    (6) A commodity pool that does not have total assets exceeding 
$5,000,000 or that is not operated by a person described in subclause 
(A)(iv)(II) of Section 1a(18) of the Act is not an eligible contract 
participant pursuant to clause (A)(v) of such Section;
    (7)(i) For purposes of a swap (but not a security-based swap, 
security-based swap agreement or mixed swap) used to hedge or mitigate 
commercial risk, an entity may, in determining its net worth for 
purposes of Section 1a(18)(A)(v)(III) of the Act, include the net worth 
of any owner of such entity, provided that all the owners of such entity 
are eligible contract participants;
    (ii)(A) For purposes of identifying the owners of an entity under 
paragraph (m)(7)(i) of this section, any person holding a direct 
ownership interest in such entity shall be considered to be an owner of 
such entity; provided, however, that any shell company shall be 
disregarded, and the owners of such shell company shall be considered to 
be the owners of any entity owned by such shell company;
    (B) For purposes of paragraph (m)(7)(ii)(A) of this section, the 
term shell company means any entity that limits its holdings to direct 
or indirect interests in entities that are relying on this paragraph 
(m)(7); and
    (C) In determining whether an owner of an entity is an eligible 
contract participant for purposes of paragraph (m)(7)(i) of this 
section, an individual may be considered to be a proprietorship eligible 
contract participant only if the individual--
    (1) Has an active role in operating a business other than an entity;
    (2) Directly owns all of the assets of the business;
    (3) Directly is responsible for all of the liabilities of the 
business; and
    (4) Acquires its interest in the entity seeking to qualify as an 
eligible contract participant under paragraph (m)(7)(i) of this section 
in connection with the operation of the individual's proprietorship or 
to manage the risk associated with an asset or liability owned or 
incurred or reasonably likely to be owned or incurred by the individual 
in the operation of the individual's proprietorship; and
    (iii) For purposes of paragraph (m)(7)(i) of this section, a swap is 
used to hedge or mitigate commercial risk if the swap complies with the 
conditions in paragraph (kkk) of this section; and
    (8) Notwithstanding Section 1a(18)(A)(iv) of the Act and paragraph 
(m)(5) of this section, a commodity pool that enters into an agreement, 
contract, or transaction described in Section 2(c)(2)(B)(i) or Section 
2(c)(2)(C)(i)(I) of the Act is an eligible contract participant with 
respect to such agreement, contract, or transaction, regardless of 
whether each participant in such commodity pool is an eligible contract 
participant, if all of the following conditions are satisfied:
    (i) The commodity pool is not formed for the purpose of evading 
regulation under Section 2(c)(2)(B) or Section 2(c)(2)(C) of the Act or 
related Commission rules, regulations or orders;
    (ii) The commodity pool has total assets exceeding $10,000,000; and
    (iii) The commodity pool is formed and operated by a registered 
commodity pool operator or by a commodity pool operator who is exempt 
from registration as such pursuant toSec. 4.13(a)(3) of this chapter.
    (n) Floor broker. This term means any person:
    (1) Who, in or surrounding any pit, ring, post or other place 
provided by a contract market for the meeting of persons similarly 
engaged, shall purchase or sell for any other person--

[[Page 11]]

    (i) Any commodity for future delivery, security futures product, or 
swap; or
    (ii) Any commodity option authorized under section 4c of the Act; or
    (2) Who is registered with the Commission as a floor broker.
    (o) Future delivery. This term does not include any sale of a cash 
commodity for deferred shipment or delivery.
    (p) Futures commission merchant. This term means:
    (1) Any individual, association, partnership, corporation, or 
trust--
    (i) Who is engaged in soliciting or in accepting orders for the 
purchase or sale of any commodity for future delivery; a security 
futures product; a swap; any agreement, contract, or transaction 
described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; 
a commodity option authorized under section 4c of the Act; a leverage 
transaction authorized under section 19 of the Act; or acting as a 
counterparty in any agreement, contract or transaction described in 
section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; and
    (ii) Who, in connection with any of these activities accepts any 
money, securities, or property (or extends credit in lieu thereof) to 
margin, guarantee, or secure any trades or contracts that result or may 
result therefrom; and
    (2) Any person that is registered as a futures commission merchant.
    (q) Member. This term means:
    (1) An individual, association, partnership, corporation, or trust--
    (i) Owning or holding membership in, or admitted to membership 
representation on, a registered entity; or
    (ii) Having trading privileges on a registered entity.
    (2) A participant in an alternative trading system that is 
designated as a contract market pursuant to section 5f of the Act is 
deemed a member of the contract market for purposes of transactions in 
security futures products through the contract market.
    (r) Net equity. (1) For futures and commodity option positions, this 
term means the credit balance which would be obtained by combining the 
margin balance of any person with the net profit or loss, if any, 
accruing on the open futures or commodity option positions of such 
person.
    (2) For swap positions other than commodity option positions, this 
term means the credit balance which would be obtained by combining the 
margin balance of any person with the net profit or loss, if any, 
accruing on the open swap positions of such person.
    (s) Net deficit. (1) For futures and commodity option positions, 
this term means the debit balance which would be obtained by combining 
the margin balance of any person with the net profit or loss, if any, 
accruing on the open futures or commodity option positions of such 
person.
    (2) For swap positions other than commodity option positions, this 
term means the debit balance which would be obtained by combining the 
margin balance of any person with the net profit or loss, if any, 
accruing on the open swap positions of such person.
    (t) Open contracts. This term means:
    (1) Positions in contracts of purchase or sale of any commodity made 
by or for any person on or subject to the rules of a board of trade for 
future delivery during a specified month or delivery period that have 
neither been fulfilled by delivery nor been offset by other contracts of 
purchase or sale in the same commodity and delivery month;
    (2) Positions in commodity option transactions that have not 
expired, been exercised, or offset; and
    (3) Positions in Cleared Swaps, asSec. 22.1 of this chapter 
defines that term, that have not been fulfilled by delivery; not been 
offset; not expired; and not been terminated.
    (u) Person. This term includes individuals, associations, 
partnerships, corporations, and trusts.
    (v) [Reserved]
    (w) Secretary of Agriculture. This term means the Secretary of 
Agriculture or any person to whom authority has heretofore lawfully been 
delegated or to whom authority may hereafter lawfully be delegated to 
act in his stead.
    (x) Floor trader. This term means any person:
    (1) Who, in or surrounding any pit, ring, post or other place 
provided by a contract market for the meeting of persons similarly 
engaged, purchases,

[[Page 12]]

or sells solely for such person's own account--
    (i) Any commodity for future delivery, security futures product, or 
swap; or
    (ii) Any commodity option authorized under section 4c of the Act; or
    (2) Who is registered with the Commission as a floor trader.
    (y) Proprietary account. This term means a commodity futures, 
commodity option, or swap trading account carried on the books and 
records of an individual, a partnership, corporation or other type of 
association:
    (1) For one of the following persons, or
    (2) Of which ten percent or more is owned by one of the following 
persons, or an aggregate of ten percent or more of which is owned by 
more than one of the following persons:
    (i) Such individual himself, or such partnership, corporation or 
association itself;
    (ii) In the case of a partnership, a general partner in such 
partnership;
    (iii) In the case of a limited partnership, a limited or special 
partner in such partnership whose duties include:
    (A) The management of the partnership business or any part thereof,
    (B) The handling of the trades of customers or customer funds of 
such partnership,
    (C) The keeping of records pertaining to the trades of customers or 
customer funds of such partnership, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) In the case of a corporation or association, an officer, 
director or owner of ten percent or more of the capital stock, of such 
organization;
    (v) An employee of such individual, partnership, corporation or 
association whose duties include:
    (A) The management of the business of such individual, partnership, 
corporation or association or any part thereof,
    (B) The handling of the trades of customers or customer funds of 
such individual, partnership, corporation or association,
    (C) The keeping of records pertaining to the trades of customers or 
customer funds of such individual, partnership, corporation or 
association, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, corporation or association;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that directly or indirectly controls such 
individual, partnership, corporation or association; or
    (viii) A business affiliate that, directly or indirectly is 
controlled by or is under common control with, such individual, 
partnership, corporation or association. Provided, however, That an 
account owned by any shareholder or member of a cooperative association 
of producers, within the meaning of section 6a of the Act, which 
association is registered as a futures commission merchant and carries 
such account on its records, shall be deemed to be an account of a 
customer and not a proprietary account of such association, unless the 
shareholder or member is an officer, director or manager of the 
association.
    (z) Bona fide hedging transactions and positions for excluded 
commodities--(1) General definition. Bona fide hedging transactions and 
positions shall mean any agreement, contract or transaction in an 
excluded commodity on a designated contract market or swap execution 
facility that is a trading facility, where such transactions or 
positions normally represent a substitute for transactions to be made or 
positions to be taken at a later time in a physical marketing channel, 
and where they are economically appropriate to the reduction of risks in 
the conduct and management of a commercial enterprise, and where they 
arise from:
    (i) The potential change in the value of assets which a person owns, 
produces, manufactures, processes, or merchandises or anticipates 
owning, producing, manufacturing, processing, or merchandising,
    (ii) The potential change in the value of liabilities which a person 
owns or anticipates incurring, or

[[Page 13]]

    (iii) The potential change in the value of services which a person 
provides, purchases, or anticipates providing or purchasing.
    (iv) Notwithstanding the foregoing, no transactions or positions 
shall be classified as bona fide hedging unless their purpose is to 
offset price risks incidental to commercial cash or spot operations and 
such positions are established and liquidated in an orderly manner in 
accordance with sound commercial practices and, for transactions or 
positions on contract markets subject to trading and position limits in 
effect pursuant to section 4a of the Act, unless the provisions of 
paragraphs (z)(2) and (3) of this section have been satisfied.
    (2) Enumerated hedging transactions. The definitions of bona fide 
hedging transactions and positions in paragraph (z)(1) of this section 
includes, but is not limited to, the following specific transactions and 
positions:
    (i) Sales of any agreement, contract, or transaction in an excluded 
commodity on a designated contract market or swap execution facility 
that is a trading facility which do not exceed in quantity:
    (A) Ownership or fixed-price purchase of the same cash commodity by 
the same person; and
    (B) Twelve months' unsold anticipated production of the same 
commodity by the same person provided that no such position is 
maintained in any agreement, contract or transaction during the five 
last trading days.
    (ii) Purchases of any agreement, contract or transaction in an 
excluded commodity on a designated contract market or swap execution 
facility that is a trading facility which do not exceed in quantity:
    (A) The fixed-price sale of the same cash commodity by the same 
person;
    (B) The quantity equivalent of fixed-price sales of the cash 
products and by-products of such commodity by the same person; and
    (C) Twelve months' unfilled anticipated requirements of the same 
cash commodity for processing, manufacturing, or feeding by the same 
person, provided that such transactions and positions in the five last 
trading days of any agreement, contract or transaction do not exceed the 
person's unfilled anticipated requirements of the same cash commodity 
for that month and for the next succeeding month.
    (iii) Offsetting sales and purchases in any agreement, contract or 
transaction in an excluded commodity on a designated contract market or 
swap execution facility that is a trading facility which do not exceed 
in quantity that amount of the same cash commodity which has been bought 
and sold by the same person at unfixed prices basis different delivery 
months of the contract market, provided that no such position is 
maintained in any agreement, contract or transaction during the five 
last trading days.
    (iv) Purchases or sales by an agent who does not own or has not 
contracted to sell or purchase the offsetting cash commodity at a fixed 
price, provided that the agent is responsible for the merchandising of 
the cash position that is being offset, and the agent has a contractual 
arrangement with the person who owns the commodity or has the cash 
market commitment being offset.
    (v) Sales and purchases described in paragraphs (z)(2)(i) through 
(iv) of this section may also be offset other than by the same quantity 
of the same cash commodity, provided that the fluctuations in value of 
the position for in any agreement, contract or transaction are 
substantially related to the fluctuations in value of the actual or 
anticipated cash position, and provided that the positions in any 
agreement, contract or transaction shall not be maintained during the 
five last trading days.
    (3) Non-Enumerated cases. A designated contract market or swap 
execution facility that is a trading facility may recognize, consistent 
with the purposes of this section, transactions and positions other than 
those enumerated in paragraph (2) of this section as bona fide hedging. 
Prior to recognizing such non-enumerated transactions and positions, the 
designated contract market or swap execution facility that is a trading 
facility shall submit such rules for Commission review under section 5c 
of the Act and part 40 of this chapter.

[[Page 14]]

    (aa) Associated person. This term means any natural person who is 
associated in any of the following capacities with:
    (1) A futures commission merchant as a partner, officer, or employee 
(or any natural person occupying a similar status or performing similar 
functions), in any capacity which involves
    (i) The solicitation or acceptance of customers' orders (other than 
in a clerical capacity) or
    (ii) The supervision of any person or persons so engaged;
    (2) An introducing broker as a partner, officer, employee, or agent 
(or any natural person occupying a similar status or performing similar 
functions), in any capacity which involves
    (i) The solicitation or acceptance of customers' orders (other than 
in a clerical capacity) or
    (ii) The supervision of any person or persons so engaged;
    (3) A commodity pool operator as a partner, officer, employee, 
consultant, or agent (or any natural person occupying a similar status 
or performing similar functions), in any capacity which involves
    (i) The solicitation of funds, securities, or property for a 
participation in a commodity pool or
    (ii) The supervision of any person or persons so engaged; or
    (4) A commodity trading advisor as a partner, officer, employee, 
consultant, or agent (or any natural person occupying a similar status 
or performing similar functions), in any capacity which involves:
    (i) The solicitation of a client's or prospective client's 
discretionary account, or
    (ii) The supervision of any person or persons so engaged; and
    (5) A leverage transaction merchant as a partner, officer, employee, 
consultant, or agent (or any natural person occupying a similar status 
or performing similar functions), in any capacity which involves:
    (i) The solicitation or acceptance of leverage customers' orders 
(other than in a clerical capacity) for leverage transactions as defined 
inSec. 31.4(x) of this chapter, or
    (ii) The supervision of any person or persons so engaged.
    (6) A swap dealer or major swap participant as a partner, officer, 
employee, agent (or any natural person occupying a similar status or 
performing similar functions), in any capacity that involves:
    (i) The solicitation or acceptance of swaps (other than in a 
clerical or ministerial capacity); or
    (ii) The supervision of any person or persons so engaged.
    (bb)(1) Commodity trading advisor. This term means any person who, 
for compensation or profit, engages in the business of advising others, 
either directly or through publications, writings or electronic media, 
as to the value of or the advisability of trading in any contract of 
sale of a commodity for future delivery, security futures product, or 
swap; any agreement, contract or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option 
authorized under section 4c of the Act; any leverage transaction 
authorized under section 19 of the Act; any person registered with the 
Commission as a commodity trading advisor; or any person, who, for 
compensation or profit, and as part of a regular business, issues or 
promulgates analyses or reports concerning any of the foregoing. The 
term does not include:
    (i) Any bank or trust company or any person acting as an employee 
thereof;
    (ii) Any news reporter, news columnist, or news editor of the print 
or electronic media or any lawyer, accountant, or teacher;
    (iii) Any floor broker or futures commission merchant;
    (iv) The publisher or producer of any print or electronic data of 
general and regular dissemination, including its employees;
    (v) The named fiduciary, or trustee, of any defined benefit plan 
which is subject to the provisions of the Employee Retirement Income 
Security Act of 1974, or any fiduciary whose sole business is to advise 
that plan;
    (vi) Any contract market; and
    (vii) Such other persons not within the intent of this definition as 
the Commission may specify by rule, regulation or order: Provided, That 
the furnishing of such services by the foregoing persons is solely 
incidental to

[[Page 15]]

the conduct of their business or profession: Provided further, That the 
Commission, by rule or regulation, may include within this definition, 
any person advising as to the value of commodities or issuing reports or 
analyses concerning commodities, if the Commission determines that such 
rule or regulation will effectuate the purposes of this provision.
    (2) Client. This term, as it relates to a commodity trading advisor, 
means any person:
    (i) To whom a commodity trading advisor provides advice, for 
compensation or profit, either directly or through publications, 
writings, or electronic media, as to the value of, or the advisability 
of trading in, any contract of sale of a commodity for future delivery, 
security futures product or swap; any agreement, contract or transaction 
described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; 
any commodity option authorized under section 4c of the Act; any 
leverage transaction authorized under section 19 of the Act; or
    (ii) To whom, for compensation or profit, and as part of a regular 
business, the commodity trading advisor issues or promulgates analyses 
or reports concerning any of the activities referred to in paragraph 
(bb)(2)(i) of this section. The term ``client'' includes, without 
limitation, any subscriber of a commodity trading advisor.
    (cc) Commodity pool operator. This term means any person engaged in 
a business which is of the nature of a commodity pool, investment trust, 
syndicate, or similar form of enterprise, and who, in connection 
therewith, solicits, accepts, or receives from others, funds, 
securities, or property, either directly or through capital 
contributions, the sale of stock or other forms of securities, or 
otherwise, for the purpose of trading in commodity interests, including 
any commodity for future delivery, security futures product, or swap; 
any agreement, contract or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option 
authorized under section 4c of the Act; any leverage transaction 
authorized under section 19 of the Act; or any person who is registered 
with the Commission as a commodity pool operator, but does not include 
such persons not within the intent of this definition as the Commission 
may specify by rule or regulation or by order.
    (dd) Commission. This term means the Commodity Futures Trading 
Commission.
    (ee) Self-regulatory organization. This term means a contract market 
(as defined inSec. 1.3(h)), a swap execution facility (as defined in 
Sec.  1.3(rrrr)), or a registered futures association under section 17 
of the Act.
    (ff) Designated self-regulatory organization. This term means:
    (1) Self-regulatory organization of which a futures commission 
merchant, an introducing broker, a leverage transaction merchant, a 
retail foreign exchange dealer, a swap dealer, or a major swap 
participant is a member; or
    (2) If a Commission registrant other than a leverage transaction 
merchant is a member of more than one self-regulatory organization and 
such registrant is the subject of an approved plan underSec. 1.52, 
then a self-regulatory organization delegated the responsibility by such 
a plan for monitoring and auditing such registrant for compliance with 
the minimum financial and related reporting requirements of the self-
regulatory organizations of which the registrant is a member, and for 
receiving the financial reports necessitated by such minimum financial 
and related reporting requirements from such registrant; or
    (3) If a leverage transaction merchant is a member of more than one 
self-regulatory organization and such leverage transaction merchant is 
the subject of an approved plan underSec. 31.28 of this chapter, then 
a self-regulatory organization delegated the responsibility by such a 
plan for monitoring and auditing such leverage transaction merchant for 
compliance with the minimum financial, cover, segregation and sales 
practice, and related reporting requirements of the self-regulatory 
organizations of which the leverage transaction merchant is a member, 
and for receiving the reports

[[Page 16]]

necessitated by such minimum financial, cover, segregation and sales 
practice, and related reporting requirements from such leverage 
transaction merchant.
    (gg) Customer funds. This term means, collectively, Cleared Swaps 
Customer Collateral and futures customer funds.
    (hh) Commodity option transaction; commodity option. These terms 
each mean any transaction or agreement in interstate commerce which is 
or is held out to be of the character of, or is commonly known to the 
trade as, an ``option,'' ``privilege,'' ``indemnity,'' ``bid,'' 
``offer,'' ``call,'' ``put.'' ``advance guaranty,'' or ``decline 
guaranty,'' and which is subject to regulation under the Act and these 
regulations.
    (ii) Premium. This term means the amount agreed upon between the 
purchaser and seller, or their agents, for the purchase or sale of a 
commodity option.
    (jj) [Reserved]
    (kk) Strike price. This term means the price, per unit, at which a 
person may purchase or sell the commodity, swap, or contract of sale of 
a commodity for future delivery that is the subject of a commodity 
option: Provided, That for purposes ofSec. 1.17, the term strike price 
means the total price at which a person may purchase or sell the 
commodity, swap, or contract of sale of a commodity for future delivery 
that is the subject of a commodity option (i.e., price per unit times 
the number of units).
    (ll) [Reserved]
    (mm) Introducing broker. This term means:
    (1) Any person who, for compensation or profit, whether direct or 
indirect:
    (i) Is engaged in soliciting or in accepting orders (other than in a 
clerical capacity) for the purchase or sale of any commodity for future 
delivery, security futures product, or swap; any agreement, contract or 
transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) 
of the Act; any commodity option transaction authorized under section 
4c; or any leverage transaction authorized under section 19; or who is 
registered with the Commission as an introducing broker; and
    (ii) Does not accept any money, securities, or property (or extend 
credit in lieu thereof) to margin, guarantee, or secure any trades or 
contracts that result or may result therefrom.
    (2) The term introducing broker shall not include:
    (i) Any futures commission merchant, floor broker, associated 
person, or associated person of a swap dealer or major swap participant 
acting in its capacity as such, regardless of whether that futures 
commission merchant, floor broker, or associated person is registered or 
exempt from registration in such capacity;
    (ii) Any commodity trading advisor, which, acting in its capacity as 
a commodity trading advisor, is not compensated on a per-trade basis or 
which solely manages discretionary accounts pursuant to a power of 
attorney, regardless of whether that commodity trading advisor is 
registered or exempt from registration in such capacity; and
    (iii) Any commodity pool operator which, acting in its capacity as a 
commodity pool operator, solely operates commodity pools, regardless of 
whether that commodity pool operator is registered or exempt from 
registration in such capacity.
    (nn) Guarantee agreement. This term means an agreement of guarantee 
in the form set forth in part B or C of Form 1-FR, executed by a 
registered futures commission merchant or retail foreign exchange 
dealer, as appropriate, and by an introducing broker or applicant for 
registration as an introducing broker on behalf of an introducing broker 
or applicant for registration as an introducing broker in satisfaction 
of the alternative adjusted net capital requirement set forth inSec. 
1.17(a)(1)(iii).
    (oo) Leverage transaction merchant. This term means and includes any 
individual, association, partnership, corporation, trust or other person 
that is engaged in the business of offering to enter into, entering into 
or confirming the execution of leverage contracts, or soliciting or 
accepting orders for leverage contracts, and who accepts leverage 
customer funds (or extends credit in lieu thereof) in connection 
therewith.
    (pp) Leverage customer funds. This term means all money, securities 
and

[[Page 17]]

property received, directly or indirectly by a leverage transaction 
merchant from, for, or on behalf of leverage customers to margin, 
guarantee or secure leverage contracts and all money, securities and 
property accruing to such customers as the result of such contracts, or 
the customers' leverage equity. In the case of a long leverage 
transaction, profit or loss accruing to a leverage customer is the 
difference between the leverage transaction merchant's current bid price 
for the leverage contract and the ask price of the leverage contract 
when entered into. In the case of a short leverage transaction, profit 
or loss accruing to a leverage customer is the difference between the 
bid price of the leverage contract when entered into and the leverage 
transaction merchant's current ask price for the leverage contract.
    (qq) Leverage contract. Shall have the same meaning as that set 
forth inSec. 31.4(w) of this chapter.
    (rr) Foreign futures or foreign options secured amount. This term 
means all money, securities and property held by or held for or on 
behalf of a futures commission merchant from, for, or on behalf of 
foreign futures or foreign options customers as defined inSec. 30.1 of 
this chapter:
    (1) In the case of foreign futures customers, money, securities and 
property required by a futures commission merchant to margin, guarantee, 
or secure open foreign futures contracts plus or minus any unrealized 
gain or loss on such contracts; and
    (2) In the case of foreign options customers in connection with open 
foreign options transactions, money, securities and property 
representing premiums paid or received, plus any other funds required to 
guarantee or secure open transactions plus or minus any unrealized gain 
or loss on such transactions.
    (ss) Foreign board of trade. This term means any board of trade, 
exchange or market located outside the United States, its territories or 
possessions, whether incorporated or unincorporated.
    (tt) Electronic signature. This term means an electronic sounds, 
symbol, or process attached to or logically associated with a record and 
executed or adopted by a person with the intent to sign the record.
    (uu) [Reserved]
    (vv) Futures account. This term means an account that is maintained 
in accordance with the segregation requirements of sections 4d(a) and 
4d(b) of the Act and the rules thereunder.
    (ww) Securities account. This term means an account that is 
maintained in accordance with the requirements of section 15(c)(3) of 
the Securities Exchange Act of 1934 and Rule 15c3-3 thereunder.
    (xx) Foreign broker. This term means any person located outside the 
United States, its territories or possessions who is engaged in 
soliciting or in accepting orders only from persons located outside the 
United States, its territories or possessions for the purchase or sale 
of any commodity interest transaction on or subject to the rules of any 
designated contract market or swap execution facility and that, in or in 
connection with such solicitation or acceptance of orders, accepts any 
money, securities or property (or extends credit in lieu thereof) to 
margin, guarantee, or secure any trades or contracts that result or may 
result therefrom.
    (yy) Commodity interest. This term means:
    (1) Any contract for the purchase or sale of a commodity for future 
delivery;
    (2) Any contract, agreement or transaction subject to a Commission 
regulation under section 4c or 19 of the Act;
    (3) Any contract, agreement or transaction subject to Commission 
jurisdiction under section 2(c)(2) of the Act; and
    (4) Any swap as defined in the Act, by the Commission, or jointly by 
the Commission and the Securities and Exchange Commission.
    (zz) Agricultural commodity. This term means:
    (1) The following commodities specifically enumerated in the 
definition of a ``commodity'' found in section 1a of the Act: Wheat, 
cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill 
feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool 
tops, fats and oils (including lard, tallow, cottonseed oil, peanut oil,

[[Page 18]]

soybean oil and all other fats and oils), cottonseed meal, cottonseed, 
peanuts, soybeans, soybean meal, livestock, livestock products, and 
frozen concentrated orange juice, but not onions;
    (2) All other commodities that are, or once were, or are derived 
from, living organisms, including plant, animal and aquatic life, which 
are generally fungible, within their respective classes, and are used 
primarily for human food, shelter, animal feed or natural fiber;
    (3) Tobacco, products of horticulture, and such other commodities 
used or consumed by animals or humans as the Commission may by rule, 
regulation or order designate after notice and opportunity for hearing; 
and
    (4) Commodity-based indexes based wholly or principally on 
underlying agricultural commodities.
    (aaa) Clearing initial margin. This term means initial margin posted 
by a clearing member with a derivatives clearing organization.
    (bbb) Customer initial margin. This term means initial margin posted 
by a customer with a futures commission merchant, or by a non-clearing 
member futures commission merchant with a clearing member.
    (ccc) Initial margin. This term means money, securities, or property 
posted by a party to a futures, option, or swap as performance bond to 
cover potential future exposures arising from changes in the market 
value of the position.
    (ddd) Margin call. This term means a request from a futures 
commission merchant to a customer to post customer initial margin; or a 
request by a derivatives clearing organization to a clearing member to 
post clearing initial margin or variation margin.
    (eee) Spread margin. This term means reduced initial margin that 
takes into account correlations between certain related positions held 
in a single account.
    (fff) Variation margin. This term means a payment made by a party to 
a futures, option, or swap to cover the current exposure arising from 
changes in the market value of the position since the trade was executed 
or the previous time the position was marked to market.
    (ggg) Swap dealer--(1) In general. The term swap dealer means any 
person who:
    (i) Holds itself out as a dealer in swaps;
    (ii) Makes a market in swaps;
    (iii) Regularly enters into swaps with counterparties as an ordinary 
course of business for its own account; or
    (iv) Engages in any activity causing it to be commonly known in the 
trade as a dealer or market maker in swaps.
    (2) Exception. The term swap dealer does not include a person that 
enters into swaps for such person's own account, either individually or 
in a fiduciary capacity, but not as a part of regular business.
    (3) Scope of designation. A person who is a swap dealer shall be 
deemed to be a swap dealer with respect to each swap it enters into, 
regardless of the category of the swap or the person's activities in 
connection with the swap. However, if a person makes an application to 
limit its designation as a swap dealer to specified categories of swaps 
or specified activities of the person in connection with swaps, the 
Commission shall determine whether the person's designation as a swap 
dealer shall be so limited. If the Commission grants such limited 
designation, such limited designation swap dealer shall be deemed to be 
a swap dealer with respect to each swap it enters into in the swap 
category or categories for which it is so designated, regardless of the 
person's activities in connection with such category or categories of 
swaps. A person may make such application to limit the categories of 
swaps or activities of the person that are subject to its swap dealer 
designation at the same time as, or after, the person's initial 
registration as a swap dealer.
    (4) De minimis exception. (i) Except as provided in paragraph 
(ggg)(4)(vi) of this section, a person that is not currently registered 
as a swap dealer shall be deemed not to be a swap dealer as a result of 
its swap dealing activity involving counterparties, so long as the swap 
positions connected with those dealing activities into which the 
person--or any other entity controlling, controlled by or under common 
control with the person--enters over the course of the immediately 
preceding 12

[[Page 19]]

months (or following the effective date of final rules implementing 
Section 1a(47) of the Act, 7 U.S.C. 1a(47), if that period is less than 
12 months) have an aggregate gross notional amount of no more than $3 
billion, subject to a phase in level of an aggregate gross notional 
amount of no more than $8 billion applied in accordance with paragraph 
(ggg)(4)(ii) of this section, and an aggregate gross notional amount of 
no more than $25 million with regard to swaps in which the counterparty 
is a ``special entity'' (as that term is defined in Section 4s(h)(2)(C) 
of the Act, 7 U.S.C. 6s(h)(2)(C), andSec. 23.401(c) of this chapter). 
For purposes of this paragraph, if the stated notional amount of a swap 
is leveraged or enhanced by the structure of the swap, the calculation 
shall be based on the effective notional amount of the swap rather than 
on the stated notional amount.
    (ii) Phase-in procedure and staff report--(A) Phase-in period. For 
purposes of paragraph (ggg)(4)(i) of this section, except as provided in 
paragraph (ggg)(4)(vi) of this section, a person that engages in swap 
dealing activity that does not exceed the phase-in level set forth in 
paragraph (ggg)(4)(i) shall be deemed not to be a swap dealer as a 
result of its swap dealing activity until the ``phase-in termination 
date'' established as provided in paragraph (ggg)(4)(ii)(C) or (D) of 
this section. The Commission shall announce the phase-in termination 
date on the Commission Web site and publish such date in the Federal 
Register.
    (B) Staff report. No later than 30 months following the date that a 
swap data repository first receives swap data in accordance with part 45 
of this chapter, the staff of the Commission shall complete and publish 
for public comment a report on topics relating to the definition of the 
term ``swap dealer'' and the de minimis threshold. The report should 
address the following topics, as appropriate, based on the availability 
of data and information: the potential impact of modifying the de 
minimis threshold, and whether the de minimis threshold should be 
increased or decreased; the factors that are useful for identifying swap 
dealing activity, including the application of the dealer-trader 
distinction for that purpose, and the potential use of objective tests 
or safe harbors as part of the analysis; the impact of provisions in 
paragraphs (ggg)(5) and (6) of this section excluding certain swaps from 
the dealer analysis, and potential alternative approaches for such 
exclusions; and any other analysis of swap data and information relating 
to swaps that the Commission or staff deem relevant to this rule.
    (C) Nine months after publication of the report required by 
paragraph (ggg)(4)(ii)(B) of this section, and after giving due 
consideration to that report and any associated public comment, the 
Commission may either:
    (1) Terminate the phase-in period set forth in paragraph 
(ggg)(4)(ii)(A) of this section, in which case the phase-in termination 
date shall be established by the Commission by order published in the 
Federal Register; or
    (2) Determine that it is necessary or appropriate in the public 
interest to propose through rulemaking an alternative to the $3 billion 
amount set forth in paragraph (ggg)(4)(i) of this section that would 
constitute a de minimis quantity of swap dealing in connection with 
transactions with or on behalf of customers within the meaning of 
section 1(a)(47)(D) of the Act, 7 U.S.C. 1(a)(47)(D), in which case the 
Commission shall by order published in the Federal Register provide 
notice of such determination, which order shall also establish the 
phase-in termination date.
    (D) If the phase-in termination date has not been previously 
established pursuant to paragraph (ggg)(4)(ii)(C) of this section, then 
in any event the phase-in termination date shall occur five years after 
the date that a swap data repository first receives swap data in 
accordance with part 45 of this chapter.
    (iii) Registration period for persons that can no longer take 
advantage of the exception. A person that has not registered as a swap 
dealer by virtue of satisfying the requirements of this paragraph 
(ggg)(4), but that no longer can take advantage of that de minimis 
exception, will be deemed not to be a swap dealer until the earlier of 
the date on which it submits a complete application for registration 
pursuant

[[Page 20]]

to Section 4s(b) of the Act, 7 U.S.C. 6s(b), or two months after the end 
of the month in which that person becomes no longer able to take 
advantage of the exception.
    (iv) Applicability to registered swap dealers. A person who 
currently is registered as a swap dealer may apply to withdraw that 
registration, while continuing to engage in swap dealing activity in 
reliance on this section, so long as that person has been registered as 
a swap dealer for at least 12 months and satisfies the conditions of 
paragraph (ggg)(4)(i) of this section.
    (v) Future adjustments to scope of the de minimis exception. The 
Commission may by rule or regulation change the requirements of the de 
minimis exception described in paragraphs (ggg)(4)(i) through (iv) of 
this section.
    (vi) Voluntary registration. Notwithstanding paragraph (ggg)(4)(i) 
of this section, a person that chooses to register with the Commission 
as a swap dealer shall be deemed to be a swap dealer.
    (5) Insured depository institution swaps in connection with 
originating loans to customers. Swaps entered into by an insured 
depository institution with a customer in connection with originating a 
loan with that customer shall not be considered in determining whether 
the insured depository institution is a swap dealer.
    (i) An insured depository institution shall be considered to have 
entered into a swap with a customer in connection with originating a 
loan, as defined in paragraphs (ggg)(5)(ii) and (iii) of this section, 
with that customer only if:
    (A) The insured depository institution enters into the swap with the 
customer no earlier than 90 days before and no later than 180 days after 
the date of execution of the applicable loan agreement, or no earlier 
than 90 days before and no later than 180 days after any transfer of 
principal to the customer by the insured depository institution pursuant 
to the loan;
    (B)(1) The rate, asset, liability or other notional item underlying 
such swap is, or is directly related to, a financial term of such loan, 
which includes, without limitation, the loan's duration, rate of 
interest, the currency or currencies in which it is made and its 
principal amount;
    (2) Such swap is required, as a condition of the loan under the 
insured depository institution's loan underwriting criteria, to be in 
place in order to hedge price risks incidental to the borrower's 
business and arising from potential changes in the price of a commodity 
(other than an excluded commodity);
    (C) The duration of the swap does not extend beyond termination of 
the loan;
    (D) The insured depository institution is:
    (1) The sole source of funds to the customer under the loan;
    (2) Committed to be, under the terms of the agreements related to 
the loan, the source of at least 10 percent of the maximum principal 
amount under the loan; or
    (3) Committed to be, under the terms of the agreements related to 
the loan, the source of a principal amount that is greater than or equal 
to the aggregate notional amount of all swaps entered into by the 
insured depository institution with the customer in connection with the 
financial terms of the loan;
    (E) The aggregate notional amount of all swaps entered into by the 
customer in connection with the financial terms of the loan is, at any 
time, not more than the aggregate principal amount outstanding under the 
loan at that time; and
    (F) If the swap is not accepted for clearing by a derivatives 
clearing organization, the insured depository institution reports the 
swap as required by section 4r of the Act, 7 U.S.C. 6r (except as 
otherwise provided in section 4r(a)(3)(A), 7 U.S.C. 6r(a)(3)(A), or 
section 4r(a)(3)(B), 7 U.S.C. 6r(a)(3)(B) of the Act).
    (ii) An insured depository institution shall be considered to have 
originated a loan with a customer if the insured depository institution:
    (A) Directly transfers the loan amount to the customer;
    (B) Is a part of a syndicate of lenders that is the source of the 
loan amount that is transferred to the customer;
    (C) Purchases or receives a participation in the loan; or

[[Page 21]]

    (D) Otherwise is the source of funds that are transferred to the 
customer pursuant to the loan or any refinancing of the loan.
    (iii) The term loan shall not include:
    (A) Any transaction that is a sham, whether or not intended to 
qualify for the exclusion from the definition of the term swap dealer in 
this rule; or
    (B) Any synthetic loan, including, without limitation, a loan credit 
default swap or loan total return swap.
    (6) Swaps that are not considered in determining whether a person is 
a swap dealer--(i) Inter-affiliate activities. In determining whether a 
person is a swap dealer, that person's swaps with majority-owned 
affiliates shall not be considered. For these purposes the 
counterparties to a swap are majority-owned affiliates if one 
counterparty directly or indirectly owns a majority interest in the 
other, or if a third party directly or indirectly owns a majority 
interest in both counterparties to the swap, where ``majority interest'' 
is the right to vote or direct the vote of a majority of a class of 
voting securities of an entity, the power to sell or direct the sale of 
a majority of a class of voting securities of an entity, or the right to 
receive upon dissolution or the contribution of a majority of the 
capital of a partnership.
    (ii) Activities of a cooperative. (A) Any swap that is entered into 
by a cooperative with a member of such cooperative shall not be 
considered in determining whether the cooperative is a swap dealer, 
provided that:
    (1) The swap is subject to policies and procedures of the 
cooperative requiring that the cooperative monitors and manages the risk 
of such swap;
    (2) The cooperative reports the swap as required by Section 4r of 
the Act, 7 U.S.C. 6r (except as otherwise provided in Section 
4r(a)(3)(A) of the Act, 7 U.S.C. 6r(a)(3)(A) or Section 4r(a)(3)(B) of 
the Act, 7 U.S.C. 6r(a)(3)(B)); and
    (3) if the cooperative is a cooperative association of producers, 
the swap is primarily based on a commodity that is not an excluded 
commodity.
    (B) For purposes of this paragraph (ggg)(6)(ii), the term 
cooperative shall mean:
    (1) A cooperative association of producers as defined in section 
1a(14) of the Act, 7 U.S.C. 1a(14), or
    (2) A person chartered under Federal law as a cooperative and 
predominantly engaged in activities that are financial in nature as 
defined in section 4(k) of the Bank Holding Company Act of 1956, 12 
U.S.C. 1843(k).
    (C) For purposes of this paragraph (ggg)(6)(ii), a swap shall be 
deemed to be entered into by a cooperative association of producers with 
a member of such cooperative association of producers when the swap is 
between a cooperative association of producers and a person that is a 
member of a cooperative association of producers that is itself a member 
of the first cooperative association of producers.
    (iii) Swaps entered into for the purpose of hedging physical 
positions. In determining whether a person is a swap dealer, a swap that 
the person enters into shall not be considered, if:
    (A) The person enters into the swap for the purpose of offsetting or 
mitigating the person's price risks that arise from the potential change 
in the value of one or several--
    (1) Assets that the person owns, produces, manufactures, processes, 
or merchandises or anticipates owning, producing, manufacturing, 
processing, or merchandising;
    (2) Liabilities that the person owns or anticipates incurring; or
    (3) Services that the person provides, purchases, or anticipates 
providing or purchasing;
    (B) The swap represents a substitute for transactions made or to be 
made or positions taken or to be taken by the person at a later time in 
a physical marketing channel;
    (C) The swap is economically appropriate to the reduction of the 
person's risks in the conduct and management of a commercial enterprise;
    (D) The swap is entered into in accordance with sound commercial 
practices; and
    (E) The person does not enter into the swap in connection with 
activity structured to evade designation as a swap dealer.
    (iv) Swaps entered into by floor traders. In determining whether a 
person is a swap dealer, each swap that the person

[[Page 22]]

enters into in its capacity as a floor trader as defined by section 
1a(23) of the Act or on or subject to the rules of a swap execution 
facility shall not be considered for the purpose of determining whether 
the person is a swap dealer if the person:
    (A) Is registered with the Commission as a floor trader pursuant to 
Sec.  3.11 of this chapter;
    (B) Enters into swaps with proprietary funds for that trader's own 
account solely on or subject to the rules of a designated contract 
market or swap execution facility and submits each such swap for 
clearing to a derivatives clearing organization;
    (C) Is not an affiliated person of a registered swap dealer;
    (D) Does not directly, or through an affiliated person, negotiate 
the terms of swap agreements, other than price and quantity or to 
participate in a request for quote process subject to the rules of a 
designated contract market or a swap execution facility;
    (E) Does not directly or through an affiliated person offer or 
provide swap clearing services to third parties;
    (F) Does not directly or through an affiliated person enter into 
swaps that would qualify as hedging physical positions pursuant to 
paragraph (ggg)(6)(iii) of this section or hedging or mitigating 
commercial risk pursuant to paragraph (kkk) of this section (except for 
any such swap executed opposite a counterparty for which the transaction 
would qualify as a bona fide hedging transaction);
    (G) Does not participate in any market making program offered by a 
designated contract market or swap execution facility; and
    (H) Notwithstanding the fact such person is not registered as a swap 
dealer, such person complies with Sec.Sec. 23.201, 23.202, 23.203, and 
23.600 of this chapter with respect to each such swap as if it were a 
swap dealer.
    (hhh) Major swap participant--(1) In general. The term major swap 
participant means any person:
    (i) That is not a swap dealer; and
    (ii)(A) That maintains a substantial position in swaps for any of 
the major swap categories, excluding both positions held for hedging or 
mitigating commercial risk, and positions maintained by any employee 
benefit plan (or any contract held by such a plan) as defined in 
paragraphs (3) and (32) of Section 3 of the Employee Retirement Income 
Security Act of 1974, 29 U.S.C. 1002, for the primary purpose of hedging 
or mitigating any risk directly associated with the operation of the 
plan;
    (B) Whose outstanding swaps create substantial counterparty exposure 
that could have serious adverse effects on the financial stability of 
the United States banking system or financial markets; or
    (C) That is a financial entity that:
    (1) Is highly leveraged relative to the amount of capital such 
entity holds and that is not subject to capital requirements established 
by an appropriate Federal banking agency (as defined in Section 1a(2) of 
the Act, 7 U.S.C. 1a(2)); and
    (2) Maintains a substantial position in outstanding swaps in any 
major swap category.
    (2) Scope of designation. A person that is a major swap participant 
shall be deemed to be a major swap participant with respect to each swap 
it enters into, regardless of the category of the swap or the person's 
activities in connection with the swap. However, if a person makes an 
application to limit its designation as a major swap participant to 
specified categories of swaps, the Commission shall determine whether 
the person's designation as a major swap participant shall be so 
limited. If the Commission grants such limited designation, such limited 
designation major swap participant shall be deemed to be a major swap 
participant with respect to each swap it enters into in the swap 
category or categories for which it is so designated, regardless of the 
person's activities in connection with such category or categories of 
swaps. A person may make such application to limit its designation at 
the same time as, or after, the person's initial registration as a major 
swap participant.
    (3) Timing requirements. A person that is not registered as a major 
swap participant, but that meets the criteria in this rule to be a major 
swap participant as a result of its swap activities in a fiscal quarter, 
will not be deemed to be a major swap participant until the

[[Page 23]]

earlier of the date on which it submits a complete application for 
registration as a major swap participant pursuant to Section 4s(a)(2) of 
the Act, 7 U.S.C. 6s(a)(2), or two months after the end of that quarter.
    (4) Reevaluation period. Notwithstanding paragraph (hhh)(3) of this 
section, if a person that is not registered as a major swap participant 
meets the criteria in this rule to be a major swap participant in a 
fiscal quarter, but does not exceed any applicable threshold by more 
than twenty percent in that quarter:
    (i) That person will not be deemed a major swap participant pursuant 
to the timing requirements specified in paragraph (hhh)(3) of this 
section; but
    (ii) That person will be deemed a major swap participant pursuant to 
the timing requirements specified in paragraph (hhh)(3) of this section 
at the end of the next fiscal quarter if the person exceeds any of the 
applicable daily average thresholds in that next fiscal quarter.
    (5) Termination of status. A person that is deemed to be a major 
swap participant shall continue to be deemed a major swap participant 
until such time that its swap activities do not exceed any of the daily 
average thresholds set forth within this rule for four consecutive 
fiscal quarters after the date on which the person becomes registered as 
a major swap participant.
    (6) Calculation of status. A person shall not be deemed to be a 
``major swap participant,'' regardless of whether the criteria paragraph 
(hhh)(1) of this section otherwise would cause the person to be a major 
swap participant, provided the person meets the conditions set forth in 
paragraphs (hhh)(6)(i), (ii) or (iii) of this section.
    (i) Caps on uncollateralized exposure and notional positions.
    (A) Maximum potential uncollateralized exposure. The express terms 
of the person's agreements or arrangements relating to swaps with its 
counterparties at no time would permit the person to maintain a total 
uncollateralized exposure of more than $100 million to all such 
counterparties, including any exposure that may result from thresholds 
or minimum transfer amounts established by credit support annexes or 
similar arrangements; and
    (B) Maximum notional amount of swap positions. The person does not 
maintain swap positions in a notional amount of more than $2 billion in 
any major category of swaps, or more than $4 billion in the aggregate 
across all major categories; or
    (ii) Caps on uncollateralized exposure plus monthly calculation.
    (A) Maximum potential uncollateralized exposure. The express terms 
of the person's agreements or arrangements relating to swaps with its 
counterparties at no time would permit the person to maintain a total 
uncollateralized exposure of more than $200 million to all such 
counterparties (with regard to swaps and any other instruments by which 
the person may have exposure to those counterparties), including any 
exposure that may result from thresholds or minimum transfer amounts 
established by credit support annexes or similar arrangements; and
    (B) Calculation of positions. (1) At the end of each month, the 
person performs the calculations prescribed by paragraph (jjj) of this 
section with regard to whether the aggregate uncollateralized outward 
exposure plus aggregate potential outward exposure as of that day 
constitute a ``substantial position'' in a major category of swaps, or 
pose ``substantial counterparty exposure that could have serious adverse 
effects on the financial stability of the United States banking system 
or financial markets''; these calculations shall disregard provisions of 
those rules that provide for the analyses to be determined based on a 
daily average over a calendar quarter; and
    (2) Each such analysis produces thresholds of no more than:
    (i) $1 billion in aggregate uncollateralized outward exposure plus 
aggregate potential outward exposure in any major category of swaps; if 
the person is subject to paragraph (jjj) of this section, by virtue of 
being a highly leveraged financial entity that is not subject to capital 
requirements established by an appropriate Federal banking agency, this 
analysis shall account for all of the person's swap positions in that 
major category (without excluding hedging positions), otherwise this

[[Page 24]]

analysis shall exclude the same hedging and related positions that are 
excluded from consideration pursuant to paragraph (jjj)(1)(i) of this 
section; or
    (ii) $2 billion in aggregate uncollateralized outward exposure plus 
aggregate potential outward exposure (without any positions excluded 
from the analysis) with regard to all of the person's swap positions.
    (iii) Calculations based on certain information. (A)(1) At the end 
of each month, the person's aggregate uncollateralized outward exposure 
with respect to its swap positions in each major swap category is less 
than $1.5 billion with respect to the rate swap category and less than 
$500 million with respect to each of the other major swap categories; 
and
    (2) At the end of each month, the sum of the amount calculated under 
paragraph (hhh)(6)(iii)(A)(1) of this section with respect to each major 
swap category and the total notional principal amount of the person's 
swap positions in each such major swap category, adjusted by the 
multipliers set forth in paragraph (jjj)(3)(ii)(1) of this section on a 
position-by-position basis reflecting the type of swap, is less than $3 
billion with respect to the rate swap category and less than $1 billion 
with respect to each of the other major swap categories; or
    (B)(1) At the end of each month, the person's aggregate 
uncollateralized outward exposure with respect to its swap positions 
across all major swap categories is less than $500 million; and
    (2) The sum of the amount calculated under paragraph 
(hhh)(6)(iii)(B)(1) of this section and the product of the total 
effective notional principal amount of the person's swap positions in 
all major swap categories multiplied by 0.15 is less than $1 billion.
    (C) For purposes of the calculations set forth in this paragraph 
(hhh)(6)(iii):
    (1) The person's aggregate uncollateralized outward exposure for 
positions held with swap dealers shall be equal to such exposure 
reported on the most recent reports of such exposure received from such 
swap dealers; and
    (2) The person's aggregate uncollateralized outward exposure for 
positions that are not reflected in any report of exposure from a swap 
dealer (including all swap positions it holds with persons other than 
swap dealers) shall be calculated in accordance with paragraph (jjj)(2) 
of this section.
    (iv) For purposes of the calculations set forth in this paragraph 
(hhh)(6), the person shall use the effective notional amount of a 
position rather than the stated notional amount of the position if the 
stated notional amount is leveraged or enhanced by the structure of the 
position.
    (v) No presumption shall arise that a person is required to perform 
the calculations needed to determine if it is a major swap participant, 
solely by reason that the person does not meet the conditions specified 
in paragraph (hhh)(6)(i), (ii) or (iii) of this section.
    (7) Exclusions. A person who is registered as a derivatives clearing 
organization with the Commission pursuant to section 5b of the Act and 
regulations thereunder, shall not be deemed to be a major swap 
participant, regardless of whether the criteria in this paragraph (hhh) 
otherwise would cause the person to be a major swap participant.
    (iii) Category of swaps; major swap category. For purposes of 
Section 1a(33) the Act, 7 U.S.C. 1a(33), and paragraph (hhh) of this 
section, the terms major swap category, category of swaps and any 
similar terms mean any of the categories of swaps listed below. For the 
avoidance of doubt, the term swap as it is used in this paragraph (iii) 
has the meaning set forth in Section 1a(47) of the Act, 7 U.S.C. 1a(47), 
and the rules thereunder.
    (1) Rate swaps. Any swap which is primarily based on one or more 
reference rates, including but not limited to any swap of payments 
determined by fixed and floating interest rates, currency exchange 
rates, inflation rates or other monetary rates, any foreign exchange 
swap, as defined in Section 1a(25) of the Act, 7 U.S.C. 1a(25), and any 
foreign exchange option other than an option to deliver currency.
    (2) Credit swaps. Any swap that is primarily based on instruments of 
indebtedness, including but not limited to any swap primarily based on 
one or more broad-based indices related to debt instruments or loans, 
and any swap that is an index credit default

[[Page 25]]

swap or total return swap on one or more indices of debt instruments.
    (3) Equity swaps. Any swap that is primarily based on equity 
securities, including but not limited to any swap based on one or more 
broad-based indices of equity securities and any total return swap on 
one or more equity indices.
    (4) Other commodity swaps. Any swap that is not included in the rate 
swap, credit swap or equity swap categories.
    (jjj) Substantial position. (1) In general. For purposes of Section 
1a(33) of the Act, 7 U.S.C. 1a(33), and paragraph (hhh) of this section, 
the term ``substantial position'' means swap positions that equal or 
exceed any of the following thresholds in the specified major category 
of swaps:
    (i) For rate swaps:
    (A) $3 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $6 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (ii) For credit swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (iii) For equity swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (iv) For other commodity swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (2) Aggregate uncollateralized outward exposure--(i) In general. 
Aggregate uncollateralized outward exposure in general means the sum of 
the current exposure, obtained by marking-to-market using industry 
standard practices, of each of the person's swap positions with negative 
value in a major swap category, less the value of the collateral the 
person has posted in connection with those positions.
    (ii) Calculation of aggregate uncollateralized outward exposure. In 
calculating this amount the person shall, with respect to each of its 
swap counterparties in a given major swap category, determine the dollar 
value of the aggregate current exposure arising from each of its swap 
positions with negative value (subject to the netting provisions 
described below) in that major category by marking-to-market using 
industry standard practices; and deduct from that dollar amount the 
aggregate value of the collateral the person has posted with respect to 
the swap positions. The aggregate uncollateralized outward exposure 
shall be the sum of those uncollateralized amounts across all of the 
person's swap counterparties in the applicable major category.
    (iii) Relevance of netting agreements. (A) If the person has one or 
more master netting agreement in effect with a particular counterparty, 
the person may measure the current exposure arising from its swaps in 
any major category on a net basis, applying the terms of those 
agreements. Calculation of net current exposure may take into account 
offsetting positions entered into with that particular counterparty 
involving swaps (in any swap category) as well as security-based swaps 
and securities financing transactions (consisting of securities lending 
and borrowing, securities margin lending and repurchase and reverse 
repurchase agreements), and other financial instruments that are subject 
to netting offsets for purposes of applicable bankruptcy law, to the 
extent these are consistent with the offsets permitted by the master 
netting agreements.
    (B) Such adjustments may not take into account any offset associated 
with positions that the person has with separate counterparties.
    (iv) Allocation of uncollateralized outward exposure. If a person 
calculates current exposure with a particular

[[Page 26]]

counterparty on a net basis, as provided by paragraph (jjj)(2)(iii) of 
this section, the portion of that current exposure that should be 
attributed to each ``major'' category of swaps for purposes of the 
substantial position analysis should be calculated according to the 
formula:
[GRAPHIC] [TIFF OMITTED] TR23MY12.000

    Where: ES(MC) equals the amount of aggregate current exposure 
attributable to the entity's swap positions in the ``major'' swap 
category at issue; Enet total equals the entity's aggregate current 
exposure to the counterparty at issue, after accounting for the netting 
of positions and the posting of collateral; OTMS(MC) equals the exposure 
associated with the entity's out-of-the-money positions in swaps in the 
``major'' category at issue, subject to those netting arrangements; and 
OTMS(O) equals the exposure associated with the entity's out-of-the-
money positions in the other ``major'' categories of swaps, subject to 
those netting arrangements; and OTMnon-S equals the exposure associated 
with the entity's out-of-the-money positions associated with 
instruments, other than swaps, that are subject to those netting 
arrangements.

    (3) Aggregate potential outward exposure--(i) In general. Aggregate 
potential outward exposure in any major swap category means the sum of:
    (A) The aggregate potential outward exposure for each of the 
person's swap positions in a major swap category that are not subject to 
daily mark-to-market margining and are not cleared by a registered or 
exempt clearing agency or derivatives clearing organization, as 
calculated in accordance with paragraph (jjj)(3)(ii) of this section; 
and
    (B) The aggregate potential outward exposure for each of the 
person's swap positions in such major swap category that are either 
subject to daily mark-to-market margining or are cleared by a registered 
or exempt clearing agency or derivatives clearing organization, as 
calculated in accordance with paragraph (jjj)(3)(iii) of this section.
    (ii) Calculation of potential outward exposure for swaps that are 
not subject to daily mark-to-market margining and are not cleared by a 
registered or exempt clearing agency or derivatives clearing 
organization--(A) In general. (1) For positions in swaps that are not 
subject to daily mark-to-market margining and are not cleared by a 
registered or exempt clearing agency or a derivatives clearing 
organization, potential outward exposure equals the total notional 
principal amount of those positions, multiplied by the following factors 
on a position-by-position basis reflecting the type of swap. For any 
swap that does not appropriately fall within any of the specified 
categories, the ``other commodities'' conversion factors set forth in 
the following Table 1 are to be used. If a swap is structured such that 
on specified dates any outstanding exposure is settled and the terms are 
reset so that the market value of the swap is zero, the remaining 
maturity equals the time until the next reset date.

                                                       Table 1--Conversion Factor Matrix for Swaps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Foreign exchange      Precious metals
                         Residual maturity                              Interest rate         rate and gold        (except gold)      Other commodities
--------------------------------------------------------------------------------------------------------------------------------------------------------
One year or less..................................................                 0.00                  0.01                  0.07                 0.10
Over one to five years............................................                 0.005                 0.05                  0.07                 0.12
Over five years...................................................                 0.015                 0.075                 0.08                 0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                   Residual maturity                     Credit   Equity
------------------------------------------------------------------------
One year or less......................................     0.10     0.06
Over one to five years................................     0.10     0.08
Over five years.......................................     0.10     0.10
------------------------------------------------------------------------

    (2) Use of effective notional amounts. If the stated notional amount 
on a position is leveraged or enhanced by the structure of the position, 
the calculation in paragraph (jjj)(3)(ii)(A)(1) of

[[Page 27]]

this section shall be based on the effective notional amount of the 
position rather than on the stated notional amount.
    (3) Exclusion of certain positions. The calculation in paragraph 
(jjj)(3)(ii)(A)(1) of this section shall exclude:
    (i) Positions that constitute the purchase of an option, if the 
purchaser has no additional payment obligations under the position;
    (ii) Other positions for which the person has prepaid or otherwise 
satisfied all of its payment obligations; and
    (iii) Positions for which, pursuant to law or a regulatory 
requirement, the person has assigned an amount of cash or U.S. Treasury 
securities that is sufficient at all times to pay the person's maximum 
possible liability under the position, and the person may not use that 
cash or those Treasury securities for other purposes.
    (4) Adjustment for certain positions. Notwithstanding paragraph 
(jjj)(3)(ii)(A)(1) of this section, the potential outward exposure 
associated with a position by which a person buys credit protection 
using a credit default swap or index credit default swap, or associated 
with a position by which a person purchases an option for which the 
person retains additional payment obligations under the position, is 
capped at the net present value of the unpaid premiums.
    (B) Adjustment for netting agreements. Notwithstanding paragraph 
(jjj)(3)(ii)(A) of this section, for positions subject to master netting 
agreements the potential outward exposure associated with the person's 
swaps with each counterparty equals a weighted average of the potential 
outward exposure for the person's swaps with that counterparty as 
calculated under paragraph (jjj)(3)(ii)(A) of this section, and that 
amount reduced by the ratio of net current exposure to gross current 
exposure, consistent with the following equation as calculated on a 
counterparty-by-counterparty basis:

PNet = 0.4 * PGross + 0.6 * NGR * PGross

    Where: PNet is the potential outward exposure, adjusted for 
bilateral netting, of the person's swaps with a particular counterparty; 
PGross is the potential outward exposure without adjustment for 
bilateral netting as calculated pursuant to paragraph (jjj)(3)(ii)(A) of 
this section; and NGR is the ratio of the current exposure arising from 
its swaps in the major category as calculated on a net basis according 
to paragraphs (jjj)(2)(iii) and (iv) of this section, divided by the 
current exposure arising from its swaps in the major category as 
calculated in the absence of those netting procedures.

    (iii) Calculation of potential outward exposure for swaps that are 
either subject to daily mark-to-market margining or are cleared by a 
registered or exempt clearing agency or derivatives clearing 
organization. For positions in swaps that are subject to daily mark-to-
market margining or that are cleared by a registered or exempt clearing 
agency or derivatives clearing organization:
    (A) Potential outward exposure equals the potential exposure that 
would be attributed to such positions using the procedures in paragraph 
(jjj)(3)(ii) of this section multiplied by:
    (1) 0.1, in the case of positions cleared by a registered or exempt 
clearing agency or derivatives clearing organization; or
    (2) 0.2, in the case of positions that are subject to daily mark-to-
market margining but that are not cleared by a registered or exempt 
clearing agency or derivatives clearing organization.
    (B) Solely for purposes of calculating potential outward exposure:
    (1) A swap shall be considered to be subject to daily mark-to-market 
margining if, and for so long as, the counterparties follow the daily 
practice of exchanging collateral to reflect changes in the current 
exposure arising from the swap (after taking into account any other 
financial positions addressed by a netting agreement between the 
counterparties).
    (2) If the person is permitted by agreement to maintain a threshold 
for which it is not required to post collateral, the position still will 
be considered to be subject to daily mark-to-market margining for 
purposes of calculating potential outward exposure, but the total amount 
of that threshold (regardless of the actual exposure at any time), less 
any initial margin posted up to the amount of that threshold, shall be 
added to the person's aggregate uncollateralized outward exposure for 
purposes of paragraph (jjj)(1)(i)(B),

[[Page 28]]

(ii)(B), (iii)(B) or (iv)(B) of this section, as applicable.
    (3) If the minimum transfer amount under the agreement is in excess 
of $1 million, the position still will be considered to be subject to 
daily mark-to-market margining for purposes of calculating potential 
outward exposure, but the entirety of the minimum transfer amount shall 
be added to the person's aggregate uncollateralized outward exposure for 
purposes of paragraph (jjj)(1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of 
this section, as applicable.
    (4) A person may, at its discretion, calculate the potential outward 
exposure of positions in swaps that are subject to daily mark-to-market 
margining in accordance with paragraph (jjj)(3)(ii) of this section in 
lieu of calculating the potential outward exposure of such swap 
positions in accordance with this paragraph (jjj)(3)(iii).
    (4) Calculation of daily average. Measures of daily average 
aggregate uncollateralized outward exposure and daily average aggregate 
potential outward exposure shall equal the arithmetic mean of the 
applicable measure of exposure at the close of each business day, 
beginning the first business day of each calendar quarter and continuing 
through the last business day of that quarter.
    (5) Inter-affiliate activities. In calculating its aggregate 
uncollateralized outward exposure and its aggregate potential outward 
exposure, the person shall not consider its swap positions with 
counterparties that are majority-owned affiliates. For these purposes 
the counterparties to a swap are majority-owned affiliates if one 
counterparty directly or indirectly owns a majority interest in the 
other, or if a third party directly or indirectly owns a majority 
interest in both counterparties to the swap, where ``majority interest'' 
is the right to vote or direct the vote of a majority of a class of 
voting securities of an entity, the power to sell or direct the sale of 
a majority of a class of voting securities of an entity, or the right to 
receive upon dissolution or the contribution of a majority of the 
capital of a partnership.
    (kkk) Hedging or mitigating commercial risk. For purposes of Section 
1a(33) of the Act, 7 U.S.C. 1a(33) and paragraph (hhh) of this section, 
a swap position is held for the purpose of hedging or mitigating 
commercial risk when:
    (1) Such position:
    (i) Is economically appropriate to the reduction of risks in the 
conduct and management of a commercial enterprise (or of a majority-
owned affiliate of the enterprise), where the risks arise from:
    (A) The potential change in the value of assets that a person owns, 
produces, manufactures, processes, or merchandises or reasonably 
anticipates owning, producing, manufacturing, processing, or 
merchandising in the ordinary course of business of the enterprise;
    (B) The potential change in the value of liabilities that a person 
has incurred or reasonably anticipates incurring in the ordinary course 
of business of the enterprise; or
    (C) The potential change in the value of services that a person 
provides, purchases, or reasonably anticipates providing or purchasing 
in the ordinary course of business of the enterprise;
    (D) The potential change in the value of assets, services, inputs, 
products, or commodities that a person owns, produces, manufactures, 
processes, merchandises, leases, or sells, or reasonably anticipates 
owning, producing, manufacturing, processing, merchandising, leasing, or 
selling in the ordinary course of business of the enterprise;
    (E) Any potential change in value related to any of the foregoing 
arising from interest, currency, or foreign exchange rate movements 
associated with such assets, liabilities, services, inputs, products, or 
commodities; or
    (F) Any fluctuation in interest, currency, or foreign exchange rate 
exposures arising from a person's current or anticipated assets or 
liabilities; or
    (ii) Qualifies as bona fide hedging for purposes of an exemption 
from position limits under the Act; or
    (iii) Qualifies for hedging treatment under:
    (A) Financial Accounting Standards Board Accounting Standards 
Codification Topic 815, Derivatives and Hedging (formerly known as 
Statement No. 133); or
    (B) Governmental Accounting Standards Board Statement 53, Accounting

[[Page 29]]

and Financial Reporting for Derivative Instruments; and
    (2) Such position is:
    (i) Not held for a purpose that is in the nature of speculation, 
investing or trading; and
    (ii) Not held to hedge or mitigate the risk of another swap or 
security-based swap position, unless that other position itself is held 
for the purpose of hedging or mitigating commercial risk as defined by 
this rule orSec. 240.3a67-4 of this title.
    (lll) Substantial counterparty exposure--(1) In general. For 
purposes of Section 1a(33) of the Act, 7 U.S.C. 1a(33), and paragraph 
(hhh) of this section, the term substantial counterparty exposure that 
could have serious adverse effects on the financial stability of the 
United States banking system or financial markets means a swap position 
that satisfies either of the following thresholds:
    (i) $5 billion in daily average aggregate uncollateralized outward 
exposure; or
    (ii) $8 billion in:
    (A) Daily average aggregate uncollateralized outward exposure plus
    (B) Daily average aggregate potential outward exposure.
    (2) Calculation methodology. For these purposes, the terms daily 
average aggregate uncollateralized outward exposure and daily average 
aggregate potential outward exposure shall be calculated the same way as 
is prescribed in paragraph (jjj) of this section, except that these 
amounts shall be calculated by reference to all of the person's swap 
positions, rather than by reference to a specific major swap category.
    (mmm) Financial entity; highly leveraged. (1) For purposes of 
Section 1a(33) of the Act, 7 U.S.C. 1a(33), and paragraph (hhh) of this 
section, the term financial entity means:
    (i) A security-based swap dealer;
    (ii) A major security-based swap participant;
    (iii) A commodity pool as defined in Section 1a(10) of the Act, 7 
U.S.C. 1a(10);
    (iv) A private fund as defined in Section 202(a) of the Investment 
Advisers Act of 1940, 15 U.S.C. 80b-2(a);
    (v) An employee benefit plan as defined in paragraphs (3) and (32) 
of Section 3 of the Employee Retirement Income Security Act of 1974, 29 
U.S.C. 1002; and
    (vi) A person predominantly engaged in activities that are in the 
business of banking or financial in nature, as defined in Section 4(k) 
of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k).
    (2) For purposes of Section 1a(33) of the Act, 7 U.S.C. 1a(33), and 
paragraph (hhh) of this section, the term highly leveraged means the 
existence of a ratio of an entity's total liabilities to equity in 
excess of 12 to 1 as measured at the close of business on the last 
business day of the applicable fiscal quarter. For this purpose, 
liabilities and equity should each be determined in accordance with U.S. 
generally accepted accounting principles; provided, however, that a 
person that is an employee benefit plan, as defined in paragraphs (3) 
and (32) of Section 3 of the Employee Retirement Income Security Act of 
1974, 29 U.S.C. 1002, may exclude obligations to pay benefits to plan 
participants from the calculation of liabilities and substitute the 
total value of plan assets for equity.
    (nnn)-(www) [Reserved]
    (xxx) Swap--(1) In general. The term swap has the meaning set forth 
in section 1a(47) of the Commodity Exchange Act.
    (2) Inclusion of particular products. (i) The term swap includes, 
without limiting the meaning set forth in section 1a(47) of the 
Commodity Exchange Act, the following agreements, contracts, and 
transactions:
    (A) A cross-currency swap;
    (B) A currency option, foreign currency option, foreign exchange 
option and foreign exchange rate option;
    (C) A foreign exchange forward;
    (D) A foreign exchange swap;
    (E) A forward rate agreement; and
    (F) A non-deliverable forward involving foreign exchange.
    (ii) The term swap does not include an agreement, contract, or 
transaction described in paragraph (xxx)(2)(i) of this section that is 
otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.
    (3) Foreign exchange forwards and foreign exchange swaps. 
Notwithstanding paragraph (xxx)(2) of this section:

[[Page 30]]

    (i) A foreign exchange forward or a foreign exchange swap shall not 
be considered a swap if the Secretary of the Treasury makes a 
determination described in section 1a(47)(E)(i) of the Commodity 
Exchange Act.
    (ii) Notwithstanding paragraph (xxx)(3)(i) of this section:
    (A) The reporting requirements set forth in section 4r of the 
Commodity Exchange Act and regulations promulgated thereunder shall 
apply to a foreign exchange forward or foreign exchange swap; and
    (B) The business conduct standards set forth in section 4s(h) of the 
Commodity Exchange Act and regulations promulgated thereunder shall 
apply to a swap dealer or major swap participant that is a party to a 
foreign exchange forward or foreign exchange swap.
    (iii) For purposes of section 1a(47)(E) of the Commodity Exchange 
Act and this paragraph (xxx), the term foreign exchange forward has the 
meaning set forth in section 1a(24) of the Commodity Exchange Act.
    (iv) For purposes of section 1a(47)(E) of the Commodity Exchange Act 
and this paragraph (xxx), the term foreign exchange swap has the meaning 
set forth in section 1a(25) of the Commodity Exchange Act.
    (v) For purposes of sections 1a(24) and 1a(25) of the Commodity 
Exchange Act and this paragraph (xxx), the following transactions are 
not foreign exchange forwards or foreign exchange swaps:
    (A) A currency swap or a cross-currency swap;
    (B) A currency option, foreign currency option, foreign exchange 
option, or foreign exchange rate option; and
    (C) A non-deliverable forward involving foreign exchange.
    (4) Insurance. (i) This paragraph is a non-exclusive safe harbor. 
The terms swap as used in section 1a(47) of the Commodity Exchange Act 
and security-based swap as used in section 1a(42) of the Commodity 
Exchange Act do not include an agreement, contract, or transaction that:
    (A) By its terms or by law, as a condition of performance on the 
agreement, contract, or transaction:
    (1) Requires the beneficiary of the agreement, contract, or 
transaction to have an insurable interest that is the subject of the 
agreement, contract, or transaction and thereby carry the risk of loss 
with respect to that interest continuously throughout the duration of 
the agreement, contract, or transaction;
    (2) Requires that loss to occur and to be proved, and that any 
payment or indemnification therefor be limited to the value of the 
insurable interest;
    (3) Is not traded, separately from the insured interest, on an 
organized market or over-the-counter; and
    (4) With respect to financial guaranty insurance only, in the event 
of payment default or insolvency of the obligor, any acceleration of 
payments under the policy is at the sole discretion of the insurer; and
    (B) Is provided:
    (1)(i) By a person that is subject to supervision by the insurance 
commissioner (or similar official or agency) of any State or by the 
United States or an agency or instrumentality thereof; and
    (ii) Such agreement, contract, or transaction is regulated as 
insurance under applicable State law or the laws of the United States;
    (2)(i) Directly or indirectly by the United States, any State or any 
of their respective agencies or instrumentalities; or
    (ii) Pursuant to a statutorily authorized program thereof; or
    (3) In the case of reinsurance only, by a person to another person 
that satisfies the conditions set forth in paragraph (xxx)(4)(i)(B) of 
this section, provided that:
    (i) Such person is not prohibited by applicable State law or the 
laws of the United States from offering such agreement, contract, or 
transaction to such person that satisfies the conditions set forth in 
paragraph (xxx)(4)(i)(B) of this section;
    (ii) The agreement, contract, or transaction to be reinsured 
satisfies the conditions set forth in paragraph (xxx)(4)(i)(A) or 
paragraph (xxx)(4)(i)(C) of this section; and
    (iii) Except as otherwise permitted under applicable State law, the 
total amount reimbursable by all reinsurers for such agreement, 
contract, or transaction may not exceed the claims or losses paid by the 
person writing the

[[Page 31]]

risk being ceded or transferred by such person; or
    (4) In the case of non-admitted insurance, by a person who:
    (i) Is located outside of the United States and listed on the 
Quarterly Listing of Alien Insurers as maintained by the International 
Insurers Department of the National Association of Insurance 
Commissioners; or
    (ii) Meets the eligibility criteria for non-admitted insurers under 
applicable State law; or
    (C) Is provided in accordance with the conditions set forth in 
paragraph (xxx)(4)(i)(B) of this section and is one of the following 
types of products:
    (1) Surety bond;
    (2) Fidelity bond;
    (3) Life insurance;
    (4) Health insurance;
    (5) Long term care insurance;
    (6) Title insurance;
    (7) Property and casualty insurance;
    (8) Annuity;
    (9) Disability insurance;
    (10) Insurance against default on individual residential mortgages; 
and
    (11) Reinsurance of any of the foregoing products identified in 
paragraphs (xxx)(4)(i)(C)(1) through (10) of this section; or
    (ii) The terms swap as used in section 1a(47) of the Commodity 
Exchange Act and security-based swap as used in section 1a(42) of the 
Commodity Exchange Act do not include an agreement, contract, or 
transaction that was entered into on or before the effective date of 
paragraph (xxx)(4) of this section, and that, at such time that it was 
entered into, was provided in accordance with the conditions set forth 
in paragraph (xxx)(4)(i)(B) of this section.
    (5) State. For purposes of paragraph (xxx)(4) of this section, the 
term State means any state of the United States, the District of 
Columbia, Puerto Rico, the U.S. Virgin Islands, or any other possession 
of the United States.
    (6) Anti-Evasion:
    (i) An agreement, contract, or transaction that is willfully 
structured to evade any provision of Subtitle A of the Wall Street 
Transparency and Accountability Act of 2010, including any amendments 
made to the Commodity Exchange Act thereby (Subtitle A), shall be deemed 
a swap for purposes of Subtitle A and the rules, regulations, and orders 
of the Commission promulgated thereunder.
    (ii) An interest rate swap or currency swap, including but not 
limited to a transaction identified in paragraph (xxx)(3)(v) of this 
section, that is willfully structured as a foreign exchange forward or 
foreign exchange swap to evade any provision of Subtitle A shall be 
deemed a swap for purposes of Subtitle A and the rules, regulations, and 
orders of the Commission promulgated thereunder.
    (iii) An agreement, contract, or transaction of a bank that is not 
under the regulatory jurisdiction of an appropriate Federal banking 
agency (as defined in section 1a(2) of the Commodity Exchange Act), 
where the agreement, contract, or transaction is willfully structured as 
an identified banking product (as defined in section 402 of the Legal 
Certainty for Bank Products Act of 2000) to evade the provisions of the 
Commodity Exchange Act, shall be deemed a swap for purposes of the 
Commodity Exchange Act and the rules, regulations, and orders of the 
Commission promulgated thereunder.
    (iv) The form, label, and written documentation of an agreement, 
contract, or transaction shall not be dispositive in determining whether 
the agreement, contract, or transaction has been willfully structured to 
evade as provided in paragraphs (xxx)(6)(i) through (xxx)(6)(iii) of 
this section.
    (v) An agreement, contract, or transaction that has been willfully 
structured to evade as provided in paragraphs (xxx)(6)(i) through 
(xxx)(6)(iii) of this section shall be considered in determining whether 
a person that so willfully structured to evade is a swap dealer or major 
swap participant.
    (vi) Notwithstanding the foregoing, no agreement, contract, or 
transaction structured as a security (including a security-based swap) 
under the securities laws (as defined in section 3(a)(47) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed 
a swap pursuant to this paragraph (xxx)(6) or shall be considered for 
purposes of paragraph (xxx)(6)(v) of this section.
    (yyy) Narrow-based security index as used in the definition of 
``security-based

[[Page 32]]

swap''--(1) In general. Except as otherwise provided in paragraphs (zzz) 
and (aaaa) of this section, for purposes of section 1a(42) of the 
Commodity Exchange Act, the term narrow-based security index has the 
meaning set forth in section 1a(35) of the Commodity Exchange Act, and 
the rules, regulations and orders of the Commission thereunder.
    (2) Tolerance period for swaps traded on designated contract 
markets, swap execution facilities, and foreign boards of trade. 
Notwithstanding paragraph (yyy)(1) of this section, solely for purposes 
of swaps traded on or subject to the rules of a designated contract 
market, swap execution facility, or foreign board of trade, a security 
index underlying such swaps shall not be considered a narrow-based 
security index if:
    (i)(A) A swap on the index is traded on or subject to the rules of a 
designated contract market, swap execution facility, or foreign board of 
trade for at least 30 days as a swap on an index that was not a narrow-
based security index; or
    (B) Such index was not a narrow-based security index during every 
trading day of the six full calendar months preceding a date no earlier 
than 30 days prior to the commencement of trading of a swap on such 
index on a market described in paragraph (yyy)(2)(i)(A) of this section; 
and
    (ii) The index has been a narrow-based security index for no more 
than 45 business days over three consecutive calendar months.
    (3) Tolerance period for security-based swaps traded on national 
securities exchanges or security-based swap execution facilities. 
Notwithstanding paragraph (yyy)(1) of this section, solely for purposes 
of security-based swaps traded on a national securities exchange or 
security-based swap execution facility, a security index underlying such 
security-based swaps shall be considered a narrow-based security index 
if:
    (i)(A) A security-based swap on the index is traded on a national 
securities exchange or security-based swap execution facility for at 
least 30 days as a security-based swap on a narrow-based security index; 
or
    (B) Such index was a narrow-based security index during every 
trading day of the six full calendar months preceding a date no earlier 
than 30 days prior to the commencement of trading of a security-based 
swap on such index on a market described in paragraph (yyy)(3)(i)(A) of 
this section; and
    (ii) The index has been a security index that is not a narrow-based 
security index for no more than 45 business days over three consecutive 
calendar months.
    (4) Grace period--(i) Solely with respect to a swap that is traded 
on or subject to the rules of a designated contract market, swap 
execution facility, or foreign board of trade, an index that becomes a 
narrow-based security index under paragraph (yyy)(2) of this section 
solely because it was a narrow-based security index for more than 45 
business days over three consecutive calendar months shall not be a 
narrow-based security index for the following three calendar months.
    (ii) Solely with respect to a security-based swap that is traded on 
a national securities exchange or security-based swap execution 
facility, an index that becomes a security index that is not a narrow-
based security index under paragraph (yyy)(3) of this section solely 
because it was not a narrow-based security index for more than 45 
business days over three consecutive calendar months shall be a narrow-
based security index for the following three calendar months.
    (zzz) Meaning of ``issuers of securities in a narrow-based security 
index'' as used in the definition of ``security-based swap'' as applied 
to index credit default swaps.
    (1) Notwithstanding paragraph (yyy)(1) of this section, and solely 
for purposes of determining whether a credit default swap is a security-
based swap under the definition of ``security-based swap'' in section 
3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(68)(A)(ii)(III), as incorporated in section 1a(42) of the 
Commodity Exchange Act, the term issuers of securities in a narrow-based 
security index means issuers of securities included in an index 
(including an index referencing loan borrowers or loans of such 
borrowers) in which:

[[Page 33]]

    (i)(A) There are nine or fewer non-affiliated issuers of securities 
that are reference entities included in the index, provided that an 
issuer of securities shall not be deemed a reference entity included in 
the index for purposes of this section unless:
    (1) A credit event with respect to such reference entity would 
result in a payment by the credit protection seller to the credit 
protection buyer under the credit default swap based on the related 
notional amount allocated to such reference entity; or
    (2) The fact of such credit event or the calculation in accordance 
with paragraph (zzz)(1)(i)(A)(1) of this section of the amount owed with 
respect to such credit event is taken into account in determining 
whether to make any future payments under the credit default swap with 
respect to any future credit events;
    (B) The effective notional amount allocated to any reference entity 
included in the index comprises more than 30 percent of the index's 
weighting;
    (C) The effective notional amount allocated to any five non-
affiliated reference entities included in the index comprises more than 
60 percent of the index's weighting; or
    (D) Except as provided in paragraph (zzz)(2) of this section, for 
each reference entity included in the index, none of the criteria in 
paragraphs (zzz)(1)(i)(D)(1) through (8) of this section is satisfied:
    (1) The reference entity included in the index is required to file 
reports pursuant to section 13 or section 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
    (2) The reference entity included in the index is eligible to rely 
on the exemption provided in rule 12g3-2(b) under the Securities 
Exchange Act of 1934 (17 CFR 240.12g3-2(b));
    (3) The reference entity included in the index has a worldwide 
market value of its outstanding common equity held by non-affiliates of 
$700 million or more;
    (4) The reference entity included in the index (other than a 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) has outstanding notes, 
bonds, debentures, loans, or evidences of indebtedness (other than 
revolving credit facilities) having a total remaining principal amount 
of at least $1 billion;
    (5) The reference entity included in the index is the issuer of an 
exempted security as defined in section 3(a)(12) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal 
security as defined in section 3(a)(29) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(29)));
    (6) The reference entity included in the index is a government of a 
foreign country or a political subdivision of a foreign country;
    (7) If the reference entity included in the index is an issuing 
entity of an asset-backed security as defined in section 3(a)(77) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), such asset-
backed security was issued in a transaction registered under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly 
available distribution reports; and
    (8) For a credit default swap entered into solely between eligible 
contract participants as defined in section 1a(18) of the Commodity 
Exchange Act:
    (i) The reference entity included in the index (other than a 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) makes available to the 
public or otherwise makes available to such eligible contract 
participant information about the reference entity included in the index 
pursuant to rule 144A(d)(4) under the Securities Act of 1933 (17 CFR 
230.144A(d)(4));
    (ii) Financial information about the reference entity included in 
the index (other than a reference entity included in the index that is 
an issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) 
is otherwise publicly available; or
    (iii) In the case of a reference entity included in the index that 
is an issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C.

[[Page 34]]

78c(a)(77)), information of the type and level included in publicly 
available distribution reports for similar asset-backed securities is 
publicly available about both the reference entity included in the index 
and such asset-backed security; and
    (ii)(A) The index is not composed solely of reference entities that 
are issuers of exempted securities as defined in section 3(a)(12) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on 
the date of enactment of the Futures Trading Act of 1982 (other than any 
municipal security as defined in section 3(a)(29) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date 
of enactment of the Futures Trading Act of 1982; and
    (B) Without taking into account any portion of the index composed of 
reference entities that are issuers of exempted securities as defined in 
section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(12)), as in effect on the date of enactment of the Futures 
Trading Act of 1982 (other than any municipal security as defined in 
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(29))), the remaining portion of the index would be within the 
term ``issuer of securities in a narrow-based security index'' under 
paragraph (zzz)(1)(i) of this section.
    (2) Paragraph (zzz)(1)(i)(D) of this section will not apply with 
respect to a reference entity included in the index if:
    (i) The effective notional amounts allocated to such reference 
entity comprise less than five percent of the index's weighting; and
    (ii) The effective notional amounts allocated to reference entities 
included in the index that satisfy paragraph (zzz)(1)(i)(D) of this 
section comprise at least 80 percent of the index's weighting.
    (3) For purposes of this paragraph (zzz):
    (i) A reference entity included in the index is affiliated with 
another reference entity included in the index (for purposes of 
paragraph (zzz)(3)(iv) of this section) or another entity (for purposes 
of paragraph (zzz)(3)(v) of this section) if it controls, is controlled 
by, or is under common control with, that other reference entity 
included in the index or other entity, as applicable; provided that each 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered 
affiliated with any other reference entity included in the index or any 
other entity that is an issuing entity of an asset-backed security.
    (ii) Control for purposes of this section means ownership of more 
than 50 percent of the equity of a reference entity included in the 
index (for purposes of paragraph (zzz)(3)(iv) of this section) or 
another entity (for purposes of paragraph (zzz)(3)(v) of this section), 
or the ability to direct the voting of more than 50 percent of the 
voting equity of a reference entity included in the index (for purposes 
of paragraph (zzz)(3)(iv) of this section) or another entity (for 
purposes of paragraph (zzz)(3)(v) of this section).
    (iii) In identifying a reference entity included in the index for 
purposes of this section, the term reference entity includes:
    (A) An issuer of securities;
    (B) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)); and
    (C) An issuer of securities that is a borrower with respect to any 
loan identified in an index of borrowers or loans.
    (iv) For purposes of calculating the thresholds in paragraphs 
(zzz)(1)(i)(A) through (1)(i)(C) of this section, the term reference 
entity included in the index includes a single reference entity included 
in the index or a group of affiliated reference entities included in the 
index as determined in accordance with paragraph (zzz)(3)(i) of this 
section (with each reference entity included in the index that is an 
issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate 
reference entity included in the index).
    (v) For purposes of determining whether one of the criterion in 
either paragraphs (zzz)(1)(i)(D)(1) through

[[Page 35]]

(zzz)(1)(i)(D)(4) of this section or paragraphs (zzz)(1)(iv)(D)(8)(i) 
and (a)(1)(iv)(D)(8)(ii) of this section is met, the term reference 
entity included in the index includes a single reference entity included 
in the index or a group of affiliated entities as determined in 
accordance with paragraph (zzz)(3)(i) of this section (with each issuing 
entity of an asset-backed security as defined in section 3(a)(77) of the 
Act (15 U.S.C. 78c(a)(77)) being considered a separate entity).
    (aaaa) Meaning of ``narrow-based security index'' as used in the 
definition of ``security-based swap'' as applied to index credit default 
swaps.
    (1) Notwithstanding paragraph (yyy)(1) of this section, and solely 
for purposes of determining whether a credit default swap is a security-
based swap under the definition of ``security-based swap'' in section 
3(a)(68)(A)(ii)(I) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(68)(A)(ii)(I), as incorporated in section 1a(42) of the Commodity 
Exchange Act, the term narrow-based security index means an index in 
which:
    (i)(A) The index is composed of nine or fewer securities or 
securities that are issued by nine or fewer non-affiliated issuers, 
provided that a security shall not be deemed a component of the index 
for purposes of this section unless:
    (1) A credit event with respect to the issuer of such security or a 
credit event with respect to such security would result in a payment by 
the credit protection seller to the credit protection buyer under the 
credit default swap based on the related notional amount allocated to 
such security; or
    (2) The fact of such credit event or the calculation in accordance 
with paragraph (aaaa)(1)(i)(A)(1) of this section of the amount owed 
with respect to such credit event is taken into account in determining 
whether to make any future payments under the credit default swap with 
respect to any future credit events;
    (B) The effective notional amount allocated to the securities of any 
issuer included in the index comprises more than 30 percent of the 
index's weighting;
    (C) The effective notional amount allocated to the securities of any 
five non-affiliated issuers included in the index comprises more than 60 
percent of the index's weighting; or
    (D) Except as provided in paragraph (aaaa)(2) of this section, for 
each security included in the index, none of the criteria in paragraphs 
(aaaa)(1)(i)(D)(1) through (8) is satisfied:
    (1) The issuer of the security included in the index is required to 
file reports pursuant to section 13 or section 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
    (2) The issuer of the security included in the index is eligible to 
rely on the exemption provided in rule 12g3-2(b) under the Securities 
Exchange Act of 1934 (17 CFR 240.12g3-2(b));
    (3) The issuer of the security included in the index has a worldwide 
market value of its outstanding common equity held by non-affiliates of 
$700 million or more;
    (4) The issuer of the security included in the index (other than an 
issuer of the security that is an issuing entity of an asset-backed 
security as defined in section 3(a)(77) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds, 
debentures, loans or evidences of indebtedness (other than revolving 
credit facilities) having a total remaining principal amount of at least 
$1 billion;
    (5) The security included in the index is an exempted security as 
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(12)) (other than any municipal security as defined in 
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(29)));
    (6) The issuer of the security included in the index is a government 
of a foreign country or a political subdivision of a foreign country;
    (7) If the security included in the index is an asset-backed 
security as defined in section 3(a)(77) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(77)), the security was issued in a transaction 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and 
has publicly available distribution reports; and
    (8) For a credit default swap entered into solely between eligible 
contract

[[Page 36]]

participants as defined in section 1a(18) of the Commodity Exchange Act:
    (i) The issuer of the security included in the index (other than an 
issuer of the security that is an issuing entity of an asset-backed 
security as defined in section 3(a)(77) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(77))) makes available to the public or 
otherwise makes available to such eligible contract participant 
information about such issuer pursuant to rule 144A(d)(4) of the 
Securities Act of 1933 (17 CFR 230.144A(d)(4));
    (ii) Financial information about the issuer of the security included 
in the index (other than an issuer of the security that is an issuing 
entity of an asset-backed security as defined in section 3(a)(77) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) is otherwise 
publicly available; or
    (iii) In the case of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), 
information of the type and level included in public distribution 
reports for similar asset-backed securities is publicly available about 
both the issuing entity and such asset-backed security; and
    (ii)(A) The index is not composed solely of exempted securities as 
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures 
Trading Act of 1982 (other than any municipal security as defined in 
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(29))), as in effect on the date of enactment of the Futures 
Trading Act of 1982; and
    (B) Without taking into account any portion of the index composed of 
exempted securities as defined in section 3(a)(12) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of 
enactment of the Futures Trading Act of 1982 (other than any municipal 
security as defined in section 3(a)(29) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index 
would be within the term ``narrow-based security index'' under paragraph 
(aaaa)(1)(i) of this section.
    (2) Paragraph (aaaa)(1)(i)(D) of this section will not apply with 
respect to securities of an issuer included in the index if:
    (i) The effective notional amounts allocated to all securities of 
such issuer included in the index comprise less than five percent of the 
index's weighting; and
    (ii) The securities that satisfy paragraph (aaaa)(1)(i)(D) of this 
section comprise at least 80 percent of the index's weighting.
    (3) For purposes of this paragraph (aaaa):
    (i) An issuer of securities included in the index is affiliated with 
another issuer of securities included in the index (for purposes of 
paragraph (aaaa)(3)(iv) of this section) or another entity (for purposes 
of paragraph (aaaa)(3)(v) of this section) if it controls, is controlled 
by, or is under common control with, that other issuer or other entity, 
as applicable; provided that each issuer of securities included in the 
index that is an issuing entity of an asset-backed security as defined 
in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(77)) will not be considered affiliated with any other issuer of 
securities included in the index or any other entity that is an issuing 
entity of an asset-backed security.
    (ii) Control for purposes of this section means ownership of more 
than 50 percent of the equity of an issuer of securities included in the 
index (for purposes of paragraph (aaaa)(3)(iv) of this section) or 
another entity (for purposes of paragraph (aaaa)(3)(v) of this section), 
or the ability to direct the voting of more than 50 percent of the 
voting equity an issuer of securities included in the index (for 
purposes of paragraph (aaaa)(3)(iv) of this section) or another entity 
(for purposes of paragraph (aaaa)(3)(v) of this section).
    (iii) In identifying an issuer of securities included in the index 
for purposes of this section, the term issuer includes:
    (A) An issuer of securities; and
    (B) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)).
    (iv) For purposes of calculating the thresholds in paragraphs 
(zzz)(1)(i)(A)

[[Page 37]]

through (1)(i)(C) of this section, the term issuer of the security 
included in the index includes a single issuer of securities included in 
the index or a group of affiliated issuers of securities included in the 
index as determined in accordance with paragraph (aaaa)(3)(i) of this 
section (with each issuer of securities included in the index that is an 
issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) 
being considered a separate issuer of securities included in the index).
    (v) For purposes of determining whether one of the criterion in 
either paragraphs (aaaa)(1)(i)(D)(1) through (aaaa)(1)(i)(D)(4) of this 
section or paragraphs (aaaa)(1)(iv)(D)(8)(i) and (aaaa)(1)(iv)(D)(8)(ii) 
of this section is met, the term issuer of the security included in the 
index includes a single issuer of securities included in the index or a 
group of affiliated entities as determined in accordance with paragraph 
(aaaa)(3)(i) of this section (with each issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 
78c(a)(77)) being considered a separate entity).
    (bbbb) Futures contracts on certain foreign sovereign debt. The term 
security-based swap as used in section 3(a)(68) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), as incorporated in section 
1a(42) of the Commodity Exchange Act, does not include an agreement, 
contract, or transaction that is based on or references a qualifying 
foreign futures contract (as defined in rule 3a12-8 under the Securities 
Exchange Act of 1934 (17 CFR 240.3a12-8)) on the debt securities of any 
one or more of the foreign governments enumerated in rule 3a12-8 under 
the Securities Exchange Act of 1934 (17 CFR 240.3a12-8), provided that 
such agreement, contract, or transaction satisfies the following 
conditions:
    (1) The futures contract that the agreement, contract, or 
transaction references or upon which the agreement, contract, or 
transaction is based is a qualifying foreign futures contract that 
satisfies the conditions of rule 3a12-8 under the Securities Exchange 
Act of 1934 (17 CFR 240.3a12-8) applicable to qualifying foreign futures 
contracts;
    (2) The agreement, contract, or transaction is traded on or through 
a board of trade (as defined in the Commodity Exchange Act);
    (3) The debt securities upon which the qualifying foreign futures 
contract is based or referenced and any security used to determine the 
cash settlement amount pursuant to paragraph (bbbb)(4) of this section 
were not registered under the Securities Act of 1933 (15 U.S.C. 77 et 
seq.) or the subject of any American depositary receipt registered under 
the Securities Act of 1933;
    (4) The agreement, contract, or transaction may only be cash 
settled; and
    (5) The agreement, contract or transaction is not entered into by 
the issuer of the debt securities upon which the qualifying foreign 
futures contract is based or referenced (including any security used to 
determine the cash payment due on settlement of such agreement, contract 
or transaction), an affiliate (as defined in the Securities Act of 1933 
(15 U.S.C. 77 et seq.) and the rules and regulations thereunder) of the 
issuer, or an underwriter of such issuer's debt securities.
    (cccc) Cleared Swaps Customer. This term has the meaning provided in 
Sec.  22.1 of this chapter.
    (dddd) Cleared Swaps Customer Account. This term has the meaning 
provided inSec. 22.1 of this chapter.
    (eeee) Cleared Swaps Customer Collateral. This term has the meaning 
provided inSec. 22.1 of this chapter.
    (ffff) Confirmation. When used in reference to a futures commission 
merchant, introducing broker, or commodity trading advisor, this term 
means documentation (electronic or otherwise) that memorializes 
specified terms of a transaction executed on behalf of a customer. When 
used in reference to a swap dealer or major swap participant, this term 
has the meaning set forth inSec. 23.500 of this chapter.
    (gggg) Customer Account. This term references both a Cleared Swaps 
Customer Account and a Futures Account, as defined by paragraphs (dddd) 
and (vv) of this section.
    (hhhh) Electronic trading facility. This term means a trading 
facility that--

[[Page 38]]

    (1) Operates by means of an electronic or telecommunications 
network; and
    (2) Maintains an automated audit trail of bids, offers, and the 
matching of orders or the execution of transactions on the facility.
    (iiii) Futures customer. This term means any person who uses a 
futures commission merchant, introducing broker, commodity trading 
advisor, or commodity pool operator as an agent in connection with 
trading in any contract for the purchase of sale of a commodity for 
future delivery or any option on such contract; Provided, however, an 
owner or holder of a proprietary account as defined in paragraph (y) of 
this section shall not be deemed to be a futures customer within the 
meaning of sections 4d(a) and 4d(b) of the Act, the regulations that 
implement sections 4d and 4f of the Act andSec. 1.35, and such an 
owner or holder of such a proprietary account shall otherwise be deemed 
to be a futures customer within the meaning of the Act and Sec.Sec. 
1.37 and 1.46 and all other sections of these rules, regulations, and 
orders which do not implement sections 4d and 4f of the Act.
    (jjjj) Futures customer funds. This term means all money, 
securities, and property received by a futures commission merchant or by 
a derivatives clearing organization from, for, or on behalf of, futures 
customers:
    (1) To margin, guarantee, or secure contracts for future delivery on 
or subject to the rules of a contract market or derivatives clearing 
organization, as the case may be, and all money accruing to such futures 
customers as the result of such contracts; and
    (2) In connection with a commodity option transaction on or subject 
to the rules of a contract market, or derivatives clearing organization, 
as the case may be:
    (i) To be used as a premium for the purchase of a commodity option 
transaction for a futures customer;
    (ii) As a premium payable to a futures customer;
    (iii) To guarantee or secure performance of a commodity option by a 
futures customer; or
    (iv) Representing accruals (including, for purchasers of a commodity 
option for which the full premium has been paid, the market value of 
such commodity option) to a futures customer.
    (3) Notwithstanding paragraphs (1) and (2) of this definition, the 
term ``futures customer funds'' shall exclude money, securities or 
property held to margin, guarantee or secure security futures products 
held in a securities account, and all money accruing as the result of 
such security futures products.
    (kkkk) Order. This term means an instruction or authorization 
provided by a customer to a futures commission merchant, introducing 
broker or commodity trading advisor regarding trading in a commodity 
interest on behalf of the customer.
    (llll) Organized exchange. This term means a trading facility that--
    (1) Permits trading--
    (i) By or on behalf of a person that is not an eligible contract 
participant; or
    (ii) By persons other than on a principal-to-principal basis; or
    (2) Has adopted (directly or through another nongovernmental entity) 
rules that--
    (i) Govern the conduct of participants, other than rules that govern 
the submission of orders or execution of transactions on the trading 
facility; and
    (ii) Include disciplinary sanctions other than the exclusion of 
participants from trading.
    (mmmm) Prudential regulator. This term has the meaning given to the 
term in section 1a(39) of the Commodity Exchange Act and includes the 
Board of Governors of the Federal Reserve System, the Office of the 
Comptroller of the Currency, the Federal Deposit Insurance Corporation, 
the Farm Credit Administration, and the Federal Housing Finance Agency, 
as applicable to the swap dealer or major swap participant. The term 
also includes the Federal Deposit Insurance Corporation, with respect to 
any financial company as defined in section 201 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act or any insured depository 
institution under the Federal Deposit Insurance Act, and with respect to 
each affiliate of any such company or institution.

[[Page 39]]

    (nnnn) Registered entity. This term means:
    (1) A board of trade designated as a contract market under section 5 
of the Act;
    (2) A derivatives clearing organization registered under section 5b 
of the Act;
    (3) A board of trade designated as a contract market under section 
5f of the Act;
    (4) A swap execution facility registered under section 5h of the 
Act;
    (5) A swap data repository registered under section 21 of the Act; 
and
    (6) With respect to a contract that the Commission determines is a 
significant price discovery contract, any electronic trading facility on 
which the contract is executed or traded.
    (oooo) Registrant. This term means: a commodity pool operator; 
commodity trading advisor; futures commission merchant; introducing 
broker; leverage transaction merchant; floor broker; floor trader; major 
swap participant; retail foreign exchange dealer; or swap dealer that is 
subject to these regulations; or an associated person of any of the 
foregoing other than an associated person of a swap dealer or major swap 
participant.
    (pppp) Retail forex customer. This term means a person, other than 
an eligible contract participant as defined in section 1a(18) of the 
Act, acting on its own behalf and trading in any account, agreement, 
contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of 
the Act.
    (qqqq) Swap data repository. This term means any person that 
collects and maintains information or records with respect to 
transactions or positions in, or the terms and conditions of, swaps 
entered into by third parties for the purpose of providing a centralized 
recordkeeping facility for swaps.
    (rrrr) Swap execution facility. This term means a trading system or 
platform in which multiple participants have the ability to execute or 
trade swaps by accepting bids and offers made by multiple participants 
in the facility or system, through any means of interstate commerce, 
including any trading facility, that--
    (1) Facilitates the execution of swaps between persons; and
    (2) Is not a designated contract market.
    (ssss) Trading facility. This term has the meaning set forth in 
section 1a(51) of the Act.

[41 FR 3194, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affectingSec. 1.3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.  1.4  Electronic signatures, acknowledgments and verifications.

    For purposes of complying with any provision in the Commodity 
Exchange Act or the rules or regulations in this Chapter I that requires 
a swap transaction to be acknowledged by a swap dealer or major swap 
participant or a document to be signed or verified by a customer of a 
futures commission merchant or introducing broker, a retail forex 
customer of a retail foreign exchange dealer or futures commission 
merchant, a pool participant or a client of a commodity trading advisor, 
or a counterparty of a swap dealer or major swap participant, an 
electronic signature executed by the customer, retail forex customer, 
participant, client, counterparty, swap dealer, or major swap 
participant will be sufficient, if the futures commission merchant, 
retail foreign exchange dealer, introducing broker, commodity pool 
operator, commodity trading advisor, swap dealer, or major swap 
participant elects generally to accept electronic signatures, 
acknowledgments or verifications or another Commission rule permits the 
use of electronic signatures for the purposes listed above; Provided, 
however, That the electronic signature must comply with applicable 
Federal laws and other Commission rules; And, Provided further, That the 
futures commission merchant, retail foreign exchange dealer, introducing 
broker, commodity pool operator, commodity trading advisor, swap dealer, 
or major swap participant must adopt and use reasonable safeguards 
regarding the use of electronic signatures, including at a minimum 
safeguards employed to prevent alteration of the electronic

[[Page 40]]

record with which the electronic signature is associated, after such 
record has been electronically signed.

[77 FR 66320, Nov. 2, 2012]



Sec.  1.5  [Reserved]



Sec.  1.6  Anti-evasion.

    (a) It shall be unlawful to conduct activities outside the United 
States, including entering into agreements, contracts, and transactions 
and structuring entities, to willfully evade or attempt to evade any 
provision of the Commodity Exchange Act as enacted by Subtitle A of the 
Wall Street Transparency and Accountability Act of 2010 or the rules, 
regulations, and orders of the Commission promulgated thereunder 
(Subtitle A).
    (b) The form, label, and written documentation of an agreement, 
contract, or transaction, or an entity, shall not be dispositive in 
determining whether the agreement, contract, or transaction, or entity, 
has been entered into or structured to willfully evade as provided in 
paragraph (a) of this section.
    (c) An activity conducted outside the United States to evade as 
provided in paragraph (a) of this section shall be subject to the 
provisions of Subtitle A.
    (d) Notwithstanding the foregoing, no agreement, contract, or 
transaction structured as a security (including a security-based swap) 
under the securities laws (as defined in section 3(a)(47) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed 
a swap pursuant to this section.

[77 FR 48354, Aug. 13, 2012]



Sec.  1.7  Books and records requirements for security-based swap
agreements.

    (a) A person registered as a swap data repository under section 21 
of the Commodity Exchange Act and the rules and regulations thereunder:
    (1) Shall not be required to keep and maintain additional books and 
records regarding security-based swap agreements other than the books 
and records regarding swaps required to be kept and maintained pursuant 
to section 21 of the Commodity Exchange Act and the rules and 
regulations thereunder; and
    (2) Shall not be required to collect and maintain additional data 
regarding security-based swap agreements other than the data regarding 
swaps required to be collected and maintained by such persons pursuant 
to section 21 of the Commodity Exchange Act and the rules and 
regulations thereunder.
    (b) A person shall not be required to keep and maintain additional 
books and records, including daily trading records, regarding security-
based swap agreements other than the books and records regarding swaps 
required to be kept and maintained by such persons pursuant to section 
4s of the Commodity Exchange Act and the rules and regulations 
thereunder if such person is registered as:
    (1) A swap dealer under section 4s(a)(1) of the Commodity Exchange 
Act and the rules and regulations thereunder;
    (2) A major swap participant under section 4s(a)(2) of the Commodity 
Exchange Act and the rules and regulations thereunder;
    (3) A security-based swap dealer under section 15F(a)(1) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(a)(1)) and the rules 
and regulations thereunder; or
    (4) a major security-based swap participant under section 15F(a)(2) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(a)(2)) and the 
rules and regulations thereunder.
    (c) The term security-based swap agreement has the meaning set forth 
in section 1a(47)(A)(v) of the Commodity Exchange Act.

[77 FR 48354, Aug. 13, 2012]



Sec.  1.8  Requests for interpretation of swaps, security-based swaps,
and mixed swaps.

    (a) In general. Any person may submit a request to the Commission 
and the Securities and Exchange Commission to provide a joint 
interpretation of whether a particular agreement, contract, or 
transaction (or class thereof) is:
    (1) A swap, as that term is defined in section 1a(47) of the 
Commodity Exchange Act and the rules and regulations promulgated 
thereunder;
    (2) A security-based swap, as that term is defined in section 1a(42) 
of the

[[Page 41]]

Commodity Exchange Act and the rules and regulations promulgated 
thereunder; or
    (3) A mixed swap, as that term is defined in section 1a(47)(D) of 
the Commodity Exchange Act and the rules and regulations promulgated 
thereunder.
    (b) Request process. In making a request pursuant to paragraph (a) 
of this section, the requesting person must provide the Commission and 
the Securities and Exchange Commission with the following:
    (1) All material information regarding the terms of the agreement, 
contract, or transaction (or class thereof);
    (2) A statement of the economic characteristics and purpose of the 
agreement, contract, or transaction (or class thereof);
    (3) The requesting person's determination as to whether the 
agreement, contract, or transaction (or class thereof) should be 
characterized as a swap, a security-based swap, or both, (i.e., a mixed 
swap), including the basis for such determination; and
    (4) Such other information as may be requested by the Commission or 
the Securities and Exchange Commission.
    (c) Request withdrawal. A person may withdraw a request made 
pursuant to paragraph (a) of this section at any time prior to the 
issuance of a joint interpretation or joint proposed rule by the 
Commission and the Securities and Exchange Commission in response to the 
request; provided, however, that notwithstanding such withdrawal, the 
Commission and the Securities and Exchange Commission may provide a 
joint interpretation of whether the agreement, contract, or transaction 
(or class thereof) is a swap, a security-based swap, or both (i.e., a 
mixed swap).
    (d) Request by the Commission or the Securities and Exchange 
Commission. In the absence of a request for a joint interpretation under 
paragraph (a) of this section:
    (1) If the Commission or the Securities and Exchange Commission 
receives a proposal to list, trade, or clear an agreement, contract, or 
transaction (or class thereof) that raises questions as to the 
appropriate characterization of such agreement, contract, or transaction 
(or class thereof) as a swap, a security-based swap, or both (i.e., a 
mixed swap), the Commission or the Securities and Exchange Commission, 
as applicable, promptly shall notify the other of the agreement, 
contract, or transaction (or class thereof); and
    (2) The Commission or the Securities and Exchange Commission, or 
their Chairmen jointly, may submit a request for a joint interpretation 
as described in paragraph (a) of this section; such submission shall be 
made pursuant to paragraph (b) of this section, and may be withdrawn 
pursuant to paragraph (c) of this section.
    (e) Timeframe for joint interpretation. (1) If the Commission and 
the Securities and Exchange Commission determine to issue a joint 
interpretation as described in paragraph (a) of this section, such joint 
interpretation shall be issued within 120 days after receipt of a 
complete submission requesting a joint interpretation under paragraph 
(a) or (d) of this section.
    (2) The Commission and the Securities and Exchange Commission shall 
consult with the Board of Governors of the Federal Reserve System prior 
to issuing any joint interpretation as described in paragraph (a) of 
this section.
    (3) If the Commission and the Securities and Exchange Commission 
seek public comment with respect to a joint interpretation regarding an 
agreement, contract, or transaction (or class thereof), the 120-day 
period described in paragraph (e)(1) of this section shall be stayed 
during the pendency of the comment period, but shall recommence with the 
business day after the public comment period ends.
    (4) Nothing in this section shall require the Commission and the 
Securities and Exchange Commission to issue any joint interpretation.
    (5) If the Commission and the Securities and Exchange Commission do 
not issue a joint interpretation within the time period described in 
paragraph (e)(1) or (e)(3) of this section, each of the Commission and 
the Securities and Exchange Commission shall publicly provide the 
reasons for not issuing such a joint interpretation within the 
applicable timeframes.
    (f) Joint proposed rule. (1) Rather than issue a joint 
interpretation pursuant to

[[Page 42]]

paragraph (a) of this section, the Commission and the Securities and 
Exchange Commission may issue a joint proposed rule, in consultation 
with the Board of Governors of the Federal Reserve System, to further 
define one or more of the terms swap, security-based swap, or mixed 
swap.
    (2) A joint proposed rule described in paragraph (f)(1) of this 
section shall be issued within the timeframe for issuing a joint 
interpretation set forth in paragraph (e) of this section.

[77 FR 48354, Aug. 13, 2012]



Sec.  1.9  Regulation of mixed swaps.

    (a) In general. The term mixed swap has the meaning set forth in 
section 1a(47)(D) of the Commodity Exchange Act.
    (b) Regulation of bilateral uncleared mixed swaps entered into by 
dually-registered dealers or major participants. A mixed swap that is 
neither executed on nor subject to the rules of a designated contract 
market, national securities exchange, swap execution facility, security-
based swap execution facility, or foreign board of trade; that will not 
be submitted to a derivatives clearing organization or registered or 
exempt clearing agency to be cleared; and where at least one party is 
registered with the Commission as a swap dealer or major swap 
participant and also with the Securities and Exchange Commission as a 
security-based swap dealer or major security-based swap participant, 
shall be subject to:
    (1) The following provisions of the Commodity Exchange Act, and the 
rules and regulations promulgated thereunder:
    (i) Examinations and information sharing: sections 4s(f) and 8 of 
the Commodity Exchange Act;
    (ii) Enforcement: sections 2(a)(1)(B), 4(b), 4b, 4c, 4s(h)(1)(A), 
4s(h)(4)(A), 6(c), 6(d), 6c, 6d, 9, 13(a), 13(b), and 23 of the 
Commodity Exchange Act;
    (iii) Reporting to a swap data repository: section 4r of the 
Commodity Exchange Act;
    (iv) Real-time reporting: section 2(a)(13) of the Commodity Exchange 
Act;
    (v) Capital: section 4s(e) of the Commodity Exchange Act; and
    (vi) Position Limits: section 4a of the Commodity Exchange Act; and
    (2) The provisions of the Federal securities laws, as defined in 
section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(47)), and the rules and regulations promulgated thereunder.
    (c) Process for determining regulatory treatment for other mixed 
swaps--(1) In general. Any person who desires or intends to list, trade, 
or clear a mixed swap (or class thereof) that is not subject to 
paragraph (b) of this section may request the Commission and the 
Securities and Exchange Commission to issue a joint order permitting the 
requesting person (and any other person or persons that subsequently 
lists, trades, or clears that mixed swap) to comply, as to parallel 
provisions only, with specified parallel provisions of either the 
Commodity Exchange Act or the Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.), and the rules and regulations thereunder (collectively, 
specified parallel provisions), instead of being required to comply with 
parallel provisions of both the Commodity Exchange Act and the 
Securities Exchange Act of 1934. For purposes of this paragraph (c), 
parallel provisions means comparable provisions of the Commodity 
Exchange Act and the Securities Exchange Act of 1934 that were added or 
amended by the Wall Street Transparency and Accountability Act of 2010 
with respect to swaps and security-based swaps, and the rules and 
regulations thereunder.
    (2) Request process. A person submitting a request pursuant to 
paragraph (c)(1) of this section must provide the Commission and the 
Securities and Exchange Commission with the following:
    (i) All material information regarding the terms of the specified, 
or specified class of, mixed swap;
    (ii) The economic characteristics and purpose of the specified, or 
specified class of, mixed swap;
    (iii) The specified parallel provisions, and the reasons the person 
believes such specified parallel provisions would be appropriate for the 
mixed swap (or class thereof); and
    (iv) An analysis of:

[[Page 43]]

    (A) The nature and purposes of the parallel provisions that are the 
subject of the request;
    (B) The comparability of such parallel provisions;
    (C) The extent of any conflicts or differences between such parallel 
provisions; and
    (D) Such other information as may be requested by the Commission or 
the Securities and Exchange Commission.
    (3) Request withdrawal. A person may withdraw a request made 
pursuant to paragraph (c)(1) of this section at any time prior to the 
issuance of a joint order under paragraph (c)(4) of this section by the 
Commission and the Securities and Exchange Commission in response to the 
request.
    (4) Issuance of orders. In response to a request under paragraph 
(c)(1) of this section, the Commission and the Securities and Exchange 
Commission, as necessary to carry out the purposes of the Wall Street 
Transparency and Accountability Act of 2010, may issue a joint order, 
after notice and opportunity for comment, permitting the requesting 
person (and any other person or persons that subsequently lists, trades, 
or clears that mixed swap) to comply, as to parallel provisions only, 
with the specified parallel provisions (or another subset of the 
parallel provisions that are the subject of the request, as the 
Commissions determine is appropriate), instead of being required to 
comply with parallel provisions of both the Commodity Exchange Act and 
the Securities Exchange Act of 1934. In determining the contents of such 
joint order, the Commission and the Securities and Exchange Commission 
may consider, among other things:
    (i) The nature and purposes of the parallel provisions that are the 
subject of the request;
    (ii) The comparability of such parallel provisions; and
    (iii) The extent of any conflicts or differences between such 
parallel provisions.
    (5) Timeframe. (i) If the Commission and the Securities and Exchange 
Commission determine to issue a joint order as described in paragraph 
(c)(4) of this section, such joint order shall be issued within 120 days 
after receipt of a complete request for a joint order under paragraph 
(c)(1) of this section, which time period shall be stayed during the 
pendency of the public comment period provided for in paragraph (c)(4) 
of this section and shall recommence with the business day after the 
public comment period ends.
    (ii) Nothing in this section shall require the Commission and the 
Securities and Exchange Commission to issue any joint order.
    (iii) If the Commission and the Securities and Exchange Commission 
do not issue a joint order within the time period described in paragraph 
(c)(5)(i) of this section, each of the Commission and the Securities and 
Exchange Commission shall publicly provide the reasons for not issuing 
such a joint order within that timeframe.

[77 FR 48354, Aug. 13, 2012]

          Minimum Financial and Related Reporting Requirements



Sec.  1.10  Financial reports of futures commission merchants and
introducing brokers.

    (a) Application for registration. (1) Except as otherwise provided, 
a futures commission merchant or an applicant for registration as a 
futures commission merchant, in order to satisfy any requirement in this 
part that it file a Form 1-FR, must file a Form 1-FR-FCM, and any 
reference in this part to Form 1-FR with respect to a futures commission 
merchant or applicant therefor shall be deemed to be a reference to Form 
1-FR-FCM. Except as otherwise provided, an introducing broker or an 
applicant for registration as an introducing broker, in order to satisfy 
any requirement in this part that it file a Form 1-FR, must file a Form 
1-FR-IB, and any reference in this part to Form 1-FR with respect to an 
introducing broker or applicant therefor shall be deemed to be a 
reference to Form 1-FR-IB.
    (2)(i)(A) Except as provided in paragraphs (a)(3) and (h) of this 
section, each person who files an application for registration as a 
futures commission merchant and who is not so registered at the time of 
such filing, must, concurrently with the filing of such application, 
file either:

[[Page 44]]

    (1) A Form 1-FR-FCM certified by an independent public accountant in 
accordance withSec. 1.16 as of a date not more than 45 days prior to 
the date on which such report is filed; or
    (2) A Form 1-FR-FCM as of a date not more than 17 business days 
prior to the date on which such report is filed and a Form 1-FR-FCM 
certified by an independent public accountant in accordance withSec. 
1.16 as of a date not more than one year prior to the date on which such 
report is filed.
    (B) Each such person must include with such financial report a 
statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (ii)(A) Except as provided in paragraphs (a)(3) and (h) of this 
section, each person who files an application for registration as an 
introducing broker and who is not so registered at the time of such 
filing, must, concurrently with the filing of such application, file 
either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance withSec. 1.16 as of a date not more than 45 days prior to 
the date on which such report is filed;
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which such report is filed and a Form 1-FR-IB certified 
by an independent public accountant in accordance withSec. 1.16 as of 
a date not more than one year prior to the date on which such report is 
filed;
    (3) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which such report is filed, Provided, however, that such 
applicant shall be subject to a review by the applicant's designated 
self-regulatory organization within six months of registration; or
    (4) A guarantee agreement.
    (B) Each person filing in accordance with paragraphs (a)(2)(ii)(A) 
(1), (2) or (3) of this section must include with such financial report 
a statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (3)(i) The provisions of paragraph (a)(2) of this section do not 
apply to any person succeeding to and continuing the business of another 
futures commission merchant. Each such person who files an application 
for registration as a futures commission merchant and who is not so 
registered in that capacity at the time of such filing must file a Form 
1-FR-FCM as of the first month end following the date on which his 
registration is approved. Such report must be filed with the National 
Futures Association, the Commission and the designated self-regulatory 
organization, if any, not more than 17 business days after the date for 
which the report is made.
    (ii) The provisions of paragraph (a)(2) of this section do not apply 
to any person succeeding to and continuing the business of another 
introducing broker.
    (A) Each such person who succeeds to and continues the business of 
an introducing broker which was not operating pursuant to a guarantee 
agreement, or which was operating pursuant to a guarantee agreement and 
was also a securities broker or dealer at the time of succession, who 
files an application for registration as an introducing broker, and who 
is not so registered in that capacity at the time of such filing, must 
file with the National Futures Association either a guarantee agreement 
with his application for registration or a Form 1-FR-IB as of the first 
month end following the date on which his registration is approved. Such 
Form 1-FR-IB must be filed not more than 17 business days after the date 
for which the report is made.
    (B) Each such person who succeeds to and continues the business of 
an introducing broker which was operating pursuant to a guarantee 
agreement and which was not also a securities broker or dealer at the 
time of succession, who files an application for registration as an 
introducing broker, and who is not so registered in that capacity at the 
time of such filing, must file with the National Futures Association 
either a guarantee agreement or a Form 1-FR-IB with his application for 
registration. If such person files a Form 1-FR-IB with his application 
for registration, such person must also file a Form 1-FR-IB, certified 
by an independent

[[Page 45]]

public accountant, as of a date no later than the end of the month 
registration is granted. The Form 1-FR-IB certified by an independent 
public accountant must be filed with the National Futures Association 
not more than 45 days after the date for which the report is made.
    (b) Filing of financial reports. (1)(i) Except as provided in 
paragraphs (b)(3) and (h) of this section, each person registered as a 
futures commission merchant must file a Form 1-FR-FCM as of the close of 
business each month. Each Form 1-FR-FCM must be filed no later than 17 
business days after the date for which the report is made.
    (ii) In addition to the monthly financial reports required by 
paragraph (b)(1)(i) of this section, each person registered as a futures 
commission merchant must file a Form 1-FR-FCM as of the close of its 
fiscal year, which must be certified by an independent public accountant 
in accordance withSec. 1.16, and must be filed no later than 90 days 
after the close of the futures commission merchant's fiscal year: 
Provided, however, that a registrant which is registered with the 
Securities and Exchange Commission as a securities broker or dealer must 
file this report not later than the time permitted for filing an annual 
audit report underSec. 240.17a-5(d)(5) of this title.
    (2)(i) Except as provided in paragraphs (b)(3) and (h) of this 
section, and except for an introducing broker operating pursuant to a 
guarantee agreement which is not also a securities broker or dealer, 
each person registered as an introducing broker must file a Form 1-FR-IB 
semiannually as of the middle and the close of each fiscal year. Each 
Form 1-FR-IB must be filed no later than 17 business days after the date 
for which the report is made.
    (ii)(A) In addition to the financial reports required by paragraph 
(b)(2)(i) of this section, each person registered as an introducing 
broker must file a Form 1-FR-IB as of the close of its fiscal year which 
must be certified by an independent public accountant in accordance with 
Sec.  1.16 no later than 90 days after the close of each introducing 
broker's fiscal year: Provided, however, that a registrant which is 
registered with the Securities and Exchange Commission as a securities 
broker or dealer must file this report not later than the time permitted 
for filing an annual audit report underSec. 240.17a-5(d)(5) of this 
title.
    (B) If an introducing broker has filed previously a Form 1-FR-IB, 
certified by an independent public accountant in accordance with the 
provisions of paragraphs (a)(2)(ii) or (j)(8) of this section andSec. 
1.16 of this part, as of a date not more than one year prior to the 
close of such introducing broker's fiscal year, it need not have 
certified by an independent public accountant the Form 1-FR-IB filed as 
of the introducing broker's first fiscal year-end following the as of 
date of its initial certified Form 1-FR-IB. In such a case, the 
introducing broker's Form 1-FR-IB filed as of the close of the second 
fiscal year-end following the as of date of its initial certified Form 
1-FR-IB must cover the period of time between those two dates and must 
be certified by an independent public accountant in accordance with 
Sec.  1.16 of this part.
    (3) The provisions of paragraphs (b)(1) and (b)(2) of this section 
may be met by any person registered as a futures commission merchant or 
as an introducing broker who is a member of a designated self-regulatory 
organization and conforms to minimum financial standards and related 
reporting requirements set by such designated self-regulatory 
organization in its bylaws, rules, regulations, or resolutions and 
approved by the Commission pursuant to Section 4f(b) of the Act and 
Sec.  1.52: Provided, however, That each such registrant shall promptly 
file with the Commission a true and exact copy of each financial report 
which it files with such designated self-regulatory organization.
    (4) Upon receiving written notice from any representative of the 
National Futures Association, the Commission or any self-regulatory 
organization of which it is a member, an applicant or registrant, except 
an applicant for registration as an introducing broker which has filed 
concurrently with its application for registration a guarantee agreement 
and which is not also a securities broker or dealer, must, monthly or at 
such times as specified, furnish the National Futures

[[Page 46]]

Association, the Commission or the self-regulatory organization 
requesting such information a Form 1-FR or such other financial 
information as requested by the National Futures Association, the 
Commission or the self-regulatory organization. Each such Form 1-FR or 
such other information must be furnished within the time period 
specified in the written notice, and in accordance with the provisions 
of paragraph (c) of this section.
    (c) Where to file reports. (1) Form 1-FR filed by an introducing 
broker pursuant to paragraph (b)(2) of this section need be filed only 
with, and will be considered filed when received by, the National 
Futures Association. Other reports or information provided for in this 
section will be considered filed when received by the regional office of 
the Commission with jurisdiction over the state in which the 
registrant's principal place of business is located and by the 
designated self-regulatory organization, if any; and reports or other 
information required to be filed by this section by an applicant for 
registration will be considered filed when received by the National 
Futures Association. Any report or information filed with the National 
Futures Association pursuant to this paragraph shall be deemed for all 
purposes to be filed with, and to be the official record of, the 
Commission.
    (2)(i) Except as provided in the last sentence of this subparagraph, 
all filings or other notices prepared by a futures commission merchant 
pursuant to this section may be submitted to the Commission in 
electronic form using a form of user authentication assigned in 
accordance with procedures established by or approved by the Commission, 
and otherwise in accordance with instructions issued by or approved by 
the Commission, if the futures commission merchant or a designated self-
regulatory organization has provided the Commission with the means 
necessary to read and to process the information contained in such 
report. A Form 1-FR required to be certified by an independent public 
accountant in accordance withSec. 1.16 which is filed by a futures 
commission merchant must be filed in paper form and may not be filed 
electronically.
    (ii) Except as provided in paragraph (h) of this section, all 
filings or other notices or applications prepared by an introducing 
broker or applicant for registration as an introducing broker or futures 
commission merchant pursuant to this section must be filed 
electronically in accordance with electronic filing procedures 
established by the National Futures Association. In the case of a Form 
1-FR-IB that is required to be certified by an independent public 
accountant in accordance withSec. 1.16, a paper copy of any such 
filing with the original manually signed certification must be 
maintained by the introducing broker or applicant for registration as an 
introducing broker in accordance withSec. 1.31.
    (3) Any information required of a registrant by a self-regulatory 
organization pursuant to paragraph (b)(4) of this section need be 
furnished only to such self-regulatory organization and the Commission, 
and any information required of an applicant by the National Futures 
Association pursuant to paragraph (b)(4) of this section need be 
furnished only to the National Futures Association and the Commission.
    (4) Any guarantee agreement entered into between a futures 
commission merchant and an introducing broker in accordance with the 
provisions of this section need be filed only with, and will be 
considered filed when received by, the National Futures Association.
    (d) Contents of financial reports. (1) Each Form 1-FR filed pursuant 
to thisSec. 1.10 which is not required to be certified by an 
independent public accountant must be completed in accordance with the 
instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss) and a statement of changes in 
ownership equity for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
    (iii) A statement of changes in liabilities subordinated to claims 
of general creditors for the period between the

[[Page 47]]

date of the most recent statement of financial condition filed with the 
Commission and the date for which the report is made;
    (iv) A statement of the computation of the minimum capital 
requirements pursuant toSec. 1.17 as of the date for which the report 
is made;
    (v) For a futures commission merchant only, the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement of secured amounts and funds held in separate accounts 
for foreign futures and foreign options customers in accordance with 
Sec.  30.7 of this chapter as of the date for which the report is made; 
and
    (vi) In addition to the information expressly required, such futher 
material information as may be necessary to make the required statements 
and schedules not misleading.
    (2) Each Form 1-FR filed pursuant to thisSec. 1.10 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss), cash flows, changes in ownership 
equity, and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent certified 
statement of financial condition filed with the Commission and the date 
for which the report is made: Provided, That for an applicant filing 
pursuant to paragraph (a)(2) of this section the period must be the year 
ending as of the date of the statement of financial condition;
    (iii) A statement of the computation of the minimum capital 
requirements pursuant toSec. 1.17 as of the date for which the report 
is made;
    (iv) For a futures commission merchant only, the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement of secured amounts and funds held in separate accounts 
for foreign futures and foreign options customers in accordance with 
Sec.  30.7 of this chapter as of the date for which the report is made;
    (v) Appropriate footnote disclosures;
    (vi) A reconciliation, including appropriate explanations, of the 
statement of the computation of the minimum capital requirements 
pursuant toSec. 1.17 and, for a futures commission merchant only, the 
statements of segregation requirements and funds in segregation for 
customers trading on U.S. commodity exchanges and for customers' dealer 
option accounts, and the statement of secured amounts and funds held in 
separate accounts for foreign futures and foreign options customers in 
accordance withSec. 30.7 of this chapter, in the certified Form 1-FR 
with the applicant's or registrant's corresponding uncertified most 
recent Form 1-FR filing when material differences exist or, if no 
material differences exist, a statement so indicating; and
    (vii) In addition to the information expressly required, such 
further material information as may be necessary to make the required 
statements not misleading.
    (3) The statements required by paragraphs (d)(2)(i) and (d)(2)(ii) 
of this section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraphs (b)(1)(ii) or 
(b)(2)(ii) of this section or accompanying the application for 
registration pursuant to paragraph (a)(2) of this section, rather than 
in the format specifically prescribed by these regulations: Provided, 
the statement of financial condition is presented in a format as 
consistent as possible with the Form 1-FR and a reconciliation is 
provided reconciling such statement of financial condition to the 
statement of the computation of the minimum capital requirements 
pursuant toSec. 1.17. Such reconciliation must be certified by an 
independent public accountant in accordance withSec. 1.16.
    (4) Attached to each Form 1-FR filed pursuant to this section must 
be an oath or affirmation that to the best knowledge and belief of the 
individual making such oath or affirmation the

[[Page 48]]

information contained in the Form 1-FR is true and correct. The 
individual making such oath or affirmation must be:
    (i) If the registrant or applicant is a sole proprietorship, the 
proprietor; if a partnership, any general partner; if a corporation, the 
chief executive officer or chief financial officer; and, if a limited 
liability company or limited liability partnership, the chief executive 
officer, the chief financial officer, the manager, the managing member, 
or those members vested with the management authority for the limited 
liability company or limited liability partnership; or
    (ii) If the registrant or applicant is registered with the 
Securities and Exchange Commission as a securities broker or dealer, the 
representative authorized underSec. 240.17a-5 of this title to file 
for the securities broker or dealer its Financial and Operational 
Combined Uniform Single Report under the Securities Exchange Act of 
1934, part II, part IIA, or part II CSE.
    (iii) In the case of a Form 1-FR filed via electronic transmission 
in accordance with procedures established by or approved by the 
Commission, such transmission must be accompanied by the user 
authentication assigned to the authorized signer under such procedures, 
and the use of such user authentication will constitute and become a 
substitute for the manual signature of the authorized signer for the 
purpose of making the oath or affirmation referred to in this paragraph.
    (e) Election of fiscal year. (1) An applicant wishing to establish a 
fiscal year other than the calendar year may do so by notifying the 
National Futures Association of its election of such fiscal year, in 
writing, concurrently with the filing of the Form 1-FR pursuant to 
paragraph (a)(2) of this section, but in no event may such fiscal year 
end more than one year from the date of the Form 1-FR filed pursuant to 
paragraph (a)(2) of this section. An applicant that does not so notify 
the National Futures Association will be deemed to have elected the 
calendar year as its fiscal year.
    (2) (i) A registrant must continue to use its elected fiscal year, 
calendar or otherwise, unless a change in such fiscal year has been 
approved pursuant to this paragraph (e)(2).
    (ii) Futures commission merchant registrants. (A) A futures 
commission merchant may file with its designated self-regulatory 
organization an application to change its fiscal year, a copy of which 
the registrant must file with the Commission. The application shall be 
approved or denied in writing by the designated self-regulatory 
organization. The registrant must file immediately with the Commission a 
copy of any notice it receives from the designated self-regulatory 
organization to approve or deny the registrant's application to change 
its fiscal year. A written notice of approval shall become effective 
upon the filing by the registrant of a copy with the Commission, and a 
written notice of denial shall be effective as of the date of the 
notice.
    (B) A futures commission merchant that is registered with the 
Securities and Exchange Commission as a securities broker or dealer may 
file with its designated self-regulatory organization copies of any 
notice or application filed with its designated examining authority, 
pursuant toSec. 240.17a-5(d)(1)(i) of this title, for a change in 
fiscal year or ``as of'' date for its annual audited financial 
statement. The registrant must also file immediately with the designated 
self-regulatory organization and the Commission copies of any notice it 
receives from its designated examining authority to approve or deny the 
registrant's request for change in fiscal year or ``as of'' date. Upon 
the receipt by the designated self-regulatory organization and the 
Commission of copies of any such notice of approval, the change in 
fiscal year or ``as of'' date referenced in the notice shall be deemed 
approved under this paragraph (e)(2).
    (C) Any copy that under this paragraph (e)(2) is required to be 
filed with the Commission shall be filed with the regional office of the 
Commission with jurisdiction over the state in which the registrant's 
principal place of business is located, and any copy or application to 
be filed with the designated self-regulatory organization shall be filed 
at its principal place of business.
    (iii) Introducing broker registrants. (A) An introducing broker may 
file with

[[Page 49]]

the National Futures Association an application to change its fiscal 
year, which shall be approved or denied in writing.
    (B) An introducing broker that is registered with the Securities and 
Exchange Commission as a securities broker or dealer may file with the 
National Futures Association copies of any notice or application filed 
with its designated examining authority, pursuant toSec. 240.17a-
5(d)(1)(i) of this title, for a change in fiscal year or ``as of'' date 
for its annual audited financial statement. The registrant must also 
file immediately with the National Futures Association copies of any 
notice it receives from its designated examining authority to approve or 
deny the registrant's request for change in fiscal year or ``as of'' 
date. Upon the receipt by the National Futures Association of copies of 
any such notice of approval, the change in fiscal year or ``as of'' date 
referenced in the notice shall be deemed approved under this paragraph 
(e)(2).
    (f) Extension of time for filing uncertified reports. (1) In the 
event a registrant finds that it cannot file its Form 1-FR, or, in 
accordance with paragraph (h) of this section, its Financial and 
Operational Combined Uniform Single Report under the Securities Exchange 
Act of 1934, part II, part IIA, or part II CSE (FOCUS report), for any 
period within the time specified in paragraphs (b)(1)(i) or (b)(2)(i) of 
this section without substantial undue hardship, it may request approval 
for an extension of time, as follows:
    (i) Futures commission merchant registrants. (A) A futures 
commission merchant may file with its designated self-regulatory 
organization an application for extension of time, a copy of which the 
registrant must file with the Commission. The application shall be 
approved or denied in writing by the designated self-regulatory 
organization. The registrant must file immediately with the Commission a 
copy of any notice it receives from the designated self-regulatory 
organization to approve or deny the registrant's request for extension 
of time. A written notice of approval shall become effective upon the 
filing by the registrant of a copy with the Commission, and a written 
notice of denial shall be effective as of the date of the notice.
    (B) A futures commission merchant that is registered with the 
Securities and Exchange Commission as a securities broker or dealer may 
file with its designated self-regulatory organization a copy of any 
application that the registrant has filed with its designated examining 
authority, pursuant toSec. 240.17-a5(l)(5) of this title, for an 
extension of time to file its FOCUS report. The registrant must also 
file immediately with the designated self-regulatory organization and 
the Commission copies of any notice it receives from its designated 
examining authority to approve or deny the requested extension of time. 
Upon receipt by the designated self-regulatory organization and the 
Commission of copies of any such notice of approval, the requested 
extension of time referenced in the notice shall be deemed approved 
under this paragraph (f)(1).
    (C) Any copy that under this subparagraph (f)(1)(i) is required to 
be filed with the Commission shall be filed with the regional office of 
the Commission with jurisdiction over the state in which the 
registrant's principal place of business is located.
    (ii) Introducing broker registrants. (A) An introducing broker may 
file with the National Futures Association an application for extension 
of the time, which shall be approved or denied in writing.
    (B) An introducing broker that is registered with the Securities and 
Exchange Commission as a securities broker or dealer may file with the 
National Futures Association copies of any application that the 
registrant has filed with its designated examining authority, pursuant 
toSec. 240.17-a5(l)(5) of this title, for an extension of time to file 
its FOCUS report. The registrant must also file immediately with the 
National Futures Association copies of any notice it receives from its 
designated examining authority to approve or deny the requested 
extension of time. Upon the receipt by the National Futures Association 
of a copy of any such notice of approval, the requested extension of 
time referenced in the notice shall be deemed approved under this 
paragraph (f)(1)(ii).

[[Page 50]]

    (2) In the event an applicant finds that it cannot file its report 
for any period within the time specified in paragraph (b)(4) of this 
section without substantial undue hardship, it may file with the 
National Futures Association an application for an extension of time to 
a specified date which may not be more than 90 days after the date as of 
which the financial statements were to have been filed. The application 
must state the reasons for the requested extension and must contain an 
agreement to file the report on or before the specified date. The 
application must be received by the National Futures Association before 
the time specified in paragraph (b)(4) of this section for filing the 
report. Notice of such application must be filed with the regional 
office of the Commission with jurisdiction over the state in which the 
applicant's principal place of business is located concurrently with the 
filing of such application with the National Futures Association. Within 
ten calendar days after receipt of the application for an extension of 
time, the National Futures Association shall:
    (i) Notify the applicant of the grant or denial of the requested 
extension; or
    (ii) Indicate to the applicant that additional time is required to 
analyze the request, in which case the amount of time needed will be 
specified.
    (g) Public availability of reports. (1) Forms 1-FR filed pursuant to 
this section, and FOCUS reports filed in lieu of Forms 1-FR pursuant to 
paragraph (h) of this section, will be treated as exempt from mandatory 
public disclosure for purposes of the Freedom of Information Act and the 
Government in the Sunshine Act and parts 145 and 147 of this chapter, 
except for the information described in paragraph (g)(2) of this 
section.
    (2) The following information in Forms 1-FR, and the same or 
equivalent information in FOCUS reports filed in lieu of Forms 1-FR, 
will be publicly available:
    (i) The amount of the applicant's or registrant's adjusted net 
capital; the amount of its minimum net capital requirement underSec. 
1.17 of this chapter; and the amount of its adjusted net capital in 
excess of its minimum net capital requirement; and
    (ii) The following statements and footnote disclosures thereof: the 
Statement of Financial Condition in the certified annual financial 
reports of futures commission merchants and introducing brokers; the 
Statements (to be filed by a futures commission merchant only) of 
Segregation Requirements and Funds in Segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the Statement (to be filed by a futures commission merchant only) of 
Secured Amounts and Funds held in Separate Accounts for foreign futures 
and foreign options customers in accordance withSec. 30.7 of this 
chapter.
    (3) [Reserved]
    (4) All information that is exempt from mandatory public disclosure 
under paragraph (g)(1) of this section will, however, be available for 
official use by any official or employee of the United States or any 
State, by any self-regulatory organization of which the person filing 
such report is a member, by the National Futures Association in the case 
of an applicant, and by any other person to whom the Commission believes 
disclosure of such information is in the public interest. Nothing in 
this paragraph (g) will limit the authority of any self-regulatory 
organization to request or receive any information relative to its 
members' financial condition.
    (5) The independent accountant's opinion and a guarantee agreement 
filed pursuant to this section will be deemed public information.
    (h) Filing option available to a futures commission merchant or an 
introducing broker that is also a securities broker or dealer. Any 
applicant or registrant which is registered with the Securities and 
Exchange Commission as a securities broker or dealer may comply with the 
requirements of this section by filing (in accordance with paragraphs 
(a), (b), (c), and (j) of this section) a copy of its Financial and 
Operational Combined Uniform Single Report under the Securities Exchange 
Act of 1934, Part II, Part IIA, or Part II CSE (FOCUS Report), in lieu 
of Form 1-FR; Provided, however, That all information which is required 
to be furnished on and submitted with Form 1-FR is provided

[[Page 51]]

with such FOCUS Report; and Provided, further, That a certified FOCUS 
Report filed by an introducing broker or applicant for registration as 
an introducing broker in lieu of a certified Form 1-FR-IB must be filed 
according to National Futures Association rules, either in paper form or 
electronically, in accordance with procedures established by the 
National Futures Association, and if filed electronically, a paper copy 
of such filing with the original manually signed certification must be 
maintained by such introducing broker or applicant in accordance with 
Sec.  1.31.
    (i) Filing option available to an introducing broker or applicant 
for registration as an introducing broker which is also a country 
elevator. Any introducing broker or applicant for registration as an 
introducing broker which is also a country elevator but which is not 
also a securities broker or dealer may comply with the requirements of 
this section by filing (in accordance with paragraphs (a), (b) and (c) 
of this section) a copy of a financial report prepared by a grain 
commission firm which has been authorized by the Deputy Vice President 
of the Commodity Credit Corporation of the United States Department of 
Agriculture to provide a compilation report of financial statements of 
warehousemen for purposes of Uniform Grain Storage Agreements, and which 
complies with the standards for independence set forth inSec. 
1.16(b)(2) with respect to the registrant or applicant: Provided, 
however, That all information which is required to be furnished on and 
submitted with Form 1-FR is provided with such financial report, 
including a statement of the computation of the minimum capital 
requirements pursuant toSec. 1.17: And, provided further, That the 
balance sheet is presented in a format as consistent as possible with 
the Form 1-FR and a reconciliation is provided reconciling such balance 
sheet to the statement of the computation of the minimum capital 
requirements pursuant toSec. 1.17. Attached to each financial report 
filed pursuant to this paragraph (i) must be an oath or affirmation that 
to the best knowledge and belief of the individual making such oath or 
affirmation the information contained therein is true and correct. If 
the applicant or registrant is a sole proprietorship, then the oath or 
affirmation must be made by the proprietor; if a partnership, by a 
general partner; or if a corporation, by the chief executive officer or 
chief financial officer.
    (j) Requirements for guarantee agreement. (1) A guarantee agreement 
filed pursuant to this section must be signed in a manner sufficient to 
be a binding guarantee under local law by an appropriate person on 
behalf of the futures commission merchant or retail foreign exchange 
dealer and the introducing broker, and each signature must be 
accompanied by evidence that the signatory is authorized to enter the 
agreement on behalf of the futures commission merchant, retail foreign 
exchange dealer, or introducing broker and is such an appropriate 
person. For purposes of this paragraph (j), an appropriate person shall 
be the proprietor, if the firm is a sole proprietorship; a general 
partner, if the firm is a partnership; and either the chief executive 
officer or the chief financial officer, if the firm is a corporation; 
and, if the firm is a limited liability company or limited liability 
partnership, either the chief executive officer, the chief financial 
officer, the manager, the managing member, or those members vested with 
the management authority for the limited liability company or limited 
liability partnership.
    (2) No futures commission merchant or retail foreign exchange dealer 
may enter into a guarantee agreement if:
    (i) It knows or should have known that its adjusted net capital is 
less than the amount set forth inSec. 1.12(b) of this part orSec. 
5.6(b) of this chapter, as applicable; or
    (ii) There is filed against the futures commission merchant or 
retail foreign exchange dealer an adjudicatory proceeding brought by or 
before the Commission pursuant to the provisions of sections 6(c), 6(d), 
6c, 6d, 8a or 9 of the Act orSec. 3.55,Sec. 3.56 orSec. 3.60 of 
this chapter.
    (3) A retail foreign exchange dealer may enter into a guarantee 
agreement only with an introducing broker as defined inSec. 5.1(f)(1) 
of this chapter. A retail foreign exchange dealer may not enter into a 
guarantee agreement with

[[Page 52]]

an introducing broker as defined inSec. 1.3(mm) of this part.
    (4) A guarantee agreement filed in connection with an application 
for initial registration as an introducing broker in accordance with the 
provisions ofSec. 3.10(a) of this chapter shall become effective upon 
the granting of registration or, if appropriate, a temporary license, to 
the introducing broker. A guarantee agreement filed other than in 
connection with an application for initial registration as an 
introducing broker shall become effective as of the date agreed to by 
the parties.
    (5)(i) If the registration of the introducing broker is suspended, 
revoked, or withdrawn in accordance with the provisions of this chapter, 
the guarantee agreement shall expire as of the date of such suspension, 
revocation or withdrawal.
    (ii) If the registration of the futures commission merchant or 
retail foreign exchange dealer is suspended or revoked, the guarantee 
agreement shall expire 30 days after such suspension or revocation, or 
at such earlier time as may be approved by the Commission, the 
introducing broker, and the introducing broker's designated self-
regulatory organization.
    (6) A guarantee agreement may be terminated at any time during the 
term thereof:
    (i) By mutual written consent of the parties, signed by an 
appropriate person on behalf of each party, with prompt written notice 
thereof, signed by an appropriate person on behalf of each party, to the 
Commission and to the designated self-regulatory organizations of the 
futures commission merchant or retail foreign exchange dealer and the 
introducing broker;
    (ii) For good cause shown, by either party giving written notice of 
its intention to terminate the agreement, signed by an appropriate 
person, to the other party to the agreement, to the Commission, and to 
the designated self-regulatory organizations of the futures commission 
merchant or retail foreign exchange dealer and the introducing broker; 
or
    (iii) By either party giving written notice of its intention to 
terminate the agreement, signed by an appropriate person, at least 30 
days prior to the proposed termination date, to the other party to the 
agreement, to the Commission, and to the designated self-regulatory 
organizations of the futures commission merchant or retail foreign 
exchange dealer and the introducing broker.
    (7) The termination of a guarantee agreement by a futures commission 
merchant, retail foreign exchange dealer or an introducing broker, or 
the expiration of such an agreement, shall not relieve any party from 
any liability or obligation arising from acts or omissions which 
occurred during the term of the agreement.
    (8) An introducing broker may not simultaneously be a party to more 
than one guarantee agreement: Provided, however, That the provisions of 
this paragraph (j)(8) shall not be deemed to preclude an introducing 
broker from entering into a guarantee agreement with another futures 
commission merchant or retail foreign exchange dealer if the introducing 
broker, futures commission merchant or retail foreign exchange dealer 
which is a party to the existing agreement has provided notice of 
termination of the existing agreement in accordance with the provisions 
of paragraph (j)(6) of this section, and the new guarantee agreement 
does not become effective until the day following the date of 
termination of the existing agreement: And, provided further, That the 
provisions of this paragraph (j)(8) shall not be deemed to preclude an 
introducing broker from entering into a guarantee agreement with another 
futures commission merchant or retail foreign exchange dealer if the 
futures commission merchant or retail foreign exchange dealer which is a 
party to the existing agreement ceases to remain registered and the 
existing agreement would therefore expire in accordance with the 
provisions of paragraph (j)(6)(ii) of this section.
    (9)(i)(A) An introducing broker that is a party to a guarantee 
agreement that has been terminated in accordance with the provisions of 
paragraph (j)(6) of this section, or that is due to expire in accordance 
with the provisions of paragraph (j)(5)(ii) of this section, must cease 
doing business as an introducing broker on or before the effective date

[[Page 53]]

of such termination or expiration unless, on or before 10 days prior to 
the effective date of such termination or expiration or such other 
period of time as the Commission or the designated self-regulatory 
organization may allow for good cause shown, the introducing broker 
files with its designated self-regulatory organization either a new 
guarantee agreement effective as of the day following the date of 
termination of the existing agreement, or, in the case of a guarantee 
agreement that is due to expire in accordance with the provisions of 
paragraph (j)(4)(ii) of this section, a new guarantee agreement 
effective on or before such expiration, or either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance withSec. 1.16 as of a date not more than 45 days prior to 
the date on which the report is filed; or
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which the report is filed and a Form 1-FR-IB certified by 
an independent public accountant in accordance withSec. 1.16 as of a 
date not more than one year prior to the date on which the report is 
filed: Provided, however, that an introducing broker as defined inSec. 
5.1(f)(1) of this chapter that is party to a guarantee agreement that 
has been terminated or that has expired must cease doing business as an 
introducing broker on or before the effective date of such termination 
or expiration unless, on or before 10 days prior to the effective date 
of such termination or expiration or such other period of time as the 
Commission or the designated self-regulatory organization may allow for 
good cause shown, the introducing broker files with its designated self-
regulatory organization a new guarantee agreement effective on or before 
the termination or expiration date of the terminating or expiring 
guarantee agreement.
    (B) Each person filing a Form 1-FR-IB in accordance with this 
section must include with the financial report a statement describing 
the source of his current assets and representing that his capital has 
been contributed for the purpose of operating his business and will 
continue to be used for such purpose.
    (ii)(A) Notwithstanding the provisions of paragraph (j)(9)(i) of 
this section or ofSec. 1.17(a), an introducing broker that is a party 
to a guarantee agreement that has been terminated in accordance with the 
provisions of paragraph (j)(6)(ii) of this section shall not be deemed 
to be in violation of the minimum adjusted net capital requirement of 
Sec.  1.17(a)(1)(iii) or (a)(2) for 30 days following such termination. 
Such an introducing broker must cease doing business as an introducing 
broker on or after the effective date of such termination, and may not 
resume doing business as an introducing broker unless and until it files 
a new agreement or either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance withSec. 1.16 as of a date not more than 45 days prior to 
the date on which the report is filed; or
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which the report is filed and a Form 1-FR-IB certified by 
an independent public accountant in accordance withSec. 1.16 as of a 
date not more than one year prior to the date on which the report is 
filed: Provided, however, that an introducing broker as defined inSec. 
5.1(f)(1) of this chapter that is party to a guarantee agreement that 
has been terminated must cease doing business as an introducing broker 
from and after the effective date of such termination, and may not 
resume doing business as an introducing broker as defined inSec. 
5.1(f)(1) of this chapter unless and until it files a new guarantee 
agreement.
    (B) Each person filing a Form 1-FR-IB in accordance with this 
section must include with the financial report a statement describing 
the source of his current assets and representing that his capital has 
been contributed for the purpose of operating his business and will 
continue to be used for such purpose.
    (k) Filing option available to an introducing broker. (1) Any 
introducing broker or applicant for registration as an introducing 
broker which is not operating or intending to operate pursuant to a 
guarantee agreement may comply with the requirements of this section by 
filing (in accordance with

[[Page 54]]

paragraphs (a), (b) and (c) of this section) a Form 1-FR-IB in lieu of a 
Form 1-FR-FCM.
    (2) If an introducing broker or applicant therefor avails itself of 
the filing option available under paragraph (k)(1) of this section, the 
report required to be filed in accordance withSec. 1.16(c)(5) of this 
part must be filed as of the date of the Form 1-FR-IB being filed, and 
such an introducing broker or applicant therefor must maintain its 
financial records and make its monthly formal computation of its 
adjusted net capital, as required bySec. 1.18 of this part, in a 
manner consistent with Form 1-FR-IB.

(The information collection requirements contained inSec. 1.10 were 
approved by the Office of Management and Budget under control number 
3038-0024; in paragraphs (a) and (b) under control number 3038-0023; and 
in paragraph (f) under control number 3038-0003.)

[43 FR 39967, Sept. 8, 1978]

    Editorial Note: For Federal Register citations affectingSec. 1.10, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.  1.11  [Reserved]



Sec.  1.12  Maintenance of minimum financial requirements by futures 
commission merchants and introducing brokers.

    (a) Each person registered as a futures commission merchant or who 
files an application for registration as a futures commission merchant, 
and each person registered as an introducing broker or who files an 
application for registration as an introducing broker (except for an 
introducing broker or applicant for registration as an introducing 
broker operating pursuant to, or who has filed concurrently with its 
application for registration, a guarantee agreement and who is not also 
a securities broker or dealer), who knows or should have known that its 
adjusted net capital at any time is less than the minimum required by 
Sec.  1.17 or by the capital rule of any self-regulatory organization to 
which such person is subject, if any, must:
    (1) Give telephonic notice, to be confirmed in writing by facsimile 
notice, as set forth in paragraph (i) of this section that the 
applicant's or registrant's adjusted net capital is less than required 
bySec. 1.17 or by other capital rule, identifying the applicable 
capital rule. The notice must be given immediately after the applicant 
or registrant knows or should know that its adjusted net capital is less 
than required by any of the aforesaid rules to which the applicant or 
registrant is subject; and
    (2) Provide together with such notice documentation in such form as 
necessary to adequately reflect the applicant's or registrant's capital 
condition as of any date such person's adjusted net capital is less than 
the minimum required. The applicant or registrant must provide similar 
documentation for other days as the Commission may request.
    (b) Each person registered as a futures commission merchant, or who 
files an application for registration as a futures commission merchant, 
who knows or should have known that its adjusted net capital at any time 
is less than the greatest of:
    (1) 150 percent of the minimum dollar amount required bySec. 
1.17(a)(1)(i)(A);
    (2) 110 percent of the amount required bySec. 1.17(a)(1)(i)(B);
    (3) 150 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member, unless such 
amount has been determined by a margin-based capital computation set 
forth in the rules of the registered futures association, and such 
amount meets or exceeds the amount of adjusted net capital required 
under the margin-based capital computation set forth inSec. 
1.17(a)(1)(i)(B), in which case the required percentage is 110 percent, 
or
    (4) For securities brokers or dealers, the amount of net capital 
specified in Rule 17a-11(c) of the Securities and Exchange Commission 
(17 CFR 240.17a-11(c)), must file written notice to that effect as set 
forth in paragraph (i) of this section within twenty-four (24) hours of 
such event.
    (c) If an applicant or registrant at any time fails to make or keep 
current the books and records required by these regulations, such 
applicant or registrant must, on the same day such event occurs, provide 
facsimile notice of such fact, specifying the books and

[[Page 55]]

records which have not been made or which are not current, and within 
forty-eight (48) hours after giving such notice file a written report 
stating what steps have been and are being taken to correct the 
situation.
    (d) Whenever any applicant or registrant discovers or is notified by 
an independent public accountant, pursuant toSec. 1.16(e)(2) of this 
chapter, of the existence of any material inadequacy, as specified in 
Sec.  1.16(d)(2) of this chapter, such applicant or registrant must give 
facsimile notice of such material inadequacy within twenty-four (24) 
hours, and within forty-eight (48) hours after giving such notice file a 
written report stating what steps have been and are being taken to 
correct the material inadequacy.
    (e) Whenever any self-regulatory organization learns that a member 
registrant has failed to file a notice or written report as required by 
Sec.  1.12, that self-regulatory organization must immediately report 
this failure by telephone, confirmed in writing immediately by facsimile 
notice, as provided in paragraph (i) of this section.
    (f)(1) [Reserved]
    (2) Whenever a registered futures commission merchant determines 
that any position it carries for another registered futures commission 
merchant or for a registered leverage transaction merchant must be 
liquidated immediately, transferred immediately or that the trading of 
any account of such futures commission merchant or leverage transaction 
merchant shall be only for purposes of liquidation, because the other 
futures commission merchant or the leverage transaction merchant has 
failed to meet a call for margin or to make other required deposits, the 
carrying futures commission merchant must immediately give telephonic 
notice, confirmed in writing immediately by facsimile notice, of such a 
determination to the principal office of the Commission at Washington, 
DC.
    (3) Whenever a registered futures commission merchant determines 
that an account which it is carrying is undermargined by an amount which 
exceeds the futures commission merchant's adjusted net capital 
determined in accordance withSec. 1.17, the futures commission 
merchant must immediately give telephonic notice, confirmed in writing 
immediately by facsimile notice, of such a determination to the 
designated self-regulatory organization and the principal office of the 
Commission at Washington, DC. This paragraph (f)(3) shall apply to any 
account carried by the futures commission merchant, whether a customer, 
noncustomer, omnibus or proprietary account. For purposes of this 
paragraph (f)(3), if any person has an interest of 10 percent or more in 
ownership or equity in, or guarantees, more than one account, or has 
guaranteed an account in addition to his own account, all such accounts 
shall be combined. A designated self-regulatory organization may grant 
an exemption from the provisions of this paragraph to a futures 
commission merchant with respect to any particular account on a 
continuous basis provided the designated self-regulatory organization 
documents the reasons for granting such an exemption and continues to 
monitor any such account.
    (4) A futures commission merchant shall report immediately by 
telephone, confirmed immediately in writing by facsimile notice, 
whenever any commodity interest account it carries is subject to a 
margin call, or call for other deposits required by the futures 
commission merchant, that exceeds the futures commission merchant's 
excess adjusted net capital, determined in accordance withSec. 1.17, 
and such call has not been answered by the close of business on the day 
following the issuance of the call. This applies to all accounts carried 
by the futures commission merchant, whether customer, noncustomer, or 
omnibus, that are subject to margining, including commodity futures and 
options. In addition to actual margin deposits by an account owner, a 
futures commission merchant may also take account of favorable market 
moves in determining whether the margin call is required to be reported 
under this paragraph.
    (5)(i) A futures commission merchant shall report immediately by 
telephone, confirmed immediately in writing by facsimile notice, 
whenever its excess adjusted net capital is less than six

[[Page 56]]

percent of the maintenance margin required by the futures commission 
merchant on all positions held in accounts of a noncustomer other than a 
noncustomer who is subject to the minimum financial requirements of:
    (A) A futures commission merchant, or
    (B) The Securities and Exchange Commission for a securities broker 
and dealer.
    (ii) For purposes of paragraph (f)(5)(i) of this section, 
maintenance margin shall include all deposits which the futures 
commission merchant requires the noncustomer to maintain in order to 
carry its positions at the futures commission merchant.
    (g) A futures commission merchant shall provide written notice of a 
substantial reduction in capital as compared to that last reported in a 
financial report filed with the Commission pursuant toSec. 1.10. This 
notice shall be provided as follows:
    (1) If any event or series of events, including any withdrawal, 
advance, loan or loss cause, on a net basis, a reduction in net capital 
(or, if the futures commission merchant is qualified to use the filing 
option available underSec. 1.10(h), tentative net capital as defined 
in the rules of the Securities and Exchange Commission) of 20 percent or 
more, notice must be provided within two business days of the event or 
series of events causing the reduction; and
    (2) If equity capital of the futures commission merchant or a 
subsidiary or affiliate of the futures commission merchant consolidated 
pursuant toSec. 1.17(f) (or 17 CFR 240.15c3-1e) would be withdrawn by 
action of a stockholder or a partner or a limited liability company 
member or by redemption or repurchase of shares of stock by any of the 
consolidated entities or through the payment of dividends or any similar 
distribution, or an unsecured advance or loan would be made to a 
stockholder, partner, sole proprietor, limited liability company member, 
employee or affiliate, such that the withdrawal, advance or loan would 
cause, on a net basis, a reduction in excess adjusted net capital (or, 
if the futures commission merchant is qualified to use the filing option 
available underSec. 1.10(h), excess net capital as defined in the 
rules of the Securities and Exchange Commission) of 30 percent or more, 
notice must be provided at least two business days prior to the 
withdrawal, advance or loan that would cause the reduction: Provided, 
however, That the provisions of paragraphs (g)(1) and (g)(2) of this 
section do not apply to any futures or securities transaction in the 
ordinary course of business between a futures commission merchant and 
any affiliate where the futures commission merchant makes payment to or 
on behalf of such affiliate for such transaction and then receives 
payment from such affiliate for such transaction within two business 
days from the date of the transaction.
    (3) Upon receipt of such notice from a futures commission merchant, 
the Director of the Division of Clearing and Intermediary Oversight or 
the Director's designee may require that the futures commission merchant 
provide or cause a Material Affiliated Person (as that term is defined 
inSec. 1.14(a)(2)) to provide, within three business days from the 
date of request or such shorter period as the Division Director or 
designee may specify, such other information as the Division Director or 
designee determines to be necessary based upon market conditions, 
reports provided by the futures commission merchant, or other available 
information.
    (h) Whenever a person registered as a futures commission merchant 
knows or should know that the total amount of its funds on deposit in 
segregated accounts on behalf of customers, or that the total amount set 
aside on behalf of customers trading on non-United States markets, is 
less than the total amount of such funds required by the Act and the 
Commission's rules to be on deposit in segregated or secured amount 
accounts on behalf of such customers, the registrant must report such 
deficiency immediately by telephone notice, confirmed immediately in 
writing by facsimile notice, to the registrant's designated self-
regulatory organization and the principal office of the Commission in 
Washington, DC, to the attention of the Director and the Chief 
Accountant of the Division of Clearing and Intermediary Oversight.
    (i)(1) Every notice and written report required to be given or filed 
by this

[[Page 57]]

section (except for notices required by paragraph (f) of this section) 
by a futures commission merchant or a self-regulatory organization must 
be filed with the regional office of the Commission with jurisdiction 
over the state in which the registrant's principal place of business is 
located, with the principal office of the Commission in Washington, DC, 
with the designated self-regulatory organization, if any; and with the 
Securities and Exchange Commission, if such registrant is a securities 
broker or dealer. Every notice and written report required to be given 
or filed by this section by an applicant for registration as a futures 
commission merchant must be filed with the National Futures Association 
(on behalf of the Commission), with the designated self-regulatory 
organization, if any, and with the Securities and Exchange Commission, 
if such applicant is a securities broker or dealer. Any notice or report 
filed with the National Futures Association pursuant to this paragraph 
shall be deemed for all purposes to be filed with, and to be the 
official record of, the Commission.
    (2) Every notice and written report which an introducing broker or 
applicant for registration as an introducing broker is required to give 
or file by paragraphs (a), (c) and (d) of this section must be filed 
with the National Futures Association (on behalf of the Commission), 
with the designated self-regulatory organization, if any, and with every 
futures commission merchant carrying or intending to carry customer 
accounts for the introducing broker or applicant for registration as an 
introducing broker. Any notice or report filed with the National Futures 
Association pursuant to this paragraph shall be deemed for all purposes 
to be filed with, and to be the official record of, the Commission.
    (3) Every notice or report required to be provided in writing to the 
Commission under this section may, in lieu of facsimile, be filed via 
electronic transmission using a form of user authentication assigned in 
accordance with procedures established by or approved by the Commission, 
and otherwise in accordance with instructions issued by or approved by 
the Commission. Any such electronic submission must clearly indicate the 
registrant or applicant on whose behalf such filing is made and the use 
of such user authentication in submitting such filing will constitute 
and become a substitute for the manual signature of the authorized 
signer.

(Approved by the Office of Management and Budget under control number 
3038-0024)

[43 FR 39969, Sept. 8, 1978]

    Editorial Note: For Federal Register citations affectingSec. 1.12, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.  1.13  [Reserved]



Sec.  1.14  Risk assessment recordkeeping requirements for futures 
commission merchants.

    (a) Requirement to maintain and preserve information. (1) Each 
futures commission merchant registered with the Commission pursuant to 
Section 4d of the Act, unless exempt pursuant to paragraph (d) of this 
section, shall prepare, maintain and preserve the following information:
    (i) An organizational chart which includes the futures commission 
merchant and each of its affiliated persons. Included in the 
organizational chart shall be a designation of which affiliated persons 
are ``Material Affiliated Persons'' as that term is used in paragraph 
(a)(2) of this section, which Material Affiliated Persons file routine 
financial or risk exposure reports with the Securities and Exchange 
Commission, a federal banking agency, an insurance commissioner or other 
similar official or agency of a state, or a foreign regulatory 
authority, and which Material Affiliated Persons are dealers in 
financial instruments with off-balance sheet risk and, if a Material 
Affiliated Person is such a dealer, whether it is also an end-user of 
such instruments;
    (ii) Written policies, procedures, or systems concerning the futures 
commission merchant's:
    (A) Method(s) for monitoring and controlling financial and 
operational risks to it resulting from the activities of any of its 
affiliated persons;
    (B) Financing and capital adequacy, including information regarding

[[Page 58]]

sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets of the futures commission 
merchant, the structure of debt capital, and sources of alternative 
funding;
    (C) Establishing and maintaining internal controls with respect to 
market risk, credit risk, and other risks created by the futures 
commission merchant's proprietary and noncustomer clearing activities, 
including systems and policies for supervising, monitoring, reporting 
and reviewing trading activities in securities, futures contracts, 
commodity options, forward contracts and financial instruments; policies 
for hedging or managing risks created by trading activities or 
supervising accounts carried for noncustomer affiliates, including a 
description of the types of reviews conducted to monitor positions; and 
policies relating to restrictions or limitations on trading activities: 
Provided, however, that if the futures commission merchant has no such 
written policies, procedures or systems, it must so state in writing;
    (iii) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the futures 
commission merchant's organizational structure, which shall include the 
futures commission merchant and its other Material Affiliated Persons, 
prepared in accordance with generally accepted accounting principles, 
which consolidated balance sheets shall be audited by an independent 
certified public accountant if an annual audit is performed in the 
ordinary course of business, but which otherwise may be unaudited, and 
which shall include appropriate explanatory notes. The consolidating 
balance sheets may be those prepared by the futures commission 
merchant's highest level Material Affiliated Person as part of its 
internal financial reporting process. Any additional information 
required to be filed underSec. 1.15(a)(2)(iii) shall also be 
maintained and preserved; and
    (iv) Fiscal year-end consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated Person within the futures commission merchant's 
organizational structure, which shall include the futures commission 
merchant and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which shall 
include appropriate explanatory notes. The consolidating statements may 
be those prepared by the futures commission merchant's highest level 
Material Affiliated Person as part of its internal financial reporting 
process. Any additional information required to be filed underSec. 
1.15(a)(2)(iii) shall also be maintained and preserved.
    (2) The determination of whether an affiliated person of a futures 
commission merchant is a Material Affiliated Person shall involve 
consideration of all aspects of the activities of, and the relationship 
between, both entities, including without limitation, the following 
factors:
    (i) The legal relationship between the futures commission merchant 
and the affiliated person;
    (ii) The overall financing requirements of the futures commission 
merchant and the affiliated person, and the degree, if any, to which the 
futures commission merchant and the affiliated person are financially 
dependent on each other;
    (iii) The degree, if any, to which the futures commission merchant 
or its customers rely on the affiliated person for operational support 
or services in connection with the futures commission merchant's 
business;
    (iv) The level of market, credit or other risk present in the 
activities of the affiliated person; and
    (v) The extent to which the affiliated person has the authority or 
the ability to cause a withdrawal of capital from the futures commission 
merchant.
    (3) For purposes of this section andSec. 1.15, the term Material 
Affiliated Person does not include a natural person.
    (4) The information, reports and records required by this section 
shall be maintained and preserved, and made

[[Page 59]]

readily available for inspection, in accordance with the provisions of 
Sec.  1.31.
    (b) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. A futures 
commission merchant shall be deemed to be in compliance with the 
recordkeeping requirements of paragraphs (a)(1)(i), (a)(1)(iii) and 
(a)(1)(iv) of this section with respect to a Material Affiliated Person 
if:
    (1) The futures commission merchant is required, or that Material 
Affiliated Person is required, to maintain and preserve information, or 
such information is maintained and preserved by the futures commission 
merchant on behalf of the Material Affiliated Person, pursuant toSec. 
240.17h-1T of this title, or such other risk assessment regulations as 
the Securities and Exchange Commission may adopt, and maintains and 
makes available for inspection by the Commission in accordance with the 
provisions of this section copies of the records and reports maintained 
and filed on Form 17-H (or such other forms or reports as may be 
required) by such futures commission merchant or its Material Affiliated 
Person with the Securities and Exchange Commission pursuant to 
Sec.Sec. 240.17h-1T and 240.17h-2T of this title, or such other risk 
assessment regulations as the Securities and Exchange Commission may 
adopt;
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the futures 
commission merchant or such Material Affiliated Person maintains and 
makes available for inspection by the Commission in accordance with the 
provisions of this section copies of all reports submitted by such 
Material Associated Person to the Federal banking agency pursuant to 
section 5211 of the Revised Statutes, section 9 of the Federal Reserve 
Act, section 7(a) of the Federal Deposit Insurance Act, section 10(b) of 
the Home Owners' Loan Act, or section 5 of the Bank Holding Company Act 
of 1956; or
    (3) In the case of a Material Affiliated Person that is subject to 
the supervision of an insurance commissioner or other similar official 
or agency of a state, the futures commission merchant or such Material 
Affiliated Person maintains and makes available for inspection by the 
Commission in accordance with the provisions of this section copies of 
the annual statements with schedules and exhibits prepared by the 
Material Affiliated Person on forms prescribed by the National 
Association of Insurance Commissioners or by a state insurance 
commissioner.
    (c) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of a Foreign Regulatory Authority. A futures 
commission merchant shall be deemed to be in compliance with the 
recordkeeping requirements of paragraphs (a)(1)(iii) and (a)(1)(iv) of 
this section with respect to a Material Affiliated Person if such 
futures commission merchant maintains and makes available, or causes 
such Material Affiliated Person to make available, for inspection by the 
Commission in accordance with the provisions of this section copies of 
any financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that: (1) the futures commission merchant agrees to 
use its best efforts to obtain from the Material Affiliated Person and 
to cause the Material Affiliated Person to provide, directly or through 
its foreign futures authority or other foreign regulatory authority, any 
supplemental information the Commission may request and there is no 
statute or other bar in the foreign jurisdiction that would preclude the 
futures commission merchant, the Material Affiliated Person, the foreign 
futures authority or other foreign regulatory authority from providing 
such information to the Commission; or (2) the foreign futures authority 
or other foreign regulatory authority with whom the Material Affiliated 
Person files such reports has entered into an information-sharing 
agreement with the Commission which is in effect as of the futures 
commission merchant's fiscal year-end and which will allow the 
Commission to obtain the type of information required herein. The 
futures commission merchant shall maintain a copy of the original report 
and a copy translated

[[Page 60]]

into the English language. For the purposes of this section, the term 
``Foreign Futures Authority'' shall have the meaning set forth in 
section 1a(10) of the Act.
    (d) Exemptions. (1) The provisions of this section shall not apply 
to any futures commission merchant which holds funds or property of or 
for futures customers of less than $6,250,000 and has less than 
$5,000,000 in adjusted net capital as of the futures commission 
merchant's current fiscal year-end; provided, however, that such futures 
commission merchant is not a clearing member of an exchange.
    (2) The Commission may, upon written application by a Reporting 
Futures Commission Merchant, exempt from the provisions of this section, 
other than paragraph (a)(1)(ii) of this section, either unconditionally 
or on specified terms and conditions, any futures commission merchant 
affiliated with such Reporting Futures Commission Merchant. The term 
``Reporting Futures Commission Merchant'' shall mean, in the case of a 
futures commission merchant that is affiliated with another registered 
futures commission merchant, the futures commission merchant which 
maintains the greater amount of adjusted net capital as last reported on 
financial reports filed with the Commission pursuant toSec. 1.10 
unless another futures commission merchant is acting as the Reporting 
Broker or Dealer underSec. 240.17h-2T of this title, or the Commission 
permits another futures commission merchant to act as the Reporting 
Futures Commission Merchant. In granting exemptions under this section, 
the Commission shall consider, among other factors, whether the records 
required by this section concerning the Material Affiliated Persons of 
the futures commission merchant affiliated with the Reporting Futures 
Commission Merchant will be available to the Commission pursuant to this 
section orSec. 1.15. A request for exemption filed under this 
paragraph (d)(2) shall explain the basis for the designation of a 
particular futures commission merchant as the Reporting Futures 
Commission Merchant and will become effective on the thirtieth day after 
receipt of such request by the Commission unless the Commission objects 
to the request by that date.
    (3) The Commission may exempt any futures commission merchant from 
any provision of this section if it finds that the exemption is not 
contrary to the public interest and the purposes of the provisions from 
which the exemption is sought. The Commission may grant the exemption 
subject to such terms and conditions as it may find appropriate.
    (e) Location of records. A futures commission merchant required to 
maintain records concerning Material Affiliated Persons pursuant to this 
section may maintain those records either at the principal office of the 
Material Affiliated Person or at a records storage facility, provided 
that, except as set forth in paragraph (c) of this section, the records 
are located within the boundaries of the United States and the records 
are kept and available for inspection in accordance withSec. 1.31. If 
such records are maintained at a place other than the futures commission 
merchant's principal place of business, the Material Affiliated Person 
or other entity maintaining the records shall file with the Commission a 
written undertaking, in a form acceptable to the Commission, signed by a 
duly authorized person, to the effect that the records will be treated 
as if the futures commission merchant were maintaining the records 
pursuant to this section and that the entity maintaining the records 
will permit examination of such records at any time, or from time to 
time during business hours, by representatives or designees of the 
Commission and promptly furnish the Commission representative or its 
designee true, correct, complete and current hard copy of all or any 
part of such records. The election to maintain records at the principal 
place of business of the Material Affiliated Person or at a records 
storage facility pursuant to the provisions of this paragraph shall not 
relieve the futures commission merchant required to maintain and 
preserve such records from any of its responsibilities under this 
section orSec. 1.15.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a futures commission 
merchant concerning

[[Page 61]]

a Material Affiliated Person shall be deemed confidential information 
for the purposes of section 8 of the Act.
    (g) Implementation schedule. (1) Each futures commission merchant 
registered as of December 31, 1994 and subject to the requirements of 
this section shall maintain and preserve the information required by 
paragraphs (a)(1)(i) and (a)(1)(ii) of this section commencing April 30, 
1995 and the information required by paragraphs (a)(1)(iii) and 
(a)(1)(iv) of this section commencing May 15, 1995 or, if December 31, 
1994 is not the futures commission merchant's fiscal year-end, 135 
calendar days following the first fiscal year-end occurring after 
December 31, 1994.
    (2) Each futures commission merchant whose registration becomes 
effective after December 31, 1994 and is subject to the requirements of 
this section shall maintain and preserve the information required by 
paragraphs (a)(1)(i) and (a)(1)(ii) of this section commencing 60 
calendar days after registration become effective and the information 
required by paragraphs (a)(1)(iii) and (a)(1)(iv) of this section 
commencing 105 calendar days following the first fiscal year-end 
occurring after registration becomes effective.

[59 FR 66688, Dec. 28, 1994]



Sec.  1.15  Risk assessment reporting requirements for futures 
commission merchants.

    (a) Reporting requirements with respect to information required to 
be maintained bySec. 1.14. (1) Each futures commission merchant 
registered with the Commission pursuant to Section 4d of the Act, unless 
exempt pursuant to paragraph (c) of this section, shall file the 
following with the regional office with which it files periodic 
financial reports by no later than April 30, 1995, provided that in the 
case of a futures commission merchant whose registration becomes 
effective after December 31, 1994, such futures commission merchant 
shall file the following within 60 calendar days after the effective 
date of such registration, or by April 30, 1995, whichever comes later:
    (i) A copy of the organizational chart maintained by the futures 
commission merchant pursuant to paragraph (a)(l)(i) ofSec. 1.14. Where 
there is a material change in information provided, an updated 
organizational chart shall be filed within sixty calendar days after the 
end of the fiscal quarter in which the change has occurred; and
    (ii) Copies of the financial, operational, and risk management 
policies, procedures and systems maintained by the futures commission 
merchant pursuant to paragraph (a)(l)(ii) ofSec. 1.14. If the futures 
commission merchant has no such written policies, procedures or systems, 
it must file a statement so indicating. Where there is a material change 
in information provided, such change shall be reported within sixty 
calendar days after the end of the fiscal quarter in which the change 
has occurred.
    (2) Each futures commission merchant registered with the Commission 
pursuant to Section 4d of the Act, unless exempt pursuant to paragraph 
(c) of this section, shall file the following with the regional office 
with which it files periodic financial reports within 105 calendar days 
after the end of each fiscal year or, if a filing is made pursuant to a 
written notice issued under paragraph (a)(2)(iii) of this section, 
within the time period specified in the written notice:
    (i) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the futures 
commission merchant's organizational structure, which shall include the 
futures commission merchant and its other Material Affiliated Persons, 
prepared in accordance with generally accepted accounting principles, 
which consolidated balance sheets shall be audited by an independent 
certified public accountant if an annual audit is performed in the 
ordinary course of business, but which otherwise may be unaudited, and 
which consolidated balance sheets shall include appropriate explanatory 
notes. The consolidating balance sheets may be those prepared by the 
futures commission merchant's highest level Material Affiliated Person 
as part of its internal financial reporting process;

[[Page 62]]

    (ii) Fiscal year-end annual consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated Person within the futures commission merchant's 
organizational structure, which shall include the futures commission 
merchant and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which 
consolidated statements shall include appropriate explanatory notes. The 
consolidating statements may be those prepared by the futures commission 
merchant's highest level Material Affiliated Person as part of its 
internal financial reporting process; and
    (iii) Upon receiving written notice from any representative of the 
Commission and within the time period specified in the written notice, 
such additional information which the Commission determines is necessary 
for a complete understanding of a particular affiliate's financial 
impact on the futures commission merchant's organizational structure.
    (3) For the purposes of this section, the term Material Affiliated 
Person shall have the meaning used inSec. 1.14.
    (4) The reports required to be filed pursuant to paragraphs (a)(1) 
and (a)(2) of this section shall be considered filed when received by 
the regional office of the Commission with whom the futures commission 
files financial reports pursuant toSec. 1.10.
    (b) [Reserved]
    (c) Exemptions. (1) The provisions of this section shall not apply 
to any futures commission merchant which holds funds or property of or 
for futures customers of less than $6,250,000 and has less than 
$5,000,000 in adjusted net capital as of the futures commission 
merchant's fiscal year-end; provided, however, that such futures 
commission merchant is not a clearing member of an exchange.
    (2) The Commission may, upon written application by a Reporting 
Futures Commission Merchant, exempt from the provisions of this section, 
other than paragraph (a)(1)(ii) of this section, either unconditionally 
or on specified terms and conditions, any futures commission merchant 
affiliated with such Reporting Futures Commission Merchant. The term 
``Reporting Futures Commission Merchant'' shall mean, in the case of a 
futures commission merchant that is affiliated with another registered 
futures commission merchant, the futures commission merchant which 
maintains the greater amount of net capital as last reported on its 
financial reports filed with the Commission pursuant toSec. 1.10 
unless another futures commission merchant is acting as the Reporting 
Broker or Dealer underSec. 240.17h-2T of this title or the Commission 
permits another futures commission merchant to act as the Reporting 
Futures Commission Merchant. In granting exemptions under this section, 
the Commission shall consider, among other factors, whether the records 
and other information required to be maintained pursuant toSec. 1.14 
concerning the Material Affiliated Persons of the futures commission 
merchant affiliated with the Reporting Futures Commission Merchant will 
be available to the Commission pursuant to the provisions of this 
section. A request for exemption filed under this paragraph (c)(2) shall 
explain the basis for the designation of a particular futures commission 
merchant as the Reporting Futures Commission Merchant and will become 
effective on the thirtieth day after receipt of such request by the 
Commission unless the Commission objects to the request by that date. 
The Reporting Futures Commission Merchant must submit the information 
required by paragraph (a)(1)(ii) of this section on behalf of its 
affiliated futures commission merchants.
    (3) The Commission may exempt any futures commission merchant from 
any provision of this section if it finds that the exemption is not 
contrary to the public interest and the purposes of the provisions from 
which the exemption is sought. The Commission may grant the exemption 
subject to such terms and conditions as it may find appropriate.
    (d) Special provisions with respect to Material Affiliated Persons 
subject to the

[[Page 63]]

supervision of certain domestic regulators. (1) In the case of a futures 
commission merchant which is required to file, or has a Material 
Affiliated Person which is required to file, Form 17-H (or such other 
forms or reports as may be required) with the Securities and Exchange 
Commission pursuant toSec. 240.17h-2T of this title, or such other 
risk assessment regulations as the Securities and Exchange Commission 
may adopt, such futures commission merchant shall be deemed to be in 
compliance with the reporting requirements of paragraphs (a)(1)(i) and 
(a)(2) of this section if the futures commission merchant furnishes, in 
accordance with paragraph (a)(2) of this section, a copy of the most 
recent Form 17-H filed by the futures commission merchant or its 
Material Affiliated Person with the Securities and Exchange Commission, 
provided however, that if the futures commission merchant has designated 
any of its affiliated persons as Material Affiliated Persons for 
purposes of this section andSec. 1.14 which are not designated as 
Material Associated Persons for purposes of the Form 17-H filed pursuant 
to Sec.Sec. 240.17h-1T and 240.17h-2T of this title, the futures 
commission must also designate any such affiliated person as a Material 
Affiliated Person on the organizational chart required as Item 1 of part 
I of Form 17-H. To comply with paragraphs (a)(1)(i) and (a)(2) of this 
section, such futures commission merchant may, at its option, file Form 
17-H in its entirety or file such form without the information required 
under part II of Form 17-H.
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the futures 
commission merchant shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to such Material Affiliated Person if the futures commission merchant or 
such Material Affiliated Person maintains in accordance withSec. 1.14 
copies of all reports filed by the Material Affiliated Person with the 
Federal banking agency pursuant to section 5211 of the Revised Statutes, 
section 9 of the Federal Reserve Act, section 7(a) of the Federal 
Deposit Insurance Act, section 10(b) of the Home Owners' Loan Act, or 
section 5 of the Bank Holding Company Act of 1956.
    (3) In the case of a futures commission merchant that has a Material 
Affiliated Person that is subject to the supervision of an insurance 
commissioner or other similar official or agency of a state, such 
futures commission merchant shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to the Material Affiliated Person if:
    (i) With respect to a Material Affiliated Person organized as a 
mutual insurance company or a non-public stock company, the futures 
commission merchant or such Material Affiliated Person maintains in 
accordance withSec. 1.14 copies of the annual statements with 
schedules and exhibits prepared by the Material Affiliated Person on 
forms prescribed by the National Association of Insurance Commissioners 
or by a state insurance commissioner; and
    (ii) With respect to a Material Affiliated Person organized as a 
public stock company, the futures commission merchant or such Material 
Affiliated Person maintains, in addition to the annual statements with 
schedules and exhibits required to be maintained pursuant toSec. 1.14, 
copies of the filings made by the Material Affiliated Person pursuant to 
sections 13 or 15 of the Securities Exchange Act of 1934 and the 
Investment Company Act of 1940.
    (4) No futures commission merchant shall be required to furnish to 
the Commission any examination report of any Federal banking agency or 
any supervisory recommendations or analyses contained therein with 
respect to a Material Affiliated Person that is subject to the 
regulation of a Federal banking agency. All information received by the 
Commission pursuant to this section concerning a Material Affiliated 
Person that is subject to examination by or the reporting requirements 
of a Federal banking agency shall be deemed confidential for the 
purposes of section 8 of the Act.
    (5) The furnishing of any information or documents by a futures 
commission merchant pursuant to this section

[[Page 64]]

shall not constitute an admission for any purpose that a Material 
Affiliated Person is otherwise subject to the Act.
    (e) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of a Foreign Regulatory Authority. A futures 
commission merchant shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to a Material Affiliated Person if such futures commission merchant 
furnishes, or causes such Material Affiliated Person to make available, 
in accordance with the provisions of this section, copies of any 
financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that:
    (1) The futures commission merchant agrees to use its best efforts 
to obtain from the Material Affiliated Person and to cause the Material 
Affiliated Person to provide, directly or through its foreign futures 
authority or other foreign regulatory authority, any supplemental 
information the Commission may request and there is no statute or other 
bar in the foreign jurisdiction that would preclude the futures 
commission merchant, the Material Affiliated Person, the foreign futures 
authority or other foreign regulatory authority from providing such 
information to the Commission; or
    (2) The foreign futures authority or other foreign regulatory 
authority with whom the Material Affiliated Person files such reports 
has entered into an information sharing agreement with the Commission 
which is in effect as of the futures commission merchant's fiscal year-
end and which will allow the Commission to obtain the type of 
information required herein. The futures commission merchant shall file 
a copy of the original report and a copy translated into the English 
language. For the purposes of this section, the term ``Foreign Futures 
Authority'' shall have the meaning set forth in section 1a(10) of the 
Act.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a futures commission 
merchant concerning a Material Associated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (g) Implementation schedule. Each futures commission merchant 
registered as of December 31, 1994 and subject to the requirements of 
this section shall file the information required by paragraph (a)(1) of 
this section no later than April 30, 1995 and the information required 
by paragraph (a)(2) of this section no later than May 15, 1995. Each 
futures commission merchant whose registration becomes effective after 
December 31, 1994 and is subject to the requirements of this section 
shall file the information required by paragraph (a)(1) of this section 
within 60 calendar days after registration is granted, or by April 30, 
1995, whichever comes later and the information required by paragraph 
(a)(2) of this section within 105 calendar days after registration is 
granted or by May 15, 1995, whichever comes later.

[59 FR 66690, Dec. 28, 1994; 60 FR 13901, Mar. 15, 1995]



Sec.  1.16  Qualifications and reports of accountants.

    (a) Definitions--(1) Accountant's report. The term ``accountant's 
report,'' when used in regard to financial statements and schedules, 
means a document in which an independent licensed or certified public 
accountant indicates the scope of the audit (or examination) which he 
has made and sets forth his opinion regarding the financial statements 
and schedules taken as a whole or an assertion to the fact that an 
overall opinion cannot be expressed. When an overall opinion cannot be 
expressed, the reasons therefore must be stated.
    (2) Audit or examination. The terms ``audit'' and ``examination,'' 
when used in regard to financial statements and schedules, mean an 
examination of the statements and schedules by an accountant in 
accordance with generally accepted auditing standards for the purposes 
of expressing an opinion thereon.
    (3) Certified. The term ``certified,'' when used in regard to 
financial statements and schedules, means audited and reported upon with 
an opinion expressed by an independent certified

[[Page 65]]

public accountant or independent licensed public accountant.
    (4) Customer. The term ``customer'' means customer (as defined in 
Sec.  1.3(k)) and includes a foreign futures or foreign options customer 
(as defined inSec. 30.1(c) of this chapter).
    (b) Qualifications of accountants. (1) The Commission will recognize 
any person as a certified public accountant who is duly registered and 
in good standing as such under the laws of the place of his residence or 
principal office. The Commission will recognize any person as a licensed 
public accountant who was duly licensed on or before December 31, 1970, 
and is in good standing as such under the laws of the place of his 
residence or principal office.
    (2) The Commission will not recognize any certified public 
accountant or licensed public accountant as independent who is not in 
fact independent. For example, an accountant will not be considered 
independent with respect to any applicant or registrant or any parent, 
subsidiary, or other affiliate of such applicant or registrant (i) in 
which, during the period of his professional engagement to examine the 
financial statements and schedules being reported on or at the date of 
his report, he or his firm or a member thereof had, or was committed to 
acquire, any direct financial interest or any material indirect 
financial interest, or (ii) with which, during the period of his 
professional engagement to examine the financial statements and 
schedules being reported on, at the date of his report or during the 
period covered by the financial statements, he or his firm or a member 
thereof was connected as a promoter, underwriter, voting trustee, 
director, officer, or employee, except that a firm will be deemed 
independent with respect to an applicant or registrant and its 
affiliates if a former employee or officer of such applicant or 
registrant or any such affiliate is employed by the firm and such 
individual has completely disassociated himself from the applicant or 
registrant and its affiliates and does not participate in auditing 
financial statements and schedules of the applicant or registrant or its 
affiliates covering any period of his employment by the applicant or 
registrant or its affiliates. An accountant will not be considered 
independent if he or his firm or a member thereof performs manual or 
automated bookkeeping services or assumes responsibility for maintenance 
of the accounting records, including accounting classification 
decisions, of such applicant or registrant or any of its affiliates. For 
the purposes of thisSec. 1.16(b), the term ``member'' means all 
partners in the firm and all professional employees participating in the 
audit or located in the office of the firm participating in a 
significant portion of the audit.
    (3) In determining whether an accountant may in fact not be 
independent with respect to a particular applicant or registrant, the 
Commission will give appropriate consideration to all relevant 
circumstances, including evidence bearing on all relationships between 
the accountant and that applicant or registrant or any affiliate 
thereof, and will not confine itself to the relationship existing in 
connection with the filing of reports with the Commission.
    (c) Accountant's reports--(1) Technical requirements. The 
accountant's report (i) must be dated, (ii) must be signed manually, 
(iii) must indicate the city and State where issued and (iv) must 
identify without detailed enumeration the financial statements covered 
by the report.
    (2) Representations as to the audit. The accountant's report (i) 
must state whether the audit was made in accordance with generally 
accepted auditing standards, and (ii) must designate any auditing 
procedures deemed necessary by the accountant under the circumstances of 
the particular case which have been omitted and the reasons for their 
omission. However, nothing in this paragraph (c)(2) shall be construed 
to imply authority for the omission of any procedure which independent 
accountants would ordinarily employ in the course of an audit made for 
the purposes of expressing the opinion required by paragraph (c)(3) of 
this section.
    (3) Opinion to be expressed. The accountant's report must state 
clearly: (i) The opinion of the accountant with respect to the financial 
statements and

[[Page 66]]

schedules covered by the report and the accounting principles and 
practices reflected therein and (ii) the opinion of the accountant as to 
the consistency of the application of the accounting principles, or as 
to any changes in such principles which have material effect on the 
financial statements and schedules.
    (4) Exceptions. Any matters to which the accountant takes exception 
must be clearly identified, such exceptions specifically and clearly 
stated, and to the extent practicable, the effect of each exception on 
related financial statements and schedules given.
    (5) Accountant's report on material inadequacies. A registrant must 
file concurrently with the annual audit report a supplemental report by 
the accountant describing any material inadequacies found to exist or 
found to have existed since the date of the previous audit. An applicant 
must file concurrently with the audit report a supplemental report by 
the accountant describing any material inadequacies found to exist as of 
the date of the Form 1-FR being filed: Provided, however, That if such 
applicant is registered with the Securities and Exchange Commission as a 
securities broker or dealer, and it files (in accordance withSec. 
1.10(h)) a copy of its Financial and Operational Combined Uniform Single 
Report under the Securities Exchange Act of 1934, Part II, Part IIA, or 
Part II CSE, in lieu of Form 1-FR, the accountant's supplemental report 
must be made as of the date of such report. The supplemental report must 
indicate any corrective action taken or proposed by the applicant or 
registrant in regard thereto. If the audit did not disclose any material 
inadequacies, the supplemental report must so state.
    (d) Audit objectives. (1) The audit must be made in accordance with 
generally accepted auditing standards and must include a review and 
appropriate tests of the accounting system, the internal accounting 
control, and the procedures for safeguarding customer and firm assets in 
accordance with the provisions of the Act and the regulations 
thereunder, since the prior examination date. The audit must include all 
procedures necessary under the circumstances to enable the independent 
licensed or certified public accountant to express an opinion on the 
financial statements and schedules. The scope of the audit and review of 
the accounting system, the internal controls, and procedures for 
safeguarding customer and firm assets must be sufficient to provide 
reasonable assurance that any material inadequacies existing at the date 
of the examination in (i) the accounting system, (ii) the internal 
accounting controls, and (iii) the procedures for safeguarding customer 
and firm assets (including, in the case of a futures commission 
merchant, the segregation requirements of section 4d(a)(2) of the Act 
and these regulations and the secured amount requirements of the Act and 
these regulations) will be discovered. Additionally, as specified 
objectives the audit must include reviews of the practices and 
procedures followed by the registrant in making (A) periodic 
computations of the minimum financial requirements pursuant toSec. 
1.17 and (B) in the case of a futures commission merchant, daily 
computations of the segregation requirements of section 4d(a)(2) of the 
Act and these regulations and the secured amount requirements of the Act 
and these regulations.
    (2) A material inadequacy in the accounting system, the internal 
accounting controls, the procedures for safeguarding customer and firm 
assets, and the practices and procedures referred to in paragraph (d)(1) 
of this section which is to be reported in accordance with paragraph 
(e)(2) of this section includes any conditions which contributed 
substantially to or, if appropriate corrective action is not taken, 
could reasonably be expected to:
    (i) Inhibit an applicant or registrant from promptly completing 
transactions or promptly discharging his responsibilities to customers 
or other creditors;
    (ii) Result in material financial loss;
    (iii) Result in material misstatement of the applicant's or 
registrant's financial statements and schedules; or
    (iv) Result in violations of the Commission's segregation or secured 
amount (in the case of a futures commission merchant), recordkeeping or 
financial reporting requirements to the

[[Page 67]]

extent that could reasonably be expected to result in the conditions 
described in paragraph (d)(2) (i), (ii), or (iii) of this section.
    (e) Extent and timing of audit procedures. (1) The extent and timing 
of audit procedures are matters for the independent public accountant to 
determine on the basis of his review and evaluation of existing internal 
controls and other audit procedures performed in accordance with 
generally accepted auditing standards and the audit objectives set forth 
in paragraph (d) of this section. In determining the extent of testing, 
consideration must be given to the materiality of an area and to the 
possible effect on the financial statements and schedules of a material 
misstatement in a related account.
    (2) If during the course of an audit or interim work, the 
independent public accountant determines that any material inadequacies 
exist in the accounting system, in the internal accounting control, in 
the procedures for safeguarding customer or firm assets, or as otherwise 
defined in paragraph (d) of this section, he must call such inadequacies 
to the attention of the applicant or registrant, which has the 
responsibility to give notice to the National Futures Association and, 
if an applicant, or the Commission and the designated self-regulatory 
organization, if any, if a registrant, in accordance with paragraphs (d) 
and (g) ofSec. 1.12: Provided, however, That if the applicant or 
registrant is an introducing broker or applicant for registration as an 
introducing broker, it also has the responsibility to give notice to the 
National Futures Association, the designated self-regulatory 
organization, if any, and every futures commission merchant carrying or 
intending to carry customer accounts for the introducing broker or 
applicant for registration as an introducing broker. The applicant or 
registrant must also furnish the accountant with a copy of said notice 
within three (3) business days. If the accountant fails to receive such 
notice from the applicant or registrant within three (3) business days, 
or if he disagrees with the statements contained in the notice of the 
applicant or registrant, the accountant must inform the National Futures 
Association, in the case of an applicant, or the Commission and the 
designated self-regulatory organization, if any, in the case of a 
registrant, by reporting the material inadequacy and, in the case of an 
applicant or registrant which is an introducing broker or applicant for 
registration as in introducing broker, the accountant must also inform 
the National Futures Association, the designated self-regulatory 
organization, if any, and every futures commission merchant carrying or 
intending to carry customer accounts for the introducing an introducing 
broker, within three (3) business days thereafter. Such report from the 
accountant must, if the applicant or registrant failed to file a notice, 
describe the material inadequacies found to exist. If the applicant or 
registrant filed a notice, the accountant must file a report detailing 
the aspects, if any, of the applicant's or registrant's notice with 
which the accountant does not agree.
    (f)(1) Extension of time for filing audited reports. In the event a 
registered futures commission merchant or a registered introducing 
broker finds that it cannot file, without substantial undue hardship, 
its certified financial statements and schedules for any year within the 
time specified inSec. 1.10 (b)(1)(ii) orSec. 1.10 (b)(2)(ii) of this 
part, as applicable, such registrants may request approval for an 
extension of time, as follows:
    (i) Futures commission merchant registrants. (A) A futures 
commission merchant may file with its designated self-regulatory 
organization an application for an extension of time, a copy of which 
the registrant must file with the Commission. The application shall be 
approved or denied in writing by the designated self-regulatory 
organization. The registrant must file immediately with the Commission a 
copy of any notice it receives from the designated self-regulatory 
organization to approve or deny the registrant's request for extension 
of time. A written notice of approval shall become effective upon the 
filing by the registrant of a copy with the Commission, and a written 
notice of denial shall be effective as of the date of the notice.
    (B) A futures commission merchant that is registered with the 
Securities

[[Page 68]]

and Exchange Commission as a securities broker or dealer may file with 
its designated self-regulatory organization a copy of any application 
that the registrant has filed with its designated examining authority, 
pursuant toSec. 240.17-a5(l)(1)of this title, for an extension of time 
to file audited annual financial statements. The registrant must also 
file immediately with the designated self-regulatory organization and 
the Commission copies of any notice it receives from its designated 
examining authority to approve or deny the requested extension of time. 
Upon receipt by the designated self-regulatory organization and the 
Commission of copies of any such notice of approval, the requested 
extension of time referenced in the notice shall be deemed approved 
under this paragraph (f)(1)(i).
    (C) Any copy that under this paragraph (f)(1)(i) is required to be 
filed with the Commission shall be filed with the regional office of the 
Commission with jurisdiction over the state in which the registrant's 
principal place of business is located.
    (ii) Introducing broker registrants. (A) An introducing broker may 
file with the National Futures Association an application for extension 
of time, which shall be approved or denied in writing.
    (B) An introducing broker that is registered with the Securities and 
Exchange Commission as a securities broker or dealer may file with the 
National Futures Association copies of any application that the 
registrant has filed with its designated examining authority, pursuant 
toSec. 240.17-a5(l)(1) of this title, for an extension of time to file 
audited annual financial statements. The registrant must also file 
immediately with the National Futures Association copies of any notice 
it receives from its designated examining authority to approve or deny 
the requested extension of time. Upon the receipt by the National 
Futures Association of a copy of any such notice of approval, the 
requested extension of time referenced in the notice shall be deemed 
approved under this paragraph (f)(1)(ii).
    (2) Exemption requests. On the written request of any designated 
self-regulatory organization or registrant, or on its own motion, the 
Commission may grant an extension of time or an exemption from any of 
the certified financial reporting requirements of this chapter either 
unconditionally or on specified terms and conditions.
    (g) Replacement of accountant. (1) In the event (i) the independent 
public accountant who was previously engaged as the principal accountant 
to audit an applicant's or registrant's financial statements resigns (or 
indicates he declines to stand for re-election after the completion of 
the current audit) or is dismissed as the applicant's or registrant's 
principal accountant, (ii) another independent accountant is engaged as 
principal accountant, or (iii) an independent accountant on whom the 
principal accountant expresses reliance in his report regarding a 
subsidiary resigns (or formally indicates he declines to stand for re-
election after completion of the current audit) or is dismissed or 
another independent public accountant is engaged to audit that 
subsidiary, an applicant shall file written notice of such occurrence 
with the National Futures Association, and a registrant shall file 
written notice of such occurrence with the Commission at its principal 
office in Washington, DC, and with the designated self-regulatory 
organization, if any, not more than 15 business days after such 
occurrence.
    (2) Such notice must state (i) the date of such resignation (or 
declination to stand for re-election, dismissal or engagement) and (ii) 
whether, in connection with the audit of the two most recent fiscal 
years and any subsequent interim period preceding such resignation, 
dismissal or engagement, there were any disagreements with the former 
accountant on any matter of accounting principles or practices, 
financial statements disclosure, auditing scope or procedures, or 
compliance with the applicable rules of the Commission, which, if not 
resolved to the satisfaction of the former accountant, would have caused 
him to make reference in connection with his report to the subject 
matter of the disagreements (if so, describe such disagreements). The 
disagreements required to be reported in this paragraph (g)(2) include 
both those resolved to the former

[[Page 69]]

accountant's satisfaction and those not resolved to the former 
accountant's satisfaction. Disagreements contemplated by this paragraph 
(g)(2) are those which occur at the decision-making level, i.e., between 
personnel of the applicant or registrant responsible for presentation of 
its financial statements and schedules and personnel of the accounting 
firm responsible for rendering its report. The notice must also state 
whether the accountant's report on the financial statements and 
schedules for any of the past two years contained an adverse opinion or 
a disclaimer of opinion or was qualified as to uncertainties, audit 
scope, or accounting principles (if so, describe the nature of each such 
adverse opinion, disclaimer of opinion, or qualification). An applicant 
must also request the former accountant to furnish the applicant with a 
letter addressed to the National Futures Association, and a registrant 
must also request the former accountant to furnish the registrant with a 
letter addressed to the Commission, stating whether he agrees with the 
statements contained in the notice of the applicant or registrant and, 
if not, stating the respects in which he does not agree. Each copy of 
the notice and accountant's letter must be manually signed by the sole 
proprietor or a general partner or a duly authorized corporate officer 
of the applicant or registrant, as appropriate, and by the accountant.
    (3) If (i) within the 24 months prior to the date of the most recent 
audited financial statement, a notice has been filed pursuant to 
paragraph (g)(1) of this section reporting a change of accountants, (ii) 
included in such filing there is a reported disagreement on any matters 
of accounting principles or practices, financial statements disclosure, 
auditing scope, or noncompliance with the applicable rules of the 
Commission, (iii) during the fiscal year in which the change in 
accountants took place or during the subsequent fiscal year, there have 
been any transactions or events similar to those which involved a 
reported disagreement, and (iv) such transactions or events are material 
and were accounted for or disclosed in a manner different from that 
which the former accountant apparently would have concluded was 
required, the existence and nature of the disagreements and also the 
effect on the financial statements must be stated in a written notice to 
the National Futures Association, in the case of an applicant, or to the 
Commission at its principal office in Washington, DC, and the designated 
self-regulatory organization, if any, in the case of a registrant, if 
the method which the former accountant apparently would have concluded 
was required had been followed. These disclosures need not be made if 
the method asserted by the former accountant ceases to be generally 
accepted because of authoritative standards or interpretations 
subsequently issued. The notice required by this paragraph (g)(3) must 
be filed by the applicant or registrant concurrently with the financial 
statements and schedules to which it pertains.
    (h) Exemption for introducing broker or applicant therefor. The 
provisions of this section do not apply to an introducing broker which 
is operating pursuant to a guarantee agreement, nor do such provisions 
apply to an applicant for registration as an introducing broker who 
files concurrently with such application a guarantee agreement, provided 
such introducing broker or applicant therefor is not also a securities 
broker or dealer.

(Approved by the Office of Management and Budget under control numbers 
3038-0007, 3038-0024)

[43 FR 39970, Sept. 8, 1978, as amended at 46 FR 54516, Nov. 3, 1981; 46 
FR 63035, Dec. 30, 1981; 48 FR 35284, Aug. 3, 1983; 49 FR 39526, Oct. 9, 
1984; 52 FR 28995, Aug. 5, 1987; 53 FR 4612, Feb. 17, 1988; 69 FR 41426, 
July 9, 2004; 69 FR 49798, Aug. 12, 2004; 71 FR 5593, Feb. 2, 2006; 77 
FR 66320, Nov. 2, 2012]



Sec.  1.17  Minimum financial requirements for futures commission 
merchants and introducing brokers.

    (a)(1)(i) Except as provided in paragraph (a)(2)(i) of this section, 
each person registered as a futures commission merchant must maintain 
adjusted net capital equal to or in excess of the greatest of:
    (A) $1,000,000;
    (B) The futures commission merchant's risk-based capital 
requirement, computed as eight percent of the total

[[Page 70]]

risk margin requirement for positions carried by the futures commission 
merchant in customer accounts and noncustomer accounts.
    (C) The amount of adjusted net capital required by a registered 
futures association of which it is a member; or
    (D) For securities brokers and dealers, the amount of net capital 
required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 
CFR 240.15c3-1(a)).
    (ii) [Reserved]
    (iii) Except as provided in paragraph (a)(2) of this section, each 
person registered as an introducing broker must maintain adjusted net 
capital equal to or in excess of the greatest of:
    (A) $45,000;
    (B) The amount of adjusted net capital required by a registered 
futures association of which it is a member; or
    (C) For securities brokers and dealers, the amount of net capital 
required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 
CFR 240.15c3-1(a)).
    (2)(i) The requirements of paragraph (a)(1) of this section shall 
not be applicable if the registrant is a member of a designated self-
regulatory organization and conforms to minimum financial standards and 
related reporting requirements set by such designated self-regulatory 
organization in its bylaws, rules, regulations or resolutions approved 
by the Commission pursuant to section 4f(b) of the Act andSec. 1.52.
    (ii) The minimum requirements of paragraph (a)(1)(iii) of this 
section shall not be applicable to an introducing broker which elects to 
meet the alternative adjusted net capital requirement for introducing 
brokers by operation pursuant to a guarantee agreement which meets the 
requirements set forth inSec. 1.10(j). Such an introducing broker 
shall be deemed to meet the adjusted net capital requirement under this 
section so long as such agreement is binding and in full force and 
effect, and, if the introducing broker is also a securities broker or 
dealer, it maintains the amount of net capital required by Rule 15c3-
1(a) of the Securities and Exchange Commission (17 CFR 240.15c3-1(a)).
    (3) No person applying for registration as a futures commission 
merchant or as an introducing broker shall be so registered unless such 
person affirmatively demonstrates to the satisfaction of the National 
Futures Association that it complies with the financial requirements of 
this section. Each registrant must be in compliance with this section at 
all times and must be able to demonstrate such compliance to the 
satisfaction of the Commission or the designated self-regulatory 
organization.
    (4) A futures commission merchant who is not in compliance with this 
section, or is unable to demonstrate such compliance as required by 
paragraph (a)(3) of this section, must transfer all customer accounts 
and immediately cease doing business as a futures commission merchant 
until such time as the firm is able to demonstrate such compliance: 
Provided, however, The registrant may trade for liquidation purposes 
only unless otherwise directed by the Commission and/or the designated 
self-regulatory organization: And, Provided further, That if such 
registrant immediately demonstrates to the satisfaction of the 
Commission or the designated self-regulatory organization the ability to 
achieve compliance, the Commission or the designated self-regulatory 
organization may in its discretion allow such registrant up to a maximum 
of 10 business days in which to achieve compliance without having to 
transfer accounts and cease doing business as required above. Nothing in 
this paragraph (a)(4) shall be construed as preventing the Commission or 
the designated self-regulatory organization from taking action against a 
registrant for non-compliance with any of the provisions of this 
section.
    (5) An introducing broker who is not in compliance with this 
section, or is unable to demonstrate such compliance as required by 
paragraph (a)(3) of this section, must immediately cease doing business 
as an introducing broker until such time as the registrant is able to 
demonstrate such compliance: Provided, however, That if such registrant 
immediately demonstrates to the satisfaction of the Commission or the 
designated self-regulatory organization the ability to achieve 
compliance, the Commission or

[[Page 71]]

the designated self-regulatory organization may in its discretion allow 
such registrant up to a maximum of 10 business days in which to achieve 
compliance without having to cease doing business as required above. If 
the introducing broker is required to cease doing business in accordance 
with this paragraph (a)(5), the introducing broker must immediately 
notify each of its customers and the futures commission merchants 
carrying the account of each customer that it has ceased doing business. 
Nothing in this paragraph (a)(5) shall be construed as preventing the 
Commission or the designated self-regulatory organization from taking 
action against a registrant for non-compliance with any of the 
provisions of this section.
    (b) For the purposes of this section:
    (1) Where the applicant or registrant has an asset or liability 
which is defined in Securities Exchange Act Rule 15c3-1 (Sec.  240.15c3-
1 of this title) the inclusion or exclusion of all or part of such asset 
or liability for the computation of adjusted net capital shall be in 
accordance withSec. 240.15c3-1 of this title, unless specifically 
stated otherwise in this section.
    (2) Customer means customer (as defined inSec. 1.3(k)), option 
customer (as defined inSec. 1.3(jj) and inSec. 32.1(c) of this 
chapter), cleared over the counter customer (as defined inSec. 
1.17(b)(10)), and includes a foreign futures, foreign options customer 
(as defined inSec. 30.1(c) of this chapter).
    (3) Proprietary account means an account in which commodity futures, 
options or cleared over the counter derivative positions are carried on 
the books of the applicant or registrant for the applicant or registrant 
itself, or for general partners in the applicant or registrant.
    (4) Noncustomer account means an account in which commodity futures, 
options or cleared over the counter derivative positions are carried on 
the books of the applicant or registrant which is either:
    (i) An account that is not included in the definition of customer 
(as defined inSec. 1.17(b)(2)) or proprietary account (as defined in 
Sec.  1.17(b)(3)), or
    (ii) An account for a foreign-domiciled person trading futures or 
options on a foreign board of trade, and such account is a proprietary 
account as defined inSec. 1.3(y) of this title, but is not a 
proprietary account as defined inSec. 1.17(b)(3).
    (5) Clearing organization means clearing organization (as defined in 
Sec.  1.3(d)) and includes a clearing organization of any board of 
trade.
    (6) Business day means any day other than a Sunday, Saturday, or 
holiday.
    (7) Customer account means an account in which commodity futures, 
options or cleared over the counter derivative positions are carried on 
the books of the applicant or registrant which is either:
    (i) An account that is included in the definition of customer (as 
defined inSec. 1.17(b)(2)), or
    (ii) An account for a foreign-domiciled person trading on a foreign 
board of trade, where such account for the foreign-domiciled person is 
not a proprietary account (as defined inSec. 1.17(b)(3)) or a 
noncustomer account (as defined inSec. 1.17(b)(4)(ii)).
    (8) Risk margin for an account means the level of maintenance margin 
or performance bond required for the customer or noncustomer positions 
by the applicable exchanges or clearing organizations, and, where margin 
or performance bond is required only for accounts at the clearing 
organization, for purposes of the FCM's risk-based capital calculations 
applying the same margin or performance bond requirements to customer 
and noncustomer positions in accounts carried by the FCM, subject to the 
following.
    (i) Risk margin does not include the equity component of short or 
long option positions maintained in an account;
    (ii) The maintenance margin or performance bond requirement 
associated with a long option position may be excluded from risk margin 
to the extent that the value of such long option position does not 
reduce the total risk maintenance or performance bond requirement of the 
account that holds the long option position;
    (iii) The risk margin for an account carried by a futures commission 
merchant which is not a member of the exchange or the clearing 
organization that requires collection of such margin

[[Page 72]]

should be calculated as if the futures commission merchant were such a 
member; and
    (iv) If a futures commission merchant does not possess sufficient 
information to determine what portion of an account's total margin 
requirement represents risk margin, all of the margin required by the 
exchange or the clearing organization that requires collection of such 
margin for that account, shall be treated as risk margin.
    (9) Cleared over the counter derivative positions means ``over the 
counter derivative instrument'' (as defined in 12 U.S.C. 4421) positions 
of any person in accounts carried on the books of the futures commission 
merchant and cleared by any organization permitted to clear such 
instruments under the laws of the relevant jurisdiction.
    (10) Cleared over the counter customer means any person that is not 
a proprietary person as defined inSec. 1.3(y) and for whom the futures 
commission merchant carries on its books one or more accounts for the 
over the counter-cleared derivative positions of such person.
    (c) Definitions: For the purposes of this section:
    (1) Net capital means the amount by which current assets exceed 
liabilities. In determining ``net capital'':
    (i) Unrealized profits shall be added and unrealized losses shall be 
deducted in the accounts of the applicant or registrant, including 
unrealized profits and losses on fixed price commitments and forward 
contracts;
    (ii) All long and all short positions in commodity options which are 
traded on a contract market and listed security options shall be marked 
to their market value and all long and all short securities and 
commodities positions shall be marked to their market value;
    (iii) The value attributed to any commodity option which is not 
traded on a contract market shall be the difference between the option's 
strike price and the market value for the commodity or futures contract 
which is the subject of the option. In the case of a call commodity 
option which is not traded on a contract market, if the market value for 
the commodity or futures contract which is the subject of the option is 
less than the strike price of the option, it shall be given no value. In 
the case of a put commodity option which is not traded on a contract 
market, if the market value for the commodity or futures contract which 
is the subject of the option is more than the strike price of the 
option, it shall be given no value; and
    (iv) The value attributed to any unlisted security option shall be 
the difference between the option's exercise value or striking value and 
the market value of the underlying security. In the case of an unlisted 
call, if the market value of the underlying security is less than the 
exercise value or striking value of such call, it shall be given no 
value; and, in the case of an unlisted put, if the market value of the 
underlying security is more than the exercise value or striking value of 
the unlisted put, it shall be given no value.
    (2) The term current assets means cash and other assets or resources 
commonly identified as those which are reasonably expected to be 
realized in cash or sold during the next 12 months. ``Current assets'' 
shall:
    (i) Exclude any unsecured commodity futures or option account 
containing a ledger balance and open trades, the combination of which 
liquidates to a deficit or containing a debit ledger balance only: 
Provided, however, Deficits or debit ledger balances in unsecured 
customers', non-customers', and proprietary accounts, which are the 
subject of calls for margin or other required deposits may be included 
in current assets until the close of business on the business day 
following the date on which such deficit or debit ledger balance 
originated providing that the account had timely satisfied, through the 
deposit of new funds, the previous day's debit or deficits, if any, in 
its entirety.
    (ii) Exclude all unsecured receivables, advances and loans except 
for:
    (A) Receivables resulting from the marketing of inventories commonly 
associated with the business activities of the applicant or registrant 
and advances on fixed price purchases commitments: Provided, Such 
receivables or advances are outstanding no longer than 3 calendar months 
from the date that they are accrued;

[[Page 73]]

    (B) Interest receivable, floor brokerage receivable, commissions 
receivable from other brokers or dealers (other than syndicate profits), 
mutual fund concessions receivable and management fees receivable from 
registered investment companies and commodity pools: Provided, Such 
receivables are outstanding no longer than thirty (30) days from the 
date they are due; and dividends receivable outstanding no longer than 
thirty (30) days from the payable date;
    (C) Receivables from clearing organizations and securities clearing 
organizations;
    (D) Receivables from registered futures commission merchants or 
brokers, resulting from commodity futures or option transactions, except 
those specifically excluded under paragraph (c)(2)(i) of this section;
    (E) Insurance claims which arise from a reportable segment of the 
applicant's or registrant's overall business activities, as defined in 
generally accepted accounting principles, other than in the commodity 
futures, commodity option, security and security option segments of the 
applicant's or registrant's business activities which are not 
outstanding more than 3 calendar months after the date they are recorded 
as a receivable;
    (F) All other insurance claims not subject to paragraph 
(c)(2)(ii)(E) of this section, which are not older than seven (7) 
business days from the date the loss giving rise to the claim is 
discovered; insurance claims which are not older than twenty (20) 
business days from the date the loss giving rise to the claim is 
discovered and which are covered by an option of outside counsel that 
the claim is valid and is covered by insurance policies presently in 
effect; insurance claims which are older than twenty (20) business days 
from the date the loss giving rise to the claim is discovered and which 
are covered by an opinion of outside counsel that the claim is valid and 
is covered by insurance policies presently in effect and which have been 
acknowledged in writing by the insurance carrier as due and payable: 
Provided, Such claims are not outstanding longer than twenty (20) 
business days from the date they are so acknowledged by the carrier;
    (iii) Exclude all prepaid expenses and deferred charges;
    (iv) Exclude all inventories except for:
    (A) Readily marketable spot commodities; or spot commodities which 
``adequately collateralize'' indebtedness under paragraph (c)(7) of this 
section;
    (B) Securities which are considered ``readily marketable'' (as 
defined inSec. 240.15c3-1(c)(11) of this title) or which ``adequately 
collateralize'' indebtedness under paragraph (c)(7) of this section;
    (C) Work in process and finished goods which result from the 
processing of commodities at market value;
    (D) Raw materials at market value which will be combined with spot 
commodities to produce a finished proc- essed commodity; and
    (E) Inventories held for resale commonly associated with the 
business activities of the applicant or registrant;
    (v) Include fixed assets and assets which otherwise would be 
considered noncurrent to the extent of any long-term debt adequately 
collateralized by assets acquired for use in the ordinary course of the 
trade or business of an applicant or registrant and any other long-term 
debt adequately collateralized by assets of the applicant or registrant 
if the sole recourse of the creditor for nonpayment of such liability is 
to such asset: Provided, Such liabilities are not excluded from 
liabilities in the computation of net capital under paragraph (c)(4)(vi) 
of this section;
    (vi) Exclude all assets doubtful of collection or realization less 
any reserves established therefor;
    (vii) Include, in the case of future income tax benefits arising as 
a result of unrealized losses, the amount of such benefits not exceeding 
the amount of income tax liabilities accrued on the books and records of 
the applicant or registrant, but only to the extent such benefits could 
have been applied to reduce accrued tax liabilities on the date of the 
capital computation, had the related unrealized losses been realized on 
that date;
    (viii) Include guarantee deposits with clearing organizations and 
stock in

[[Page 74]]

clearing organizations to the extent of its margin value;
    (ix) In the case of an introducing broker or an applicant for 
registration as an introducing broker, include 50 percent of the value 
of a guarantee or security deposit with a futures commission merchant 
which carries or intends to carry accounts for the customers of the 
introducing broker; and
    (x) Exclude exchange memberships.
    (3) A loan or advance or any other form of receivable shall not be 
considered ``secured'' for the purposes of paragraph (c)(2) of this 
section unless the following conditions exist:
    (i) The receivable is secured by readily marketable collateral which 
is otherwise unencumbered and which can be readily converted into cash: 
Provided, however, That the receivable will be considered secured only 
to the extent of the market value of such collateral after application 
of the percentage deductions specified in paragraph (c)(5) of this 
section; and
    (ii)(A) The readily marketable collateral is in the possession or 
control of the applicant or registrant; or
    (B) The applicant or registrant has a legally enforceable, written 
security agreement, signed by the debtor, and has a perfected security 
interest in the readily marketable collateral within the meaning of the 
laws of the State in which the readily marketable collateral is located.
    (4) The term liabilities means the total money liabilities of an 
applicant or registrant arising in connection with any transaction 
whatsoever, including economic obligations of an applicant or registrant 
that are recognized and measured in conformity with generally accepted 
accounting principles. ``Liabilities'' also include certain deferred 
credits that are not obligations but that are recognized and measured in 
conformity with generally accepted accounting principles. For the 
purposes of computing ``net capital'', the term ``liabilities'':
    (i) Excludes liabilities of an applicant or registrant which are 
subordi- nated to the claims of all general creditors of the applicant 
or registrant pursuant to a satisfactory subordination agreement, as 
defined in paragraph (h) of this section;
    (ii) Excludes, in the case of a futures commission merchant, the 
amount of money, securities and property due to commodity futures or 
option customers which is held in segregated accounts in compliance with 
the requirements of the Act and these regulations: Provided, however, 
That such exclusion may be taken only if such money, securities and 
property held in segregated accounts have been excluded from current 
assets in computing net capital;
    (iii) Includes, in the case of an applicant or registrant who is a 
sole proprietor, the excess of liabilities which have not been incurred 
in the course of business as a futures commission merchant or as an 
introducing broker over assets not used in the business;
    (iv) Excludes the lesser of any deferred income tax liability 
related to the items in paragraphs (c)(4)(i) (A), (B), and (C) below, or 
the sum of paragraphs (c)(4)(i) (A), (B), and (C) below:
    (A) The aggregate amount resulting from applying to the amount of 
the deductions computed in accordance with paragraph (c)(5) of this 
section the appropriate Federal and State tax rate(s) applicable to any 
unrealized gain on the asset on which the deduction was computed;
    (B) Any deferred tax liability related to income accrued which is 
directly related to an asset otherwise deducted pursuant to this 
section;
    (C) Any deferred tax liability related to unrealized appreciation in 
value of any asset(s) which has been otherwise excluded from current 
assets in accordance with the provisions of this section;
    (v) Excludes any current tax liability related to income accrued 
which is directly related to an asset otherwise deducted pursuant to 
this section; and
    (vi) Excludes liabilities which would be classified as long term in 
accordance with generally accepted accounting principles to the extent 
of the net book value of plant, property and equipment which is used in 
the ordinary course of any trade or business of the applicant or 
registrant which is a reportable segment of the applicant's or 
registrant's overall business activities, as defined in generally 
accepted accounting principles, other than in

[[Page 75]]

the commodity futures, commodity option, security and security option 
segments of the applicant's or registrant's business activities: 
Provided, That such plant, property and equipment is not included in 
current assets pursuant to paragraph (c)(2)(v) of this section.
    (5) The term adjusted net capital means net capital less:
    (i) The amount by which any advances paid by the applicant or 
registrant on cash commodity contracts and used in computing net capital 
exceeds 95 percent of the market value of the commodities covered by 
such contracts;
    (ii) In the case of all inventory, fixed price commitments and 
forward contracts, the applicable percentage of the net position 
specified below:
    (A) Inventory which is currently registered as deliverable on a 
contract market and covered by an open futures contract or by a 
commodity option on a physical commodity--No charge.
    (B) Inventory which is covered by an open futures contract or 
commodity option.--5 percent of the market value.
    (C) Inventory which is not covered.--20 percent of the market value.
    (D) Inventory and forward contracts in those foreign currencies that 
are purchased or sold for future delivery on or subject to the rules of 
a contract market, and which are covered by an open futures contract.--
No charge
    (E) Inventory and forward contracts in euros, British pounds, 
Canadian dollars, Japanese yen, or Swiss francs, and which are not 
covered by an open futures contract or commodity option.--6 percent of 
the market value.
    (F) Fixed price commitments (open purchases and sales) and forward 
contracts which are covered by an open futures contract or commodity 
option.--10 percent of the market value.
    (G) Fixed price commitments (open purchases and sales) and forward 
contracts which are not covered by an open futures contract or commodity 
option.--20 percent of the market value.
    (iii)-(iv) [Reserved]
    (v) In the case of securities and obligations used by the applicant 
or registrant in computing net capital, and in the case of a futures 
commission merchant with securities in segregation pursuant to section 
4d(2) of the Act and the regulations in this chapter which were not 
deposited by customers, the percentages specified in Rule 240.15c3-
1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR 240.15c3-
1(c)(2)(vi)) (``securities haircuts'') and 100 percent of the value of 
``nonmarketable securities'' as specified in Rule 240.15c3-1(c)(2)(vii) 
of the Securities and Exchange Commission (17 CFR 240.15c3-
1(c)(2)(vii));
    (vi) In the case of securities options and/or other options for 
which a haircut has been specified for the option or for the underlying 
instrument inSec. 240.15c3-1 appendix A of this title, the treatment 
specified in, or under,Sec. 240.15c3-1 appendix A, after effecting 
certain adjustments to net capital for listed and unlisted options as 
set forth in such appendix;
    (vii) In the case of an applicant or registrant who has open 
contractual commitments, as hereinafter defined, the deductions 
specified inSec. 240.15c3-1(c)(2)(viii) of this title;
    (viii) In the case of a futures commission merchant, for 
undermargined customer commodity futures accounts and commodity option 
customer accounts the amount of funds required in each such account to 
meet maintenance margin requirements of the applicable board of trade or 
if there are no such maintenance margin requirements, clearing 
organization margin requirements applicable to such positions, after 
application of calls for margin or other required deposits which are 
outstanding three business days or less. If there are no such 
maintenance margin requirements or clearing organization margin 
requirements, then the amount of funds required to provide margin equal 
to the amount necessary after application of calls for margin or other 
required deposits outstanding three business days or less to restore 
original margin when the original margin has been depleted by 50 percent 
or more: Provided, To the extent a deficit is excluded from current 
assets in accordance with paragraph (c)(2)(i) of this section such 
amount shall not also be deducted under this paragraph (c)(5)(viii). In 
the event that an owner of a customer account has deposited an

[[Page 76]]

asset other than cash to margin, guarantee or secure his account, the 
value attributable to such asset for purposes of this subparagraph shall 
be the lesser of (A) the value attributable to the asset pursuant to the 
margin rules of the applicable board of trade, or (B) the market value 
of the asset after application of the percentage deductions specified in 
this paragraph (c)(5);
    (ix) In the case of a futures commission merchant, for undermargined 
commodity futures and commodity option noncustomer and omnibus accounts 
the amount of funds required in each such account to meet maintenance 
margin requirements of the applicable board of trade or if there are no 
such maintenance margin requirements, clearing organization margin 
requirements applicable to such positions, after application of calls 
for margin or other required deposits which are outstanding two business 
days or less. If there are no such maintenance margin requirements or 
clearing organization margin requirements, then the amount of funds 
required to provide margin equal to the amount necessary after 
application of calls for margin or other required deposits outstanding 
two business days or less to restore original margin when the original 
margin has been depleted by 50 percent or more: Provided, To the extent 
a deficit is excluded from current assets in accordance with paragraph 
(c)(2)(i) of this section such amount shall not also be deducted under 
this paragraph (c)(5)(ix). In the event that an owner of a noncustomer 
or omnibus account has deposited an asset other than cash to margin, 
guarantee or secure his account the value attributable to such asset for 
purposes of this subparagraph shall be the lesser of (A) the value 
attributable to such asset pursuant to the margin rules of the 
applicable board of trade, or (B) the market value of such asset after 
application of the percentage deductions specified in this paragraph 
(c)(5);
    (x) In the case of open futures contracts or cleared OTC derivative 
positions and granted (sold) commodity options held in proprietary 
accounts carried by the applicant or registrant which are not covered by 
a position held by the applicant or registrant or which are not the 
result of a ``changer trade'' made in accordance with the rules of a 
contract market:
    (A) For an applicant or registrant which is a clearing member of a 
clearing organization for the positions cleared by such member, the 
applicable margin requirement of the applicable clearing organization;
    (B) For an applicant or registrant which is a member of a self-
regulatory organization 150 percent of the applicable maintenance margin 
requirement of the applicable board of trade, or clearing organization, 
whichever is greater;
    (C) For all other applicants or registrants, 200 percent of the 
applicable maintenance margin requirements of the applicable board of 
trade or clearing organization, whichever is greater; or
    (D) For open contracts or granted (sold) commodity options for which 
there are no applicable maintenance margin requirements, 200 percent of 
the applicable initial margin requirement: Provided, The equity in any 
such proprietary account shall reduce the deduction required by this 
paragraph (c)(5)(x) if such equity is not otherwise includable in 
adjusted net capital;
    (xi) In the case of an applicant or registrant which is a purchaser 
of a commodity option not traded on a contract market which has value 
and such value is used to increase adjusted net capital, ten percent of 
the market value of the commodity or futures contract which is the 
subject of such option but in no event more than the value attributed to 
such option;
    (xii) In the case of an applicant or registrant which is a purchaser 
of a commodity option which is traded on a contract market the same 
safety factor as if the applicant or registrant were the grantor of such 
option in accordance with paragraph (c)(5)(x) of this section, but in no 
event shall the safety factor be greater than the market value 
attributed to such option;
    (xiii) Five percent of all unsecured receivables includable under 
paragraph (c)(2)(ii)(D) of this section used by the applicant or 
registrant in computing ``net capital'' and which are not due from:

[[Page 77]]

    (A) A registered futures commission merchant;
    (B) A broker or dealer that is registered as such with the 
Securities and Exchange Commission; or
    (C) A foreign broker that has been granted comparability relief 
pursuant toSec. 30.10 of this chapter, Provided, however, that the 
amount of the unsecured receivable not subject to the five percent 
capital charge is no greater than 150 percent of the current amount 
required to maintain futures and options positions in accounts with the 
foreign broker, or 100 percent of such greater amount required to 
maintain futures and option positions in the accounts at any time during 
the previous six-month period, and Provided, that, in the case of the 
foreign futures or foreign options secured amount, asSec. 1.3(rr) 
defines such term, such account is treated in accordance with the 
special requirements of the applicable Commission order issued under 
Sec.  30.10 of this chapter.
    (xiv) For securities brokers and dealers, all other deductions 
specified inSec. 240.15c3-1 of this title.
    (6) Election of alternative capital deductions that have received 
approval of Securities and Exchange Commission pursuant toSec. 
240.15c3-1(a)(7) of this title.
    (i) Any futures commission merchant that is also registered with the 
Securities and Exchange Commission as a securities broker or dealer, and 
who also satisfies the other requirements of this paragraph (c)(6), may 
elect to compute its adjusted net capital using the alternative capital 
deductions that, underSec. 240.15c3-1(a)(7) of this title, the 
Securities and Exchange Commission has approved by written order. To the 
extent that a futures commission merchant is permitted by the Securities 
and Exchange Commission to use alternative capital deductions for its 
unsecured receivables from over-the-counter transactions in derivatives, 
or for its proprietary positions in securities, forward contracts, or 
futures contracts, the futures commission merchant may use these same 
alternative capital deductions when computing its adjusted net capital, 
in lieu of the deductions that would otherwise be required by paragraph 
(c)(2)(ii) of this section for its unsecured receivables from over-the-
counter derivatives transactions; by paragraph (c)(5)(ii) of this 
section for its proprietary positions in forward contracts; by paragraph 
(c)(5)(v) of this section for its proprietary positions in securities; 
and by paragraph (c)(5)(x) of this section for its proprietary positions 
in futures contracts.
    (ii) Notifications of election or of changes to election. (A) No 
election to use the alternative market risk and credit risk deductions 
referenced in paragraph (c)(6)(i) of this section shall be effective 
unless and until the futures commission merchant has filed with the 
Commission, addressed to the Director of the Division of Clearing and 
Intermediary Oversight, a notice that is to include a copy of the 
approval order of the Securities and Exchange Commission referenced in 
paragraph (c)(6)(i) of this section, and to include also a statement 
that identifies the amount of tentative net capital below which the 
futures commission merchant is required to provide notice to the 
Securities and Exchange Commission, and which also provides the 
following information: a list of the categories of positions that the 
futures commission merchant holds in its proprietary accounts, and, for 
each such category, a description of the methods that the futures 
commission merchant will use to calculate its deductions for market risk 
and credit risk, and also, if calculated separately, deductions for 
specific risk; a description of the value at risk (VaR) models to be 
used for its market risk and credit risk deductions, and an overview of 
the integration of the models into the internal risk management control 
system of the futures commission merchant; a description of how the 
futures commission merchant will calculate current exposure and maximum 
potential exposure for its deductions for credit risk; a description of 
how the futures commission merchant will determine internal credit 
ratings of counterparties and internal credit risk weights of 
counterparties, if applicable; and a description of the estimated effect 
of the alternative market risk and credit risk deductions on the amounts 
reported by the futures

[[Page 78]]

commission merchant as net capital and adjusted net capital.
    (B) A futures commission merchant must also, upon the request of the 
Commission at any time, supplement the statement described in paragraph 
(c)(6)(ii)(A) of this section, by providing any other explanatory 
information regarding the computation of its alternative market risk and 
credit risk deductions as the Commission may require at its discretion.
    (C) A futures commission merchant must also file the following 
supplemental notices with the Director of the Division and Clearing and 
Intermediary Oversight:
    (1) A notice advising that the Securities and Exchange Commission 
has imposed additional or revised conditions for the approval evidenced 
by the order referenced in paragraph (c)(6)(i) of this section, and 
which describes the new or revised conditions in full, and
    (2) A notice which attaches a copy of any approval by the Securities 
and Exchange Commission of amendments that a futures commission merchant 
has requested for its application, filed under 17 CFR 240.15c3-1e, to 
use alternative market risk and credit risk deductions approved by the 
Securities and Exchange Commission.
    (D) A futures commission merchant may voluntarily change its 
election to use the alternative market risk and credit risk deductions 
referenced in paragraph (c)(6)(i) of this section, by filing with the 
Director of the Division of Clearing and Intermediary Oversight a 
written notice specifying a future date as of which it will no longer 
use the alternative market risk and credit risk deductions, and will 
instead compute such deductions in accordance with the requirements 
otherwise applicable under paragraph (c)(2)(ii) of this section for 
unsecured receivables from over-the-counter derivatives transactions; by 
paragraph (c)(5)(ii) of this section for proprietary positions in 
forward contracts; by paragraph (c)(5)(v) of this section for 
proprietary positions in securities; and by paragraph (c)(5)(x) of this 
section for proprietary positions in futures contracts.
    (iii) Conditions under which election terminated. A futures 
commission merchant may no longer elect to use the alternative market 
risk and credit risk deductions referenced in paragraph (c)(6)(i) of 
this section, and shall instead compute the deductions otherwise 
required under paragraph (c)(2)(ii) of this section for unsecured 
receivables from over-the-counter derivatives transactions; by paragraph 
(c)(5)(ii) of this section for proprietary positions in forward 
contracts; by paragraph (c)(5)(v) of this section for proprietary 
positions in securities; and by paragraph (c)(5)(x) of this section for 
proprietary positions in futures contracts, upon the occurrence of any 
of the following:
    (A) The Securities and Exchange Commission revokes its approval of 
the market risk and credit risk deductions for such futures commission 
merchant;
    (B) A futures commission merchant fails to come into compliance with 
its filing requirements under this paragraph (c)(6), after having 
received from the Director of the Division of Clearing and Intermediary 
Oversight written notification that the firm is not in compliance with 
its filing requirements, and must cease using alternative capital 
deductions permitted under this paragraph (c)(6) if it has not come into 
compliance by a date specified in the notice; or
    (C) The Commission by written order finds that permitting the 
futures commission merchant to continue to use such alternative market 
risk and credit risk deductions is no longer necessary or appropriate 
for the protection of customers of the futures commission merchant or of 
the integrity of the futures or options markets.
    (iv) Additional filing requirements. Any futures commission merchant 
that elects to use the alternative market risk and credit risk 
deductions referenced in paragraph (c)(6)(i) of this section must file 
with the Commission, in addition to the filings required by paragraph 
(c)(6)(ii) of this section, copies of any and all of the following 
documents, at such time as the originals are filed with the Securities 
and Exchange Commission:
    (A) Information that the futures commission merchant files on a 
monthly basis with its designated examining authority or the Securities 
and Exchange Commission, whether by

[[Page 79]]

way of schedules to its FOCUS reports or by other filings, in 
satisfaction of 17 CFR 240.17a-5(a)(5)(i);
    (B) The quarterly reports required by 17 CFR 240.17a-5(a)(5)(ii);
    (C) The supplemental annual filings as required by 17 CFR 240.17a-
5(k);
    (D) Any notification to the Securities and Exchange Commission or 
the futures commission merchant's designated examining authority of 
planned withdrawals of excess net capital; and
    (E) Any notification that the futures commission merchant is 
required to file with the Securities and Exchange Commission when its 
tentative net capital is below an amount specified by the Securities and 
Exchange Commission.
    (7) Liabilities are ``adequately collateralized'' when, pursuant to 
a legally enforceable written instrument, such liabilities are secured 
by identified assets that are otherwise unencumbered and the market 
value of which exceeds the amount of such liabilities.
    (8) The term contractual commitments shall include underwriting, 
when issued, when distributed, and delayed delivery contracts; and the 
writing or endorsement of security puts and calls and combinations 
thereof; but shall not include uncleared regular way purchases and sales 
of securities. A series of contracts of purchase or sale of the same 
security, conditioned, if at all, only upon issuance, may be treated as 
an individual commitment.
    (d) Each applicant or registrant shall have equity capital 
(inclusive of satisfactory subordination agreements which qualify under 
this paragraph (d) as equity capital) of not less than 30 percent of the 
debt-equity total, provided, an applicant or registrant may be exempted 
from the provisions of this paragraph (d) for a period not to exceed 90 
days or for such longer period which the Commission may, upon 
application of the applicant or registrant, grant in the public interest 
or for the protection of investors. For the purposes of this paragraph 
(d):
    (1) Equity capital means a satisfactory subordination agreement 
entered into by a partner or stockholder or limited liability company 
member which has an initial term of at least 3 years and has a remaining 
term of not less than 12 months if:
    (i) It does not have any of the provisions for accelerated maturity 
provided for by paragraphs (h)(2) (ix)(A), (x)(A), or (x)(B) of this 
section, or the provisions allowing for special prepayment provided for 
by paragraph (h)(2)(vii)(B) of this section, and is maintained as 
capital subject to the provisions restricting the withdrawal thereof 
required by paragraph (e) of this section; or
    (ii) The partnership agreement provides that capital contributed 
pursuant to a satisfactory subordination agreement as defined in 
paragraph (h) of this section shall in all respects be partnership 
capital subject to the provisions restricting the withdrawal thereof 
required by paragraph (e) of this section, and
    (A) In the case of a corporation, the sum of its par or stated value 
of capital stock, paid in capital in excess of par, retained earnings, 
unrealized profit and loss, and other capital accounts.
    (B) In the case of a partnership, the sum of its capital accounts of 
partners (inclusive of such partners' commodities, options and 
securities accounts subject to the provisions of paragraph (e) of this 
section), and unrealized profit and loss.
    (C) In the case of a sole proprietorship, the sum of its capital 
accounts of the sole proprietorship and unrealized profit and loss.
    (D) In the case of a limited liability company, the sum of its 
capital accounts of limited liability company members, and unrealized 
profit and loss.
    (2) Debt-equity total means equity capital as defined in paragraph 
(d)(1) of this section plus the outstanding principal amount of 
satisfactory subordination agreements.
    (e) No equity capital of the applicant or registrant or a 
subsidiary's or affiliate's equity capital consolidated pursuant to 
paragraph (f) of this section, whether in the form of capital 
contributions by partners (including amounts in the commodities, options 
and securities trading accounts of partners which are treated as equity 
capital but excluding amounts in such

[[Page 80]]

trading accounts which are not equity capital and excluding balances in 
limited partners' capital accounts in excess of their stated capital 
contributions), par or stated value of capital stock, paid-in capital in 
excess of par or stated value, retained earnings or other capital 
accounts, may be withdrawn by action of a stockholder or partner or 
limited liability company member or by redemption or repurchase of 
shares of stock by any of the consolidated entities or through the 
payment of dividends or any similar distribution, nor may any unsecured 
advance or loan be made to a stockholder, partner, sole proprietor, 
limited liability company member, or employee if, after giving effect 
thereto and to any other such withdrawals, advances, or loans and any 
payments of payment obligations (as defined in paragraph (h) of this 
section) under satisfactory subordination agreements and any payments of 
liabilities excluded pursuant to paragraph (c)(4)(vi) of this section 
which are scheduled to occur within six months following such 
withdrawal, advance or loan:
    (1) Either adjusted net capital of any of the consolidated entities 
would be less than the greatest of:
    (i) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (ii) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (iii) 120 percent of the amount of adjusted net capital required by 
a registered futures association of which it is a member; or
    (iv) For an applicant or registrant which is also a securities 
broker or dealer, the amount of net capital specified in Rule 15c3-1(e) 
of the Securities and Exchange Commission (17 CFR 240.15c3-1(e)); or
    (2) In the case of any applicant or registrant included within such 
consolidation, if equity capital of the applicant or registrant 
(inclusive of satisfactory subordination agreements which qualify as 
equity under paragraph (d) of this section) would be less than 30 
percent of the required debt-equity total as defined in paragraph (d) of 
this section.

Provided, That this paragraph (e) shall not preclude an applicant or 
registrant from making required tax payments or preclude the payment to 
partners of reasonable compensation. The Commission may, upon 
application of the applicant or registrant, grant relief from this 
paragraph (e) if the Commission deems it to be in the public interest or 
for the protection of nonproprietary accounts.
    (f)(1) Every applicant or registrant, in computing its net capital 
pursuant to this section must, subject to the provisions of paragraphs 
(f)(2) and (f)(4) of this section, consolidate in a single computation, 
assets and liabilities of any subsidiary or affiliate for which it 
guarantees, endorses, or assumes directly or indirectly the obligations 
or liabilities. The assets and liabilities of a subsidiary or affiliate 
whose liabilities and obligations have not been guaranteed, endorsed, or 
assumed directly or indirectly by the applicant or registrant may also 
be so consolidated if an opinion of counsel is obtained as provided for 
in paragraph (f)(2) of this section.
    (2)(i) If the consolidation, provided for in paragraph (f)(1) of 
this section, of any such subsidiary or affiliate results in the 
increase of the applicant's or registrant's adjusted net capital or 
decreases the minimum adjusted net capital requirement, and an opinion 
of counsel called for in paragraph (f)(2)(ii) of this section has not 
been obtained, such benefits shall not be recognized in the applicant's 
or registrant's computation required by this section.
    (ii) Except as provided for in paragraph (f)(2)(i) of this section, 
consolidation shall be permitted with respect to any subsidiaries or 
affiliates which are majority owned and controlled by the applicant or 
registrant, and for which the applicant can demonstrate to the 
satisfaction of the National Futures Association, or for which the 
registrant can demonstrate to the satisfaction of the Commission and the 
designated self-regulatory organization, if any, by an opinion of 
counsel, that the net asset values or the portion thereof related to the 
parent's ownership interest in the subsidiary or affiliate, may

[[Page 81]]

be caused by the applicant or registrant or an appointed trustee to be 
distributed to the applicant or registrant within 30 calendar days. Such 
opinion must also set forth the actions necessary to cause such a 
distribution to be made, identify the parties having the authority to 
take such actions, identify and describe the rights of other parties or 
classes of parties, including but not limited to customers, general 
creditors, subordinated lenders, minority shareholders, employees, 
litigants, and governmental or regulatory authorities, who may delay or 
prevent such a distribution and such other assurances as the National 
Futures Association, the Commission or the designated self-regulatory 
organization by rule or interpretation may require. Such opinion must be 
current and periodically renewed in connection with the applicant's or 
registrant's annual audit pursuant toSec. 1.10 or upon any material 
change in circumstances.
    (3) In preparing a consolidated computation of adjusted net capital 
pursuant to this section, the following minimum and non-exclusive 
requirements shall be observed;
    (i) Consolidated adjusted net capital shall be reduced by the 
estimated amount of any tax reasonably anticipated to be incurred upon 
distribution of the assets of the subsidiary or affiliate.
    (ii) Liabilities of a consolidated subsidiary or affiliate which are 
subordinated to the claims of present and future creditors pursuant to a 
satisfactory subordination agreement shall be deducted from consolidated 
adjusted net capital unless such subordination extends also to the 
claims of present or future creditors of the parent applicant or 
registrant and all consolidated subsidiaries.
    (iii) Subordinated liabilities of a consolidated subsidiary or 
affiliate which are consolidated in accordance with paragraph (f)(3)(ii) 
of this section may not be prepaid, repaid, or accelerated if any of the 
entities included in such consolidation would otherwise be unable to 
comply with the provisions of paragraph (h) of this section.
    (iv) Each applicant or registrant included within the consolidation 
shall at all times be in compliance with the adjusted net capital 
requirement to which it is subject.
    (4) No applicant or registrant shall guarantee, endorse, or assume 
directly or indirectly any obligation or liability of a subsidiary or 
affiliate unless the obligation or liability is reflected in the 
computation of adjusted net capital pursuant to this section except as 
provided in paragraph (f)(2)(i) of this section.
    (g)(1) The Commission may by order restrict, for a period up to 
twenty business days, any withdrawal by a futures commission merchant of 
equity capital, or any unsecured advance or loan to a stockholder, 
partner, limited liability company member, sole proprietor, employee or 
affiliate, if:
    (i) Such withdrawal, advance or loan would cause, when aggregated 
with all other withdrawals, advances or loans during a 30 calendar day 
period from the futures commission merchant or a subsidiary or affiliate 
of the futures commission merchant consolidated pursuant toSec. 
1.17(f) (or 17 CFR 240.15c3-1e), a net reduction in excess adjusted net 
capital (or, if the futures commission merchant is qualified to use the 
filing option available underSec. 1.10(h), excess net capital as 
defined in the rules of the Securities and Exchange Commission) of 30 
percent or more, and
    (ii) The Commission, based on the facts and information available, 
concludes that any such withdrawal, advance or loan may be detrimental 
to the financial integrity of the futures commission merchant, or may 
unduly jeopardize its ability to meet customer obligations or other 
liabilities that may cause a significant impact on the markets.
    (2) The futures commission merchant may file with the Secretary of 
the Commission a written petition to request rescission of the order 
issued under paragraph (g)(1) of this section. The petition filed by the 
futures commission merchant must specify the facts and circumstances 
supporting its request for rescission. The Commission shall respond in 
writing to deny the futures commission merchant's petition for 
rescission, or, if the Commission determines that the order issued under 
paragraph (g)(1) of this section should

[[Page 82]]

not remain in effect, the order shall be rescinded.
    (h) The term satisfactory subordination agreement (``subordination 
agreement'') means an agreement which contains the minimum and 
nonexclusive requirements set forth below.
    (1) Certain definitions for purposes of this section:
    (i) A subordination agreement may be either a subordinated loan 
agreement or a secured demand note agreement.
    (ii) The term subordinated loan agreement means the agreement or 
agreements evidencing or governing a subordinated borrowing of cash.
    (iii) The term ``collateral value'' of any securities pledged to 
secure a secured demand note means the market value of such securities 
after giving effect to the percentage deductions specified in Rule 
240.15c3-1d(a)(2)(iii) of the Securities and Exchange Commission (17 CFR 
240.15c3-1d(a)(2)(iii)).
    (iv) The term payment obligation means the obligation of an 
applicant or registrant in respect to any subordination agreement:
    (A) To repay cash loaned to the applicant or registrant pursuant to 
a subordinated loan agreement; or
    (B) To return a secured demand note contributed to the applicant or 
registrant or to reduce the unpaid principal amount thereof and to 
return cash or securities pledged as collateral to secure the secured 
demand note; and (C) ``payment'' shall mean the performance by an 
applicant or registrant of a payment obligation.
    (v)(A) The term secured demand note agreement means an agreement 
(including the related secured demand note) evidencing or governing the 
contribution of a secured demand note to an applicant or registrant and 
the pledge of securities and/or cash with the applicant or registrant as 
collateral to secure payment of such secured demand note. The secured 
demand note agreement may provide that neither the lender, his heirs, 
executors, administrators, or assigns shall be personally liable on such 
note and that in the event of default the applicant or registrant shall 
look for payment of such note solely to the collateral then pledged to 
secure the same.
    (B) The secured demand note shall be a promissory note executed by 
the lender and shall be payable on the demand of the applicant or 
registrant to which it is contributed: Provided, however, That the 
making of such demand may be conditioned upon the occurrence of any of 
certain events which are acceptable to the designated self-regultory 
organization and the Commission.
    (C) If such note is not paid upon presentment and demand as provided 
for therein, the applicant or registrant shall have the right to 
liquidate all or any part of the securities then pledged as collateral 
to secure payment of the same and to apply the net proceeds of such 
liquidation, together with any cash then included in the collateral, in 
payment of such note. Subject to the prior rights of the applicant or 
registrant as pledgee, the lender, as defined in paragraph (h)(i)(v)(F) 
of this section may retain ownership of the collateral and have the 
benefit of any increases and bear the risks fo any decreases in the 
value of the collateral and may retain the right to vote securities 
contained within the collateral and any right to income therefrom or 
distributions thereon, except the applicant or registrant shall have the 
right to receive and hold as pledgee all dividends payable in securities 
and all partial and complete liquidating dividends.
    (D) Subject to the prior rights of the applicant or registrant as 
pledgee, the lender may have the right to direct the sale of any 
securities included in the collateral, to direct the purchase of 
securities with any cash included therein, to withdraw excess collateral 
or to substitute cash or other securities as collateral: Provided, That 
the net proceeds of any such sale and the cash so substituted and the 
securities so purchased or substituted are held by the applicant or 
registrant as pledgee, and are included within the collateral to secure 
payment of the secured demand note: And provided further, That no such 
transaction shall be permitted, if, after giving effect therto, the sum 
of the amount of any cash, plus the collateral value of the securities, 
then pledged as collateral to secure the secured demand note would be 
less than

[[Page 83]]

the unpaid principal amount of the secured demand note.
    (E) Upon payment by the lender, as distinguished from a reduction by 
the lender which is provided for in paragraph (h)(2)(vi)(C) of this 
section or reduction by the applicant or registrant as provided for in 
paragraph (h)(2)(vii) of this section, of all or any part of the unpaid 
principal amount of the secured demand note, the applicant or registrant 
shall issue to the lender a subordinated loan agreement in the amount of 
such payment (or in the case of an applicant or registrant that is a 
partnership, credit a capital account of the lender), or issue preferred 
or common stock of the applicant or registrant in the amount of such 
payment, or any combination of the foregoing, as provided for in the 
secured demand note agreement.
    (F) The term lender means the person who lends cash to an applicant 
or registrant pursuant to a subordinated loan agreement and the person 
who contributes a secured demand note to an applicant or registrant 
pursuant to a secured demand note agreement.
    (2) Minimum requirements for subordination agreements:
    (i) Subject to paragraph (h)(1) of this section, a subordination 
agreement shall mean a written agreement between the applicant or 
registrant and the lender, which:
    (A) Has a minimum term of 1 year, except for temporary subordination 
agreements provided for in paragraph (h)(3)(v) of this section, and
    (B) Is a valid and binding obligation enforceable in accordance with 
its terms (subject as to enforcement to applicable bankruptcy, 
insolvency, reorganization, moratorium, and other similar laws) against 
the applicant or registrant and the lender and their respective heirs, 
executors, administrators, successors, and assigns.
    (ii) Specific amount. All subordination agreements shall be for a 
specific dollar amount which shall not be reduced for the duration of 
the agreement except by installments as specifically provided for 
therein and except as otherwise provided in this paragraph (h)(2) of 
this section.
    (iii) Effective subordination. The subordination agreement shall 
effectively subordinate any right of the lender to receive any payment 
with respect thereto, together with accrued interest or compensation, to 
the prior payment or provision for payment in full of all claims of all 
present and future creditors of the applicant or registrant arising out 
of any matter occurring prior to the date on which the related payment 
obligation matures, except for claims which are the subject of 
subordination agreements which rank on the same priority as or junior to 
the claim of the lender under such subordination agreements.
    (iv) Proceeds of subordinated loan agreements. The subordinated loan 
agreement shall provide that the cash proceeds thereof shall be used and 
dealt with by the applicant or registrant as part of its capital and 
shall be subject to the risks of the business.
    (v) Certain rights of the borrower. The subordination agreement 
shall provide that the applicant or registrant shall have the right to:
    (A) Deposit any cash proceeds of a subordinated loan agreement and 
any cash pledged as collateral to secure a secured demand note in an 
account or accounts in its own name in any bank or trust company;
    (B) Pledge, repledge, hypothecate and rehypothecate, any or all of 
the securities pledged as collateral to secure a secured demand note, 
without notice, separately or in common with other securities or 
property for the purpose of securing any indebtedness of the applicant 
or registrant; and
    (C) Lend to itself or others any or all of the securities and cash 
pledged as collateral to secure a secured demand note.
    (vi) Collateral for secured demand notes. Only cash and securities 
which are fully paid for and which may be publicly offered or sold 
without registration under the Securities Act of 1933, and the offer, 
sale, and transfer of which are not otherwise restricted, may be pledged 
as collateral to secure a secured demand note. The secured demand note 
agreement shall provide that if at any time the sum of the amount of any 
cash, plus the collateral value of any securities, then pledged as

[[Page 84]]

collateral to secure the secured demand note is less than the unpaid 
principal amount of the secured demand note, the applicant or registrant 
must immediately transmit written notice to that effect to the lender. 
The secured demand note agreement shall also provide that if the 
borrower is an applicant, such notice must also be transmitted 
immediately to the National Futures Association, and if the borrower is 
a registrant, such notice must also be transmitted immediately to the 
designated self-regulatory organization, if any, and the Commission. The 
secured demand note agreement shall also require that following such 
transmittal:
    (A) The lender, prior to noon of the business day next succeeding 
the transmittal of such notice, may pledge as collateral additional cash 
or securities sufficient, after giving effect to such pledge, to bring 
the sum of the amount of any cash plus the collateral value of any 
securities, then pledged as collateral to secure the secured demand 
note, up to an amount not less than the unpaid principal amount of the 
secured demand note; and
    (B) Unless additional cash or securities are pledged by the lender 
as provided in paragraph (h)(2)(vi)(A) above, the applicant or 
registrant at noon on the business day next succeeding the transmittal 
of notice to the lender must commence sale, for the account of the 
lender, of such of the securities then pledged as collateral to secure 
the secured demand note and apply so much of the net proceeds thereof, 
together with such of the cash then pledged as collateral to secure the 
secured demand note as may be necessary to eliminate the unpaid 
principal amount of the secured demand note: Provided, however, That the 
unpaid principal amount of the secured demand note need not be reduced 
below the sum of the amount of any remaining cash, plus the collateral 
value of the remaining securities, then pledged as collateral to secure 
the secured demand note. The applicant or registrant may not purchase 
for its own account any securities subject to such a sale; and
    (C) The secured demand note agreement may also provide that, in lieu 
of the procedures specified in the provisions required by paragraph 
(h)(2)(vi)(B) of this section, the lender, with the prior written 
consent of the applicant and the National Futures Association, or with 
the prior written consent of the registrant and the designated self-
regulatory organization or, if the registrant is not a member of a 
designated self-regulatory organization, the Commission, may reduce the 
unpaid principal amount of the secured demand note: Provided, That after 
giving effect to such reduction the adjusted net capital of the 
applicant or registrant would not be less than the greatest of:
    (1) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-
1d(b)(6)(iii) of the Securities and Exchange Commission (17 CFR 
240.15c3-1d(b)(6)(iii)): Provided, further, That no single secured 
demand note shall be permitted to be reduced by more than 15 percent of 
its original principal amount and after such reduction no excess 
collateral may be withdrawn.
    (vii) Permissive prepayments and special prepayments. (A) An 
applicant or registrant at its option, but not at the option of the 
lender, may, if the subordination agreement so provides, make a payment 
of all or any portion of the payment obligation thereunder prior to the 
scheduled maturity date of such payment obligation (hereinafter referred 
to as a ``prepayment''), but in no event may any prepayment be made 
before the expiration of one year from the date such subordination 
agreement became effective: Provided, however, That the foregoing 
restriction shall not apply to temporary subordination agreements which 
comply with the provisions of paragraph (h)(3)(v) of this

[[Page 85]]

section nor shall it apply to ``special prepayments'' made in accordance 
with the provisions of paragraph (h)(2)(vii)(B) of this section. No 
prepayment shall be made if, after giving effect thereto (and to all 
payments of payment obligations under any other subordination agreements 
then outstanding, the maturity or accelerated maturities of which are 
scheduled to fall due within six months after the date such prepayment 
is to occur pursuant to this provision, or on or prior to the date on 
which the payment obligation in respect to such prepayment is scheduled 
to mature disregarding this provision, whichever date is earlier) 
without reference to any projected profit or loss of the applicant or 
registrant, the adjusted net capital of the applicant or registrant is 
less than the greatest of:
    (1) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(b)(7) of 
the Securities and Exchange Commission (17 CFR 240.15c3-1d(b)(7)).
    (B) An applicant or registrant at its option, but not at the option 
of the lender, may, if the subordination agreement so provides, make a 
payment at any time of all or any portion of the payment obligation 
thereunder prior to the scheduled maturity date of such payment 
obligation (hereinafter referred to as a ``special prepayment''). No 
special prepayment shall be made if, after giving effect thereto (and to 
all payments of payment obligations under any other subordination 
agreements then outstanding, the maturity or accelerated maturities of 
which are scheduled to fall due within six months after the date such 
special prepayment is to occur pursuant to this provision, or on or 
prior to the date on which the payment obligation in respect to such 
special prepayment is scheduled to mature disregarding this provision, 
whichever date is earlier) without reference to any projected profit or 
loss of the applicant or registrant, the adjusted net capital of the 
applicant or registrant is less than the greatest of:
    (1) 200 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 125 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(c)(5)(ii) 
of the Securities and Exchange Commission (17 CFR 240.15c3-
1d(c)(5)(ii)): Provided, however, That no special prepayment shall be 
made if pre-tax losses during the latest three-month period were greater 
than 15 percent of current excess adjusted net capital.
    (C)(1) Notwithstanding the provisions of paragraphs (h)(2)(vii)(A) 
and (h)(2)(vii)(B) of this section, in the case of an applicant, no 
prepayment or special prepayment shall occur without the prior written 
approval of the National Futures Association; in the case of a 
registrant, no prepayment or special prepayment shall occur without the 
prior written approval of the designated self-regulatory organization, 
if any, or of the Commission if the registrant is not a member of a 
self-regulatory organization.
    (2) A registrant may make a prepayment or special prepayment without 
the prior written approval of the designated self-regulatory 
organization: Provided, That the registrant: Is a securities broker or 
dealer registered with the Securities and Exchange Commission; files a 
request to make a prepayment or special prepayment with its applicable 
securities designated examining authority, as defined in Rule 15c3-
1(c)(12) of the Securities and Exchange Commission (17 CFR 240.15c3-

[[Page 86]]

1(c)(12)), in the form and manner prescribed by the designated examining 
authority; files a copy of the prepayment request or special prepayment 
request with the designated self-regulatory organization at the time it 
files such request with the designated examining authority in the form 
and manner prescribed by the designated self-regulatory organization; 
and files a copy of the designated examining authority's approval of the 
prepayment or special prepayment with the designated self-regulatory 
organization immediately upon receipt of such approval. The approval of 
the prepayment or special prepayment by the designated examining 
authority will be deemed approval by the designated self-regulatory 
organization, unless the designated self-regulatory organization 
notifies the registrant that the designated examining authority's 
approval shall not constitute designated self-regulatory organization 
approval.
    (3) The designated self-regulatory organization shall immediately 
provide the Commission with a copy of any notice of approval issued 
where the requested prepayment or special prepayment will result in the 
reduction of the registrant's net capital by 20 percent or more or the 
registrant's excess adjusted net capital by 30 percent or more.
    (viii) Suspended repayment. (A) The payment obligation of the 
applicant or registrant in respect of any subordination agreement shall 
be suspended and shall not mature if, after giving effect to payment of 
such payment obligation (and to all payments of payment obligations of 
the applicant or registrant under any other subordination agreement(s) 
then outstanding which are scheduled to mature on or before such payment 
obligation), the adjusted net capital of the applicant or registrant 
would be less than the greatest of:
    (1) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(b)(8)(i) 
of the Securities and Exchange Commission (17 CFR 240.15c3-1d(b)(8)(i)): 
Provided, That the subordination agreement may provide that if the 
payment obligation of the applicant or registrant thereunder does not 
mature and is suspended as a result of the requirement of this paragraph 
(h)(2)(viii) for a period of not less than six months, the applicant or 
registrant shall then commence the rapid and orderly liquidation of its 
business, but the right of the lender to receive payment, together with 
accrued interest or compensation, shall remain subordinate as required 
by the provisions of this section.
    (B) [Reserved]
    (ix) Accelerated maturity. Obligation to repay to remain 
subordinate:
    (A) Subject to the provisions of paragraph (h)(2)(viii) of this 
section, a subordination agreement may provide that the lender may, upon 
prior written notice to the applicant and the National Futures 
Association, or upon prior written notice to the registrant and the 
designated self-regulatory organization or, if the registrant is not a 
member of a designated self-regulatory organization, the Commission, 
given not earlier than six months after the effective date of such 
subordination agreement, accelerate the date on which the payment 
obligation of the borrower, together with accrued interest or 
compensation, is scheduled to mature to a date not earlier than six 
months after giving of such notice, but the right of the lender to 
receive payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of this paragraph 
(h)(2) of this section.
    (B) Notwithstanding the provisions of paragraph (h)(2)(viii) of this 
section, the payment obligation of the applicant or registrant with 
respect to a subordination agreement, together with accrued interest and 
compensation, shall mature in the event of any receivership, insolvency, 
liquidation pursuant to the Securities Investor Protection Act of 1970 
or otherwise,

[[Page 87]]

bankruptcy, assignment for the benefit of creditors, reorganization 
whether or not pursuant to the bankruptcy laws, or any other marshalling 
of the assets and liabilities of the applicant or registrant, but the 
right of the lender to receive payment, together with accrued interest 
or compensation, shall remain subordinate as required by the provisions 
of paragraph (h)(2) of this section.
    (x) Accelerated maturity of subordination agreements on event of 
default and event of acceleration. Obligation to repay to remain 
subordinate:
    (A) A subordination agreement may provide that the lender may, upon 
prior written notice to the applicant and the National Futures 
Association, or upon prior written notice to the registrant and the 
designated self-regulatory organization or, if the registrant is not a 
member of a designated self-regulatory organization, the Commission, of 
the occurrence of any event of acceleration (as hereinafter defined) 
given no sooner than six months after the effective date of such 
subordination agreement, accelerate the date on which the payment 
obligation of the applicant or registrant, together with accrued 
interest or compensation, is scheduled to mature, to the last business 
day of a calendar month which is not less than six months after notice 
of acceleration is received by the applicant and by the National Futures 
Association, or by the registrant and the designated self-regulatory 
organization or, if the registrant is not a member of a designated self-
regulatory organization, the Commission. Any subordination agreement 
containing such events of acceleration may also provide that, if upon 
such accelerated maturity date the payment obligation of the applicant 
or registrant is suspended as required by paragraph (h)(2)(viii) of this 
section and liquidation of the applicant or registrant has not commenced 
on or prior to such accelerated maturity date, notwithstanding paragraph 
(h)(2)(viii) of this section, the payment obligation of the applicant or 
registrant with respect to such subordination agreement shall mature on 
the day immediately following such accelerated maturity date and in any 
such event the payment obligations of the applicant or registrant with 
respect to all other subordination agreements then outstanding shall 
also mature at the same time but the rights of the respective lenders to 
receive payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of paragraph (h)(2) of 
this section. Events of acceleration which may be included in a 
subordination agreement complying with this paragraph (h)(2)(x) of this 
section shall be limited to:
    (1) Failure to pay interest or any installment of principal on a 
subordination agreement as scheduled;
    (2) Failure to pay when due other money obligations of a specified 
material amount;
    (3) Discovery that any material, specified representation or 
warranty of the applicant or registrant which is included in the 
subordination agreement and on which the subordination agreement was 
based or continued was inaccurate in a material respect at the time 
made;
    (4) Any specified and clearly measurable event which is included in 
the subordination agreement and which the lender and the applicant or 
registrant agree, (a) is a significant indication that the financial 
position of the applicant or registrant has changed materially and 
adversely from agreed upon specified norms; or (b) could materially and 
adversely affect the ability of the applicant or registrant to conduct 
its business as conducted on the date the subordination agreement was 
made; or (c) is a significant change in the senior management of the 
applicant or registrant or in the general business conducted by the 
applicant or registrant from that which obtained on the date the 
subordination agreement became effective;
    (5) Any continued failure to perform agreed covenants included in 
the subordination agreement relating to the conduct of the business of 
the applicant or registrant or relating to the maintenance and reporting 
of its financial position; and
    (B) Notwithstanding the provisions of paragraph (h)(2)(viii) of this 
section, a subordination agreement may provide that, if liquidation of 
the business of

[[Page 88]]

the applicant or registrant has not already commenced, the payment 
obligation of the applicant or registrant shall mature, together with 
accrued interest or compensation, upon the occurrence of an event of 
default (as hereinafter defined). Such agreement may also provide that, 
if liquidation of the business of the applicant or registrant has not 
already commenced, the rapid and orderly liquidation of the business of 
the applicant or registrant shall then commence upon the happening of an 
event of default. Any subordination agreement which so provides for 
maturity of the payment obligation upon the occurrence of an event of 
default shall also provide that the date on which such event of default 
occurs shall, if liquidation of the applicant or registrant has not 
already commenced, be the date on which the payment obligation of the 
applicant or registrant with respect to all other subordination 
agreements then outstanding shall mature but the rights of the 
respective lenders to receive payment, together with accrued interest or 
compensation, shall remain subordinate as required by the provisions of 
paragraph (h)(2) of this section. Events of default which may be 
included in a subordination agreement shall be limited to:
    (1) The making of an application by the Securities Investor 
Protection Corporation for a decree adjudicating that customers of the 
applicant or registrant are in need of protection under the Securities 
Investor Protection Act of 1970 and the failure of the applicant or 
registrant to obtain the dismissal of such application within 30 days;
    (2) Failure to meet the minimum capital requirements of the 
designated self-regulatory organization, or of the Commission, 
throughout a period of 15 consecutive business days, commencing on the 
day the borrower first determines and notifies the designated self-
regulatory organization, if any, of which he is a member and the 
Commission, in the case of a registrant, or the National Futures 
Association, in the case of an applicant, or commencing on the day any 
self-regulatory organization, the Commission or the National Futures 
Association first determines and notifies the applicant or registrant of 
such fact;
    (3) The Commission shall revoke the registration of the applicant or 
registrant;
    (4) The self-regulatory organization shall suspend (and not 
reinstate within 10 days) or revoke the applicant or registrant's status 
as a member thereof;
    (5) Any receivership, insolvency, liquidation pursuant to the 
Securities Investor Protection Act of 1970 or otherwise, bankruptcy, 
assignment for the benefit of creditors, reorganization whether or not 
pursuant to bankruptcy laws, or any other marshalling of the assets and 
liabilities of the applicant or registrant. A subordination agreement 
which contains any of the provisions permitted by this subparagraph 
(2)(x) shall not contain the provision otherwise permitted by paragraph 
(h)(2)(ix)(A) of this section.
    (3) Miscellaneous provisions--(i) Prohibited cancellation. The 
subordination agreement shall not be subject to cancellation by either 
party; no payment shall be made with respect thereto and the agreement 
shall not be terminated, rescinded or modified by mutual consent or 
otherwise if the effect thereof would be inconsistent with the 
requirements of paragraph (h) of this section.
    (ii) Notice of maturity or accelerated maturity. Every applicant or 
registrant shall immediately notify the National Futures Association, 
and the registrant shall immediately notify the designated self-
regulatory organization, if any, and the Commission if, after giving 
effect to all payments of payment obligations under subordination 
agreements then outstanding which are then due or mature within the 
following six months without reference to any projected profit or loss 
of the applicant or registrant, its adjusted net capital would be less 
than:
    (A) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (B) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (C) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or

[[Page 89]]

    (D) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(c)(2) of 
the Securities and Exchange Commission (17 CFR 240.15c3-1d(c)(2)).
    (iii) Certain legends. If all the provisions of a satisfactory 
subordination agreement do not appear in a single instrument, then the 
debenture or other evidence of indebtedness shall bear on its face an 
appropriate legend stating that it is issued subject to the provisions 
of a satisfactory subordination agreement which shall be adequately 
referred to and incorporated by reference.
    (iv) Legal title to securities. All securities pledged as collateral 
to secure a secured demand note must be in bearer form, or registered in 
the name of the applicant or registrant or the name of its nominee or 
custodian.
    (v) Temporary subordinations. To enable an applicant or registrant 
to participate as an underwriter of securities or undertake other 
extraordinary activities and remain in compliance with the adjusted net 
capital requirements of this section, an applicant or registrant shall 
be permitted, on no more than three occasions in any 12-month period, to 
enter into a subordination agreement on a temporary basis which has a 
stated term of no more than 45 days from the date the subordination 
agreement became effective: Provided, That this temporary relief shall 
not apply to any applicant or registrant if the adjusted net capital of 
the applicant or registrant is less than the greatest of:
    (A) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (B) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (C) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member;
    (D) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(c)(5)(i) 
of the Securities and Exchange Commission (17 CFR 240.15c3-1d(c)(5)(i)); 
or
    (E) The amount of equity capital as defined in paragraph (d) of this 
section is less than the limits specified in paragraph (d) of this 
section. Such temporary subordination agreement shall be subject to all 
the other provisions of this section.
    (vi) Filing. An applicant shall file a signed copy of any proposed 
subordination agreement (including nonconforming subordination 
agreements) with the National Futures Association at least ten days 
prior to the proposed effective date of the agreement or at such other 
time as the National Futures Association for good cause shall accept 
such filing. A registrant that is not a member of any designated self-
regulatory organization shall file two signed copies of any proposed 
subordination agreement (including nonconforming subordination 
agreements) with the regional office of the Commission nearest the 
principal place of business of the registrant at least ten days prior to 
the proposed effective date of the agreement or at such other time as 
the Commission for good cause shall accept such filing. A registrant 
that is a member of a designated self-regulatory organization shall file 
signed copies of any proposed subordination agreement (including 
nonconforming subordination agreements) with the designated self-
regulatory organization in such quantities and at such time as the 
designated self-regulatory organization may require prior to the 
effective date. The applicant or registrant shall also file with said 
parties a statement setting forth the name and address of the lender, 
the business relationship of the lender to the applicant or registrant 
and whether the applicant or registrant carried funds or securities for 
the lender at or about the time the proposed agreement was so filed. A 
proposed agreement filed by an applicant with the National Futures 
Association shall be reviewed by the National Futures Association, and 
no such agreement shall be a satisfactory subordination agreement for 
the purposes of this section unless and until the National Futures 
Association has found the agreement acceptable and such agreement has 
become effective in

[[Page 90]]

the form found acceptable. A proposed agreement filed by a registrant 
shall be reviewed by the designated self-regulatory organization with 
whom such an agreement is required to be filed prior to its becoming 
effective or, if the registrant is not a member of any designated self-
regulatory organization, by the regional office of the Commission where 
the agreement is required to be filed prior to its becoming effective. 
No proposed agreement shall be a satisfactory subordination agreement 
for the purposes of this section unless and until the designated self-
regulatory organization or, if a registrant is not a member of any 
designated self-regulatory organization, the Commission, has found the 
agreement acceptable and such agreement has become effective in the form 
found acceptable: Provided, however, That a proposed agreement shall be 
a satisfactory subordination agreement for purpose of this section if 
the registrant: is a securities broker or dealer registered with the 
Securities and Exchange Commission; files signed copies of the proposed 
subordination agreement with the applicable securities designated 
examining authority, as defined in Rule 15c3-1(c)(12) of the Securities 
and Exchange Commission (17 CFR 240.15c3-1(c)(12)), in the form and 
manner prescribed by the designated examining authority; files signed 
copies of the proposed subordination agreement with the designated self-
regulatory organization at the time it files such copies with the 
designated examining authority in the form and manner prescribed by the 
designated self-regulatory organization; and files a copy of the 
designated examining authority's approval of the proposed subordination 
agreement with the designated self-regulatory organization immediately 
upon receipt of such approval. The designated examining authority's 
determination that the proposed subordination agreement satisfies the 
requirements for a satisfactory subordination agreement will be deemed a 
like finding by the designated self-regulatory organization, unless the 
designated self-regulatory organization notifies the registrant that the 
designated examining authority's determination shall not constitute a 
like finding by the designated self-regulatory organization.
    (vii) Subordination agreements that incorporate adjusted net capital 
requirements in effect prior to September 30, 2004. Any subordination 
agreement that incorporates the adjusted net capital requirements in 
paragraphs (h)(2)(vi)(C)(2), (h)(2)(vii)(A)(2) and (B)(2), 
(h)(2)(viii)(A)(2), (h)(3)(ii)(B), and (h)(3)(v)(B) of this section, as 
in effect prior to September 30, 2004, and which has been deemed to be 
satisfactorily subordinated pursuant to this section prior to September 
30, 2004, shall continue to be deemed a satisfactory subordination 
agreement until the maturity of such agreement. In the event, however, 
that such agreement is amended or renewed for any reason, then such 
agreement shall not be deemed a satisfactory subordination agreement 
unless the amended or renewed agreement meets the requirements of this 
section.
    (4) A designated self-regulatory organization and the Commission may 
allow debt with a maturity date of 1 year or more to be treated as 
meeting the provisions of this paragraph (h): Provided, (i) Such 
exemption shall only be given when the registrant's adjusted net capital 
is less than the minimum required by this section or by the capital rule 
of the designated self-regulatory organization to which such registrant 
is subject;
    (ii) That such debt did not exist prior to its use under this 
paragraph (h)(4);
    (iii) Such exemption shall be for a period of 30 days or such lesser 
period as the designated self-regulatory organization and the Commission 
may determine;
    (iv) Such exemption shall not be allowed more than once in any 12 
month period; and
    (v) At all times during such exemption the registrant shall make a 
good faith effort to comply with the provisions of this section or the 
capital rule of the designated self-regulatory organization to which 
such registrant is subject exclusive of any benefits derived from this 
paragraph (h)(4).
    (i) [Reserved]
    (j) For the purposes of this section cover is defined as follows:

[[Page 91]]

    (1) General definition. Cover shall mean transactions or positions 
in a contract for future delivery on a board of trade or a commodity 
option where such transactions or positions normally represent a 
substitute for transactions to be made or positions to be taken at a 
later time in a physical marketing channel, and where they are 
economically appropriate to the reduction of risks in the conduct and 
management of a commercial enterprise, and where they arise from:
    (i) The potential change in the value of assets which a person owns, 
produces, manufactures, processes, or merchandises or anticipates 
owning, producing, manufacturing, processing, or merchandising.
    (ii) The potential change in the value of liabilities which a person 
owes or anticipates incurring, or
    (iii) The potential change in the value of services which a person 
provides, purchases or anticipates providing or purchasing. 
Notwithstanding the foregoing, no transactions or positions shall be 
classified as cover for the purposes of this section unless their 
purpose is to offset price risks incidental to commercial cash or spot 
operations and such positions are established and liquidated in 
accordance with sound commercial practices and unless the provisions of 
paragraphs (j) (2) and (3) of this section have been satisfied.
    (2) Enumerated cover transactions. The definition of covered 
transactions and positions in paragraph (j)(1) of this section includes, 
but is not limited to, the following specific transactions and 
positions:
    (i) Ownership or fixed-price purchase of any commodity which does 
not exceed in quantity (A) the sales of the same commodity for future 
delivery on a board of trade or (B) the purchase of a put commodity 
option of the same commodity for which the market value for the actual 
commodity or futures contract which is the subject of the option is less 
than the strike price of the option or (C) the ownership of a commodity 
option position established by the sale (grant) of a call commodity 
option of the same commodity for which the market value for the actual 
commodity or futures contract which is the subject of the option is more 
than the strike price of the option: Provided, That for purposes of 
paragraph (c)(5)(x) of this section the market value for the actual 
commodity or futures contract which is the subject of such option need 
not be more than the strike price of that option;
    (ii) Fixed-price sale of any commodity which does not exceed in 
quantity (A) the purchase of the same commodity for future delivery on a 
board of trade or (B) the purchase of a call commodity option of the 
same commodity for which the market value for the actual commodity or 
futures contract which is the subject of such option is more than the 
strike price of the option or (C) ownership of a commodity option 
position established by the sale (grant) of a put commodity option of 
the same commodity for which the market value for the actual commodity 
or futures comtract which is the subject of the option is less than the 
strike price of the option: Provided, That for purposes of paragraph 
(c)(5)(x) of this section the market value for the actual commodity or 
futures contract which is the subject of such option need not be less 
than the strike price of that option; and
    (iii) Ownership or fixed-price contracts of a commodity described in 
paragraphs (j)(2)(i) and (j)(2)(ii) of this section may also be covered 
other than by the same quantity of the same cash commodity, provided 
that the fluctuations in value of the position for future delivery or 
commodity option are substantially related to the fluctuations in value 
of the actual cash position.
    (3) Nonenumerated cases. Upon specific request, the Commission may 
recognize transactions and positions other than those enumerated in 
paragraph (j)(2) of this section as cover in amounts and under the terms 
and conditions as it may specify. Any applicant or registrant who wishes 
to avail itself of the provisions of this paragraph (j)(3) must apply to 
the Commission in writing at its principal office in Washington, DC 
giving full details of the transaction including detailed information 
which will demonstrate that the transaction is economically appropriate 
to the reduction of risk exposure attendant to

[[Page 92]]

the conduct and management of a commercial enterprise.

(Approved by the Office of Management and Budget under control number 
3038-0024)

[43 FR 39972, Sept. 8, 1978]

    Editorial Note: For Federal Register citations affectingSec. 1.17, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.  1.18  Records for and relating to financial reporting and monthly
computation by futures commission merchants and introducing brokers.

    (a) No person shall be registered as a futures commission merchant 
or as an introducing broker under the Act unless, commencing on the date 
his application for such registration is filed, he prepares and keeps 
current ledgers or other similar records which show or summarize, with 
appropriate references to supporting documents, each transaction 
affecting his asset, liability, income, expense and capital accounts, 
and in which (except as otherwise permitted in writing by the 
Commission) all his asset, liability and capital accounts are classified 
into either the account classification subdivisions specified on Form 1-
FR-FCM or Form 1-FR-IB, respectively, or, if such person is registered 
with the Securities and Exchange Commission as a securities broker or 
dealer and he files (in accordance withSec. 1.10(h)) a copy of his 
Financial and Operational Combined Uniform Single Report under the 
Securities Exchange Act of 1934, Part II, Part IIA, or Part II CSE 
(FOCUS report) in lieu of Form 1-FR-FCM or Form 1-FR-IB, the account 
classification subdivisions specified on such FOCUS report, or 
categories that are in accord with generally accepted accounting 
principles. Each person so registered shall prepare and keep current 
such records.
    (b)(1) Each applicant or registrant must make and keep as a record 
in accordance withSec. 1.31 formal computations of its adjusted net 
capital and of its minimum financial requirements pursuant toSec. 1.17 
or the requirements of the designated self-regulatory organization to 
which it is subject as of the close of business each month. Such 
computations must be completed and made available for inspection by any 
representative of the National Futures Association, in the case of an 
applicant, or of the Commission or designated self-regulatory 
organization, if any, in the case of a registrant, within 17 business 
days after the date for which the computations are made, commencing the 
first month end after the date the application for registration is 
filed.
    (2) An applicant or registrant that has filed a monthly Form 1-FR or 
Statement of Financial and Operational Combined Uniform Single Report 
under the Securities Exchange Act of 1934, Part II, Part IIA, or Part II 
CSE (FOCUS report) in accordance with the requirements ofSec. 1.10(b) 
will be deemed to have satisfied the requirements of paragraph (b)(1) of 
this section for such month.
    (c) The provisions of this section do not apply to an introducing 
broker which is operating pursuant to a guarantee agreement, nor do such 
provisions apply to an applicant for registration as an introducing 
broker who files concurrently with such application a guarantee 
agreement, provided such introducing broker or applicant therefor is not 
also a securities broker or dealer.

[48 FR 35288, Aug. 3, 1983, as amended at 49 FR 39530, Oct. 9, 1984; 62 
FR 4641, Jan. 31, 1997; 69 FR 49800, Aug. 12, 2004; 71 FR 5594, Feb. 2, 
2006]

                 Prohibited Trading in Commodity Options



Sec.  1.19  Prohibited trading in certain ``puts'' and ``calls''.

    No futures commission merchant or introducing broker may make, 
underwrite, issue, or otherwise assume any financial responsibility for 
the fulfillment of, any commodity option except:
    (a) Commodity options traded on or subject to the rules of a 
contract market in accordance with the requirements of part 33 of this 
chapter;
    (b) Commodity options traded on or subject to the rules of a foreign 
board of trade in accordance with the requirements of part 30 of this 
chapter; or
    (c) For futures commission merchants, any option permitted under 
Sec.  32.4 of this chapter, provided however,

[[Page 93]]

that a capital treatment for such options is referenced inSec. 
1.17(c)(5)(vi).

[52 FR 28997, Aug. 5, 1987, as amended at 58 FR 68520, Dec. 28, 1993]

               Customers' Money, Securities, and Property



Sec.  1.20  Futures customer funds to be segregated and separately
accounted for.

    (a) All futures customer funds shall be separately accounted for and 
segregated as belonging to futures customers. Such futures customer 
funds when deposited with any bank, trust company, derivatives clearing 
organization or another futures commission merchant shall be deposited 
under an account name which clearly identifies them as such and shows 
that they are segregated as required by sections 4d(a) and 4d(b) of the 
Act and this part. Each registrant shall obtain and retain in its files 
for the period provided inSec. 1.31 a written acknowledgment from such 
bank, trust company, derivatives clearing organization, or futures 
commission merchant, that it was informed that the futures customer 
funds deposited therein are those of futures customers and are being 
held in accordance with the provisions of the Act and this part: 
Provided, however, that an acknowledgment need not be obtained from a 
derivatives clearing organization that has adopted and submitted to the 
Commission rules that provide for the segregation as futures customer 
funds, in accordance with all relevant provisions of the Act and the 
rules and orders promulgated thereunder, of all funds held on behalf of 
futures customers. Under no circumstances shall any portion of futures 
customer funds be obligated to a derivatives clearing organization, any 
member of a contract market, a futures commission merchant, or any 
depository except to purchase, margin, guarantee, secure, transfer, 
adjust or settle trades, contracts or commodity option transactions of 
futures customers. No person, including any derivatives clearing 
organization or any depository, that has received futures customer funds 
for deposit in a segregated account, as provided in this section, may 
hold, dispose of, or use any such funds as belonging to any person other 
than the futures customers of the futures commission merchant which 
deposited such funds.
    (b) All futures customer funds received by a derivatives clearing 
organization from a member of the derivatives clearing organization to 
purchase, margin, guarantee, secure or settle the trades, contracts or 
commodity options of the clearing member's futures customers and all 
money accruing to such futures customers as the result of trades, 
contracts or commodity options so carried shall be separately accounted 
for and segregated as belonging to such futures customers, and a 
derivatives clearing organization shall not hold, use or dispose of such 
futures customer funds except as belonging to such futures customers. 
Such futures customer funds when deposited in a bank or trust company 
shall be deposited under an account name which clearly shows that they 
are the futures customer funds of the futures customers of clearing 
members, segregated as required by sections 4d(a) and 4d(b) of the Act 
and these regulations. The derivatives clearing organization shall 
obtain and retain in its files for the period provided bySec. 1.31 an 
acknowledgment from such bank or trust company that it was informed that 
the futures customer funds deposited therein are those of futures 
customers of its clearing members and are being held in accordance with 
the provisions of the Act and these regulations.
    (c) Each futures commission merchant shall treat and deal with the 
futures customer funds of a futures customer as belonging to such 
futures customer. All futures customer funds shall be separately 
accounted for, and shall not be commingled with the money, securities or 
property of a futures commission merchant or of any other person, or be 
used to secure or guarantee the trades, contracts or commodity options, 
or to secure or extend the credit, of any person other than the one for 
whom the same are held: Provided, however, That futures customer funds 
treated as belonging to the futures customers of a futures commission 
merchant may for convenience be commingled and deposited in the same 
account or accounts with any bank or trust

[[Page 94]]

company, with another person registered as a futures commission 
merchant, or with a derivatives clearing organization, and that such 
share thereof as in the normal course of business is necessary to 
purchase, margin, guarantee, secure, transfer, adjust, or settle the 
trades, contracts or commodity options of such futures customers or 
resulting market positions, with the derivatives clearing organization 
or with any other person registered as a futures commission merchant, 
may be withdrawn and applied to such purposes, including the payment of 
premiums to option grantors, commissions, brokerage, interest, taxes, 
storage and other fees and charges, lawfully accruing in connection with 
such trades, contracts or commodity options: Provided further, That 
futures customer funds may be invested in instruments described inSec. 
1.25.

[77 FR 66320, Nov. 2, 2012]



Sec.  1.21  Care of money and equities accruing to futures customers.

    All money received directly or indirectly by, and all money and 
equities accruing to, a futures commission merchant from any derivatives 
clearing organization or from any clearing member or from any member of 
a contract market incident to or resulting from any trade, contract or 
commodity option made by or through such futures commission merchant on 
behalf of any futures customer shall be considered as accruing to such 
futures customer within the meaning of the Act and these regulations. 
Such money and equities shall be treated and dealt with as belonging to 
such futures customer in accordance with the provisions of the Act and 
these regulations. Money and equities accruing in connection with 
futures customers' open trades, contracts, or commodity options need not 
be separately credited to individual accounts but may be treated and 
dealt with as belonging undivided to all futures customers having open 
trades, contracts, or commodity option positions which if closed would 
result in a credit to such futures customers.

[77 FR 66321, Nov. 2, 2012]



Sec.  1.22  Use of futures customer funds restricted.

    No futures commission merchant shall use, or permit the use of, the 
futures customer funds of one futures customer to purchase, margin, or 
settle the trades, contracts, or commodity options of, or to secure or 
extend the credit of, any person other than such futures customer. 
Futures customer funds shall not be used to carry trades or positions of 
the same futures customer other than in commodities or commodity options 
traded through the facilities of a contract market.

[77 FR 66321, Nov. 2, 2012]



Sec.  1.23  Interest of futures commission merchant in segregated 
futures customer funds; additions and withdrawals.

    The provisions in section 4d(a) and 4d(b) of the Act and the 
provision inSec. 1.20(c), which prohibit the commingling of futures 
customer funds with the funds of a futures commission merchant, shall 
not be construed to prevent a futures commission merchant from having a 
residual financial interest in the futures customer funds, segregated as 
required by the Act and the rules in this part and set apart for the 
benefit of futures customers; nor shall such provisions be construed to 
prevent a futures commission merchant from adding to such segregated 
futures customer funds such amount or amounts of money, from its own 
funds or unencumbered securities from its own inventory, of the type set 
forth inSec. 1.25, as it may deem necessary to ensure any and all 
futures customers' accounts from becoming undersegregated at any time. 
The books and records of a futures commission merchant shall at all 
times accurately reflect its interest in the segregated funds. A futures 
commission merchant may draw upon such segregated funds to its own 
order, to the extent of its actual interest therein, including the 
withdrawal of securities held in segregated safekeeping accounts held by 
a bank, trust company, contract market, derivatives clearing 
organization or other futures commission merchant. Such withdrawal shall 
not result in the funds of one futures customer being used to purchase, 
margin or carry the trades,

[[Page 95]]

contracts or commodity options, or extend the credit of any other 
futures customer or other person.

[77 FR 66321, Nov. 2, 2012]



Sec.  1.24  Segregated funds; exclusions therefrom.

    Money held in a segregated account by a futures commission merchant 
shall not include:
    (a) Money invested in obligations or stocks of any derivatives 
clearing organization or in memberships in or obligations of any 
contract market; or
    (b) Money held by any derivatives clearing organization which it may 
use for any purpose other than to purchase, margin, guarantee, secure, 
transfer, adjust, or settle the contracts, trades, or commodity options 
of the futures customers of such futures commission merchant.

[77 FR 66322, Nov. 2, 2012]



Sec.  1.25  Investment of customer funds.

    (a) Permitted investments. (1) Subject to the terms and conditions 
set forth in this section, a futures commission merchant or a 
derivatives clearing organization may invest customer money in the 
following instruments (permitted investments):
    (i) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States (U.S. 
government securities);
    (ii) General obligations of any State or of any political 
subdivision thereof (municipal securities);
    (iii) Obligations of any United States government corporation or 
enterprise sponsored by the United States government (U.S. agency 
obligations);
    (iv) Certificates of deposit issued by a bank (certificates of 
deposit) as defined in section 3(a)(6) of the Securities Exchange Act of 
1934, or a domestic branch of a foreign bank that carries deposits 
insured by the Federal Deposit Insurance Corporation;
    (v) Commercial paper fully guaranteed as to principal and interest 
by the United States under the Temporary Liquidity Guarantee Program as 
administered by the Federal Deposit Insurance Corporation (commercial 
paper);
    (vi) Corporate notes or bonds fully guaranteed as to principal and 
interest by the United States under the Temporary Liquidity Guarantee 
Program as administered by the Federal Deposit Insurance Corporation 
(corporate notes or bonds); and
    (vii) Interests in money market mutual funds.
    (2)(i) In addition, a futures commission merchant or derivatives 
clearing organization may buy and sell the permitted investments listed 
in paragraphs (a)(1)(i) through (vii) of this section pursuant to 
agreements for resale or repurchase of the instruments, in accordance 
with the provisions of paragraph (d) of this section.
    (ii) A futures commission merchant or a derivatives clearing 
organization may sell securities deposited by customers as margin 
pursuant to agreements to repurchase subject to the following:
    (A) Securities subject to such repurchase agreements must be 
``highly liquid'' as defined in paragraph (b)(1) of this section.
    (B) Securities subject to such repurchase agreements must not be 
``specifically identifiable property'' as defined inSec. 190.01(kk) of 
this chapter.
    (C) The terms and conditions of such an agreement to repurchase must 
be in accordance with the provisions of paragraph (d) of this section.
    (D) Upon the default by a counterparty to a repurchase agreement, 
the futures commission merchant or derivatives clearing organization 
shall act promptly to ensure that the default does not result in any 
direct or indirect cost or expense to the customer.
    (3) Obligations issued by the Federal National Mortgage Association 
or the Federal Home Loan Mortgage Association are permitted while these 
entities operate under the conservatorship or receivership of the 
Federal Housing Finance Authority with capital support from the United 
States.
    (b) General terms and conditions. A futures commission merchant or a 
derivatives clearing organization is required to manage the permitted 
investments consistent with the objectives of preserving principal and 
maintaining liquidity and according to the following specific 
requirements:

[[Page 96]]

    (1) Liquidity. Investments must be ``highly liquid'' such that they 
have the ability to be converted into cash within one business day 
without material discount in value.
    (2) Restrictions on instrument features. (i) With the exception of 
money market mutual funds, no permitted investment may contain an 
embedded derivative of any kind, except as follows:
    (A) The issuer of an instrument otherwise permitted by this section 
may have an option to call, in whole or in part, at par, the principal 
amount of the instrument before its stated maturity date; or
    (B) An instrument that meets the requirements of paragraph 
(b)(2)(iv) of this section may provide for a cap, floor, or collar on 
the interest paid; provided, however, that the terms of such instrument 
obligate the issuer to repay the principal amount of the instrument at 
not less than par value upon maturity.
    (ii) No instrument may contain interest-only payment features.
    (iii) No instrument may provide payments linked to a commodity, 
currency, reference instrument, index, or benchmark except as provided 
in paragraph (b)(2)(iv) of this section, and it may not otherwise 
constitute a derivative instrument.
    (iv)(A) Adjustable rate securities are permitted, subject to the 
following requirements:
    (1) The interest payments on variable rate securities must correlate 
closely and on an unleveraged basis to a benchmark of either the Federal 
Funds target or effective rate, the prime rate, the three-month Treasury 
Bill rate, the one-month or three-month LIBOR rate, or the interest rate 
of any fixed rate instrument that is a permitted investment listed in 
paragraph (a)(1) of this section;
    (2) The interest payment, in any period, on floating rate securities 
must be determined solely by reference, on an unleveraged basis, to a 
benchmark of either the Federal Funds target or effective rate, the 
prime rate, the three-month Treasury Bill rate, the one-month or three-
month LIBOR rate, or the interest rate of any fixed rate instrument that 
is a permitted investment listed in paragraph (a)(1) of this section;
    (3) Benchmark rates must be expressed in the same currency as the 
adjustable rate securities that reference them; and
    (4) No interest payment on an adjustable rate security, in any 
period, can be a negative amount.
    (B) For purposes of this paragraph, the following definitions shall 
apply:
    (1) The term adjustable rate security means, a floating rate 
security, a variable rate security, or both.
    (2) The term floating rate security means a security, the terms of 
which provide for the adjustment of its interest rate whenever a 
specified interest rate changes and that, at any time until the final 
maturity of the instrument or the period remaining until the principal 
amount can be recovered through demand, can reasonably be expected to 
have market value that approximates its amortized cost.
    (3) The term variable rate security means a security, the terms of 
which provide for the adjustment of its interest rate on set dates (such 
as the last day of a month or calendar quarter) and that, upon each 
adjustment until the final maturity of the instrument or the period 
remaining until the principal amount can be recovered through demand, 
can reasonably be expected to have a market value that approximates its 
amortized cost.
    (v) Certificates of deposit must be redeemable at the issuing bank 
within one business day, with any penalty for early withdrawal limited 
to any accrued interest earned according to its written terms.
    (vi) Commercial paper and corporate notes or bonds must meet the 
following criteria:
    (A) The size of the issuance must be greater than $1 billion;
    (B) The instrument must be denominated in U.S. dollars; and
    (C) The instrument must be fully guaranteed as to principal and 
interest by the United States for its entire term.
    (3) Concentration--(i) Asset-based concentration limits for direct 
investments. (A) Investments in U.S. government securities shall not be 
subject to a concentration limit.

[[Page 97]]

    (B) Investments in U.S. agency obligations may not exceed 50 percent 
of the total assets held in segregation by the futures commission 
merchant or derivatives clearing organization.
    (C) Investments in each of commercial paper, corporate notes or 
bonds and certificates of deposit may not exceed 25 percent of the total 
assets held in segregation by the futures commission merchant or 
derivatives clearing organization.
    (D) Investments in municipal securities may not exceed 10 percent of 
the total assets held in segregation by the futures commission merchant 
or derivatives clearing organization.
    (E) Subject to paragraph (b)(3)(i)(G) of this section, investments 
in money market mutual funds comprising only U.S. government securities 
shall not be subject to a concentration limit.
    (F) Subject to paragraph (b)(3)(i)(G) of this section, investments 
in money market mutual funds, other than those described in paragraph 
(b)(3)(i)(E) of this section, may not exceed 50 percent of the total 
assets held in segregation by the futures commission merchant or 
derivatives clearing organization.
    (G) Investments in money market mutual funds comprising less than $1 
billion in assets and/or which have a management company comprising less 
than $25 billion in assets, may not exceed 10 percent of the total 
assets held in segregation by the futures commission merchant or 
derivatives clearing organization.
    (ii) Issuer-based concentration limits for direct investments. (A) 
Securities of any single issuer of U.S. agency obligations held by a 
futures commission merchant or derivatives clearing organization may not 
exceed 25 percent of total assets held in segregation by the futures 
commission merchant or derivatives clearing organization.
    (B) Securities of any single issuer of municipal securities, 
certificates of deposit, commercial paper, or corporate notes or bonds 
held by a futures commission merchant or derivatives clearing 
organization may not exceed 5 percent of total assets held in 
segregation by the futures commission merchant or derivatives clearing 
organization.
    (C) Interests in any single family of money market mutual funds 
described in paragraph (b)(3)(i)(F) of this section may not exceed 25 
percent of total assets held in segregation by the futures commission 
merchant or derivatives clearing organization.
    (D) Interests in any individual money market mutual fund described 
in paragraph (b)(3)(i)(F) of this section may not exceed 10 percent of 
total assets held in segregation by the futures commission merchant or 
derivatives clearing organization.
    (E) For purposes of determining compliance with the issuer-based 
concentration limits set forth in this section, securities issued by 
entities that are affiliated, as defined in paragraph (b)(5) of this 
section, shall be aggregated and deemed the securities of a single 
issuer. An interest in a permitted money market mutual fund is not 
deemed to be a security issued by its sponsoring entity.
    (iii) Concentration limits for agreements to repurchase--(A) 
Repurchase agreements. For purposes of determining compliance with the 
asset-based and issuer-based concentration limits set forth in this 
section, securities sold by a futures commission merchant or derivatives 
clearing organization subject to agreements to repurchase shall be 
combined with securities held by the futures commission merchant or 
derivatives clearing organization as direct investments.
    (B) Reverse repurchase agreements. For purposes of determining 
compliance with the asset-based and issuer-based concentration limits 
set forth in this section, securities purchased by a futures commission 
merchant or derivatives clearing organization subject to agreements to 
resell shall be combined with securities held by the futures commission 
merchant or derivatives clearing organization as direct investments.
    (iv) Treatment of customer-owned securities. For purposes of 
determining compliance with the asset-based and issuer-based 
concentration limits set forth in this section, securities owned by the 
customers of a futures commission merchant and posted as margin 
collateral are not included in total assets held in segregation by the 
futures commission merchant, and securities posted by a futures 
commission merchant

[[Page 98]]

with a derivatives clearing organization are not included in total 
assets held in segregation by the derivatives clearing organization.
    (v) Counterparty concentration limits. Securities purchased by a 
futures commission merchant or derivatives clearing organization from a 
single counterparty, subject to an agreement to resell to that 
counterparty, shall not exceed 25 percent of total assets held in 
segregation by the futures commission merchant or derivatives clearing 
organization.
    (4) Time-to-maturity. (i) Except for investments in money market 
mutual funds, the dollar-weighted average of the time-to-maturity of the 
portfolio, as that average is computed pursuant toSec. 270.2a-7 of 
this title, may not exceed 24 months.
    (ii) For purposes of determining the time-to-maturity of the 
portfolio, an instrument that is set forth in paragraphs (a)(1)(i) 
through (vii) of this section may be treated as having a one-day time-
to-maturity if the following terms and conditions are satisfied:
    (A) The instrument is deposited solely on an overnight basis with a 
derivatives clearing organization pursuant to the terms and conditions 
of a collateral management program that has become effective in 
accordance withSec. 39.4 of this chapter;
    (B) The instrument is one that the futures commission merchant owns 
or has an unqualified right to pledge, is not subject to any lien, and 
is deposited by the futures commission merchant into a segregated 
account at a derivatives clearing organization;
    (C) The derivatives clearing organization prices the instrument each 
day based on the current mark-to-market value; and
    (D) The derivatives clearing organization reduces the assigned value 
of the instrument each day by a haircut of at least 2 percent.
    (5) Investments in instruments issued by affiliates. (i) A futures 
commission merchant shall not invest customer funds in obligations of an 
entity affiliated with the futures commission merchant, and a 
derivatives clearing organization shall not invest customer funds in 
obligations of an entity affiliated with the derivatives clearing 
organization. An affiliate includes parent companies, including all 
entities through the ultimate holding company, subsidiaries to the 
lowest level, and companies under common ownership of such parent 
company or affiliates.
    (ii) A futures commission merchant or derivatives clearing 
organization may invest customer funds in a fund affiliated with that 
futures commission merchant or derivatives clearing organization.
    (6) Recordkeeping. A futures commission merchant and a derivatives 
clearing organization shall prepare and maintain a record that will show 
for each business day with respect to each type of investment made 
pursuant to this section, the following information:
    (i) The type of instruments in which customer funds have been 
invested;
    (ii) The original cost of the instruments; and
    (iii) The current market value of the instruments.
    (c) Money market mutual funds. The following provisions will apply 
to the investment of customer funds in money market mutual funds (the 
fund).
    (1) The fund must be an investment company that is registered under 
the Investment Company Act of 1940 with the Securities and Exchange 
Commission and that holds itself out to investors as a money market 
fund, in accordance withSec. 270.2a-7 of this title.
    (2) The fund must be sponsored by a federally-regulated financial 
institution, a bank as defined in section 3(a)(6) of the Securities 
Exchange Act of 1934, an investment adviser registered under the 
Investment Advisers Act of 1940, or a domestic branch of a foreign bank 
insured by the Federal Deposit Insurance Corporation.
    (3) A futures commission merchant or derivatives clearing 
organization shall maintain the confirmation relating to the purchase in 
its records in accordance withSec. 1.31 and note the ownership of fund 
shares (by book-entry or otherwise) in a custody account of the futures 
commission merchant or derivatives clearing organization in accordance 
with Sec.Sec. 1.26 and 22.5 of this chapter. The futures commission 
merchant or the derivatives clearing organization shall obtain the 
acknowledgment letter required by Sec.Sec. 1.26 and 22.5

[[Page 99]]

of this chapter from an entity that has substantial control over the 
fund shares purchased with customer funds and has the knowledge and 
authority to facilitate redemption and payment or transfer of the 
customer funds. Such entity may include the fund sponsor or depository 
acting as custodian for fund shares.
    (4) The net asset value of the fund must be computed by 9 a.m. of 
the business day following each business day and made available to the 
futures commission merchant or derivatives clearing organization by that 
time.
    (5)(i) General requirement for redemption of interests. A fund shall 
be legally obligated to redeem an interest and to make payment in 
satisfaction thereof by the business day following a redemption request, 
and the futures commission merchant or derivatives clearing organization 
shall retain documentation demonstrating compliance with this 
requirement.
    (ii) Exception. A fund may provide for the postponement of 
redemption and payment due to any of the following circumstances:
    (A) For any period during which there is a non-routine closure of 
the Fedwire or applicable Federal Reserve Banks;
    (B) For any period:
    (1) During which the New York Stock Exchange is closed other than 
customary week-end and holiday closings; or
    (2) During which trading on the New York Stock Exchange is 
restricted;
    (C) For any period during which an emergency exists as a result of 
which:
    (1) Disposal by the company of securities owned by it is not 
reasonably practicable; or
    (2) It is not reasonably practicable for such company fairly to 
determine the value of its net assets;
    (D) For any period as the Securities and Exchange Commission may by 
order permit for the protection of security holders of the company;
    (E) For any period during which the Securities and Exchange 
Commission has, by rule or regulation, deemed that:
    (1) Trading shall be restricted; or
    (2) An emergency exists; or
    (F) For any period during which each of the conditions ofSec. 
270.22e-3(a)(1) through (3) of this title are met.
    (6) The agreement pursuant to which the futures commission merchant 
or derivatives clearing organization has acquired and is holding its 
interest in a fund must contain no provision that would prevent the 
pledging or transferring of shares.
    (7) The appendix to this section sets forth language that will 
satisfy the requirements of paragraph (c)(5) of this section.
    (d) Repurchase and reverse repurchase agreements. A futures 
commission merchant or derivatives clearing organization may buy and 
sell the permitted investments listed in paragraphs (a)(1)(i) through 
(vii) of this section pursuant to agreements for resale or repurchase of 
the securities (agreements to repurchase or resell), provided the 
agreements to repurchase or resell conform to the following 
requirements:
    (1) The securities are specifically identified by coupon rate, par 
amount, market value, maturity date, and CUSIP or ISIN number.
    (2) Permitted counterparties are limited to a bank as defined in 
section 3(a)(6) of the Securities Exchange Act of 1934, a domestic 
branch of a foreign bank insured by the Federal Deposit Insurance 
Corporation, a securities broker or dealer, or a government securities 
broker or government securities dealer registered with the Securities 
and Exchange Commission or which has filed notice pursuant to section 
15C(a) of the Government Securities Act of 1986.
    (3) A futures commission merchant or derivatives clearing 
organization shall not enter into an agreement to repurchase or resell 
with a counterparty that is an affiliate of the futures commission 
merchant or derivatives clearing organization, respectively. An 
affiliate includes parent companies, including all entities through the 
ultimate holding company, subsidiaries to the lowest level, and 
companies under common ownership of such parent company or affiliates.
    (4) The transaction is executed in compliance with the concentration 
limit requirements applicable to the securities transferred to the 
customer

[[Page 100]]

segregated custodial account in connection with the agreements to 
repurchase referred to in paragraphs (b)(3)(iii)(A) and (B) of this 
section.
    (5) The transaction is made pursuant to a written agreement signed 
by the parties to the agreement, which is consistent with the conditions 
set forth in paragraphs (d)(1) through (13) of this section and which 
states that the parties thereto intend the transaction to be treated as 
a purchase and sale of securities.
    (6) The term of the agreement is no more than one business day, or 
reversal of the transaction is possible on demand.
    (7) Securities transferred to the futures commission merchant or 
derivatives clearing organization under the agreement are held in a 
safekeeping account with a bank as referred to in paragraph (d)(2) of 
this section, a derivatives clearing organization, or the Depository 
Trust Company in an account that complies with the requirements ofSec. 
1.26.
    (8) The futures commission merchant or the derivatives clearing 
organization may not use securities received under the agreement in 
another similar transaction and may not otherwise hypothecate or pledge 
such securities, except securities may be pledged on behalf of customers 
at another futures commission merchant or derivatives clearing 
organization. Substitution of securities is allowed, provided, however, 
that:
    (i) The qualifying securities being substituted and original 
securities are specifically identified by date of substitution, market 
values substituted, coupon rates, par amounts, maturity dates and CUSIP 
or ISIN numbers;
    (ii) Substitution is made on a ``delivery versus delivery'' basis; 
and
    (iii) The market value of the substituted securities is at least 
equal to that of the original securities.
    (9) The transfer of securities to the customer segregated custodial 
account is made on a delivery versus payment basis in immediately 
available funds. The transfer of funds to the customer segregated cash 
account is made on a payment versus delivery basis. The transfer is not 
recognized as accomplished until the funds and/or securities are 
actually received by the custodian of the futures commission merchant's 
or derivatives clearing organization's customer funds or securities 
purchased on behalf of customers. The transfer or credit of securities 
covered by the agreement to the futures commission merchant's or 
derivatives clearing organization's customer segregated custodial 
account is made simultaneously with the disbursement of funds from the 
futures commission merchant's or derivatives clearing organization's 
customer segregated cash account at the custodian bank. On the sale or 
resale of securities, the futures commission merchant's or derivatives 
clearing organization's customer segregated cash account at the 
custodian bank must receive same-day funds credited to such segregated 
account simultaneously with the delivery or transfer of securities from 
the customer segregated custodial account.
    (10) A written confirmation to the futures commission merchant or 
derivatives clearing organization specifying the terms of the agreement 
and a safekeeping receipt are issued immediately upon entering into the 
transaction and a confirmation to the futures commission merchant or 
derivatives clearing organization is issued once the transaction is 
reversed.
    (11) The transactions effecting the agreement are recorded in the 
record required to be maintained underSec. 1.27 of investments of 
customer funds, and the securities subject to such transactions are 
specifically identified in such record as described in paragraph (d)(1) 
of this section and further identified in such record as being subject 
to repurchase and reverse repurchase agreements.
    (12) An actual transfer of securities to the customer segregated 
custodial account by book entry is made consistent with Federal or State 
commercial law, as applicable. At all times, securities received subject 
to an agreement are reflected as ``customer property.''
    (13) The agreement makes clear that, in the event of the bankruptcy 
of the futures commission merchant or derivatives clearing organization, 
any securities purchased with customer funds that are subject to an 
agreement may

[[Page 101]]

be immediately transferred. The agreement also makes clear that, in the 
event of a futures commission merchant or derivatives clearing 
organization bankruptcy, the counterparty has no right to compel 
liquidation of securities subject to an agreement or to make a priority 
claim for the difference between current market value of the securities 
and the price agreed upon for resale of the securities to the 
counterparty, if the former exceeds the latter.
    (e) Deposit of firm-owned securities into segregation. A futures 
commission merchant shall not be prohibited from directly depositing 
unencumbered securities of the type specified in this section, which it 
owns for its own account, into a segregated safekeeping account or from 
transferring any such securities from a segregated account to its own 
account, up to the extent of its residual financial interest in 
customers' segregated funds; provided, however, that such investments, 
transfers of securities, and disposition of proceeds from the sale or 
maturity of such securities are recorded in the record of investments 
required to be maintained bySec. 1.27. All such securities may be 
segregated in safekeeping only with a bank, trust company, derivatives 
clearing organization, or other registered futures commission merchant. 
Furthermore, for purposes of Sec.Sec. 1.25, 1.27, 1.28, and 1.29, 
investments permitted bySec. 1.25 that are owned by the futures 
commission merchant and deposited into such segregated account shall be 
considered customer funds until such investments are withdrawn from 
segregation. Investments permitted bySec. 1.25 that are owned by the 
futures commission merchant and deposited into a segregated account 
pursuant toSec. 1.26 shall be considered futures customer funds until 
such investments are withdrawn from segregation. Investments permitted 
bySec. 1.25 that are owned by the futures commission merchant and 
deposited into a segregated account pursuant toSec. 22.5 of this 
chapter shall be considered Cleared Swaps Customer Collateral until such 
investments are withdrawn from segregation.

 Appendix toSec. 1.25--Money Market Mutual Fund Prospectus Provisions 
            Acceptable for Compliance With Section 1.25(c)(5)

    Upon receipt of a proper redemption request submitted in a timely 
manner and otherwise in accordance with the redemption procedures set 
forth in this prospectus, the [Name of Fund] will redeem the requested 
shares and make a payment to you in satisfaction thereof no later than 
the business day following the redemption request. The [Name of Fund] 
may postpone and/or suspend redemption and payment beyond one business 
day only as follows:
    a. For any period during which there is a non-routine closure of the 
Fedwire or applicable Federal Reserve Banks;
    b. For any period (1) during which the New York Stock Exchange is 
closed other than customary week-end and holiday closings or (2) during 
which trading on the New York Stock Exchange is restricted;
    c. For any period during which an emergency exists as a result of 
which (1) disposal of securities owned by the [Name of Fund] is not 
reasonably practicable or (2) it is not reasonably practicable for the 
[Name of Fund] to fairly determine the net asset value of shares of the 
[Name of Fund];
    d. For any period during which the Securities and Exchange 
Commission has, by rule or regulation, deemed that (1) trading shall be 
restricted or (2) an emergency exists;
    e. For any period that the Securities and Exchange Commission, may 
by order permit for your protection; or
    f. For any period during which the [Name of Fund,] as part of a 
necessary liquidation of the fund, has properly postponed and/or 
suspended redemption of shares and payment in accordance with federal 
securities laws.

[76 FR 78798, Dec. 19, 2011, as amended at 77 FR 66322, Nov. 2, 2012]



Sec.  1.26  Deposit of instruments purchased with futures customer
funds.

    (a) Each futures commission merchant who invests futures customer 
funds in instruments described inSec. 1.25 shall separately account 
for such instruments and segregate such instruments as belonging to such 
futures customers. Such instruments, when deposited with a bank, trust 
company, derivatives clearing organization or another futures commission 
merchant, shall be deposited under an account name which clearly shows 
that they belong to futures customers and are segregated as required by 
the Act and this part. Each futures commission

[[Page 102]]

merchant upon opening such an account shall obtain and retain in its 
files an acknowledgment from such bank, trust company, derivatives 
clearing organization or other futures commission merchant that it was 
informed that the instruments belong to futures customers and are being 
held in accordance with the provisions of the Act and this part. 
Provided, however, that an acknowledgment need not be obtained from a 
derivatives clearing organization that has adopted and submitted to the 
Commission rules that provide for the segregation as futures customer 
funds, in accordance with all relevant provisions of the Act and the 
rules and orders promulgated thereunder, of all funds held on behalf of 
futures customers and all instruments purchased with futures customer 
funds. Such acknowledgment shall be retained in accordance withSec. 
1.31. Such bank, trust company, derivatives clearing organization or 
other futures commission merchant shall allow inspection of such 
obligations at any reasonable time by representatives of the Commission.
    (b) Each derivatives clearing organization which invests money 
belonging or accruing to futures customers of its clearing members in 
instruments described inSec. 1.25 shall separately account for such 
instruments and segregate such instruments as belonging to such futures 
customers. Such instruments, when deposited with a bank or trust 
company, shall be deposited under an account name which will clearly 
show that they belong to futures customers and are segregated as 
required by the Act and this part. Each derivatives clearing 
organization upon opening such an account shall obtain and retain in its 
files a written acknowledgment from such bank or trust company that it 
was informed that the instruments belong to futures customers of 
clearing members and are being held in accordance with the provisions of 
the Act and this part. Such acknowledgment shall be retained in 
accordance withSec. 1.31. Such bank or trust company shall allow 
inspection of such instruments at any reasonable time by representatives 
of the Commission.

[77 FR 66322, Nov. 2, 2012]



Sec.  1.27  Record of investments.

    (a) Each futures commission merchant which invests customer funds, 
and each derivatives clearing organization which invests customer funds 
of its clearing members' customers, shall keep a record showing the 
following:
    (1) The date on which such investments were made;
    (2) The name of the person through whom such investments were made;
    (3) The amount of money or current market value of securities so 
invested;
    (4) A description of the instruments in which such investments were 
made, including the CUSIP or ISIN numbers;
    (5) The identity of the depositories or other places where such 
instruments are segregated;
    (6) The date on which such investments were liquidated or otherwise 
disposed of and the amount of money or current market value of 
securities received on such disposition, if any; and
    (7) The name of the person to or through whom such investments were 
disposed of; and
    (8) Daily valuation for each instrument and readily available 
documentation supporting the daily valuation for each instrument. Such 
supporting documentation must be sufficient to enable auditors to verify 
the valuations and the accuracy of any information from external sources 
used in those valuations.
    (b) Each derivatives clearing organization which receives documents 
from its clearing members representing investment of customer funds 
shall keep a record showing separately for each clearing member the 
following:
    (1) The date on which such documents were received from the clearing 
member;
    (2) A description of such documents, including the CUSIP or ISIN 
numbers; and
    (3) The date on which such documents were returned to the clearing 
member or the details of disposition by other means.

[[Page 103]]

    (c) Such records shall be retained in accordance withSec. 1.31. No 
such investments shall be made except in instruments described inSec. 
1.25.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024)

[46 FR 54520, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 62 
FR 42401, Aug. 7, 1997; 65 FR 78013, Dec. 13, 2000; 70 FR 28204, May 17, 
2005; 77 FR 66322, Nov. 2, 2012]



Sec.  1.28  Appraisal of instruments purchased with customer funds.

    Futures commission merchants who invest customer funds in 
instruments described inSec. 1.25 of this part shall include such 
instruments in segregated account records and reports at values which at 
no time exceed current market value, determined as of the close of the 
market on the date for which such computation is made.

[58 FR 10953, Feb. 23, 1993, as amended at 65 FR 78013, Dec. 13, 2000]



Sec.  1.29  Increment or interest resulting from investment of customer
funds.

    The investment of customer funds in instruments described inSec. 
1.25 shall not prevent the futures commission merchant or derivatives 
clearing organization so investing such funds from receiving and 
retaining as its own any increment or interest resulting therefrom.

[77 FR 66322, Nov. 2, 2012]



Sec.  1.30  Loans by futures commission merchants; treatment of proceeds.

    Nothing in the regulations in this chapter shall prevent a futures 
commission merchant from lending its own funds to customers on 
securities and property pledged by such customers, or from repledging or 
selling such securities and property pursuant to specific written 
agreement with such customers. The proceeds of such loans used to 
purchase, margin, guarantee, or secure the trades, contracts, or 
commodity options of customers shall be treated and dealt with by a 
futures commission merchant as belonging to such customers, in 
accordance with and subject to the provisions of the Act and these 
regulations.

[77 FR 66323, Nov. 2, 2012]

                              Recordkeeping



Sec.  1.31  Books and records; keeping and inspection.

    (a)(1) All books and records required to be kept by the Act or by 
these regulations shall be kept in their original form (for paper 
records) or native file format (for electronic records) for a period of 
five years from the date thereof and shall be readily accessible during 
the first 2 years of the 5-year period; Provided, however, That records 
of any swap or related cash or forward transaction shall be kept until 
the termination, maturity, expiration, transfer, assignment, or novation 
date of the transaction and for a period of five years after such date. 
Records of oral communications kept pursuant to Sec.Sec. 1.35(a) and 
23.202(a)(1) and (b)(1) of this chapter shall be kept for a period of 
one year. All such books and records shall be open to inspection by any 
representative of the Commission, or the United States Department of 
Justice. For purposes of this section, native file format means an 
electronic file that exists in the format in which it was originally 
created.
    (2) Persons required to keep books and records by the Act or by 
these regulations shall produce such records in a form specified by any 
representative of the Commission. Such production shall be made, at the 
expense of the person required to keep the book or record, to a 
Commission representative upon the representative's request. Instead of 
furnishing a copy, such person may provide the original book or record 
for reproduction, which the representative may temporarily remove from 
such person's premises for this purpose. All copies or originals shall 
be provided promptly. Upon request, the Commission representative shall 
issue a receipt provided by such person for any copy or original book or 
record received. At the request of the Commission representative, such 
person shall, upon the return thereof, issue a receipt for any copy or 
original book or record returned by the representative.
    (b) Except as provided in paragraph (d) of this section, books and 
records required to be kept by the Act or by these regulations may be 
stored on either ``micrographic media'' (as defined

[[Page 104]]

in paragraph (b)(1)(i) of this section) or ``electronic storage media'' 
(as defined in paragraph (b)(1)(ii) of this section) for the required 
time period under the conditions set forth in this paragraph (b); 
Provided, however, For electronic records, such storage media must 
preserve the native file format of the electronic records as required by 
paragraph (a)(1) of this section.
    (1) For purposes of this section:
    (i) The term ``micrographic media'' means microfilm or microfiche or 
any similar medium.
    (ii) The term ``electronic storage media'' means any digital storage 
medium or system that:
    (A) Preserves the records exclusively in a non-rewritable, non-
erasable format;
    (B) Verifies automatically the quality and accuracy of the storage 
media recording process;
    (C) Serializes the original and, if applicable, duplicate units of 
storage media and creates a time-date record for the required period of 
retention for the information placed on such electronic storage media; 
and
    (D) Permits the immediate downloading of indexes and records 
preserved on the electronic storage media onto paper, microfilm, 
microfiche or other medium acceptable under this paragraph upon the 
request of representatives of the Commission or the Department of 
Justice.
    (2) Persons who use either micrographic media or electronic storage 
media to maintain records in accordance with this section must:
    (i) Have available at all times, for examination by representatives 
of the Commission or the Department of Justice, facilities for 
immediate, easily readable projection or production of micrographic 
media or electronic storage media images;
    (ii) Be ready at all times to provide, and immediately provide at 
the expense of the person required to keep such records, any easily 
readable hard-copy image that representatives of the Commission or 
Department of Justice may request;
    (iii) Keep only Commission-required records on the individual medium 
employed (e.g., a disk or sheets of microfiche);
    (iv) Store a duplicate of the record, in any medium acceptable under 
this regulation, at a location separate from the original for the period 
of time required for maintenance of the original; and
    (v) Organize and maintain an accurate index of all information 
maintained on both the original and duplicate storage media such that:
    (A) The location of any particular record stored on the media may be 
immediately ascertained;
    (B) The index is available at all times for immediate examination by 
representatives of the Commission or the Department of Justice;
    (C) A duplicate of the index is stored at a location separate from 
the original index; and
    (D) Both the original index and the duplicate index are preserved 
for the time period required for the records included in the index.
    (3) In addition to the foregoing conditions, persons using 
electronic storage media must:
    (i) Be ready at all times to provide, and immediately provide at the 
expense of the person required to keep such records, copies of such 
records on such compatible data processing media as defined inSec. 
15.00(d) of this chapter which any representative of the Commission or 
the Department of Justice may request. Records must use a format and 
coding structure specified in the request.
    (ii) Develop and maintain written operational procedures and 
controls (an ``audit system'') designed to provide accountability over 
both the initial entry of required records to the electronic storage 
media and the entry of each change made to any original or duplicate 
record maintained on the electronic storage media such that:
    (A) The results of such audit system are available at all times for 
immediate examination by representatives of the Commission or the 
Department of Justice;
    (B) The results of such audit system are preserved for the time 
period required for the records maintained on the electronic storage 
media; and
    (C) The written operational procedures and controls are available at 
all times for immediate examination by

[[Page 105]]

representatives of the Commission or the Department of Justice.
    (iii) Either
    (A) Maintain, keep current, and make available at all times for 
immediate examination by representatives of the Commission or Department 
of Justice all information necessary to access records and indexes 
maintained on the electronic storage media; or
    (B) Place in escrow and keep current a copy of the physical and 
logical format of the electronic storage media, the file format of all 
different information types maintained on the electronic storage media 
and the source code, documentation, and information necessary to access 
the records and indexes maintained on the electronic storage media.
    (4) In addition to the foregoing conditions, any person who uses 
only electronic storage media to preserve some or all of its required 
records (``Electronic Recordkeeper'') shall, prior to the media's use, 
enter into an arrangement with at least one third party technical 
consultant (``Technical Consultant'') who has the technical and 
financial capability to perform the undertakings described in this 
paragraph (b)(4). The arrangement shall provide that the Technical 
Consultant will have access to, and the ability to download, information 
from the Electronic Recordkeeper's electronic storage media to any 
medium acceptable under this regulation.
    (i) The Technical Consultant must file with the Commission an 
undertaking in a form acceptable to the Commission, signed by the 
Technical Consultant or a person duly authorized by the Technical 
Consultant. An acceptable undertaking must include the following 
provision with respect to the Electronic Recordkeeper:

    With respect to any books and records maintained or preserved on 
behalf of the Electronic Recordkeeper, the undersigned hereby undertakes 
to furnish promptly to any representative of the United States Commodity 
Futures Trading Commission or the United States Department of Justice 
(the ``Representative''), upon reasonable request, such information as 
is deemed necessary by the Representative to download information kept 
on the Electronic Recordkeeper's electronic storage media to any medium 
acceptable under 17 CFR 1.31. The undersigned also undertakes to take 
reasonable steps to provide access to information contained on the 
Electronic Recordkeeper's electronic storage media, including, as 
appropriate, arrangements for the downloading of any record required to 
be maintained under the Commodity Exchange Act or the rules, 
regulations, or orders of the United States Commodity Futures Trading 
Commission, in a format acceptable to the Representative. In the event 
the Electronic Recordkeeper fails to download a record into a readable 
format and after reasonable notice to the Electronic Recordkeeper, upon 
being provided with the appropriate electronic storage medium, the 
undersigned will undertake to do so, at no charge to the United States, 
as the Representative may request.

    (ii) [Reserved]
    (c) Persons employing an electronic storage system shall provide a 
representation to the Commission prior to the initial use of the system. 
The representation shall be made by the person required to maintain the 
records, the storage system vendor, or another third party with 
appropriate expertise and shall state that the selected electronic 
storage system meets the requirements set forth in paragraph (b)(1)(ii) 
of this section. Persons employing an electronic storage system using 
media other than optical disk or CD-ROM technology shall so state. The 
representation shall be accompanied by the type of oath or affirmation 
described inSec. 1.10(d)(4).
    (d) Trading cards, documents on which trade information is 
originally recorded in writing, written orders required to be kept 
pursuant toSec. 1.35(a), (a-1)(1), (a-1)(2) and (d), and paper copies 
of electronically filed certified Forms 1-FR and FOCUS Reports with the 
original manually signed certification must be retained in hard-copy for 
the required time period.

(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 22, Jan. 2, 1981; 46 FR 
63035, Dec. 30, 1981; 58 FR 27464, 27467, May 10, 1993; 62 FR 24031, May 
2, 1997; 64 FR 28742, May 27, 1999; 71 FR 67465, Nov. 22, 2006; 77 FR 
66323, Nov. 2, 2012; 77 FR 75541, Dec. 21, 2012]



Sec.  1.32  Segregated account; daily computation and record.

    (a) Each futures commission merchant must compute as of the close of

[[Page 106]]

each business day, on a currency-by-currency basis:
    (1) The total amount of futures customer funds on deposit in 
segregated accounts on behalf of futures customers;
    (2) The amount of such futures customer funds required by the Act 
and these regulations to be on deposit in segregated accounts on behalf 
of such futures customers; and
    (3) The amount of the futures commission merchant's residual 
interest in such futures customer funds.
    (b) In computing the amount of futures customer funds required to be 
in segregated accounts, a futures commission merchant may offset any net 
deficit in a particular futures customer's account against the current 
market value of readily marketable securities, less applicable 
percentage deductions (i.e., ``securities haircuts'') as set forth in 
Rule 15c3-1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR 
240.15c3-1(c)(2)(vi)), held for the same futures customer's account. The 
futures commission merchant must maintain a security interest in the 
securities, including a written authorization to liquidate the 
securities at the futures commission merchant's discretion, and must 
segregate the securities in a safekeeping account with a bank, trust 
company, derivatives clearing organization, or another futures 
commission merchant. For purposes of this section, a security will be 
considered readily marketable if it is traded on a ``ready market'' as 
defined in Rule 15c3-1(c)(11)(i) of the Securities and Exchange 
Commission (17 CFR 240.15c3-1(c)(11)(i)).
    (c) The daily computations required by this section must be 
completed by the futures commission merchant prior to noon on the next 
business day and must be kept, together with all supporting data, in 
accordance with the requirements ofSec. 1.31.

[66 FR 41133, Aug. 7, 2001, as amended at 68 FR 5551, Feb. 4, 2003; 77 
FR 66323, Nov. 2, 2012]



Sec.  1.33  Monthly and confirmation statements.

    (a) Monthly statements. Each futures commission merchant must 
promptly furnish in writing to each customer, and to each foreign 
futures or foreign options customer, as defined bySec. 30.1 of this 
chapter, as of the close of the last business day of each month or as of 
any regular monthly date selected, except for accounts in which there 
are neither open contracts at the end of the statement period nor any 
changes to the account balance since the prior statement period, but in 
any event not less frequently than once every three months, a statement 
which clearly shows:
    (1) For each commodity futures customer and foreign futures or 
foreign options customer position--
    (i) The open contracts with prices at which acquired;
    (ii) The net unrealized profits or losses in all open contracts 
marked to the market; and
    (iii) Any futures customer funds or foreign futures or foreign 
options secured amount, as defined bySec. 1.3(rr), carried with the 
futures commission merchant.
    (2) For each commodity option position and foreign option position--
    (i) All commodity options and foreign options purchased, sold, 
exercised, or expired during the monthly reporting period, identified by 
underlying futures contract or underlying commodity, strike price, 
transaction date, and expiration date;
    (ii) The open commodity option and foreign option positions carried 
for such customer or foreign futures or foreign options customer as of 
the end of the monthly reporting period, identified by underlying 
futures contract or underlying commodity, strike price, transaction 
date, and expiration date;
    (ii) The open commodity option and foreign option positions carried 
for such customer as of the end of the monthly reporting period, 
identified by underlying futures contract or underlying physical, strike 
price, transaction date, and expiration date;
    (iii) All open commodity option and foreign option positions marked 
to the market and the amount each position is in the money, if any;
    (iv) Any related customer funds carried in such customer's 
account(s) or any related foreign futures or foreign options secured 
amount carried in the account(s) of a foreign futures or foreign options 
customer.

[[Page 107]]

    (v) A detailed accounting of all financial charges and credits to 
such customer's account(s) during the monthly reporting period, 
including all customer funds and funds on deposit with respect to 
foreign options transactions received from or disbursed to such 
customer, premiums charged and received, and realized profits and 
losses.
    (3) For each Cleared Swaps Customer position--
    (i) The Cleared Swaps, asSec. 22.1 of this chapter defines that 
term, carried by the futures commission merchant for the Cleared Swaps 
Customer;
    (ii) The net unrealized profits or losses in all Cleared Swaps 
marked to the market;
    (iii) Any Cleared Swaps Customer Collateral carried with the futures 
commission merchant; and
    (4) A detailed accounting of all financial charges and credits to 
customers and foreign futures or foreign options customers, during the 
monthly reporting period, including all customer funds and any foreign 
futures or foreign options secured amount, received from or disbursed to 
customers or foreign futures or foreign options customers, as well as 
realized profits and losses.
    (b) Confirmation statement. Each futures commission merchant must, 
not later than the next business day after any commodity interest or 
commodity option transaction, including any foreign futures or foreign 
options transactions, furnish to each customer or foreign futures or 
foreign options customer:
    (1) A written confirmation of each commodity futures transaction 
caused to be executed by it for the customer.
    (2) A written confirmation of each Cleared Swap carried by the 
futures commission merchant, containing at least the following 
information:
    (i) The unique swap identifier, as required bySec. 45.4(a) of this 
chapter, for each Cleared Swap and the date each Cleared Swap was 
executed;
    (ii) The product name of each Cleared Swap;
    (iii) The price at which the Cleared Swap was executed;
    (iv) The date of maturity for each Cleared Swap; and
    (v) The derivatives clearing organization through which it is 
cleared.
    (3) To each option customer, a written confirmation of each 
commodity option transaction, containing at least the following 
information:
    (i) The customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as well 
as each mark-up thereon, if applicable, and all other commissions, 
costs, fees and other charges incurred in connection with the commodity 
option transaction;
    (iii) The strike price;
    (iv) The underlying futures contract or underlying commodity;
    (v) The final exercise date of the commodity option purchased or 
sold; and
    (vi) The date the commodity option transaction was executed.
    (4) Upon the expiration or exercise of any commodity option, a 
written confirmation statement thereof, which statement shall include 
the date of such occurrence, a description of the option involved, and, 
in the case of exercise, the details of the futures or physical position 
which resulted therefrom including, if applicable, the final trading 
date of the contract for future delivery underlying the option.
    (5) Notwithstanding the provisions of paragraphs (b)(1) through 
(b)(4) of this section, a commodity interest transaction that is caused 
to be executed for a commodity pool need be confirmed only to the 
operator of the commodity pool.
    (c) Exemptions. The requirements of paragraphs (a)(1)(i), 
(a)(1)(ii), and (b)(1) of this section shall not apply to the following:
    (1) Any account carried for a person who is a member of any contract 
market;
    (2) Any omnibus account carried for another futures commission 
merchant; and
    (3) Any account containing only bona fide hedge positions, except 
that confirmations must be furnished to accounts containing only bona 
fide hedge positions.
    (d) Controlled accounts. With respect to any account controlled by 
any person other than the customer for whom

[[Page 108]]

such account is carried, each futures commission merchant shall:
    (1) Promptly furnish in writing to such other person the information 
required by paragraphs (a) and (b) of this section;
    (2) [Reserved]
    (3) Promptly furnish in writing to such other person a copy of the 
statement required bySec. 1.46: Provided, however, That the provisions 
of this paragraph (d) shall not apply to an account controlled by the 
spouse, parent or child of the customer for whom such account is 
carried.
    (e) Recordkeeping. Each futures commission merchant shall retain, in 
accordance withSec. 1.31, a copy of each monthly statement and 
confirmation required by this section.
    (f) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the futures commission merchant is providing the statement was 
introduced by an introducing broker and the names of the futures 
commission merchant and introducing broker.
    (g) Electronic transmission of statements. (1) The statements 
required by this section, and bySec. 1.46, may be furnished to any 
customer by means of electronic media if the customer so consents, 
Provided, however, that a futures commission merchant must, prior to the 
transmission of any statement by means of electronic media, disclose the 
electronic medium or source through which statements will be delivered, 
the duration, whether indefinite or not, of the period during which 
consent will be effective, any charges for such service, the information 
that will be delivered by such means, and that consent to electronic 
delivery may be revoked at any time.
    (2) In the case of a customer who does not qualify as an 
``institutional customer'' as defined inSec. 1.3(g), a futures 
commission merchant must obtain the customer's signed consent 
acknowledging disclosure of the information set forth in paragraph 
(g)(1) of this section prior to the transmission of any statement by 
means of electronic media.
    (3) Any statement required to be furnished to a person other than a 
customer in accordance with paragraph (d) of this section may be 
furnished by electronic media.
    (4) A futures commission merchant who furnishes statements to any 
customer by means of electronic media must retain a daily confirmation 
statement for such customer as of the end of the trading session, 
reflecting all transactions made during that session for the customer, 
in accordance withSec. 1.31.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024; the information collection requirements in 
paragraph (c) were approved under control number 3038-0005)

[46 FR 54520, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57008, Dec. 22, 1982; 48 FR 1185, Jan. 11, 1983; 48 FR 35289, Aug. 3, 
1983; 52 FR 28997, Aug. 5, 1987; 66 FR 53517, Oct. 23, 2001; 77 FR 
66323, Nov. 2, 2012]



Sec.  1.34  Monthly record, ``point balance''.

    (a) With respect to commodity futures transactions, each futures 
commission merchant shall prepare, and retain in accordance with the 
requirements ofSec. 1.31, a statement commonly known as a ``point 
balance,'' which accrues or brings to the official closing price, or 
settlement price fixed by the clearing organization, all open contracts 
of customers as of the last business day of each month or of any regular 
monthly date selected: Provided, however, That a futures commission 
merchant who carries part or all of customers' open contracts with other 
futures commission merchants on an ``instruct basis'' will be deemed to 
have met the requirements of this section as to open contracts so 
carried if a monthly statement is prepared which shows that the prices 
and amounts of such contracts long and short in the customers' accounts 
are in balance with those in the carrying futures commission merchants' 
accounts, and such statements are retained in accordance with the 
requirements ofSec. 1.31.
    (b) With respect to commodity option transactions, each futures 
commission merchant shall prepare, and retain in accordance with the 
requirements ofSec. 1.31, a listing in which all open commodity option 
positions carried for customers are marked to the market. Such listing 
shall be prepared as of the

[[Page 109]]

last business day of each month, or as of any regular monthly date 
selected, and shall be by put or by call, by underlying contract for 
future delivery (by delivery month) or underlying commodity (by option 
expiration date), and by strike price.

[77 FR 66324, Nov. 2, 2012]



Sec.  1.35  Records of commodity interest and related cash or forward 
transactions.

    (a) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of designated contract markets or swap 
execution facilities. (1) Each futures commission merchant, retail 
foreign exchange dealer, introducing broker, and member of a designated 
contract market or swap execution facility shall keep full, complete, 
and systematic records, which include all pertinent data and memoranda, 
of all transactions relating to its business of dealing in commodity 
interests and related cash or forward transactions. Included among such 
records shall be all orders (filled, unfilled, or canceled), trading 
cards, signature cards, street books, journals, ledgers, canceled 
checks, copies of confirmations, copies of statements of purchase and 
sale, and all other records, which have been prepared in the course of 
its business of dealing in commodity interests and related cash or 
forward transactions. Among such records each member of a designated 
contract market or swap execution facility must retain and produce for 
inspection are all documents on which trade information is originally 
recorded, whether or not such documents must be prepared pursuant to the 
rules or regulations of either the Commission, the designated contract 
market or the swap execution facility. For purposes of this section, 
such documents are referred to as ``original source documents.'' Such 
records shall be kept in a form and manner identifiable and searchable 
by transaction. Also included among the records required to be kept by 
this paragraph are all oral and written communications provided or 
received concerning quotes, solicitations, bids, offers, instructions, 
trading, and prices that lead to the execution of a transaction in a 
commodity interest and related cash or forward transactions, whether 
communicated by telephone, voicemail, facsimile, instant messaging, chat 
rooms, electronic mail, mobile device, or other digital or electronic 
media; Provided, however, the requirement in this paragraph (a)(1) to 
record oral communications shall not apply to:
    (i) Oral communications that lead solely to the execution of a 
related cash or forward transaction;
    (ii) Oral communications provided or received by a floor broker that 
do not lead to the purchase or sale for any person other than the floor 
broker of any commodity for future delivery, security futures product, 
swap, or commodity option authorized under section 4c of the Commodity 
Exchange Act;
    (iii) An introducing broker that has generated over the preceding 
three years $5 million or less in aggregate gross revenues from its 
activities as an introducing broker;
    (iv) A floor trader;
    (v) A commodity pool operator;
    (vi) A swap dealer;
    (vii) A major swap participant; or
    (viii) A member of a designated contract market or swap execution 
facility that is not registered or required to be registered with the 
Commission in any capacity.
    (2) For purposes of paragraph (a)(1) of this section, ``related cash 
or forward transaction'' means a purchase or sale for immediate or 
deferred physical shipment or delivery of an asset related to a 
commodity interest transaction where the commodity interest transaction 
and the related cash or forward transaction are used to hedge, mitigate 
the risk of, or offset one another.
    (3) Each futures commission merchant, retail foreign exchange 
dealer, introducing broker, and member of a designated contract market 
or swap execution facility shall retain the records required to be kept 
by this section in accordance with the requirements ofSec. 1.31, and 
produce them for inspection and furnish true and correct information and 
reports as to the contents or the meaning thereof, when and as requested 
by an authorized representative of the Commission or the United States 
Department of Justice.

[[Page 110]]

    (4)(i) The Commission may in its discretion establish an alternative 
compliance schedule for the requirement to record oral communications 
under paragraph (a)(1) of this section that is found to be 
technologically or economically impracticable for an affected entity 
that seeks, in good faith, to comply with the requirement to record oral 
communications under paragraph (a)(1) of this section within a 
reasonable time period beyond the date on which compliance by such 
affected entity is otherwise required.
    (ii) A request for an alternative compliance schedule under 
paragraph (a)(4)(i) of this section shall be acted upon within 30 days 
from the time such a request is received, or it shall be deemed 
approved.
    (iii) The Commission hereby delegates to the Director of the 
Division of Swap Dealer and Intermediary Oversight or such other 
employee or employees as the Director may designate from time to time, 
the authority to exercise the discretion. Notwithstanding such 
delegation, in any case in which a Commission employee delegated 
authority under this paragraph believes it appropriate, he or she may 
submit to the Commission for its consideration the question of whether 
an alternative compliance schedule should be established. The delegation 
of authority in this paragraph shall not prohibit the Commission, at its 
election, from exercising the authority set forth in paragraph (a)(4)(i) 
of this section.
    (iv) Relief granted under paragraph (a)(4)(i) of this section shall 
not cause an affected entity to be out of compliance or deemed in 
violation of any recordkeeping requirements.
    (b) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of designated contract markets and swap 
execution facilities: Recording of customers' orders. (1) Each futures 
commission merchant, each retail foreign exchange dealer, each 
introducing broker, and each member of a designated contract market or 
swap execution facility receiving a customer's order that cannot 
immediately be entered into a trade matching engine shall immediately 
upon receipt thereof prepare a written record of the order including the 
account identification, except as provided in paragraph (b)(5) of this 
section, and order number, and shall record thereon, by timestamp or 
other timing device, the date and time, to the nearest minute, the order 
is received, and in addition, for commodity option orders, the time, to 
the nearest minute, the order is transmitted for execution.
    (2)(i) Each member of a designated contract market who on the floor 
of such designated contract market receives a customer's order which is 
not in the form of a written record including the account 
identification, order number, and the date and time, to the nearest 
minute, the order was transmitted or received on the floor of such 
designated contract market, shall immediately upon receipt thereof 
prepare a written record of the order in non-erasable ink, including the 
account identification, except as provided in paragraph (b)(5) of this 
section, and order number and shall record thereon, by timestamp or 
other timing device, the date and time, to the nearest minute, the order 
is received.
    (ii) Except as provided in paragraph (b)(3) of this section:
    (A) Each member of a designated contract market who on the floor of 
such designated contract market receives an order from another member 
present on the floor which is not in the form of a written record shall, 
immediately upon receipt of such order, prepare a written record of the 
order or obtain from the member who placed the order a written record of 
the order, in non-erasable ink including the account identification and 
order number and shall record thereon, by time-stamp or other timing 
device, the date and time, to the nearest minute, the order is received; 
or
    (B) When a member of a designated contract market present on the 
floor places an order, which is not in the form of a written record, for 
his own account or an account over which he has control, with another 
member of such designated contract market for execution:
    (1) The member placing such order immediately upon placement of the 
order shall record the order and time of placement to the nearest minute 
on a

[[Page 111]]

sequentially-numbered trading card maintained in accordance with the 
requirements of paragraph (f) of this section;
    (2) The member receiving and executing such order immediately upon 
execution of the order shall record the time of execution to the nearest 
minute on a trading card or other record maintained pursuant to the 
requirements of paragraph (f) of this section; and
    (3) The member receiving and executing the order shall return such 
trading card or other record to the member placing the order. The member 
placing the order then must submit together both of the trading cards or 
other records documenting such trade to designated contract market 
personnel or the clearing member.
    (3)(i) The requirements of paragraph (b)(2)(ii) of this section will 
not apply if a designated contract market maintains in effect rules 
which provide for an exemption where:
    (A) A member of a designated contract market places with another 
member of such designated contract market an order that is part of a 
spread transaction;
    (B) The member placing the order personally executes one or more 
legs of the spread; and
    (C) The member receiving and executing such order immediately upon 
execution of the order records the time of execution to the nearest 
minute on his trading card or other record maintained in accordance with 
the requirements of paragraph (f) of this section.
    (ii) Each contract market shall, as part of its trade practice 
surveillance program, conduct surveillance for compliance with the 
recordkeeping and other requirements under paragraphs (b)(2) and (3) of 
this section, and for trading abuses related to the execution of orders 
for members present on the floor of the contract market.
    (4) Each member of a designated contract market reporting the 
execution from the floor of the designated contract market of a 
customer's order or the order of another member of the designated 
contract market received in accordance with paragraphs (b)(2)(i) or 
(b)(2)(ii)(A) of this section, shall record on a written record of the 
order, including the account identification, except as provided in 
paragraph (b)(5) of this section, and order number, by time-stamp or 
other timing device, the date and time to the nearest minute such report 
of execution is made. Each member of a designated contract market shall 
submit the written records of customer orders or orders from other 
designated contract market members to designated contract market 
personnel or to the clearing member responsible for the collection of 
orders prepared pursuant to this paragraph. The execution price and 
other information reported on the order tickets must be written in non-
erasable ink.
    (5) Post-execution allocation of bunched orders. Specific customer 
account identifiers for accounts included in bunched orders executed on 
designated contract markets or swap execution facilities need not be 
recorded at time of order placement or upon report of execution if the 
requirements of paragraphs (b)(5)(i) through (v) of this section are 
met. Specific customer account identifiers for accounts included in 
bunched orders involving swaps need not be included in confirmations or 
acknowledgments provided by swap dealers or major swap participants 
pursuant toSec. 23.501(a) of this chapter if the requirements of 
paragraphs (b)(5)(i) through (v) of this section are met.
    (i) Eligible account managers for orders executed on designated 
contract markets or swap execution facilities. The person placing and 
directing the allocation of an order eligible for post-execution 
allocation must have been granted written investment discretion with 
regard to participating customer accounts. The following persons shall 
qualify as eligible account managers for trades executed on designated 
contract markets or swap execution facilities:
    (A) A commodity trading advisor registered with the Commission 
pursuant to the Act or excluded or exempt from registration under the 
Act or the Commission's rules, except for entities exempt underSec. 
4.14(a)(3) of this chapter;
    (B) An investment adviser registered with the Securities and 
Exchange Commission pursuant to the Investment Advisers Act of 1940 or 
with a state pursuant to applicable state law or excluded or exempt from 
registration

[[Page 112]]

under such Act or applicable state law or rule;
    (C) A bank, insurance company, trust company, or savings and loan 
association subject to federal or state regulation;
    (D) A foreign adviser that exercises discretionary trading authority 
solely over the accounts of non-U.S. persons, as defined inSec. 
4.7(a)(1)(iv) of this chapter;
    (E) A futures commission merchant registered with the Commission 
pursuant to the Act; or
    (F) An introducing broker registered with the Commission pursuant to 
the Act.
    (ii) Eligible account managers for orders executed bilaterally. The 
person placing and directing the allocation of an order eligible for 
post-execution allocation must have been granted written investment 
discretion with regard to participating customer accounts. The following 
persons shall qualify as eligible account managers for trades executed 
bilaterally:
    (A) A commodity trading advisor registered with the Commission 
pursuant to the Act or excluded or exempt from registration under the 
Act or the Commission's rules, except for entities exempt underSec. 
4.14(a)(3) of this chapter;
    (B) A futures commission merchant registered with the Commission 
pursuant to the Act; or
    (C) An introducing broker registered with the Commission pursuant to 
the Act.
    (iii) Information. Eligible account managers shall make the 
following information available to customers upon request:
    (A) The general nature of the allocation methodology the account 
manager will use;
    (B) Whether accounts in which the account manager may have any 
interest may be included with customer accounts in bunched orders 
eligible for post-execution allocation; and
    (C) Summary or composite data sufficient for that customer to 
compare its results with those of other comparable customers and, if 
applicable and consistent with Sec.Sec. 155.3(a)(1) and 155.4(a)(1) of 
this chapter, any account in which the account manager has an interest.
    (iv) Allocation. Orders eligible for post-execution allocation must 
be allocated by an eligible account manager in accordance with the 
following:
    (A) Allocations must be made as soon as practicable after the entire 
transaction is executed, but in any event no later than the following 
times: For cleared trades, account managers must provide allocation 
information to futures commission merchants no later than a time 
sufficiently before the end of the day the order is executed to ensure 
that clearing records identify the ultimate customer for each trade. For 
uncleared trades, account managers must provide allocation information 
to the counterparty no later than the end of the calendar day that the 
swap was executed.
    (B) Allocations must be fair and equitable. No account or group of 
accounts may receive consistently favorable or unfavorable treatment.
    (C) The allocation methodology must be sufficiently objective and 
specific to permit independent verification of the fairness of the 
allocations using that methodology by appropriate regulatory and self-
regulatory authorities and by outside auditors.
    (v) Records. (A) Eligible account managers shall keep and must make 
available upon request of any representative of the Commission, the 
United States Department of Justice, or other appropriate regulatory 
agency, the information specified in paragraph (b)(5)(iii) of this 
section.
    (B) Eligible account managers shall keep and must make available 
upon request of any representative of the Commission, the United States 
Department of Justice, or other appropriate regulatory agency, records 
sufficient to demonstrate that all allocations meet the standards of 
paragraph (b)(5)(iv) of this section and to permit the reconstruction of 
the handling of the order from the time of placement by the account 
manager to the allocation to individual accounts.
    (C) Futures commission merchants, introducing brokers, or commodity 
trading advisors that execute orders or that carry accounts eligible for 
post-execution allocation, and members of designated contract markets or 
swap execution facilities that execute such

[[Page 113]]

orders, must maintain records that, as applicable, identify each order 
subject to post-execution allocation and the accounts to which contracts 
executed for such order are allocated.
    (D) In addition to any other remedies that may be available under 
the Act or otherwise, if the Commission has reason to believe that an 
account manager has failed to provide information requested pursuant to 
paragraph (b)(5)(v)(A) or (b)(5)(v)(B) of this section, the Commission 
may inform in writing any designated contract market, swap execution 
facility, swap dealer, or major swap participant, and that designated 
contract market, swap execution facility, swap dealer, or major swap 
participant shall prohibit the account manager from submitting orders 
for execution except for liquidation of open positions and no futures 
commission merchant shall accept orders for execution on any designated 
contract market, swap execution facility, or bilaterally from the 
account manager except for liquidation of open positions.
    (E) Any account manager that believes he or she is or may be 
adversely affected or aggrieved by action taken by the Commission under 
paragraph (b)(5)(v)(D) of this section shall have the opportunity for a 
prompt hearing in accordance with the provisions ofSec. 21.03(g) of 
this chapter.
    (c)(1) Futures commission merchants, introducing brokers, and 
members of designated contract markets and swap execution facilities. 
Upon request of the designated contract market or swap execution 
facility, the Commission, or the United States Department of Justice, 
each futures commission merchant, introducing broker, and member of a 
designated contract market or swap execution facility shall request from 
its customers and, upon receipt thereof, provide to the requesting body 
documentation of cash transactions underlying exchanges of futures or 
swaps for cash commodities or exchanges of futures or swaps in 
connection with cash commodity transactions.
    (2) Customers. Each customer of a futures commission merchant, 
introducing broker, or member of a designated contract market or swap 
execution facility shall create, retain, and produce upon request of the 
designated contract market or swap execution facility, the Commission, 
or the United States Department of Justice documentation of cash 
transactions underlying exchanges of futures or swaps for cash 
commodities or exchanges of futures or swaps in connection with cash 
commodity transactions.
    (3) Contract markets. Every contract market shall adopt rules which 
require its members to provide documentation of cash transactions 
underlying exchanges of futures for cash commodities or exchanges of 
futures in connection with cash commodity transactions upon request of 
the contract market.
    (4) Documentation. For the purposes of this paragraph (c), 
documentation means those documents customarily generated in accordance 
with cash market practices which demonstrate the existence and nature of 
the underlying cash transactions, including, but not limited to, 
contracts, confirmation statements, telex printouts, invoices, and 
warehouse receipts or other documents of title.
    (d) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of derivatives clearing organizations 
clearing trades executed on designated contract markets and swap 
execution facilities. Each futures commission merchant, each retail 
foreign exchange dealer, and each member of a derivatives clearing 
organization clearing trades executed on a designated contract market or 
swap execution facility and, for purposes of paragraph (d)(3) of this 
section, each introducing broker, shall, as a minimum requirement, 
prepare regularly and promptly, and keep systematically and in permanent 
form, the following:
    (1) A financial ledger record which will show separately for each 
customer all charges against and credits to such customer's account, 
including but not limited to customer funds deposited, withdrawn, or 
transferred, and charges or credits resulting from losses or gains on 
closed transactions;
    (2) A record of transactions which will show separately for each 
account (including proprietary accounts):
    (i) All commodity futures transactions executed for such account, 
including the date, price, quantity, market, commodity and future;

[[Page 114]]

    (ii) All retail forex transactions executed for such account, 
including the date, price, quantity, and currency;
    (iii) All commodity option transactions executed for such account, 
including the date, whether the transaction involved a put or call, 
expiration date, quantity, underlying contract for future delivery or 
underlying commodity, strike price, and details of the purchase price of 
the option, including premium, mark-up, commission and fees; and
    (iv) All swap transactions executed for such account, including the 
date, price, quantity, market, commodity, swap, and, if cleared, the 
derivatives clearing organization; and
    (3) A record or journal which will separately show for each business 
day complete details of:
    (i) All commodity futures transactions executed on that day, 
including the date, price, quantity, market, commodity, future and the 
person for whom such transaction was made;
    (ii) All retail forex transactions executed on that day for such 
account, including the date, price, quantity, currency and the person 
who whom such transaction was made;
    (iii) All commodity option transactions executed on that day, 
including the date, whether the transaction involved a put or call, the 
expiration date, quantity, underlying contract for future delivery or 
underlying commodity, strike price, details of the purchase price of the 
option, including premium, mark-up, commission and fees, and the person 
for whom the transaction was made;
    (iv) All swap transactions executed on that day, including the date, 
price, quantity, market, commodity, swap, the person for whom such 
transaction was made, and, if cleared, the derivatives clearing 
organization; and
    (v) In the case of an introducing broker, the record or journal 
required by this paragraph (d)(3) shall also include the futures 
commission merchant or retail foreign exchange dealer carrying the 
account for which each commodity futures, retail forex, commodity 
option, and swap transaction was executed on that day. Provided, 
however, that where reproductions on microfilm, microfiche or optical 
disk are substituted for hard copy in accordance with the provisions of 
Sec.  1.31(b), the requirements of paragraphs (d)(1) and (d)(2) of this 
section will be considered met if the person required to keep such 
records is ready at all times to provide, and immediately provides in 
the same city as that in which such person's commodity futures, retail 
forex, commodity option, or swap books and records are maintained, at 
the expense of such person, reproduced copies which show the records as 
specified in paragraphs (d)(1) and (d)(2) of this section, on request of 
any representatives of the Commission or the U.S. Department of Justice.
    (e) Members of derivatives clearing organizations clearing trades 
executed on designated contract markets and swap execution facilities. 
In the daily record or journal required to be kept under paragraph 
(d)(3) of this section, each member of a derivatives clearing 
organization clearing trades executed on a designated contract market or 
swap execution facility shall also show the floor broker or floor trader 
executing each transaction, the opposite floor broker or floor trader, 
and the opposite clearing member with whom it was made.
    (f) Members of designated contract markets. (1) Each member of a 
designated contract market who, in the place provided by the designated 
contract market for the meeting of persons similarly engaged, executes 
purchases or sales of any commodity for future delivery, commodity 
option, or swap on or subject to the rules of such designated contract 
market, shall prepare regularly and promptly a trading card or other 
record showing such purchases and sales. Such trading card or record 
shall show the member's name, the name of the clearing member, 
transaction date, time, quantity, and, as applicable, underlying 
commodity, contract for future delivery, or swap, price or premium, 
delivery month or expiration date, whether the transaction involved a 
put or a call, and strike price. Such trading card or other record shall 
also clearly identify the opposite floor broker or floor trader with 
whom the

[[Page 115]]

transaction was executed, and the opposite clearing member (if such 
opposite clearing member is made known to the member).
    (2) Each member of a designated contract market recording purchases 
and sales on trading cards must record such purchases and sales in exact 
chronological order of execution on sequential lines of the trading card 
without skipping lines between trades; Provided, however, That if lines 
remain after the last execution recorded on a trading card, the 
remaining lines must be marked through.
    (3) Each member of a designated contract market must identify on his 
or her trading cards the purchases and sales executed during the opening 
and closing periods designated by the designated contract market.
    (4) Trading cards prepared by a member of a designated contract 
market must contain:
    (i) Pre-printed member identification or other unique identifying 
information which would permit the trading cards of one member to be 
distinguished from those of all other members;
    (ii) Pre-printed sequence numbers to permit the intra-day sequencing 
of the cards; and
    (iii) Unique and pre-printed identifying information which would 
distinguish each of the trading cards prepared by the member from other 
such trading cards for no less than a one-week period.
    (5) Trading cards prepared by a member of a designated contract 
market and submitted pursuant to paragraph (f)(7)(i) of this section 
must be time-stamped promptly to the nearest minute upon collection by 
either the designated contract market or the relevant clearing member.
    (6) Each member of a designated contract market shall be accountable 
for all trading cards prepared in exact numerical sequence, whether or 
not such trading cards are relied on as original source documents.
    (7) Trading records prepared by a member of a designated contract 
market must:
    (i) Be submitted to designated contract market personnel or the 
clearing member within 15 minutes of designated intervals not to exceed 
30 minutes, commencing with the beginning of each trading session. The 
time period for submission of trading records after the close of trading 
in each market shall not exceed 15 minutes from the close. Such 
documents should nevertheless be submitted as often as is practicable to 
the designated contract market or relevant clearing member; and
    (ii) Be completed in non-erasable ink. A member may correct any 
errors by crossing out erroneous information without obliterating or 
otherwise making illegible any of the originally recorded information. 
With regard to trading cards only, a member may correct erroneous 
information by rewriting the trading card; Provided, however, that the 
member must submit a ply of the trading card, or in the absence of plies 
the original trading card, that is subsequently rewritten in accordance 
with the collection schedule for trading cards and provided further, 
that the member is accountable for any trading card that subsequently is 
rewritten pursuant to paragraph (f)(6) of this section.
    (8) Each member of a designated contract market must use a new 
trading card at the beginning of each designated 30-minute interval (or 
such lesser interval as may be determined appropriate) or as may be 
required pursuant hereto.
    (g) Members of derivatives clearing organizations clearing trades 
executed on designated contract markets and swap execution facilities. 
(1) Each member of a derivatives clearing organization clearing trades 
executed on a designated contract market or swap execution facility 
shall maintain a single record which shall show for each futures, 
option, or swap trade: the transaction date, time, quantity, and, as 
applicable, underlying commodity, contract for future delivery, or swap, 
price or premium, delivery month or expiration date, whether the 
transaction involved a put or a call, strike price, floor broker or 
floor trader buying, clearing member buying, floor broker or floor 
trader selling, clearing member selling, and symbols indicating the 
buying and selling customer types. The customer type indicator shall 
show, with respect

[[Page 116]]

to each person executing the trade, whether such person:
    (i) Was trading for his or her own account, or an account for which 
he or she has discretion;
    (ii) Was trading for his or her clearing member's house account;
    (iii) Was trading for another member present on the exchange floor, 
or an account controlled by such other member; or
    (iv) Was trading for any other type of customer.
    (2) The record required by this paragraph (g) shall also show, by 
appropriate and uniform symbols, any transaction which is made non-
competitively in accordance with the provisions of subpart J of part 38 
of this chapter, and trades cleared on dates other than the date of 
execution. Except as otherwise approved by the Commission for good cause 
shown, the record required by this paragraph (g) shall be maintained in 
a format and coding structure approved by the Commission--
    (i) In hard copy or on microfilm as specified inSec. 1.31, and
    (ii) For 60 days in computer-readable form on compatible magnetic 
tapes or discs.

[77 FR 66324, Nov. 2, 2012, as amended at 77 FR 75541, Dec. 21, 2012]



Sec.  1.36  Record of securities and property received from customers.

    (a) Each futures commission merchant and each retail foreign 
exchange dealer shall maintain, as provided inSec. 1.31, a record of 
all securities and property received from customers or retail forex 
customers in lieu of money to margin, purchase, guarantee, or secure the 
commodity interests of such customers or retail forex customers. Such 
record shall show separately for each customer or retail forex customer: 
A description of the securities or property received; the name and 
address of such customer or retail forex customer; the dates when the 
securities or property were received; the identity of the depositories 
or other places where such securities or property are segregated or 
held; the dates of deposits and withdrawals from such depositories; and 
the dates of return of such securities or property to such customer or 
retail forex customer, or other disposition thereof, together with the 
facts and circumstances of such other disposition. In the event any 
futures commission merchant deposits with a derivatives clearing 
organization, directly or with a bank or trust company acting as 
custodian for such derivatives clearing organization, securities and/or 
property which belong to a particular customer, such futures commission 
merchant shall obtain written acknowledgment from such derivatives 
clearing organization that it was informed that such securities or 
property belong to customers of the futures commission merchant making 
the deposit. Such acknowledgment shall be retained as provided inSec. 
1.31.
    (b) Each derivatives clearing organization which receives from 
members securities or property belonging to particular customers of such 
members in lieu of money to margin, purchase, guarantee, or secure the 
commodity interests of such customers, or receives notice that any such 
securities or property have been received by a bank or trust company 
acting as custodian for such derivatives clearing organization, shall 
maintain, as provided inSec. 1.31, a record which will show separately 
for each member, the dates when such securities or property were 
received, the identity of the depositories or other places where such 
securities or property are segregated, the dates such securities or 
property were returned to the member, or otherwise disposed of, together 
with the facts and circumstances of such other disposition including the 
authorization therefor.

[77 FR 66328, Nov. 2, 2012]



Sec.  1.37  Customer's name, address, and occupation recorded;
record of guarantor or controller of account.

    (a) Each futures commission merchant, retail foreign exchange 
dealer, introducing broker, and member of a contract market shall keep a 
record in permanent form which shall show for each commodity interest 
account carried or introduced by it the true name and address of the 
person for whom such account is carried or introduced and the principal 
occupation or business of such person as well as the name of any other 
person guaranteeing such

[[Page 117]]

account or exercising any trading control with respect to such account. 
For each such commodity option account, the records kept by such futures 
commission merchant, introducing broker, and member of a contract market 
must also show the name of the person who has solicited and is 
responsible for each customer's account or assign account numbers in 
such a manner to identify that person.
    (b) As of the close of the market each day, each futures commission 
merchant which carries an account for another futures commission 
merchant, foreign broker (as defined inSec. 15.00 of this chapter), 
member of a contract market, or other person, on an omnibus basis shall 
maintain a daily record for each such omnibus account of the total open 
long contracts and the total open short contracts in each future and in 
each swap and, for commodity option transactions, the total open put 
options purchased, the total open put options granted, the total open 
call options purchased, and the total open call options granted for each 
commodity option expiration date.
    (c) Each designated contract market and swap execution facility 
shall keep a record in permanent form, which shall show the true name, 
address, and principal occupation or business of any foreign trader 
executing transactions on the facility or exchange. In addition, upon 
request, a designated contract market or swap execution facility shall 
provide to the Commission information regarding the name of any person 
guaranteeing such transactions or exercising any control over the 
trading of such foreign trader.
    (d) Paragraph (c) of this section shall not apply to a designated 
contract market or swap execution facility on which transactions in 
futures, swaps or options (other than swaps) contracts of foreign 
traders are executed through, or the resulting transactions are 
maintained in, accounts carried by a registered futures commission 
merchant or introduced by a registered introducing broker subject to the 
provisions of paragraph (a) of this section.

[77 FR 66328, Nov. 2, 2012]



Sec.  1.38  Execution of transactions.

    (a) Competitive execution required; exceptions. All purchases and 
sales of any commodity for future delivery, and of any commodity option, 
on or subject to the rules of a contract market shall be executed openly 
and competitively by open outcry or posting of bids and offers or by 
other equally open and competitive methods, in the trading pit or ring 
or similar place provided by the contract market, during the regular 
hours prescribed by the contract market for trading in such commodity or 
commodity option: Provided, however, That this requirement shall not 
apply to transactions which are executed non-competitively in accordance 
with written rules of the contract market which have been submitted to 
and approved by the Commission, specifically providing for the non-
competitive execution of such transactions.
    (b) Noncompetitive trades; exchange of futures, etc.; requirements. 
Every person handling, executing, clearing, or carrying trades, 
transactions or positions which are not competitively executed, 
including transfer trades or office trades, or trades involving the 
exchange of futures for cash commodities or the exchange of futures in 
connection with cash commodity transactions, shall identify and mark by 
appropriate symbol or designation all such transactions or contracts and 
all orders, records, and memoranda pertaining thereto.

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

[46 FR 54523, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981]



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 or a 
swap execution facility who shall have at the same time both buying and 
selling orders of different principals for the same swap, 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 commodity, expiration date

[[Page 118]]

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 or swap execution facility which have been approved 
by or self-certified to 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 non-pit trading in swaps or 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 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 or swap execution facility 
designated to observe such transactions and, by appropriate descriptive 
words or symbol, clearly identifies all such transactions on his trading 
card or other record, made at the time of execution, and notes thereon 
the exact time of execution and promptly presents or makes available 
said record to such official representative for verification and 
initialing, as appropriate;
    (3) Such swap execution facility or contract market keeps a record 
in permanent form of each such transaction showing all transaction 
details required to be captured by the Act, Commission rule or 
regulation; and
    (4) Neither the futures commission merchant, other registrant 
receiving nor the member executing such orders has any interest therein, 
directly or indirectly, except as a fiduciary.
    (b) Large order execution procedures. (1) A member of a contract 
market or a swap execution facility may execute simultaneous buying and 
selling orders of different principals directly between the principals 
in compliance with Commission regulations and large order execution 
procedures established by written rules of the contract market or swap 
execution facility that have been approved by or self-certified to 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 or swap execution facility 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 or swap execution facility rules to implement the large order 
execution procedures. The petition shall include:
    (i) An explanation of why the proposed large order execution rules 
do not comply with paragraph (a) of this section; and
    (ii) A description of a special surveillance program that would be 
followed by the contract market or swap execution facility in monitoring 
the large order execution procedures.
    (2) 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 purpose of the provision from which explanation is sought. The 
petition shall be considered concurrently with the proposed large order 
execution rules.
    (c) Not deemed filling orders by offset. The execution of orders in 
compliance with the conditions herein set forth will not be deemed to 
constitute the filling of orders by offset within the meaning of section 
4b(a) of the Act.

[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; 77 FR 66329, Nov. 2, 2012]

[[Page 119]]

                              Miscellaneous



Sec.  1.40  Crop, market information letters, reports; copies required.

    Each futures commission merchant, each retail foreign exchange 
dealer, each introducing broker, and each member of a contract market or 
a swap execution facility shall, upon request, furnish or cause to be 
furnished to the Commission a true copy of any letter, circular, 
telecommunication, or report published or given general circulation by 
such futures commission merchant, retail foreign exchange dealer, 
introducing broker, member or eligible contract participant which 
concerns crop or market information or conditions that affect or tend to 
affect the price of any commodity, including any exchange rate, and the 
true source of or authority for the information contained therein.

[77 FR 66329, Nov. 2, 2012]



Sec.Sec. 1.41-1.45  [Reserved]



Sec.  1.46  Application and closing out of offsetting long and short
positions.

    (a) Application of purchases and sales. (1) Except with respect to 
purchases or sales which are for omnibus accounts, or where the customer 
or account controller has instructed otherwise, any futures commission 
merchant who, on or subject to the rules of a designated contract 
market:
    (i) Purchases any commodity for future delivery for the account of 
any customer when the account of such customer at the time of such 
purchase has a short position in the same future of the same commodity 
on the same market;
    (ii) Sells any commodity for future delivery for the account of any 
customer when the account of such customer at the time of such sale has 
a long position in the same future of the same commodity on the same 
market;
    (iii) Purchases a put or call option for the account of any customer 
when the account of such customer at the time of such purchase has a 
short put or call option position with the same underlying futures 
contract or same underlying commodity, strike price, expiration date and 
contract market as that purchased; or
    (iv) Sells a put or call option for the account of any customer when 
the account of such customer at the time of such sale has a long put or 
call option position with the same underlying futures contract or same 
underlying commodity, strike price, expiration date and contract market 
as that sold--shall on the same day apply such purchase or sale against 
such previously held short or long futures or option position, as the 
case may be, and shall, for futures transactions, promptly furnish such 
customer a statement showing the financial result of the transactions 
involved and, if applicable, that the account was introduced to the 
futures commission merchant by an introducing broker and the names of 
the futures commission merchant and introducing broker.
    (2) Any futures commission merchant or retail foreign exchange 
dealer who:
    (i) Engages in a retail forex transaction involving the purchase of 
any currency for the account of any retail forex customer when the 
account of such retail forex customer at the time of such purchase has 
an open retail forex transaction for the sale of the same currency;
    (ii) Engages in a retail forex transaction involving the sale of any 
currency for the account of any retail forex customer when the account 
of such retail forex customer at the time of such sale has an open 
retail forex transaction for the purchase of the same currency;
    (iii) Purchases a put or call option involving foreign currency for 
the account of any customer when the account of such customer at the 
time of such purchase has a short put or call option position with the 
same underlying currency, strike price, and expiration date as that 
purchased; or
    (iv) Sells a put or call option involving foreign currency for the 
account of any customer when the account of such customer at the time of 
such sale has a long put or call option position with the same 
underlying currency, strike price, and expiration date as that sold--
shall immediately apply such purchase or sale against such previously 
held opposite transaction, and shall promptly furnish such retail forex

[[Page 120]]

customer a statement showing the financial result of the transactions 
involved and, if applicable, that the account was introduced to the 
futures commission merchant or retail foreign exchange dealer by an 
introducing broker and the names of the futures commission merchant or 
retail foreign exchange dealer, and the introducing broker.
    (b) Close-out against oldest open position. In all instances wherein 
the short or long futures, retail forex transaction or option position 
in such customer's or retail forex customer's account immediately prior 
to such offsetting purchase or sale is greater than the quantity 
purchased or sold, the futures commission merchant or retail foreign 
exchange dealer shall apply such offsetting purchase or sale to the 
oldest portion of the previously held short or long position: Provided, 
That upon specific instructions from the customer the offsetting 
transaction shall be applied as specified by the customer without regard 
to the date of acquisition of the previously held position; and 
Provided, further, that a futures commission merchant or retail foreign 
exchange dealer, if permitted by the rules of a registered futures 
association, may offset, at the customer's request, retail forex 
transactions of the same size, even if the customer holds other 
transactions of a different size, but in each case must offset the 
transaction against the oldest transaction of the same size. Such 
instructions may also be accepted from any person who, by power of 
attorney or otherwise, actually directs trading in the customer's or 
retail forex customer's account unless the person directing the trading 
is the futures commission merchant or retail foreign exchange dealer 
(including any partner thereof), or is an officer, employee, or agent of 
the futures commission merchant or retail foreign exchange dealer. With 
respect to every such offsetting transaction that, in accordance with 
such specific instructions, is not applied to the oldest portion of the 
previously held position, the futures commission merchant or retail 
foreign exchange dealer shall clearly show on the statement issued to 
the customer or retail forex customer in connection with the 
transaction, that because of the specific instructions given by or on 
behalf of the customer or retail forex customer the transaction was not 
applied in the usual manner, i.e., against the oldest portion of the 
previously held position. However, no such showing need be made if the 
futures commission merchant or retail foreign exchange dealer has 
received such specific instructions in writing from the customer or 
retail forex customer for whom such account is carried.
    (c) In-and-out trades; day trades. Notwithstanding the provisions of 
paragraphs (a) and (b) of this section shall not be deemed to require 
the application of purchases or sales closed out during the same day 
(commonly known as ``in-and-out trades'' or ``day trades'') against 
short or long positions carried forward from a prior date.
    (d) Exceptions. The provisions of this section shall not apply to:
    (1) Purchases or sales of commodity options constituting ``bona fide 
hedging transactions'' pursuant to rules of the contract market which 
have been adopted in accordance with the requirements ofSec. 1.61(b) 
and approved by the Commission pursuant to; section 5a(a)(12)(A) of the 
Act Provided, That no contract market or futures commission merchant 
shall permit such option positions to be offset other than by open and 
competitive execution in the trading pit or ring provided by the 
contract market, during the regular hours prescribed by the contract 
market for trading in such commodity option.
    (2) Purchases or sales constituting ``bona fide hedging 
transactions'' as defined inSec. 1.3(z); nor
    (3) Sales during a delivery period for the purpose of making 
delivery during such delivery period if such sales are accompanied by 
instructions to make delivery thereon, together with warehouse receipts 
or other documents necessary to effectuate such delivery.
    (4)-(7) [Reserved]
    (8) Purchases or sales held in error accounts, including but not 
limited to floor broker error accounts, and purchases or sales 
identified as errors at the time they are assigned to an account that 
contains other purchases or sales not identified as errors and held

[[Page 121]]

in that account (``error trades''), provided that:
    (i) Each error trade does not offset another error trade held in the 
same account;
    (ii) Each error trade is offset by open and competitive means on or 
subject to the rules of a contract market by not later than the close of 
business on the business day following the day the error trade is 
discovered and assigned to an error account or identified as an error 
trade, unless at the close of business on the business day following the 
discovery of the error trade, the relevant market has reached a daily 
price fluctuation limit and the trader is unable to offset the error 
trade, in which case the error trade must be offset as soon as 
practicable thereafter; and
    (iii) No error trade is closed out by transferring such an open 
position to another account also controlled by that same trader.
    (e) The statements required by paragraph (a) of this section may be 
furnished to the customer or the person described inSec. 1.33(d) by 
means of electronic transmission, in accordance withSec. 1.33(g).

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

(Secs. 4g, 5, 42 Stat. 1000, 49 Stat. 1496; 7 U.S.C. 6g, 7; secs. 4g, 5, 
8a; 7 U.S.C. 6g, 7, 12a)

[41 FR 3194, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affectingSec. 1.46, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.Sec. 1.47-1.48  [Reserved]



Sec.  1.49  Denomination of customer funds and location of depositories.

    (a) Definitions. For purposes of this section:
    (1) Money center country. This term means Canada, France, Italy, 
Germany, Japan, and the United Kingdom.
    (2) Money center currency. This term means the currency of any money 
center country and the Euro.
    (b) Permissible denominations of obligations. (1) Subject to the 
terms and conditions set forth in this section, a futures commission 
merchant's obligations to a customer shall be denominated:
    (i) In the United States dollar;
    (ii) In a currency in which funds were deposited by the customer or 
were converted at the request of the customer, to the extent of such 
deposits and conversions; or
    (iii) In a currency in which funds have accrued to the customer as a 
result of trading conducted on a designated contract market, to the 
extent of such accruals.
    (2)(i) A futures commission merchant shall prepare and maintain a 
written record of each transaction converting customer funds from one 
currency to another.
    (ii) A written record prepared under paragraph (b)(2)(i) of this 
section must include the date the transaction was executed, the 
currencies converted, the amount converted, and the resulting amount.
    (iii) The information required under paragraph (b)(2)(ii) of this 
section must be provided to the customer upon the customer's request.
    (c) Permissible locations of depositories. (1) Unless a customer 
provides instructions to the contrary, a futures commission merchant or 
a derivatives clearing organization may hold customer funds:
    (i) In the United States;
    (ii) In a money center country; or
    (iii) In the country of origin of the currency.
    (2) A futures commission merchant or derivatives clearing 
organization may hold customer funds outside the United States, in a 
jurisdiction that is not a money center country, or the country of 
origin of the currency only to the extent authorized by the customer, 
provided, that the futures commission merchant or derivatives clearing 
organization must make and maintain a written record of such 
authorization. Notwithstanding the foregoing, in no event shall a 
futures commission merchant or a derivatives clearing organization hold 
customer funds in a restricted country subject to sanctions by the 
Office of Foreign Assets Control of the U.S. Department of Treasury.
    (d) Qualifications for depositories. (1) To hold customer funds 
required to be segregated pursuant to the Act and Sec.Sec. 1.20 
through 1.30, 1.32 and 1.36, a depository must provide the depositing

[[Page 122]]

futures commission merchant or derivatives clearing organization with 
the appropriate written acknowledgment as required under Sec.Sec. 1.20 
and 1.26.
    (2) A depository, if located in the United States, must be:
    (i) A bank or trust company;
    (ii) A futures commission merchant registered as such with the 
Commission; or
    (iii) A derivatives clearing organization.
    (3) A depository, if located outside the United States, must be:
    (i) A bank or trust company that has in excess of $1 billion of 
regulatory capital;
    (ii) A futures commission merchant that is registered as such with 
the Commission; or
    (iii) A derivatives clearing organization.
    (e) Segregation requirements. (1) Each futures commission merchant 
and each derivatives clearing organization must, as of the close of each 
business day, hold in segregated accounts on behalf of commodity or 
option customers:
    (i) Sufficient United States dollars, held in the United States, to 
meet all United States dollar obligations; and
    (ii) Sufficient funds in each other currency to meet obligations in 
such currency.
    (2) Notwithstanding paragraph (e)(1)(ii) of this section, assets 
denominated in one currency may be held to meet obligations denominated 
in another currency as follows:
    (i) United States dollars may be held in the United States or in 
money center countries to meet obligations denominated in any other 
currency; and
    (ii) Funds in money center currencies may be held in the United 
States or in money center countries to meet obligations denominated in 
currencies other than the United States dollar.
    (3) Each futures commission merchant and each derivatives clearing 
organization shall make and maintain records sufficient to demonstrate 
compliance with this paragraph (e).

[68 FR 5551, Feb. 4, 2003, as amended at 76 FR 44264, July 25, 2011; 77 
FR 66330, Nov. 2, 2012]



Sec.Sec. 1.50-1.51  [Reserved]



Sec.  1.52  Self-regulatory organization adoption and surveillance 
of minimum financial requirements.

    (a) Each self-regulatory organization must adopt rules prescribing 
minimum financial and related reporting requirements for members who are 
registered futures commission merchants, registered retail foreign 
exchange dealers, or registered introducing brokers. The self-regulatory 
minimum financial and related reporting requirements must be the same 
as, or more stringent than, the requirements contained in Sec.Sec. 
1.10 and 1.17 of this chapter, for futures commission merchants and 
introducing brokers, and Sec.Sec. 5.7 and 5.12 of this chapter for 
retail foreign exchange dealers; provided, however, a self-regulatory 
organization may permit its member registrants that are registered with 
the Securities and Exchange Commission as securities brokers or dealers 
to file (in accordance withSec. 1.10(h) of this chapter) a copy of 
their Financial and Operational Combined Uniform Single Report under the 
Securities Exchange Act of 1934, Part II, Part IIA, or Part II CSE, in 
lieu of Form 1-FR. The definition of adjusted net capital must be the 
same as that prescribed inSec. 1.17(c) of this chapter for futures 
commission merchants and introducing brokers, andSec. 5.7(b)(2) of 
this chapter for futures commission merchants offering or engaging in 
retail forex transactions and for retail foreign exchange dealers. (b) 
Each self-regulatory organization must establish and operate a 
supervisory program for the purpose of assessing whether each member 
registrant is in compliance with the applicable self-regulatory 
organization and Commission rules and regulations governing minimum net 
capital and related financial requirements, the obligation to segregate 
customer funds, financial reporting requirements, recordkeeping 
requirements, and sales practice and other compliance requirements. The 
supervisory program also must address the following elements:
    (1) Adequate levels and independence of audit staff. A self-
regulatory organization must maintain staff of an adequate size, 
training, and experience to effectively implement a supervisory

[[Page 123]]

program. Staff of the self-regulatory organization, including officers, 
directors and supervising committee members, must maintain independent 
judgment and its actions must not impair its independence nor appear to 
impair its independence in matters related to the supervisory program. 
The self-regulatory organization must provide annual ethics training to 
all staff with responsibilities for the supervisory program.
    (2) Ongoing surveillance. A self-regulatory organization's ongoing 
surveillance of member registrants must include the review and analysis 
of financial reports and regulatory notices filed by member registrants 
with the designated self-regulatory organization.
    (3) High-risk firms. A self-regulatory organization's supervisory 
program must include procedures for identifying member registrants that 
are determined to pose a high degree of potential financial risk, 
including the potential risk of loss of customer funds. High-risk member 
registrants must include firms experiencing financial or operational 
difficulties, failing to meet segregation or net capital requirements, 
failing to maintain current books and records, or experiencing material 
inadequacies in internal controls. Enhanced monitoring for high risk 
firms should include, as appropriate, daily review of net capital, 
segregation, and secured calculations, to assess compliance with self-
regulatory and Commission requirements.
    (4) On-site examinations. (i) A self-regulatory organization must 
conduct routine periodic on-site examinations of member registrants. 
Member futures commission merchants and retail foreign exchange dealers 
must be subject to on-site examinations no less frequently than once 
every eighteen months. A self-regulatory organization may establish a 
risk-based method of establishing the scope of each on-site examination, 
provided however, that the scope of each on-site examination of a 
futures commission merchant or retail foreign exchange dealer must 
include an assessment of whether the registrant is in compliance with 
applicable Commission and self-regulatory organization minimum capital 
and customer fund protection requirements, recordkeeping, and reporting 
requirements.
    (ii) A self-regulatory organization must establish the frequency of 
on-site examinations of member introducing brokers that do not operate 
pursuant to guarantee agreements with futures commission merchants or 
retail foreign exchange dealers using a risk-based approach, provided 
however, that each introducing broker is subject to an on-site 
examination no less frequently than once every three years.
    (iii) A self-regulatory organization must conduct on-site 
examinations of member registrants in accordance with uniform audit 
programs and procedures that have been submitted to the Commission.
    (5) Adequate documentation. A self-regulatory organization must 
adequately document all aspects of the operation of the supervisory 
program, including the conduct of risk-based scope setting and the risk-
based surveillance of high-risk member registrants, and the imposition 
of remedial and punitive action(s) for material violations.
    (c) Any two or more self-regulatory organizations may file with the 
Commission a plan for delegating to a designated self-regulatory 
organization, for any registered futures commission merchant, retail 
foreign exchange dealer, or introducing broker that is a member of more 
than one such self-regulatory organization, the responsibility of:
    (1) Monitoring and auditing for compliance with the minimum 
financial and related reporting requirements adopted by such self-
regulatory organizations and the Commission in accordance with 
paragraphs (a) and (b) of this section; and
    (2) Receiving the financial reports necessitated by such minimum 
financial and related reporting requirements.
    (d) Any plan filed under this section may contain provisions for the 
allocation of expenses reasonably incurred by the designated self-
regulatory organization among the self-regulatory organizations 
participating in such a plan.
    (e) A plan's designated self-regulatory organization must report to:

[[Page 124]]

    (1) That plan's other self-regulatory organizations any violation of 
such other self-regulatory organizations' rules and regulations for 
which the responsibility to monitor, audit or examine has been delegated 
to such designated self-regulatory organization under this section; and
    (2) The Commission any violation of a self-regulatory organization's 
rules and regulations or any violation of the Commission's regulations 
for which the responsibility to monitor, audit or examine has been 
delegated to such designated self-regulatory organization under this 
section.
    (f) The self-regulatory organizations may, among themselves, 
establish programs to provide access to any necessary financial or 
related information.
    (g) After appropriate notice and opportunity for comment, the 
Commission may, by written notice, approve such a plan, or any part of 
the plan, if it finds that the plan, or any part of it:
    (1) Is necessary or appropriate to serve the public interest;
    (2) Is for the protection and in the interest of customers;
    (3) Reduces multiple monitoring and multiple auditing for compliance 
with the minimum financial rules of the self-regulatory organizations 
submitting the plan of any futures commission merchant, retail foreign 
exchange dealer, or introducing broker that is a member of more than one 
self-regulatory organization;
    (4) Reduces multiple reporting of the financial information 
necessitated by such minimum financial and related reporting 
requirements by any futures commission merchant, retail foreign exchange 
dealer, or introducing broker that is a member of more than one self-
regulatory organization;
    (5) Fosters cooperation and coordination among the self-regulatory 
organizations; and
    (6) Does not hinder the development of a registered futures 
association under section 17 of the Act.
    (h) After the Commission has approved a plan, or part thereof, under 
Sec.  1.52(g), a self-regulatory organization relieved of responsibility 
must notify each of its members that are subject to such a plan:
    (1) Of the limited nature of its responsibility for such a member's 
compliance with its minimum financial and related reporting 
requirements; and
    (2) Of the identity of the designated self-regulatory organization 
that has been delegated responsibility for such a member.
    (i) The Commission may at any time, after appropriate notice and 
opportunity for hearing, withdraw its approval of any plan, or part 
thereof, established under this section, if such plan, or part thereof, 
ceases to adequately effectuate the purposes of section 4f(b) of the Act 
or of this section.
    (j) Whenever a registered futures commission merchant, a registered 
retail foreign exchange dealer, or a registered introducing broker 
holding membership in a self-regulatory organization ceases to be a 
member in good standing of that self-regulatory organization, such self-
regulatory organization must, on the same day that event takes place, 
give electronic notice of that event to the Commission at its 
Washington, DC, headquarters and send a copy of that notification to 
such futures commission merchant, retail foreign exchange dealer, or 
introducing broker.
    (k) Nothing in this section shall preclude the Commission from 
examining any futures commission merchant, retail foreign exchange 
dealer, or introducing broker for compliance with the minimum financial 
and related reporting requirements to which such futures commission 
merchant, retail foreign exchange dealer, or introducing broker is 
subject.
    (l) In the event a plan is not filed and/or approved for each 
registered futures commission merchant, retail foreign exchange dealer, 
or introducing broker that is a member of more than one self-regulatory 
organization, the Commission may design and, after notice and 
opportunity for comment, approve a plan for those futures commission 
merchants, retail foreign exchange dealers, or introducing brokers that 
are not the subject of an approved plan (under paragraph (g) of this 
section), delegating to a designated self-

[[Page 125]]

regulatory organization the responsibilities described in paragraph (c) 
of this section.

[77 FR 36694, June 19, 2012]



Sec.  1.53  [Reserved]



Sec.  1.54  Contract market rules submitted to and approved or not
disapproved by the Secretary of Agriculture.

    Notwithstanding any provision of these rules, any bylaw, rule, 
regulation, or resolution of a contract market that was submitted to the 
Secretary of Agriculture pursuant orSec. 1.38(a) orSec. 1.39(a) of 
these rules, and was either approved by the Secretary or not disapproved 
by him, as of April 21, 1975, shall continue in full force and effect 
unless and until disapproved, altered or supplemented by or with the 
approval of the Commission. The adoption of this rule does not 
constitute approval by the Commission of any contract market bylaw, 
rule, regulation or resolution.

(Sec. 411, Pub. L. 93-463, 88 Stat. 1414; 7 U.S.C. 4a note)

[45 FR 2314, Jan. 11, 1980]



Sec.  1.55  Distribution of ``Risk Disclosure Statement'' by futures
commission merchants and introducing brokers.

    (a)(1) Except as provided in 1.65, no futures commission merchant, 
or in the case of an introduced account no introducing broker, may open 
a commodity futures account for a customer, other than for a customer 
specified in paragraph (f) of this section, unless the futures 
commission merchant or introducing broker first:
    (i) Furnishes the customer with a separate written disclosure 
statement containing only the language set forth in paragraph (b) of 
this section (except for nonsubstantive additions such as captions) or 
as otherwise approved under paragraph (c) of this section; Provided, 
however, that the disclosure statement may be attached to other 
documents as the cover page or the first page of such documents and as 
the only material on such page; and
    (ii) Receives from the customer an acknowledgment signed and dated 
by the customer that he received and understood the disclosure 
statement.
    (b) The language set forth in the written disclosure document 
required by paragraph (a) of this section shall be as follows:

                        Risk Disclosure Statement

    The risk of loss in trading commodity futures contracts can be 
substantial. You should, therefore, carefully consider whether such 
trading is suitable for you in light of your circumstances and financial 
resources. You should be aware of the following points:
    (1) You may sustain a total loss of the funds that you deposit with 
your broker to establish or maintain a position in the commodity futures 
market, and you may incur losses beyond these amounts. If the market 
moves against your position, you may be called upon by your broker to 
deposit a substantial amount of additional margin funds, on short 
notice, in order to maintain your position. If you do not provide the 
required funds within the time required by your broker, your position 
may be liquidated at a loss, and you will be liable for any resulting 
deficit in your account.
    (2) Under certain market conditions, you may find it difficult or 
impossible to liquidate a position. This can occur, for example, when 
the market reaches a daily price fluctuation limit (``limit move'').
    (3) Placing contingent orders, such as ``stop-loss'' or ``stop-
limit'' orders, will not necessarily limit your losses to the intended 
amounts, since market conditions on the exchange where the order is 
placed may make it impossible to execute such orders.
    (4) All futures positions involve risk, and a ``spread'' position 
may not be less risky than an outright ``long'' or ``short'' position.
    (5) The high degree of leverage (gearing) that is often obtainable 
in futures trading because of the small margin requirements can work 
against you as well as for you. Leverage (gearing) can lead to large 
losses as well as gains.
    (6) You should consult your broker concerning the nature of the 
protections available to safeguard funds or property deposited for your 
account.

ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER 
FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING 
FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE 
FOLLOWING ADDITIONAL RISKS:

    (7) Foreign futures transactions involve executing and clearing 
trades on a foreign exchange. This is the case even if the foreign 
exchange is formally ``linked'' to a domestic exchange, whereby a trade 
executed on one exchange liquidates or establishes a position

[[Page 126]]

on the other exchange. No domestic organization regulates the activities 
of a foreign exchange, including the execution, delivery, and clearing 
of transactions on such an exchange, and no domestic regulator has the 
power to compel enforcement of the rules of the foreign exchange or the 
laws of the foreign country. Moreover, such laws or regulations will 
vary depending on the foreign country in which the transaction occurs. 
For these reasons, customers who trade on foreign exchanges may not be 
afforded certain of the protections which apply to domestic 
transactions, including the right to use domestic alternative dispute 
resolution procedures. In particular, funds received from customers to 
margin foreign futures transactions may not be provided the same 
protections as funds received to margin futures transactions on domestic 
exchanges. Before you trade, you should familiarize yourself with the 
foreign rules which will apply to your particular transaction.
    (8) Finally, you should be aware that the price of any foreign 
futures or option contract and, therefore, the potential profit and loss 
resulting therefrom, may be affected by any fluctuation in the foreign 
exchange rate between the time the order is placed and the foreign 
futures contract is liquidated or the foreign option contract is 
liquidated or exercised.

THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER 
ASPECTS OF THE COMMODITY MARKETS

    I hereby acknowledge that I have received and understood this risk 
disclosure statement.

________________________________________________________________________
Date

________________________________________________________________________
Signature of Customer

    (c) The Commission may approve for use in lieu of the risk 
disclosure document required by paragraph (b) of this section a risk 
disclosure statement approved by one or more foreign regulatory agencies 
or self-regulatory organizations if the Commission determines that such 
risk disclosure statement is reasonably calculated to provide the 
disclosure required by paragraph (b) of this section. Notice of risk 
disclosure statements that may be used to satisfy Commission disclosure 
requirements, what requirements such statements meet and the 
jurisdictions which accept each format will be set forth in appendix A 
to this section.
    (d) Any futures commission merchant, or in the case of an introduced 
account any introducing broker, may open a commodity futures account for 
a customer without obtaining the separate acknowledgments of disclosure 
and elections required by this section and bySec. 1.33(g), and by 
Sec.Sec. 33.7 and 190.06 of this chapter, provided that:
    (1) Prior to the opening of such account, the futures commission 
merchant or introducing broker obtains an acknowledgement from the 
customer, which may consist of a single signature at the end of the 
futures commission merchant's or introducing broker's customer account 
agreement, or on a separate page, of the disclosure statements, consents 
and elections specified in this section andSec. 1.33(g), and in 
Sec.Sec. 33.7,Sec. 155.3(b)(2),Sec. 155.4(b)(2), andSec. 190.06 
of this chapter, and which may include authorization for the transfer of 
funds from a segregated customer account to another account of such 
customer, as listed directly above the signature line, provided the 
customer has acknowledged by check or other indication next to a 
description of each specified disclosure statement, consent or election 
that the customer has received and understood such disclosure statement 
or made such consent or election; and
    (2) The acknowledgment referred to in paragraph (d)(1) of this 
section is accompanied by and executed contemporaneously with delivery 
of the disclosures and elective provisions required by this section and 
Sec.  1.33(g), and by Sec.Sec. 33.7 and 190.06 of this chapter.
    (e) The acknowledgment required by paragraph (a) of this section 
must be retained by the futures commission merchant or introducing 
broker in accordance withSec. 1.31.
    (f) A futures commission merchant or, in the case of an introduced 
account, an introducing broker, may open a commodity futures account for 
an ``institutional customer'' as defined inSec. 1.3(g) without 
furnishing such institutional customer the disclosure statements or 
obtaining the acknowledgments required under paragraph (a) of this 
section Sec.Sec. 1.33(g) and 1.65(a)(3), and Sec.Sec. 30.6(a), 
33.7(a), 155.3(b)(2), 155.4(b)(2) and 190.10(c) of this chapter.

[[Page 127]]

    (g) This section does not relieve a futures commission merchant or 
introducing broker from any other disclosure obligation it may have 
under applicable law.
    (h) Notwithstanding any other provision of this section orSec. 
1.65, a person registered or required to be registered with the 
Commission as a futures commission merchant pursuant to sections 
4f(a)(1) or 4f(a)(2) of the Commodity Exchange Act and registered or 
required to be registered with the Securities and Exchange Commission as 
a broker or dealer pursuant to sections 15(b)(1) or 15(b)(11) of the 
Securities Exchange Act of 1934 and rules thereunder must provide to a 
customer or prospective customer, prior to the acceptance of any order 
for, or otherwise handling any transaction in or in connection with, a 
security futures product for a customer, the disclosures set forth in 
Sec.  41.41(b)(1) of this chapter.

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

(Secs. 4b, 4c(b), 4g(1), 4l, 4o, and 8a(5), Commodity Exchange Act, 7 
U.S.C. 6b, 6c(b), 6g(1), 6l, 6o, and 12a(5)(1976), and sec. 217, 
Commodity Futures Trading Act of 1974, 88 Stat. 1405; secs. 2(a)(1), 4b, 
4c, 4d, 4f and 8a, Commodity Exchange Act, as amended (7 U.S.C. 2, 6b, 
6c, 6f and 12a))

[[Page 128]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.028


[[Page 129]]


[GRAPHIC] [TIFF OMITTED] TC05OC91.029

                                * * * * *

[The following language should be printed on a page other than the pages 
containing the disclosure language above and may be omitted from the 
required disclosure statement]

    This disclosure document meets the risk disclosure requirements in 
the jurisdictions

[[Page 130]]

identified below ONLY for those instruments which are specified.

United States: Commodity futures, options on commodity futures and 
options on commodities subject to the Commodity Exchange Act.
United Kingdom: Futures, options on futures, options on commodities and 
options on equities traded by members of the United Kingdom Securities 
and Futures Authority pursuant to the Financial Services Act, 1986.
Ireland: Financial futures and options on financial futures traded by 
members of futures exchanges on exchanges whose rules have been approved 
by the Central Bank of Ireland under Chapter VIII of the Central Bank 
Act, 1989.

[43 FR 31890, July 24, 1978]

    Editorial Note: For Federal Register citations affectingSec. 1.55, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.  1.56  Prohibition of guarantees against loss.

    (a) [Reserved]
    (b) No futures commission merchant or introducing broker may in any 
way represent that it will, with respect to any commodity interest in 
any account carried by the futures commission merchant for or on behalf 
of any person:
    (1) Guarantee such person against loss;
    (2) Limit the loss of such person; or
    (3) Not call for or attempt to collect initial and maintenance 
margin as established by the rules of the applicable board of trade.
    (c) No person may in any way represent that a futures commission 
merchant or introducing broker will engage in any of the acts or 
practices described in paragraph (b) of this section.
    (d) This section shall not be construed to prevent a futures 
commission merchant or introducing broker from:
    (1) Assuming or sharing in the losses resulting from an error or 
mishandling of an order; or
    (2) Participating as a general partner in a commodity pool which is 
a limited partnership.
    (e) This section shall not affect any guarantee entered into prior 
to January 28, 1982, but this section shall apply to any extension, 
modification or renewal thereof entered into after such date.

[46 FR 62844, Dec. 29, 1981, as amended at 48 FR 35291, Aug. 3, 1983]



Sec.  1.57  Operations and activities of introducing brokers.

    (a) Each introducing broker must:
    (1) Open and carry each customer's account with a carrying futures 
commission merchant on a fully-disclosed basis: Provided, however, That 
an introducing broker which has entered into a guarantee agreement with 
a futures commission merchant in accordance with the provisions ofSec. 
1.10(j) must open and carry such customer's account with such guarantor 
futures commission merchant on a fully-disclosed basis; and
    (2) Transmit promptly for execution all customer orders to:
    (i) A carrying futures commission merchant; or
    (ii) A floor broker, if the introducing broker identifies its 
carrying futures commission merchant and that carrying futures 
commission merchant is also the clearing member with respect to the 
customer's order.
    (b) An introducing broker may not carry proprietary accounts, nor 
may an introducing broker carry accounts in foreign futures.
    (c) An introducing broker may not accept any money, securities or 
property (or extend credit in lieu thereof) to margin, guarantee or 
secure any trades or contracts of customers, or any money, securities or 
property accruing as a result of such trades or contracts: Provided, 
however, That an introducing broker may deposit a check in a qualifying 
account or forward a check drawn by a customer if:
    (1) The futures commission merchant carrying the customer's account 
authorizes the introducing broker, in writing, to receive a check in the 
name of the futures commission merchant, and the introducing broker 
retains such written authorization in its files in accordance withSec. 
1.31;
    (2) The check is payable to the futures commission merchant carrying 
the customer's account;
    (3) The check is deposited by the introducing broker, on the same 
day upon which it is received, in a bank or

[[Page 131]]

trust company located in the United States in a qualifying account, or 
the check is mailed or otherwise transmitted by the introducing broker 
to the futures commission merchant on the same day upon which it is 
received;
    (4) For purposes of this paragraph (c), a qualifying account shall 
be deemed to be an account:
    (i) Which is maintained in an account name which clearly identifies 
the funds therein as belonging to customers of the futures commission 
merchant carrying the customer's account;
    (ii) For which the bank or trust company restricts withdrawals to 
withdrawals by the carrying futures commission merchant;
    (iii) For which the bank or trust company prohibits the introducing 
broker or anyone acting upon its behalf from withdrawing funds; and
    (iv) For which the bank or trust company provides the futures 
commission merchant carrying the customer's account with a written 
acknowledgment, which the futures commission merchant must retain in its 
files in accordance withSec. 1.31, that it was informed that the funds 
deposited therein are those of customers and are being held in 
accordance with the provisions of the Act and the regulations in this 
chapter.

[48 FR 35291, Aug. 3, 1983, as amended at 57 FR 23143, June 2, 1992; 77 
FR 66330, Nov. 2, 2012]



Sec.  1.58  Gross collection of exchange-set margins.

    (a) Each futures commission merchant which carries a commodity 
futures or commodity option position for another futures commission 
merchant or for a foreign broker on an omnibus basis must collect, and 
each futures commission merchant and foreign broker for which an omnibus 
account is being carried must deposit, initial and maintenance margin on 
each position reported in accordance withSec. 17.04 of this chapter at 
a level no less than that established for customer accounts by the rules 
of the applicable contract market.
    (b) If the futures commission merchant which carries a commodity 
futures or commodity option position for another futures commission 
merchant or for a foreign broker on an omnibus basis allows a position 
to be margined as a spread position or as a hedged position in 
accordance with the rules of the applicable contract market, the 
carrying futures commission merchant must obtain and retain a written 
representation from the futures commission merchant or from the foreign 
broker for which the omnibus account is being carried that each such 
position is entitled to be so margined.

[61 FR 19187, May 1, 1996]



Sec.  1.59  Activities of self-regulatory organization employees,
governing board members, committee members, and consultants.

    (a) Definitions. For purposes of this section:
    (1) Self-regulatory organization means ``self-regulatory 
organization,'' as defined inSec. 1.3(ee), and includes the term 
``clearing organization,'' as defined inSec. 1.3(d).
    (2) Governing board member means a member, or functional equivalent 
thereof, of the board of governors of a self-regulatory organization.
    (3) Committee member means a member, or functional equivalent 
thereof, of any committee of a self-regulatory organization.
    (4) Employee means any person hired or otherwise employed on a 
salaried or contract basis by a self-regulatory organization, but does 
not include:
    (i) Any governing board member compensated by a self-regulatory 
organization solely for governing board activities; or
    (ii) Any committee member compensated by a self-regulatory 
organization solely for committee activities; or
    (iii) Any consultant hired by a self-regulatory organization.
    (5) Material information means information which, if such 
information were publicly known, would be considered important by a 
reasonable person in deciding whether to trade a particular commodity 
interest on a contract market or a swap execution facility, or to clear 
a swap contract through a derivatives clearing organization. As used in 
this section, ``material information''

[[Page 132]]

includes, but is not limited to, information relating to present or 
anticipated cash positions, commodity interests, trading strategies, the 
financial condition of members of self-regulatory organizations or 
members of linked exchanges or their customers, or the regulatory 
actions or proposed regulatory actions of a self-regulatory organization 
or a linked exchange.
    (6) Non-public information means information which has not been 
disseminated in a manner which makes it generally available to the 
trading public.
    (7) Linked exchange means:
    (i) Any board of trade, exchange or market outside the United 
States, its territories or possessions, which has an agreement with a 
contract market or swap execution facility in the United States that 
permits positions in a commodity interest which have been established on 
one of the two markets to be liquidated on the other market;
    (ii) Any board of trade, exchange or market outside the United 
States, its territories or possessions, the products of which are listed 
on a United States contract market, swap execution facility, or a 
trading facility thereof;
    (iii) Any securities exchange, the products of which are held as 
margin in a commodity account or cleared by a securities clearing 
organization pursuant to a cross-margining arrangement with a futures 
clearing organization; or
    (iv) Any clearing organization which clears the products of any of 
the foregoing markets.
    (8) Commodity interest means any commodity futures, commodity option 
or swap contract traded on or subject to the rules of a contract market, 
a swap execution facility or linked exchange, or cleared by a 
derivatives clearing organization, or cash commodities traded on or 
subject to the rules of a board of trade which has been designated as a 
contract market.
    (9) Related commodity interest means any commodity interest which is 
traded on or subject to the rules of a contract market, swap execution 
facility, linked exchange, or other board of trade, exchange, or market, 
or cleared by a derivatives clearing organization, other than the self-
regulatory organization by which a person is employed, and with respect 
to which:
    (i) Such employing self-regulatory organization has recognized or 
established intermarket spread margins or other special margin treatment 
between that other commodity interest and a commodity interest which is 
traded on or subject to the rules of the employing self-regulatory 
organization; or
    (ii) Such other self-regulatory organization has recognized or 
established intermarket spread margins or other special margin treatment 
with another commodity interest as to which the person has access to 
material, nonpublic information.
    (10) Pooled investment vehicle means a trading vehicle organized and 
operated as a commodity pool within the meaning ofSec. 4.10(d) of this 
chapter, and whose units of participation have been registered under the 
Securities Act of 1933, or a trading vehicle for whichSec. 4.5 of this 
chapter makes available relief from regulation as a commodity pool 
operator, i.e., registered investment companies, insurance company 
separate accounts, bank trust funds, and certain pension plans.
    (b) Employees of self-regulatory organizations; Self-regulatory 
organization rules. (1) Each self-regulatory organization must maintain 
in effect rules which have been submitted to the Commission pursuant to 
section 5c(c) of the Act and part 40 of this chapter (or, pursuant to 
section 17(j) of the Act in the case of a registered futures 
association) that, at a minimum, prohibit:
    (i) Employees of the self-regulatory organization from:
    (A) Trading, directly or indirectly, in any commodity interest 
traded on or cleared by the employing contract market, swap execution 
facility, or clearing organization;
    (B) Trading, directly or indirectly, in any related commodity 
interest;
    (C) Trading, directly or indirectly, in a commodity interest traded 
on contract markets or swap execution facilities or cleared by 
derivatives clearing organizations other than the employing self-
regulatory organization if the employee has access to material, non-
public information concerning such commodity interest;
    (D) Trading, directly or indirectly, in a commodity interest traded 
on or

[[Page 133]]

cleared by a linked exchange if the employee has access to material, 
non-public information concerning such commodity interest; and
    (ii) Employees of the self-regulatory organization from disclosing 
to any other person any material, non-public information which such 
employee obtains as a result of his or her employment at the self-
regulatory organization where such employee has or should have a 
reasonable expectation that the information disclosed may assist another 
person in trading any commodity interest; Provided, however, That such 
rules shall not prohibit disclosures made in the course of an employee's 
duties, or disclosures made to another self-regulatory organization, 
linked exchange, court of competent jurisdiction or representative of 
any agency or department of the federal or state government acting in 
his or her official capacity.
    (2) Each self-regulatory organization may adopt rules, which must be 
submitted to the Commission pursuant to section 5a(a)(12)(A) of the Act 
and Commission regulation 1.41 (or, pursuant to section 17(j) of the Act 
in the case of a registered futures association), which set forth 
circumstances under which exemptions from the trading prohibition 
contained in paragraph (b)(1)(i) of this section may be granted; such 
exemptions are to be administered by the self-regulatory organization on 
a case-by-case basis. Specifically, such circumstances may include:
    (i) Participation by an employee in pooled investment vehicles where 
the employee has no direct or indirect control with respect to 
transactions executed for or on behalf of such vehicles; and
    (ii) Trading by an employee under circumstances enumerated by the 
self-regulatory organization in rules which the self-regulatory 
organization determines are not contrary to the purposes of this 
regulation, the Commodity Exchange Act, the public interest, or just and 
equitable principles of trade.
    (c) Governing board members, committee members, and consultants; 
Registered futures association rules. Each registered futures 
association must maintain in effect rules which have been submitted to 
the Commission pursuant to section 17(j) of the Act which provide that 
no governing board member, committee member, or consultant shall use or 
disclose--for any purpose other than the performance of official duties 
as a governing board member, committee member, or consultant--material, 
non-public information obtained as a result of the performance of such 
person's official duties.
    (d) Prohibited conduct. (1) No employee, governing board member, 
committee member, or consultant shall:
    (i) Trade for such person's own account, or for or on behalf of any 
other account, in any commodity interest, on the basis of any material, 
non-public information obtained through special access related to the 
performance of such person's official duties as an employee, governing 
board member, committee member, or consultant; or
    (ii) Disclose for any purpose inconsistent with the performance of 
such person's official duties as an employee, governing board member, 
committee member, or consultant any material, non-public information 
obtained through special access related to the performance of such 
duties.
    (2) No person shall trade for such person's own account, or for or 
on behalf of any other account, in any commodity interest, on the basis 
of any material, non-public information that such person knows was 
obtained in violation of paragraph (d)(1) of this section from an 
employee, governing board member, committee member, or consultant.

[58 FR 54973, Oct. 25, 1993, as amended at 65 FR 47847, Aug. 4, 2000; 77 
FR 66330, Nov. 2, 2012]



Sec.  1.60  Pending legal proceedings.

    (a) Every contract market shall submit to the Commission copies of 
the complaint, any dispositive or partially dispositive decision, any 
notice of appeal filed concerning such decisions and such further 
documents as the Commission may thereafter request filed in any material 
legal proceeding to which the contract market is a party or its property 
or assets is subject.
    (b) Every futures commission merchant shall sumit to the Commission 
copies of any dispositive or partially

[[Page 134]]

dispositive decision for which a notice of appeal has been filed, the 
notice of appeal and such further documents as the Commission may 
thereafter request filed in any material legal proceeding to which the 
futures commission merchant is a party or its property or assets is 
subjects.
    (c) Every contract market shall submit to the Commission copies of 
the complaint, any dispositive or partially dispositive decision, any 
notice of appeal filed concerning such decisions and such further 
documents as the Commission may thereafter request filed in any material 
legal proceeding instituted against any officer, director, or other 
official of the contract market arising from conduct in such person's 
capacity as a contract market official and alleging violations of:
    (1) The act or any rule, regulation, or order thereunder;
    (2) the constitution, bylaws or rules of the contract market; or
    (3) the applicable provisions of state law relating to the duties of 
officers, directors, or other officials of business organizations.
    (d) Every futures commission merchant shall submit to the Commission 
copies of any dispositive or partially dispositive decision concerning 
which a notice of appeal has been filed, the notice of appeal, and such 
further documents as the Commission may thereafter request filed in any 
material legal proceeding instituted against any person who is a 
principal of the futures commission merchant (as that term is defined in 
Sec.  3.1(a) of this chapter) arising from conduct in such person's 
capacity as a principal of the futures commission merchant and alleging 
violations of: (1) The Act or any rule, regulation, or order thereunder; 
or (2) provisions of state law relating to a duty or obligation owed by 
such a principal.
    (e) All documents required by this section to be submitted to the 
Commission shall be mailed via first-class or submitted by other more 
expeditious means to the Commission's headquarters office in Washington, 
DC, Attention: Office of the General Counsel. All documents required by 
this section to be submitted to the Commission as to matters pending on 
the effective date of the section (May 25, 1984), shall be mailed to the 
Commission within 45 days of that effective date. Thereafter, all 
complaints required by this section to be submitted to the Commission by 
contract markets shall be mailed to the Commission within 10 days after 
the initiation of the legal proceedings to which they relate, all 
decisions required to be submitted by contract markets shall be mailed 
within 10 days of their date of issuance, all notices of appeal required 
to be submitted by contract markets shall be mailed within 10 days of 
the filing or receipt by the contract market of the notice of appeal, 
and all decisions and notices of appeal required to be submitted by 
futures commission merchants shall be mailed within 10 days of the 
filing or receipt by the futures commission merchant of the relevant 
notice of appeal. For purposes of paragraph (a), (b), (c) and (d) of 
this rule, a ``material legal proceeding'' includes but is not limited 
to actions involving alleged violations of the Commodity Exchange Act or 
the Commission's regulations. However, a legal proceeding is not 
``material'' for the purposes of this rule if the proceeding is not in a 
federal or state court or if the Commission is a party.

[49 FR 17750, Apr. 25, 1984]



Sec.Sec. 1.61-1.62  [Reserved]



Sec.  1.63  Service on self-regulatory organization governing boards
or committees by persons with disciplinary histories.

    (a) Definitions. For purposes of this section:
    (1) Self-regulatory organization means a ``self-regulatory 
organization'' as defined inSec. 1.3(ee), and includes a ``clearing 
organization'' as defined inSec. 1.3(d), except as defined in 
paragraph (b)(6) of this section.
    (2) Disciplinary committee means any person or committee of persons, 
or any subcommittee thereof, that is authorized by a self-regulatory 
organization to issue disciplinary charges, to conduct disciplinary 
proceedings, to settle disciplinary charges, to impose disciplinary 
sanctions or to hear appeals thereof.

[[Page 135]]

    (3) Arbitration panel means any person or panel empowered by a self-
regulatory organization to arbitrate disputes involving such 
organization's members or their customers.
    (4) Oversight panel means any panel authorized by a self-regulatory 
organization to review, recommend or establish policies or procedures 
with respect to the self-regulatory organization's surveillance, 
compliance, rule enforcement or disciplinary responsibilities.
    (5) Final decision means:
    (i) A decision of a self-regulatory organization which cannot be 
further appealed within the self-regulatory organization, is not subject 
to the stay of the Commission or a court of competent jurisdiction, and 
has not been reversed by the Commission or any court of competent 
jurisdiction; or,
    (ii) Any decision by an administrative law judge, a court of 
competent jurisdiction or the Commission which has not been stayed or 
reversed.
    (6) Disciplinary offense means:
    (i) Any violation of the rules of a self-regulatory organization 
except those rules related to
    (A) Decorum or attire,
    (B) Financial requirements, or
    (C) Reporting or recordkeeping unless resulting in fines aggregating 
more than $5,000 within any calendar year;
    (ii) Any rule violation described in subparagraphs (a)(6)(i) (A) 
through (C) of this regulation which involves fraud, deceit or 
conversion or results in a suspension or expulsion;
    (iii) Any violation of the Act or the regulations promulgated 
thereunder; or,
    (iv) Any failure to exercise supervisory responsibility with respect 
to acts described in paragraphs (a)(6) (i) through (iii) of this section 
when such failure is itself a violation of either the rules of a self-
regulatory organization, the Act or the regulations promulgated 
thereunder.
    (v) A disciplinary offense must arise out of a proceeding or action 
which is brought by a self-regulatory organization, the Commission, any 
federal or state agency, or other governmental body.
    (7) Settlement agreement means any agreement consenting to the 
imposition of sanctions by a self-regulatory organization, a court of 
competent jurisdiction or the Commission.
    (b) Each self-regulatory organization must maintain in effect rules 
which have been submitted to the Commission pursuant to section 5c(c) of 
the Act and part 40 of this chapter or, in the case of a registered 
futures association, pursuant to section 17(j) of the Act, that render a 
person ineligible to serve on its disciplinary committees, arbitration 
panels, oversight panels or governing board who:
    (1) Was found within the prior three years by a final decision of a 
self-regulatory organization, an administrative law judge, a court of 
competent jurisdiction or the Commission to have committed a 
disciplinary offense;
    (2) Entered into a settlement agreement within the prior three years 
in which any of the findings or, in the absence of such findings, any of 
the acts charged included a disciplinary offense;
    (3) Currently is suspended from trading on any contract market, is 
suspended or expelled from membership with any self-regulatory 
organization, is serving any sentence of probation or owes any portion 
of a fine imposed pursuant to either:
    (i) A finding by a final decision of a self-regulatory organization, 
an administrative law judge, a court of competent jurisdiction or the 
Commission that such person committed a disciplinary offense; or,
    (ii) A settlement agreement in which any of the findings or, in the 
absence of such findings, any of the acts charged included a 
disciplinary offense.
    (4) Currently is subject to an agreement with the Commission or any 
self-regulatory organization not to apply for registration with the 
Commission or membership in any self-regulatory organization;
    (5) Currently is subject to or has had imposed on him within the 
prior three years a Commission registration revocation or suspension in 
any capacity for any reason, or has been convicted within the prior 
three years of any of the felonies listed in section 8a(2)(D) (ii) 
through (iv) of the Act;
    (6) Currently is subject to a denial, suspension or disqualification 
from serving on the disciplinary committee, arbitration panel or 
governing board of

[[Page 136]]

any self-regulatory organization as that term is defined in section 
3(a)(26) of the Securities Exchange Act of 1934.
    (c) No person may serve on a disciplinary committee, arbitration 
panel, oversight panel or governing board of a self-regulatory 
organization if such person is subject to any of the conditions listed 
in paragraphs (b) (1) through (6) of this section.
    (d) Each self-regulatory organization shall submit to the Commission 
a schedule listing all those rule violations which constitute 
disciplinary offenses as defined in paragraph (a)(6)(i) of this section 
and to the extent necessary to reflect revisions shall submit an amended 
schedule within thirty days of the end of each calendar year. Each self-
regulatory organization must maintain and keep current the schedule 
required by this section, and post the schedule on the self-regulatory 
organization's Web site so that it is in a public place designed to 
provide notice to members and otherwise ensure its availability to the 
general public.
    (e) Each self-regulatory organization shall submit to the Commission 
within thirty days of the end of each calendar year a certified list of 
any persons who have been removed from its disciplinary committees, 
arbitration panels, oversight panels or governing board pursuant to the 
requirements of this regulation during the prior year.
    (f) Whenever a self-regulatory organization finds by final decision 
that a person has committed a disciplinary offense and such finding 
makes such person ineligible to serve on that self-regulatory 
organization's disciplinary committees, arbitration panels, oversight 
panels or governing board, the self-regulatory organization shall inform 
the Commission of that finding and the length of the ineligibility in 
any notice it is required to provide to the Commission pursuant to 
either section 17(h)(1) of the Act or Commission regulation 9.11.

[55 FR 7890, Mar. 6, 1990, as amended at 58 FR 37653, July 13, 1993; 64 
FR 23, Jan. 4, 1999; 77 FR 66331, Nov. 2, 2012]



Sec.  1.64  Composition of various self-regulatory organization
governing boards and major disciplinary committees.

    (a) Definitions. For purposes of this section:
    (1) Self-regulatory organization means ``self-regulatory 
organization'' as defined inSec. 1.3(ee), not including a ``clearing 
organization'' as defined inSec. 1.3(d).
    (2) Major disciplinary committee means a committee of persons who 
are authorized by a self-regulatory organization to conduct disciplinary 
hearings, to settle disciplinary charges, to impose disciplinary 
sanctions or to hear appeals thereof in cases involving any violation of 
the rules of the self-regulatory organization except those which:
    (i) Are related to:
    (A) Decorum or attire,
    (B) Financial requirements, or
    (C) Reporting or recordkeeping; and,
    (ii) Do not involve fraud, deceit or conversion.
    (3) Regular voting member of a governing board means any person who 
is eligible to vote routinely on matters being considered by the board 
and excludes those members who are only eligible to vote in the case of 
a tie vote by the board.
    (4) Membership interest (i) In the case of a contract market, each 
of the following will be considered a different membership interest:
    (A) Floor brokers,
    (B) Floor traders,
    (C) Futures commission merchants,
    (D) Producers, consumers, processors, distributors, and 
merchandisers of commodities traded on the particular contract market,
    (E) Participants in a variety of pits or principal groups of 
commodities traded on the particular contract market; and,
    (F) Other market users or participants; except that with respect to 
paragraph (c)(2) of this section, a contract market may define 
membership interests according to the different pits or principal groups 
of commodities traded on the contract market.
    (ii) In the case of a registered futures association, each of the 
following will

[[Page 137]]

be considered a different membership interest:
    (A) Futures commission merchants,
    (B) Introducing brokers,
    (C) Commodity pool operators,
    (D) Commodity trading advisors; and,
    (E) Associated persons, except that under paragraph (c)(3) of this 
section an associated person will be deemed to represent the same 
membership interest as its sponsor.
    (b) Each self-regulatory organization must maintain in effect 
standards and procedures with respect to its governing board which have 
been submitted to the Commission pursuant to section 5a(a)(12)(A) of the 
Act andSec. 1.41 or, when applicable to a registered futures 
association, pursuant to section 17(j) of the Act, that ensure:
    (1) That twenty percent or more of the regular voting members of the 
board are persons who:
    (i) Are knowledgeable of futures trading or financial regulation or 
are otherwise capable of contributing to governing board deliberations; 
and,
    (ii) (A) Are not members of the self-regulatory organization,
    (B) Are not currently salaried employees of the self-regulatory 
organization,
    (C) Are not primarily performing services for the self-regulatory 
organization in a capacity other than as a member of the self-regulatory 
organization's governing board, or
    (D) Are not officers, principals or employees of a firm which holds 
a membership at the self-regulatory organization either in its own name 
or through an employee on behalf of the firm;
    (2) In the case of a contract market, that ten percent or more of 
the regular voting members of the governing board be comprised where 
applicable of persons representing farmers, producers, merchants or 
exporters of principal commodities underlying a commodity futures or 
commodity option traded on the contract market; and
    (3) That the board's membership includes a diversity of membership 
interests. The self-regulatory organization must be able to demonstrate 
that the board membership fairly represents the diversity of interests 
at such self-regulatory organization and is otherwise consistent with 
this regulation's composition requirements;
    (c) Each self-regulatory organization must maintain in effect rules 
with respect to its major disciplinary committees which have been 
submitted to the Commission pursuant to section 5a(a)(12)(A) of the Act 
andSec. 1.41 or, when applicable to a registered futures association, 
pursuant to section 17(j) of the Act, that ensure:
    (1) That at least one member of each major disciplinary committee or 
hearing panel thereof be a person who is not a member of the self-
regulatory organization whenever such committee or panel is acting with 
respect to a disciplinary action in which:
    (i) The subject of the action is a member of the self-regulatory 
organization's:
    (A) Governing board, or
    (B) Major disciplinary committee; or,
    (ii) Any of the charged, alleged or adjudicated contract market rule 
violations involve:
    (A) Manipulation or attempted manipulation of the price of a 
commodity, a futures contract or an option on a futures contract, or
    (B) Conduct which directly results in financial harm to a non-member 
of the contract market;
    (2) In the case of a contract market, that more than fifty percent 
of each major disciplinary committee or hearing panel thereof include 
persons representing membership interests other than that of the subject 
of the disciplinary proceeding being considered;
    (3) In the case of a registered futures association, that each major 
disciplinary committee or hearing panel thereof include persons 
representing membership interests other than that of the subject of the 
disciplinary proceeding being considered; and,
    (4) That each major disciplinary committee or hearing panel thereof 
include sufficient different membership interests so as to ensure 
fairness and to prevent special treatment or preference for any person 
in the conduct of a committee's or the panel's responsibilities.
    (d) Each self-regulatory organization must submit to the Commission 
within thirty days after each governing board election a list of the 
governing board's members, the membership interests

[[Page 138]]

they represent and how the composition of the governing board otherwise 
meets the requirements ofSec. 1.64(b) and the self-regulatory 
organization's implementing standards and procedures.

[58 FR 37654, July 13, 1993; 59 FR 5082, Feb. 3, 1994]



Sec.  1.65  Notice of bulk transfers and disclosure obligations
to customers.

    (a) Notice and Disclosure to Customers. (1) Prior to transferring a 
customer account to another futures commission merchant or introducing 
broker other than at the request of the customer, a futures commission 
merchant or introducing broker must obtain the customer's specific 
consent to the transfer.
    (2) If the customer account agreement contains a valid consent by 
the customer to prospective transfers of the account, the transferor 
futures commission merchant or introducing broker may transfer the 
account if the customer is provided with written notice of, and a 
reasonable opportunity to object to, the transfer and the customer has 
not asserted an objection to the transfer or given other instructions as 
to the disposition of the account. The notice to the customer must 
include:
    (i) A clear statement of the reason(s) for the transfer, the name, 
address and telephone number of the proposed transferee firm and other 
information material to the transfer;
    (ii) A statement that the customer is not required to accept the 
proposed transfer and may direct the transfer or firm to liquidate the 
account or ransfer the account to a firm of the customer's selection;
    (iii) The name, telephone number and address of a contact person at 
the transferor firm to whom the customer may give instructions as to the 
disposition of the account;
    (iv) Notice that a failure to respond to the letter within a 
specified time period, which must be a reasonable period in the 
circumstances, will be deemed consent to the transfer; and
    (v) A clear statement as to the means by which the customer may 
object to or otherwise respond to the notice of proposed transfer.
    (3) Where customer accounts are transferred to a futures commission 
merchant or introducing broker, other than at the customer's request, 
the transferee introducing broker or futures commission merchant must 
provide each customer whose account is transferred with the risk 
disclosure statements and acknowledgments required bySec. 1.55 
(domestic futures and foreign futures and options trading), and 
Sec.Sec. 33.7 (domestic exchange-traded commodity options) and 
190.10(c) (non-cash margin--to be furnished by futures commission 
merchants only) of this chapter and receive the required acknowledgments 
within sixty days of the transfer of accounts. This requirement shall 
not apply:
    (i) As to customers owning transferred accounts for which the 
transferee futures commission merchant or introducing broker has clear 
written evidence that the customer has received and acknowledged the 
required disclosure documents; or
    (ii) As to customers for which the transferee futures commission 
merchant or introducing broker has clear evidence that such customer was 
at the time the account was opened by the transferring futures 
commission merchant or introducing broker, or is at the time the account 
is being transferred, a customer listed inSec. 1.55(f); or
    (iii) If the transfer of accounts is made from one introducing 
broker to another introducing broker guaranteed by the same futures 
commission merchant pursuant to a guarantee agreement in accordance with 
the requirements ofSec. 1.10(j) and such futures commission merchant 
maintains the relevant acknowledgments required by Sec.Sec. 
1.55(a)(1)(ii) and 33.7(a)(1)(ii) of this chapter and can establish 
compliance withSec. 190.10(c) of this chapter.
    (b) Notice to the Commission. Each futures commission merchant or 
introducing broker shall file with the Commission, at least five 
business days in advance of the transfer, notice of any transfer of 
customer accounts carried or introduced by such futures commission 
merchant or introducing broker that is not initiated at the request of 
the customer, where the transfer involves the lesser of:

[[Page 139]]

    (1) 25 percent of the total number of customer accounts carried or 
introduced by such firm if that percentage represents at least 100 
accounts; or
    (2) 50 percent or more of the total number of customer accounts 
carried or introduced by such firm. The computation of the percentage 
and number of accounts must be based on the total number of accounts 
carried by the transferor futures commission merchant or introduced by 
the introducing broker, irrespective of whether such accounts are 
transferred to a single or multiple transferees.
    (c) The notice required by paragraph (b) of this section shall 
include:
    (1) The name, principal business address and telephone number of the 
transferor futures commission merchant or introducing broker;
    (2) The name, principal business address and telephone number of 
each transferee futures commission merchant or introducing broker;
    (3) The designated self-regulatory organization for the transferor 
and transferee firms;
    (4) A brief statement as to the reasons for the transfer;
    (5) A copy of the notice to customers informing them of the proposed 
transfer and providing an opportunity to object to such transfer; and
    (6) A statement of the number of accounts to be transferred and the 
estimated liquidating equity of the accounts to be transferred.
    (d) The notice required by paragraph (b) of this section shall be 
filed with the Deputy Director, Compliance and Registration Section, 
Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581; the National Futures Association Attn: Vice 
President-Compliance; and the designated self-regulatory organization 
for the transferor firm.
    (e) In the event that the notice required by paragraph (b) of this 
section cannot be filed with the Commission at least five days prior to 
the account transfer, the transferee futures commission merchant or 
introducing broker shall file such notice as soon as practicable and no 
later than the day of the transfer. Such notice shall include a brief 
statement explaining the circumstances necessitating the delay in 
filing.
    (f) The requirements of this section shall not affect the 
obligations of a futures commission merchant or introducing broker under 
the rules of a self-regulatory organization or applicable customer 
account agreement with respect to transfer of accounts.
    (g) If a proposed transfer is not completed in accordance with the 
notice required to be filed by paragraph (b) of this section, a 
corrective notice shall be filed within five business days of the date 
such proposed transfer was to occur explaining why the proposed transfer 
was not completed.

[58 FR 17504, Apr. 5, 1993, as amended at 60 FR 49334, Sept. 25, 1995; 
63 FR 8571, Feb. 20, 1998; 67 FR 62351, Oct. 7, 2002]



Sec.  1.66  No-action positions with respect to floor traders.

    (a) Notwithstanding any other provision of law, if a contract market 
submits to the National Futures Association by April 26, 1993 a list of 
floor traders who were granted trading privileges on that contract 
market on or before April 26, 1993, and whose floor trading privileges 
remain in effect, which includes the name, date of birth and social 
security number of such floor traders, as well as facts regarding such 
floor traders which are set forth as statutory disqualifications in 
section 8a(2) of the Act if the contract market knows of such facts, and 
such list is signed by the chief operating officer of the contract 
market, the Commission will not commence an enforcement proceeding 
against a floor trader on that list based solely upon the floor trader's 
failure to register or receive a temporary license under section 4f of 
the Act andSec. 3.11 of this chapter, nor will the Commission commence 
an enforcement proceeding against the contract market underSec. 1.62 
for failing to bar such floor trader from operating as such: Provided, 
however, That for those floor traders listed as to whom the contract 
market knows of facts set forth as statutory disqualifications in 
section 8a(2) of the Act, the no-action position contained in paragraph 
(a) of this section will only apply if the contract market submits a 
supplemental

[[Page 140]]

statement signed by the chief operating officer of the contract market 
stating that, in light of the Congressional mandate requiring 
registration of floor traders under the Act, the contract market 
acknowledges its responsibility to take affirmative action to conduct 
appropriate surveillance of such floor traders. These no-action 
positions shall expire upon the floor's trader being granted or denied 
registration under the Act, or on June 11, 1993, whichever comes 
earliest: Provided, however, That if the floor trader files an 
application for registration in accordance withSec. 3.11 of this 
chapter with the National Futures Association by June 11, 1993, the no-
action positions for the floor trader and the contract market as to the 
registration of such floor trader will be extended until the floor 
trader is granted or denied registration under the Act, unless an 
Administrative Law Judge issues an interim order suspending the no-
action position as to such floor trader in accordance with paragraph (b) 
of this section or the application for registration is withdrawn.
    (b) Suspension of no-action position under paragraph (a) of this 
section pursuant to section 8a(2) of the Act--(1) Notice. On the basis 
of information obtained by the Commission, the Commission may at any 
time serve notice upon a floor trader whose name appears on a list 
submitted in accordance with paragraph (a) of this section that:
    (i) The Commission alleges and is prepared to prove that such floor 
trader is subject to one or more of the statutory disqualifications set 
forth in section 8a(2) of the Act;
    (ii) An Administrative Law Judge shall make a determination, based 
upon written evidence, as to whether the floor trader is subject to such 
statutory disqualification; and
    (iii) If the floor trader is found to be subject to a statutory 
disqualification, the no-action status of the floor trader under 
paragraph (a) of this section may be suspended and the floor trader 
ordered to show cause why registration should not be denied.
    (2) Written submission. If the floor trader wishes to challenge the 
accuracy of the allegations set forth in the notice, the floor trader 
may submit written evidence limited to the type described inSec. 
3.60(b)(1) of this chapter. Such written submission must be served upon 
the Division of Enforcement and filed with the Proceedings Clerk within 
twenty days of the date of service of notice to the floor trader.
    (3) Reply. Within ten days of receipt of any written submission 
filed by the floor trader, the Division of Enforcement may serve upon 
the floor trader and file with the Proceedings Clerk a reply.
    (4) Determination by Administrative Law Judge. A determination by 
the Administrative Law Judge as to whether the floor trader is subject 
to a statutory disqualification must be based upon the evidence of the 
statutory disqualification, notice with proof of service, the written 
submission, if any, filed by the floor trader in response thereto, any 
written reply submitted by the Division of Enforcement and such other 
papers as the Administrative Law Judge may require or permit.
    (5) Suspension and order to show cause. (i) If the floor trader is 
found to be subject to a statutory disqualification, the Administrative 
Law Judge, within thirty days after receipt of the floor trader's 
written submission, if any, and any reply thereto, shall issue an 
interim order suspending the no-action status of the floor trader under 
paragraph (a) of this section and requiring the floor trader to show 
cause within twenty days of the date of the order why, notwithstanding 
the existence of the statutory disqualification, the registration of the 
floor trader should not be denied. The no-action status of the floor 
trader shall be suspended, effective five days after the order to show 
cause is served upon the floor trader in accordance withSec. 3.50(a) 
of this chapter, until a final order with respect to the order to show 
cause has been issued: Provided, That if the sole basis upon which the 
floor trader is subject to statutory disqualification is the existence 
of a temporary order, judgment or decree of the type described in 
section 8a(2)(C) of the Act, the order to show cause shall not be issued 
and the floor trader shall be suspended until such time as the temporary 
order, judgment or decree shall have expired: Provided, however, That in 
no event

[[Page 141]]

shall the floor trader's no-action status be suspended for a period to 
exceed six months.
    (ii) If the floor trader is found not to be subject to a statutory 
disqualification, the Administrative Law Judge shall issue an order to 
that effect and the Proceedings Clerk shall promptly serve a copy of 
such order on the floor trader, the Division of Clearing and 
Intermediary Oversight and the Division of Enforcement. Such order shall 
be effective as a final order of the Commission fifteen days after the 
date it is served upon the floor trader in accordance with the 
provisions ofSec. 3.50(a) of this chapter unless a timely application 
for review is filed in accordance withSec. 10.102 of this chapter. The 
appellate procedures set forth in Sec.Sec. 10.102, 10.103, 10.104, 
10.106, 10.107 and 10.109 of this chapter shall apply to any appeal 
brought under paragraph (c)(5)(ii) of this section.
    (6) Further proceedings. If an order to show cause is issued 
pursuant to paragraph (c)(5)(i) of this section, further proceedings on 
such order shall be conducted in accordance with the provisions ofSec. 
3.60(b) through (j) of this chapter.

[58 FR 19589, Apr. 15, 1993; 58 FR 21776, Apr. 23, 1993, as amended at 
60 FR 54801, Oct. 26, 1995; 67 FR 62351, Oct. 7, 2002]



Sec.  1.67  Notification of final disciplinary action involving 
financial harm to a customer.

    (a) Definitions. For purposes of this section:
    Final disciplinary action means any decision by or settlement with a 
contract market or swap execution facility in a disciplinary matter 
which cannot be further appealed at the contract market or swap 
execution facility, is not subject to the stay of the Commission or a 
court of competent jurisdiction, and has not been reversed by the 
Commission or any court of competent jurisdiction.
    (b) Upon any final disciplinary action in which a contract market or 
swap execution facility finds that a member has committed a rule 
violation that involved a transaction for a customer, whether executed 
or not, and that resulted in financial harm to the customer:
    (1)(i) The contract market or swap execution facility shall promptly 
provide written notice of the disciplinary action to the futures 
commission merchant or other registrant; and
    (ii) A futures commission merchant or other registrant that receives 
a notice, under paragraph (b)(1)(i) of this section shall promptly 
provide written notice of the disciplinary action to the customer as 
disclosed on its books and records. If the customer is another futures 
commission merchant or other registrant, such futures commission 
merchant or other registrant shall promptly provide notice to the 
customer.
    (2) A written notice required by paragraph (b)(1) of this section 
must include the principal facts of the disciplinary action and a 
statement that the contract market or swap execution facility has found 
that the member has committed a rule violation that involved a 
transaction for the customer, whether executed or not, and that resulted 
in financial harm to the customer. For the purposes of this paragraph, a 
notice which includes the information listed inSec. 9.11(b) of this 
chapter shall be deemed to include the principal facts of the 
disciplinary action thereof.

[77 FR 66331, Nov. 2, 2012]



Sec.  1.68  [Reserved]



Sec.  1.69  Voting by interested members of self-regulatory 
organization governing boards and various committees.

    (a) Definitions. For purposes of this section:
    (1) Disciplinary committee means any person or committee of persons, 
or any subcommittee thereof, that is authorized by a self-regulatory 
organization to issue disciplinary charges, to conduct disciplinary 
proceedings, to settle disciplinary charges, to impose disciplinary 
sanctions, or to hear appeals thereof in cases involving any violation 
of the rules of the self-regulatory organization except those cases 
where the person or committee is authorized summarily to impose minor 
penalties for violating rules regarding decorum, attire, the timely 
submission of accurate records for clearing or verifying

[[Page 142]]

each day's transactions or other similar activities.
    (2) Family relationship of a person means the person's spouse, 
former spouse, parent, stepparent, child, stepchild, sibling, 
stepbrother, stepsister, grandparent, grandchild, uncle, aunt, nephew, 
niece or in-law.
    (3) Governing board means a self-regulatory organization's board of 
directors, board of governors, board of managers, or similar body, or 
any subcommittee thereof, duly authorized, pursuant to a rule of the 
self-regulatory organization that has been approved by the Commission or 
has become effective pursuant to either Section 5a(a)(12)(A) or 17(j) of 
the Act to take action or to recommend the taking of action on behalf of 
the self-regulatory organization.
    (4) Oversight panel means any panel, or any subcommittee thereof, 
authorized by a self-regulatory organization to recommend or establish 
policies or procedures with respect to the self-regulatory 
organization's surveillance, compliance, rule enforcement, or 
disciplinary responsibilities.
    (5) Member's affiliated firm is a firm in which the member is a 
``principal,'' as defined inSec. 3.1(a), or an employee.
    (6) Named party in interest means a person or entity that is 
identified by name as a subject of any matter being considered by a 
governing board, disciplinary committee, or oversight panel.
    (7) Self-regulatory organization means a ``self-regulatory 
organization'' as defined inSec. 1.3(ee) and includes a ``clearing 
organization'' as defined inSec. 1.3(d), but excludes registered 
futures associations for the purposes of paragraph (b)(2) of this 
section.
    8) Significant action includes any of the following types of self-
regulatory organization actions or rule changes that can be implemented 
without the Commission's prior approval:
    (i) Any actions or rule changes which address an ``emergency'' as 
defined inSec. 1.41(a)(4)(i) through (iv) and (vi) through (viii); 
and,
    (ii) Any changes in margin levels that are designed to respond to 
extraordinary market conditions such as an actual or attempted corner, 
squeeze, congestion or undue concentration of positions, or that 
otherwise are likely to have a substantial effect on prices in any 
contract traded or cleared at such self-regulatory organization; but 
does not include any rule not submitted for prior Commission approval 
because such rule is unrelated to the terms and conditions of any 
contract traded at such self-regulatory organization.
    (b) Self-regulatory organization rules. Each self-regulatory 
organization shall maintain in effect rules that have been submitted to 
the Commission pursuant to Section 5a(a)(12)(A) of the Act andSec. 
1.41 or, in the case of a registered futures association, pursuant to 
Section 17(j) of the Act, to address the avoidance of conflicts of 
interest in the execution of its self-regulatory functions. Such rules 
must provide for the following:
    (1) Relationship with named party in interest--(i) Nature of 
relationship. A member of a self-regulatory organization's governing 
board, disciplinary committee or oversight panel must abstain from such 
body's deliberations and voting on any matter involving a named party in 
interest where such member:
    (A) Is a named party in interest;
    (B) Is an employer, employee, or fellow employee of a named party in 
interest;
    (C) Is associated with a named party in interest through a ``broker 
association'' as defined inSec. 156.1;
    (D) Has any other significant, ongoing business relationship with a 
named party in interest, not including relationships limited to 
executing futures or option transactions opposite of each other or to 
clearing futures or option transactions through the same clearing 
member; or,
    (E) Has a family relationship with a named party in interest.
    (ii) Disclosure of relationship. Prior to the consideration of any 
matter involving a named party in interest, each member of a self-
regulatory organization governing board, disciplinary committee or 
oversight panel must disclose to the appropriate self-regulatory 
organization staff whether he or she has one of the relationships listed 
in paragraph (b)(1)(i) of this section with a named party in interest.

[[Page 143]]

    (iii) Procedure for determination. Each self-regulatory organization 
must establish procedures for determining whether any member of its 
governing board, disciplinary committees or oversight committees is 
subject to a conflicts restriction in any matter involving a named party 
in interest. Taking into consideration the exigency of the committee 
action, such determinations should be based upon:
    (A) Information provided by the member pursuant to paragraph 
(b)(1)(ii) of this section; and
    (B) Any other source of information that is held by and reasonably 
available to the self-regulatory organization.
    (2) Financial interest in a significant action--(i) Nature of 
interest. A member of a self-regulatory organization's governing board, 
disciplinary committee or oversight panel must abstain from such body's 
deliberations and voting on any significant action if the member 
knowingly has a direct and substantial financial interest in the result 
of the vote based upon either exchange or non-exchange positions that 
could reasonably be expected to be affected by the action.
    (ii) Disclosure of interest. Prior to the consideration of any 
significant action, each member of a self-regulatory organization 
governing board, disciplinary committee or oversight panel must disclose 
to the appropriate self-regulatory organization staff the position 
information referred to in paragraph (b)(2)(iii) of this section that is 
known to him or her. This requirement does not apply to members who 
choose to abstain from deliberations and voting on the subject 
significant action.
    (iii) Procedure for determination. Each self-regulatory organization 
must establish procedures for determining whether any member of its 
governing board, disciplinary committees or oversight committees is 
subject to a conflicts restriction under this section in any significant 
action. Such determination must include a review of:
    (A) Gross positions held at that self-regulatory organization in the 
member's personal accounts or ``controlled accounts,'' as defined in 
Sec.  1.3(j);
    (B) Gross positions held at that self-regulatory organization in 
proprietary accounts, as defined inSec. 1.17(b)(3), at the member's 
affiliated firm;
    (C) Gross positions held at that self-regulatory organization in 
accounts in which the member is a principal, as defined inSec. 3.1(a);
    (D) Net positions held at that self-regulatory organization in 
``customer'' accounts, as defined inSec. 1.17(b)(2), at the member's 
affiliated firm; and,
    (E) Any other types of positions, whether maintained at that self-
regulatory organization or elsewhere, held in the member's personal 
accounts or the proprietary accounts of the member's affiliated firm 
that the self-regulatory organization reasonably expects could be 
affected by the significant action.
    (iv) Bases for determination. Taking into consideration the exigency 
of the significant action, such determinations should be based upon:
    (A) The most recent large trader reports and clearing records 
available to the self-regulatory organization;
    (B) Information provided by the member with respect to positions 
pursuant to paragraph (b)(2)(ii) of this section; and,
    (C) Any other source of information that is held by and reasonably 
available to the self-regulatory organization.
    (3) Participation in deliberations. (i) Under the rules required by 
this section, a self-regulatory organization governing board, 
disciplinary committee or oversight panel may permit a member to 
participate in deliberations prior to a vote on a significant action for 
which he or she otherwise would be required to abstain, pursuant to 
paragraph (b)(2) of this section, if such participation would be 
consistent with the public interest and the member recuses himself or 
herself from voting on such action.
    (ii) In making a determination as to whether to permit a member to 
participate in deliberations on a significant action for which he or she 
otherwise would be required to abstain, the deliberating body shall 
consider the following factors:
    (A) Wwhether the member's participation in deliberations is 
necessary for the deliberating body to achieve a quorum in the matter; 
and

[[Page 144]]

    (B) Whether the member has unique or special expertise, knowledge or 
experience in the matter under consideration.
    (iii) Prior to any determination pursuant to paragraph (b)(3)(i) of 
this section, the deliberating body must fully consider the position 
information which is the basis for the member's direct and substantial 
financial interest in the result of a vote on a significant action 
pursuant to paragraph (b)(2) of this section.
    (4) Documentation of determination. Self-regulatory organization 
governing boards, disciplinary committees, and oversight panels must 
reflect in their minutes or otherwise document that the conflicts 
determination procedures required by this section have been followed. 
Such records also must include:
    (i) The names of all members who attended the meeting in person or 
who otherwise were present by electronic means;
    (ii) The name of any member who voluntarily recused himself or 
herself or was required to abstain from deliberations and/or voting on a 
matter and the reason for the recusal or abstention, if stated; and
    (iii) Information on the position information that was reviewed for 
each member.

[64 FR 23, Jan. 4, 1999; 64 FR 3340, Jan. 21, 1999]



Sec.  1.70  Notification of State enforcement actions brought under
the Commodity Exchange Act.

    (a) Immediately upon instituting any proceeding in any Federal 
district court for violation of the Act or any rule, regulation or order 
thereunder against any person who is subject to suit pursuant to 
sections 6d(1)-(6) of the Act, the authorized State official of the 
State instituting the proceeding shall submit to the Commission a copy 
of the complaint filed in the proceeding, together with a written notice 
which:
    (1) Indicates the names of parties to the proceeding;
    (2) Indicates the provision of the Act or the rule, regulation or 
order thereunder which is alleged to have been violated.

The complaint and written notice must be sent by first-class U.S. mail 
or personally delivered to the Secretary, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (b) Prior to instituting any proceeding in a State court for the 
alleged violation of any antifraud provisions of the Act or any 
antifraud rule, regulation or order thereunder against any person 
registered with the Commission who is subject to suit pursuant to the 
provisions of section 6d(8) of the Act, the authorized State official of 
the State intending to institute the proceeding shall submit to the 
Commission written notice which:
    (1) Indicates the names of parties to the proposed proceeding;
    (2) Indicates the provision of the Act or the rule, regulation or 
order thereunder which will be alleged to have been violated;
    (3) Contains a brief statement of the facts on which the proposed 
action will be based.

Except as provided in paragraph (c), this written notice must be sent by 
first-class U.S. mail or personally delivered to the Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581 not less than 5 business days prior to 
instituting the proceeding in State court.
    (c) Where it is impracticable to provide the Commission with written 
notice within the time period specified in paragraph (b) of this 
section, the authorized state official must inform the Secretary of the 
Commission by telephone as soon as practicable to institute a proceeding 
in state court and must send the written notice required in paragraph 
(b)(1) through (b)(3) of this section by facsimile or other similarly 
expeditious means of written communication to the Secretary of the 
Commission, prior to instituting the proceeding in state court.
    (d) Immediately upon instituting any proceeding in a State court 
pursuant to the provisions of section 6d(8) of the Act for alleged 
violation of any antifraud provisions of the Act or any antifraud rule, 
regulation or order thereunder, the authorized State official 
instituting the proceeding shall submit

[[Page 145]]

to the Commission a copy of the complaint filed in the proceeding. The 
copy of the complaint must be sent by first class U.S. mail or 
personally delivered to the Secretary, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.

[48 FR 49503, Oct. 26, 1983, as amended at 60 FR 49334, Sept. 25, 1995]



Sec.  1.71  Conflicts of interest policies and procedures by futures
commission merchants and introducing brokers.

    (a) Definitions. For purposes of this section, the following terms 
shall be defined as provided.
    (1) Affiliate. This term means, with respect to any person, a person 
controlling, controlled by, or under common control with, such person.
    (2) Business trading unit. This term means any department, division, 
group, or personnel of a futures commission merchant or introducing 
broker or any of its affiliates, whether or not identified as such, that 
performs, or personnel exercising direct supervisory authority over the 
performance of, any pricing (excluding price verification for risk 
management purposes), trading, sales, marketing, advertising, 
solicitation, structuring, or brokerage activities on behalf of a 
futures commission merchant or introducing broker or any of its 
affiliates.
    (3) Clearing unit. This term means any department, division, group, 
or personnel of a futures commission merchant or any of its affiliates, 
whether or not identified as such, that performs, or personnel 
exercising direct supervisory authority over the performance of, any 
proprietary or customer clearing activities on behalf of a futures 
commission merchant or any of its affiliates.
    (4) Derivative. This term means:
    (i) A contract for the purchase or sale of a commodity for future 
delivery;
    (ii) A security futures product;
    (iii) A swap;
    (iv) Any agreement, contract, or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; and
    (v) Any commodity option authorized under section 4c of the Act; and 
(vi) any leverage transaction authorized under section 19 of the Act.
    (5) Non-research personnel. This term means any employee of the 
business trading unit or clearing unit, or any other employee of the 
futures commission merchant or introducing broker, other than an 
employee performing a legal or compliance function, who is not directly 
responsible for, or otherwise not directly involved in, research or 
analysis intended for inclusion in a research report.
    (6) Public appearance. This term means any participation in a 
conference call, seminar, forum (including an interactive electronic 
forum) or other public speaking activity before 15 or more persons 
(individuals or entities), or interview or appearance before one or more 
representatives of the media, radio, television or print media, or the 
writing of a print media article, in which a research analyst makes a 
recommendation or offers an opinion concerning a derivatives 
transaction. This term does not include a password-protected Webcast, 
conference call or similar event with 15 or more existing customers, 
provided that all of the event participants previously received the most 
current research report or other documentation that contains the 
required applicable disclosures, and that the research analyst appearing 
at the event corrects and updates during the public appearance any 
disclosures in the research report that are inaccurate, misleading, or 
no longer applicable.
    (7) Research analyst. This term means the employee of a futures 
commission merchant or introducing broker who is primarily responsible 
for, and any employee who reports directly or indirectly to such 
research analyst in connection with, preparation of the substance of a 
research report relating to any derivative, whether or not any such 
person has the job title of ``research analyst.''
    (8) Research department. This term means any department or division 
that is principally responsible for preparing the substance of a 
research report relating to any derivative on behalf of a futures 
commission merchant or introducing broker, including a department or 
division contained in an affiliate of

[[Page 146]]

a futures commission merchant or introducing broker.
    (9) Research report. This term means any written communication 
(including electronic) that includes an analysis of the price or market 
for any derivative, and that provides information reasonably sufficient 
upon which to base a decision to enter into a derivatives transaction. 
This term does not include:
    (i) Communications distributed to fewer than 15 persons;
    (ii) Commentaries on economic, political or market conditions;
    (iii) Statistical summaries of multiple companies' financial data, 
including listings of current ratings;
    (iv) Periodic reports or other communications prepared for 
investment company shareholders or commodity pool participants that 
discuss individual derivatives positions in the context of a fund's past 
performance or the basis for previously-made discretionary decisions;
    (v) Any communications generated by an employee of the business 
trading unit that is conveyed as a solicitation for entering into a 
derivatives transaction, and is conspicuously identified as such; and
    (vi) Internal communications that are not given to current or 
prospective customers.
    (b) Policies and procedures. (1) Except as provided in paragraph 
(b)(2) of this section, each futures commission merchant and introducing 
broker subject to this rule must adopt and implement written policies 
and procedures reasonably designed to ensure that the futures commission 
merchant or introducing broker and its employees comply with the 
provisions of this rule.
    (2) Small Introducing Brokers. An introducing broker that has 
generated, over the preceding 3 years, $5 million or less in aggregate 
gross revenues from its activities as an introducing broker must 
establish structural and institutional safeguards reasonably designed to 
ensure that the activities of any person within the firm relating to 
research or analysis of the price or market for any commodity or 
derivative are separated by appropriate informational partitions within 
the firm from the review, pressure, or oversight of persons whose 
involvement in trading or clearing activities might potentially bias the 
judgment or supervision of the persons.
    (c) Research analysts and research reports--(1) Restrictions on 
relationship with research department. (i) Non-research personnel shall 
not direct a research analyst's decision to publish a research report of 
the futures commission merchant or introducing broker, and non-research 
personnel shall not direct the views and opinions expressed in a 
research report of the futures commission merchant or introducing 
broker.
    (ii) No research analyst may be subject to the supervision or 
control of any employee of the futures commission merchant's or 
introducing broker's business trading unit or clearing unit, and no 
employee of the business trading unit or clearing unit may have any 
influence or control over the evaluation or compensation of a research 
analyst.
    (iii) Except as provided in paragraph (c)(1)(iv) of this section, 
non-research personnel, other than the board of directors and any 
committee thereof, shall not review or approve a research report of the 
futures commission merchant or introducing broker before its 
publication.
    (iv) Non-research personnel may review a research report before its 
publication as necessary only to verify the factual accuracy of 
information in the research report, to provide for non-substantive 
editing, to format the layout or style of the research report, or to 
identify any potential conflicts of interest, provided that:
    (A) Any written communication between non-research personnel and 
research department personnel concerning the content of a research 
report must be made either through authorized legal or compliance 
personnel of the futures commission merchant or introducing broker or in 
a transmission copied to such personnel; and
    (B) Any oral communication between non-research personnel and 
research department personnel concerning the content of a research 
report must be documented and made either through authorized legal or 
compliance personnel acting as an intermediary or in

[[Page 147]]

a conversation conducted in the presence of such personnel.
    (2) Restrictions on communications. Any written or oral 
communication by a research analyst to a current or prospective customer 
relating to any derivative must not omit any material fact or 
qualification that would cause the communication to be misleading to a 
reasonable person.
    (3) Restrictions on research analyst compensation. A futures 
commission merchant or introducing broker may not consider as a factor 
in reviewing or approving a research analyst's compensation his or her 
contributions to the futures commission merchant's or introducing 
broker's trading or clearing business. Except for communicating client 
or customer feedback, ratings and other indicators of research analyst 
performance to research department management, no employee of the 
business trading unit or clearing unit of the futures commission 
merchant or introducing broker may influence the review or approval of a 
research analyst's compensation.
    (4) Prohibition of promise of favorable research. No futures 
commission merchant or introducing broker may directly or indirectly 
offer favorable research, or threaten to change research, to an existing 
or prospective customer as consideration or inducement for the receipt 
of business or compensation.
    (5) Disclosure requirements--(i) Ownership and material conflicts of 
interest. A futures commission merchant or introducing broker must 
disclose in research reports and a research analyst must disclose in 
public appearances whether the research analyst maintains a financial 
interest in any derivative of a type, class, or category that the 
research analyst follows, and the general nature of the financial 
interest.
    (ii) Prominence of disclosure. Disclosures and references to 
disclosures must be clear, comprehensive, and prominent. With respect to 
public appearances by research analysts, the disclosures required by 
paragraph (c)(5) of this section must be conspicuous.
    (iii) Records of public appearances. Each futures commission 
merchant and introducing broker must maintain records of public 
appearances by research analysts sufficient to demonstrate compliance by 
those research analysts with the applicable disclosure requirements 
under paragraph (c)(5) of this section.
    (iv) Third-party research reports. (A) For the purposes of paragraph 
(c)(5)(iv) of this section, ``independent third-party research report'' 
shall mean a research report, in respect of which the person or entity 
producing the report:
    (1) Has no affiliation or business or contractual relationship with 
the distributing futures commission merchant or introducing broker, or 
that futures commission merchant's or introducing broker's affiliates, 
that is reasonably likely to inform the content of its research reports; 
and
    (2) Makes content determinations without any input from the 
distributing futures commission merchant or introducing broker or from 
the futures commission merchant's or introducing broker's affiliates.
    (B) Subject to paragraph (c)(5)(iv)(C) of this section, if a futures 
commission merchant or introducing broker distributes or makes available 
any independent third-party research report, the futures commission 
merchant or introducing broker must accompany the research report with, 
or provide a web address that directs the recipient to, the current 
applicable disclosures, as they pertain to the futures commission 
merchant or introducing broker, required by this section. Each futures 
commission merchant and introducing broker must establish written 
policies and procedures reasonably designed to ensure the completeness 
and accuracy of all applicable disclosures.
    (C) The requirements of paragraph (c)(5)(iv)(B) of this section 
shall not apply to independent third-party research reports made 
available by a futures commission merchant or introducing broker to its 
customers:
    (1) Upon request; or
    (2) Through a Web site maintained by the futures commission merchant 
or introducing broker.
    (6) Prohibition of retaliation against research analysts. No futures 
commission merchant or introducing broker, and no employee of a futures 
commission merchant or introducing broker who is involved with the 
futures commission

[[Page 148]]

merchant's or introducing broker's trading or clearing activities, may, 
directly or indirectly, retaliate against or threaten to retaliate 
against any research analyst employed by the futures commission merchant 
or introducing broker or its affiliates as a result of an adverse, 
negative, or otherwise unfavorable research report or public appearance 
written or made, in good faith, by the research analyst that may 
adversely affect the futures commission merchant's or introducing 
broker's present or prospective trading or clearing activities.
    (7) Small Introducing Brokers. An introducing broker that has 
generated, over the preceding 3 years, $5 million or less in aggregate 
gross revenues from its activities as an introducing broker is exempt 
from the requirements set forth in this paragraph (c).
    (d) Clearing activities. (1) No futures commission merchant shall 
permit any affiliated swap dealer or major swap participant to directly 
or indirectly interfere with, or attempt to influence, the decision of 
the clearing unit personnel of the futures commission merchant to 
provide clearing services and activities to a particular customer, 
including but not limited to a decision relating to the following:
    (i) Whether to offer clearing services and activities to a 
particular customer;
    (ii) Whether to accept a particular customer for the purposes of 
clearing derivatives;
    (iii) Whether to submit a customer's transaction to a particular 
derivatives clearing organization;
    (iv) Whether to set or adjust risk tolerance levels for a particular 
customer;
    (v) Whether to accept certain forms of collateral from a particular 
customer; or
    (vi) Whether to set a particular customer's fees for clearing 
services based upon criteria that are not generally available and 
applicable to other customers of the futures commission merchant.
    (2) Each futures commission merchant shall create and maintain an 
appropriate informational partition between business trading units of an 
affiliated swap dealer or major swap participant and clearing unit 
personnel of the futures commission merchant to reasonably ensure 
compliance with the Act and the prohibitions specified in paragraph 
(d)(1) of this section. At a minimum, such informational partitions 
shall require that:
    (i) No employee of a business trading unit of an affiliated swap 
dealer or major swap participant may review or approve the provision of 
clearing services and activities by clearing unit personnel of the 
futures commission merchant, make any determination regarding whether 
the futures commission merchant accepts clearing customers, or in any 
way condition or tie the provision of trading services upon or to the 
provision of clearing services or otherwise participate in the provision 
of clearing services by improperly incentivizing or encouraging the use 
of the affiliated futures commission merchant. Any employee of a 
business trading unit of an affiliated swap dealer or major swap 
participant may participate in the activities of the futures commission 
merchant as necessary for (A) participating in default management 
undertaken by a derivatives clearing organization during an event of 
default; and (B) transferring, liquidating, or hedging any proprietary 
or customer positions during an event of default;
    (ii) No employee of a business trading unit of an affiliated swap 
dealer or major swap participant shall supervise, control, or influence 
any employee of a clearing unit of the futures commission merchant; and
    (iii) No employee of the business trading unit of an affiliated swap 
dealer or major swap participant shall influence or control compensation 
or evaluation of any employee of the clearing unit of the futures 
commission merchant.
    (e) Undue influence on customers. Each futures commission merchant 
and introducing broker must adopt and implement written policies and 
procedures that mandate the disclosure to its customers of any material 
incentives and any material conflicts of interest regarding the decision 
of a customer as to the trade execution and/or clearing of the 
derivatives transaction.
    (f) Records. All records that a futures commission merchant or 
introducing

[[Page 149]]

broker is required to maintain pursuant to this regulation shall be 
maintained in accordance with Commission RegulationSec. 1.31 and shall 
be made available promptly upon request to representatives of the 
Commission.

[77 FR 20198, Apr. 3, 2012]



Sec.  1.72  Restrictions on customer clearing arrangements.

    No futures commission merchant providing clearing services to 
customers shall enter into an arrangement that:
    (a) Discloses to the futures commission merchant or any swap dealer 
or major swap participant the identity of a customer's original 
executing counterparty;
    (b) Limits the number of counterparties with whom a customer may 
enter into a trade;
    (c) Restricts the size of the position a customer may take with any 
individual counterparty, apart from an overall limit for all positions 
held by the customer at the futures commission merchant;
    (d) Impairs a customer's access to execution of a trade on terms 
that have a reasonable relationship to the best terms available; or
    (e) Prevents compliance with the timeframes set forth inSec. 
1.74(b),Sec. 23.610(b), orSec. 39.12(b)(7) of this chapter.

[77 FR 21306, Apr. 9, 2012]



Sec.  1.73  Clearing futures commission merchant risk management.

    (a) Each futures commission merchant that is a clearing member of a 
derivatives clearing organization shall:
    (1) Establish risk-based limits in the proprietary account and in 
each customer account based on position size, order size, margin 
requirements, or similar factors;
    (2) Screen orders for compliance with the risk-based limits in 
accordance with the following:
    (i) When a clearing futures commission merchant provides electronic 
market access or accepts orders for automated execution, it shall use 
automated means to screen orders for compliance with the limits;
    (ii) When a clearing futures commission merchant accepts orders for 
non-automated execution, it shall establish and maintain systems of risk 
controls reasonably designed to ensure compliance with the limits;
    (iii) When a clearing futures commission merchant accepts 
transactions that were executed bilaterally and then submitted for 
clearing, it shall establish and maintain systems of risk management 
controls reasonably designed to ensure compliance with the limits;
    (iv) When a firm executes an order on behalf of a customer but gives 
it up to another firm for clearing,
    (A) The clearing futures commission merchant shall establish risk-
based limits for the customer, and enter into an agreement in advance 
with the executing firm that requires the executing firm to screen 
orders for compliance with those limits in accordance with paragraph 
(a)(2)(i) or (ii) as applicable; and
    (B) The clearing futures commission merchant shall establish and 
maintain systems of risk management controls reasonably designed to 
ensure compliance with the limits.
    (v) When an account manager bunches orders on behalf of multiple 
customers for execution as a block and post-trade allocation to 
individual accounts for clearing:
    (A) The futures commission merchant that initially clears the block 
shall establish risk-based limits for the block account and screen the 
order in accordance with paragraph (a)(2)(i) or (ii) as applicable;
    (B) The futures commission merchants that clear the allocated trades 
on behalf of customers shall establish risk-based limits for each 
customer and enter into an agreement in advance with the account manager 
that requires the account manager to screen orders for compliance with 
those limits; and
    (C) The futures commission merchants that clear the allocated trades 
on behalf of customers shall establish and maintain systems of risk 
management controls reasonably designed to ensure compliance with the 
limits.
    (3) Monitor for adherence to the risk-based limits intra-day and 
overnight;

[[Page 150]]

    (4) Conduct stress tests under extreme but plausible conditions of 
all positions in the proprietary account and in each customer account 
that could pose material risk to the futures commission merchant at 
least once per week;
    (5) Evaluate its ability to meet initial margin requirements at 
least once per week;
    (6) Evaluate its ability to meet variation margin requirements in 
cash at least once per week;
    (7) Evaluate its ability to liquidate, in an orderly manner, the 
positions in the proprietary and customer accounts and estimate the cost 
of the liquidation at least once per quarter; and
    (8) Test all lines of credit at least once per year.
    (b) Each futures commission merchant that is a clearing member of a 
derivatives clearing organization shall:
    (1) Establish written procedures to comply with this regulation; and
    (2) Keep full, complete, and systematic records documenting its 
compliance with this regulation.
    (3) All records required to be maintained pursuant to these 
regulations shall be maintained in accordance with Commission Regulation 
1.31 (17 CFR 1.31) and shall be made available promptly upon request to 
representatives of the Commission and to representatives of applicable 
prudential regulators.

[77 FR 21306, Apr. 9, 2012]



Sec.  1.74  Futures commission merchant acceptance for clearing.

    (a) Each futures commission merchant that is a clearing member of a 
derivatives clearing organization shall coordinate with each derivatives 
clearing organization on which it clears to establish systems that 
enable the futures commission merchant, or the derivatives clearing 
organization acting on its behalf, to accept or reject each trade 
submitted to the derivatives clearing organization for clearing by or 
for the futures commission merchant or a customer of the futures 
commission merchant as quickly as would be technologically practicable 
if fully automated systems were used; and
    (b) Each futures commission merchant that is a clearing member of a 
derivatives clearing organization shall accept or reject each trade 
submitted by or for it or its customers as quickly as would be 
technologically practicable if fully automated systems were used; a 
clearing futures commission merchant may meet this requirement by:
    (1) Establishing systems to pre-screen orders for compliance with 
criteria specified by the clearing futures commission merchant;
    (2) Establishing systems that authorize a derivatives clearing 
organization to accept or reject on its behalf trades that meet, or fail 
to meet, criteria specified by the clearing futures commission merchant; 
or
    (3) Establishing systems that enable the clearing futures commission 
merchant to communicate to the derivatives clearing organization 
acceptance or rejection of each trade as quickly as would be 
technologically practicable if fully automated systems were used.

[77 FR 21307, Apr. 9, 2012]



Sec.  1.75  Delegation of authority to the Director of the Division 
of Clearing and Risk to establish an alternative compliance schedule
to comply with futures commission merchant acceptance for clearing.

    (a) The Commission hereby delegates to the Director of the Division 
of Clearing and Risk or such other employee or employees as the Director 
may designate from time to time, the authority to establish an 
alternative compliance schedule for requirements ofSec. 1.74 for swaps 
that are found to be technologically or economically impracticable for 
an affected futures commission merchant that seeks, in good faith, to 
comply with the requirements ofSec. 1.74 within a reasonable time 
period beyond the date on which compliance by such futures commission 
merchant is otherwise required.
    (b) A request for an alternative compliance schedule under this 
section shall be acted upon by the Director of the Division of Clearing 
and Risk within 30 days from the time such a request is received, or it 
shall be deemed approved.
    (c) An exception granted under this section shall not cause a 
registrant to

[[Page 151]]

be out of compliance or deemed in violation of any registration 
requirements.
    (d) Notwithstanding any other provision of this section, in any case 
in which a Commission employee delegated authority under this section 
believes it appropriate, he or she may submit to the Commission for its 
consideration the question of whether an alternative compliance schedule 
should be established. Nothing in this section shall be deemed to 
prohibit the Commission, at its election, from exercising the authority 
delegated in this section.

[77 FR 21307, Apr. 9, 2012]



                  Sec. Appendix A to Part 1 [Reserved]



  Sec. Appendix B to Part 1--Fees for Contract Market Rule Enforcement 
                      Reviews and Financial Reviews

    (a) Within 60 days of the effective date of a final fee schedule for 
each fiscal year, each board of trade which has been designated as a 
contract market for at least one actively trading contract shall submit 
a check or money order, made payable to the Commodity Futures Trading 
Commission, to cover the Commission's actual costs in conducting 
contract market rule enforcement reviews and financial reviews.
    (b) The Commission determines fees charged to exchanges based upon a 
formula that considers both actual costs and trading volume.
    (c) Checks should be sent to the attention of the Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

[50 FR 930, Jan. 8, 1985, as amended at 52 FR 46072, Dec. 4, 1987; 58 FR 
42645, Aug. 11, 1993; 60 FR 49334, Sept. 25, 1995; 77 FR 66332, Nov. 2, 
2012]



                  Sec. Appendix C to Part 1 [Reserved]



PART 2_OFFICIAL SEAL--Table of Contents



Sec.
2.1 Description.
2.2 Authority to affix seal.
2.3 Prohibitions against misuse of seal.
2.4 Employee Recreation Association's use of Commission seal.

    Authority: 7 U.S.C. 2a(11).



Sec.  2.1  Description.

    Pursuant to section 2(a)(10) of the Commodity Exchange Act, as 
amended, 7 U.S.C. 4(i), the Commodity Futures Trading Commission has 
adopted an official seal (the ``Seal''), the description of which is as 
follows:
    (a) An American bald eagle in black and white holding the scales of 
balanced interests over a black and white wheel of commerce and a 
farmer's plow, also in black and white. These symbols are enclosed with 
an inner red octagon and a blue outer octagon representing traditional 
futures contract trading pits. Around the outside of the octagons are 
the words ``Commodity Futures Trading Commission'' separated by two 
stars from the year ``1975,'' the first year of the Commission's 
existence.
    (b) The Seal of the Commodity Futures Trading Commission is 
illustrated as follows:
[GRAPHIC] [TIFF OMITTED] TC05OC91.030



Sec.  2.2  Authority to affix seal.

    (a) The following officials of the Commodity Futures Trading 
Commission are authorized to affix the Seal to appropriate documents and 
other materials of the Commission for all purposes including those 
authorized by 28 U.S.C. 1733(b) (relating to authenticated copies of 
agency documents used as evidence): The Chairman and all Commissioners, 
the General Counsel, the Executive Director, the Directors of Divisions, 
and the Secretariat.

[[Page 152]]

    (b) The officials named in paragraph (a) of this section, may 
redelegate, and authorize redelegation of this authority, except that 
the Secretary may redelegate this authority only to the Deputy 
Secretary.

[41 FR 9552, Mar. 5, 1976, as amended at 51 FR 37177, Oct. 20, 1986]



Sec.  2.3  Prohibitions against misuse of seal.

    (a) Fraudulently or wrongfully affixing or impressing the Seal to or 
upon any certificate, instrument, document or paper or with knowledge of 
its fraudulent character, or with wrongful or fraudulent intent, using, 
buying, procuring, selling or transferring to another any such paper is 
punishable under section 1017 of title 18, U.S. Code.
    (b) Falsely making, forging, counterfeiting, mutilating, or altering 
the Seal, or knowingly using a fraudulent or altered Seal or possessing 
any such Seal knowingly is punishable under section 506 of title 18, 
U.S. Code.



Sec.  2.4  Employee Recreation Association's use of Commission seal.

    (a) As a specific exception to the provisions of 17 CFR 2.2 and 2.3, 
the Commodity Futures Trading Commission Employee Recreation Association 
(``Association'') is hereby authorized to use the Commission seal as an 
imprint upon sport apparel (e.g., hats, clothing, accessories, etc.) and 
novelty items (e.g., office mugs, lanyards, badge holders, stationary 
items, among other);
    (b) The Association may sell or distribute above said items 
imprinted with the Commission seal to members of the Association or 
others to meet its fundraising goals and/or in conjunction with its 
sports, social or similar events.

[72 FR 29247, May 25, 2007]



PART 3_REGISTRATION--Table of Contents



                         Subpart A_Registration

Sec.
3.1 Definitions.
3.2 Registration processing by the National Futures Association; 
          notification and duration of registration.
3.3 Chief compliance officer.
3.4 Registration in one capacity not included in registration in any 
          other capacity.
3.5-3.9 [Reserved]
3.10 Registration of futures commission merchants, retail foreign 
          exchange dealers, introducing brokers, commodity trading 
          advisors, commodity pool operators, swap dealers, major swap 
          participants and leverage transaction merchants.
3.11 Registration of floor brokers and floor traders.
3.12 Registration of associated persons of futures commission merchants, 
          retail foreign exchange dealers, introducing brokers, 
          commodity trading advisors, commodity pool operators and 
          leverage transaction merchants.
3.13-3.20 [Reserved]
3.21 Exemption from fingerprinting requirement in certain cases.
3.22 Supplemental filings.
3.23-3.29 [Reserved]
3.30 Current address for purpose of delivery of communications from the 
          Commission or the National Futures Association.
3.31 Deficiencies, inaccuracies, and changes, to be reported.
3.33 Withdrawal from registration.

                      Subpart B_Temporary Licenses

3.40 Temporary licensing of applicants for associated person, floor 
          broker or floor trader registration.
3.42 Termination.
3.43 Relationship to registration.
3.44 Temporary licensing of applicants for guaranteed introducing broker 
          registration.
3.45 Restrictions upon activities.
3.46 Termination.
3.47 Relationship to registration.

       Subpart C_Denial, Suspension or Revocation of Registration

3.50 Service.
3.51 Withdrawal of application for registration.
3.52-3.54 [Reserved]
3.55 Suspension and revocation of registration pursuant to section 8a(2) 
          of the Act.
3.56 Suspension or modification of registration pursuant to section 
          8a(11) of the Act.
3.57 Proceedings under section 8a(2)(E) of the Act.
3.60 Procedure to deny, condition, suspend, revoke or place restrictions 
          upon registration pursuant to sections 8a(2), 8a(3) and 8a(4) 
          of the Act.
3.61 Extensions of time for proceedings brought underSec. 3.55,Sec. 
          3.56 andSec. 3.60 of this part.
3.62 [Reserved]

[[Page 153]]

3.63 Service of order issued by an Administrative Law Judge or the 
          Commission.
3.64 Procedure to lift or modify conditions or restrictions.

             Subpart D_Notice Under Section 4k(5) of the Act

3.70 Notification of certain information regarding associated persons.

            Subpart E_Delegation and Reservation of Authority

3.75 Delegation and reservation of authority.

Appendix A to Part 3--Interpretive Statement with Respect to Section 
          8a(2)(C) and (E) and Section 8a(3)(J) and (M) of the Commodity 
          Exchange Act
Appendix B to Part 3--Statement of Acceptable Practices With Respect to 
          Ethics Training

    Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 6c, 6d, 
6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 
16a, 18, 19, 21, 23.

    Source: 45 FR 80491, Dec. 5, 1980, unless otherwise noted.



                         Subpart A_Registration



Sec.  3.1  Definitions.

    (a) Principal. Principal means, with respect to an entity that is an 
applicant for registration, a registrant or a person required to be 
registered under the Act or the regulations in this part:
    (1) If the entity is organized as a sole proprietorship, the 
proprietor and chief compliance officer; if a partnership, any general 
partner and chief compliance officer; if a corporation, any director, 
the president, chief executive officer, chief operating officer, chief 
financial officer, chief compliance officer, and any person in charge of 
a principal business unit, division or function subject to regulation by 
the Commission; if a limited liability company or limited liability 
partnership, any director, the president, chief executive officer, chief 
operating officer, chief financial officer, chief compliance officer, 
the manager, managing member or those members vested with the management 
authority for the entity, and any person in charge of a principal 
business unit, division or function subject to regulation by the 
Commission; and, in addition, any person occupying a similar status or 
performing similar functions, having the power, directly or indirectly, 
through agreement or otherwise, to exercise a controlling influence over 
the entity's activities that are subject to regulation by the 
Commission;
    (2)(i) Any individual who directly or indirectly, through agreement, 
holding company, nominee, trust or otherwise, is either the owner of ten 
percent or more of the outstanding shares of any class of equity 
securities, other than non-voting securities, is entitled to vote or has 
the power to sell or direct the sale of ten percent or more of the 
outstanding shares of any class of equity securities, other than non-
voting securities, is entitled to receive ten percent or more of the 
profits of the entity, or has the power to exercise a controlling 
influence over the entity's activities that are subject to regulation by 
the Commission; or
    (ii) Any person other than an individual that is the direct owner of 
ten percent or more of the outstanding shares of any class of equity 
securities, other than non-voting securities; or
    (3) Any person that has contributed ten percent or more of the 
capital of the entity, provided, however, that if such capital 
contribution consists of subordinated debt contributed by either:
    (i) An unaffiliated bank insured by the Federal Deposit Insurance 
Corporation,
    (ii) An unaffiliated ``foreign bank,'' as defined in 12 CFR 
211.21(n) that currently operates an ``office of a foreign bank,'' as 
defined in 12 CFR 211.21(t), which is licensed under 12 CFR 211.24(a),
    (iii) Such unaffiliated office of a foreign bank that is licensed, 
or
    (iv) An insurance company subject to regulation by any State, such 
bank, foreign bank, office of a foreign bank, or insurance company will 
not be deemed to be a principal for purposes of this section, provided 
such debt is not guaranteed by another party not listed as a principal.
    (4) Any individual who, directly or indirectly, creates or uses a 
trust, proxy, power of attorney, pooling arrangement or any other 
contract, arrangement, or device with the purpose

[[Page 154]]

or effect of divesting such person of direct or indirect ownership of an 
equity security of the entity, other than a non-voting security, or 
preventing the vesting of such ownership, or of avoiding making a 
contribution of ten percent or more of the capital of the entity, as 
part of a plan or scheme to evade being deemed a principal of the 
entity, shall be deemed to be a principal of the entity.
    (b) Current. As used in this subpart, a Form 8-R is current if, 
subsequent to the filing of that form and continuously thereafter, the 
registrant or principal has been either registered or affiliated with a 
registrant as a principal.
    (c) Sponsor. Sponsor means the futures commission merchant, retail 
foreign exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator or leverage transaction merchant which makes the 
certification required bySec. 3.12 of this part for the registration 
of an associated person of such sponsor.
    (d)-(e) [Reserved]
    (f) Section 4s Implementing Regulation. Section 4s Implementing 
Regulation means a regulation the Commission issues pursuant to section 
4s(e), 4s(f), 4s(g), 4s(h), 4s(i), 4s(j), 4s(k) or 4s(l) of the Act.
    (g) Swap Definitional Regulation. Swap Definitional Regulation means 
a regulation the Commission issues to further define the term ``swap 
dealer,'' ``major swap participant'' or ``swap'' in section 1a(49), 
1a(33) or 1a(47) of the Act, respectively, pursuant to the Dodd-Frank 
Wall Street Reform and Consumer Protection Act.
    (h) Swaps activities. Swaps activities means, with respect to a 
registrant, such registrant's activities related to swaps and any 
product used to hedge such swaps, including, but not limited to, 
futures, options, other swaps or security-based swaps, debt or equity 
securities, foreign currency, physical commodities, and other 
derivatives.
    (i) Board of directors. Board of directors means the board of 
directors, board of governors, or equivalent governing body of a 
registrant.

[49 FR 5521, Feb. 13, 1984, and 49 FR 8217, Mar. 5, 1984, as amended at 
49 FR 39530, Oct. 9, 1984; 57 FR 23144, June 2, 1992; 66 FR 53518, Oct. 
23, 2001; 72 FR 63979, Nov. 14, 2007; 75 FR 55424, Sept. 10, 2010; 77 FR 
2626, Jan. 19, 2012; 77 FR 3590, Jan. 25, 2012; 77 FR 20200, Apr. 3, 
2012; 77 FR 51903, Aug. 28, 2012]



Sec.  3.2  Registration processing by the National Futures Association;
notification and duration of registration.

    (a) Except as otherwise provided in any rule, regulation or order of 
the Commission, the registration functions of the Commission set forth 
in subpart A, subpart B and subpart C of this part shall be performed by 
the National Futures Association, in accordance with such rules, 
consistent with the provisions of the Act and this part, applicable to 
registrations granted under the Act that the National Futures 
Association may adopt and are approved by the Commission pursuant to 
section 17(j) of the Act.
    (b) Notwithstanding any other provision of this part, the original 
of any registration form, any schedule or supplement thereto, any 
fingerprint card or other document required by this part to be filed 
with both the Commission and the National Futures Association, may be 
filed with either the Commission or the National Futures Association if:
    (1) A legible, accurate, and complete photocopy of that form, 
schedule, supplement, fingerprint card, or other document is filed 
simultaneously with the National Futures Association or the Commission, 
respectively, and
    (2) Such photocopy contains an original signature and date in each 
place where such signature and date is required on the original form, 
schedule, supplement, fingerprint card, or other document.
    (c) The National Futures Association shall notify the registrant, or 
the sponsor in the case of an applicant for registration as an 
associated person, and each designated contract market and swap 
execution facility that has granted the applicant trading privileges in 
the case of an applicant for registration as a floor broker or floor 
trader, if

[[Page 155]]

registration has been granted under the Act.
    (1) If an applicant for registration as an associated person 
receives a temporary license in accordance withSec. 3.40, the National 
Futures Association shall notify the sponsor that only a temporary 
license has been granted.
    (2) If an applicant for registration as a floor broker or floor 
trader receives a temporary license in accordance withSec. 3.40, the 
National Futures Association shall notify the designated contract market 
or swap execution facility that has granted the applicant trading 
privileges that only a temporary license has been granted.
    (3)(i) If an applicant for registration as a swap dealer or major 
swap participant pursuant toSec. 3.10(a)(1)(v) files a Form 7-R and a 
Form 8-R and fingerprint card for each natural person who is a principal 
of the applicant, accompanied by such documentation as may be required 
to demonstrate compliance with each of the Section 4s Implementing 
Regulations, as defined inSec. 3.1(f), as are applicable to it, in 
accordance with the terms of the Section 4s Implementing Regulations, 
the National Futures Association shall notify the swap dealer or major 
swap participant, as the case may be, that it is provisionally 
registered.
    (ii) Subsequent to providing notice of provisional registration to 
an applicant for registration as a swap dealer or major swap 
participant, the National Futures Association shall determine whether 
the documentation submitted pursuant toSec. 3.10(a)(1)(v) by the 
applicant demonstrates compliance with the Section 4s Implementing 
Regulation to which it pertains; Provided, that where the National 
Futures Association has notified the applicant that it is provisionally 
registered, the applicant must supplement its registration application 
by providing such documentation as may be required to demonstrate 
compliance with each Section 4s Implementing Regulation that the 
Commission issues subsequent to the date the National Futures 
Association notifies the applicant that it is provisionally registered.
    (iii) On and after the date on which the National Futures 
Association confirms that the applicant for registration as a swap 
dealer or major swap participant has demonstrated its initial compliance 
with the applicable requirements of each of the Section 4s Implementing 
Regulations and all other applicable registration requirements under the 
Act and Commission regulations, the provisional registration of the 
applicant shall cease and it shall be registered as a swap dealer or 
major swap participant, as the case may be.
    (d) Any registration form, any schedule or supplement thereto, any 
fingerprint card or other document required by this part or any rule of 
the National Futures Assocation to be filed with the National Futures 
Association shall be deemed for all purposes to have been filed with, 
and to be the official record of, the Commission.

[49 FR 39530, Oct. 9, 1984, as amended at 53 FR 8431, Mar. 15, 1988; 54 
FR 19558, May 8, 1989; 67 FR 38874, June 6, 2002; 77 FR Jan. 19, 2626, 
2012; 77 FR 51904, Aug. 28, 2012]



Sec.  3.3  Chief compliance officer.

    (a) Designation. Each futures commission merchant, swap dealer, and 
major swap participant shall designate an individual to serve as its 
chief compliance officer, and provide the chief compliance officer with 
the responsibility and authority to develop, in consultation with the 
board of directors or the senior officer, appropriate policies and 
procedures to fulfill the duties set forth in the Act and Commission 
regulations relating to the swap dealer's or major swap participant's 
swaps activities, or to the futures commission merchant's business as a 
futures commission merchant and to ensure compliance with the Act and 
Commission regulations relating to the swap dealer's or major swap 
participant's swaps activities, or to the futures commission merchant's 
business as a futures commission merchant.
    (1) The chief compliance officer shall report to the board of 
directors or the senior officer of the futures commission merchant, swap 
dealer, or major swap participant. The board of directors or the senior 
officer shall appoint the chief compliance officer, shall approve the 
compensation of the chief compliance officer, and shall meet with the 
chief compliance officer at least

[[Page 156]]

once a year and at the election of the chief compliance officer.
    (2) Only the board of directors or the senior officer of the futures 
commission merchant, swap dealer, or major swap participant may remove 
the chief compliance officer.
    (b) Qualifications. The individual designated to serve as chief 
compliance officer shall have the background and skills appropriate for 
fulfilling the responsibilities of the position. No individual 
disqualified, or subject to disqualification, from registration under 
section 8a(2) or 8a(3) of the Act may serve as a chief compliance 
officer.
    (c) Submission with registration. Each application for registration 
as a futures commission merchant underSec. 3.10, a swap dealer under 
Sec.  23.21, or a major swap participant underSec. 23.21, must include 
a designation of a chief compliance officer by submitting a Form 8-R for 
the chief compliance officer as a principal of the applicant pursuant to 
Sec.  3.10(a)(2).
    (d) Chief compliance officer duties. The chief compliance officer's 
duties shall include, but are not limited to:
    (1) Administering the registrant's policies and procedures 
reasonably designed to ensure compliance with the Act and Commission 
regulations;
    (2) In consultation with the board of directors or the senior 
officer, resolving any conflicts of interest that may arise;
    (3) Taking reasonable steps to ensure compliance with the Act and 
Commission regulations relating to the swap dealer's or major swap 
participant's swaps activities, or to the futures commission merchant's 
business as a futures commission merchant;
    (4) Establishing procedures, in consultation with the board of 
directors or the senior officer, for the remediation of noncompliance 
issues identified by the chief compliance officer through a compliance 
office review, look-back, internal or external audit finding, self-
reported error, or validated complaint;
    (5) Establishing procedures, in consultation with the board of 
directors or the senior officer, for the handling, management response, 
remediation, retesting, and closing of noncompliance issues; and
    (6) Preparing and signing the annual report required under 
paragraphs (e) and (f) of this section.
    (e) Annual report. The chief compliance officer annually shall 
prepare a written report that covers the most recently completed fiscal 
year of the futures commission merchant, swap dealer, or major swap 
participant, and provide the annual report to the board of directors or 
the senior officer. The annual report shall, at a minimum:
    (1) Contain a description of the written policies and procedures, 
including the code of ethics and conflicts of interest policies, of the 
futures commission merchant, swap dealer, or major swap participant;
    (2) Review each applicable requirement under the Act and Commission 
regulations, and with respect to each:
    (i) Identify the policies and procedures that are reasonably 
designed to ensure compliance with the requirement under the Act and 
Commission regulations;
    (ii) Provide an assessment as to the effectiveness of these policies 
and procedures; and
    (iii) Discuss areas for improvement, and recommend potential or 
prospective changes or improvements to its compliance program and 
resources devoted to compliance;
    (3) List any material changes to compliance policies and procedures 
during the coverage period for the report;
    (4) Describe the financial, managerial, operational, and staffing 
resources set aside for compliance with respect to the Act and 
Commission regulations, including any material deficiencies in such 
resources; and
    (5) Describe any material non-compliance issues identified, and the 
corresponding action taken.
    (f) Furnishing the annual report to the Commission. (1) Prior to 
furnishing the annual report to the Commission, the chief compliance 
officer shall provide the annual report to the board of directors or the 
senior officer of the futures commission merchant, swap dealer, or major 
swap participant for its review. Furnishing the annual report to the 
board of directors or the senior officer shall be recorded in the board 
minutes or otherwise, as evidence of compliance with this requirement.

[[Page 157]]

    (2) The annual report shall be furnished electronically to the 
Commission not more than 90 days after the end of the fiscal year of the 
futures commission merchant, swap dealer, or major swap participant, 
simultaneously with the submission of Form 1-FR-FCM, as required under 
Sec.  1.10(b)(2)(ii), simultaneously with the Financial and Operational 
Combined Uniform Single Report, as required underSec. 1.10(h), or 
simultaneously with the financial condition report, as required under 
section 4s(f) of the Act, as applicable.
    (3) The report shall include a certification by the chief compliance 
officer or chief executive officer of the registrant that, to the best 
of his or her knowledge and reasonable belief, and under penalty of law, 
the information contained in the annual report is accurate and complete.
    (4) The futures commission merchant, swap dealer, or major swap 
participant shall promptly furnish an amended annual report if material 
errors or omissions in the report are identified. An amendment must 
contain the certification required under paragraph (f)(3) of this 
section.
    (5) A futures commission merchant, swap dealer, or major swap 
participant may request from the Commission an extension of time to 
furnish its annual report, provided the registrant's failure to timely 
furnish the report could not be eliminated by the registrant without 
unreasonable effort or expense. Extensions of the deadline will be 
granted at the discretion of the Commission.
    (6) A futures commission merchant, swap dealer, or major swap 
participant may incorporate by reference sections of an annual report 
that has been furnished within the current or immediately preceding 
reporting period to the Commission. If the futures commission merchant, 
swap dealer, or major swap participant is registered in more than one 
capacity with the Commission, and must submit more than one annual 
report, an annual report submitted as one registrant may incorporate by 
reference sections in the annual report furnished within the current or 
immediately preceding reporting period as the other registrant.
    (g) Recordkeeping. (1) The futures commission merchant, swap dealer, 
or major swap participant shall maintain:
    (i) A copy of the registrant's policies and procedures reasonably 
designed to ensure compliance with the Act and Commission regulations;
    (ii) Copies of materials, including written reports provided to the 
board of directors or the senior officer in connection with the review 
of the annual report under paragraph (e) of this section; and
    (iii) Any records relevant to the annual report, including, but not 
limited to, work papers and other documents that form the basis of the 
report, and memoranda, correspondence, other documents, and records that 
are created, sent or received in connection with the annual report and 
contain conclusions, opinions, analyses, or financial data related to 
the annual report.
    (2) All records or reports that a futures commission merchant, swap 
dealer, or major swap participant are required to maintain pursuant to 
this section shall be maintained in accordance withSec. 1.31 and shall 
be made available promptly upon request to representatives of the 
Commission and to representatives of the applicable prudential 
regulator, as defined in 1a(39) of the Act.

[77 FR 20200, Apr. 3, 2012]



Sec.  3.3  [Reserved]



Sec.  3.4  Registration in one capacity not included in registration 
in any other capacity.

    (a) Except as may be otherwise provided in the Act or in any rule, 
regulation, or order of the Commission, each futures commission 
merchant, retail foreign exchange dealer, swap dealer, major swap 
participant, floor broker, floor trader of any commodity for future 
delivery, commodity trading advisor, commodity pool operator, 
introducing broker, leverage transaction merchant, and associated person 
(other than an associated person of a swap dealer or major swap 
participant) must register as such under the Act. Except as may be 
otherwise provided in the Act or in any rule, regulation, or order of 
the Commission, registration in one

[[Page 158]]

capacity under the Act shall not include registration in any other 
capacity.
    (b) Except as may be provided in any rule, regulation or order of 
the Commission, registration as an associated person in one capacity 
shall not include registration as an associated person in any other 
capacity: Provided, however, That an associated person who is sponsored 
by a registrant, which itself is registered in more than one capacity, 
need register only once to act as an associated person of the 
registrant, and shall be deemed to be an associated person of such 
registrant, in each such capacity.

[49 FR 39530, Oct. 9, 1984, as amended at 58 FR 19590, Apr. 15, 1993; 75 
FR 55424, Sept. 10, 2010; 77 FR 2626, Jan. 19, 2012; 77 FR 51904, Aug. 
28, 2012]



Sec.Sec. 3.5-3.9  [Reserved]



Sec.  3.10  Registration of futures commission merchants, retail foreign
exchange dealers, introducing brokers, commodity trading advisors,
commodity pool operators, swap dealers, major swap participants 
and leverage transaction merchants.

    (a) Application for registration. (1)(i) Except as provided in 
paragraph (a)(3) of this section, application for registration as a 
futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, introducing broker, commodity pool 
operator, commodity trading advisor, or leverage transaction merchant 
must be on Form 7-R, completed and filed with the National Futures 
Association in accordance with the instructions thereto.
    (ii) Applicants for registration as a futures commission merchant, 
retail foreign exchange dealer or introducing broker must accompany 
their Form 7-R with a Form 1-FR-FCM or Form 1-FR-IB, respectively, in 
accordance with the provisions ofSec. 1.10 of this chapter: Provided, 
however, That an applicant for registration as a futures commission 
merchant or introducing broker which is registered with the Securities 
and Exchange Commission as a securities broker or dealer may accompany 
its Form 7-R with a copy of its Financial and Operational Combined 
Uniform Single Report under the Securities Exchange Act of 1934, Part II 
or Part II A, in accordance with the provisions ofSec. 1.10(h) of this 
chapter.
    (iii) Applicants for registration as a commodity pool operator must 
accompany their Form 7-R with the financial statements described in 
Sec.  4.13(c) of this chapter.
    (iv) Applicants for registration as a leverage transaction merchant 
must accompany their Form 7-R with a Form 2-FR in accordance with the 
provisions ofSec. 31.13 of this chapter.
    (v)(A) Applicants for registration as a swap dealer or major swap 
participant must accompany their Form 7-R with such documentation as may 
be required to demonstrate compliance with each Section 4s Implementing 
Regulation, as defined inSec. 3.1(f), applicable to them, in 
accordance with the terms of the Section 4s Implementing Regulation; 
Provided, however, that for the purposes of this paragraph (a)(1)(v) the 
term ``compliance'' includes the term ``the ability to comply,'' to the 
extent that a particular Section 4s Implementing Regulation may require 
demonstration of the ability to comply with a requirement thereunder.
    (B) The filing of the Form 7-R and accompanying documentation by the 
applicant swap dealer or major swap participant authorizes the 
Commission to conduct on-site inspection of the applicant to determine 
compliance with the Section 4s Implementing Regulations applicable to 
it.
    (C)(1) At any time prior to the latest effective date of the Swap 
Definitional Regulations, defined inSec. 3.1(g), any person may apply 
to be registered as a swap dealer or major swap participant.
    (2) By no later than the latest effective date of the Swap 
Definitional Regulations, each person who is a swap dealer or major swap 
participant on that date must apply to be registered as a swap dealer or 
major swap participant, as the case may be.
    (3) From and after the latest effective date of the Swap 
Definitional Regulations, each person who intends to engage in business 
as a swap dealer or major swap participant must apply to be registered 
as a swap dealer or major swap participant, as the case may be.

[[Page 159]]

    (D)(1) Where an applicant for registration as a swap dealer or major 
swap participant to whom the National Futures Association has provided 
notice of provisional registration underSec. 3.2(c)(3) fails to 
demonstrate compliance with a Section 4s Implementing Regulation, the 
National Futures Association will notify the applicant that its 
application is deficient, whereupon the applicant must withdraw its 
registration application, it must not engage in any new activity as a 
swap dealer or major swap participant, as the case may be, and the 
applicant shall cease to be provisionally registered; Provided, that in 
the event the applicant fails to withdraw its registration application 
or cure the deficiency within 90 days following receipt of notice from 
the National Futures Association that its application is deficient, the 
application will be deemed withdrawn and thereupon its provisional 
registration shall cease; Provided further, that upon written request by 
the applicant submitted to the Commission, the Commission may in its 
discretion extend the time by which the applicant must cure the 
deficiency.
    (2) The provisions of the foregoing paragraph (a)(1)(v)(D)(1) of 
this section shall supplement and be in addition to any other activities 
in which the National Futures Association engages under the Act and 
Commission regulations in connection with processing an application for 
registration as a swap dealer or major swap participant.
    (E) Unless specifically reserved in the applicable swap 
documentation, no withdrawal, deemed withdrawal, cessation or revocation 
of registration as a swap dealer or major swap participant pursuant to 
paragraph (a)(1)(v), (b), or (d) of this section shall constitute a 
termination event, force majeure, an illegality, increased costs, a 
regulatory change, or a similar event under a swap (including any 
related credit support arrangement) that would permit a party to 
terminate, renegotiate, modify, amend or supplement one or more 
transactions under the swap.
    (2) Each Form 7-R filed in accordance with the requirements of 
paragraph (a)(1)(i) of this section must be accompanied by a Form 8-R, 
completed in accordance with the instructions thereto and executed by 
each natural person who is a principal of the applicant, and must be 
accompanied by the fingerprints of that principal on a fingerprint card 
provided by the National Futures Association for that purpose: Provided, 
however, that if such principal is a director who qualifies for the 
exemption from the fingerprint requirement pursuant toSec. 3.21(c) or 
has a current Form 8-R on file with the Commission or the National 
Futures Association, the fingerprints of that principal do not need to 
accompany the Form 7-R.
    (3) Notice registration as a futures commission merchant or 
introducing broker for certain securities brokers or dealers. (i) Any 
broker or dealer that is registered with the Securities and Exchange 
Commission may be registered as a futures commission merchant or 
introducing broker, as applicable, by following such procedures for 
notice registration as may be specified by the National Futures 
Association, if--
    (A) The broker or dealer limits its solicitation of orders, 
acceptance of orders, or execution of orders, or placing of orders on 
behalf of others involving any contracts of sale of any commodity for 
future delivery, on or subject to the rules of any contract market, to 
security futures products as defined in section 1a(44) of the Act;
    (B) The registration of the broker or dealer is not suspended 
pursuant to an order of the Securities and Exchange Commission; and
    (C) The broker or dealer is a member of a national securities 
association registered pursuant to section 15A(a) of the Securities 
Exchange Act of 1934.
    (ii) The registration will be effective upon the filing of the 
notice prescribed by the National Futures Association in accordance with 
the instructions thereto.
    (b) Duration of registration. (1) A person registered as a futures 
commission merchant, retail foreign exchange dealer, swap dealer, major 
swap participant, introducing broker, commodity pool operator, commodity 
trading advisor, or leverage transaction merchant in accordance with 
paragraph (a) of this section will continue to be so registered until 
the effective date of any

[[Page 160]]

revocation or withdrawal of such registration. Upon effectiveness of any 
revocation or withdrawal of registration, such person will immediately 
be prohibited from engaging in new activities requiring registration 
under the Act or from representing himself to be a registrant under the 
Act or the representative or agent of any registrant during the pendency 
of any suspension of such registration.
    (2) A person registered as an introducing broker who was a party to 
a guarantee agreement with a futures commission merchant in accordance 
withSec. 1.10(j) of this chapter will have its registration cease 
thirty days after the termination of such guarantee agreement unless the 
procedures set forth inSec. 1.10(j)(8) of this chapter are followed.
    (c) Exemption from registration for certain persons. (1) A person 
trading solely for proprietary accounts, as defined inSec. 1.3(y) of 
this chapter, is not required to register as a futures commission 
merchant: Provided, that such person remains subject to all other 
provisions of the Act and of the rules, regulations and orders 
thereunder.
    (2)(i) A foreign broker, as defined inSec. 1.3(xx) of this 
chapter, is not required to register as a futures commission merchant if 
it submits any commodity interest transactions executed bilaterally, on 
or subject to the rules of a designated contract market, or on or 
subject to the rules of a swap execution facility, for clearing on an 
omnibus basis through a futures commission merchant registered in 
accordance with section 4d of the Act.
    (ii) A foreign broker acting in accordance with paragraph (c)(2)(i) 
of this section is not required to comply with those provisions of the 
Act and of the rules, regulations and orders thereunder applicable 
solely to any registered futures commission merchant or any person 
required to be so registered.
    (3)(i) A person located outside the United States, its territories 
or possessions engaged in the activity of: An introducing broker, as 
defined inSec. 1.3(mm) of this chapter; a commodity trading advisor, 
as defined inSec. 1.3(bb) of this chapter; or a commodity pool 
operator, as defined inSec. 1.3(nn) of this chapter, in connection 
with any commodity interest transaction executed bilaterally or made on 
or subject to the rules of any designated contract market or swap 
execution facility only on behalf of persons located outside the United 
States, its territories or possessions, is not required to register in 
such capacity provided that any such commodity interest transaction is 
submitted for clearing through a futures commission merchant registered 
in accordance with section 4d of the Act.
    (ii) A person acting in accordance with paragraph (c)(3)(i) of this 
section remains subject to section 4o of the Act, but otherwise is not 
required to comply with those provisions of the Act and of the rules, 
regulations and orders thereunder applicable solely to any person 
registered in such capacity, or any person required to be so registered.
    (4) A person located outside the United States, its territories or 
possessions that is exempt from registration as a futures commission 
merchant in accordance withSec. 30.10 of this chapter is not required 
to register as an introducing broker in accordance with section 4d of 
the Act if:
    (i) Such a person is affiliated with a futures commission merchant 
registered in accordance with section 4d of the Act;
    (ii) Such a person introduces, on a fully-disclosed basis in 
accordance withSec. 1.57 of this chapter, any institutional customer, 
as defined inSec. 1.3(g) of this chapter, to a registered futures 
commission merchant for the purpose of trading on a designated contract 
market;
    (iii) Such person's affiliated futures commission merchant has filed 
with the National Futures Association (Attn: Vice President, Compliance) 
an acknowledgement that the affiliated futures commission merchant will 
be jointly and severally liable for any violations of the Act or the 
Commission's regulations committed by such person in connection with 
those introducing activities, whether or not the affiliated futures 
commission merchant submits for clearing any trades resulting from those 
introducing activities; and
    (iv) Such person does not solicit any person located in the United 
States, its

[[Page 161]]

territories or possessions for trading on a designated contract market, 
nor does such person handle the customer funds of any person located in 
the United States, its territories or possessions for the purpose of 
trading on any designated contract market.
    (v) For the purposes of this paragraph, a person shall be affiliated 
with a futures commission merchant if such a person:
    (A) Owns 50 percent or more of the futures commission merchant;
    (B) Is owned 50 percent or more by the futures commission merchant; 
or
    (C) Is owned 50 percent or more by a third person that also owns 50 
percent or more of the futures commission merchant.
    (5) In determining whether a person is a swap dealer, the activities 
of a registered swap dealer with respect to which such person is an 
associated person shall not be considered.
    (d) On a date to be established by the National Futures Association, 
and in accordance with procedures established by the National Futures 
Association, each registrant as a futures commission merchant, retail 
foreign exchange dealer, swap dealer, major swap participant, 
introducing broker, commodity pool operator, commodity trading advisor, 
or leverage transaction merchant shall, on an annual basis, review and 
update registration information maintained with the National Futures 
Association. The failure to complete the review and update within thirty 
days following the date established by the National Futures Association 
shall be deemed to be a request for withdrawal from registration, which 
shall be processed in accordance with the provisions ofSec. 3.33(f).

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 80491, Dec. 5, 1980, as amended at 47 FR 27551, June 25, 1982; 49 
FR 5522, Feb. 13, 1984; 49 FR 39530, Oct. 9, 1984; 57 FR 23144, June 2, 
1992; 66 FR 43082, Aug. 17, 2001; 66 FR 53518, Oct. 23, 2001; 67 FR 
38874, June 6, 2002; 67 FR 41166, June 17, 2002; 72 FR 35920, July 2, 
2007; 72 FR 63979, Nov. 14, 2007; 73 FR 54071, Sept. 18, 2008; 75 FR 
55424, Sept. 10, 2010; 77 FR 2626, Jan. 19, 2012; 77 FR 51904, Aug. 28, 
2012]



Sec.  3.11  Registration of floor brokers and floor traders.

    (a) Application for registration. (1) Application for registration 
as a floor broker or floor trader must be on Form 8-R, if as an 
individual, or Form 7-R, if as a non-natural person, and must be 
completed and filed with the National Futures Association in accordance 
with the instructions thereto. Each Form 7-R filed in accordance with 
this paragraph (a) must be accompanied by a Form 8-R, completed in 
accordance with the instructions thereto and executed by each individual 
who is a principal of the applicant, and each individual responsible for 
entry of orders from that applicant's own account. Each Form 8-R filed 
in accordance with this paragraph (a) must be accompanied by the 
fingerprints of the applicant on a fingerprint card provided for that 
purpose by the National Futures Association, except that a fingerprint 
card need not be filed by any applicant who has a current Form 8-R on 
file with the Commission or the National Futures Association.
    (2) An applicant for registration as a floor broker or floor trader 
will not be registered or issued a temporary license as a floor broker 
or floor trader unless the applicant has been granted trading privileges 
by a board of trade designated as a contract market or registered as a 
swap execution facility by the Commission.
    (3) When the Commission or the National Futures Association 
determines that an applicant for registration as a floor broker or floor 
trader is not disqualified from such registration or temporary license, 
the National Futures Association will notify the applicant and any 
contract market or swap execution facility that has granted the 
applicant trading privileges that the applicant's registration or 
temporary license as a floor broker or floor trader is granted.
    (b) Duration of registration. A person registered as a floor broker 
or floor trader in accordance with paragraph (a) of this section, and 
whose registration has neither been revoked nor withdrawn, will continue 
to be so registered unless such person's trading privileges on all 
contract markets and swap execution facilities have ceased: provided,

[[Page 162]]

that if a floor broker or floor trader whose trading privileges on all 
contract markets and swap execution facilities have ceased for reasons 
unrelated to any Commission action or any contract market or swap 
execution facility disciplinary proceeding and whose registration is not 
revoked, suspended or withdrawn is granted trading privileges as a floor 
broker or floor trader, respectively, by any contract market or swap 
execution facility where such person held such privileges within the 
preceding sixty days, such registration as a floor broker or floor 
trader, respectively, shall be deemed to continue and no new Form 7-R, 
Form 8-R or Form 3-R record of a change to Form 7-R or Form 8-R need be 
filed solely on the basis of the resumption of trading privileges. A 
floor broker or floor trader is prohibited from engaging in activities 
requiring registration under the Act or from representing such person to 
be a registrant under the Act or the representative or agent of any 
registrant during the pendency of any suspension of such registration or 
of all such trading privileges. Each contract market and swap execution 
facility that has granted trading privileges to a person who is 
registered, or has applied for registration, as a floor broker or floor 
trader, must provide notice in accordance withSec. 3.31(d) after such 
person's trading privileges on such contract market or swap execution 
facility have ceased.
    (c) Exceptions. A registered floor broker need not also register as 
a floor trader in order to engage in activity as a floor trader.

[77 FR 51905, Aug. 28, 2012]



Sec.  3.12  Registration of associated persons of futures commission
merchants, retail foreign exchange dealers, introducing brokers, 
commodity trading advisors, commodity pool operators and leverage
transaction merchants.

    (a) Registration required. It shall be unlawful for any person to be 
associated with a futures commission merchant, retail foreign exchange 
dealer, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant as an associated person unless 
that person shall have registered under the Act as an associated person 
of that sponsoring futures commission merchant, retail foreign exchange 
dealer, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant in accordance with the 
procedures in paragraphs (c), (d), (f), or (i), of this section or is 
exempt from such registration pursuant to paragraph (h) of this section.
    (b) Duration of registration. A person registered in accordance with 
paragraphs (c), (d), (f), or (i) of this section and whose registration 
has not been revoked will continue to be so registered until the 
revocation or withdrawal of the registration of each of the registrant's 
sponsors, or until the cessation of the association of the registrant 
with each of the registrant's sponsors. Such person will be prohibited 
from engaging in activities requiring registration under the Act or from 
representing himself or herself to be a registrant under the Act or the 
representative or agent of any registrant during the pendency of any 
suspension of his or her registration, or his or her sponsor's 
registration. Each of the registrant's sponsors must file a notice in 
accordance withSec. 3.31(c) reporting the termination of the 
association of the associated person.
    (c) Application for registration. Except as otherwise provided in 
paragraphs (d), (f), and (i) of this section, application for 
registration as an associated person in any capacity must be on Form 8-
R, completed and filed in accordance with the instructions thereto.
    (1) No person will be registered as an associated person in 
accordance with this paragraph (c) unless a person duly authorized by 
the sponsor certifies that:
    (i) It is the intention of the sponsor to hire or otherwise employ 
the applicant as an associated person and that it will do so within 
thirty days after the receipt of the notification provided in accordance 
with paragraph (c)(4) of this section and that the applicant will not be 
permitted to engage in any activity requiring registration as an 
associated person until the applicant is registered as such in 
accordance with this section;

[[Page 163]]

    (ii) The sponsor has verified the information supplied by the 
applicant in response to the questions on Form 8-R which relate to the 
applicant's education and employment history during the preceding three 
years.
    (iii) To the best of the sponsor's knowledge, information, and 
belief, all of the publicly available information supplied by the 
applicant on Form 8-R is accurate and complete: Provided, That it is 
unlawful for the sponsor to make the certification required by this 
paragraph (c)(1)(iii) if the sponsor knew or should have known that any 
of that information is not accurate and complete; and
    (2) The certification required by paragraph (c)(1) of this section 
must be submitted concurrently with the Form 8-R.
    (3) Each Form 8-R filed in accordance with the requirements of 
paragraph (c) of this section must be accompanied by the fingerprints of 
the applicant on a fingerprint card provided for that purpose by the 
National Futures Association.
    (4) When the Commission or the National Futures Association 
determines that an applicant for registration as an associated person is 
not unfit for such registration, it will notify the sponsor that has 
made the certifications required by paragraph (c)(1) of this section 
that the applicant's registration as an associated person is granted 
contingent upon the sponsor hiring or otherwise employing the applicant 
as such within thirty days.
    (d) Special temporary licensing and registration procedures for 
certain persons--(1) Registration terminated within the preceding 60 
days. Except as otherwise provided in paragraphs (f) and (i) of this 
section, any person whose registration as an associated person in any 
capacity has terminated within the preceding 60 days and who becomes 
associated with a new sponsor will be granted a temporary license to act 
in the capacity of an associated person of such sponsor upon filing by 
that sponsor with the National Futures Association a Form 8-R, completed 
in accordance with the instructions thereto and, if applicable, a 
Supplemental Sponsor Certification Statement filed on behalf of the new 
sponsor (who must meet the requirements set forth inSec. 
3.60(b)(2)(i)(A) and (B)) stating that the new sponsor will supervise 
the applicant in accordance with conditions identical to those agreed to 
by the previous sponsor, which includes certifications stating:
    (i) That such person has been hired or is otherwise employed by that 
sponsor;
    (ii) That such person's registration as an associated person in any 
capacity is not suspended or revoked;
    (iii) That such person is eligible to be registered or temporarily 
licensed in accordance with this paragraph (d);
    (iv) Whether there is a pending adjudicatory proceeding under 
sections 6(c), 6(d), 6c, 6d, 8a or 9 of the Act or Sec.Sec. 3.55, 3.56 
or 3.60 or if, within the preceding 12 months, the Commission has 
permitted the withdrawal of an application for registration in any 
capacity after instituting the procedures provided inSec. 3.51 and, if 
so, that the sponsor has been given a copy of the notice of the 
institution of a proceeding in connection therewith; and
    (v) That the sponsor has received a copy of the notice of the 
institution of a proceeding if the applicant has certified, in 
accordance with paragraph (d)(1)(iv) of this section, that there is a 
proceeding pending against the applicant as described in that paragraph 
or that the Commission has permitted the withdrawal of an application 
for registration as described in that paragraph.
    (2) Any temporary license granted pursuant to paragraph (d)(1) of 
this section shall be terminated immediately upon notice to the sponsor 
of the person granted the temporary license that, within 20 days 
following the date the temporary license was issued, the National 
Futures Association has not received the applicant's fingerprints.
    (3) A temporary license received in accordance with paragraph (d)(1) 
of this section shall be subject to the provisions of Sec.Sec. 3.42 
and 3.43.
    (4) The certifications permitted by paragraphs (d)(1)(i) and (v) of 
this section must be filed by a person duly authorized by the sponsor. 
The certifications permitted by paragraphs (d)(1)(ii)-(iv) must be filed 
by the applicant for registration as an associated person.

[[Page 164]]

    (e) Retention of records. The sponsor must retain in accordance with 
Sec.  1.31 of this chapter such records as are necessary to support the 
certifications required by this section.
    (f) Reporting of dual and multiple associations. (1)(i) Except as 
otherwise provided in paragraph (f)(4) of this section, a person who is 
already registered as an associated person in any capacity whose 
registration is not subject to conditions or restrictions may become 
associated as an associated person with another sponsor if the new 
sponsor (who must meet the requirements set forth inSec. 3.60(b)(2)(i) 
(A) and (B)) files with the National Futures Association a Form 8-R in 
accordance with the instructions thereto.
    (ii) NFA shall notify each sponsor of the associated person that the 
associated person has applied to become associated with another sponsor.
    (iii) Each sponsor of the associated person shall supervise that 
associated person and each sponsor is jointly and severally responsible 
for the conduct of the associated person with respect to the:
    (A) Solicitation or acceptance of customers' orders,
    (B) Solicitation of funds, securities, or property for a 
participation in a commodity pool,
    (C) Solicitation of a client's or prospective client's discretionary 
account,
    (D) Solicitation or acceptance of leverage customers' orders for 
leverage transactions, and
    (E) Associated person's supervision of any person or persons engaged 
in any of the foregoing solicitations or acceptances, with respect to 
any customers common to it and any other futures commission merchant, 
retail foreign exchange dealer, introducing broker, commodity trading 
advisor, commodity pool operator, or leverage transaction merchant with 
which the associated person is associated.
    (2) Upon receipt by the National Futures Association of a Form 8-R 
filed in accordance with paragraph (f)(1) of this section from an 
associated person, the associated person named therein shall be 
registered as an associated person of the new sponsor.
    (3) A person who is simultaneously associated with more than one 
sponsor in accordance with the provisions of paragraphs (f)(1) and 
(f)(2) of this section shall be required, upon receipt of notice from 
the National Futures Association, to file with the National Futures 
Association his fingerprints on a fingerprint card provided by the 
National Futures Association for that purpose as well as such other 
information as the National Futures Association may require. The 
National Futures Association may require such a filing every two years, 
or at such greater period of time as the National Futures Association 
may deem appropriate, after the associated person has become associated 
with a new sponsor in accordance with the requirements of paragraphs 
(f)(1) and (f)(2) of this section.
    (4) If a person is associated with a futures commission merchant, 
with a retail foreign exchange dealer, or with an introducing broker and 
he directs customers seeking a managed account to use the services of a 
commodity trading advisor(s) approved by the futures commission 
merchant, retail foreign exchange dealer or introducing broker and all 
such customers' accounts solicited or accepted by the associated person 
are carried by the futures commission merchant, retail foreign exchange 
dealer or introduced by the introducing broker with which the associated 
person is associated, such a person shall be deemed to be associated 
solely with the futures commission merchant, retail foreign exchange 
dealer or introducing broker and may not also register as an associated 
person of the commodity trading advisor(s).
    (g) Petitions for exemption. Any person adversely affected by the 
operation of this section may file a petition with the Secretary of the 
Commission, which petition must set forth with particularity the reasons 
why that person believes that an applicant should be exempted from the 
requirements of this section and why such an exemption would not be 
contrary to the public interest and the purposes of the provision from 
which exemption is sought. The petition will be granted or denied by the 
Commission on the basis of the papers filed. The Commission may grant 
such a petition if it finds that the exemption is not contrary to the 
public

[[Page 165]]

interest and the purposes of the provision from which exemption is 
sought. The petition may be granted subject to such terms and conditions 
as the Commission may find appropriate.
    (h) Exemption from registration. (1) A person is not required to 
register as an associated person in any capacity if that person is:
    (i) Registered under the Act as a futures commission merchant, 
retail foreign exchange dealer, swap dealer, major swap participant, 
floor broker, or as an introducing broker;
    (ii) Engaged in the solicitation of funds, securities, or property 
for a participation in a commodity pool, or the supervision of any 
person or persons so engaged, pursuant to registration with the 
Financial Industry Regulatory Authority as a registered representative, 
registered principal, limited representative or limited principal, and 
that person does not engage in any other activity subject to regulation 
by the Commission;
    (iii) The chief operating officer, general partner or other person 
in the supervisory chain-of-command, provided the futures commission 
merchant, retail foreign exchange dealer, introducing broker, commodity 
trading advisor, commodity pool operator, or leverage transaction 
merchant engages in commodity interest related activity for customers as 
no more than ten percent of its total revenue on an annual basis, the 
firm is not subject to a pending proceeding brought by the Commission or 
a self-regulatory organization alleging fraud or failure to supervise, 
and has not been found in such a proceeding to have committed fraud or 
failed to supervise, as required by the Act, the rules promulgated 
thereunder or the rules of a self-regulatory organization, the person 
for whom exemption is sought and the person designated in accordance 
with paragraphs (h)(1)(iii)(C) or (h)(1)(iii)(D) of this section are 
listed as principals of the firm, the fitness examination conducted by 
the National Futures Association with respect to these persons discloses 
no derogatory information that would disqualify any of such persons as a 
principal or as an associated person, and the firm files with the 
National Futures Association corporate or partnership resolutions 
stating that:
    (A) Such supervisory person is not authorized to:
    (1) Solicit or accept customers', retail forex customers', or 
leverage customers' orders,
    (2) Solicit a client's or prospective client's discretionary 
account,
    (3) Solicit funds, securities or property for a participation in a 
commodity pool, or
    (4) Exercise any line supervisory authority over those persons so 
engaged;
    (B) Such supervisory person has no authority with respect to hiring, 
firing or other personnel matters involving persons engaged in 
activities subject to regulation under the Act;
    (C) Another person (or persons) designated therein, who is 
registered as an associated person(s) or who has applied for 
registration as an associated person(s) and is not subject to a pending 
proceeding brought by the Commission or a self-regulatory organization 
alleging fraud or failure to supervise, and has not been found in such a 
proceeding to have committed fraud or failed to supervise, as required 
by the Act, the rules promulgated thereunder or the rules of a self-
regulatory organization, holds and exercises full and final supervisory 
authority, including authority to hire and fire personnel, over the 
customer commodity interest related activities of the firm; and
    (D) If the person (or persons) so designated in accordance with 
paragraph (h)(1)(iii)(C) of this section ceases to have the authority 
referred to therein, the firm will notify the National Futures 
Association within twenty days of such occurrence by means of a 
subsequent resolution which resolution must also include the name of 
another associated person (or persons) who has been vested with full 
supervisory authority, including authority to hire and fire personnel, 
over the customer commodity interest related activities of the firm in 
the event that all of those previously designated in accordance with 
paragraph (h)(1)(iii)(C) of this section have been relieved of such 
authority. Subsequent changes in supervisory authority shall be reported 
in the same manner; or

[[Page 166]]

    (iv) Engaged in any activity as an associated person, as defined in 
Sec.  1.3(aa) of this chapter, from a location outside the United 
States, its territories or possessions, and limits such activities to 
customers located outside the United States, its territories or 
possessions.
    (2) A person is not required to register as an associated person of 
a commodity trading advisor if that person is:
    (i) Registered as a commodity trading advisor, if that person is 
associated with a commodity trading advisor; or
    (ii) Exempt from registration as a commodity trading advisor 
pursuant to the provisions ofSec. 4.14(a)(1),Sec. 4.14(a)(2) or 
Sec.  4.14(a) (8) of this chapter or is associated with a person who is 
so exempt from registration: Provided, That the provisions of paragraph 
(h)(2)(ii) of this section shall not apply to the solicitation of a 
client's or prospective client's discretionary account, or the 
supervision of any person or persons so engaged, by, for or on behalf of 
a commodity trading advisor which is:
    (A) Not exempt from registration pursuant to the provisions ofSec. 
4.14(a)(1),Sec. 4.14(a)(2) orSec. 4.14(a)(8) of this chapter or
    (B) Registered as a commodity trading advisor notwithstanding the 
availability of that exemption.
    (3) A person is not required to register as an associated person of 
a commodity pool operator if that person is:
    (i) Registered as a commodity pool operator, if that person is 
associated with a commodity pool operator;
    (ii) Exempt from registration as a commodity pool operator pursuant 
to the provisions ofSec. 4.13 of this chapter or is associated with a 
person who is so exempt from registration: Provided, That the provisions 
of paragraph (h)(3)(ii) of this section shall not apply to the 
solicitation of funds, securities, or property for a participation in a 
commodity pool, or the supervision of any person or persons so engaged, 
by, for, or on behalf of a commodity pool operator which is
    (A) Not exempt from registration pursuant to the provisions ofSec. 
4.13 of this chapter or
    (B) Registered as a commodity pool operator notwithstanding the 
availability of that exemption; or
    (iii) Where a commodity pool is operated or to be operated by two or 
more commodity pool operators, registered as an associated person of one 
of the pool operators of the commodity pool in accordance with the 
provisions of paragraphs (c), (d), (f), or (i) of this section: 
Provided, That each such commodity pool operator shall be jointly and 
severally liable for the conduct of that associated person in the 
solicitation of funds, securities, or property for participation in the 
commodity pool, or the supervision of any person or persons so engaged, 
regardless of whether that associated person is registered as an 
associated person of each such commodity pool operator.
    (i) Special registration or temporary licensing procedures when 
previous sponsor's registration ceases. (1) Any person whose 
registration as an associated person in any capacity was not subject to 
conditions or restrictions, and was terminated within the preceding 
sixty days because the previous sponsor's registration was revoked or 
withdrawn, and who becomes associated with a new sponsor, will be 
registered as an associated person of such new sponsor upon the mailing 
by that new sponsor to the National Futures Association of written 
certifications stating:
    (i) That such person has been hired or is otherwise employed by that 
sponsor;
    (ii) That such person's registration as an associated person in any 
capacity is not suspended or revoked;
    (iii) That such person is eligible to be registered in accordance 
with paragraph (i) of this section;
    (iv) Whether there is a pending adjudicatory proceeding under 
sections 6(c), 6(d), 6c, 6d, 8a or 9 of the Act orSec. 3.55, 3.56 or 
3.60 or if, within the preceding twelve months, the Commission has 
permitted the withdrawal of an application for registration in any 
capacity after instituting the procedures provided inSec. 3.51 and, if 
so, that the sponsor has been given a copy of the notice of the 
institution of a proceeding in connection therewith;
    (v) That the new sponsor has received a copy of the notice of the 
institution

[[Page 167]]

of a proceeding if the applicant for registration has certified, in 
accordance with paragraph (i)(1)(iv) of this section, that there is a 
proceeding pending against the applicant as described in that paragraph 
or that the Commission has permitted the withdrawal of an application 
for registration as described in that paragraph; and
    (vi) That the new sponsor will be responsible for supervising all 
activities of the person in connection with the sponsor's business as a 
registrant under the Act. Provided, however, That if such person's prior 
registration as an associated person was subject to conditions or 
restrictions, the new sponsor (who must meet the requirements set forth 
inSec. 3.60(b)(2)(i) (A) and (B) of this part) must also file a signed 
Supplemental Sponsor Certification Statement that contains conditions 
identical to those agreed to by the original sponsor and, in such case, 
the person will be granted a temporary license, subject to the 
provisions of Sec.Sec. 3.41, 3.42 and 3.43 of this part.
    (2) The certifications required by paragraphs (i)(1)(i), (i)(1)(v), 
and (i)(1)(vi) of this section must be signed and dated by an officer, 
if the sponsor is a corporation, a general partner, if a partnership, or 
the proprietor, if a sole proprietorship. The certifications required by 
paragraphs (i)(1)(ii)-(iv) of this section must be signed and dated by 
the applicant for registration as an associated person.
    (3) A person who is registered in accordance with the provisions of 
paragraph (i)(1) of this section shall be required, upon receipt of 
notice from the National Futures Association, to file with the National 
Futures Association his fingerprints on a fingerprint card provided by 
the National Futures Association for that purpose as well as such other 
information as the National Futures Association may require. The 
National Futures Association may require such a filing every two years, 
or at such greater period of time as the National Futures Association 
may deem appropriate, after the associated person has become associated 
with a new sponsor in connection with the requirements of paragraph 
(i)(1) of this section.

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 80491, Dec. 5, 1980]

    Editorial Note: For Federal Register citations affectingSec. 3.12, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.Sec. 3.13-3.20  [Reserved]



Sec.  3.21  Exemption from fingerprinting requirement in certain cases.

    (a) Any person who is required by this part to submit a fingerprint 
card may file, or cause to be filed, in lieu of such card:
    (1) A legible, accurate and complete photocopy of a fingerprint card 
that has been submitted to the Federal Bureau of Investigation for 
identification and appropriate processing and of each report, record, 
and notation made available by the Federal Bureau of Investigation with 
respect to that fingerprint card if such identification and processing 
has been completed satisfactorily by the Federal Bureau of Investigation 
not more than ninety days prior to the filing with the National Futures 
Association of the photocopy;
    (2) A statement that such person's application for initial 
registration in any capacity was granted within the preceding ninety 
days, provided that the provisions of this paragraph (a)(2) shall not be 
applicable to any person who, by Commission rule, regulation, or order, 
was not required to file a fingerprint card in connection with such 
application for initial registration; or
    (3) A statement that such person has a current Form 8-R on file with 
the Commission or the National Futures Association.
    (b) Each photocopy and statement filed in accordance with the 
provisions of paragraph (a)(1) or (a)(2) of this section must be signed 
and dated. Such signature shall constitute a certification by that 
individual that the photocopy or statement is accurate and complete and 
must be made by:
    (1) With respect to the fingerprints of an associated person: An 
officer, if the sponsor is a corporation; a general

[[Page 168]]

partner, if a partnership; or the sole proprietor, if a sole 
proprietorship;
    (2) With respect to fingerprints of a floor broker or individual 
floor trader: The applicant for registration; and with respect to 
fingerprints of each individual who is responsible for entry of orders 
from the account of a floor trader that is a non-natural person, the 
applicant for registration, or
    (3) With respect to the fingerprints of a principal: An officer, if 
the futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, commodity trading advisor, commodity 
pool operator, introducing broker, floor trader that is a non-natural 
person, or leverage transaction merchant with which the principal will 
be affiliated is a corporation; a general partner, if a partnership; or 
the sole proprietor, if a sole proprietorship.
    (c) Outside directors. Any futures commission merchant, retail 
foreign exchange dealer, swap dealer, major swap participant, 
introducing broker, commodity pool operator, commodity trading advisor, 
floor trader that is a non-natural person, or leverage transaction 
merchant that has a principal who is a director but is not also an 
officer or employee of the firm may, in lieu of submitting a fingerprint 
card in accordance with the provisions ofSec. 3.10(a)(2), file a 
``Notice Pursuant to Rule 3.21(c)'' with the National Futures 
Association. Such notice shall state, if true, that such outside 
director:
    (1) Is not engaged in:
    (i) The solicitation or acceptance of customers' orders or retail 
forex customers' orders,
    (ii) The solicitation of funds, securities or property for a 
participation in a commodity pool,
    (iii) The solicitation of a client's or prospective client's 
discretionary account,
    (iv) The solicitation of leverage customers' orders for leverage 
transactions,
    (v) The solicitation or acceptance of a swap agreement;
    (2) Does not regularly have access to the keeping, handling or 
processing of:
    (i) Transactions involving ``commodity interests,'' as that term is 
defined inSec. 1.3(yy);
    (ii) Customer funds, retail forex customer funds, leverage customer 
funds, foreign futures or foreign options secured amount, or adjusted 
net capital; or
    (3) Does not have direct supervisory responsibility over persons 
engaged in the activities referred to in paragraphs (c)(1) and (c)(2) of 
this section; and
    (4) The Notice Pursuant to Rule 3.21(c) shall also include:
    (i) The name of the futures commission merchant, retail foreign 
exchange dealer, swap dealer, major swap participant, introducing 
broker, commodity trading advisor, commodity pool operator, floor trader 
that is a non-natural person, leverage transaction merchant, or 
applicant for registration in any of these capacities of which the 
person is an outside director;
    (ii) The nature of the duties of the outside director for whom 
exemption under paragraph (c) of this section is sought;
    (iii) The internal controls used to ensure that the outside director 
for whom exemption under this paragraph (c) is sought does not have 
access to the keeping, handling or processing of the items described in 
paragraphs (c)(2)(i) and (ii) of this section; and
    (iv) The reasons why the outside director believes he should be 
exempted from the fingerprint requirement and why such an exemption 
would not be contrary to the public interest and the purposes of the 
provision from which exemption is sought.
    (d) A firm that has filed a Notice Pursuant to Rule 3.21(c) with 
respect to an outside director described therein must file with the 
National Futures Association on behalf of such outside director a Form 
8-R, completed in accordance with the instructions thereto and executed 
by the outside director. The exemption provided for in paragraph (c) of 
this section is limited solely to the outside director's fingerprint 
requirement and does not affect any other duties or responsibilities of 
the firm or the outside director under the Act or the rules set forth in 
this chapter. In appropriate cases, the Commission and the National 
Futures Association may require further information

[[Page 169]]

from the firm with respect to any outside director referred to in a 
Notice Pursuant to Rule 3.21(c).

[48 FR 35297, Aug. 3, 1983, as amended at 49 FR 5525, Feb. 13, 1984; 54 
FR 19558, May 8, 1989; 57 FR 23148, June 2, 1992; 58 FR 19592, Apr. 15, 
1993; 66 FR 53518, Oct. 23, 2001; 75 FR 55425, Sept. 10, 2010; 77 FR 
2627, Jan. 19, 2012; 77 FR 51906, Aug. 28, 2012]



Sec.  3.22  Supplemental filings.

    Notwithstanding any other provision of this chapter, the Commission, 
the Directors of the Division of Clearing and Intermediary Oversight or 
Division of Enforcement or either Director's designee, or the National 
Futures Association may, at any time, give written notice to any 
registrant, applicant for registration, or person required to be 
registered:
    (a)(1) That derogatory information has come to the attention of the 
staff of the Commission or the National Futures Association which, if 
true, could constitute grounds upon which to base a determination that 
the person is unfit to become, or to remain, registered or temporarily 
licensed in accordance with the Act or the regulations thereunder and 
setting forth such information in the notice and requesting the person 
to provide evidence mitigating the seriousness of the statutory 
disqualification set forth in the notice and evidence that the person 
has undergone rehabilitation, or
    (2) That the Commission or the National Futures Association has 
undertaken a routine or periodic review of the registrant's fitness to 
remain registered or temporarily licensed; and
    (b) That the person, or any individual who, based upon his or her 
relationship with that person is required to file a Form 8-R in 
accordance with the requirements of this part, as applicable, must, 
within such period of time as the Commission or the National Futures 
Association may specify, complete and file with the Commission or the 
National Futures Association a current Form 7-R, or if appropriate, a 
Form 8-R, in accordance with the instructions thereto.
    (c) Failure to provide the information required under paragraph (b) 
of this section is a violation of the Commission's regulations which 
itself constitutes grounds upon which to base a determination that the 
person is unfit to become or to remain so registered.

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 8049, Dec. 5, 1980, as amended by 47 FR 27551, June 25, 1982; 49 
FR 39532, Oct. 9, 1984; 53 FR 8433, Mar. 15, 1988; 57 FR 23148, June 2, 
1992; 67 FR 62351, Oct. 7, 2002; 77 FR 51906, Aug. 28, 2012]



Sec.Sec. 3.23-3.29  [Reserved]



Sec.  3.30  Current address for purpose of delivery of communications
from the Commission or the National Futures Association.

    (a) The address of each registrant, applicant for registration, and 
principal, as submitted on the application for registration (Form 7-R or 
Form 8-R) or as submitted on the biographical supplement (Form 8-R) 
shall be deemed to be the address for delivery to the registrant, 
applicant or principal for any communications from the Commission or the 
National Futures Association, including any summons, complaint, 
reparation claim, order, subpoena, special call, request for 
information, notice, and other written documents or correspondence, 
unless the registrant, applicant or principal specifies another address 
for this purpose: Provided that the Commission or the National Futures 
Association may address any correspondence relating to a biographical 
supplement submitted for or on behalf of a principal to the futures 
commission merchant, retail foreign exchange dealer, swap dealer, major 
swap participant, introducing broker, commodity pool operator, commodity 
trading advisor, floor trader that is a non-natural person, or leverage 
transaction merchant with which the principal is affiliated and may 
address any correspondence relating to an associated person to the 
futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, introducing broker, commodity pool 
operator, commodity trading advisor, floor trader that is a non-natural 
person, or leverage transaction merchant with which the associated 
person or the applicant for registration is or will be associated as an 
associated person.

[[Page 170]]

    (b) Each registrant, while registered and for two years after 
termination of registration, and each principal, while affiliated and 
for two years after termination of affiliation, must notify in writing 
the National Futures Association of any change of the address on the 
application for registration, biographical supplement, or other address 
filed with the National Futures Association for the purpose of receiving 
communications from the Commission or the National Futures Association. 
Failure to file a required response to any communication sent to the 
latest such address filed with the National Futures Association that is 
caused by a failure to notify in writing the National Futures 
Association of an address change may result in an order of default and 
award of claimed monetary damages or other appropriate order in any 
National Futures Association or Commission proceeding, including a 
reparation proceeding brought under part 12 of this chapter.

[77 FR 51906, Aug. 28, 2012]



Sec.  3.31  Deficiencies, inaccuracies, and changes, to be reported.

    (a)(1) Each applicant or registrant as a futures commission 
merchant, retail foreign exchange dealer, swap dealer, major swap 
participant, commodity trading advisor, commodity pool operator, 
introducing broker, floor trader that is a non-natural person or 
leverage transaction merchant shall, in accordance with the instructions 
thereto, promptly correct any deficiency or inaccuracy in Form 7-R or 
Form 8-R that no longer renders accurate and current the information 
contained therein, with the exception of any change that requires 
withdrawal from registration underSec. 3.33. Each such correction 
shall be prepared and filed in accordance with the instructions thereto 
to create a Form 3-R record of such change.
    (2) Where a registrant has changed its form of organization to or 
from a sole proprietorship, the registrant must request withdrawal from 
registration in accordance withSec. 3.33.
    (3) Where any person becomes a principal of an applicant or 
registrant subsequent to the filing of the applicant's or registrant's 
current Form 7-R:
    (i) If the new principal is not a natural person, the registrant 
shall update such Form 7-R to create a Form 3-R record of change.
    (ii) If the new principal is a natural person, the registrant shall 
file a Form 8-R, completed in accordance with the instructions thereto 
and executed by such person who is a principal of the registrant and who 
was not listed on the registrant's initial application for registration 
or any amendment thereto.
    (b) Each applicant or registrant as a floor broker, floor trader or 
associated person, and each principal of a futures commission merchant, 
retail foreign exchange dealer, swap dealer, major swap participant, 
commodity trading advisor, commodity pool operator, introducing broker, 
floor trader that is a non-natural person, or leverage transaction 
merchant must, in accordance with the instructions thereto, promptly 
correct any deficiency or inaccuracy in the Form 8-R or supplemental 
statement thereto to create a Form 3-R record of change.
    (c)(1) After the filing of a Form 8-R or updating a Form 8-R to 
create a Form 3-R record of change by or on behalf of any person for the 
purpose of permitting that person to be an associated person of a 
futures commission merchant, retail foreign exchange dealer, commodity 
trading advisor, commodity pool operator, introducing broker, or a 
leverage transaction merchant, that futures commission merchant, retail 
foreign exchange dealer, commodity trading advisor, commodity pool 
operator, introducing broker or leverage transaction merchant must, 
within thirty days after the occurrence of either of the following, file 
a notice thereof with the National Futures Association indicating:
    (i) The failure of that person to become associated with the futures 
commission merchant, retail foreign exchange dealer, commodity trading 
advisor, commodity pool operator, introducing broker, or leverage 
transaction merchant, and the reasons therefor; or
    (ii) The termination of the association of the associated person 
with the futures commission merchant, retail foreign exchange dealer, 
commodity

[[Page 171]]

trading advisor, commodity pool operator, introducing broker, or 
leverage transaction merchant, and the reasons therefor.
    (2) Each person registered as, or applying for registration as, a 
futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, commodity trading advisor, commodity 
pool operator, introducing broker, floor trader that is a non-natural 
person, or leverage transaction merchant must, within thirty days after 
the termination of the affiliation of a principal with the registrant or 
applicant, file a notice thereof with the National Futures Association.
    (3) Any notice required by paragraph (c) of this section must be 
filed on Form 8-T or on a Uniform Termination Notice for Securities 
Industry Registration.
    (d) Each contract market or swap execution facility that has granted 
trading privileges to a person who is registered, has received a 
temporary license, or has applied for registration as a floor broker or 
floor trader, must notify the National Futures Association within sixty 
days after such person has ceased having trading privileges on such 
contract market or swap execution facility.

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 80491, Dec. 5, 1980, as amended at 47 FR 27551, June 25, 1982; 48 
FR 35297, Aug. 3, 1983; 49 FR 5525, Feb. 13, 1984; 49 FR 39533, Oct. 9, 
1984; 51 FR 34460, Sept. 29, 1986; 53 FR 8433, Mar. 15, 1988; 54 FR 
19558, May 8, 1989; 58 FR 19592, Apr. 15, 1993; 66 FR 53518, Oct. 23, 
2001; 67 FR 38875, June 6, 2002; 72 FR 63104, Nov. 8, 2007; 75 FR 55426, 
Sept. 10, 2010; 77 FR 2628, Jan. 19, 2012; 77 FR 51907, Aug. 28, 2012]



Sec.  3.33  Withdrawal from registration.

    (a) A futures commission merchant, retail foreign exchange dealer, 
swap dealer, major swap participant, introducing broker, commodity 
trading advisor, commodity pool operator, floor trader that is a non-
natural person, or leverage transaction merchant must request that its 
registration be withdrawn prior to any voluntary resolution to file 
articles (or a certificate) of dissolution (or cancellation), and upon 
notice of any involuntary dissolution initiated by a third-party. A 
futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, introducing broker, commodity trading 
advisor, commodity pool operator, leverage transaction merchant, floor 
broker or floor trader may request that its registration be withdrawn in 
accordance with the requirements of this section if:
    (1) The registrant has ceased, or has not commenced, engaging in 
activities requiring registration in such capacity;
    (2) The registrant is exempt from registration in such capacity; or
    (3) The registrant is excluded from the persons or any class of 
persons required to be registered in such capacity: Provided, That the 
National Futures Association or the Commission, as appropriate, may 
consider separately each capacity for which withdrawal is requested in 
acting upon such a request.
    (b) A request for withdrawal from registration as a futures 
commission merchant, retail foreign exchange dealer, swap dealer, major 
swap participant, introducing broker, commodity trading advisor, 
commodity pool operator, floor trader that is a non-natural person, or 
leverage transaction merchant must be made on Form 7-W, and a request 
for withdrawal from registration as a floor broker or individual floor 
trader must be made on Form 8-W, completed and filed with the National 
Futures Association in accordance with the instructions thereto. The 
request for withdrawal must be made by a person duly authorized by the 
registrant and must specify:
    (1) The name of the registrant for which withdrawal is being 
requested;
    (2) The registration capacities for which withdrawal is being 
requested;
    (3) The name, address, and telephone number of the person who will 
have custody of the books and records of the registrant; the address 
where such books and records will be located; and a statement that such 
person is authorized to make them available in accordance with the 
requirements ofSec. 1.31 of this chapter;
    (4) The applicable basis under paragraph (a) of this section for 
requesting withdrawal for each capacity for which withdrawal is 
requested.

[[Page 172]]

    (5) If withdrawal is requested under paragraph (a)(2) or (a)(3) of 
this section, then, with respect to each capacity for which withdrawal 
is requested, the section of the Act, regulations, or other authority 
permitting the exemption or exclusion, and the circumstances which 
entitle the registrant to claim such exemption or exclusion.
    (6) If a basis for withdrawal from registration under paragraph 
(a)(1) of this section is that the registrant has ceased engaging in 
activities requiring registration, then, with respect to each capacity 
for which the registrant has ceased such activities:
    (i) That all customer, retail forex customer or option customer 
agreements, if any, have been terminated;
    (ii) That all customer, retail forex customer or option customer 
positions, if any, have been transferred on behalf of customers or 
option customers or closed;
    (iii) That all customer, retail forex customer or option customer 
cash balances, securities, or other property, if any, have been 
transferred on behalf of customers, retail forex customers or option 
customers or returned, and that there are no obligations to customers, 
retail forex customers or option customers outstanding;
    (iv) In the case of a commodity pool operator, that all interests 
in, and assets of, any commodity pool have been redeemed, distributed, 
or transferred, on behalf of the participants therein, and that there 
are no obligations to such participants outstanding;
    (v) In the case of a leverage transaction merchant:
    (A) Either that all leverage customer agreements, if any, and all 
leverage contracts have been terminated, and that all leverage customer 
cash balances, securities or other property, if any, have been returned, 
or
    (B) Alternatively, that pursuant to Commission approval, the 
leverage contract obligations of the leverage transaction merchant have 
been assumed by another leverage transaction merchant and all leverage 
customer cash balances, securities or other property, if any, have been 
transferred to such leverage transaction merchant on behalf of leverage 
customers or returned, and that there are no obligations to leverage 
customers outstanding;
    (vi) The nature and extent of any pending customer, retail forex 
customer, option customer, leverage customer, swap counterparty or 
commodity pool participant claims against the registrant, and, to the 
best of the registrant's knowledge and belief, the nature and extent of 
any anticipated or threatened customer, option customer, leverage 
customer, swap counterparty or commodity pool participant claims against 
the registrant;
    (vii) In the case of a futures commission merchant or a retail 
foreign exchange dealer which is a party to a guarantee agreement, that 
all such agreements have been or will be terminated in accordance with 
the provisions ofSec. 1.10(j) of this chapter not more than thirty 
days after the filing of the request for withdrawal from registration;
    (viii) In the case of a swap dealer, that the person will not engage 
in any new activity described in the definition of the term ``swap 
dealer'' in section 1a(49) of the Act, as such term may be further 
defined by the Commission; and
    (ix) In the case of a major swap participant, that the person will 
not engage in any new activity described in the definition of the term 
``major swap participant'' in section 1a(33) of the Act, as such term 
may be further defined by the Commission.
    (c) Where a leverage transaction merchant is requesting withdrawal 
from registration in that capacity and the basis for withdrawal under 
paragraph (a)(1) of this section is that it has ceased engaging in 
activities requiring registration, the request for withdrawal must be 
accompanied by a form 2-FR which contains the information specified in 
Sec.  31.13(f) of this chapter as of a date not more than 30 days prior 
to the date of the withdrawal request.
    (d) [Reserved]
    (e) A request for withdrawal from registration as a futures 
commission merchant, retail foreign exchange dealer, swap dealer, major 
swap participant, introducing broker, commodity pool operator, commodity 
trading advisor, floor trader that is a non-natural

[[Page 173]]

person, or leverage transaction merchant on Form 7-W, and a request for 
withdrawal from registration as a floor broker or individual floor 
trader on Form 8-W, must be filed with the National Futures Association 
and a copy of such request must be sent by the National Futures 
Association within three business days of the receipt of such withdrawal 
request to the Commodity Futures Trading Commission, Division of Swap 
Dealer and Intermediary Oversight, Three Lafayette Centre, 1155 21st 
Street NW., Washington, DC 20581. In addition, any floor broker or 
individual floor trader requesting withdrawal from registration must 
file a copy of his or her Form 8-W with each contract market or swap 
execution facility that has granted him or her trading privileges, and 
any floor trader that is a non-natural person requesting withdrawal from 
registration must file a copy of its Form 7-W with each contract market 
or swap execution facility that has granted it trading privileges. 
Within three business days of any determination by the National Futures 
Association underSec. 3.10(d) to treat the failure by a registrant to 
file an annual Form 7-R as a request for withdrawal, the National 
Futures Association shall send the Commission notice of that 
determination.
    (f) A request for withdrawal from registration will become effective 
on the thirtieth day after receipt of such request by the National 
Futures Association, or earlier upon written notice from the National 
Futures Association (with the written concurrence of the Commission) of 
the granting of such request, unless prior to the effective date:
    (1) The Commission or the National Futures Association has 
instituted a proceeding to suspend or revoke such registration;
    (2) The Commission or the National Futures Association imposes, or 
gives notice by mail which notice shall be complete upon mailing, that 
it intends to impose terms or conditions upon such withdrawal from 
registration;
    (3) The Commission or the National Futures Association notifies the 
registrant by mail, which notice shall be complete upon mailing, or the 
registrant otherwise is notified that it is the subject of an 
investigation to determine, among other things, whether such registrant 
has violated, is violating, or is about to violate the Act, rules, 
regulations or orders adopted thereunder;
    (4) The Commission or the National Futures Association requests from 
the registrant further information pertaining to its request for 
withdrawal from registration; or
    (5) The Commission or National Futures Association determines that 
it would be contrary to the requirements of the Act, or of any rule, 
regulation or order thereunder, or to the public interest to permit such 
withdrawal from registration.
    (g) Withdrawal from registration in one capacity does not constitute 
withdrawal from registration in any other capacity.
    (h) Withdrawal from registration does not constitute a release from 
liability for any violation of the Act or of any rule, regulation, or 
order thereunder.

(Approved by the Office of Management and Budget under control number 
3038-0008)

[46 FR 48917, Oct. 5, 1981]

    Editorial Note: For Federal Register citations affectingSec. 3.33, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



                      Subpart B_Temporary Licenses



Sec.  3.40  Temporary licensing of applicants for associated person,
floor broker or floor trader registration.

    (a) Notwithstanding any other provision of these regulations and 
pursuant to the terms and conditions of this subpart:
    (1) The National Futures Association may grant a temporary license 
to any applicant for registration as an associated person upon the 
contemporaneous filing with the National Futures Association of:
    (i) A Form 8-R, properly completed in accordance with the 
instructions thereto; and
    (ii) The sponsor's certification required bySec. 3.12(c): 
Provided, however, that the fingerprints of the applicant on a 
fingerprint card provided by the

[[Page 174]]

National Futures Association for that purpose must be filed with the 
National Futures Association within 20 days following the date the 
temporary license is issued; and, provided further, that failure to file 
the fingerprints within this period will result in the termination of 
the temporary license immediately upon notice to the applicant's sponsor 
that the National Futures Association has not received the applicant's 
fingerprints.
    (2) The National Futures Association may grant a temporary license 
to any applicant for registration as a floor broker or individual floor 
trader upon the contemporaneous filing with the National Futures 
Association of:
    (i) A Form 8-R, properly completed in accordance with the 
instructions thereto;
    (ii) The fingerprints of the applicant on a fingerprint card 
provided by the National Futures Association for that purpose;
    (iii) A Supplemental Sponsor Certification Statement executed by a 
sponsor meeting the requirements underSec. 3.60(b)(2)(i), if the 
applicant is subject to an order imposing conditions on the applicant's 
registration; and
    (iv) Evidence that the applicant has been granted trading privileges 
by a contract market or swap execution facility that has filed with the 
National Futures Association a certification signed by its chief 
operating officer with respect to the review of an applicant's 
employment, credit and other history in connection with the granting of 
trading privileges.
    (b) The failure of an applicant or the applicant's sponsor to 
respond to a request by the Commission or the National Futures 
Association for clarification of any information set forth in the 
application of the applicant or for the resubmission of fingerprints in 
accordance with such request will be deemed to constitute a withdrawal 
of the applicant's registration application and shall result in the 
immediate termination of the applicant's temporary license.
    (c) Subject to the provisions ofSec. 3.42 and all of the 
obligations imposed on such registrants under the Act (in particular, 
section 14 thereof) and the rules, regulations, and orders thereunder, 
an applicant for registration as an associated person who has received 
notification that a temporary license has been granted may act in the 
capacity of an associated person, an applicant for registration as a 
floor trader who has received written notification that a temporary 
license has been granted may act in the capacity of a floor trader, and 
an applicant for registration as a floor broker who has received written 
notification that a temporary license has been granted may act in the 
capacity of a floor broker.

[67 FR 38876, June 6, 2002, as amended at 77 FR 51908, Aug. 28, 2012]



Sec.  3.42  Termination.

    (a) A temporary license issued pursuant toSec. 3.40 shall 
terminate:
    (1) Five days after service upon the applicant of a notice by the 
Commission or the National Futures Association pursuant toSec. 3.60 of 
this part that the applicant for registration may be found subject to a 
statutory disqualification from registration;
    (2) Immediately upon termination of the association of the applicant 
for registration as an associated person with the registrant which filed 
the sponsorship certification, or immediately upon loss of trading 
privileges by an applicant for registration as a floor broker or floor 
trader on all contract markets and swap execution facilities which filed 
the certification described inSec. 3.40;
    (3) Immediately upon the withdrawal of the registration application 
pursuant toSec. 3.40;
    (4) Immediately upon failure to comply with an order to pay a civil 
monetary penalty, restitution, or disgorgement within the time permitted 
under sections 6(e), 6b, or 6c(d) of the Act;
    (5) Immediately upon failure to pay the full amount of a reparation 
order within the time permitted under section 14(f) of the Act;
    (6) Immediately upon failure to comply with an award in an 
arbitration proceeding conducted pursuant to the rules of a designated 
contract market, swap execution facility or registered futures 
association within the time specified in section 10(g) of the National 
Futures Association's Code of

[[Page 175]]

Arbitration or the comparable time period specified in the rules of a 
contract market or other appropriate arbitration forum.
    (7) Immediately upon the revocation or withdrawal of the 
registration of the applicant's sponsor; or
    (8) Immediately upon notice to the applicant and the applicant's 
sponsor or the contract market or swap execution facility that has 
granted the applicant trading privileges that:
    (i) The applicant failed to disclose relevant disciplinary history 
information on the applicant's Form 8-R; or
    (ii) An event has occurred leading to a required disclosure on the 
applicant's Form 8-R.
    (b) Upon termination, the applicant may not engage in any activity 
which requires registration with the Commission as an associated person, 
floor broker or floor trader.

[49 FR 8219, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992; 58 
FR 19594, Apr. 15, 1993; 67 FR 38876, June 6, 2002; 77 FR 51908, Aug. 
28, 2012]



Sec.  3.43  Relationship to registration.

    (a) A temporary license shall not be deemed to be a registration or 
to confer any right to such registration.
    (b) Unless a temporary license has terminated pursuant toSec. 
3.42, a temporary license shall become a registration with the 
Commission upon the earlier of:
    (1) A determination by the National Futures Association that the 
applicant is qualified for registration as an associated person, floor 
broker or floor trader; or
    (2) The expiration of six months from the date of issuance unless a 
notice has been issued underSec. 3.60 of the initiation of a 
proceeding to deny registration under section 8a(2) or 8a(3) of the Act.

[49 FR 8219, Mar. 5, 1984, as amended at 49 FR 39534, Oct. 9, 1984; 54 
FR 19559, May 8, 1989; 58 FR 19595, Apr. 15, 1993]



Sec.  3.44  Temporary licensing of applicants for guaranteed 
introducing broker registration.

    (a) Notwithstanding any other provisions of these regulations, and 
pursuant to the terms and conditions of this subpart, the National 
Futures Association may grant a temporary license to any applicant for 
registration as an introducing broker upon the contemporaneous filing 
with the National Futures Association of:
    (1) A properly completed guarantee agreement (Form 1-FR part B) from 
a futures commission merchant or retail foreign exchange dealer which is 
eligible to enter into such an agreement pursuant toSec. 1.10(j)(2) of 
this chapter;
    (2) A Form 7-R properly completed in accordance with the 
instructions thereto;
    (3) A Form 8-R for the applicant, if a sole proprietor, and each 
principal (including each branch office manager) thereof, properly 
completed in accordance with the instructions thereto, all of whom would 
be eligible for a temporary license if they had applied as associated 
persons.
    (4) A certification executed by a person duly authorized by the 
futures commission merchant or retail foreign exchange dealer that has 
executed the guarantee agreement required by paragraph (a)(1) of this 
section, stating that:
    (i) The futures commission merchant or retail foreign exchange 
dealer has verified the information on the Forms 8-R filed pursuant to 
paragraph (a)(3) of this section which relate to education and 
employment history of the applicant's principals (including each branch 
office manager) thereof during the preceding three years; and
    (ii) To the best of the futures commission merchant's or retail 
foreign exchange dealer's knowledge, information, and belief, all of the 
publicly available information supplied by the applicant and its 
principals and each branch office manager of the applicant on the Form 
7-R and Forms 8-R, as appropriate, is accurate and complete; and
    (5) The fingerprints of the applicant, if a sole proprietor, and of 
each principal (including each branch office manager) thereof on 
fingerprint cards provided by the National Futures Association for that 
purpose.
    (b) The effective date of a guarantee agreement filed in accordance 
with paragraph (a)(1) of this section is the date upon which the 
temporary license is granted by the National Futures Association.

[[Page 176]]

    (c) An applicant that fails to respond in accordance with a written 
request by the Commission or the National Futures Association for 
clarification of any information set forth in the application of the 
applicant or any principal (including any branch office manager) thereof 
or for the resubmission of a fingerprint card will be deemed to have 
withdrawn its registration application and the temporary license issued 
to such applicant and any associated person thereof shall terminate 
immediately.

[51 FR 45760, Dec. 22, 1986, as amended at 53 FR 8435, Mar. 15, 1988; 57 
FR 23151, June 2, 1992; 64 FR 1728, Jan. 12, 1999; 67 FR 38876, June 6, 
2002; 75 FR 55427, Sept. 10, 2010; 77 FR 51908, Aug. 28, 2012]



Sec.  3.45  Restrictions upon activities.

    (a) Subject to the provisions ofSec. 3.46 of this subpart and all 
of the obligations imposed on such registrants under the Act (in 
particular, section 14 thereof) and the rules, regulations and orders 
thereunder, an applicant for registration as an introducing broker who 
has received written notification that a temporary license has been 
granted may act in the capacity of a guaranteed introducing broker.
    (b) An applicant for registration as an introducing broker who has 
received a temporary license may be guaranteed by a futures commission 
merchant other than the futures commission merchant which provided the 
initial guarantee agreement described inSec. 3.44(a)(1) of this 
subpart: Provided, That, at least 10 days prior to the effective date of 
the termination of the existing guarantee agreement in accordance with 
the provisions ofSec. 1.10 (j)(4)(ii) or (j)(5) of this chapter, or 
such other period of time as the National Futures Association may allow 
for good cause shown, the applicant files with the National Futures 
Association (1) written notice of such termination and (2) a new 
guarantee agreement with another futures commission merchant effective 
the day following the last effective date of the existing guarantee 
agreement.

[51 FR 45761, Dec. 22, 1986, as amended at 75 FR 55427, Sept. 10, 2010]



Sec.  3.46  Termination.

    (a) A temporary license issued pursuant toSec. 3.44 shall 
terminate:
    (1) Five days after service upon the applicant of a notice by the 
National Futures Association that the applicant for registration may be 
found subject to a statutory disqualification from registration;
    (2) Immediately upon termination of the applicant's guarantee 
agreement in accordance withSec. 1.10(j)(4)(ii) or (j)(5) of this 
chapter, unless a new guarantee agreement is filed in accordance with 
Sec.  3.45(b);
    (3) Immediately upon the failure of an applicant to respond to a 
written request by the Commission or the National Futures Association 
for clarification of information set forth in the application of the 
applicant or any principal (including any branch office manager) thereof 
or for the resubmission of a fingerprint card pursuant toSec. 3.44(c) 
in accordance with such request;
    (4) Immediately upon the revocation or withdrawal of the guarantor 
futures commission merchant's registration;
    (5) Immediately upon the withdrawal of the registration application 
pursuant toSec. 3.44(c);
    (6) Immediately upon failure to comply with an order to pay a civil 
monetary penalty, restitution, or disgorgement within the time permitted 
under section 6(e), 6b, or 6c(d) of the Act;
    (7) Immediately upon failure to pay the full amount of a reparation 
order within the time permitted under section 14(f) of the Act;
    (8) Immediately upon failure to comply with an award in an 
arbitration proceeding conducted pursuant to the rules of a designated 
contract market, swap execution facility, or registered futures 
association within the time specified in section 10(g) of the National 
Futures Association's Code of Arbitration or the comparable time period 
specified in the rules of a contract market, swap execution facility, or 
other appropriate arbitration forum.
    (9) Whenever a person not listed as a principal on the applicant's 
initial registration application becomes a principal underSec. 3.1(a); 
or

[[Page 177]]

    (10) Immediately upon notice to the applicant and the guarantor 
futures commission merchant that:
    (i) The applicant or any principal (including any branch officer 
manager) failed to disclose relevant disciplinary history information on 
the applicant's Form 7-R or on a principal's Form 8-R; or
    (ii) An event has occurred leading to a required disclosure on the 
applicant's Form 7-R or on a principal's Form 8-R.
    (b) Upon termination, the applicant may not engage in any activity 
which requires registration as an introducing broker.

[51 FR 45761, Dec. 22, 1986, as amended at 53 FR 8435, Mar. 15, 1988; 58 
FR 19595, Apr. 15, 1993; 67 FR 38876, June 6, 2002; 77 FR 51908, Aug. 
28, 2012]



Sec.  3.47  Relationship to registration.

    (a) A temporary license shall not be deemed to be a registration or 
to confer any right to such registration.
    (b) Unless a temporary license has terminated, a temporary license 
shall become a registration upon the earlier of:
    (1) A determination by the National Futures Association that the 
applicant is qualified for registration as an introducing broker; or
    (2) The expiration of six months from the date of issuance unless a 
notice has been issued underSec. 3.60 of the initiation of a 
proceeding to deny registration under sections 8a(2) or 8a(3) of the 
Act.

[51 FR 45761, Dec. 22, 1986, as amended at 58 FR 19595, Apr. 15, 1993]



       Subpart C_Denial, Suspension or Revocation of Registration

    Source: 49 FR 8220, Mar. 5, 1984, unless otherwise noted.



Sec.  3.50  Service.

    (a) For purposes of this subpart, service upon an applicant or 
registrant will be sufficient if mailed by registered mail or certified 
mail return receipt requested properly addressed to the applicant or 
registrant at the address shown on his application or any amendment 
thereto, and will be complete upon mailing. Where a party effects 
service by mail, the time within which the person served may respond 
thereto shall be increased by three days.
    (b) A copy of any notice served in accordance with paragraph (a) of 
this section shall also be served upon:
    (1) Any registrant sponsoring the applicant or registrant pursuant 
to the provisions ofSec. 3.12 of this part if the applicant or 
registrant is an individual registered as or applying for registration 
as an associated person; or
    (2) Any futures commission merchant or retail foreign exchange 
dealer which has entered into a guarantee agreement in accordance with 
Sec.  1.10(j) of this chapter, if the applicant or registrant is 
registered as or applying for registration as an introducing broker.
    (c) Documents served upon the Division of Clearing and Intermediary 
Oversight or upon the Division of Enforcement or filed with the 
Commission under this subpart shall be considered served or filed only 
upon actual receipt at the Commission's Washington, DC office, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (d) Except for the documents which may be served underSec. 3.51, 
any documents served upon an applicant or registrant or upon the 
Division of Clearing and Intermediary Oversight or the Division of 
Enforcement or filed with the Commission under this subpart shall be 
concurrently filed with the Proceedings Clerk, together with proof of 
service, in accordance with the provisions ofSec. 10.12 (d) and (e) of 
this chapter.

[49 FR 8220, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992; 60 
FR 49334, Sept. 25, 1995; 60 FR 54801, Oct. 26, 1995; 67 FR 62351, Oct. 
7, 2002; 75 FR 55427, Sept. 10, 2010]



Sec.  3.51  Withdrawal of application for registration.

    (a) Notice. Whenever information comes to the attention of the 
Commission that an applicant for initial registration in any capacity 
under the Act may be found subject to a statutory disqualification under 
sections 8a(2) or 8a(3) of the Act, the Commission may serve written 
notice upon the applicant, which notice shall specify the statutory 
disqualifications to which

[[Page 178]]

the applicant may be subject and advise the applicant that:
    (1) The information, if true, is a basis upon which the applicant's 
registration may be denied;
    (2) Unless the applicant voluntarily withdraws the application, it 
may be necessary to institute the denial procedures described in this 
subpart; and
    (3) If the applicant does not confirm in writing that the applicant 
wishes to have the application given further consideration, the 
application of the applicant will be deemed to have been withdrawn.
    (b) The applicant must serve the written confirmation referred to in 
paragraph (a)(3) of this section upon the Secretary of the Commission on 
or before twenty days after the date the notice described in paragraph 
(a) of this section is served.

[49 FR 8220, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992]



Sec.Sec. 3.52-3.54  [Reserved]



Sec.  3.55  Suspension and revocation of registration pursuant to 
section 8a(2) of the Act.

    (a) Notice. On the basis of information obtained by the Commission, 
the Commission may at any time serve notice upon a registrant in any 
capacity under the Act that:
    (1) The Commission alleges and is prepared to prove that the 
registrant is subject to one or more of the statutory disqualifications 
set forth in section 8a(2) of the Act;
    (2) An Administrative Law Judge shall make a determination, based 
upon written evidence, as to whether the registrant is subject to such 
statutory disqualification; and
    (3) If the registrant is found to be subject to a statutory 
disqualification, the registration of the registrant may be suspended 
and the registrant ordered to show cause why such registration should 
not be revoked.
    (b) Written submission. If the registrant wishes to challenge the 
accuracy of the allegations set forth in the notice, the registrant may 
submit written evidence limited to the type described inSec. 
3.60(b)(1) of this part. Such written submission must be served upon the 
Division of Enforcement and filed with the Proceedings Clerk within 
twenty days of the date of service of notice to the registrant.
    (c) Reply. Within ten days of receipt of any written submission 
filed by the registrant, the Division of Enforcement may serve upon the 
registrant and file with the Proceedings Clerk a reply.
    (d) Determination by Administrative Law Judge. A determination by 
the Administrative Law Judge as to whether the registrant is subject to 
a statutory disqualification must be based upon the evidence of the 
statutory disqualification, notice with proof of service, the written 
submission, if any, filed by the registrant in response thereto, any 
written reply submitted by the Division of Enforcement and such other 
papers as the Administrative Law Judge may require or permit.
    (e) Suspension and order to show cause. (1) If the registrant is 
found to be subject to a statutory disqualification, the Administrative 
Law Judge, within thirty days after receipt of the registrant's written 
submission, if any, and any reply thereto, shall issue an interim order 
suspending the registration of the registrant and requiring the 
registrant to show cause within twenty days of the date of the order 
why, notwithstanding the existence of the statutory disqualification, 
the registration of the registrant should not be revoked. The 
registration of the registrant shall be suspended, effective five days 
after the order to show cause is served upon the registrant in 
accordance withSec. 3.50(a), until a final order with respect to the 
order to show cause has been issued: Provided, That if the sole basis 
upon which the registrant is subject to statutory disqualification is 
the existence of a temporary order, judgment or decree of the type 
described in section 8a(2)(C) of the Act, the order to show cause shall 
not be issued and the registrant shall be suspended until such time as 
the temporary order, judgment or decree shall have expired: Provided, 
however, That in no event shall the registrant be suspended for a period 
to exceed six months.
    (2) If the registrant is found not to be subject to a statutory 
disqualification, the Administrative Law Judge shall issue an order to 
that effect and the

[[Page 179]]

Proceedings Clerk shall promptly serve a copy of such order on the 
registrant, the Division of Clearing and Intermediary Oversight and the 
Division of Enforcement. Such order shall be effective as a final order 
of the Commission fifteen days after the date it is served upon the 
registrant in accordance with the provisions ofSec. 3.50(a) of this 
part unless a timely application for review is filed in accordance with 
Sec.  10.102 of this chapter. The appellate procedures set forth in 
Sec.Sec. 10.102, 10.103, 10.104, 10.106, 10.107 and 10.109 of this 
chapter shall apply to any appeal brought under paragraph (e)(2) of this 
section.
    (f) Further proceedings. If an order to show cause is issued 
pursuant to paragraph (e)(1) of this section, further proceedings on 
such order shall be conducted in accordance with the provisions ofSec. 
3.60(b)-(j) of this part.

[49 FR 8220, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992; 58 
FR 19595, Apr. 15, 1993; 60 FR 54801, Oct. 26, 1995; 67 FR 62351, Oct. 
7, 2002]



Sec.  3.56  Suspension or modification of registration pursuant to 
section 8a(11) of the Act.

    (a) Notice. (1) On the basis of information obtained by the 
Commission, the Commission may at any time serve written notice upon a 
registrant in any capacity under the Act that:
    (i) The Commission alleges and is prepared to prove, by reference to 
an information, indictment or complaint authorized by a United States 
Attorney or an appropriate official of any State that the registrant is 
charged with the commission of or participation in a crime involving a 
violation of the Act or a violation of any other provision of Federal or 
State law that would reflect on the honesty or the fitness of the person 
to act as a fiduciary that is punishable by imprisonment for a term 
exceeding one year, and that continued registration of the person may 
pose a threat to the public interest or may threaten to impair public 
confidence in any market regulated by the Commission;
    (ii) An Administrative Law Judge shall make a determination, based 
upon written evidence and any oral hearing granted, as to whether the 
registrant is charged with the Commission of or participation in such a 
crime and whether the continued registration of the person may pose a 
threat to the public interest or may threaten to impair public 
confidence in any market regulated by the Commission; and
    (iii) If the registrant is found to be charged with the commission 
of or participation in such a crime and it is found that the continued 
registration of the person may pose a threat to the public interest or 
may threaten to impair public confidence in any market regulated by the 
Commission, the registration of the registrant shall be suspended or 
modified.
    (2) The notice referred to in paragraph (a) of this section shall 
include a short and plain statement that the continued registration of 
the registrant may pose a threat to the public interest or may threaten 
to impair public confidence in any market regulated by the Commission.
    (b) Response. (1) If the registrant wishes to challenge the accuracy 
of the allegations in the notice, the registrant may submit written 
evidence as to:
    (i) The registrant's identity;
    (ii) The existence of a clerical error in any record documenting the 
information, indictment or complaint;
    (iii) The nature of the information, indictment or complaint; or
    (iv) The statement accompanying the notice referred to in paragraph 
(a)(2) of this section and, in an effort to have his registration 
modified rather than suspended, the Supplemental Sponsor Certification 
Statement signed by a sponsor, supervising floor broker or, in the case 
of a floor trader, a supervising registrant, principal, contract market, 
or swap execution facility, as appropriate for the registrant in 
accordance withSec. 3.60(b)(2)(i) and who meets the standards set 
forth inSec. 3.60(b)(2)(i)(A) and (C).
    (2) The registrant may also request an oral hearing, which shall 
include a statement of the issues to be addressed, a list of any 
witnesses to be called, a summary of the testimony to be elicited and 
copies of any documents to be introduced. An oral hearing shall be 
granted upon request.

[[Page 180]]

    (3) Such written submissions must be served upon the Division of 
Enforcement and filed with the Proceedings Clerk within twenty days of 
the date of service of notice to the registrant under paragraph (a) of 
this section.
    (c) Reply. Within ten days of receipt of any written submission 
filed by the registrant, the Division of Enforcement may serve upon the 
registrant and file with the Proceedings Clerk a reply.
    (d) Oral hearing. An oral hearing shall be conducted pursuant to 
such sections of the Commission's Rules of Practice, 17 CFR part 10, as 
the Administrative Law Judge deems necessary and in a manner which shall 
ensure that the proceeding is resolved expeditiously.
    (e) Determination by Administrative Law Judge. (1) A determination 
by the Administrative Law Judge as to whether the Division of 
Enforcement has shown by a preponderance of the evidence that the 
registrant is charged with the commission of or participation in a crime 
as set forth in the notice and that the continued registration of the 
registrant may pose a threat to the public interest or may threaten to 
impair public confidence in any market regulated by the Commission must 
be based upon the evidence of service, the response, if any, filed by 
the registrant, any written reply submitted by the Division of 
Enforcement and such other papers as the Administrative Law Judge may 
require or permit, and the oral hearing, if any. If the Division of 
Enforcement has made the required showings, the Administrative Law 
Judge, within thirty days after the last written submission or the oral 
hearing, shall issue an order suspending or modifying the registration 
of the registrant. If the Division of Enforcement has not made the 
required showings, the Administrative Law Judge, within thirty days 
after the last written submission or the oral hearing, shall issue an 
order to that effect. The Administrative Law Judge's order shall include 
a written determination setting forth the basis for his ruling.
    (2) The Proceedings Clerk shall promptly serve a copy of such order 
on the registrant, the Division of Clearing and Intermediary Oversight 
and the Division of Enforcement. Such Order shall be effective as a 
final order of the Commission fifteen days after the date it is served 
upon the registrant in accordance with the provisions ofSec. 3.50(a) 
unless a timely application for review is filed in accordance withSec. 
10.102 of this chapter. The appellate procedures set forth in Sec.Sec. 
10.102, 10.103, 10.104, 10.106, 10.107 and 10.109 of this chapter shall 
apply to any appeal brought under paragraph (e)(2) of this section.
    (f) Any order of suspension or modification issued under this 
section shall remain in effect until such information, indictment, or 
complaint is disposed of or until terminated by the Commission.
    (g) On disposition of such information, indictment, or complaint, 
the Commission may issue and serve on such registrant a notice under 
Sec.  3.55 orSec. 3.60 to suspend, restrict, or revoke the 
registration of such person.
    (h) A finding of not guilty or other disposition of the charge shall 
not preclude the Commission from thereafter instituting any other 
proceedings under the Act or its rules.
    (i) A person aggrieved by an order issued under this section may 
obtain review of such order in the same manner and on the same terms and 
conditions as are provided in section 6(c) of the Act.

[58 FR 19595, Apr. 15, 1993, as amended at 60 FR 54801, Oct. 26, 1995; 
67 FR 62351, Oct. 7, 2002; 77 FR 51908, Aug. 28, 2012]



Sec.  3.57  Proceedings under section 8a(2)(E) of the Act.

    The Commission will not initiate a proceeding under section 8a(2)(E) 
of the Act, if respondeat superior is the sole basis upon which the 
registrant may be found subject to a statutory disqualification.



Sec.  3.60  Procedure to deny, condition, suspend, revoke or place
restrictions upon registration pursuant to sections 8a(2), 8a(3)
and 8a(4) of the Act.

    (a) Notice. On the basis of information obtained by the Commission, 
the Commission may at any time give written notice to any applicant for 
registration or any registrant in any capacity under the Act that:
    (1) The Commission alleges and is prepared to prove that the 
registrant

[[Page 181]]

or applicant is subject to one or more of the statutory 
disqualifications set forth in section 8a(2), 8a(3) or 8a(4) of the Act;
    (2) The allegations set forth in the notice, if true, constitute a 
basis upon which registration may be denied, granted upon conditions, 
suspended, revoked or restricted;
    (3) The applicant or registrant is entitled to file a response 
within thirty days of the date of service of the notice to challenge the 
evidentiary basis of the statutory disqualification set forth in the 
notice or show cause why, notwithstanding the accuracy of those 
allegations, registration should nevertheless be granted, or granted 
upon condition, or should not be conditioned, suspended, revoked or 
restricted; and
    (4) If the applicant or registrant does not file a timely response 
to the notice:
    (i) The applicant or registrant will be deemed to have waived his 
right to a hearing on all issues and the facts stated in the notice 
shall be deemed to be true and conclusive for the purpose of finding 
that the applicant or registrant is subject to a statutory 
disqualification under sections 8a(2), 8a(3) or 8a(4) of the Act; and
    (ii) A presiding officer may thereafter decide whether to issue an 
order of default in accordance with paragraph (g) of this section to 
deny, condition, suspend, revoke, or place restrictions upon 
registration based solely upon the facts set forth in the notice.
    (b) Response. Within thirty days after service upon the applicant or 
registrant of a notice issued in accordance with the provisions of 
paragraph (a) of this section, the applicant or registrant shall file a 
response with the Proceedings Clerk and serve a copy of the response on 
the Division of Enforcement.
    (1) In the response, the applicant or registrant shall state whether 
he challenges the evidentiary basis of the statutory disqualification 
set forth in the notice. The grounds for such a challenge shall include 
evidence as to:
    (i) The applicant's or registrant's identity,
    (ii) The existence of a clerical error in any record documenting the 
statutory disqualification,
    (iii) The nature or date of the statutory disqualification,
    (iv) The post-conviction modification of any record of conviction, 
or
    (v) The favorable disposition of any appeal.


The applicant or registrant shall state the nature of each challenge and 
submit a verified statement or affidavit to support facts material to 
each challenge raised in the response.
    (2)(i) In the response, if the person is not an associated person, a 
floor broker or a floor trader or an applicant for registration in any 
of those capacities, the applicant or registrant shall also state 
whether he or she intends to show that registration would not pose a 
substantial risk to the public despite the existence of the 
disqualification set forth in the notice. If the person is an associated 
person, a floor broker or a floor trader or an applicant for 
registration in any of those capacities, the applicant or registrant 
shall also state whether he or she intends to show that full, 
conditioned or restricted registration would not pose a substantial risk 
to the public despite the existence of the disqualification set forth in 
the notice. If the person is an associated person or an applicant for 
registration as an associated person and intends to make such a showing, 
he or she must also submit a letter signed by an officer or general 
partner authorized to bind the sponsor whereby the sponsor agrees to 
sign a Supplemental Sponsor Certification Statement and supervise 
compliance with any conditions or restrictions that may be imposed on 
the applicant or registrant as a result of a statutory disqualification 
proceeding under this section; if the person is a floor broker or a 
floor trader or an applicant for registration in either capacity and 
intends to make such a showing, he or she must, in the case of a floor 
broker or applicant for registration as a floor broker, also submit a 
letter signed by his employer or if he or she has no employer by another 
floor broker or, in the case of a floor trader or applicant for 
registration as a floor trader, also submit a letter signed by an 
officer of the floor trader's clearing member, if such officer is a 
registrant or a principal of a registrant, or

[[Page 182]]

the chief operating officer of each contract market or swap execution 
facility that has granted trading privileges, whereby the employer or 
floor broker, appropriate registrant, principal or chief operating 
officer (on behalf of the contract market or swap execution facility) 
agrees to sign a Supplemental Sponsor Certification Statement and 
supervise compliance with any conditions or restrictions that may be 
imposed on the applicant or registrant as a result of a statutory 
disqualification proceeding under this section; provided, that, with 
respect to such sponsor, supervising employer or floor broker, 
supervising registrant or principal:
    (A) An adjudicatory proceeding pursuant to the provisions of 
sections 6(c), 6(d), 6c, 6d, 8a or 9 of the Act is not pending; and
    (B) In the case of a sponsor which is a futures commission merchant, 
a retail foreign exchange dealer or a leverage transaction merchant, the 
sponsor is not subject to the reporting requirements ofSec. 1.12(b), 
Sec.  5.6(b) orSec. 31.7(b) of this chapter, respectively; and
    (C) Such person is not barred from service on self-regulatory 
organization governing boards or committees based on disciplinary 
history in accordance withSec. 1.63 of this chapter.
    (ii) If, in the response, the applicant or registrant states that he 
intends to make the showing referred to in paragraph (b)(2)(i) of this 
section, he shall also, within fifteen days after filing his initial 
response under paragraph (b) of this section, file with the Proceedings 
Clerk and serve a copy on the Division of Enforcement a submission which 
includes a statement of the applicant, registrant or his attorney 
identifying and summarizing the testimony of each witness whom the 
applicant or registrant intends to have testify in support of facts 
material to his showing, and copies of all documents which the applicant 
or registrant intends to introduce to support facts material to his 
showing. The factors forming the basis for a disqualified applicant's or 
registrant's showing referred to in paragraph (b)(2)(i) of this section 
may include:
    (A) Evidence mitigating the seriousness of the wrongdoing underlying 
the statutory disqualification set forth in the notice;
    (B) Evidence that the applicant or registrant has undergone 
rehabilitation since the time of the wrongdoing underlying the statutory 
disqualification; and
    (C) If the person is an associated person, floor broker or floor 
trader or an applicant for registration in any of those capacities, 
evidence that the applicant's or registrant's registration on a 
conditioned or restricted basis would be subject to supervisory controls 
likely both to detect future wrongdoing by the applicant or registrant 
and protect the public from any harm arising from the applicant's or 
registrant's future wrongdoing, including proposed conditions or 
restrictions.
    (c) Reply. Within thirty days after the latter of the date the 
applicant or registrant serves a copy of the response on the Division of 
Enforcement (if no further submission is to be made in accordance with 
paragraph (b)(2)(ii) of this section), or the date the applicant or 
registrant serves a copy of the further submission made in accordance 
with paragraph (b)(2)(ii) of this section on the Division of 
Enforcement, the Division of Enforcement shall file a reply thereto with 
the Proceedings Clerk and serve a copy of the reply on the applicant or 
registrant. The Division of Enforcement's reply shall include either:
    (1) A motion for summary disposition stating that there are no 
genuine issues of material fact to be determined and that registration 
should be denied or revoked, based upon the applicant's or registrant's 
response and further submission, if any, and any other materials which 
are attached to the reply and would be admissible underSec. 10.91 of 
this chapter; or
    (2) A description of factual issues raised in the applicant's or 
registrant's response and further submission, if any, that the Division 
of Enforcement regards as material and disputed. Such a reply shall also 
include the identity and a summary of the expected testimony of each 
witness whom the Division intends to have testify, and copies of all 
documents which the Division intends to introduce.

[[Page 183]]

    (d) Oral Presentation. Within thirty days of the date the Division 
of Enforcement files its reply in accordance with the provisions of 
paragraph (c) of this section to the applicant's or registrant's 
response and further submission, if any, the Administrative Law Judge 
shall issue an order:
    (1) If the Administrative Law Judge finds, based on the motion for 
summary disposition, that a party is entitled to judgment as a matter of 
law, granting, denying, suspending, or revoking the registration of an 
applicant or registrant, or dismissing the notice issued in accordance 
with paragraph (a) of this section, and such order shall be made in 
accordance with the standards set forth in paragraphs (e) and (f) of 
this section; or
    (2) Notifying the parties of a time and place of hearing. At such 
hearing, the parties shall be limited to presentation of witnesses and 
documents listed in previous filings except, for good cause shown, the 
parties may request that the witness and document lists be supplemented 
for purposes of rebuttal. Such oral hearing shall be conducted in 
accordance with Sec.Sec. 10.61-10.81 and 10.83 of this chapter. The 
Administrative Law Judge shall file an initial decision after completion 
of the oral hearing in accordance with the standards set forth in 
paragraphs (e) and (f) of this section.
    (3) Upon notice that the Administrative Law Judge has concluded that 
an oral presentation is appropriate, the parties may elect to 
participate by telephone in accordance with the terms set forth inSec. 
12.209(b) of this chapter. To effect such an election, the party shall 
file a notice with the Proceedings Clerk and serve a copy on all 
opposing parties within fifteen days of the date the Administrative Law 
Judge's notice is served. The filing of an election to participate by 
telephone will be deemed a waiver of the party's right to a full oral 
hearing on the parties' material disputes of fact. The Administrative 
Law Judge shall schedule a telephonic hearing only if all parties to the 
proceeding elect such a procedure. The Administrative Law Judge shall 
conduct such a hearing in accordance withSec. 12.209(b) of this 
chapter. Following the hearing, the Administrative Law Judge shall issue 
a written decision in accordance with the standards set forth in 
paragraphs (e) and (f) of this section.
    (e) Determination by Administrative Law Judge--Standards of Proof. 
The Administrative Law Judge's written determination shall specifically 
consider whether the Division of Enforcement has shown by a 
preponderance of the evidence that the applicant or registrant is 
subject to the statutory disqualification set forth in the notice issued 
by the Commission and, where appropriate:
    (1) In actions involving statutory disqualifications set forth in 
section 8a(2) of the Act, whether the applicant or registrant has made a 
clear and convincing showing that full, conditioned or restricted 
registration would not pose a substantial risk to the public despite the 
existence of the statutory disqualification; or
    (2) In actions involving statutory disqualifications set forth in 
sections 8a(3) or 8a(4) of the Act, whether the applicant or registrant 
has shown by a preponderance of the evidence that full, conditioned or 
restricted registration would not pose a substantial risk to the public 
despite the existence of the statutory disqualification.
    (f) Determination of Administrative Law Judge--Findings. In making 
his written determination, the Administrative Law Judge shall set forth 
the facts material to his conclusion and provide an explanation of his 
decision in light of the statutory disqualification set forth in the 
notice and, where appropriate, his findings regarding:
    (1) Evidence mitigating the seriousness of the wrongdoing underlying 
the applicant's or registrant's statutory disqualification;
    (2) Evidence that the applicant or registrant has undergone 
rehabilitation since the time of the wrongdoing underlying the statutory 
disqualification; and
    (3) If the person is an associated person, a floor broker or a floor 
trader or an applicant for registration in any of those capacities, 
evidence that the applicant's or registrant's registration on a 
conditioned or restricted basis would be subject to supervisory controls 
likely both to detect future wrongdoing by the applicant or registrant 
and protect

[[Page 184]]

the public from any harm arising from future wrongdoing by the applicant 
or registrant. Any decision providing for a conditioned or restricted 
registration shall take into consideration the applicant's or 
registrant's statutory disqualification and the time period remaining on 
such statutory disqualification, and shall fix a time period after which 
the registrant and his or her sponsor, supervising employer or floor 
broker, or supervising registrant, principal, contract market, or swap 
execution facility may petition to lift or modify the conditions or 
restrictions in accordance withSec. 3.64.
    (g) Default. The procedures for obtaining a default order and the 
setting aside of a default order in a proceeding instituted under this 
section shall follow the procedures set forth in Sec.Sec. 10.93 and 
10.94 of this chapter.
    (h) Settlements--(1) When offers may be made. Parties may, at any 
time during the course of the proceeding, propose offers of settlement. 
All offers of settlement shall be in writing.
    (2) Content of offer. Each offer of settlement made by a respondent 
shall:
    (i) Acknowledge service of the notice;
    (ii) Admit the jurisdiction of the Commission with respect to the 
matters set forth in the notice;
    (iii) Include a waiver of:
    (A) A hearing,
    (B) All post-hearing procedures,
    (C) Judicial review, and
    (D) Any objection to the staff's participation in the Commission's 
consideration of the offer;
    (iv) Stipulate the record basis on which an order may be entered, 
which may consist solely of the notice and any findings contained in the 
offer of settlement; and
    (v) Consent to the entry of an order reflecting the terms of 
settlement agreed upon, including, where appropriate:
    (A) Findings that the respondent is subject to statutory 
disqualification under sections 8a(2), 8a(3), or 8a(4) of the Act, and
    (B) The revocation, suspension, denial or granting of full 
registration or imposition of conditioned or restricted registration.
    (3) Submission of offer. Offers of settlement made by a respondent 
shall be submitted in writing to the Division of Enforcement, which 
shall present them to the Commission with the Division's recommendation. 
The respondent will be informed if the recommendation will be 
unfavorable, in which event the offer shall not be presented to the 
Commission unless the respondent so requests. Any offer of settlement 
not presented to the Commission shall be null and void with respect to 
any acknowledgment, admission, waiver, stipulation or consent contained 
in the offer and shall not be used in any manner in the proceeding by 
any party thereto.
    (4) Acceptance of offer. The offer of settlement will only be deemed 
accepted upon issuance by the Commission of an opinion and order based 
on the offer. Upon issuance of the opinion and order, the proceeding 
shall be terminated as to the respondent involved and so noted on the 
docket by the Proceedings Clerk.
    (5) Rejection of offer. When an offer of settlement is rejected, the 
party making the offer shall be notified by the Division of Enforcement 
and the offer of settlement shall be deemed withdrawn. A rejected offer 
of settlement and any documents relating thereto shall not constitute a 
part of the record in the proceeding; and the offer will be null and 
void with respect to any acknowledgment, admission, waiver, stipulation 
or consent contained in the offer and shall not be used in any manner in 
the proceeding by any party thereto.
    (i) Effect of the Administrative Law Judge's Determination. The 
Administrative Law Judge's written determination shall become the final 
decision of the Commission thirty days following the date the 
Proceedings Clerk serves the determination on the parties unless:
    (1) One or more of the parties files and serves a timely notice of 
appeal in accordance withSec. 10.102 of this chapter; or
    (2) The Commission issues an order staying the effective date of the 
determination and notifying the parties of its intention to undertake 
sua sponte review in accordance withSec. 10.105 of this chapter.
    (j) Appeal. Following the filing of a notice of appeal, the rules of 
appellate

[[Page 185]]

procedure set forth in Sec.Sec. 10.102, 10.103, 10.104, 10.106, 10.107 
and 10.109 of this chapter shall apply to any proceeding brought under 
this section.
    (k) With the exception of Sec.Sec. 10.2 through 10.5, 10.7 through 
10.12(a) (1), 10.12(a) (3) through 10.12(g), 10.26(a)-(d), 10.34, 10.43, 
10.44 and 10.84 of this chapter, or unless otherwise provided in 
Sec.Sec. 3.50 through 3.64 of this part, the provisions of the 
Commission's Rules of Practice in part 10 of this chapter shall not 
apply in any proceeding brought under this part to deny, suspend, 
revoke, restrict or condition registration pursuant to sections 8a(2), 
8a(3) or 8a(4) of the Commodity Exchange Act.
    (l) The failure of any sponsor, supervising employer or floor 
broker, or supervising registrant, principal, contract market, or swap 
execution facility to fulfill its obligations with respect to 
supervision or monitoring of a conditioned or restricted registrant as 
agreed to in the Supplemental Sponsor Certification Statement shall be 
deemed a violation of this rule under the Act.

[57 FR 23152, June 2, 1992, as amended at 58 FR 19596, Apr. 15, 1993; 60 
FR 54801, Oct. 26, 1995; 75 FR 55428, Sept. 10, 2010; 77 FR 51908, Aug. 
28, 2012]



Sec.  3.61  Extensions of time for proceedings brought underSec. 3.55,
Sec. 3.56, andSec. 3.60 of this part.

    (a) In general. Except as otherwise provided by law or by these 
rules, for good cause shown, the Commission or an Administrative Law 
Judge before whom a proceeding brought underSec. 3.55,Sec. 3.56 or 
Sec.  3.60 is then pending, on their own motion or the motion of a 
party, may at any time extend or shorten the time limit prescribed by 
those rules for filing any document. In any instance in which a time 
limit is not prescribed for an action to be taken concerning any matter, 
the Commission or the Administrative Law Judge may set a time limit for 
that action.
    (b) Motions for extension of time. Absent extraordinary 
circumstances, in any instance in which a time limit that has been 
prescribed for an action to be taken concerning any matter exceeds seven 
days from the date of the order establishing the time limit, requests 
for extension of time shall be filed at least five (5) days prior to the 
expiration of the time limit and shall explain why an extension of time 
is necessary.

[57 FR 23154, June 2, 1992, as amended at 58 FR 19597, Apr. 15, 1993]



Sec.  3.62  [Reserved]



Sec.  3.63  Service of order issued by an Administrative Law Judge
or the Commission.

    A copy of any order issued pursuant toSec. 3.60 of this part shall 
be served promptly upon the applicant or registrant, the Division of 
Clearing and Intermediary Oversight, the Division of Enforcement, the 
National Futures Association, and any contract markets where the 
applicant or registrant is a member or has trading privileges in 
accordance with the provisions ofSec. 3.50(a) of this part.

[57 FR 23154, June 2, 1992, as amended at 67 FR 62351, Oct. 7, 2002]



Sec.  3.64  Procedure to lift or modify conditions or restrictions.

    (a) Petition. The registrant and his sponsor or supervising floor 
broker may file a petition with the Proceedings Clerk and serve a copy 
of the petition on the Division of Enforcement to lift or modify 
conditions or restrictions on the registrant's registration.
    (1) The petition may be filed after the period specified in the 
order imposing the conditioned or restricted registration.
    (2) In the petition, the registrant and his or her sponsor, 
supervising employer or floor broker, or supervising registrant, 
principal, contract market, or swap execution facility shall be limited 
to a showing, by affidavit, that the conditions or restrictions have 
been satisfied pursuant to the order which imposed them. The affidavit 
must be sworn to by a person with actual knowledge of the registrant's 
activities on behalf of the sponsor, supervising employer or floor 
broker, or supervising registrant, principal, contract market or swap 
execution facility.
    (b) Response. (1) Within thirty days of receipt of the petition, 
pursuant to

[[Page 186]]

paragraph (a) of this section, the Division of Enforcement shall file a 
response with the Proceedings Clerk. The response must include a 
recommendation by the Division of Enforcement as to whether to continue 
the conditions or restrictions, modify the conditions or restrictions, 
or to allow for a full registration.
    (2) If the Division of Enforcement agrees with the petitioner's 
request to lift or modify conditions or restrictions on the petitioner's 
registration, it shall so recommend to the Commission. Such 
recommendation will only be deemed accepted upon issuance by the 
Commission of an order lifting or modifying conditions or restrictions 
on the petitioner's registration. Such order shall be so noted on the 
docket by the Proceedings Clerk.
    (c) Oral presentation. If the Division of Enforcement requests a 
continuation, or a modification other than in accordance with the terms 
of the petition, of the restrictions or conditions on the registration, 
the Administrative Law Judge shall, within thirty days of the date that 
the response is filed pursuant to paragraph (b) of this section, 
determine whether an oral presentation is appropriate to the reliable 
resolution of the registrant's petition.
    (1) If the Administrative Law Judge determines that an oral 
presentation is appropriate, he shall notify the parties of his 
determination and shall schedule and conduct an oral hearing in 
accordance with Sec.Sec. 10.61 through 10.81 of this chapter. 
Following the hearing, the Administrative Law Judge shall issue a 
written decision or an order.
    (2) If the Administrative Law Judge concludes that an oral 
presentation is unnecessary, he shall notify the parties and issue a 
written decision or an order.
    (d) Effect of the Administrative Law Judge's determination. The 
Administrative Law Judge's written determination shall become the final 
decision of the Commission thirty days following the date the 
Proceedings Clerk serves the determination on the registrant, the 
registrant's sponsor, supervising employer or floor broker, or 
supervising registrant, principal or contract market, and the Division 
of Enforcement unless one or more of the parties files a timely notice 
of appeal in accordance withSec. 10.102 of this chapter.
    (e) Appeal. Following the filing of a notice of appeal, the rules of 
appellate procedure set forth in Sec.Sec. 10.102, 10.103, 10.104, 
10.106, 10.107 and 10.109 of this chapter shall apply to any proceeding 
brought under this section.

[57 FR 23154, June 2, 1992, as amended at 58 FR 19597, Apr. 15, 1993; 60 
FR 54801, Oct. 26, 1995; 77 FR 51909, Aug. 28, 2012]



             Subpart D_Notice Under Section 4k(5) of the Act



Sec.  3.70  Notification of certain information regarding associated
persons.

    (a) Notice. A registrant must notify the Commission under section 
4k(5) of the Act of any facts regarding an associated person of the 
registrant or an applicant for registration as an associated person whom 
it has sponsored pursuant to the provisions ofSec. 3.12 of this part 
or whom it intends to hire or otherwise employ as an associated person 
which are set forth as statutory disqualifications in section 8a(2) of 
the Act within ten business days of the date upon which the registrant 
first knows or should have known such facts. Notice to the Commission 
shall be sufficient if the registrant gives notice to the Director of 
the Division of Clearing and Intermediary Oversight or the Director's 
designee by telephone and confirms such notice in writing by certified 
or registered mail or equivalent means to the Commission at its 
Washington, DC office (Attn: Deputy Director, Compliance and 
Registration Section, Division of Clearing and Intermediary Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581).
    (b) Unlawful to act as an associated person. Upon the earlier of 
notification to the Commission by the registrant pursuant to paragraph 
(a) of this section, or actual receipt of notice to the registrant 
pursuant toSec. 3.50(b)(1) of this part, that an associated person of 
the registrant or an applicant for registration as an associated person 
may be subject to a statutory disqualification as set forth in section 
8a(2) of the Act, it shall be unlawful for the registrant to permit such 
person to act in

[[Page 187]]

the capacity of an associated person of the registrant until the 
Commission determines that such person should nonetheless be registered.
    (c) Proceedings under subpart C. Upon notification to the Commission 
by the registrant under paragraph (a) of this section, the Commission 
may promptly issue notice underSec. 3.55 orSec. 3.60 of this part, 
as appropriate, to suspend and revoke the registration of the associated 
person of the registrant or to deny the registration of the applicant 
for registration as an associated person of the registrant.

[49 FR 8223, Mar. 5, 1984, as amended at 57 FR 23155, June 2, 1992; 60 
FR 49334, Sept. 25, 1995; 67 FR 62351, 62352, Oct. 7, 2002]



            Subpart E_Delegation and Reservation of Authority



Sec.  3.75  Delegation and reservation of authority.

    (a) The Commission hereby delegates, until such time as it orders 
otherwise, to the Director of the Division of Swap Dealer and 
Intermediary Oversight or his or her designee the authority to grant or 
deny requests filed pursuant toSec. 3.12(g). The Director of the 
Division of Swap Dealer and Intermediary Oversight may submit to the 
Commission for its consideration any matter which has been delegated to 
him pursuant toSec. 3.12(g). The Commission hereby delegates, until 
such time as it orders otherwise, the authority to perform all functions 
specified in subparts B through D of this part to the persons authorized 
to perform them thereunder.
    (b) Nothing in this subpart shall prevent the Commission from 
exercising the authority delegated therein.
    (c) The Commission reserves to itself the decision in any case to 
proceed by order, upon notice and hearing, to deny, suspend, condition 
or restrict the registration of any person pursuant to sections 8a(2), 
8a(3) and 8a(4) of the Act.
    (d) Nothing in this part shall affect the authority of the 
Commission to institute a proceeding pursuant to section 6(c) of the 
Act.
    (e) The Commission may, by order of delegation, authorize a futures 
association registered pursuant to section 17 of the Act to perform all 
or any portion of the registration functions under subparts B through D 
in accordance with rules or procedures adopted by such futures 
association and submitted to the Commission pursuant to section 17(j) of 
the Act and subject to the applicable provisions of the Act.

[49 FR 8224, Mar. 5, 1984, as amended at 57 FR 23155, June 2, 1992; 59 
FR 5315, Feb. 4, 1994; 77 FR 51909, Aug. 28, 2012]



  Sec. Appendix A to Part 3--Interpretative Statement With Respect to 
 Section 8a(2)(C) and (E) and Section 8a(3)(J) and (M) of the Commodity 
                              Exchange Act

                        Section 8a(2) (C) and (E)

    The provisions of sections 8a(2)-8a(4) of the Commodity Exchange Act 
(``Act'') establish a system of statutory disqualifications pursuant to 
which the Commission may find an applicant or registrant unfit for 
registration and vest the Commission with wide discretion to deny, 
condition, suspend, restrict or revoke the registration of any person 
subject to one or more of the disqualifications set forth therein. The 
Commission recognizes that the full exercise of its authority under 
these provisions of the Act may have unintended results. In particular, 
the exercise of such authority may, in certain cases, impede the 
efficient enforcement of the Act and the various federal and state 
securities acts.
    At this time, the Commission cannot anticipate all of the 
circumstances under which it may elect not to exercise its authority 
under sections 8a(2)-8a(4). Until the Commission has gained experience 
with these provisions of the Act, such determinations generally must be 
made on a case-by-case basis. Nonetheless, the Commission has identified 
two paragraphs of section 8a(2) of the Act which it has determined to 
interpret more narrowly than required.
    Section 8a(2)(C). Section 8a(2) of the Act authorizes the Commission 
to deny, condition, suspend or restrict the registration of any person 
``upon notice, but without a hearing'' and to revoke the registration of 
any person ``with such hearing as may be appropriate,'' if such person 
is subject to one or more of the disqualifications described in 
paragraphs (A)-(H). Section 8a(2)(C) authorizes the Commission to affect 
the registration of any person:

    ``if such person is permanently or temporarily enjoined by order, 
judgment, or decree of any court of competent jurisdiction * * * , 
including an order entered pursuant to an agreement of settlement to 
which the Commission or any Federal or State agency or other 
governmental body is a party, from (i)

[[Page 188]]

acting as a futures commission merchant, introducing broker, floor 
broker, floor trader, commodity trading advisor, commodity pool 
operator, associated person of any registrant under the Act, securities 
broker, securities dealer, municipal securities broker, municipal 
securities dealer, transfer agent, clearing agency, securities 
information processor, investment advisor, investment company, or 
affiliated person or employee of any of the foregoing or (ii) engaging 
in or continuing any activity involving any transaction in or advice 
concerning contracts of sale of a commodity for future delivery, 
concerning matters subject to Commission regulation under section 4c or 
19 of the Act, or concerning securities;''

    The Commission believes that a person enjoined from acting in a 
certain capacity as described in section 8a(2)(C)(i), even if the order 
of injunction is entered into pursuant to an agreement of settlement, 
similarly should be prohibited from acting in any other capacity which 
requires registration with the Commission. Therefore, the Commission 
does not intend to limit its authority under section 8a(2)(C)(i) of the 
Act.
    However, the Commission is also aware that it has often initiated 
proceedings in which the sole relief sought was an injunction from 
engaging in certain conduct. In such circumstances, the Commission has 
accepted offers of settlement which provide that the findings set forth 
in the settlement will not form the sole basis for the denial, 
suspension or revocation of such person's registration with the 
Commission. The Commission does not wish to impede the resolution by 
negotiated settlement of such proceedings. Therefore, the Commission has 
determined that it will not exercise its authority under section 
8a(2)(C)(ii) of the Act with respect to any person temporarily or 
permanently enjoined by agreement of settlement from engaging in any 
conduct described in that paragraph, if the agreement of settlement 
clearly restricts the use of such order of injunction or any findings 
set forth therein in subsequent or collateral proceedings.
    Thus, a provision in the agreement of settlement to the effect, 
inter alia, that the findings set forth in the agreement will not form 
the sole basis upon which the registration of such person may be 
affected will preclude a collateral proceeding under section 
8a(2)(C)(ii) where the sole basis for such proceeding is the agreement 
of settlement. Unless otherwise precluded in the agreement of 
settlement, however, the person will be collaterally estopped from 
denying the findings set forth therein, whether or not admitted, in any 
other subsequent or collateral proceeding and such findings may, in 
conjunction with the findings in such subsequent or collateral 
proceeding, form a basis for affecting the registration of that person 
or imposing such other sanctions as may be deemed appropriate.
    Section 8a(2)(E) of the Act authorizes the Commission to affect the 
registration of any person:

    If such person, within ten years preceding the filing of the 
application or at any time thereafter, has been found in a proceeding 
brought by the Commission or any Federal or State agency or other 
governmental body, or by agreement of settlement to which the Commission 
or any Federal or State agency or other governmental body is a party, 
(i) to have violated any provision of this Act, [the securities acts], 
chapter 96 of title 18 of the United States Code, or any similar statute 
of a State or foreign jurisdiction, or any rule, regulation, or order 
under any such statutes, or the rules of the Municipal Securities 
Rulemaking Board where such violation involves embezzlement, theft, 
extortion, fraud, fraudulent conversion, misappropriation of funds, 
securities or property, forgery, counterfeiting, false pretenses, 
bribery, or gambling, or (ii) to have willfully aided, abetted, 
counseled, commanded, induced, or procured such violation by any other 
person;

    As in section 8a(2)(C)(ii), the Commission will not exercise its 
authority under section 8a(2)(E) of the Act with respect to any person 
subject to a statutory disqualification thereunder, if the findings are 
part of an agreement of settlement which clearly restricts the use of 
such findings by inclusion of a provision to the effect, inter alia, 
that the findings set forth in the agreement will not form the sole 
basis upon which the registration of such person may be affected.
    Section 2(a)(1)(A) of the Act, inter alia, codifies the legal 
concept of respondant superior by providing that a futures commission 
merchant, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant may be held liable for the 
conduct of an associated person sponsored by such registrant. \*\ Thus, 
findings of the type described in paragraph (E) may be entered against a 
registrant solely because such registrant is responsible, under section 
2(a)(1)(A) of the Act, for the conduct of its associated persons. As 
prescribed inSec. 3.57 of the Commission's regulations, however, the 
Commission will not exercise its authority under section 8a(2)(E) to 
affect the registration of such registrant, if respondant

[[Page 189]]

superior is the sole basis for finding that the registrant is subject to 
a statutory disqualification.
---------------------------------------------------------------------------

    \*\ Specifically, section 2(a)(1)(A)(iii) of the Act provides in 
part, that the ``act, omission or failure of any official, agent, or 
other person acting for any individual, association, partnership, 
corporation, or trust within the scope of his employment or office shall 
be deemed the act, omission, or failure of such individual, association, 
partnership, corporation, or trust as well as of such official, agent, 
or other person.'' 7 U.S.C. 4 (1982).
---------------------------------------------------------------------------

    The Commission notes that section 8a(3)(C) and 8a(4) authorize the 
Commission to affect the registration of a person if it is found, after 
notice and opportunity for a hearing, that such person ``failed 
reasonably to supervise another person, who is subject to such person's 
supervision, with a view to preventing violations of this Act or [the 
securities acts], or of any of the rules, regulation or orders 
thereunder, and the person subject to supervision committed such a 
violation * * *'' In this connection, the Commission believes that any 
proceeding to affect the registration of a registrant against which 
findings have been made solely pursuant to section 2(a)(1)(A) of the Act 
is more appropriately initiated under the provisions of section 8a(3)(C) 
and 8a(4).
    Section 8a(2)(E) may also be interpreted to authorize the Commission 
to affect the registration of any person if the findings described 
therein are made in a proceeding initiated by a private party either in 
a court of law or in a reparations proceeding under section 14 of the 
Act. At the present time, however, the Commission does not intend to 
exercise its authority under section 8a(2)(E) on the basis of such 
findings. The Commission believes that such proceedings are intended 
primarily to provide restitution to the customer and are not intended to 
be punitive in nature. Therefore, it may not be appropriate to use 
findings in such proceedings to affect the registration of any person 
under section 8a(2)(E).
    At the same time, however, such findings may form the basis of a 
proceeding against a person under the provisions of section 8a(3)(M) and 
8a(4), which authorize the Commission, after notice and opportunity for 
a hearing, to deny, condition, suspend, restrict or revoke the 
registration of any person if ``there is other good cause.'' Similarly, 
such findings may form the basis for a proceeding against a registrant 
under sections 8a(3)(C) and 8a(4) for the failure of such registrant 
``reasonably to supervise another person, who is subject to such 
person's supervision, with a view to preventing violations of this Act * 
* * or of any of the rules, regulations or orders thereunder * * *'' 
Moreover, because the Commission views actions by private parties as an 
important adjunct to the Commission's own enforcement proceedings, the 
Commission intends to monitor carefully decisions in such proceedings 
and may amend this interpretation if deemed appropriate.

                        Section 8a(3) (J) and (M)

    Section 8a(3) authorizes the Commission to refuse to register an 
applicant for registration if, after notice and opportunity for a 
hearing, the applicant is found subject to one or more of the 
disqualifications described in paragraphs (A)-(M). Section 8a(4) 
authorizes the Commission, after notice and opportunity for a hearing, 
to condition, suspend, restrict, or revoke the registration of any 
person subject to a disqualification under section 8a(3).
    Section 8a(3)(J) authorizes the Commission to affect the 
registration of any person if:

    such person is subject to an outstanding order denying, suspending, 
or expelling such person from membership in a contract market, a 
registered futures association, any other self-regulatory organization 
or any foreign regulatory body that the Commission recognizes as having 
a comparable regulatory program, or barring or suspending such person 
from being associated with any member or members of such contract 
market, association, self-regulatory organization, or foreign regulatory 
body.

    The Commission interprets the term ``self-regulatory organization'' 
to include, in addition to a contract market and a registered futures 
association, any self-regulatory organization as defined in section 
3(a)(26) of the Securities Exchange Act of 1934. Thus, a self-regulatory 
organization includes any national securities exchange, any registered 
securities association, any registered clearing agency and the Municipal 
Securities Rulemaking Board.
    Section 8a(3)(M). Section 8a(3)(M) authorizes the Commission to 
affect the registration of any person if ``there is other good cause''. 
Specifically, the Commission interprets paragraph (M) to authorize the 
Commission to refuse to register such person in any new capacity, if 
such person, or any principal of such person, is the subject of an 
administrative proceeding brought by the Commission to revoke the 
existing registration of such person in any other capacity, pending a 
final decision in such administrative proceeding. The Commission 
believes it would be inconsistent to register a person in a new 
capacity, thereby determining that such person is qualified to be 
registered, while simultaneously seeking to revoke such person's 
registration in a different capacity because such person's conduct 
disqualifies him from registration.
    Similarly, the Commission interprets paragraph (M) to authorize the 
Commission to refuse to register, register conditionally or otherwise 
affect the registration of any person if such person has consented, in 
connection with an agreement of settlement with a contract market, a 
registered futures association, or any other self-regulatory 
organization, to comply with an undertaking to withdraw all forms of 
existing or pending registration and/or not to apply for registration 
with the National Futures Association or the Commission in any capacity. 
Such

[[Page 190]]

person's effort to violate his or her prior undertaking to withdraw from 
and/or not to apply for registration shall be considered to constitute 
``other good cause'' under paragraph (M). The Commission believes that 
allowing such a person to be registered would be inappropriate and 
inconsistent with the intention of parties to the prior settlement 
agreement. The failure to withdraw or the attempt to register in the 
face of such an undertaking would indicate the lack of fair and honest 
dealing which the Commission believes constitutes ``other good cause'' 
for denying, revoking or conditioning registration under the Act. The 
Commission also believes that allowing registration in such a situation 
would be inconsistent with both Section 8a(2)(A), which authorizes the 
Commission to refuse to register, to register conditionally, or to 
revoke, suspend or place restrictions upon the registration of any 
person if such person's prior registration has been suspended (and the 
period of such suspension has not expired) or has been revoked, and 
Section 8a(3)(J), which authorizes the Commission to refuse to register 
or to register conditionally any person if he or she is subject to an 
outstanding order denying, suspending, or expelling such person from 
membership in a contract market, a registered futures association, or 
any other self-regulatory organization.
    Good cause to affect a person's registration also exists: (1) If the 
operations of such person disrupt or would tend to disrupt orderly 
market conditions, or cause or would tend to cause sudden or 
unreasonable fluctuations or unwarranted changes in the price of 
commodities or contracts for future delivery of commodities or commodity 
options; (2) if such person has used or is using in its name a term such 
as ``board of trade'', ``clearing corporation'' or ``exchange'' in a 
misleading context, or uses any terms in its representations to the 
public which may indicate that the person is a contract market or a 
member of a contract market when such is not the case, or has used or is 
using a misleading name which would tend to suggest to the public that 
the person is affiliated with another person when that is not the case 
or that the person is engaged in a commodity-related business when the 
person is not in fact substantially so engaged, or has failed to 
disclose to the public an agency relationship with another person when 
such failure could mislead the public; (3) if such person is subject to 
an outstanding order denying, suspending or revoking the license of such 
person by a licensing authority, such as a state real estate or 
insurance commission; and (4) if such person has failed to answer the 
inquiries or requests for further information concerning an application 
for registration filed with the Commission.
    This listing, of course, is not exclusive. In general, the 
Commission interprets paragraph (M) to authorize the Commission to 
affect the registration of any person if, as a result of any act or 
pattern of conduct attributable to such person, although never the 
subject of formal action or proceeding before either a court or 
governmental agency, such person's potential disregard of or inability 
to comply with the requirements of the Act or the rules, regulations or 
order thereunder, or such person's moral turpitude, or lack of honesty 
or financial responsibility is demonstrated to the Commission.
    Any inability to deal fairly with the public and consistent with 
just and equitable principles of trade may render an applicant or 
registrant unfit for registration, given the high ethical standards 
which must prevail in the industry.
    The Commission has further addressed ``other good cause'' under 
Section 8a(3)(M) of the Act in issuing guidance letters on assessing the 
fitness of floor brokers, floor traders or applicants in either 
category:

[First guidance letter]

December 4, 1997

Robert K. Wilmouth, President, National Futures Association, 200 West 
          Madison Street, Chicago, IL 60606-3447

Re: Adverse Registration Actions with Respect to Floor Brokers, Floor 
          Traders and Applicants for Registration in Either Category

    Dear Mr. Wilmouth: As you know, the Commission on June 26, 1997, 
approved for publication in the Federal Register a Notice and Order 
concerning adverse registration actions by the National Futures 
Association (``NFA'') with respect to registered floor brokers 
(``FBs''), registered floor traders (``FTs'') and applicants for 
registration in either category. 62 Fed. Reg. 36050 (July 3, 1997). The 
Notice and Order authorized NFA to grant or to maintain, either with or 
without conditions or restrictions, FB or FT registration where NFA 
previously would have forwarded the case to the Commission for review of 
disciplinary history. The Commission has worked with its staff to 
determine which of the pending matters could efficiently be returned to 
NFA for handling, and such matters have been forwarded to NFA. The 
Commission will continue to accept or to act upon requests for 
exemption, and the Commission staff will consider requests for ``no-
action'' opinions with respect to applicable registration requirements.
    By this correspondence, the Commission is issuing guidance that 
provides NFA further direction on how it expects NFA to exercise its 
delegated power, based upon the experience of the Commission and the 
staff with the registration review process during the past three years. 
This guidance will help ensure that NFA exercises its delegated power

[[Page 191]]

in a manner consistent with Commission precedent.
    In exercising its delegated authority, NFA, of course, needs to 
apply all of the provisions of Sections 8a(2) and (3) of the Commodity 
Exchange Act (``Act''). \1\ In that regard, NFA should consider the 
matters in which the Commission has taken action in the past and 
endeavor to seek similar registration restrictions, conditions, 
suspensions, denials, or revocations under similar circumstances.
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 12a(2) and (3) (1994). The letter is intended to 
supplement, not to supersede, other guidance provided in the past to 
NFA. In this regard, the NFA should continue to follow other guidance 
provided by the Commission or its staff.
---------------------------------------------------------------------------

    One of the areas in which NFA appears to have had the most 
uncertainty is with regard to previous self-regulatory organization 
(``SRO'') disciplinary actions. Commission Rule 1.63 \2\ provides clear 
guidelines for determining whether a person's history of ``disciplinary 
offenses'' should preclude service on SRO governing boards or 
committees. \3\ In determining whether to grant or to maintain, either 
with or without conditions or restrictions, FB or FT registration, NFA 
should, as an initial matter, apply the Rule 1.63(a)(6) criteria to 
those registered FBs, registered FTs and applicants for registration in 
either category. However, NFA should be acting based upon any such 
offenses that occurred within the previous five years, rather than the 
three years provided for in Rule 1.63(c). NFA should consider 
disciplinary actions taken by an SRO as that term is defined in Section 
3(a)(26) of the Securities Exchange Act of 1934 no differently from 
disciplinary actions taken by an SRO in the futures industry as defined 
in Rule 1.3(ee). \4\ Application of the Rule 1.63 criteria, as modified, 
to these matters will aid NFA in making registration determinations that 
are reasonably consonant with Commission views. \5\ NFA should focus on 
the nature of the underlying conduct rather than the sanction imposed by 
an SRO. Thus, if a disciplinary action would not come within the 
coverage of Rule 1.63 but for the imposition of a short suspension of 
trading privileges (such as for a matter involving fighting, use of 
profane language or minor recordkeeping violations), NFA could exercise 
discretion, as has the Commission, not to institute a statutory 
disqualification case. On the other hand, conduct that falls clearly 
within the terms of Rule 1.63, such as violations of rules involving 
potential harm to customers of the exchange, should not be exempt from 
review simply because the exchange imposed a relatively minor sanction.
---------------------------------------------------------------------------

    \2\ Commission rules referred to herein are found at 17 CFR Ch. I.
    \3\ Rule 1.63(c) provides that a person is ineligible from serving 
on an SRO's disciplinary committees, arbitration panels, oversight 
panels or governing board if, as provided in Rule 1.63(b), the person, 
inter alia: (1) within the past three years has been found by a final 
decision of an SRO, an administrative law judge, a court of competent 
jurisdiction or the Commission to have committed a disciplinary offense; 
or (2) within the past three years has entered into a settlement 
agreement in which any of the findings or, in the absence of such 
findings, any of the acts charged included a disciplinary offense.
    Rule 1.63(a)(6) provides that a ``disciplinary offense'' includes: 
(i) any violation of the rules of an SRO except those rules related to 
(A) decorum or attire, (B) financial requirements, or (C) reporting or 
record-keeping unless resulting in fines aggregating more than $5,000 
within any calendar year; (ii) any rule violation described in 
subparagraphs (A) through (C) above that involves fraud, deceit or 
conversion or results in a suspension or expulsion; (iii) any violation 
of the Act or the regulations promulgated thereunder; or (iv) any 
failure to exercise supervisory responsibility with respect to an act 
described in paragraphs (i) through (iii) above when such failure is 
itself a violation of either the rules of an SRO, the Act or the 
regulations promulgated thereunder.
    \4\ Thus, for example, a disciplinary action taken by the Chicago 
Board Options Exchange or the National Association of Securities 
Dealers, Inc. should be considered in a manner similar to a disciplinary 
action of the Chicago Board of Trade or NFA.
    \5\ In reviewing these matters, the NFA should bear in mind recent 
Commission precedent which allows for reliance on settled disciplinary 
proceedings in some circumstances. See In the Matter of Michael J. 
Clark, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 27,032 
(Apr. 22, 1997) (``other good cause'' under Section 8a(3)(M) of the Act 
exists based upon a pattern of exchange disciplinary actions resulting 
in significant sanctions for serious rule violations--whether 
settlements or adjudications), aff'd sub nom., Clark v. Commodity 
Futures Trading Commission, No. 97-4228 (2d Cir. June 4, 1999) 
(unpublished).
---------------------------------------------------------------------------

    The Commission has treated the registration process and the SRO 
disciplinary process as separate matters involving separate 
considerations. The fact that the Commission has not pursued its own 
enforcement case in a particular situation does not necessarily mean 
that the Commission considers the situation to be a minor matter for 
which no registration sanctions are appropriate. Further, the Commission 
believes that it and NFA, entities with industry-wide perspective and 
responsibilities, are the appropriate bodies, rather than any individual 
exchange, to

[[Page 192]]

decide issues relating to registration status, which can affect a 
person's ability to function in the industry well beyond the 
jurisdiction of a particular exchange. Thus, NFA's role is in no way 
related to review of exchange sanctions for particular conduct, but 
rather it is the entirely separate task of determining whether an FB's 
or FT's conduct should impact his or her registration.
    NFA also should look to Commission precedent in selecting conditions 
or restrictions to be imposed, such as a dual trading ban where a person 
has been involved in disciplinary offenses involving customer abuse. 
Where conditions or restrictions are imposed, or agreed upon, NFA also 
should follow Commission precedent, under which such conditions or 
restrictions generally have been imposed for a two-year period.
    The Commission has required sponsorship for conditioned FBs and FTs 
when their disciplinary offenses have involved noncompetitive trading 
and fraud irrespective of the level of sanctions imposed by an SRO. 
Indeed, but for a sponsorship requirement there would be no one 
routinely watching and responsible for the activities of these 
registrants. Absent sponsorship, such FBs and FTs would only be subject 
to routine Commission and exchange surveillance. The Commission's rules 
are premised upon the judgment that requiring FTs and FBs to have 
sponsors to ensure their compliance with conditions is both appropriate 
and useful. See Rule 3.60(b)(2)(i).
    A question has arisen whether, if NFA is required to prove up the 
underlying facts of an SRO disciplinary action, the exchanges can 
provide information on exchange disciplinary proceedings directly to 
NFA. Although Section 8c(a)(2) of the Act states that an exchange shall 
not disclose the evidence for a disciplinary action except to the person 
disciplined and to the Commission, Section 8a(10) of the Act allows the 
Commission to authorize any person to perform any portion of the 
registration functions under the Act, notwithstanding any other 
provision of law. The effective discharge of the delegated registration 
function requires NFA to have access to the exchange evidence. Thus, the 
Commission believes that Section 8a(10) may reasonably be interpreted to 
allow the disclosure of information from exchange disciplinary 
proceedings directly to NFA despite the provisions of Section 8c(a)(2).
    Nothing in the Notice and Order affects the Commission's authority 
to review the granting of a registration application by NFA in the 
performance of Commission registration functions, including review of 
the sufficiency of conditions or restrictions imposed by NFA, to review 
the determination by NFA not to take action to affect an existing 
registration, or to take its own action to address a statutory 
disqualification. Moreover, the Commission Order contemplates that to 
allow for appropriate Commission oversight of NFA's exercise of this 
delegated authority, NFA will provide for the Commission's review 
quarterly schedules of all applicants cleared for registration and all 
registrants whose registrations are maintained without adverse action by 
NFA's Registration, Compliance, Legal Committee despite potential 
statutory disqualifications.
    The Commission will continue to monitor NFA activities through 
periodic rule enforcement reviews, and NFA remains subject to the 
present requirement that it monitor compliance with the conditions and 
restrictions imposed on conditioned and restricted registrants.
    Sincerely,

Jean A. Webb, Secretary of the Commission

[Second guidance letter]

April 13, 2000

Robert K. Wilmouth, President, National Futures Association, 200 West 
          Madison Street, Chicago, IL 60606-3447

Re: Use of Exchange Disciplinary Actions as ``Other Good Cause'' to 
          Affect Floor Broker/Floor Trader Registration

    Dear Mr. Wilmouth:

                     I. Introduction and Background

    In July 1997, the Commission issued a Notice and Order authorizing 
the National Futures Association (``NFA'') to grant or to maintain, 
either with or without conditions or restrictions, floor broker (``FB'') 
or floor trader (``FT'') registration where NFA previously would have 
forwarded the case to the Commission for review of disciplinary history. 
\1\ By letter dated December 4, 1997 (``Guidance Letter''), the 
Commission provided further direction on how the Commission expected NFA 
to exercise its delegated power and to ensure that NFA exercised its 
delegated power in a manner consistent with Commission precedent.
---------------------------------------------------------------------------

    \1\ Registration Actions by National Futures Association With 
Respect to Floor Brokers, Floor Traders and Applicants for Registration 
in Either Category, 62 FR 36050 (July 3, 1997).
---------------------------------------------------------------------------

    The Commission has determined to revise the Guidance Letter. 
Specifically, the Commission is revising the portion of the Guidance 
Letter that addresses the use of exchange disciplinary actions as 
``other good cause'' to affect FB and FT registrations. The Commission 
has made this determination following its own reconsideration of the 
issue and at the urging of industry members. \2\
---------------------------------------------------------------------------

    \2\ See letters submitted by James Bowe, former president of the New 
York Board of Trade (``NYBOT''), dated October 13, 1999, Christopher 
Bowen, general counsel of the New York Mercantile Exchange (``NYMEX''), 
dated October 18, 1999, and the Joint Compliance Committee (``JCC''), 
dated February 2, 2000. The JCC consists of senior compliance officials 
from all domestic futures exchanges and the NFA (i.e., the domestic 
self-regulatory organizations (``SROs'')). In addition, staff from the 
Contract Markets Section of the Commission's Division of Clearing and 
Intermediary Oversight attend the JCC meetings as observers. The JCC was 
established to aid in the development of improved compliance systems 
through joint efforts and information-sharing among the SROs. Commission 
staff have also discussed this issue with SRO staff.

---------------------------------------------------------------------------

[[Page 193]]

    The Guidance Letter pointed out that, in exercising its delegated 
authority, NFA must apply all of the provisions of Sections 8a(2) and 
(3) of the Commodity Exchange Act (``Act''). \3\ In particular, Section 
8a(3)(M) of the Act authorizes the Commission to refuse to register or 
to register conditionally any person if it is found, after opportunity 
for hearing, that there is other good cause for statutory 
disqualification from registration beyond the specifically listed 
grounds in Sections 8a(2) and 8a(3) of the Act. The Commission held in 
In the Matter of Clark that statutory disqualification under the ``other 
good cause'' provision of Section 8a(3)(M) may arise on the basis of, 
among other things, a pattern of exchange disciplinary actions alleging 
serious rule violations that result in significant sanctions, and that 
it is immaterial whether the sanctions imposed resulted from a fully-
adjudicated disciplinary action or an action that was taken following a 
settlement. \4\
---------------------------------------------------------------------------

    \3\ 7 U.S.C. 12a(2) and (3) (1994).
    \4\ In the Matter of Clark, [1996-1998 Transfer Binder] Comm. Fut. 
L. Rep. (CCH) ] 27,032 (Apr. 22, 1997), aff'd sub nom., Clark v. 
Commodity Futures Trading Commission, No. 97-4228 (2d Cir. June 4, 1999) 
(unpublished).
---------------------------------------------------------------------------

    The Guidance Letter recommended the application of the provisions of 
Commission Rule 1.63 \5\ as criteria to aid in assessing the impact of 
an FB or FT applicant's or registrant's previous disciplinary history on 
the person's fitness to be registered, with the exception that NFA 
should be acting based on disciplinary history from the previous five 
years, rather than the three years provided for in Rule 1.63. \6\ The 
Guidance Letter also noted that NFA should consider disciplinary actions 
taken not only by futures industry SROs but also those taken by SROs as 
defined in Section 3(a)(26) of the Securities Exchange Act of 1934 
(``1934 Act''), including settled disciplinary actions.
---------------------------------------------------------------------------

    \5\ Commission rules referred to in this letter are found at 17 CFR 
Ch. 1.
    \6\ Rule 1.63 provides, among other things, that a person is 
ineligible from serving on SRO disciplinary committees, arbitration 
panels, oversight panels or governing boards if that person, inter alia, 
entered into a settlement agreement within the past three years in which 
any of the findings or, in the absence of such findings, any of the acts 
charged included a disciplinary offense.
    Rule 1.63(a)(6) defines a ``disciplinary offense'' to include:
    (i) any violation of the rules of an SRO except those rules related 
to (A) decorum or attire, (B) financial requirements, or (C) reporting 
or record-keeping unless resulting in fines aggregating more than $5,000 
within any calendar year; (ii) any rule violation described in 
subparagraphs (A) through (C) above that involves fraud, deceit or 
conversion or results in a suspension or expulsion; (iii) any violation 
of the Act or the regulations promulgated thereunder; or (iv) any 
failure to exercise supervisory responsibility with respect to an act 
described in paragraphs (i) through (iii) above when such failure is 
itself a violation of either the rules of an SRO, the Act or the 
regulations promulgated thereunder.
---------------------------------------------------------------------------

                          II. Revised Guidance

    As stated above, the Commission has determined to revise the 
Guidance Letter. From this point forward, NFA should cease using Rule 
1.63 as the basis to evaluate the impact of an FB or FT applicant's or 
registrant's disciplinary history on his or her fitness to be 
registered. Instead, as Clark stated, when reviewing disciplinary 
history to assess the fitness to be registered of an FB, FT, or 
applicant in either category, a pattern of exchange disciplinary actions 
alleging serious rule violations that result in significant sanctions 
will trigger the ``other good cause'' provision of Section 8a(3)(M). The 
``pattern'' should consist of at least two final exchange disciplinary 
actions, whether settled or adjudicated.
    NFA also should consider initiating proceedings to affect the 
registration of the FB or FT, even if there is only a single exchange 
action against the FB or FT, if the exchange action was based on 
allegations of particularly egregious misconduct or involved numerous 
instances of misconduct occurring over a long period of time. If, 
however, a proceeding is initiated based on a single exchange action 
that was disposed of by settlement, NFA may have to prove up the 
underlying misconduct. Furthermore, traditional principles of collateral 
estoppel apply to adjudicated actions, whether they are being considered 
individually or as part of a pattern. \7\
---------------------------------------------------------------------------

    \7\ Clark at 44,929.
---------------------------------------------------------------------------

    As provided by the Guidance Letter, ``exchange disciplinary 
actions'' would continue to include disciplinary actions taken by both 
futures industry SROs and SROs as defined

[[Page 194]]

in Section 3(a)(26) of the 1934 Exchange Act. Furthermore, NFA should 
review an applicant's or registrant's disciplinary history for the past 
five years. \8\ At least one of the actions forming the pattern, 
however, must have become final after Clark was decided by the 
Commission on April 22, 1997. Finally, ``serious rule violations'' 
consist of, or are substantially related to, charges of fraud, customer 
abuse, other illicit trading practices, or the obstruction of an 
exchange investigation.
---------------------------------------------------------------------------

    \8\ The Commission generally looked at a five-year period of 
disciplinary history. On occasion, however, the Commission examined a 
longer period of an applicant's or registrant's disciplinary history. 
For example, the Commission revoked the registration of one FB on the 
basis of exchange disciplinary cases that extended back six years, see 
Clark, 2 Comm. Fut. L. Rep. (CCH) ] 27,032, and denied an application 
for registration as an FT on the basis of exchange disciplinary cases 
that extended back seven years, see In the Matter of Castellano, [1987-
1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 24,360 (Nov. 23, 1988), 
summarily aff'd (May 29, 1990), reh. denied [1990-1992 Transfer Binder] 
Comm. Fut. L. Rep. ] 24,870 (June 26, 1990), aff'd sub nom. Castellano 
v. CFTC, Docket No. 90-2298 (7th Cir. Nov. 20, 1991).
---------------------------------------------------------------------------

    Congress, the courts and the Commission have indicated the 
importance of considering an applicant's history of exchange 
disciplinary actions in assessing that person's fitness to register. \9\ 
Furthermore, NFA's review of exchange disciplinary actions within the 
context of the registration process should not simply mirror the 
disciplinary actions undertaken by the exchanges. The two processes are 
separate matters that involve separate considerations. As part of their 
ongoing self-regulatory obligations, exchanges must take disciplinary 
action \10\ and such disciplinary matters necessarily focus on the 
specific misconduct that forms the allegation. In a statutory 
disqualification action, however, NFA must determine whether the 
disciplinary history of an FB, FT or applicant over the preceding five 
years should impact his or her registration. Additionally, NFA possesses 
industry-wide perspective and responsibilities. As such, NFA, rather 
than an individual exchange, should decide registration status issues, 
since those issues affect an individual's status within the industry as 
a whole, well beyond the jurisdiction of a particular exchange.
---------------------------------------------------------------------------

    \9\ Letter dated July 14, 1995, from Mary L. Schapiro to R. Patrick 
Thompson, President, New York Mercantile Exchange (unpublished). See 
also Castellano, supra note 8.
    \10\ See Rule 1.51(a)(7).
---------------------------------------------------------------------------

    The Commission also wants to clarify to the fullest extent possible 
that its power to delegate the authority to deny or condition the 
registration of an FB, FT, or an applicant for registration in either 
category permits exchanges to disclose to NFA all evidence underlying 
exchange disciplinary actions, notwithstanding the language of Section 
8c(a)(2) of the Act. \11\ The Commission's power to delegate stems from 
Section 8a(10) of the Act, which permits delegation of registration 
functions, including statutory disqualification actions, to any person 
in accordance with rules adopted by such person and submitted to the 
Commission for approval or for review under Section 17(j) of the Act, 
``notwithstanding any other provision of law.'' Certainly, Section 
8c(a)(2) qualifies as ``any other provision of law.'' Furthermore, the 
effective discharge of the delegated function requires NFA to have 
access to the exchange evidence. Thus, the exercise of the delegated 
authority pursuant to Section 8a(10) permits the exchanges to disclose 
all evidence underlying disciplinary actions to NFA. \12\
---------------------------------------------------------------------------

    \11\ Section 8c(a)(2) states, in relevant part, that ``[A]n exchange 
* * * shall not disclose the evidence therefor, except to the person who 
is suspended, expelled, disciplined, or denied access, and to the 
Commission.''
    \12\ Of course, the Commission could request records from the 
exchange and forward them to NFA. The Commission believes that this is 
an unnecessary administrative process and that NFA should obtain the 
records it needs to carry out the delegated function of conducting 
disciplinary history reviews directly from the exchanges. In this 
context and pursuant to Commission orders authorizing NFA to institute 
adverse registration actions, NFA should be viewed as standing in the 
shoes of the Commission.
---------------------------------------------------------------------------

    This letter supersedes the Guidance Letter to the extent discussed 
above. In all other aspects, the Guidance Letter and other guidance 
provided by the Commission or its staff remain in effect. Therefore, NFA 
should continue to follow Commission precedent when selecting conditions 
or restrictions to be imposed. For example, NFA should impose a dual 
trading ban where customer abuse is involved and any conditions or 
restrictions imposed should be for a two-year period. Furthermore, NFA 
should require sponsorship for conditioned FBs or FTs when their 
disciplinary offenses involve noncompetitive trading and fraud.
    Nothing in the Notice and Order or this letter affects the 
Commission's authority to review the granting of a registration 
application by NFA in the performance of Commission registration 
functions, including review of the sufficiency of conditions or 
restrictions imposed by NFA, to review the determination by NFA not to 
take action to affect an existing registration, or to take its

[[Page 195]]

own action to address a statutory disqualification. Moreover, the 
Commission Order contemplates that to allow for appropriate Commission 
oversight of NFA's exercise of this delegated authority, NFA will 
provide for the Commission's review quarterly schedules of all 
applicants cleared for registration and all registrants whose 
registrations are maintained without adverse action by NFA's 
Registration, Compliance, Legal Committee despite potential statutory 
disqualifications.
    The Commission will continue to monitor NFA activities through 
periodic rule enforcement reviews, and NFA remains subject to the 
present requirement that it monitor compliance with the conditions and 
restrictions imposed on conditioned and restricted registrants.

    Sincerely,
Jean A. Webb,
Secretary of the Commission.

[49 FR 8224, Mar. 5, 1984, as amended at 58 FR 19597, Apr. 15, 1993; 59 
FR 5315, Feb. 4, 1994; 61 FR 58628, Nov. 18, 1996; 66 FR 53518, Oct. 23, 
2001; 67 FR 62352, Oct. 7, 2002]



   Sec. Appendix B to Part 3--Statement of Acceptable Practices With 
                       Respect to Ethics Training

    (a) The provisions of Section 4p(b) of the Act (7 U.S.C. 6p(b) 
(1994)) set forth requirements regarding training of registrants as to 
their responsibilities to the public. This section requires the 
Commission to issue regulations requiring new registrants to attend 
ethics training sessions within six months of registration, and all 
registrants to attend such training on a periodic basis. The awareness 
and maintenance of professional ethical standards are essential elements 
of a registrant's fitness. Further, the use of ethics training programs 
is relevant to a registrant's maintenance of adequate supervision, a 
requirement under Rule 166.3.
    (b)(1) The Commission recognizes that technology has provided new, 
faster means of sharing and distributing information. In view of the 
foregoing, the Commission has chosen to allow registrants to develop 
their own ethics training programs. Nevertheless, futures industry 
professionals may want guidance as to the role of ethics training. 
Registrants may wish to consider what ethics training should be 
retained, its format, and how it might best be implemented. Therefore, 
the Commission finds it appropriate to issue this Statement of 
Acceptable Practices regarding appropriate training for registrants, as 
interpretative guidance for intermediaries on fitness and supervision. 
Commission registrants may look to this Statement of Acceptable 
Practices as a ``safe harbor'' concerning acceptable procedures in this 
area.
    (2) The Commission believes that section 4p(b) of the Act reflects 
an intent by Congress that industry professionals be aware, and remain 
abreast, of their continuing obligations to the public under the Act and 
the regulations thereunder. The text of the Act provides guidance as to 
the nature of these responsibilities. As expressed in section 4p(b) of 
the Act, personnel in the industry have an obligation to the public to 
observe the Act, the rules of the Commission, the rules of any 
appropriate self-regulatory organizations or contract markets (which 
would also include registered derivatives transaction execution 
facilities), or other applicable federal or state laws or regulations. 
Further, section 4p(b) acknowledges that registrants have an obligation 
to the public to observe ``just and equitable principles of trade.''
    (3) Additionally, section 4p(b) reflects Congress' intent that 
registrants and their personnel retain an up-to-date knowledge of these 
requirements. The Act requires that registrants receive training on a 
periodic basis. Thus, it is the intent of Congress that Commission 
registrants remain current with regard to the ethical ramifications of 
new technology, commercial practices, regulations, or other changes.
    (c) The Commission believes that training should be focused to some 
extent on a person's registration category, although there will 
obviously be certain principles and issues common to all registrants and 
certain general subjects that should be taught. Topics to be addressed 
include:
    (1) An explanation of the applicable laws and regulations, and the 
rules of self-regulatory organizations or contract markets and 
registered derivatives transaction execution facilities;
    (2) The registrant's obligation to the public to observe just and 
equitable principles of trade;
    (3) How to act honestly and fairly and with due skill, care and 
diligence in the best interests of customers and the integrity of the 
market;
    (4) How to establish effective supervisory systems and internal 
controls;
    (5) Obtaining and assessing the financial situation and investment 
experience of customers;
    (6) Disclosure of material information to customers; and
    (7) Avoidance, proper disclosure and handling of conflicts of 
interest.
    (d) An acceptable ethics training program would apply to all of a 
firm's associated persons and its principals to the extent they are 
required to register as associated persons. Additionally, personnel of 
firms that rely on their registration with other regulators, such as the 
Securities and Exchange Commission, should be provided with ethics 
training to the extent the Act and the Commission's regulations apply to 
their business.

[[Page 196]]

    (e) As to the providers of such training, the Commission believes 
that classes sponsored by independent persons, firms, or industry 
associations would be acceptable. It would also be permissible to 
conduct in-house training programs. Further, registrants should 
ascertain the credentials of any ethics training providers they retain. 
Thus, persons who provide ethics training should be required to provide 
proof of satisfactory completion of the proficiency testing requirements 
applicable to the registrant and evidence of three years of relevant 
industry or pedagogical experience in the field. This industry 
experience might include the practice of law in the fields of futures or 
securities, or employment as a trader or risk manager at a brokerage or 
end-user firm. Likewise, the Commission believes that registrants should 
employ as ethics training providers only those persons they reasonably 
believe in good faith are not subject to any investigations or to bars 
to registration or to service on a self-regulatory organization 
governing board or disciplinary panel.
    (f)(1) With regard to the frequency and duration of ethics training, 
it is permissible for a firm to require training on whatever periodic 
basis and duration the registrant (and relevant self-regulatory 
organizations) deems appropriate. It may even be appropriate not to 
require any such specific requirements as, for example, where ethics 
training could be termed ongoing. For instance, a small entity, sole 
proprietorship, or even a small section in an otherwise large firm, 
might satisfy its obligation to remain current with regard to ethics 
obligations by distribution of periodicals, legal cases, or advisories. 
Use of the latest information technology, such as Internet websites, can 
be useful in this regard. In such a context, there would be no 
structured classes, but the goal should be a continuous awareness of 
changing industry standards. A corporate culture to maintain high 
ethical standards should be established on a continuing basis.
    (2) On the other hand, larger firms which transact business with a 
larger segment of the public may wish to implement a training program 
that requires periodic classwork. In such a situation, the Commission 
believes it appropriate for registrants to maintain such records as 
evidence of attendance and of the materials used for training. In the 
case of a floor broker or floor trader, the applicable contract market 
or registered derivatives transaction execution facility should maintain 
such evidence on behalf of its member. This evidence of ethics training 
could be offered to demonstrate fitness and overall compliance during 
audits by self-regulatory organizations, and during reviews of contract 
market or registered derivatives transaction execution facility 
operations.
    (g) The methodology of such training may also be flexible. Recent 
innovations in information technology have made possible new, fast, and 
cost-efficient ways for registrants to maintain their awareness of 
events and changes in the commodity interest markets. In this regard, 
the Commission recognizes that the needs of a firm will vary according 
to its size, personnel, and activities. No format of classes will be 
required. Rather, such training could be in the form of formal class 
lectures, video presentation, Internet transmission, or by simple 
distribution of written materials. These options should provide 
sufficiently flexible means for adherence to Congressional intent in 
this area.
    (h) Finally, it should be noted that self-regulatory organizations 
and industry associations will have a significant role in this area. 
Such organizations may have separate ethics and proficiency standards, 
including ethics training and testing programs, for their own members.

[66 FR 53521, Oct. 23, 2001]



PART 4_COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS--
Table of Contents



        Subpart A_General Provisions, Definitions and Exemptions

Sec.
4.1 Requirements as to form.
4.2-4.4 [Reserved]
4.5 Exclusion for certain otherwise regulated persons from the 
          definition of the term ``commodity pool operator.''
4.6 Exclusion for certain otherwise regulated persons from the 
          definition of the term ``commodity trading advisor.''
4.7 Exemption from certain part 4 requirements for commodity pool 
          operators with respect to offerings to qualified eligible 
          persons and for commodity trading advisors with respect to 
          advising qualified eligible persons.
4.8 Exemption from certain requirements of rule 4.26 with respect to 
          pools offered or sold in certain offerings exempt from 
          registration under the Securities Act.
4.9 [Reserved]
4.10 Definitions.
4.11 Exemption from section 4n(3)(B).
4.12 Exemption from provisions of part 4.
4.13 Exemption from registration as a commodity pool operator.
4.14 Exemption from registration as a commodity trading advisor.
4.15 Continued applicability of antifraud section.
4.16 Prohibited representations.

                   Subpart B_Commodity Pool Operators

4.20 Prohibited activities.
4.21 Required delivery of pool Disclosure Document.

[[Page 197]]

4.22 Reporting to pool participants.
4.23 Recordkeeping.
4.24 General disclosures required.
4.25 Performance disclosures.
4.26 Use, amendment and filing of Disclosure Document.
4.27 Additional reporting by advisors of certain large commodity pools.

                  Subpart C_Commodity Trading Advisors

4.30 Prohibited activities.
4.31 Required delivery of Disclosure Document to prospective clients.
4.32 [Reserved]
4.33 Recordkeeping.
4.34 General disclosures required.
4.35 Performance disclosures.
4.36 Use, amendment and filing of Disclosure Document.

                          Subpart D_Advertising

4.40 [Reserved]
4.41 Advertising by commodity pool operators, commodity trading 
          advisors, and the principals thereof.

Appendix A to Part 4--Form CPO-PQR
Appendix B to Part 4--Adjustments for Additions and Withdrawals in the 
          Computation of Rate of Return
Appendix C to Part 4--Form CTA-PR

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6l, 6m, 6n, 6o, 12a and 23, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. 111-203, 124 Stat. 1376 (July 21, 2010).

    Source: 46 FR 26013, May 8, 1981, unless otherwise noted.



        Subpart A_General Provisions, Definitions and Exemptions



Sec.  4.1  Requirements as to form.

    (a) Each document distributed pursuant to this part 4 must be:
    (1) Clear and legible;
    (2) Paginated; and
    (3) Fastened in a secure manner.
    (b) Information that is required to be ``prominently'' disclosed 
under this part 4 must be displayed in capital letters and in boldface 
type.
    (c) Where a document is distributed through an electronic medium:
    (1) The requirements of paragraphs (a) of this section shall mean 
that required information must be presented in a format that is readily 
communicated to the recipient. For purposes of this paragraph (c), 
information is readily communicated to the recipient if it is accessible 
to the ordinary user by means of commonly available hardware and 
software and if the electronically delivered document is organized in 
substantially the same manner as would be required for a paper document 
with respect to the order of presentation and the relative prominence of 
information. Where a table of contents is required, the electronic 
document must either include page numbers in the text or employ a 
substantially equivalent cross-reference or indexing method or tool;
    (2) The requirements of paragraph (b) of this section shall mean 
that such information must be presented in capital letters and boldface 
type or, as warranted in the context, another manner reasonably 
calculated to draw the recipient's attention to the information and 
accord it greater prominence than the surrounding text; and
    (3) A complete paper version of the document that complies with the 
applicable provisions of this part 4 must be provided to the recipient 
upon request.
    (d) If graphic, image or audio material is included in a document 
delivered to a prospective or existing client or pool participant, and 
such material cannot be reproduced in an electronic filing, a fair and 
accurate narrative description, tabular representation or transcript of 
the omitted material must be included in the filed version of the 
document. Inclusion of such material in a Disclosure Document shall be 
subject to the requirements ofSec. 4.24(v) in the case of pool 
Disclosure Documents, andSec. 4.34(n) in the case of commodity trading 
advisor Disclosure Documents.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 62 
FR 39115, July 22, 1997]



Sec.Sec. 4.2-4.4  [Reserved]



Sec.  4.5  Exclusion for certain otherwise regulated persons from the 
definition of the term ``commodity pool operator.''

    (a) Subject to compliance with the provisions of this section, the 
following persons, and any principal or employee thereof, shall be 
excluded from the definition of the term ``commodity pool

[[Page 198]]

operator'' with respect to the operation of a qualifying entity 
specified in paragraph (b) of this section:
    (1) An investment company registered as such under the Investment 
Company Act of 1940;
    (2) An insurance company subject to regulation by any State;
    (3) A bank, trust company or any other such financial depository 
institution subject to regulation by any State or the United States; and
    (4) A trustee of, a named fiduciary of (or a person designated or 
acting as a fiduciary pursuant to a written delegation from or other 
written agreement with the named fiduciary) or an employer maintaining a 
pension plan that is subject to title I of the Employee Retirement 
Income Security Act of 1974; Provided, however, That for purposes of 
thisSec. 4.5 the following employee benefit plans shall not be 
construed to be pools:
    (i) A noncontributory plan, whether defined benefit or defined 
contribution, covered under title I of the Employee Retirement Income 
Security Act of 1974;
    (ii) A contributory defined benefit plan covered under title IV of 
the Employee Retirement Income Security Act of 1974; Provided, however, 
That with respect to any such plan to which an employee may voluntarily 
contribute, no portion of an employee's contribution is committed as 
margin or premiums for futures or options contracts;
    (iii) A plan defined as a governmental plan in section 3(32) of 
title I of the Employee Retirement Income Security Act of 1974;
    (iv) Any employee welfare benefit plan that is subject to the 
fiduciary responsibility provisions of the Employee Retirement Income 
Security Act of 1974; and
    (v) A plan defined as a church plan in Section 3(33) of title I of 
the Employee Retirement Income Security Act of 1974 with respect to 
which no election has been made under 26 U.S.C. 410(d).
    (b) For the purposes of this section, the term ``qualifying entity'' 
means:
    (1) With respect to any person specified in paragraph (a)(1) of this 
section, an investment company registered as such under the Investment 
Company Act of 1940;
    (2) With respect to any person specified in paragraph (a)(2) of this 
section, a separate account established and maintained or offered by an 
insurance company pursuant to the laws of any State or territory of the 
United States, under which income gains and losses, whether or not 
realized, from assets allocated to such account, are, in accordance with 
the applicable contract, credited to or charged against such account, 
without regard to other income, gains, or losses of the insurance 
company;
    (3) With respect to any person specified in paragraph (a)(3) of this 
section, the assets of any trust, custodial account or other separate 
unit of investment for which it is acting as a fiduciary and for which 
it is vested with investment authority; and
    (4) With respect to any person specified in paragraph (a)(4) of this 
section, and subject to the proviso thereof, a pension plan that is 
subject to title I of the Employee Retirement Income Security Act of 
1974; Provided, however, That such entity will be operated in the manner 
specified in paragraph (c)(2) of this section.
    (c) Any person who desires to claim the exclusion provided by this 
section shall file electronically a notice of eligibility with the 
National Futures Association through its electronic exemption filing 
system; Provided, however, That a plan fiduciary who is not a named 
fiduciary as described in paragraph (a)(4) of this section may claim the 
exclusion through the notice filed by the named fiduciary.
    (1) The notice of eligibility must contain the following 
information:
    (i) The name of such person;
    (ii) The applicable subparagraph of paragraph (a) of this section 
pursuant to which such person is claiming exclusion;
    (iii) The name of the qualifying entity which such person intends to 
operate pursuant to the exclusion; and
    (iv) The applicable subparagraph of paragraph (b) of this section 
pursuant to which such entity is a qualifying entity.
    (2) The notice of eligibility must contain representations that such 
person

[[Page 199]]

will operate the qualifying entity specified therein in a manner such 
that the qualifying entity:
    (i) Will disclose in writing to each participant, whether existing 
or prospective, that the qualifying entity is operated by a person who 
has claimed an exclusion from the definition of the term ``commodity 
pool operator'' under the Act and, therefore, who is not subject to 
registration or regulation as a pool operator under the Act; Provided, 
that such disclosure is made in accordance with the requirements of any 
other federal or state regulatory authority to which the qualifying 
entity is subject. The qualifying entity may make such disclosure by 
including the information in any document that its other Federal or 
State regulator requires to be furnished routinely to participants or, 
if no such document is furnished routinely, the information may be 
disclosed in any instrument establishing the entity's investment 
policies and objectives that the other regulator requires to be made 
available to the entity's participants; and
    (ii) Will submit to such special calls as the Commission may make to 
require the qualifying entity to demonstrate compliance with the 
provisions of thisSec. 4.5(c); Provided, however, that the making of 
such representations shall not be deemed a substitute for compliance 
with any criteria applicable to commodity futures or commodity options 
trading established by any regulator to which such person or qualifying 
entity is subject.
    (iii) Furthermore, if the person claiming the exclusion is an 
investment company registered as such under the Investment Company Act 
of 1940, then the notice of eligibility must also contain 
representations that such person will operate the qualifying entity as 
described in Rule 4.5(b)(1) in a manner such that the qualifying entity:
    (A) Will use commodity futures or commodity options contracts, or 
swaps solely for bona fide hedging purposes within the meaning and 
intent of Rules 1.3(z)(1) and 151.5 (17 CFR 1.3(z)(1) and 151.5); 
Provided however, That in addition, with respect to positions in 
commodity futures or commodity option contracts, or swaps which do not 
come within the meaning and intent of Rules 1.3(z)(1) and 151.5, a 
qualifying entity may represent that the aggregate initial margin and 
premiums required to establish such positions will not exceed five 
percent of the liquidation value of the qualifying entity's portfolio, 
after taking into account unrealized profits and unrealized losses on 
any such contracts it has entered into; and, Provided further, That in 
the case of an option that is in-the-money at the time of purchase, the 
in-the-money amount as defined in Rule 190.01(x) (17 CFR 190.01(x)) may 
be excluded in computing such five percent; or
    (B) The aggregate net notional value of commodity futures, commodity 
options contracts, or swaps positions not used solely for bona fide 
hedging purposes within the meaning and intent of Rules 1.3(z)(1) and 
151.5 (17 CFR 1.3(z)(1) and 151.5), determined at the time the most 
recent position was established, does not exceed 100 percent of the 
liquidation value of the pool's portfolio, after taking into account 
unrealized profits and unrealized losses on any such positions it has 
entered into. For the purpose of this paragraph:
    (1) The term ``notional value'' shall be calculated for each futures 
position by multiplying the number of contracts by the size of the 
contract, in contract units (taking into account any multiplier 
specified in the contract), by the current market price per unit, for 
each such option position by multiplying the number of contracts by the 
size of the contract, adjusted by its delta, in contract units (taking 
into account any multiplier specified in the contract), by the strike 
price per unit, for each such retail forex transaction, by calculating 
the value in U.S. Dollars for such transaction, at the time the 
transaction was established, excluding for this purpose the value in 
U.S. Dollars of offsetting long and short transactions, if any, and for 
any cleared swap by the value as determined consistent with the terms of 
17 CFR part 45; and
    (2) The person may net futures contracts with the same underlying 
commodity across designated contract markets and foreign boards of 
trade; and swaps cleared on the same designated clearing organization 
where appropriate; and (C) Will not be, and

[[Page 200]]

has not been, marketing participations to the public as or in a 
commodity pool or otherwise as or in a vehicle for trading in the 
commodity futures, commodity options, or swaps markets.
    (3) The notice of eligibility must be filed with the National 
Futures Association prior to the date upon which such person intends to 
operate the qualifying entity pursuant to the exclusion provided by this 
section.
    (4) The notice of eligibility shall be effective upon filing.
    (5) Annual notice. Each person who has filed a notice of exclusion 
under this section must affirm on an annual basis the notice of 
exemption from registration, withdraw such exemption due to the 
cessation of activities requiring registration or exemption therefrom, 
or withdraw such exemption and apply for registration within 60 days of 
the calendar year end through National Futures Association's electronic 
exemption filing system.
    (d)(1) Each person who has claimed an exclusion hereunder must, in 
the event that any of the information contained or representations made 
in the notice of eligibility becomes inaccurate or incomplete, amend the 
notice electronically through National Futures Association's electronic 
exemption filing system as may be necessary to render the notice of 
eligibility accurate and complete.
    (2) This amendment required by paragraph (d)(1) of this section 
shall be filed within fifteen business days after the occurrence of such 
event.
    (e) An exclusion claimed hereunder shall cease to be effective upon 
any change which would render:
    (1) A person as to whom such exclusion has been claimed ineligible 
under paragraph (a) of this section;
    (2) The entity for which such exclusion has been claimed ineligible 
under paragraph (b) of this section; or
    (3) Either the representations made pursuant to paragraph (c)(2) of 
this section inaccurate or the continuation of such representations 
false or misleading.
    (f) Any notice required to be filed hereunder must be filed by a 
representative duly authorized to bind the person specified in paragraph 
(a) of this section.
    (g) The filing of a notice of eligibility or the application of 
``non-pool status'' under this section will not affect the ability of a 
person to qualify for an exemption from registration as a commodity pool 
operator underSec. 4.13 in connection with the operation of another 
trading vehicle that is not covered under thisSec. 4.5.

[50 FR 15882, Apr. 23, 1985; 50 FR 18859, May 3, 1985, as amended at 58 
FR 6374, Jan. 28, 1993; 58 FR 43793, Aug. 18, 1993; 65 FR 24128, Apr. 
25, 2000; 65 FR 25980, May 4, 2000; 67 FR 77410, Dec. 18, 2002; 68 FR 
47230, Aug. 8, 2003; 72 FR 1662, Jan. 16, 2007; 77 FR 11283, Feb. 24, 
2012; 77 FR 17328, Mar. 26, 2012]



Sec.  4.6  Exclusion for certain otherwise regulated persons from the
definition of the term ``commodity trading advisor.''

    (a) Subject to compliance with the provisions of this section, the 
following persons, and any principal or employee thereof, shall be 
excluded from the definition of the term ``commodity trading advisor:''
    (1) An insurance company subject to regulation by any State, or any 
wholly-owned subsidiary or employee thereof; Provided, however, That its 
commodity interest advisory activities are solely incidental to the 
conduct of the insurance business of the insurance company as such; and
    (2) A person who is excluded from the definition of the term 
``commodity pool operator'' bySec. 4.5; Provided, however, That:
    (i) Its commodity interest advisory activities are solely incidental 
to its operation of those trading vehicles for whichSec. 4.5 provides 
relief; and
    (ii) Where necessary, prior to providing any commodity interest 
trading advice to any such trading vehicle the person files a notice of 
eligibility as specified inSec. 4.5 to claim the relief available 
under that section.
    (3) A swap dealer registered with the Commission as such pursuant to 
the Act or excluded or exempt from registration under the Act or the 
Commission's regulations; Provided, however, That the commodity interest 
and swap advisory activities of the swap dealer are solely incidental to 
the conduct of its business as a swap dealer.
    (b) Any person who has claimed an exclusion under thisSec. 4.6 
must submit

[[Page 201]]

to such special calls as the Commission may make to require the person 
to demonstrate compliance with the provisions of paragraph (a) of this 
section.
    (c) An exclusion claimed under thisSec. 4.6 shall cease to be 
effective upon any change which would render the person claiming the 
exclusion ineligible under paragraph (a) of this section.

[52 FR 41984, Nov. 2, 1987, as amended at 77 FR 9822, Feb. 17, 2012]



Sec.  4.7  Exemption from certain part 4 requirements for commodity
pool operators with respect to offerings to qualified eligible persons
and for commodity trading advisors with respect to advising qualified
eligible persons.

    This section is organized as follows: Paragraph (a) contains 
definitions for the purposes ofSec. 4.7; paragraph (b) contains the 
relief available to commodity pool operators underSec. 4.7; paragraph 
(c) contains the relief available to commodity trading advisors under 
Sec.  4.7; paragraph (d) concerns the Notice of Claim for Exemption 
underSec. 4.7; and paragraph (e) addresses the effect of an 
insignificant deviation from a term, condition or requirement ofSec. 
4.7.
    (a) Definitions. Paragraph (a)(1) of this section contains general 
definitions, paragraph (a)(2) of this section contains the definition of 
the term qualified eligible person with respect to those persons who do 
not need to satisfy the Portfolio Requirement and paragraph (a)(3) of 
this section contains the definition of the term qualified eligible 
person with respect to those persons who must satisfy the Portfolio 
Requirement. For the purposes of this section:
    (1) In general--(i) Affiliate of, or a person affiliated with, a 
specified person means a person that directly or indirectly through one 
or more persons, controls, is controlled by, or is under common control 
with the specified person.
    (ii) Exempt account means the account of a qualified eligible person 
that is directed or guided by a commodity trading advisor pursuant to an 
effective claim for exemption underSec. 4.7.
    (iii) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption underSec. 4.7.
    (iv) Non-United States person means:
    (A) A natural person who is not a resident of the United States;
    (B) A partnership, corporation or other entity, other than an entity 
organized principally for passive investment, organized under the laws 
of a foreign jurisdiction and which has its principal place of business 
in a foreign jurisdiction;
    (C) An estate or trust, the income of which is not subject to United 
States income tax regardless of source;
    (D) An entity organized principally for passive investment such as a 
pool, investment company or other similar entity; Provided, That units 
of participation in the entity held by persons who do not qualify as 
Non-United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10% of the beneficial interest in 
the entity, and that such entity was not formed principally for the 
purpose of facilitating investment by persons who do not qualify as Non-
United States persons in a pool with respect to which the operator is 
exempt from certain requirements of part 4 of the Commission's 
regulations by virtue of its participants being Non-United States 
persons; and
    (E) A pension plan for the employees, officers or principals of an 
entity organized and with its principal place of business outside the 
United States.
    (v) Portfolio Requirement means that a person:
    (A) Owns securities (including pool participations) of issuers not 
affiliated with such person and other investments with an aggregate 
market value of at least $2,000,000;
    (B) Has had on deposit with a futures commission merchant, for its 
own account at any time during the six-month period preceding either the 
date of sale to that person of a pool participation in the exempt pool 
or the date that the person opens an exempt account with the commodity 
trading advisor, at least $200,000 in exchange-specified initial margin 
and option premiums, together with required minimum security deposit for 
retail forex transactions (as defined inSec. 5.1(m) of this chapter) 
for commodity interest transactions; or

[[Page 202]]

    (C) Owns a portfolio comprised of a combination of the funds or 
property specified in paragraphs (a)(1)(v)(A) and (B) of this section in 
which the sum of the funds or property includable under paragraph 
(a)(1)(v)(A), expressed as a percentage of the minimum amount required 
thereunder, and the amount of futures margin and option premiums 
includable under paragraph (a)(1)(v)(B), expressed as a percentage of 
the minimum amount required thereunder, equals at least one hundred 
percent. An example of a composite portfolio acceptable under this 
paragraph (a)(1)(v)(C) would consist of $1,000,000 in securities and 
other property (50% of paragraph (a)(1)(v)(A)) and $100,000 in exchange-
specified initial margin and option premiums (50% of paragraph 
(a)(1)(v)(B)).
    (vi) United States means the United States, its states, territories 
or possessions, or an enclave of the United States government, its 
agencies or instrumentalities.
    (2) Persons who do not need to satisfy the Portfolio Requirement to 
be qualified eligible persons. Qualified eligible person means any 
person, acting for its own account or for the account of a qualified 
eligible person, who the commodity pool operator reasonably believes, at 
the time of the sale to that person of a pool participation in the 
exempt pool, or who the commodity trading advisor reasonably believes, 
at the time that person opens an exempt account, is:
    (i)(A) A futures commission merchant registered pursuant to section 
4d of the Act, or a principal thereof;
    (B) A retail foreign exchange dealer registered pursuant to section 
2(c)(2)(B)(i)(II)(gg) of the Act, or a principal thereof;
    (C) A swap dealer registered pursuant to section 4s(a)(1) of the 
Act, or a principal thereof;
    (ii) A broker or dealer registered pursuant to section 15 of the 
Securities Exchange Act of 1934, or a principal thereof;
    (iii) A commodity pool operator registered pursuant to section 4m of 
the Act, or a principal thereof; Provided, That the pool operator:
    (A) Has been registered and active as such for two years; or
    (B) Operates pools which, in the aggregate, have total assets in 
excess of $5,000,000;
    (iv) A commodity trading advisor registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, That the trading advisor:
    (A) Has been registered and active as such for two years; or
    (B) Provides commodity interest trading advice to commodity accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more futures commission merchants;
    (v) An investment adviser registered pursuant to section 203 of the 
Investment Advisers Act of 1940 (``Investment Advisers Act'') or 
pursuant to the laws of any state, or a principal thereof; Provided, 
That the investment adviser:
    (A) Has been registered and active as such for two years; or
    (B) Provides securities investment advice to securities accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more registered securities brokers;
    (vi) A ``qualified purchaser'' as defined in section 2(a)(51)(A) of 
the Investment Company Act of 1940 (the ``Investment Company Act'');
    (vii) A ``knowledgeable employee'' as defined inSec. 270.3c-5 of 
this title;
    (viii)(A) With respect to an exempt pool:
    (1) The commodity pool operator, commodity trading advisor or 
investment adviser of the exempt pool offered or sold, or an affiliate 
of any of the foregoing;
    (2) A principal of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing;
    (3) An employee of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing (other than an employee 
performing solely clerical, secretarial or administrative functions with 
regard to such person or its investments) who, in connection

[[Page 203]]

with his or her regular functions or duties, participates in the 
investment activities of the exempt pool, other commodity pools operated 
by the pool operator of the exempt pool or other accounts advised by the 
trading advisor or the investment adviser of the exempt pool, or by the 
affiliate; Provided, That such employee has been performing such 
functions and duties for or on behalf of the exempt pool, pool operator, 
trading advisor, investment adviser or affiliate, or substantially 
similar functions or duties for or on behalf of another person engaged 
in providing commodity interest, securities or other financial services, 
for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the exempt pool or 
the commodity pool operator, commodity trading advisor or investment 
adviser of the exempt pool, or any other employee of, or agent so 
engaged by, an affiliate of any of the foregoing (other than an employee 
or agent performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments); Provided, That 
such employee or agent:
    (i) Is an accredited investor as defined inSec. 230.501(a)(5) or 
(6) of this title; and
    (ii) Has been employed or engaged by the exempt pool, commodity pool 
operator, commodity trading advisor, investment adviser or affiliate, or 
by another person engaged in providing commodity interest, securities or 
other financial services, for at least 24 months;
    (5) The spouse, child, sibling or parent of a person who satisfies 
the criteria of paragraph (a)(2)(viii)(A)(1), (2), (3) or (4) of this 
section; Provided, That:
    (i) An investment in the exempt pool by any such family member is 
made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires a participation in the exempt pool by 
gift, bequest or pursuant to an agreement relating to a legal separation 
or divorce from a person listed in paragraph (a)(2)(viii)(A)(1), (2), 
(3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(A)(6)(i) or (ii) of this section;
    (B) With respect to an exempt account:
    (1) An affiliate of the commodity trading advisor of the exempt 
account;
    (2) A principal of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor;
    (3) An employee of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor (other than an 
employee performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments) who, in 
connection with his or her regular functions or duties, participates in 
the investment activities of the trading advisor or the affiliate; 
Provided, That such employee has been performing such functions and 
duties for or on behalf of the trading advisor or the affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the commodity 
trading advisor of the exempt account or any other employee of, or agent 
so engaged by, an affiliate of the trading advisor (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its investments); 
Provided, That such employee or agent:
    (i) Is an accredited investor as defined inSec. 230.501(a)(5) or 
(a)(6) of this title; and
    (ii) Has been employed or engaged by the commodity trading advisor 
or the affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months; or

[[Page 204]]

    (5) The spouse, child, sibling or parent of the commodity trading 
advisor of the exempt account or of a person who satisfies the criteria 
of paragraph (a)(2)(viii)(B)(1), (2), (3) or (4) of this section; 
Provided, That:
    (i) The establishment of an exempt account by any such family member 
is made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires an interest in an exempt account by 
gift, bequest or pursuant to an agreement relating to a legal separation 
or divorce from a person listed in paragraph (a)(2)(viii)(B)(1), (2), 
(3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(B)(6)(i) or (ii) of this section;
    (ix) A trust; Provided, That:
    (A) The trust was not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account; and
    (B) The trustee or other person authorized to make investment 
decisions with respect to the trust, and each settlor or other person 
who has contributed assets to the trust, is a qualified eligible person;
    (x) An organization described in section 501(c)(3) of the Internal 
Revenue Code (the ``IRC''); Provided, That the trustee or other person 
authorized to make investment decisions with respect to the 
organization, and the person who has established the organization, is a 
qualified eligible person;
    (xi) A Non-United States person;
    (xii)(A) An entity in which all of the unit owners or participants, 
other than the commodity trading advisor claiming relief under this 
section, are qualified eligible persons;
    (B) An exempt pool; or
    (C) Notwithstanding paragraph (a)(3) of this section, an entity as 
to which a notice of eligibility has been filed pursuant toSec. 4.5 
which is operated in accordance with such rule and in which all unit 
owners or participants, other than the commodity trading advisor 
claiming relief under this section, are qualified eligible persons.
    (3) Persons who must satisfy the Portfolio Requirement to be 
qualified eligible persons. Qualified eligible person means any person 
who the commodity pool operator reasonably believes, at the time of the 
sale to that person of a pool participation in the exempt pool, or any 
person who the commodity trading advisor reasonably believes, at the 
time that person opens an exempt account, satisfies the Portfolio 
Requirement and is:
    (i) An investment company registered under the Investment Company 
Act or a business development company as defined in section 2(a)(48) of 
such Act not formed for the specific purpose of either investing in the 
exempt pool or opening an exempt account;
    (ii) A bank as defined in section 3(a)(2) of the Securities Act of 
1933 (the ``Securities Act'') or any savings and loan association or 
other institution as defined in section 3(a)(5)(A) of the Securities Act 
acting for its own account or for the account of a qualified eligible 
person;
    (iii) An insurance company as defined in section 2(13) of the 
Securities Act acting for its own account or for the account of a 
qualified eligible person;
    (iv) A plan established and maintained by a state, its political 
subdivisions, or any agency or instrumentality of a state or its 
political subdivisions, for the benefit of its employees, if such plan 
has total assets in excess of $5,000,000;
    (v) An employee benefit plan within the meaning of the Employee 
Retirement Income Security Act of 1974; Provided, That the investment 
decision is made by a plan fiduciary, as defined in section 3(21) of 
such Act, which is a bank, savings and loan association, insurance 
company, or registered investment adviser; or that the employee benefit 
plan has total assets in excess of $5,000,000; or, if the plan is self-
directed, that investment decisions are made solely by persons that are 
qualified eligible persons;

[[Page 205]]

    (vi) A private business development company as defined in section 
202(a)(22) of the Investment Advisers Act;
    (vii) An organization described in section 501(c)(3) of the IRC, 
with total assets in excess of $5,000,000;
    (viii) A corporation, Massachusetts or similar business trust, or 
partnership, limited liability company or similar business venture, 
other than a pool, which has total assets in excess of $5,000,000, and 
is not formed for the specific purpose of either participating in the 
exempt pool or opening an exempt account;
    (ix) A natural person whose individual net worth, or joint net worth 
with that person's spouse at the time of either his purchase in the 
exempt pool or his opening of an exempt account would qualify him as an 
accredited investor as defined inSec. 230.501(a)(5) of this title;
    (x) A natural person who would qualify as an accredited investor as 
defined inSec. 203.501(a)(6) of this title;
    (xi) A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not formed 
for the specific purpose of either participating in the exempt pool or 
opening an exempt account, and whose participation in the exempt pool or 
investment in the exempt account is directed by a qualified eligible 
person; or
    (xii) Except as provided for the governmental entities referenced in 
paragraph (a)(3)(iv) of this section, if otherwise authorized by law to 
engage in such transactions, a governmental entity (including the United 
States, a state, or a foreign government) or political subdivision 
thereof, or a multinational or supranational entity or an 
instrumentality, agency, or department of any of the foregoing.
    (b) Relief available to commodity pool operators. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity pool operator who offers or sells 
participations in a pool solely to qualified eligible persons in an 
offering which qualifies for exemption from the registration 
requirements of the Securities Act pursuant to section 4(2) of that Act 
or pursuant to Regulation S, 17 CFR 230.901 et seq., and any bank 
registered as a commodity pool operator in connection with a pool that 
is a collective trust fund whose securities are exempt from registration 
under the Securities Act pursuant to section 3(a)(2) of that Act and are 
offered or sold, without marketing to the public, solely to qualified 
eligible persons, may claim any or all of the following relief with 
respect to such pool:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Sec.Sec. 4.21, 4.24, 4.25 and 4.26 with respect to each exempt 
pool; Provided, That if an offering memorandum is distributed in 
connection with soliciting prospective participants in the exempt pool, 
such offering memorandum must include all disclosures necessary to make 
the information contained therein, in the context in which it is 
furnished, not misleading; and that the following statement is 
prominently disclosed on the cover page of the offering memorandum, or, 
if none is provided, immediately above the signature line on the 
subscription agreement or other document that the prospective 
participant must execute to become a participant in the pool:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO 
QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT 
REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE 
COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF 
PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING 
MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR 
THIS POOL.''

    (ii) Exemption from disclosing the past performance of exempt pools 
in the Disclosure Document of non-exempt pools except to the extent that 
such past performance is material to the non-exempt pool being offered; 
Provided, That a pool operator that has claimed exemption hereunder and 
elects not to disclose any such performance in the Disclosure Document

[[Page 206]]

of non-exempt pools shall state in a footnote to the performance 
disclosure therein that the operator is operating or has operated exempt 
pools whose performance is not disclosed in this Disclosure Document.
    (2) Periodic reporting relief. Exemption from the specific 
requirements of Sec.Sec. 4.22(a) and (b); Provided, That a statement 
signed and affirmed in accordance withSec. 4.22(h) is prepared and 
distributed to pool participants no less frequently than quarterly 
within 30 calendar days after the end of the reporting period. This 
statement must be presented and computed in accordance with generally 
accepted accounting principles and indicate:
    (i) The net asset value of the exempt pool as of the end of the 
reporting period;
    (ii) The change in net asset value from the end of the previous 
reporting period; and
    (iii) The net asset value per outstanding unit of participation in 
the exempt pool as of the end of the reporting period.
    (A) Either the net asset value per outstanding participation unit in 
the exempt pool as of the end of the reporting period, or
    (B) The total value of the participant's interest or share in the 
exempt pool as of the end of the reporting period.
    (iv) Where the pool is comprised of more than one ownership class or 
series, the net asset value of the series or class on which the account 
statement is reporting, and the net asset value per unit or value of the 
participant's share, also must be included in the statement required by 
this paragraph (b)(2); except that, for a pool that is a series fund 
structured with a limitation on liability among the different series, 
the account statement required by this paragraph (b)(2) is not required 
to include the consolidated net asset value of all series of the pool.
    (v) A commodity pool operator of a pool that meets the conditions 
specified inSec. 4.22(d)(2)(i) of this part to present and compute the 
commodity pool's financial statements contained in the Annual Report in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board and has filed notice 
pursuant toSec. 4.22(d)(2)(ii) of this part also may use such 
International Financial Reporting Standards in the computation and 
presentation of the account statement.
    (3) Annual report relief. (i) Exemption from the specific 
requirements ofSec. 4.22(c) of this part; Provided, that within 90 
calendar days after the end of the exempt pool's fiscal year or the 
permanent cessation of trading, whichever is earlier, the commodity pool 
operator electronically files with the National Futures Association and 
distributes to each participant in lieu of the financial information and 
statements specified by that section, an annual report for the exempt 
pool, affirmed in accordance withSec. 4.22(h) which contains, at a 
minimum:
    (A) A Statement of Financial Condition as of the close of the exempt 
pool's fiscal year (elected in accordance withSec. 4.22(g));
    (B) A Statement of Operations for that year;
    (C) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each investment 
in an investee fund that exceeds five percent of the pool's net assets. 
The income, management and incentive fees associated with an investment 
in an investee fund that is less than five percent of the pool's net 
assets may be combined and reported in the aggregate with the income, 
management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement that the CPO is not able to obtain the specific fee amounts 
for this fund;

[[Page 207]]

    (D) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (ii) Legend. If a claim for exemption has been made pursuant to this 
section, the commodity pool operator must make a statement to that 
effect on the cover page of each annual report.
    (4) Recordkeeping relief. Exemption from the specific requirements 
ofSec. 4.23; Provided, That the commodity pool operator must maintain 
the reports referred to in paragraphs (b)(2) and (b)(3) of this section 
and all books and records prepared in connection with his activities as 
the pool operator of the exempt pool (including, without limitation, 
records relating to the qualifications of qualified eligible persons and 
substantiating any performance representations) at his main business 
address and must make such books and records available to any 
representative of the Commission, the National Futures Association and 
the United States Department of Justice in accordance with the 
provisions ofSec. 1.31.
    (c) Relief available to commodity trading advisors. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity trading advisor who anticipates 
directing or guiding the commodity interest accounts of qualified 
eligible persons may claim any or all of the following relief with 
respect to the accounts of qualified eligible persons who have given due 
consent to their account being an exempt account underSec. 4.7:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Sec.Sec. 4.31, 4.34, 4.35 and 4.36; Provided, That if the commodity 
trading advisor delivers a brochure or other disclosure statement to 
such qualified eligible persons, such brochure or statement shall 
include all additional disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading; and that the following statement is prominently displayed on 
the cover page of the brochure or statement or, if none is provided, 
immediately above the signature line of the agreement that the client 
must execute before it opens an account with the commodity trading 
advisor:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, 
THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT 
BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING 
COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING 
PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR 
DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR 
ACCOUNT DOCUMENT.''

    (ii) Exemption from disclosing the past performance of exempt 
accounts in the Disclosure Document for non-exempt accounts except to 
the extent that such past performance is material to the non-exempt 
account being offered; Provided, That a commodity trading advisor that 
has claimed exemption hereunder and elects not to disclose any such 
performance in the Disclosure Document for non-exempt accounts shall 
state in a footnote to the performance disclosure therein that the 
advisor is advising or has advised exempt accounts for qualified 
eligible persons whose performance is not disclosed in this Disclosure 
Document.
    (2) Recordkeeping relief. Exemption from the specific requirements 
ofSec. 4.33; Provided, That the commodity trading advisor must 
maintain, at its main business office, all books and records prepared in 
connection with his activities as the commodity trading advisor of 
qualified eligible persons (including, without limitation, records 
relating to the qualifications of such qualified eligible persons and 
substantiating any performance representations) and must make such books 
and records available

[[Page 208]]

to any representative of the Commission, the National Futures 
Association and the United States Department of Justice in accordance 
with the provisions ofSec. 1.31.
    (d) Notice of claim for exemption. (1) A notice of a claim for 
exemption under this section must:
    (i) Provide the name, main business address, main business telephone 
number and the National Futures Association commodity pool operator or 
commodity trading advisor identification number of the person claiming 
the exemption;
    (ii)(A) Where the claimant is a commodity pool operator, provide the 
name(s) of the pool(s) for which the request is made; Provided, That a 
single notice representing that the pool operator anticipates operating 
single-investor pools may be filed to claim exemption for single-
investor pools and such notice need not name each such pool;
    (B) Where the claimant is a commodity trading advisor, contain a 
representation that the trading advisor anticipates providing commodity 
interest trading advice to qualified eligible persons;
    (iii) Contain representations that:
    (A) Neither the commodity pool operator or commodity trading advisor 
nor any of its principals is subject to any statutory disqualification 
under section 8a(2) or 8a(3) of the Act unless such disqualification 
arises from a matter which was previously disclosed in connection with a 
previous application for registration if such registration was granted 
or which was disclosed more than thirty days prior to the filing of the 
notice under this paragraph (d);
    (B) The commodity pool operator or commodity trading advisor will 
comply with the applicable requirements ofSec. 4.7; and
    (C) Where the claimant is a commodity pool operator, that the exempt 
pool will be offered and operated in compliance with the applicable 
requirements ofSec. 4.7;
    (iv) Specify the relief claimed underSec. 4.7;
    (v) Where the claimant is a commodity pool operator, state the 
closing date of the offering or that the offering will be continuous;
    (vi) Be filed by a representative duly authorized to bind the 
commodity pool operator or commodity trading advisor;
    (vii) Be filed electronically with the National Futures Association 
through its electronic exemption filing system; and
    (viii)(A)(1) Where the claimant is a commodity pool operator, except 
as provided in paragraph (d)(1)(ii)(A) of this section with respect to 
single-investor pools and in paragraph (d)(1)(viii)(A)(2) of this 
section, be received by the National Futures Association:
    (i) Before the date the pool first enters into a commodity interest 
transaction, if the relief claimed is limited to that provided under 
paragraphs (b)(2), (3) and (4) of this section; or
    (ii) Prior to any offer or sale of any participation in the exempt 
pool if the claimed relief includes that provided under paragraph (b)(1) 
of this section.
    (2) Where participations in a pool have been offered or sold in full 
compliance with part 4, the notice of a claim for exemption may be filed 
with the National Futures Association at any time; Provided, That the 
claim for exemption is otherwise consistent with the duties of the 
commodity pool operator and the rights of pool participants and that the 
commodity pool operator notifies the pool participants of his intention, 
absent objection by the holders of a majority of the units of 
participation in the pool who are unaffiliated with the commodity pool 
operator within twenty-one days after the date of the notification, to 
file a notice of claim for exemption underSec. 4.7 and such holders 
have not objected within such period. A commodity pool operator filing a 
notice under this paragraph (d)(1)(viii)(A)(2) shall either provide 
disclosure and reporting in accordance with the requirements of part 4 
to those participants objecting to the filing of such notice or allow 
such participants to redeem their units of participation in the pool 
within three months of the filing of such notice.
    (B) Where the claimant is a commodity trading advisor, be received 
by the Commission before the date the trading advisor first enters into 
an

[[Page 209]]

agreement to direct or guide the commodity interest account of a 
qualified eligible person pursuant toSec. 4.7.
    (2) The notice will be effective upon receipt by the National 
Futures Association with respect to each pool for which it was made 
where the claimant is a commodity pool operator and otherwise generally 
where the claimant is a commodity trading advisor; Provided, That any 
notice which does not include all the required information shall not be 
effective, and that if at the time the National Futures Association 
receives the notice an enforcement proceeding brought by the Commission 
under the Act or the regulations is pending against the pool operator or 
trading advisor or any of its principals, the exemption will not be 
effective until twenty-one calendar days after receipt of the notice by 
the National Futures Association and that in such case an exemption may 
be denied by the Commission or the National Futures Association or made 
subject to such conditions as the Commission or the National Futures 
Association may impose.
    (3) Any exemption claimed hereunder shall cease to be effective upon 
any change which would cause the commodity pool operator of an exempt 
pool to be ineligible for the relief claimed with respect to such pool 
or which would cause a commodity trading advisor to be ineligible for 
the relief claimed. The pool operator or trading advisor must promptly 
file a notice advising the National Futures Association of such change.
    (4)(i) Any exemption from the requirements ofSec. 4.21, 4.22, 
4.23, 4.24, 4.25 or 4.26 claimed hereunder with respect to a pool shall 
not affect the obligation of the commodity pool operator to comply with 
all other applicable provisions of part 4, the Act and the Commission's 
rules and regulations, with respect to the pool and any other pool the 
pool operator operates or intends to operate.
    (ii) Any exemption from the requirements ofSec. 4.31, 4.33, 4.34, 
4.35 or 4.36 claimed hereunder shall not affect the obligation of the 
commodity trading advisor to comply with all other applicable provisions 
of part 4, the Act and the Commission's rules and regulations, with 
respect to any qualified eligible person and any other client to which 
the commodity trading advisor provides or intends to provide commodity 
interest trading advice.
    (e) Insignificant deviations from a term, condition or requirement 
ofSec. 4.7. (1) A failure to comply with a term or condition ofSec. 
4.7 will not result in the loss of the exemption with respect to a 
particular pool or client if the commodity pool operator or the 
commodity trading advisor relying on the exemption shows that:
    (i) The failure to comply did not pertain to a term, condition or 
requirement directly intended to protect that particular qualified 
eligible person;
    (ii) The failure to comply was insignificant with respect to the 
exempt pool as a whole or to the particular exempt account; and
    (iii) A good faith and reasonable attempt was made to comply with 
all applicable terms, conditions and requirements ofSec. 4.7.
    (2) A transaction made in reliance onSec. 4.7 must comply with all 
applicable terms, conditions and requirements ofSec. 4.7. Where an 
exemption is established only through reliance upon paragraph (e)(1) of 
this section, the failure to comply shall nonetheless be actionable by 
the Commission.

[65 FR 47854, Aug. 4, 2000, as amended at 67 FR 77411, Dec. 18, 2002; 68 
FR 47231, Aug. 8, 2003; 71 FR 8942, Feb. 22, 2006; 72 FR 1662, Jan. 16, 
2007; 74 FR 57590, Nov. 9, 2009; 75 FR 55428, Sept. 10, 2010; 77 FR 
11284, Feb. 24, 2012; 77 FR 17329, Mar. 26, 2012; 77 FR 54358, Sept. 5, 
2012]



Sec.  4.8  Exemption from certain requirements of rule 4.26 with
respect to pools offered or sold in certain offerings exempt from
registration under the Securities Act.

    (a) Notwithstanding paragraph (d) ofSec. 4.26 and subject to the 
conditions specified herein, the registered commodity pool operator of a 
pool offered or sold solely to ``accredited investors'' as defined in 17 
CFR 230.501 in an offering exempt from the registration requirements of 
the Securities Act of 1933 pursuant to Rule 505 or 506 of Regulation D, 
17 CFR 230.505 or 230.506, may

[[Page 210]]

solicit, accept and receive funds, securities and other property from 
prospective participants in that pool upon filing with the National 
Futures Association and providing to such participants the Disclosure 
Document for the pool.
    (b) Notwithstanding paragraph (d) ofSec. 4.26 and subject to the 
conditions specified herein, the registered commodity pool operator of a 
pool offered or sold in an offering exempt from the registration 
requirements of the Securities Act of 1933 pursuant to Rule 505 or 506 
of Regulation D, 17 CFR 230.505 or 230.506, that is operated in 
compliance with, and has filed the notice required bySec. 4.12(b) may 
solicit, accept and receive funds, securities and other property from 
prospective participants in that pool upon filing with the National 
Futures Association and providing to such participants the Disclosure 
Document for the pool.
    (c) The relief provided underSec. 4.8 is not available if an 
enforcement proceeding brought by the Commission under the Act or the 
regulations is pending against the commodity pool operator or any of its 
principals or if the commodity pool operator or any of its principals is 
subject to any statutory disqualification under Sec.Sec. 8a(2) or 
8a(3) of the Act.

[57 FR 34865, Aug. 7, 1992; 57 FR 41173, Sept. 9, 1992, as amended at 60 
FR 38182, July 25, 1995; 72 FR 1662, Jan. 16, 2007]



Sec.  4.9  [Reserved]



Sec.  4.10  Definitions.

    For purposes of this part:
    (a) [Reserved]
    (b) Net asset value means total assets minus total liabilities, 
determined in accord with generally accepted accounting principles, with 
each position in a commodity interest accounted for at fair market 
value.
    (c) Participant means any person that has any direct financial 
interest in a pool (e.g., a limited partner).
    (d)(1) Pool means any investment trust, syndicate or similar form of 
enterprise operated for the purpose of trading commodity interests.
    (2) Multi-advisor pool means a pool in which:
    (i) No commodity trading advisor is allocated or intended to be 
allocated more than twenty-five percent of the pool's funds available 
for commodity interest trading; and
    (ii) No investee pool is allocated or intended to be allocated more 
than twenty-five percent of the pool's net asset value.
    (3) Principal-protected pool means a pool (commonly referred to as a 
``guaranteed pool'') that is designed to limit the loss of the initial 
investment of its participants.
    (4) Investee pool means any pool in which another pool or account 
participates or invests, e.g., as a limited partner thereof.
    (5) Major investee pool means, with respect to a pool, any investee 
pool that is allocated or intended to be allocated at least ten percent 
of the net asset value of the pool.
    (e)(1) Principal, when referring to a person that is a principal of 
a particular entity, shall have the same meaning as the term 
``principal'' underSec. 3.1(a) of this chapter.
    (2) Trading principal means:
    (i) With respect to a commodity pool operator, a principal who 
participates in making trading decisions for a pool, or who supervises, 
or has authority to allocate pool assets to, persons so engaged; and
    (ii) With respect to a commodity trading advisor, a principal who 
participates in making trading decisions for the account of a client or 
who supervises or selects persons so engaged.
    (f) Direct, as used in the context of trading commodity interest 
accounts, refers to agreements whereby a person is authorized to cause 
transactions to be effected for a client's commodity interest account 
without the client's specific authorization.
    (g) Trading program refers to the program pursuant to which a person 
(1) directs a client's commodity interest account, or (2) guides the 
client's commodity interest trading by means of a systematic program 
that recommends specific transactions.
    (h) Trading manager means, with respect to a pool, any person, other 
than the commodity pool operator of the pool, having sole or partial 
authority to allocate pool assets to commodity trading advisors or 
investee pools.

[[Page 211]]

    (i) Major commodity trading advisor means, with respect to a pool, 
any commodity trading advisor that is allocated or is intended to be 
allocated at least ten percent of the pool's funds available for 
commodity interest trading. For this purpose, the percentage allocation 
shall be the amount of funds allocated to the trading advisor by 
agreement with the commodity pool operator (or trading manager) on 
behalf of the pool, expressed as a percentage of the lesser of the 
aggregate value of the assets allocated to the pool's trading advisors 
or the net assets of the pool at the time of allocation.
    (j) Break-even point--(1) Means the trading profit that a pool must 
realize in the first year of a participant's investment to equal all 
fees and expenses such that such participant will recoup its initial 
investment, as calculated pursuant to rules promulgated by a registered 
futures association pursuant to section 17(j) of the Act; and
    (2) Must be expressed both as a dollar amount and as a percentage of 
the minimum unit of initial investment and assume redemption of the 
initial investment at the end of the first year of investment.
    (k) Draw-down means losses experienced by a pool or account over a 
specified period.
    (l) Worst peak-to-valley draw-down means the greatest cumulative 
percentage decline in month-end net asset value due to losses sustained 
by a pool, account or trading program during any period in which the 
initial month-end net asset value is not equaled or exceeded by a 
subsequent month-end net asset value. Such decline must be expressed as 
a percentage of the initial month-end net asset value, together with an 
indication of the months and year(s) of such decline from the initial 
month-end net asset value to the lowest month-end net asset value of 
such decline. \1\ For purposes of Sec.Sec. 4.25 and 4.35, a peak-to-
valley draw-down which began prior to the beginning of the most recent 
five calendar years is deemed to have occurred during such five- 
calendar-year period.
---------------------------------------------------------------------------

    \1\ For example, a worst peak-to-valley draw-down of ``4 to 8-92/
25%'' means that the peak-to-valley draw-down lasted from April to 
August of 1992 and resulted in a twenty-five percent cumulative draw-
down.
---------------------------------------------------------------------------

    (m) Partially-funded account means a client participation in the 
program of a commodity trading advisor in which the amount of funds in 
the client's commodity interest account over which such commodity 
trading advisor has trading authority is less than the account size that 
establishes the client's level of trading in a commodity trading 
advisor's program.

[46 FR 26013, May 9, 1981, as amended at 49 FR 8225, Mar. 5, 1984; 60 FR 
38182, July 25, 1995; 66 FR 53522, Oct. 23, 2001; 68 FR 42967, July 21, 
2003; 72 FR 63979, Nov. 14, 2007]



Sec.  4.11  Exemption from section 4n(3)(B).

    The provisions of section 4n(3)(B) of the Act shall not apply to any 
commodity pool operator or commodity trading advisor that is registered 
under the Act as such or that is exempt from such registration.



Sec.  4.12  Exemption from provisions of part 4.

    (a) In general. (1) The Commission may exempt any person or any 
class or classes of persons from any provision of this part 4 if it 
finds that the exemption is not contrary to the public interest and the 
purposes of the provisions from which the exemption is sought.
    (2) The Commission may grant the exemption subject to such terms and 
conditions as it may find appropriate.
    (b) Exemption from Subpart B for certain commodity pool operators 
based on amount and nature of commodity interest trading--(1) 
Eligibility. Subject to compliance with the provisions of paragraph (d) 
of this section, any person who is registered as a commodity pool 
operator, or has applied for such registration, may claim any or all of 
the relief available under paragraph (b)(2) of this section if:
    (i) The pool for which it makes such claim:
    (A) Will be offered and sold pursuant to the Securities Act of 1933 
or pursuant to an exemption from said Act;
    (B) Will generally and routinely engage in the buying and selling of 
securities and securities derived instruments;

[[Page 212]]

    (C) Will not enter into commodity interest transactions for which 
the aggregate initial margin and premiums, and required minimum security 
deposit for retail forex transactions (as defined inSec. 5.1(m) of 
this chapter) exceed 10 percent of the fair market value of the pool's 
assets, after taking into account unrealized profits and unrealized 
losses on any such contracts it has entered into; Provided, however, 
That in the case of an option that is in-the-money at the time of 
purchase, the in-the-money amount as defined inSec. 190.01(x) of this 
chapter may be excluded in computing such 10 percent; and
    (D) Will trade such commodity interests in a manner solely 
incidental to its securities trading activities.
    (ii) Each existing participant and prospective participant in the 
pool for which it makes such request is informed in writing of the 
restrictions set forth in paragraph (b)(1)(i) (C) and (D) of this 
section prior to the date the pool commences trading commodity 
interests. The pool operator may furnish this information by way of the 
pool's Disclosure Document, Account Statement, a separate notice or 
other similar means, including written communication delivered through 
electronic transmission.
    (2) Relief available to pool operator. The commodity pool operator 
of a pool which meets the criteria of paragraph (b)(1) of this section 
may claim the following relief:
    (i) In the case ofSec. 4.21, that the Commission accept in lieu 
and in satisfaction of the Disclosure Document specified by that section 
an offering memorandum for the pool which does not contain the 
information required by Sec.Sec. 4.24(a), 4.24(b), and 4.24(n); 
Provided, however, that the offering memorandum:
    (A) Is prepared pursuant to the requirements of the Securities Act 
of 1933, as amended, or the exemption from said Act pursuant to which 
the pool is being offered and sold;
    (B) Contains the information required by Sec.Sec. 4.24(c) through 
(m) and (o) through (u); and
    (C) Complies with the requirements of Sec.Sec. 4.24(v) and (w).
    (ii) In the case ofSec. 4.22 (a) and (b), that the Commission 
accept in lieu and in satisfaction of the Account Statement and 
prescribed frequency respectively specified by those sections a 
statement which indicates the net asset value of the pool as of the end 
of the reporting period and the change in net asset value from the end 
of the previous reporting period, to be prepared and distributed no less 
frequently than quarterly; Provided, however, That each such statement 
complies with the other requirements ofSec. 4.22 (a) and (b), 
including the references in those sections toSec. 4.22 (g) and (h).
    (iii) In the case ofSec. 4.22 (c) through (e), that the Commission 
accept in lieu and in satisfaction of the financial information and 
statements in the Annual Report specified by those sections an annual 
report for the pool which contains, at a minimum, a Statement of 
Financial Condition as of the close of the pool's fiscal year and a 
Statement of Income (Loss) for that year; Provided, however, That:
    (A) Each such annual report complies with the other requirements of 
Sec.  4.22(c), including the reference in that section toSec. 4.22(h) 
and the requirement inSec. 4.22(c)(5) that the annual report must 
contain appropriate footnote disclosure and further material 
information; and
    (B) The financial statements in such annual report must be presented 
and computed in accordance with generally accepted accounting principles 
consistently applied and must be certified by an independent public 
accountant.
    (iv) In the case ofSec. 4.23(a) (10) and (11), to exempt the pool 
operator from the requirements of those sections with respect to the 
pool.
    (c) Exemption from Subpart B for certain commodity pool operators 
based on listing of pool participation units for trading on a national 
securities exchange--(1) Eligibility. Subject to compliance with the 
provisions of paragraph (d) of this section, any person who is 
registered as a commodity pool operator, or has applied for such 
registration, may claim any or all of the relief available under 
paragraph (c)(2) of this section if the units of participation in the 
pool for which it makes such claim:
    (i) Will be offered and sold pursuant to an effective registration 
statement under the Securities Act of 1933; and

[[Page 213]]

    (ii) Will be listed for trading on a national securities exchange 
registered as such under the Securities Exchange Act of 1934.
    (2) Relief available to pool operator. The commodity pool operator 
of a pool whose units of participation meet the criteria of paragraph 
(c)(1) of this section may claim the following relief:
    (i) In the case ofSec. 4.21, exemption from the Disclosure 
Document delivery and acknowledgment requirements of that section, 
Provided, however, that the pool operator:
    (A) Cause the pool's Disclosure Document to be readily accessible on 
an Internet Web site maintained by the pool operator;
    (B) Cause the Disclosure Document to be kept current in accordance 
with the requirements ofSec. 4.26(a);
    (C) Clearly inform prospective pool participants with whom it has 
contact of the Internet address of such Web site and direct any broker, 
dealer or other selling agent to whom the pool operator sells units of 
participation in the pool to so inform prospective pool participants; 
and
    (D) Comply with all other requirements applicable to pool Disclosure 
Documents under part 4. The pool operator may satisfy the requirement of 
Sec.  4.26(b) to attach to the Disclosure Document a copy of the pool's 
most current Account Statement and Annual Report if the pool operator 
makes such Account Statement and Annual Report readily accessible on an 
Internet Web site maintained by the pool operator.
    (ii) In the case ofSec. 4.22, exemption from the Account Statement 
distribution requirement of that section; Provided, however, that the 
pool operator:
    (A) Cause the pool's Account Statements, including the certification 
required bySec. 4.22(h), to be readily accessible on an Internet Web 
site maintained by the pool operator within 30 calendar days after the 
last day of the applicable reporting period and continuing for a period 
of not less than 30 calendar days; and
    (B) Cause the Disclosure Document for the pool to clearly indicate:
    (1) That the information required to be included in the Account 
Statements will be readily accessible on an Internet Web site maintained 
by the pool operator; and
    (2) The Internet address of such Web site.
    (iii) In the case ofSec. 4.23, exemption from the requirement to 
keep the books and records specified by that section at the pool 
operator's main business office; Provided, however, that:
    (A) The books and records that the pool operator will not keep at 
its main business office will be maintained by one or more of the 
following: The pool's administrator, distributor or custodian, or a bank 
or registered broker or dealer acting in a similar capacity with respect 
to the pool;
    (B) At the time it files electronically with the National Futures 
Association the notice required under paragraph (d) of this section, the 
pool operator files a statement that:
    (1) Identifies the name, main business address, and main business 
telephone number of the person(s) who will be keeping required books and 
records in lieu of the pool operator;
    (2) Sets forth the name and telephone number of a contact for each 
person who will be keeping required books and records in lieu of the 
pool operator;
    (3) Specifies, by reference to the respective paragraph ofSec. 
4.23, the books and records that such person will be keeping; and
    (4) Contains representations from the pool operator that:
    (i) It will promptly amend the statement if the contact information 
or location of any of the books and records required to be kept bySec. 
4.23 changes, by identifying in such amendment the new location and any 
other information that has changed;
    (ii) It remains responsible for ensuring that all books and records 
required bySec. 4.23 are kept in accordance withSec. 1.31;
    (iii) Within forty-eight hours after a request by a representative 
of the Commission, it will obtain the original books and records from 
the location at which they are maintained, and provide them for 
inspection at the pool operator's main business office; Provided, 
however, that if the original books and records are permitted to be, and 
are maintained, at a location outside the

[[Page 214]]

United States, its territories or possessions, the pool operator will 
obtain and provide such original books and records for inspection at the 
pool operator's main business office within seventy-two hours of such a 
request; and
    (iv) It will disclose in the pool's Disclosure Document the location 
of its books and records that are required underSec. 4.23.
    (C) At the time it files the notice required under paragraph (d) of 
this section, the pool operator files electronically with the National 
Futures Association a statement from each person who will be keeping 
required books and records in lieu of the pool operator wherein such 
person:
    (1) Acknowledges that the pool operator intends that the person keep 
and maintain required pool books and records;
    (2) Agrees to keep and maintain such required books and records in 
accordance withSec. 1.31 of this chapter; and
    (3) Agrees to keep such required books and records open to 
inspection by any representative of the Commission or the United States 
Justice Department in accordance withSec. 1.31 of this chapter and to 
make such required books and records available to pool participants in 
accordance withSec. 4.23 of this chapter.
    (d)(1) Notice of claim for exemption. Any registered commodity pool 
operator, or applicant for commodity pool operator registration, who 
desires to claim the relief available under paragraph (b) or (c) of this 
Sec.  4.12 must file electronically a claim of exemption with the 
National Futures Association through its electronic exemption filing 
system. Such claim must:
    (i) Provide the name, main business address and main business 
telephone number of the registered commodity pool operator, or applicant 
for such registration, making the request;
    (ii) Provide the name of the commodity pool for which the request is 
being made;
    (iii) Contain representations that the pool will be operated in 
compliance withSec. 4.12(b)(1)(i) and the pool operator will comply 
with the requirements ofSec. 4.12(b)(1)(ii);
    (A) The pool will be operated in compliance with paragraph (b)(1)(i) 
of this section and the pool operator will comply with the requirements 
of paragraph (b)(1)(ii) of this section; or
    (B) The pool will be operated in compliance with paragraph (c)(1) of 
this section;
    (iv) Specify the relief sought under paragraph (b)(2) or (c)(2) of 
this section, as the case may be, and
    (v) Be filed by a representative duly authorized to bind the pool 
operator.
    (2)(i) The claim of exemption must be filed before the date the 
commodity pool first enters into a commodity interest transaction.
    (ii) The claim of exemption shall be effective upon filing; 
Provided, however, That any exemption claimed hereunder:
    (A) Will not be effective unless and until the notice required by 
this paragraph (d) contains all information called for herein and any 
statements required under paragraph (c)(2)(iii) have been provided; and
    (B) Will cease to be effective upon any change which would render 
the representations made pursuant to paragraph (d)(1)(iii) of this 
section inaccurate or the continuation of such representations false or 
misleading.
    (3)(i) If a claim of exemption has been made underSec. 
4.12(b)(2)(i), the commodity pool operator must make a statement to that 
effect on the cover page of each offering memorandum, or amendment 
thereto, that it is required to file with the National Futures 
Association pursuant toSec. 4.26.
    (ii) If a claim of exemption has been made with respect to paragraph 
(b)(2)(iii) of this section, the pool operator must make a statement to 
that effect on the cover page of each annual report that it is required 
to file with the National Futures Association pursuant toSec. 4.22(c).
    (4)(i) Any claim of exemption effective hereunder shall be effective 
only with respect to the pool for which it has been made.
    (ii) The effectiveness of such claim shall not affect the 
obligations of the commodity pool operator to comply with all other 
applicable provisions of this part 4, the Act and the Commission's rules 
and regulations issued thereunder with respect to the pool and

[[Page 215]]

any other pool the pool operator operates or intends to operate.

[52 FR 41984, Nov. 2, 1987, as amended at 60 FR 38183, July 25, 1995; 67 
FR 77411, Dec. 18, 2002; 72 FR 1663, Jan. 16, 2007; 75 FR 55428, Sept. 
10, 2010; 76 FR 28644, May 18, 2011]



Sec.  4.13  Exemption from registration as a commodity pool operator.

    This section is organized as follows: Paragraph (a) of this section 
specifies the criteria that must be met to qualify for exemption from 
registration under this section; paragraph (b) of this section governs 
the notice that must be filed to claim exemption from registration; 
paragraph (c) of this section sets forth the continuing obligations of a 
person who has claimed exemption under this section; paragraph (d) of 
this section specifies information certain persons must provide if they 
subsequently register; paragraph (e) of this section specifies the 
effect of registration on a person who has claimed an exemption from 
registration under this section or who is eligible to claim an exemption 
from registration hereunder; and paragraph (f) of this section specifies 
the effect of this section onSec. 4.5 of this chapter.
    (a) A person is not required to register under the Act as a 
commodity pool operator if:
    (1)(i) It does not receive any compensation or other payment, 
directly or indirectly, for operating the pool, except reimbursement for 
the ordinary administrative expenses of operating the pool;
    (ii) It operates only one commodity pool at any time;
    (iii) It is not otherwise required to register with the Commission 
and is not a business affiliate of any person required to register with 
the Commission; and
    (iv) Neither the person nor any other person involved with the pool 
does any advertising in connection with the pool (for purposes of this 
section, advertising includes the systematic solicitation of prospective 
participants by telephone or seminar presentation);
    (2)(i) None of the pools operated by it has more than 15 
participants at any time; and
    (ii) The total gross capital contributions it receives for units of 
participation in all of the pools it operates or that it intends to 
operate do not in the aggregate exceed $400,000.
    (iii) For the purpose of determining eligibility for exemption under 
paragraph (a)(2) of this section, the person may exclude the following 
participants and their contributions:
    (A) The pool's operator, commodity trading advisor, and the 
principals thereof;
    (B) A child, sibling or parent of any of these participants;
    (C) The spouse of any participant specified in paragraph 
(a)(2)(iii)(A) or (B) of this section; and
    (D) Any relative of a participant specified in paragraph 
(a)(2)(iii)(A), (B) or (C) of this section, its spouse or a relative of 
its spouse, who has the same principal residence as such participant;
    (3) For each pool for which the person claims exemption from 
registration under this paragraph (a)(3):
    (i) Interests in the pool are exempt from registration under the 
Securities Act of 1933, and such interests are offered and sold without 
marketing to the public in the United States;
    (ii) At all times, the pool meets one or the other of the following 
tests with respect to its commodity interest positions, including 
positions in security futures products, whether entered into for bona 
fide hedging purposes or otherwise:
    (A) The aggregate initial margin, premiums, and required minimum 
security deposit for retail forex transactions (as defined inSec. 
5.1(m) of this chapter) required to establish such positions, determined 
at the time the most recent position was established, will not exceed 5 
percent of the liquidation value of the pool's portfolio, after taking 
into account unrealized profits and unrealized losses on any such 
positions it has entered into; Provided, That in the case of an option 
that is in-the-money at the time of purchase, the in-the-money amount as 
defined inSec. 190.01(x) of this chapter may be excluded in computing 
such 5 percent; or
    (B) The aggregate net notional value of such positions, determined 
at the time the most recent position was established, does not exceed 
100 percent of the liquidation value of the pool's

[[Page 216]]

portfolio, after taking into account unrealized profits and unrealized 
losses on any such positions it has entered into. For the purpose of 
this paragraph:
    (1) The term ``notional value'' shall be calculated for each futures 
position by multiplying the number of contracts by the size of the 
contract, in contract units (taking into account any multiplier 
specified in the contract), by the current market price per unit, for 
each such option position by multiplying the number of contracts by the 
size of the contract, adjusted by its delta, in contract units (taking 
into account any multiplier specified in the contract), by the strike 
price per unit, for each such retail forex transaction, by calculating 
the value in U.S. Dollars of such transaction, at the time the 
transaction was established, excluding for this purpose the value in 
U.S. Dollars of offsetting long and short transactions, if any, and for 
any cleared swap by the value as determined consistent with the terms of 
17 CFR part 45; and
    (2) The person may net futures contracts with the same underlying 
commodity across designated contract markets and foreign boards of 
trade; and swaps cleared on the same derivatives clearing organization 
where appropriate; and
    (iii) The person reasonably believes, at the time of investment (or, 
in the case of an existing pool, at the time of conversion to a pool 
meeting the criteria of paragraph (a)(3) of this section), that each 
person who participates in the pool is:
    (A) An ``accredited investor,'' as that term is defined inSec. 
230.501 of this title;
    (B) A trust that is not an accredited investor but that was formed 
by an accredited investor for the benefit of a family member;
    (C) A ``knowledgeable employee,'' as that term is defined inSec. 
270.3c-5 of this title;
    (D) A ``qualified eligible person,'' as that term is defined in 
Sec.  4.7(a)(2)(viii)(A) of this chapter; or
    (E) A person eligible to participate in a pool for which the pool 
operator can claim exemption from registration under paragraph (a)(4) of 
this section; and
    (iv) Participations in the pool are not marketed as or in a vehicle 
for trading in the commodity futures or commodity options markets; 
Provided, That nothing in paragraph (a)(3) of this section shall 
prohibit the person from claiming an exemption under this section if it 
additionally operates one or more pools for which it meets the criteria 
of paragraph (a)(4) of this section;
    (4) [Reserved]
    (5) The person is acting as a director or trustee with respect to a 
pool whose operator is registered as a commodity pool operator and is 
eligible to claim relief underSec. 4.12(c) of this chapter, Provided, 
however, that:
    (i) The person acts in such capacity solely to comply with the 
requirements under section 10A of the Securities Exchange Act of 1934, 
as amended, and any Securities and Exchange Commission rules and 
exchange listing requirements adopted pursuant thereto, that the pool 
have an audit committee comprised exclusively of independent directors 
or trustees;
    (ii) The person has no power or authority to manage or control the 
operations or activities of the pool except as necessary to comply with 
such requirement; and
    (iii) The registered pool operator of the pool is and will be liable 
for any violation of the Act or the Commission's regulations by the 
person in connection with the person's serving as a director or trustee 
with respect to the pool.
    (6)(i) Eligibility for exemption under paragraph (a)(1), (a)(2), 
(a)(3) or (a)(4) of this section is subject to the person furnishing in 
written communication physically delivered or delivered through 
electronic transmission to each prospective participant in the pool:
    (A) A statement that the person is exempt from registration with the 
Commission as a commodity pool operator and that therefore, unlike a 
registered commodity pool operator, it is not required to deliver a 
Disclosure Document and a certified annual report to participants in the 
pool; and
    (B) A description of the criteria pursuant to which it qualifies for 
such exemption from registration.

[[Page 217]]

    (ii) The person must make these disclosures by no later than the 
time it delivers a subscription agreement for the pool to a prospective 
participant in the pool.
    (b)(1) Any person who desires to claim the relief from registration 
provided by this section, must file electronically a notice of exemption 
from commodity pool operator registration with the National Futures 
Association through its electronic exemption filing system. The notice 
must:
    (i) Provide the name, main business address, main business telephone 
number, main facsimile number and main email address of the person 
claiming the exemption and the name of the pool for which it is claiming 
exemption;
    (ii) Contain the section number pursuant to which the operator is 
filing the notice (i.e.,Sec. 4.13(a)(1), (2), or (3)) and represent 
that the pool will be operated in accordance with the criteria of that 
paragraph; and
    (iii) Be filed by a representative duly authorized to bind the 
person.
    (2) The person must file the notice by no later than the time that 
the pool operator delivers a subscription agreement for the pool to a 
prospective participant in the pool; Provided, however, that in the case 
of a claim for relief underSec. 4.13(a)(5), the person must file the 
notice by the later of the effective date of the pool's registration 
statement under the Securities Act of 1933 or the date on which the 
person first becomes a director or trustee; and Provided, further, that 
where a person registered with the Commission as a commodity pool 
operator intends to withdraw from registration in order to claim 
exemption hereunder, the person must notify its pool's participants in 
written communication physically delivered or delivered through 
electronic transmission that it intends to withdraw from registration 
and claim the exemption, and it must provide each such participant with 
a right to redeem its interest in the pool prior to the person filing a 
notice of exemption from registration
    (3) The notice will be effective upon filing, provided the notice is 
materially complete.
    (4) Annual notice. Each person who has filed a notice of exemption 
from registration under this section must affirm on an annual basis the 
notice of exemption from registration, withdraw such exemption due to 
the cessation of activities requiring registration or exemption 
therefrom, or withdraw such exemption and apply for registration within 
60 days of the calendar year end through National Futures Association's 
electronic exemption filing system.
    (5) Each person who has filed a notice of exemption from 
registration under this section must, in the event that any of the 
information contained or representations made in the notice becomes 
inaccurate or incomplete, amend the notice through National Futures 
Association's electronic exemption filing system as may be necessary to 
render the notice accurate and complete. This amendment must be filed 
electronically within 15 business days after the pool operator becomes 
aware of the occurrence of such event.
    (c)(1) Each person who has filed a notice of exemption from 
registration under this section must:
    (i) Make and keep all books and records prepared in connection with 
its activities as a pool operator for a period of five years from the 
date of preparation;
    (ii) Keep such books and records readily accessible during the first 
two years of the five-year period. All such books and records must be 
available for inspection upon the request of any representative of the 
Commission, the United States Department of Justice, or any other 
appropriate regulatory agency; and
    (iii) Submit to such special calls as the Commission may make to 
demonstrate eligibility for and compliance with the applicable criteria 
for exemption under this section.
    (2) Each person who has filed a notice of exemption from 
registration pursuant to paragraph (a)(1) or (a)(2) of this section 
must:
    (i) Promptly furnish to each participant in the pool a copy of each 
monthly statement for the pool that the pool operator received from a 
futures commission merchant pursuant toSec. 1.33 of this chapter; and

[[Page 218]]

    (ii) Clearly show on such statement, or on an accompanying 
supplemental statement, the net profit or loss on all commodity 
interests closed since the date of the previous statement.
    (d) Each person who applies for registration as a commodity pool 
operator subsequent to claiming relief under paragraph (a)(1) or (a)(2) 
of this section must include with its application the financial 
statements and other information required bySec. 4.22(c)(1) through 
(5) for each pool that it has operated as an operator exempt from 
registration. That information must be presented and computed in 
accordance with generally accepted accounting principles consistently 
applied. If the person is granted registration as a commodity pool 
operator, it must comply with the provisions of this part with respect 
to each such pool.
    (e)(1) Subject to the provisions of paragraph (e)(2) of this 
section, if a person who is eligible for exemption from registration as 
a commodity pool operator under this section nonetheless registers as a 
commodity pool operator, the person must comply with the provisions of 
this part with respect to each commodity pool identified on its 
registration application or supplement thereto.
    (2) If a person operates one or more commodity pools described in 
paragraph (a)(3) of this section, and one or more commodity pools for 
which it must be, and is, registered as a commodity pool operator, the 
person is exempt from the requirements applicable to a registered 
commodity pool operator with respect to the pool or pools described in 
paragraph (a)(3) of this section; Provided, That the person:
    (i) Furnishes in written communication physically delivered or 
delivered through electronic transmission to each prospective 
participant in a pool described in paragraph (a)(3) of this section that 
it operates:
    (A) A statement that it will operate the pool as if the person was 
exempt from registration as a commodity pool operator;
    (B) A description of the criteria pursuant to which it will so 
operate the pool;
    (ii) Complies with paragraph (c) of this section; and
    (iii) Provides each existing participant in a pool that the person 
elects to operate as described in paragraph (a)(3) of this section a 
right to redeem the participant's interest in the pool, and informs each 
such participant of that right no later than the time the person 
commences to operate the pool as described in paragraph (a)(3) of this 
section.
    (f) The filing of a notice of exemption from registration under this 
section will not affect the ability of a person to qualify for exclusion 
from the definition of the term ``commodity pool operator'' underSec. 
4.5 in connection with its operation of another trading vehicle that is 
not covered under thisSec. 4.13.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 50 FR 15883, Apr. 23, 1985; 67 FR 77411, Dec. 
18, 2002; 68 FR 47231, Aug. 8, 2003; 68 FR 59113, Oct. 14, 2003; 69 FR 
41426, July 9, 2004; 72 FR 1663, Jan. 16, 2007; 74 FR 57590, Nov. 9, 
2009; 75 FR 55428, Sept. 10, 2010; 76 FR 28645, May 18, 2011; 77 FR 
11284, Feb. 24, 2012; 77 FR 17329, Mar. 26, 2012]



Sec.  4.14  Exemption from registration as a commodity trading advisor.

    This section is organized as follows: Paragraph (a) of this section 
specifies the criteria that must be met to qualify for exemption from 
registration under this section, including the notice of exemption from 
registration and continuing obligations of persons who have claimed 
exemption under paragraph (a)(8) of this section; paragraph (b) of this 
section concerns ``cash market transactions''; and paragraph (c) of this 
section specifies the effect of registration on a person who has claimed 
an exemption from registration under this section or who is eligible to 
claim an exemption from registration hereunder.
    (a) A person is not required to register under the Act as a 
commodity trading advisor if:
    (1) It is a dealer, processor, broker, or seller in cash market 
transactions of any commodity (or product thereof)

[[Page 219]]

and the person's commodity trading advice is solely incidental to the 
conduct of its cash market business;
    (2) It is a non-profit, voluntary membership, trade association or 
farm organization and the person's commodity trading advice is solely 
incidental to the conduct of its business as such association or 
organization;
    (3) It is registered under the Act as an associated person and the 
person's commodity trading advice is issued solely in connection with 
its employment as an associated person;
    (4) It is registered under the Act as a commodity pool operator and 
the person's commodity trading advice is directed solely to, and for the 
sole use of, the pool or pools for which it is so registered;
    (5) It is exempt from registration as a commodity pool operator and 
the person's commodity trading advice is directed solely to, and for the 
sole use of, the pool or pools for which it is so exempt;
    (6) It is registered under the Act as an introducing broker and the 
person's trading advice is solely in connection with its business as an 
introducing broker;
    (7)(i) It is registered under the Act as a leverage transaction 
merchant and the person's trading advice is solely in connection with 
its business as a leverage transaction merchant;
    (ii) It is registered under the Act as a retail foreign exchange 
dealer and the person's trading advice is solely in connection with its 
business as a retail foreign exchange dealer.
    (8) It is registered as an investment adviser under the Investment 
Advisers Act of 1940 or with the applicable securities regulatory agency 
of any State, or it is exempt from such registration, or it is excluded 
from the definition of the term ``investment adviser'' pursuant to the 
provisions of sections 202(a)(2) and 202(a)(11) of the Investment 
Advisers Act of 1940, Provided, That:
    (i) The person's commodity interest trading advice is directed 
solely to, and for the sole use of, one or more of the following:
    (A) ``Qualifying entities,'' as that term is defined inSec. 
4.5(b), for which a notice of eligibility has been filed;
    (B) Collective investment vehicles that are excluded from the 
definition of the term commodity ``pool'' underSec. 4.5(a)(4); and
    (C) Commodity pools that are organized and operated outside of the 
United States, its territories or possessions, where:
    (1) The commodity pool operator of each such pool has not so 
organized and is not so operating the pool for the purpose of avoiding 
commodity pool operator registration;
    (2) With the exception of the pool's operator, advisor and their 
principals, solely ``Non-United States persons,'' as that term is 
defined inSec. 4.7(a)(1)(iv), will contribute funds or other capital 
to, and will own beneficial interests in, the pool; Provided, That units 
of participation in the pool held by persons who do not qualify as Non-
United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10 percent of the beneficial 
interest of the pool;
    (3) No person affiliated with the pool conducts any marketing 
activity for the purpose of, or that could reasonably have the effect 
of, soliciting participation from other than Non-United States persons; 
and
    (4) No person affiliated with the pool conducts any marketing 
activity from within the United States, its territories or possessions; 
and
    (D) A commodity pool operator who has claimed an exemption from 
registration underSec. 4.13(a)(3), or, if registered as a commodity 
pool operator, who may treat each pool it operates that meets the 
criteria ofSec. 4.13(a)(3) as if it were not so registered; and
    (ii) The person:
    (A) Provides commodity interest trading advice solely incidental to 
its business of providing securities or other investment advice to 
qualifying entities, collective investment vehicles and commodity pools 
as described in paragraph (a)(8)(i) of this section; and
    (B) Is not otherwise holding itself out as a commodity trading 
advisor.
    (iii)(A) A person who desires to claim the relief from registration 
provided by thisSec. 4.14(a)(8) must file electronically a notice of 
exemption from commodity trading advisor registration with the National 
Futures Association through

[[Page 220]]

its electronic exemption filing system. The notice must:
    (1) Provide the name, main business address, main business telephone 
number, main facsimile number and main email address of the trading 
advisor claiming the exemption;
    (2) Contain the section number pursuant to which the advisor is 
filing the notice (i.e., underSec. 4.14(a)(8)(i)) and represent that 
it will provide commodity interest advice to its clients in accordance 
with the criteria of that paragraph or paragraphs; and
    (3) Be filed by a representative duly authorized to bind the person.
    (B) The person must file the notice by no later than the time it 
delivers an advisory agreement for the trading program pursuant to which 
it will offer commodity interest advice to a client; Provided, That 
where the advisor is registered with the Commission as a commodity 
trading advisor, it must notify its clients in written communication 
physically delivered or delivered through electronic transmission that 
it intends to withdraw from registration and claim the exemption and 
must provide each such client with a right to terminate its advisory 
agreement prior to the person filing a notice of exemption from 
registration.
    (C) The notice will be effective upon filing, provided the notice is 
materially complete.
    (D) Annual notice. Each person who has filed a notice of exemption 
from registration under this section must affirm on an annual basis the 
notice of exemption from registration, withdraw such exemption due to 
the cessation of activities requiring registration or exemption 
therefrom, or withdraw such exemption and apply for registration within 
60 days of the calendar year end through National Futures Association's 
electronic exemption filing system.
    (E) Each person who has filed a notice of exemption from 
registration under this section must, in the event that any of the 
information contained or representations made in the notice becomes 
inaccurate or incomplete, amend the notice electronically through 
National Futures Association's electronic exemption filing system as may 
be necessary to render the notice accurate and complete. This amendment 
must be filed within 15 business days after the trading advisor becomes 
aware of the occurrence of such event.
    (iv) Each person who has filed a notice of registration exemption 
under thisSec. 4.14(a)(8) must:
    (A)(1) Make and keep all books and records prepared in connection 
with its activities as a trading advisor, including all books and 
records demonstrating eligibility for and compliance with the applicable 
criteria for exemption under this section, for a period of five years 
from the date of preparation; and
    (2) Keep such books and records readily accessible during the first 
two years of the five-year period. All such books and records must be 
available for inspection upon the request of any representative of the 
Commission, the United States Department of Justice, or any other 
appropriate regulatory agency; and
    (B) Submit to such special calls as the Commission may make to 
demonstrate eligibility for and compliance with the applicable criteria 
for exemption under this section;
    (9) It does not engage in any of the following activities:
    (i) Directing client accounts; or
    (ii) Providing commodity trading advice based on, or tailored to, 
the commodity interest or cash market positions or other circumstances 
or characteristics of particular clients; or
    (10) If, as provided for in section 4m(1) of the Act, during the 
course of the preceding 12 months, it has not furnished commodity 
trading advice to more than 15 persons and it does not hold itself out 
generally to the public as a commodity trading advisor.
    (i) For the purpose of paragraph (a)(10) of this section, the 
following are deemed a single person:
    (A) A natural person, and:
    (1) Any minor child of the natural person;
    (2) Any relative, spouse, or relative of the spouse of the natural 
person who has the same principal residence;
    (3) All accounts of which the natural person and/or the persons 
referred to in paragraph (a)(10)(i)(A) of this section are the only 
primary beneficiaries; and

[[Page 221]]

    (4) All trusts of which the natural person and/or the persons 
referred to in paragraph (a)(10)(i)(A) of this section are the only 
primary beneficiaries;
    (B)(1) A corporation, general partnership, limited partnership, 
limited liability company, trust (other than a trust referred to in 
paragraph (a)(10)(i)(A)(4) of this section), or other legal organization 
(any of which are referred to hereinafter as a ``legal organization'') 
that receives commodity interest trading advice based on its investment 
objectives rather than the individual investment objectives of its 
shareholders, partners, limited partners, members, or beneficiaries (any 
of which are referred to hereinafter as an ``owner''); and
    (2) Two or more legal organizations referred to in paragraph 
(a)(10)(i)(B)(1) of this section that have identical owners.
    (ii) Special Rules. For the purpose of paragraph (a)(10) of this 
section:
    (A) An owner must be counted in its own capacity as a person if the 
commodity trading advisor provides advisory services to the owner 
separate and apart from the advisory services provided to the legal 
organization; Provided, That the determination that an owner is a client 
will not affect the applicability of paragraph (a)(10) of this section 
with regard to any other owner;
    (B)(1) A general partner of a limited partnership, or other person 
acting as a commodity trading advisor to the partnership, may count the 
limited partnership as one person; and
    (2) A manager or managing member of a limited liability company, or 
any other person acting as a commodity trading advisor to the company, 
may count the limited liability company as one person.
    (C) A commodity trading advisor that has its principal office and 
place of business outside of the United States, its territories or 
possessions must count only clients that are residents of the United 
States, its territories and possessions; a commodity trading advisor 
that has its principal office and place of business in the United States 
or in any territory or possession thereof must count all clients.
    (iii) Holding Out. Any commodity trading advisor relying on 
paragraph (a)(10) of this section shall not be deemed to be holding 
itself out generally to the public as a commodity trading advisor, 
within the meaning of section 4m(1) of the Act, solely because it 
participates in a non-public offering of interests in a collective 
investment vehicle under the Securities Act of 1933.
    (b) For purposes of this section, ``cash market transactions'' shall 
not include transactions involving contracts for the purchase or sale of 
a commodity for future delivery or transactions subject to Commission 
regulation under section 4c or 19 of the Act.
    (c)(1) Subject to the provisions of paragraph (c)(2) of this 
section, if a person who is eligible for exemption from registration as 
a commodity trading advisor under this section nonetheless registers as 
a commodity trading advisor, the person must comply with the provisions 
of this part with respect to those clients for which it could have 
claimed an exemption from registration hereunder.
    (2) If a person provides commodity interest trading advice to a 
client described in paragraph (a) of this section and to a client for 
which it must be, and is, registered as a commodity trading advisor, the 
person is exempt from the requirements applicable to a registered 
commodity trading advisor with respect to the clients so described; 
Provided, That the person furnishes in writing to each prospective 
client described in paragraph (a) of this section a statement that it 
will provide commodity interest trading advice to the client as if it 
was exempt from registration as a commodity trading advisor; Provided 
Further, That the person provides to each existing client described in 
paragraph (a) of this section a right to terminate its advisory 
agreement, and informs such client of that right no later than the time 
the person commences to provide commodity interest trading advice to the 
client as if

[[Page 222]]

the person was exempt from registration.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982); 5 U.S.C. 552 and 552b)

[46 FR 26013, May 8, 1981; 46 FR 26761, May 15, 1981; 48 FR 35298, Aug. 
3, 1983; 49 FR 5526, Feb. 13, 1984; 52 FR 41985, Nov 2, 1987; 52 FR 
43827, Nov 16, 1987; 65 FR 12943, Mar. 10, 2000; 67 FR 77411, Dec. 18, 
2002; 68 FR 47233, Aug. 8, 2003; 68 FR 52837, Sept. 8, 2003; 68 FR 
59114, Oct. 14, 2003; 72 FR 1664, Jan. 16, 2007; 75 FR 55428, Sept. 10, 
2010; 77 FR 11284, Feb. 24, 2012; 77 FR 17330, Mar. 26, 2012]



Sec.  4.15  Continued applicability of antifraud section.

    The provisions of section 4o of the Act shall apply to any person 
even though such person is exempt from registration under this part 4, 
and it shall continue to be unlawful for any such person to violate 
section 4o of the Act.

[50 FR 15884, Apr. 23, 1985]



Sec.  4.16  Prohibited representations.

    It shall be unlawful for any commodity pool operator, commodity 
trading advisor, principal thereof or person who solicits therefor to 
represent or imply in any manner whatsoever that such commodity pool 
operator or commodity trading advisor has been sponsored, recommended or 
approved, or that its abilities or qualifications have in any respect 
been passed upon, by the Commission, the Federal government or any 
agency thereof.



                   Subpart B_Commodity Pool Operators



Sec.  4.20  Prohibited activities.

    (a)(1) Except as provided in paragraph (a)(2) of this section, a 
commodity pool operator must operate its pool as an entity cognizable as 
a legal entity separate from that of the pool operator.
    (2) The Commission may exempt a corporation from the requirements of 
paragraph (a)(1) of this section if;
    (i) The corporation represents in writing to the Commission that 
each participant in its pool will be issued stock or other evidences of 
ownership in the corporation for all funds, securities or other property 
that the participant contributes for the purchase of an ownership 
interest in the pool;
    (ii) The corporation demonstrates to the satisfaction of the 
Commission that it has estabilshed procedures adequate to assure 
compliance with paragraphs (b) and (c) of this section; and
    (iii) The Commission finds that the exemption is not contrary to the 
public interest and to the purposes of the provision from which the 
exemption is sought.
    (b) All funds, securities or other property received by a commodity 
pool operator from an existing or prospective pool participant for the 
purchase of an interest or as an assessment (whether voluntary or 
involuntary) on an interest in a pool that it operates or that it 
intends to operate must be received in the pool's name.
    (c) No commodity pool operator may commingle the property of any 
pool that it operates or that it intends to operate with the property of 
any other person.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 34311, July 1, 1981; 46 
FR 63035, Dec. 30, 1981]



Sec.  4.21  Required delivery of pool Disclosure Document.

    (a)(1) Subject to the provisions of paragraph (a)(2) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must deliver or cause to be delivered to a 
prospective participant in a pool that it operates or intends to operate 
a Disclosure Document for the pool prepared in accordance with 
Sec.Sec. 4.24 and 4.25 by no later than the time it delivers to the 
prospective participant a subscription agreement for the pool; Provided, 
That any information distributed in advance of the delivery of the 
Disclosure Document to a prospective participant is consistent with or 
amended by the information contained in the Disclosure Document and with 
the obligations of the commodity pool operator under the Act, the 
Commission's regulations issued thereunder, and the laws of any other 
applicable federal or state authority; Provided, further, That in the 
event such previously distributed information is amended by the 
Disclosure

[[Page 223]]

Document in any material respect, the prospective participant must be in 
receipt of the Disclosure Document at least 48 hours prior to its 
subscription being accepted by the pool operator.
    (2) For the purpose of the Disclosure Document delivery requirement, 
including any offering memorandum delivered pursuant toSec. 4.7(b)(1) 
or 4.12(b)(2)(i), the term ``prospective pool participant'' does not 
include a commodity pool operated by a pool operator that is the same 
as, or that controls, is controlled by, or is under common control with, 
the pool operator of the offered pool.
    (b) The commodity pool operator may not accept or receive funds, 
securities or other property from a prospective participant unless the 
pool operator first receives from the prospective participant an 
acknowledgment signed and dated by the prospective participant stating 
that the prospective participant received a Disclosure Document for the 
pool. Where a Disclosure Document is delivered to a prospective pool 
participant by electronic means, in lieu of a manually signed and dated 
acknowledgment, the pool operator may establish receipt by electronic 
means that use a unique identifier to confirm the identity of the 
recipient of such Disclosure Document, Provided, however, That the 
requirement ofSec. 4.23(a)(3) to retain the acknowledgment specified 
in this paragraph (b) applies equally to such substitute evidence of 
receipt, which must be retained either in hard copy form or in another 
form approved by the Commission.

[60 FR 38183, July 25, 1995, as amended at 62 FR 39115, July 22, 1997; 
65 FR 58649, Oct. 2, 2000; 68 FR 47234, Aug. 8, 2003]



Sec.  4.22  Reporting to pool participants.

    (a) Except as provided in paragraph (a)(4) or (a)(6) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must periodically distribute to each 
participant in each pool that it operates, within 30 calendar days after 
the last date of the reporting period prescribed in paragraph (b) of 
this section, an Account Statement, which shall be presented in the form 
of a Statement of Operations and a Statement of Changes in Net Assets, 
for the prescribed period. These financial statements must be presented 
and computed in accordance with generally accepted accounting principles 
consistently applied. The Account Statement must be signed in accordance 
with paragraph (h) of this section.
    (1) The portion of the Account Statement which must be presented in 
the form of a Statement of Operations must separately itemize the 
following information:
    (i) The total amount of realized net gain or loss on commodity 
interest positions liquidated during the reporting period;
    (ii) The change in unrealized net gain or loss on commodity interest 
positions during the reporting period;
    (iii) The total amount of net gain or loss from all other 
transactions in which the pool engaged during the reporting period, 
including interest and dividends earned on funds not paid as premiums or 
used to margin the pool's commodity interest positions;
    (iv) The total amount of all management fees during the reporting 
period;
    (v) The total amount of all advisory fees during the reporting 
period;
    (vi) The total amount of all brokerage commissions during the 
reporting period;
    (vii) The total amount of other fees for commodity interest and 
other investment transactions during the reporting period; and
    (viii) The total amount of all other expenses incurred or accrued by 
the pool during the reporting period.
    (2) The portion of the Account Statement that must be presented in 
the form of a Statement of Changes in Net Assets must separately itemize 
the following information:
    (i) The net asset value of the pool as of the beginning of the 
reporting period;
    (ii) The total amount of additions to the pool, whether voluntary or 
involuntary, made during the reporting period;
    (iii) The total amount of withdrawals from and redemption of 
participation units in the pool, whether voluntary or involuntary, for 
the reporting period;
    (iv) The total net income or loss of the pool during the reporting 
period;

[[Page 224]]

    (v) The net asset value of the pool as of the end of the reporting 
period; and
    (vi)(A) The net asset value per outstanding participation unit in 
the pool as of the end of the reporting period, or
    (B) The total value of the participant's interest or share in the 
pool as of the end of the reporting period.
    (3) The Account Statement must also disclose any material business 
dealings between the pool, the pool's operator, commodity trading 
advisor, futures commission merchant, retail foreign exchange dealer, 
swap dealer, or the principals thereof that previously have not been 
disclosed in the pool's Disclosure Document or any amendment thereto, 
other Account Statements or Annual Reports.
    (4) For the purpose of the Account Statement delivery requirement, 
including any Account Statement distributed pursuant toSec. 4.7(b)(2) 
or 4.12(b)(2)(ii), the term ``participant'' does not include a commodity 
pool operated by a pool operator that is the same as, or that controls, 
is controlled by, or is under common control with, the pool operator of 
a pool in which the commodity pool has invested.
    (5) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the account 
statement is reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the account statement is not required to include 
consolidated information for all series.
    (6) A commodity pool operator of a pool that meets the conditions 
specified in paragraph (d)(2)(i) of this section and has filed notice 
pursuant to paragraph (d)(2)(ii) of this section may elect to follow the 
same accounting treatment with respect to the computation and 
presentation of the account statement.
    (b) The Account Statement must be distributed at least monthly in 
the case of pools with net assets of more than $500,000 at the beginning 
of the pool's fiscal year, and otherwise at least quarterly; Provided, 
however, That an Account Statement for the last reporting period of the 
pool's fiscal year need not be distributed if the Annual Report required 
by paragraph (c) of this section is sent to pool participants within 45 
calendar days after the end of the fiscal year. The requirement to 
distribute an Account Statement shall commence as of the date the pool 
is formed as specified in paragraph (g)(1) of this section.
    (c) Except as provided in paragraph (c)(7) or (c)(8) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must distribute an Annual Report to each 
participant in each pool that it operates, and must electronically 
submit a copy of the Report and key financial balances from the Report 
to the National Futures Association pursuant to the electronic filing 
procedures of the National Futures Association, within 90 calendar days 
after the end of the pool's fiscal year or the permanent cessation of 
trading, whichever is earlier; Provided, however, that if during any 
calendar year the commodity pool operator did not operate a commodity 
pool, the pool operator must so notify the National Futures Association 
within 30 calendar days after the end of such calendar year. The Annual 
Report must be affirmed pursuant to paragraph (h) of this section and 
must contain the following:
    (1) The net asset value of the pool as of the end of each of the 
pool's two preceding fiscal years.
    (2)(i) The net asset value per outstanding participation unit in the 
pool as of the end of each of the pool's two preceding fiscal years, or
    (ii) The total value of the participant's interest or share in the 
pool as of the end of each of the pool's two preceding fiscal years.
    (3) A Statement of Financial Condition as of the close of the pool's 
fiscal year and preceding fiscal year.
    (4) Statements of Operations, and Changes in Net Assets, for the 
period between--
    (i) The later of:
    (A) The date of the most recent Statement of Financial Condition 
delivered to the National Futures Association pursuant to this paragraph 
(c); or
    (B) The date of the formation of the pool; and

[[Page 225]]

    (ii) The close of the pool's fiscal year, together with Statements 
of Operations, and Changes in Net Assets for the corresponding period of 
the previous fiscal year.
    (5) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each investment 
in an investee fund that exceeds five percent of the pool's net assets. 
The management and incentive fees associated with an investment in an 
investee fund that is less than five percent of the pool's net assets 
may be combined and reported in the aggregate with the income, 
management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement that the CPO is not able to obtain the specific fee amounts 
for this fund;
    (6) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (7) For a pool that has ceased operation prior to, or as of, the end 
of the fiscal year, the commodity pool operator may provide the 
following, within 90 days of the permanent cessation of trading, in lieu 
of the annual report that would otherwise be required bySec. 4.22(c) 
orSec. 4.7(b)(3):
    (i) Statements of Operations and Changes in Net Assets for the 
period between--
    (A) The later of:
    (1) The date of the most recent Statement of Financial Condition 
filed with the National Futures Association pursuant to this paragraph 
(c); or
    (2) The date of the formation of the pool; and
    (B) The close of the pool's fiscal year or the date of the cessation 
of trading, whichever is earlier; and
    (ii)(A) An explanation of the winding down of the pool's operations 
and written disclosure that all interests in, and assets of, the pool 
have been redeemed, distributed or transferred on behalf of the 
participants;
    (B) If all funds have not been distributed or transferred to 
participants by the time that the final report is issued, disclosure of 
the value of assets remaining to be distributed and an approximate 
timeframe of when the distribution will occur. If the commodity pool 
operator does not distribute the remaining pool assets within the 
timeframe specified, the commodity pool operator must provide written 
notice to each participant and to the National Futures Association that 
the distribution of the remaining assets of the pool has not been 
completed, the value of assets remaining to be distributed, and a time 
frame of when the final distribution will occur.
    (C) If the commodity pool operator will not be able to liquidate the 
pool's assets in sufficient time to prepare, file and distribute the 
final annual report for the pool within 90 days of the permanent 
cessation of trading, the commodity pool operator must provide written 
notice to each participant and to National Futures Association 
disclosing:
    (1) The value of investments remaining to be liquidated, the 
timeframe within which liquidation is expected to occur, any impediments 
to liquidation, and the nature and amount of any fees and expenses that 
will be charged to the pool prior to the final distribution of the 
pool's funds;
    (2) Which financial reports the commodity pool operator will 
continue to provide to pool participants from the time that trading 
ceased until the final annual report is distributed, and the frequency 
with which such reports will be provided, pursuant to the pool's 
operative documents; and

[[Page 226]]

    (3) The timeframe within which the commodity pool operator will 
provide the final report.
    (iii) A report filed pursuant to this paragraph (c)(7) that would 
otherwise be required by this paragraph (c) is not required to be 
audited in accordance with paragraph (d) of this section if the 
commodity pool operator obtains from all participants written waivers of 
their rights to receive an audited Annual Report, and at the time of 
filing the Annual Report with National Futures Association, certifies 
that it has received waivers from all participants. The commodity pool 
operator must maintain the waivers in accordance withSec. 1.31 of this 
chapter and must make the waivers available to the Commission or 
National Futures Association upon request.
    (8) For the purpose of the Annual Report distribution requirement, 
including any annual report distributed pursuant toSec. 4.7(b)(3) or 
4.12(b)(2)(iii), the term ``participant'' does not include a commodity 
pool operated by a pool operator that is the same as, or that controls, 
is controlled by, or is under common control with, the pool operator of 
a pool in which the commodity pool has invested; Provided, That the 
Annual Report of such investing pool contain financial statements that 
include such information as the Commission may specify concerning the 
operations of the pool in which the commodity pool has invested.
    (d)(1) The financial statements in the Annual Report must be 
presented and computed in accordance with generally accepted accounting 
principles consistently applied and must be audited by an independent 
public accountant. The requirements ofSec. 1.16(g) of this chapter 
shall apply with respect to the engagement of such independent public 
accountants, except that any related notifications to be made may be 
made solely to the National Futures Association, and the certification 
must be in accordance withSec. 1.16 of this chapter, except that the 
following requirements of that section shall not apply:
    (i) The audit objectives ofSec. 1.16(d)(1) concerning the periodic 
computation of minimum capital and property in segregation;
    (ii) All other references inSec. 1.16 to the segregation 
requirements; and
    (iii) Section 1.16(c)(5), (d)(2), (e)(2), and (f).
    (2)(i) The financial statements in the Annual Report required by 
this section or bySec. 4.7(b)(3) may be presented and computed in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board if the following conditions 
are met:
    (A) The pool is organized under the laws of a foreign jurisdiction;
    (B) The Annual Report will include a condensed schedule of 
investments, or, if required by the alternate accounting standards, a 
full schedule of investments;
    (C) The preparation of the pool's financial statements under 
International Financial Reporting Standards is not inconsistent with 
representations set forth in the pool's offering memorandum or other 
operative document that is made available to participants;
    (D) Special allocations of ownership equity will be reported in 
accordance withSec. 4.22(e)(2); and
    (E) In the event that the International Financial Reporting 
Standards require consolidated financial statements for the pool, such 
as a feeder fund consolidating with its master fund, all applicable 
disclosures required by generally accepted accounting principles for the 
feeder fund must be presented with the reporting pool's consolidated 
financial statements.
    (ii) The commodity pool operator of a pool that meets the conditions 
specified in this paragraph (d)(2) may claim relief from the requirement 
in paragraph (d)(1) of this section by filing a notice with the National 
Futures Association, within 90 calendar days after the end of the pool's 
fiscal year.
    (A) The notice must contain the name, main business address, main 
telephone number and the National Futures Association registration 
identification number of the commodity pool operator, and name and the 
identification number of the commodity pool.
    (B) The notice must include representations regarding the pool's 
compliance with each of the conditions specified inSec. 4.22(d)(2)(A) 
through (D), and, if applicable, (E); and

[[Page 227]]

    (C) The notice must be signed by the commodity pool operator in 
accordance with paragraph (h) of this section.
    (e)(1) The Statement of Operations required by this section must 
itemize brokerage commissions, management fees, advisory fees, incentive 
fees, interest income and expense, total realized net gain or loss from 
commodity interest trading, and change in unrealized net gain or loss on 
commodity interest positions during the pool's fiscal year. Gains and 
losses on commodity interests need not be itemized by commodity or by 
specific delivery or expiration date.
    (2)(i) Any share of a pool's profits or transfer of a pool's equity 
which exceeds the general partner's or any other class's share of 
profits computed on the general partner's or other class's pro rata 
capital contribution are ``special allocations.'' Special allocations of 
partnership equity or other interests must be recognized in the pool's 
Statement of Operations in the same period as the net income, interest 
income, or other basis of computation of the special allocation is 
recognized. Special allocations must be recognized and classified either 
as an expense of the pool or, if not recognized as an expense of the 
pool, presented in the Statement of Operations as a separate, itemized 
allocation of the pool's net income to arrive at net income available 
for pro rata distribution to all partners.
    (ii) Special allocations of ownership interest also must be reported 
separately in the Statement of Partners' Equity, in addition to the pro-
rata allocations of net income, as to each class of ownership interest.
    (3) Realized gains or losses on regulated commodities transactions 
presented in the Statement of Operations of a commodity pool may be 
combined with realized gains or losses from trading in non-commodity 
interest transactions, provided that the gains or losses to be combined 
are part of a related trading strategy. Unrealized gains or losses on 
open regulated commodity positions presented in the Statement of 
Operations of a commodity pool may be combined with unrealized gains or 
losses from open positions in non-commodity positions, provided that the 
gains or losses to be combined are part of a related trading strategy.
    (f)(1)(i) In the event the commodity pool operator finds that it 
cannot distribute the Annual Report for a pool that it operates within 
the time specified in paragraph (c) of this section without substantial 
undue hardship, it may file with the National Futures Association an 
application for extension of time to a specified date not more than 90 
calendar days after the date as of which the Annual Report was to have 
been distributed. The application must be made by the pool operator and 
must:
    (A) State the name of the pool for which the application is being 
made;
    (B) State the reasons for the requested extension;
    (C) Indicate that the inability to make a timely filing is due to 
circumstances beyond the control of the pool operator, if such is the 
case, and describe briefly the nature of such circumstances;
    (D) Contain an undertaking to file the Annual Report on or before 
the date specified in the application; and
    (E) Be filed with the National Futures Association prior to the date 
on which the Annual Report is due.
    (ii) The application must be accompanied by a letter from the 
independent public accountant answering the following questions:
    (A) What specifically are the reasons for the extension request?
    (B) Do you have any indication from the part of your audit completed 
to date that would lead you to believe that the commodity pool operator 
was or is not meeting the recordkeeping requirements of this part 4 or 
was or is not complying with theSec. 4.20(c) prohibition on 
commingling of property of any pool with the property of any other 
person?
    (iii) Within ten calendar days after receipt of an application for 
an extension of time, the National Futures Association shall:
    (A) Notify the commodity pool operator of the grant or denial of the 
requested extension, or
    (B) Indicate to the pool operator that additional time is required 
to analyze

[[Page 228]]

the request, in which case the amount of time needed will be specified.
    (2) In the event a commodity pool operator finds that it cannot 
obtain information necessary to prepare annual financial statements for 
a pool that it operates within the time specified in either paragraph 
(c) of this section orSec. 4.7(b)(3)(i), as a result of the pool 
investing in another collective investment vehicle, it may claim an 
extension of time under the following conditions:
    (i) The commodity pool operator must, within 90 calendar days of the 
end of the pool's fiscal year, file a notice with the National Futures 
Association, except as provided in paragraph (f)(2)(v) of this section.
    (ii) The notice must contain the name, main business address, main 
telephone number and the National Futures Association registration 
identification number of the commodity pool operator, and name and the 
identification number of the commodity pool.
    (iii) The notice must state the date by which the Annual Report will 
be distributed and filed (the ``Extended Date''), which must be no more 
than 180 calendar days after the end of the pool's fiscal year. The 
Annual Report must be distributed and filed by the Extended Date.
    (iv) The notice must include representations by the commodity pool 
operator that:
    (A) The pool for which the Annual Report is being prepared has 
investments in one or more collective investment vehicles (the 
``Investments'');
    (B) For all reports prepared under paragraph (c) of this section and 
for reports prepared underSec. 4.7(b)(3)(i) that are audited by an 
independent public accountant, the commodity pool operator has been 
informed by the independent public accountant engaged to audit the 
commodity pool's financial statements that specified information 
required to complete the pool's annual report is necessary in order for 
the accountant to render an opinion on the commodity pool's financial 
statements. The notice must include the name, main business address, 
main telephone number, and contact person of the accountant; and
    (C) The information specified by the accountant cannot be obtained 
in sufficient time for the Annual Report to be prepared, audited, and 
distributed before the Extended Date.
    (D) For unaudited reports prepared underSec. 4.7(b)(3)(i), the 
commodity pool operator has been informed by the operators of the 
Investments that specified information required to complete the pool's 
annual report cannot be obtained in sufficient time for the Annual 
Report to be prepared and distributed before the Extended Date.
    (v) For each fiscal year following the filing of the notice 
described in paragraph (f)(2)(i) of this section, for a particular pool, 
it shall be presumed that the particular pool continues to invest in 
another collective investment vehicle and the commodity pool operator 
may claim the extension of time; Provided, however, that if the 
particular pool is no longer investing in another collective investment 
vehicle, then the commodity pool operator must file electronically with 
the National Futures Association an Annual Report within 90 days after 
the pool's fiscal year-end accompanied by a notice indicating the change 
in the pool's status.
    (vi) Any notice or statement filed pursuant to this paragraph (f)(2) 
must be signed by the commodity pool operator in accordance with 
paragraph (h) of this section.
    (g)(1) A commodity pool operator may initially elect any fiscal year 
for a pool, but the first fiscal year may not end more than one year 
after the pool's formation. For purposes of this section, a pool shall 
be deemed to be formed as of the date the pool operator first receives 
funds, securities or other property for the purchase of an interest in 
the pool.
    (2) If a commodity pool operator elects a fiscal year other than the 
calendar year, it must give written notice of the election to all 
participants and must file the notice with the National Futures 
Association within 90 calendar days after the date of the pool's 
formation. If this notice is not given, the pool operator will be deemed 
to have elected the calendar year as the pool's fiscal year.
    (3) The commodity pool operator must continue to use the elected 
fiscal

[[Page 229]]

year for the pool unless it provides written notice of any proposed 
change to all participants and files such notice with the National 
Futures Association at least 90 days before the change and the National 
Futures Association does not disapprove the change within 30 days after 
the filing of the notice.
    (h)(1) Each Account Statement and Annual Report, including an 
Account Statement or Annual Report provided pursuant toSec. 4.7(b) or 
4.12(b), must contain an oath or affirmation that, to the best of the 
knowledge and belief of the individual making the oath or affirmation, 
the information contained in the document is accurate and complete; 
Provided, however, That it shall be unlawful for the individual to make 
such oath or affirmation if the individual knows or should know that any 
of the information in the document is not accurate and complete.
    (2) Each oath or affirmation must be made by a representative duly 
authorized to bind the pool operator, and
    (i) for the copy of a commodity pool's Annual Report submitted to 
the National Futures Association, such representative shall satisfy the 
required oath or affirmation through compliance with the National 
Futures Association's electronic filing procedures, and
    (ii) for a commodity pool Account Statement or Annual Report 
distributed to participants, a facsimile of the manually signed oath or 
affirmation of such representative may be used so long as the manually 
signed original is retained in accordance withSec. 4.23.
    (3) For each manually signed oath or affirmation, there must be 
typed beneath the signed oath or affirmation:
    (i) The name of the individual signing the document;
    (ii) The capacity in which he is signing;
    (iii) The name of the commodity pool operator for whom he is 
signing; and
    (iv) The name of the commodity pool for which the document is being 
distributed.
    (i) The Account Statement or Annual Report may be distributed to a 
pool participant by means of electronic media if the participant so 
consents; Provided, That prior to the transmission of any Account 
Statement or Annual Report by means of electronic media, a commodity 
pool operator must disclose to the participant that it intends to 
distribute electronically the Account Statement or Annual Report or both 
documents, as the case may be, absent objection from the participant, 
which objection, if any, the participant must make no later than 10 
business days following its receipt of the disclosure.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 52 FR 41986, Nov. 2, 1987; 65 FR 81334, Dec. 
26, 2000; 67 FR 77411, Dec. 18, 2002; 68 FR 47234, Aug. 8, 2003; 68 FR 
52837, Sept. 8, 2003; 71 FR 8942, Feb. 22, 2006; 74 FR 57590, Nov. 9, 
2009; 77 FR 54358, Sept. 5, 2012]



Sec.  4.23  Recordkeeping.

    Each commodity pool operator registered or required to be registered 
under the Act must make and keep the following books and records in an 
accurate, current and orderly manner at its main business office and in 
accordance withSec. 1.31. All books and records required by this 
section except those required by paragraphs (a)(3), (a)(4), (b)(1), 
(b)(2) and (b)(3) must be made available to participants for inspection 
and copying during normal business hours at the main business office of 
the pool operator. Upon request, copies must be sent by mail to any 
participant within five business days if reasonable reproduction and 
distribution costs are paid by the pool participant. If the commodity 
pool operator's main business office is outside of the United States, 
its territories or possessions, then upon the request of a Commission 
representative, the pool operator must provide such books and records as 
requested at the place in the United States, its territories or 
possessions designated by the representative within 72 hours after the 
pool operator receives the request.
    (a) Concerning the commodity pool: (1) An itemized daily record of 
each commodity interest transaction of the pool, showing the transaction 
date,

[[Page 230]]

quantity, commodity interest, and, as applicable, price or premium, 
delivery month or expiration date, whether a put or a call, strike 
price, underlying contract for future delivery or underlying commodity, 
swap type and counterparty, the futures commission merchant and/or 
retail foreign exchange dealer carrying the account and the introducing 
broker, if any, whether the commodity interest was purchased, sold 
(including, in the case of a retail forex transaction, offset), 
exercised, expired (including, in the case of a retail forex 
transaction, whether it was rolled forward), and the gain or loss 
realized.
    (2) A journal of original entry or other equivalent record showing 
all receipts and disbursements of money, securities and other property.
    (3) The acknowledgement specified bySec. 4.21(b) for each 
participant in the pool.
    (4) A subsidiary ledger or other equivalent record for each 
participant in the pool showing the participant's name and address and 
all funds, securities and other property that the pool received from or 
distributed to the participant.
    (5) Adjusting entries and any other records of original entry or 
their equivalent forming the basis of entries in any ledger.
    (6) A general ledger or other equivalent record containing details 
of all asset, liability, capital, income and expense accounts.
    (7) Copies of each confirmation or acknowledgment of a commodity 
interest transaction of the pool, and each purchase and sale statement 
and each monthly statement for the pool received from a futures 
commission merchant, retail foreign exchange dealer or swap dealer.
    (8) Cancelled checks, bank statements, journals, ledgers, invoices, 
computer generated records, and all other records, data and memoranda 
prepared or received in connection with the operation of the pool.
    (9) The original or a copy of each report, letter, circular, 
memorandum, publication, writing, advertisement or other literature or 
advice (including the texts of standardized oral presentations and of 
radio, television, seminar or similar mass media presentations) 
distributed or caused to be distributed by the commodity pool operator 
to any existing or prospective pool participant or received by the pool 
operator from any commodity trading advisor of the pool, showing the 
first date of distribution or receipt if not otherwise shown on the 
document.
    (10) A Statement of Financial Condition as of the close of (i) each 
regular monthly period if the pool had net assets of $500,000 or more at 
the beginning of the pool's fiscal year, or (ii) each regular quarterly 
period for all other pools. The Statement must be completed within 30 
days after the end of that period.
    (11) A Statement of Income (Loss) for the period between (i) the 
later of: (A) the date of the most recent Statement of Financial 
Condition furnished to the Commission pursuant toSec. 4.22(c), (B) 
April 1, 1979 or (C) the formation of the pool, and (ii) the date of the 
Statement of Financial Condition required by paragraph (a)(10) of this 
section. The Statement must be completed within 30 days after the end of 
that period.
    (12) A manually signed copy of each Account Statement and Annual 
Report provided pursuant toSec. 4.22, 4.7(b) or 4.12(b), and records 
of the key financial balances submitted to the National Futures 
Association for each commodity pool Annual Report, which records must 
clearly demonstrate how the key financial balances were compiled from 
the Annual Report.
    (b) Concerning the commodity pool operator: (1) An itemized daily 
record of each commodity interest transaction of the commodity pool 
operator and each principal thereof, showing the transaction date, 
quantity, commodity interest, and, as applicable, price or premium, 
delivery month or expiration date, whether a put or a call, strike 
price, underlying contract for future delivery or underlying commodity, 
swap type and counterparty, the futures commission merchant or retail 
foreign exchange dealer carrying the account and the introducing broker, 
if any, whether the commodity interest was purchased, sold, exercised, 
or expired, and the gain or loss realized; Provided, however, that if 
the pool operator is a counterparty to a swap, it must

[[Page 231]]

comply with the swap data recordkeeping and reporting requirements of 
part 45 of this chapter, as applicable.
    (2) Each confirmation of a commodity interest transaction, each 
purchase and sale statement and each monthly statement furnished by a 
futures commission merchant or retail foreign exchange dealer to:
    (i) The commodity pool operator relating to a personal account of 
the pool operator; and
    (ii) Each principal of the pool operator relating to a personal 
account of such principal.
    (3) Books and records of all other transactions in all other 
activities in which the pool operator engages. Those books and records 
must include cancelled checks, bank statements, journals, ledgers, 
invoices, computer generated records and all other records, data and 
memoranda which have been prepared in the course of engaging in those 
activities.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 48 FR 35299, Aug. 3, 1983; 60 FR 38183, July 
25, 1995; 71 FR 8943, Feb. 22, 2006; 75 FR 55428, Sept. 10, 2010; 77 FR 
54358, Sept. 5, 2012; 77 FR 66332, Nov. 2, 2012]



Sec.  4.24  General disclosures required.

    Except as otherwise provided herein, a Disclosure Document must 
include the following information.
    (a) Cautionary Statement. The following Cautionary Statement must be 
prominently displayed on the cover page of the Disclosure Document.

    THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE 
MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON 
THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

    (b) Risk Disclosure Statement. (1) The following Risk Disclosure 
Statement must be prominently displayed immediately following any 
disclosures required to appear on the cover page of the Disclosure 
Document as provided by the Commission, by any applicable federal or 
state securities laws and regulations or by any applicable laws of non-
United States jurisdictions.

                        RISK DISCLOSURE STATEMENT

    YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION 
PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD 
BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE 
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET 
ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN 
THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR 
ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. IN ADDITION, 
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR 
PARTICIPATION IN THE POOL.
    FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR 
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR 
THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL 
TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS 
DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO 
BE CHARGED THIS POOL AT PAGE (insert page number) AND A STATEMENT OF THE 
PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE 
AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE (insert page number).
    THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS 
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. 
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU 
SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION 
OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE (insert page 
number).

    (2) If the pool may trade foreign futures or options contracts, the 
Risk Disclosure Statement must further state:

    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN 
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE 
THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES 
MARKET, MAY BE SUBJECT TO REGULATIONS

[[Page 232]]

WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS 
PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE 
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES 
OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE 
POOL MAY BE EFFECTED.

    (3) If the potential liability of a participant in the pool is 
greater than the amount of the participant's contribution for the 
purchase of an interest in the pool and the profits earned thereon, 
whether distributed or not, the commodity pool operator must make the 
following additional statement in the Risk Disclosure Statement, to be 
prominently disclosed as the last paragraph thereof:

    ALSO, BEFORE YOU DECIDE TO PARTICIPATE IN THIS POOL, YOU SHOULD NOTE 
THAT YOUR POTENTIAL LIABILITY AS A PARTICIPANT IN THIS POOL FOR TRADING 
LOSSES AND OTHER EXPENSES OF THE POOL IS NOT LIMITED TO THE AMOUNT OF 
YOUR CONTRIBUTION FOR THE PURCHASE OF AN INTEREST IN THE POOL AND ANY 
PROFITS EARNED THEREON. A COMPLETE DESCRIPTION OF THE LIABILITY OF A 
PARTICIPANT IN THIS POOL IS EXPLAINED MORE FULLY IN THIS DISCLOSURE 
DOCUMENT.

    (4) If the pool may engage in retail Forex transactions, the Risk 
Disclosure Statement must further state:

    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY ENGAGE IN OFF-
EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT CONDUCTED IN THE 
INTERBANK MARKET. THE FUNDS THAT THE POOL USES FOR OFF-EXCHANGE FOREIGN 
CURRENCY TRADING WILL NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO 
MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTION CONTRACTS. IF THE 
POOL DEPOSITS SUCH FUNDS WITH A COUNTERPARTY AND THAT COUNTERPARTY 
BECOMES INSOLVENT, THE POOL'S CLAIM FOR AMOUNTS DEPOSITED OR PROFITS 
EARNED ON TRANSACTIONS WITH THE COUNTERPARTY MAY NOT BE TREATED AS A 
COMMODITY CUSTOMER CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF 
THE BANKRUPTCY CODE AND THE REGULATIONS THEREUNDER. THE POOL MAY BE A 
GENERAL CREDITOR AND ITS CLAIM MAY BE PAID, ALONG WITH THE CLAIMS OF 
OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY 
CLAIMS ARE PAID. EVEN POOL FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE 
FROM ITS OWN FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF PRIORITY AND OTHER 
GENERAL CREDITORS.

    (5) If the pool may engage in swaps, the Risk Disclosure Statement 
must further state:

    SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A 
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A 
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE 
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS 
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, 
COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL 
RISK.
    HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE 
LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY 
LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN 
VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF 
AN UNDERLYING OR RELATED MARKET FACTOR.
    IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH 
A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP 
TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE 
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED 
TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR 
TO MODIFY, TERMINATE, OR OFFSET THE POOL'S OBLIGATIONS OR THE POOL'S 
EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS 
SCHEDULED TERMINATION DATE.
    (c) Table of contents. A table of contents showing, by subject 
matter, the location of the disclosures made in the Disclosure Document 
must appear immediately following the Risk Disclosure Statement.
    (d) Information required in the forepart of the Disclosure Document. 
(1) The name, address of the main business office, main business 
telephone number and form of organization of the pool. If the mailing 
address of the main business office is a post office box number or is 
not within the United States, its

[[Page 233]]

territories or possessions, the pool operator must state where the 
pool's books and records will be kept and made available for inspection;
    (2) The name, address of the main business office, main business 
telephone number and form of organization of the commodity pool 
operator. If the mailing address of the main business office is a post 
office box number or is not within the United States, its territories or 
possessions, the pool operator must state where its books and records 
will be kept and made available for inspection;
    (3) As applicable, a statement that the pool is:
    (i) Privately offered pursuant to section 4(2) of the Securities Act 
of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.);
    (ii) A multi-advisor pool as defined inSec. 4.10(d)(2);
    (iii) A principal-protected pool as defined inSec. 4.10(d)(3); or
    (iv) Continuously offered. If the pool is not continuously offered, 
the closing date of the offering must be disclosed.
    (4) The date when the commodity pool operator first intends to use 
the Disclosure Document; and
    (5) The break-even point per unit of initial investment, as 
specified inSec. 4.10(j).
    (e) Persons to be identified. The names of the following persons:
    (1) Each principal of the pool operator;
    (2) The pool's trading manager, if any, and each principal thereof;
    (3) Each major investee pool, the operator of such investee pool, 
and each principal of the operator thereof;
    (4) Each major commodity trading advisor and each principal thereof;
    (5) Which of the foregoing persons will make trading decisions for 
the pool; and
    (6) If known, the futures commission merchant and/or retail foreign 
exchange dealer through which the pool will execute its trades, and, if 
applicable, the introducing broker through which the pool will introduce 
its trades to the futures commission merchant and/or retail foreign 
exchange dealer.
    (f) Business background. (1) The business background, for the five 
years preceding the date of the Disclosure Document, of:
    (i) The commodity pool operator;
    (ii) The pool's trading manager, if any;
    (iii) Each major commodity trading advisor;
    (iv) The operator of each major investee pool; and
    (v) Each principal of the persons referred to in this paragraph 
(f)(1) who participates in making trading or operational decisions for 
the pool or who supervises persons so engaged.
    (2) The pool operator must include in the description of the 
business background of each person identified inSec. 4.24(f)(1) the 
name and main business of that person's employers, business associations 
or business ventures and the nature of the duties performed by such 
person for such employers or in connection with such business 
associations or business ventures. The location in the Disclosure 
Document of any required past performance disclosure for such person 
must be indicated.
    (g) Principal risk factors. A discussion of the principal risk 
factors of participation in the offered pool. This discussion must 
include, without limitation, risks relating to volatility, leverage, 
liquidity, counterparty creditworthiness, as applicable to the types of 
trading programs to be followed, trading structures to be employed and 
investment activity (including retail forex and swap transactions) 
expected to be engaged in by the offered pool.
    (h) Investment program and use of proceeds. The pool operator must 
disclose the following:
    (1) The types of commodity interests and other interests which the 
pool will trade, including:
    (i) The approximate percentage of the pool's assets that will be 
used to trade commodity interests, securities and other types of 
interests, categorized by type of commodity or market sector, type of 
swap, type of security (debt, equity, preferred equity), whether traded 
or listed on a regulated exchange market, maturity ranges and investment 
rating, as applicable;
    (ii) The extent to which such interests are subject to state or 
federal regulation, regulation by a non-United

[[Page 234]]

States jurisdiction or rules of a self-regulatory organization;
    (iii)(A) The custodian or other entity (e.g., bank or broker-dealer) 
which will hold such interests; and
    (B) If such interests will be held or if pool assets will be 
invested in a non-United States jurisdiction, the jurisdiction in which 
such interests or assets will be held or invested.
    (2) A description of the trading and investment programs and 
policies that will be followed by the offered pool, including the method 
chosen by the pool operator concerning how futures commission merchants 
and/or retail foreign exchange dealers carrying the pool's accounts 
shall treat offsetting positions pursuant toSec. 1.46 of this chapter, 
if the method is other than to close out all offsetting positions or to 
close out offsetting positions on other than a first-in, first-out 
basis, and any material restrictions or limitations on trading required 
by the pool's organizational documents or otherwise. This description 
must include, if applicable, an explanation of the systems used to 
select commodity trading advisors, investee pools and types of 
investment activity to which pool assets will be committed;
    (3)(i) A summary description of the pool's major commodity trading 
advisors, including their respective percentage allocations of pool 
assets, a description of the nature and operation of the trading 
programs such advisors will follow, including the types of interests 
traded pursuant to such programs, and each advisor's historical 
experience trading such program including material information as to 
volatility, leverage and rates of return and the length of time during 
which the advisor has traded such program;
    (ii) A summary description of the pool's major investee pools or 
funds, including their respective percentage allocations of pool assets 
and a description of the nature and operation of such investee pools and 
funds, including for each investee pool or fund the types of interests 
traded, material information as to volatility, leverage and rates of 
return for such investee pool or fund and the period of its operation; 
and
    (4)(i) The manner in which the pool will fulfill its margin 
requirements and the approximate percentage of the pool's assets that 
will be held in segregation pursuant to the Act and the Commission's 
regulations thereunder;
    (ii) If the pool will fulfill its margin requirements with other 
than cash deposits, the nature of such deposits; and
    (iii) If assets deposited by the pool as margin or as security 
deposit generate income, to whom that income will be paid.
    (i) Fees and expenses. (1) The Disclosure Document must include a 
complete description of each fee, commission and other expense which the 
commodity pool operator knows or should know has been incurred by the 
pool for its preceding fiscal year and is expected to be incurred by the 
pool in its current fiscal year, including fees or other expenses 
incurred in connection with the pool's participation in investee pools 
and funds.
    (2) This description must include, without limitation:
    (i) Management fees;
    (ii) Brokerage fees and commissions, including interest income paid 
to futures commission merchants, and any fees incurred to maintain an 
open position in retail forex transactions;
    (iii) Fees and commissions paid in connection with trading advice 
provided to the pool;
    (iv) Fees and expenses incurred within investments in investee 
pools, investee funds and other collective investment vehicles, which 
fees and expenses must be disclosed separately for each investment tier;
    (v) Incentive fees;
    (vi) Any allocation to the commodity pool operator, or any agreement 
or understanding which provides the commodity pool operator with the 
right to receive a distribution, where such allocation or distribution 
is greater than a pro rata share of the pool's profits based on the 
percentage of capital contributions made by the commodity pool operator;
    (vii) Commissions or other benefits, including trailing commissions 
paid or that may be paid or accrue, directly or indirectly, to any 
person in connection with the solicitation of participations in the 
pool;

[[Page 235]]

    (viii) Professional and general administrative fees and expenses, 
including legal and accounting fees and office supplies expenses;
    (ix) Organizational and offering expenses;
    (x) Clearance fees and fees paid to national exchanges and self-
regulatory organizations;
    (xi) For principal-protected pools, any direct or indirect costs to 
the pool associated with providing the protection feature, as referred 
to in paragraph (o)(3) of this section; and
    (xii) Any costs or fees included in the spread between bid and asked 
prices for retail forex or, if known, swap transactions; and
    (xiii) Any other direct or indirect cost.
    (3) Where any fee, commission or other expense is determined by 
reference to a base amount including, but not limited to, ``net 
assets,'' ``allocation of assets,'' ``gross profits,'' ``net profits,'' 
or ``net gains,'' the pool operator must explain how such base amount 
will be calculated, in a manner consistent with calculation of the 
break-even point.
    (4) Where any fee, commission or other expense is based on an 
increase in the value of the pool, the pool operator must specify how 
the increase is calculated, the period of time during which the increase 
is calculated, the fee, commission or other expense to be charged at the 
end of that period and the value of the pool at which payment of the 
fee, commission or other expense commences.
    (5) Where any fee, commission or other expense of the pool has been 
paid or is to be paid by a person other than the pool, the pool operator 
must disclose the nature and amount thereof and the person who paid or 
who is expected to pay it.
    (6) The pool operator must provide, in a tabular format, an analysis 
setting forth how the break-even point for the pool was calculated. The 
analysis must include all fees, commissions and other expenses of the 
pool, as set forth inSec. 4.24(i)(2).
    (j) Conflicts of interest. (1) A full description of any actual or 
potential conflicts of interest regarding any aspect of the pool on the 
part of:
    (i) The commodity pool operator;
    (ii) The pool's trading manager, if any;
    (iii) Any major commodity trading advisor;
    (iv) The commodity pool operator of any major investee pool;
    (v) Any principal of the persons described in paragraphs (j)(1) (i), 
(ii), (iii) and (iv) of this section; and
    (vi) Any other person providing services to the pool, soliciting 
participants for the pool, acting as a counterparty to the pool's retail 
forex or swap transactions, or acting as a swap dealer with respect to 
the pool.
    (2) Any other material conflict involving the pool.
    (3) Included in the description of such conflicts must be any 
arrangement whereby a person may benefit, directly or indirectly, from 
the maintenance of the pool's account with the futures commission 
merchant and/or retail foreign exchange dealer and/or from the 
maintenance of the pool's swap positions with a swap dealer, or from the 
introduction of the pool's account to a futures commission merchant and/
or retail foreign exchange dealer and/or swap dealer by an introducing 
broker (such as payment for order flow or soft dollar arrangements) or 
from an investment of pool assets in investee pools or funds or other 
investments.
    (k) Related party transactions. A full description, including a 
discussion of the costs thereof to the pool, of any material 
transactions or arrangements for which there is no publicly disseminated 
price between the pool and any person affiliated with a person providing 
services to the pool.
    (l) Litigation. (1) Subject to the provisions ofSec. 4.24(l)(2), 
any material administrative, civil or criminal action, whether pending 
or concluded, within five years preceding the date of the Document, 
against any of the following persons; Provided, however, that a 
concluded action that resulted in an adjudication on the merits in favor 
of such person need not be disclosed:
    (i) The commodity pool operator, the pool's trading manager, if any, 
the pool's major commodity trading advisors, and the operators of the 
pool's major investee pools;

[[Page 236]]

    (ii) Any principal of the foregoing; and
    (iii) The pool's futures commission merchants and/or retail foreign 
exchange dealers and/or swap dealers and its introducing brokers, if 
any.
    (2) With respect to a futures commission merchant and/or retail 
foreign exchange dealer and/or swap dealer or an introducing broker, an 
action will be considered material if:
    (i) The action would be required to be disclosed in the notes to the 
futures commission merchant's, retail foreign exchange dealer's, swap 
dealer's or introducing broker's financial statements prepared pursuant 
to generally accepted accounting principles;
    (ii) The action was brought by the Commission; Provided, however, 
that a concluded action that did not result in civil monetary penalties 
exceeding $50,000 need not be disclosed unless it involved allegations 
of fraud or other willful misconduct; or
    (iii) The action was brought by any other federal or state 
regulatory agency, a non-United States regulatory agency or a self-
regulatory organization and involved allegations of fraud or other 
willful misconduct.
    (m) Trading for own account. If the commodity pool operator, the 
pool's trading manager, any of the pool's commodity trading advisors or 
any principal thereof trades or intends to trade commodity interests for 
its own account, the pool operator must disclose whether participants 
will be permitted to inspect the records of such person's trades and any 
written policies related to such trading.
    (n) Performance disclosures. Past performance must be disclosed as 
set forth inSec. 4.25.
    (o) Principal-protected pools. If the pool is a principal-protected 
pool as defined inSec. 4.10(d)(3), the commodity pool operator must:
    (1) Describe the nature of the principal protection feature intended 
to be provided, the manner by which such protection will be achieved, 
including sources of funding, and what conditions must be satisfied for 
participants to receive the benefits of such protection;
    (2) Specify when the protection feature becomes operative; and
    (3) Disclose, in the break-even analysis required bySec. 
4.24(i)(6), the costs of purchasing and carrying the assets to fund the 
principal protection feature or other limitation on risk, expressed as a 
percentage of the price of a unit of participation.
    (p) Transferability and redemption. (1) A complete description of 
any restrictions upon the transferability of a participant's interest in 
the pool; and
    (2) A complete description of the frequency, timing and manner in 
which a participant may redeem interests in the pool. Such description 
must specify:
    (i) How the redemption value of a participant's interest will be 
calculated;
    (ii) The conditions under which a participant may redeem its 
interest, including the cost associated therewith, the terms of any 
notification required and the time between the request for redemption 
and payment;
    (iii) Any restrictions on the redemption of a participant's 
interest, including any restrictions associated with the pool's 
investments; and
    (iv) Any liquidity risks relative to the pool's redemption 
capabilities.
    (q) Liability of pool participants. The extent to which a 
participant may be held liable for obligations of the pool in excess of 
the funds contributed by the participant for the purchase of an interest 
in the pool.
    (r) Distribution of profits and taxation. (1) The pool's policies 
with respect to the payment of distributions from profits or capital and 
the frequency of such payments;
    (2) The federal income tax effects of such payments for a 
participant, including a discussion of the federal income tax laws 
applicable to the form of organization of the pool and to such payments 
therefrom; and
    (3) If a pool is specifically structured to accomplish certain 
federal income tax objectives, the commodity pool operator must explain 
those objectives, the manner in which they will be achieved and any 
risks relative thereto.
    (s) Inception of trading and other information. (1) The minimum 
aggregate subscriptions that will be necessary for

[[Page 237]]

the pool to commence trading commodity interests;
    (2) The minimum and maximum aggregate subscriptions that may be 
contributed to the pool;
    (3) The maximum period of time the pool will hold funds prior to the 
commencement of trading commodity interests;
    (4) The disposition of funds received if the pool does not receive 
the necessary amount to commence trading, including the period of time 
within which the disposition will be made; and
    (5) Where the pool operator will deposit funds received prior to the 
commencement of trading by the pool, and a statement specifying to whom 
any income from such deposits will be paid.
    (t) Ownership in pool. The extent of any ownership or beneficial 
interest in the pool held by the following:
    (1) The commodity pool operator;
    (2) The pool's trading manager, if any;
    (3) The pool's major commodity trading advisors;
    (4) The operators of the pool's major investee pools; and
    (5) Any principal of the foregoing.
    (u) Reporting to pool participants. A statement that the commodity 
pool operator is required to provide all participants with monthly or 
quarterly (whichever applies) statements of account and with an annual 
report containing financial statements certified by an independent 
public accountant.
    (v) Supplemental information. If any information, other than that 
required by Commission rules, the antifraud provisions of the Act, other 
federal or state laws or regulations, rules of a self-regulatory agency 
or laws of a non-United States jurisdiction, is provided, such 
information:
    (1) May not be misleading in content or presentation or inconsistent 
with required disclosures;
    (2) Is subject to the antifraud provisions of the Act and Commission 
rules and to rules regarding the use of promotional material promulgated 
by a registered futures association pursuant to section 17(j) of the 
Act; and
    (3) Must be placed as follows, unless otherwise specified by 
Commission rules, provided that where a two-part document is used 
pursuant to rules promulgated by a registered futures association 
pursuant to Section 17(j) of the Act, all supplemental information must 
be provided in the second part of the two-part document:
    (i) Supplemental performance information (not including proprietary 
trading results as defined inSec. 4.25(a)(8), or hypothetical, 
extracted, pro forma or simulated trading results) must be placed after 
all specifically required performance information; Provided, however, 
that required volatility disclosure may be included with the related 
required performance disclosure;
    (ii) Supplemental non-performance information relating to a required 
disclosure may be included with the related required disclosure; and
    (iii) Other supplemental information may be included after all 
required disclosures; Provided, however, that any proprietary trading 
results as defined inSec. 4.25(a)(8), and any hypothetical, extracted, 
pro forma or simulated trading results included in the Disclosure 
Document must appear as the last disclosure therein following all 
required and non-required disclosures.
    (w) Material information. Nothing set forth in Sec.Sec. 4.21, 
4.24, 4.25 orSec. 4.26 shall relieve a commodity pool operator from 
any obligation under the Act or the regulations thereunder, including 
the obligation to disclose all material information to existing or 
prospective pool participants even if the information is not 
specifically required by such sections.

[60 FR 38183, July 25, 1995, as amended at 63 FR 58303, Oct. 30, 1998; 
66 FR 53522, Oct. 23, 2001; 75 FR 55429, Sept. 10, 2010; 76 FR 44264, 
July 25, 2011; 77 FR 11285, Feb. 24, 2012; 77 FR 17330, Mar. 26, 2012; 
77 FR 54358, Sept. 5, 2012]



Sec.  4.25  Performance disclosures.

    (a) General principles--(1) Capsule performance information--(i) For 
pools. Unless otherwise specified, disclosure of the past performance of 
a pool must include the following information. Amounts shown must be net 
of any fees, expenses or allocations to the commodity pool operator.
    (A) The name of the pool;
    (B) A statement as to whether the pool is:
    (1) Privately offered pursuant to section 4(2) of the Securities Act 
of 1933,

[[Page 238]]

as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D thereunder 
(17 CFR 230.501 et seq.);
    (2) A multi-advisor pool as defined inSec. 4.10(d)(2); and
    (3) A principal-protected pool as defined inSec. 4.10(d)(3);
    (C) The date of inception of trading;
    (D) The aggregate gross capital subscriptions to the pool;
    (E) The pool's current net asset value;
    (F) The largest monthly draw-down during the most recent five 
calendar years and year-to-date, expressed as a percentage of the pool's 
net asset value and indicating the month and year of the draw-down (the 
capsule must include a definition of ``draw-down'' that is consistent 
withSec. 4.10(k));
    (G) The worst peak-to-valley draw-down during the most recent five 
calendar years and year-to-date, expressed as a percentage of the pool's 
net asset value and indicating the months and year of the draw-down; and
    (H) Subject toSec. 4.25(a)(2) for the offered pool, the annual and 
year-to-date rate of return for the pool for the most recent five 
calendar years and year-to-date, computed on a compounded monthly basis;
    (ii) For accounts. Disclosure of the past performance of an account 
required under thisSec. 4.25 must include the following capsule 
performance information:
    (A) The name of the commodity trading advisor or other person 
trading the account and the name of the trading program;
    (B) The date on which the commodity trading advisor or other person 
trading the account began trading client accounts and the date when 
client funds began being traded pursuant to the trading program;
    (C) The number of accounts directed by the commodity trading advisor 
or other person trading the account pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (D)(1) The total assets under the management of the commodity 
trading advisor or other person trading the account, as of the date of 
the Disclosure Document; and
    (2) The total assets traded pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (E) The largest monthly draw-down for the trading program specified 
during the most recent five calendar years and year-to-date expressed as 
a percentage of client funds, and indicating the month and year of the 
draw-down;
    (F) The worst peak-to-valley draw-down for the trading program 
specified during the most recent five calendar years and year-to-date, 
expressed as a percentage of net asset value and indicating the months 
and year of the draw-down; and
    (G) The annual and year-to-date rate-of-return for the program 
specified, computed on a compounded monthly basis.
    (H) Partially-funded accounts directed by a commodity trading 
advisor may be presented in accordance withSec. 4.35(a)(7).
    (2) Additional requirements with respect to the offered pool. (i) 
The performance of the offered pool must be identified as such and 
separately presented first;
    (ii) The rate of return of the offered pool must be presented on a 
monthly basis for the period specified inSec. 4.25(a)(5), either in a 
numerical table or in a bar graph;
    (iii) A bar graph used to present monthly rates of return for the 
offered pool:
    (A) Must show percentage rate of return on the vertical axis and 
one-month increments on the horizontal axis;
    (B) Must be scaled in such a way as to clearly show month-to-month 
differences in rates of return; and
    (C) Must separately display numerical percentage annual rates of 
return for the period covered by the bar graph; and
    (iv) The pool operator must make available upon request to 
prospective and existing participants all supporting data necessary to 
calculate monthly rates of return for the offered pool as specified in 
Sec.  4.25(a)(7), for the period specified inSec. 4.25(a)(5).
    (3) Additional requirements with respect to pools other than the 
offered pool. With respect to pools other than the offered

[[Page 239]]

pool for which past performance is required to be presented under this 
section:
    (i) Performance data for pools of the same class as the offered pool 
must be presented following the performance of the offered pool, on a 
pool-by-pool basis.
    (ii) Pools of a different class than the offered pool must be 
presented less prominently and, unless such presentation would be 
misleading, may be presented in composite form; Provided, however, that:
    (A) The Disclosure Document must disclose how the composite was 
developed;
    (B) Pools of different classes or pools with materially different 
rates of return may not be presented in the same composite.
    (iii) For the purpose ofSec. 4.25(a)(3)(ii), the following, 
without limitation, shall be considered pools of different classes: 
Pools privately offered pursuant to section 4(2) of the Securities Act 
of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.), and public offerings; and 
principal-protected and non-principal-protected pools. Multi-advisor 
pools as defined inSec. 4.10(d)(2) will be presumed to have materially 
different rates of return from those of non-multi-advisor pools absent 
evidence sufficient to demonstrate otherwise.
    (iv) Material differences among the pools for which past performance 
is disclosed, including, without limitation, differences in leverage and 
use of different trading programs, must be described.
    (4) Additional requirements with respect to accounts. (i) Unless 
such presentation would be misleading, past performance of accounts 
required to be presented under this section may be presented in 
composite form on a program-by-program basis using the format set forth 
inSec. 4.25(a)(1)(ii).
    (ii) Accounts that differ materially with respect to rates of return 
may not be presented in the same composite.
    (iii) The commodity pool operator must disclose all material 
differences among accounts included in a composite.
    (5) Time period for required performance. All required performance 
information must be presented for the most recent five calendar years 
and year-to-date or for the life of the pool, account or trading 
program, if less than five years.
    (6) Trading programs. If the offered pool will use any of the 
trading programs for which past performance is required to be presented, 
the Disclosure Document must so indicate.
    (7) Calculation of, and recordkeeping concerning, performance 
information. (i) All performance information presented in a Disclosure 
Document, including performance information contained in any capsule and 
performance information not specifically required by Commission rules, 
must be current as of a date not more than three months preceding the 
date of the Document, and must be supported by the following amounts, 
calculated on an accrual basis of accounting in accordance with 
generally accepted accounting principles, as specified below or by a 
method otherwise approved by the Commission.
    (A) The beginning net asset value for the period, which shall be the 
same as the previous period's ending net asset value;
    (B) All additions, whether voluntary or involuntary, during the 
period;
    (C) All withdrawals and redemptions, whether voluntary or 
involuntary, during the period;
    (D) The net performance for the period, which shall represent the 
change in the net asset value net of additions, withdrawals, and 
redemptions;
    (E) The ending net asset value for the period, which shall represent 
the beginning net asset value plus or minus additions, withdrawals, 
redemptions and net performance;
    (F) The rate of return for the period, which shall be calculated by 
dividing the net performance by the beginning net asset value or by a 
method otherwise approved by the Commission; and
    (G) The number of units outstanding at the end of the period, if 
applicable.
    (ii) All supporting documents necessary to substantiate the 
computation of such amounts must be maintained in accordance withSec. 
1.31.

[[Page 240]]

    (8) Proprietary trading results. (i) Proprietary trading results may 
not be included in a Disclosure Document unless such performance is 
prominently labeled as proprietary and is set forth separately after all 
disclosures in accordance withSec. 4.24(v), together with a discussion 
of any differences between such performance and the performance of the 
offered pool, including, but not limited to, differences in costs, 
leverage and trading methodology.
    (ii) For the purposes ofSec. 4.24(v) and thisSec. 4.25(a), 
proprietary trading results means the performance of any pool or account 
in which fifty percent or more of the beneficial interest is owned or 
controlled by:
    (A) The commodity pool operator, trading manager (if any), commodity 
trading advisor or any principal thereof
    (B) An affiliate or family member of the commodity pool operator, 
trading manager (if any) or commodity trading advisor; or
    (C) Any person providing services to the pool.
    (9) Required legend. Any past performance presentation, whether or 
not required by Commission rules, must be preceded by the following 
statement, prominently displayed:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    (b) Performance disclosure when the offered pool has at least a 
three-year operating history. The commodity pool operator must disclose 
the performance of the offered pool, in accordance with paragraphs 
(a)(1)(i) (A) through (H) and (a)(2) of thisSec. 4.25, where:
    (1) The offered pool has traded commodity interests for three years 
or more; and
    (2) For at least such three-year period, seventy-five percent or 
more of the contributions to the pool were made by persons unaffiliated 
with the commodity pool operator, the trading manager (if any), the 
pool's commodity trading advisors, or the principals of any of the 
foregoing.
    (c) Performance disclosure when the offered pool has less than a 
three-year operating history--(1) Offered pool performance. (i) The 
commodity pool operator must disclose the performance of the offered 
pool, in accordance with paragraphs (a)(1)(i)(A) through (H) and (a)(2) 
of thisSec. 4.25; or
    (ii) If the offered pool has no operating history, the pool operator 
must prominently display the following statement:

THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE 
HISTORY.

    (2) Other performance of commodity pool operator. (i)(A) Except as 
provided inSec. 4.25(a)(8), the commodity pool operator must disclose, 
for the period specified bySec. 4.25(a)(5), the performance of each 
other pool operated by the pool operator (and by the trading manager if 
the offered pool has a trading manager) in accordance with paragraphs 
(a)(1)(i) (C) through (H) and (a)(3) of thisSec. 4.25, and the 
performance of each other account traded by the pool operator (and by 
the trading manager if the offered pool has a trading manager) in 
accordance with paragraphs (a)(1)(ii) (C) through (G) of thisSec. 
4.25. If the trading manager has been delegated complete authority for 
the offered pool's trading, and the trading manager's performance is not 
materially different from that of the pool operator, the performance of 
the other pools operated by and accounts traded by the pool operator is 
not required to be disclosed.
    (B) In addition, if the pool operator, or if applicable, the trading 
manager, has not operated for at least three years any commodity pool in 
which seventy-five percent or more of the contributions to the pool were 
made by persons unaffiliated with the commodity pool operator, the 
trading manager, the pool's commodity trading advisors or their 
respective principals, the pool operator must also disclose the 
performance of each other pool operated by and account traded by the 
trading principals of the pool operator (and of the trading manager, as 
applicable) unless such performance does not differ in any material 
respect from the performance of the offered pool and the pool operator 
(and trading manager, if any) disclosed in the Disclosure Document.
    (ii) If neither the pool operator or trading manager (if any), nor 
any of its trading principals has operated any

[[Page 241]]

other pools or traded any other accounts, the pool operator must 
prominently display the following statement: NEITHER THIS POOL OPERATOR 
(TRADING MANAGER, IF APPLICABLE) NOR ANY OF ITS TRADING PRINCIPALS HAS 
PREVIOUSLY OPERATED ANY OTHER POOLS OR TRADED ANY OTHER ACCOUNTS. If the 
commodity pool operator or trading manager, if applicable, is a sole 
proprietorship, reference to its trading principals may be deleted from 
the prescribed statement.
    (3) Major commodity trading advisor performance. (i) The commodity 
pool operator must disclose the perfor- mance of any accounts (including 
pools) directed by a major commodity trading advisor in accordance with 
paragraphs (a)(1)(ii) (C) through (G) of thisSec. 4.25.
    (ii) If a major commodity trading advisor has not previously traded 
accounts, the pool operator must prominently display the following 
statement:
    (name of the major commodity trading advisor), A COMMODITY TRADING 
ADVISOR THAT HAS DISCRETIONARY TRADING AUTHORITY OVER (percentage of the 
pool's funds available for commodity interest trading allocated to that 
trading advisor) PERCENT OF THE POOL'S COMMODITY INTEREST TRADING HAS 
NOT PREVIOUSLY DIRECTED ANY ACCOUNTS.

    (4) Major investee pool performance. (i) The commodity pool operator 
must disclose the performance of any major investee pool.
    (ii) If a major investee pool has not commenced trading, the pool 
operator must prominently display the following statement:

(name of the major investee pool), AN INVESTEE POOL THAT IS ALLOCATED 
(percentage of the pool assets allocated to that investee pool) PERCENT 
OF THE POOL'S ASSETS HAS NOT COMMENCED TRADING.

    (5) With respect to commodity trading advisors and investee pools 
for which performance is not required to be disclosed pursuant toSec. 
4.25(c) (3) and (4), the pool operator must provide a summary 
description of the performance history of each of such advisors and 
pools including the following information, provided that where the pool 
operator uses a two-part document pursuant to the rules promulgated by a 
registered futures association pursuant to Section 17(j) of the Act, 
such summary description may be provided in the second part of the two-
part document:
    (i) Monthly return parameters (highs and lows);
    (ii) Historical volatility and degree of leverage; and
    (iii) Any material differences between the performance of such 
advisors and pools as compared to that of the offered pool's major 
trading advisors and major investee pools.

[60 FR 38186, July 25, 1995, as amended at 63 FR 58303, Oct. 30, 1998; 
68 FR 42967, July 21, 2003; 75 FR 55429, Sept. 10, 2010]



Sec.  4.26  Use, amendment and filing of Disclosure Document.

    (a)(1) Subject to paragraph (c) of this section, all information 
contained in the Disclosure Document and, where used, profile document, 
must be current as of the date of the Document; Provided, however, that 
performance information may be current as of a date not more than three 
months prior to the date of the Document.
    (2) No commodity pool operator may use a Disclosure Document or 
profile document dated more than nine months prior to the date of its 
use.
    (b) The commodity pool operator must attach to the Disclosure 
Document the most current Account Statement and Annual Report for the 
pool required to be distributed in accordance withSec. 4.22; provided, 
however, that in lieu of the most current Account Statement the 
commodity pool operator may provide performance information for the pool 
current as of a date not more than sixty days prior to the date on which 
the Disclosure Document is distributed and covering the period since the 
most recent performance information contained in the Disclosure 
Document.
    (c)(1) If the commodity pool operator knows or should know that the 
Disclosure Document or profile document is materially inaccurate or 
incomplete in any respect, it must correct that defect and must 
distribute the correction to:

[[Page 242]]

    (i) All existing pool participants within 21 calendar days of the 
date upon which the pool operator first knows or has reason to know of 
the defect; and
    (ii) Each previously solicited prospective pool participant prior to 
accepting or receiving funds, securities or other property from any such 
prospective participant.
    (2) The pool operator may furnish the correction by any of the 
following means:
    (i) An amended Disclosure Document or profile document;
    (ii) With respect to a hard copy of the Disclosure Document, a 
sticker affixed to the Disclosure Document; or
    (iii) Other similar means.
    (3) The pool operator may not use the Disclosure Document or profile 
document until such correction has been made.
    (d) Except as provided bySec. 4.8:
    (1) The commodity pool operator must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the Disclosure Document 
and, where used, profile document for each pool that it operates or that 
it intends to operate not less than 21 calendar days prior to the date 
the pool operator first intends to deliver such Document or documents to 
a prospective participant in the pool; and
    (2) The commodity pool operator must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the subsequent 
amendments to the Disclosure Document and, where used, profile document 
for each pool that it operates or that it intends to operate within 21 
calendar days of the date upon which the pool operator first knows or 
has reason to know of the defect requiring the amendment.

[60 FR 38188, July 25, 1995, as amended at 62 FR 18268, Apr. 15, 1997; 
65 FR 58649, Oct. 2, 2000; 67 FR 42710, June 25, 2002; 67 FR 77411, Dec. 
18, 2002; 68 FR 12584, Mar. 17, 2003; 74 FR 9569, Mar. 5, 2009]



Sec.  4.27  Additional reporting by advisors of certain large commodity pools.

    (a) General definitions. For the purposes of this section:
    (1) Commodity pool operator or CPO has the same meaning as commodity 
pool operator defined in section 1a(11) of the Commodity Exchange Act;
    (2) Commodity trading advisor or CTA has the same meaning as defined 
in section 1a(12);
    (3) Direct has the same meaning as defined in section 4.10(f);
    (4) Net asset value or NAV has the same meaning as net asset value 
as defined in section 4.10(b);
    (5) Pool has the same meaning as defined in section 1(a)(10) of the 
Commodity Exchange Act;
    (6) Reporting period means the reporting period as defined in the 
forms promulgated hereunder;
    (b) Persons required to report. A reporting person is:
    (1) Any commodity pool operator that is registered or required to be 
registered under the Commodity Exchange Act and the Commission's 
regulations thereunder; or
    (2) Any commodity trading advisor that is registered or required to 
be registered under the Commodity Exchange Act and the Commission's 
regulations thereunder.
    (c) Reporting. (1) Except as provided in paragraph (c)(2) of this 
section, each reporting person shall file with the National Futures 
Association, a report with respect to the directed assets of each pool 
under the advisement of the commodity pool operator consistent with 
appendix A to this part or commodity trading advisor consistent with 
appendix C to this part.
    (2) All financial information shall be reported in accordance with 
generally accepted accounting principles consistently applied.
    (d) Investment advisers to private funds. Except as otherwise 
expressly provided in this section, CPOs and CTAs that are dually 
registered with the Securities and Exchange Commission and are required 
to file Form PF pursuant to the rules promulgated under the Investment 
Advisers Act of 1940, shall file Form PF with the Securities and 
Exchange Commission in lieu of filing

[[Page 243]]

such other reports with respect to private funds as may be required 
under this section. In addition, except as otherwise expressly provided 
in this section, CPOs and CTAs that are dually registered with the 
Securities and Exchange Commission and are required to file Form PF 
pursuant to the rules promulgated under the Investment Advisers Act of 
1940, may file Form PF with the Securities and Exchange Commission in 
lieu of filing such other reports with respect to commodity pools that 
are not private funds as may be required under this section. Dually 
registered CPOs and CTAs that file Form PF with the Securities and 
Exchange Commission will be deemed to have filed Form PF with the 
Commission for purposes of any enforcement action regarding any false or 
misleading statement of a material fact in Form PF.
    (e) Filing requirements. Each report required to be filed with the 
National Futures Association under this section shall:
    (1)(i) Contain an oath and affirmation that, to the best of the 
knowledge and belief of the individual making the oath and affirmation, 
the information contained in the document is accurate and complete; 
Provided, however, That it shall be unlawful for the individual to make 
such oath or affirmation if the individual knows or should know that any 
of the information in the document is not accurate and complete and
    (ii) Each oath or affirmation must be made by a representative duly 
authorized to bind the CPO or CTA.
    (2) Be submitted consistent with the National Futures Association's 
electronic filing procedures.
    (f) Termination of reporting requirement. All reporting persons 
shall continue to file such reports as are required under this section 
until the effective date of a Form 7W filed in accordance with the 
Commission's regulations.
    (g) Public records. Reports filed pursuant to this section shall not 
be considered Public Records as defined inSec. 145.0 of this chapter.

[77 FR 17330, Mar. 26, 2012]



                  Subpart C_Commodity Trading Advisors



Sec.  4.30  Prohibited activities.

    (a) Except as provided in paragraph (b) of this section, no 
commodity trading advisor may solicit, accept or receive from an 
existing or prospective client funds, securities or other property in 
the trading advisor's name (or extend credit in lieu thereof) to 
purchase, margin, guarantee or secure any commodity interest of the 
client.
    (b) The prohibition in paragraph (a) of this section shall not apply 
to:
    (1) A futures commission merchant that is registered as such under 
the Act;
    (2) A leverage transaction merchant that is registered as a 
commodity trading advisor under the Act;
    (3) A retail foreign exchange dealer that is registered as such 
under the Act; or
    (4) A swap dealer that is registered as such under the Act, with 
respect to funds, securities or other property accepted to purchase, 
margin, guarantee or secure any swap that is not cleared through a 
derivatives clearing organization.

[77 FR 54359, Sept. 5, 2012]



Sec.  4.31  Required delivery of Disclosure Document to prospective
clients.

    (a) Each commodity trading advisor registered or required to be 
registered under the Act must deliver or cause to be delivered to a 
prospective client a Disclosure Document containing the information set 
forth in Sec.Sec. 4.34 and 4.35 for the trading program pursuant to 
which the trading advisor seeks to direct the client's commodity 
interest account or to guide the client's commodity interest trading by 
means of a systematic program that recommends specific transactions by 
no later than the time the trading advisor delivers to the prospective 
client an advisory agreement to direct or guide the client's account; 
Provided, That any information distributed in advance of the delivery of 
the Disclosure Document to a prospective client is consistent with or 
amended by the information contained in the Disclosure Document and with 
the obligations of the commodity

[[Page 244]]

trading advisor under the Act, the Commission's regulations issued 
thereunder, and the laws of any other applicable federal or state 
authority; Provided further, That in the event such previously 
distributed information is amended by the Disclosure Document in any 
material respect, the prospective participant must be in receipt of the 
Disclosure Document at least 48 hours prior to the advisory agreement 
being accepted by the trading advisor.
    (b) The commodity trading advisor may not enter into an agreement 
with a prospective client to direct the client's commodity interest 
account or to guide the client's commodity interest trading unless the 
trading advisor first receives from the prospective client an 
acknowledgment signed and dated by the prospective client stating that 
the client received a Disclosure Document for the trading program 
pursuant to which the trading advisor will direct his account or will 
guide his trading. Where a Disclosure Document is delivered to a 
prospective client by electronic means, in lieu of a manually signed and 
dated acknowledgment the trading advisor may establish receipt by 
electronic means that use a unique identifier to confirm the identity of 
the recipient of such Disclosure Document, Provided, however, That the 
requirement ofSec. 4.33(a)(2) to retain the acknowledgment specified 
in this paragraph (b) applies equally to such substitute evidence of 
receipt, which must be retained either in hard copy form or in another 
form approved by the Commission.

[60 FR 38189, July 25, 1995, as amended at 62 FR 39115, July 22, 1997; 
68 FR 47235, Aug. 8, 2003; 68 FR 59114, Oct. 14, 2003]



Sec.  4.32  [Reserved]



Sec.  4.33  Recordkeeping.

    Each commodity trading advisor registered or required to be 
registered under the Act must make and keep the following books and 
records in an accurate, current and orderly manner at its main business 
office and in accordance withSec. 1.31. If the commodity trading 
advisor's main business office is located outside the United States, its 
territories or possessions, then upon the request of a Commission 
representative the trading advisor must provide such books and records 
as requested at the place designated by the representative in the United 
States, its territories or possessions within 72 hours after receipt of 
the request.
    (a) Concerning the clients and subscribers of the commodity trading 
advisor:
    (1) The name and address of each client and each subscriber.
    (2) The acknowledgement specified inSec. 4.31(b).
    (3) All powers of attorney and other documents, or copies thereof, 
authorizing the commodity trading advisor to direct the commodity 
interest account of a client or subscriber.
    (4) All other written agreements, or copies thereof, entered into by 
the commodity trading advisor with any client or subscriber.
    (5) A list or other record of all commodity interest accounts of 
clients directed by the commodity trading advisor and of all 
transactions effected therefor.
    (6) Copies of each confirmation or acknowledgment of a commodity 
interest transaction, and each purchase and sale statement and each 
monthly statement received from a futures commission merchant, a retail 
foreign exchange dealer or a swap dealer.
    (7) The original or a copy of each report, letter, circular, 
memorandum, publication, writing, advertisement or other literature or 
advice (including the texts of standardized oral presentations and of 
radio, television, seminar or similar mass media presentations) 
distributed or caused to be distributed by the commodity trading advisor 
to any existing or prospective client or subscriber, showing the first 
date of distribution if not otherwise shown on the document.
    (b) Concerning the commodity trading advisor:
    (1) An itemized daily record of each commodity interest transaction 
of the commodity trading advisor, showing the transaction date, 
quantity, commodity interest, and, as applicable, price or premium, 
delivery month or expiration date, whether a put or a call, strike 
price, underlying contract for future delivery or underlying commodity, 
swap type and counterparty,

[[Page 245]]

the futures commission merchant and/or retail foreign exchange dealer 
carrying the account and the introducing broker, if any, whether the 
commodity interest was purchased, sold (including, in the case of a 
retail forex transaction, offset), exercised, expired (including, in the 
case of a retail forex transaction, whether it was rolled forward), and 
the gain or loss realized; Provided, however, that if the trading 
advisor is a counterparty to a swap, it must comply with the swap data 
recordkeeping and reporting requirements of part 45 of this chapter, as 
applicable.
    (2) Each confirmation of a commodity interest transaction, each 
purchase and sale statement and each monthly statement furnished by a 
futures commission merchant or retail foreign exchange dealer to:
    (i) The commodity trading advisor relating to a personal account of 
the trading advisor; and
    (ii) Each principal of the trading advisor relating to a personal 
account of such principal.
    (3) Books and records of all other transactions in all other 
business dealings in trading commodity interests and of all cash market 
transactions in which the commodity trading advisor and each principal 
thereof engages. Those books and records must include, as applicable, 
books and records of the type specified in paragraphs (a)(1) through 
(a)(7) of this section and in paragraphs (a)(1) through (a)(8) ofSec. 
4.23.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57012, Dec. 22, 1982; 48 FR 35299, Aug. 3, 1983. Redesignated and 
amended at 60 FR 38189, July 25, 1995; 75 FR 55430, Sept. 10, 2010; 77 
FR 54359, Sept. 5, 2012; 77 FR 66332, Nov. 2, 2012]



Sec.  4.34  General disclosures required.

    Except as otherwise provided herein, a Disclosure Document must 
include the following information.
    (a) Cautionary Statement. The following Cautionary Statement must be 
prominently displayed on the cover page of the Disclosure Document:

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS 
OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED 
ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

    (b) Risk Disclosure Statement. (1) The following Risk Disclosure 
Statement must be prominently displayed immediately following any 
disclosures required to appear on the cover page of the Disclosure 
Document as provided by the Commission, by any applicable federal or 
state securities laws and regulations or by any applicable laws of non-
United States jurisdictions:

                        RISK DISCLOSURE STATEMENT

    THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. 
YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE 
FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO 
TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE 
OF THE FOLLOWING:
    IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF 
THE PREMIUM AND OF ALL TRANSACTION COSTS.
    IF YOU PURCHASE OR SELL A COMMODITY FUTURES CONTRACT OR SELL A 
COMMODITY OPTION OR ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING YOU 
MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS OR SECURITY DEPOSIT 
AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH 
OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, 
YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF 
ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR 
POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE 
PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL 
BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT.
    UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR 
IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN 
THE MARKET MAKES A ``LIMIT MOVE.''
    THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, 
SUCH AS A ``STOP-LOSS'' OR ``STOP-LIMIT'' ORDER, WILL NOT NECESSARILY 
LIMIT YOUR LOSSES TO THE INTENDED

[[Page 246]]

AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH 
ORDERS.
    A ``SPREAD'' POSITION MAY NOT BE LESS RISKY THAN A SIMPLE ``LONG'' 
OR ``SHORT'' POSITION.
    THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY 
INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF 
LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.
    IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL 
CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE 
ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING 
PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS 
DISCLOSURE DOCUMENT CONTAINS, AT PAGE (insert page number), A COMPLETE 
DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY 
TRADING ADVISOR.
    THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER 
SIGNIFICANT ASPECTS OF THE COMMODITY INTEREST MARKETS. YOU SHOULD 
THEREFORE CAREFULLY STUDY THIS DISCLOSURE DOCUMENT AND COMMODITY 
INTEREST TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE 
PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE (insert page number).

    (2)(i) If the commodity trading advisor may trade foreign futures or 
options contracts pursuant to the offered trading program, the Risk 
Disclosure Statement must further state the following:
    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY 
ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON 
MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY 
LINKED TO A UNITED STATES MARKET MAY BE SUBJECT TO REGULATIONS WHICH 
OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES 
REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE 
RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES 
JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE 
YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR 
CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO 
TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR 
LOCAL AND OTHER RELEVANT JURISDICTIONS.

    (ii) If the commodity trading advisor may engage in retail forex 
transactions pursuant to the offered trading program, the Risk 
Disclosure Statement must further state the following:

    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY 
ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT 
CONDUCTED IN THE INTERBANK MARKET. THE FUNDS DEPOSITED WITH A 
COUNTERPARTY FOR SUCH TRANSACTIONS WILL NOT RECEIVE THE SAME PROTECTIONS 
AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTION 
CONTRACTS. IF THE COUNTERPARTY BECOMES INSOLVENT AND YOU HAVE A CLAIM 
FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE 
COUNTERPARTY, YOUR CLAIM MAY NOT BE TREATED AS A COMMODITY CUSTOMER 
CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF THE BANKRUPTCY CODE 
AND REGULATIONS THEREUNDER. YOU MAY BE A GENERAL CREDITOR AND YOUR CLAIM 
MAY BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY 
MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS ARE PAID. EVEN FUNDS THAT 
THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN FUNDS MAY NOT BE SAFE FROM 
THE CLAIMS OF PRIORITY AND OTHER GENERAL CREDITORS.
    FURTHER, YOU SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED IN 
THE RISK DISCLOSURE STATEMENT OF THE FUTURES COMMISSION MERCHANT OR 
RETAIL FOREIGN EXCHANGE DEALER THAT YOU SELECT TO CARRY YOUR ACCOUNT.

    (3) If the commodity trading advisor is not also a registered 
futures commission merchant or a registered retail foreign exchange 
dealer, the trading advisor must make the additional following statement 
in the Risk Disclosure Statement, to be included as the last paragraph 
thereof:

    THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING 
FUNDS IN THE TRADING ADVISOR'S NAME FROM A CLIENT FOR TRADING COMMODITY 
INTERESTS. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM 
DIRECTLY WITH A FUTURES COMMISSION MERCHANT OR RETAIL FOREIGN EXCHANGE 
DEALER, AS APPLICABLE.


[[Page 247]]


    (4) If the commodity trading advisor may engage in swaps, the Risk 
Disclosure Statement must further state:

    SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A 
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A 
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE 
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS 
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, 
FUNDING RISK, AND OPERATIONAL RISK.
    HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE 
LIQUIDITY RISK, WHICH MAY RESULT IN YOUR ABILITY TO WITHDRAW YOUR FUNDS 
BEING LIMITED. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL 
GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE 
VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
    IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH 
A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP 
TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE 
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED 
TERMS. THEREFORE, IT MAY NOT BE POSSIBLE TO MODIFY, TERMINATE, OR OFFSET 
YOUR OBLIGATIONS OR YOUR EXPOSURE TO THE RISKS ASSOCIATED WITH A 
TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.

    (c) Table of contents. A table of contents showing, by subject 
matter, the location of the disclosures made in the Disclosure Document, 
must appear immediately following the Risk Disclosure Statement.
    (d) Information required in the forepart of the Disclosure Document. 
(1) The name, address of the main business office, main business 
telephone number and form of organization of the commodity trading 
advisor. If the mailing address of the main business office is a post 
office box number or is not within the United States, its territories or 
possessions, the trading advisor must state where its books and records 
will be kept and made available for inspection; and
    (2) The date when the commodity trading advisor first intends to use 
the Disclosure Document.
    (e) Persons to be identified. The names of the following persons:
    (1) Each principal of the trading advisor;
    (2) The futures commission merchant and/or retail foreign exchange 
dealer with which the commodity trading advisor will require the client 
to maintain its account or, if the client is free to choose the futures 
commission merchant or retail foreign exchange dealer with which it will 
maintain its account, the trading advisor must make a statement to that 
effect; and
    (3) The introducing broker through which the commodity trading 
advisor will require the client to introduce its account or, if the 
client is free to choose the introducing broker through which it will 
introduce its account, the trading advisor must make a statement to that 
effect.
    (f) Business background. (1) The business background, for the five 
years preceding the date of the Disclosure Document, of:
    (i) The commodity trading advisor; and
    (ii) Each principal of the trading advisor who participates in 
making trading or operational decisions for the trading advisor or 
supervises persons so engaged.
    (2) The trading advisor must include in the description of the 
business background of each person identified inSec. 4.34(f)(1) the 
name and main business of that person's employers, business associations 
or business ventures and the nature of the duties performed by such 
person for such employers or in connection with such business 
associations or business ventures. The location in the Disclosure 
Document of any required past performance disclosure for such person 
must be indicated.
    (g) Principal risk factors. A discussion of the principal risk 
factors of this trading program. This discussion must include, without 
limitation, risks due to volatility, leverage, liquidity, and 
counterparty creditworthiness, as applicable to the trading program and 
the types of transactions and investment

[[Page 248]]

activity expected to be engaged in pursuant to such program (including 
retail forex and swap transactions, if any).
    (h) Trading program. A description of the trading program, which 
must include the method chosen by the commodity trading advisor 
concerning how futures commission merchants and/or retail foreign 
exchange dealers carrying accounts it manages shall treat offsetting 
positions pursuant toSec. 1.46 of this chapter, if the method is other 
than to close out all offsetting positions or to close out offsetting 
positions on other than a first-in, first-out basis, and the types of 
commodity interests and other interests the commodity trading advisor 
intends to trade, with a description of any restrictions or limitations 
on such trading established by the trading advisor or otherwise.
    (i) Fees. A complete description of each fee which the commodity 
trading advisor will charge the client.
    (1) Wherever possible, the trading advisor must specify the dollar 
amount of each such fee.
    (2) Where any fee is determined by reference to a base amount 
including, but not limited to, ``net assets,'' ``gross profits,'' ``net 
profits,'' ``net gains,'' ``pips'' or ``bid-asked spread,'' the trading 
advisor must explain how such base amount will be calculated. Where any 
fee is based on the difference between bid and asked prices on retail 
forex or swap transactions, the trading advisor must explain how such 
fee will be calculated;
    (3) Where any fee is based on an increase in the value of the 
client's commodity interest account, the trading advisor must specify 
how that increase is calculated, the period of time during which the 
increase is calculated, the fee to be charged at the end of that period 
and the value of the account at which payment of the fee commences.
    (j) Conflicts of interest. (1) A full description of any actual or 
potential conflicts of interest regarding any aspect of the trading 
program on the part of:
    (i) The commodity trading advisor;
    (ii) Any futures commission merchant and/or retail foreign exchange 
dealer with which the client will be required to maintain its commodity 
interest account;
    (iii) Any introducing broker through which the client will be 
required to introduce its account to a futures commission merchant and/
or retail foreign exchange dealer; and
    (iv) Any principal of the foregoing.
    (2) Any other material conflict involving any aspect of the offered 
trading program.
    (3) Included in the description of any such conflict must be any 
arrangement whereby the trading advisor or any principal thereof may 
benefit, directly or indirectly, from the maintenance of the client's 
commodity interest account with a futures commission merchant and/or 
retail foreign exchange dealer, and/or from the maintenance of the 
client's swap positions with a swap dealer or from the introduction of 
such account through an introducing broker (such as payment for order 
flow or soft dollar arrangements).
    (k) Litigation. (1) Subject to the provisions ofSec. 4.34(k)(2), 
any material administrative, civil or criminal action, whether pending 
or concluded, within five years preceding the date of the Document, 
against any of the following persons; Provided, however, that a 
concluded action that resulted in an adjudication on the merits in favor 
of such person need not be disclosed:
    (i) The commodity trading advisor and any principal thereof:
    (ii) Any futures commission merchant or retail foreign exchange 
dealer with which the client will be required to maintain its commodity 
interest account; and
    (iii) Any introducing broker through which the client will be 
required to introduce its account to the futures commission merchant 
and/or retail foreign exchange dealer and/or swap dealer.
    (2) With respect to a futures commission merchant, retail foreign 
exchange dealer, swap dealer or introducing broker, an action will be 
considered material if:
    (i) The action would be required to be disclosed in the notes to the 
futures commission merchant's, retail foreign exchange dealer's, swap 
dealer's or introducing broker's financial statements prepared pursuant 
to generally accepted accounting principles;

[[Page 249]]

    (ii) The action was brought by the Commission; Provided, however, 
that a concluded action that did not result in civil monetary penalties 
exceeding $50,000 need not be disclosed unless it involved allegations 
of fraud or other willful misconduct; or
    (iii) The action was brought by any other federal or state 
regulatory agency, a non-United States regulatory agency or a self-
regulatory organization and involved allegations of fraud or other 
willful misconduct.
    (l) Trading for own account. If the commodity trading advisor or any 
principal thereof trades or intends to trade commodity interests for its 
own account, the trading advisor must disclose whether clients will be 
permitted to inspect the records of such person's trading and any 
written policies related to such trading.
    (m) Performance disclosures. Past performance must be disclosed as 
set forth inSec. 4.35.
    (n) Supplemental information. If any information, other than that 
required by Commission rules, the antifraud provisions of the Act, other 
federal or state laws and regulations, any rules of a self-regulatory 
agency or laws of a non-United States jurisdiction, is provided, such 
information:
    (1) May not be misleading in content or presentation or inconsistent 
with the required disclosures;
    (2) Is subject to the antifraud provisions of the Act and Commission 
rules, and to rules regarding the use of promotional material 
promulgated by a registered futures association pursuant to section 
17(j) of the Act; and
    (3) Must be placed as follows, unless otherwise specified by 
Commission rules:
    (i) Supplemental performance information (not including proprietary 
trading results as defined inSec. 4.35(a)(7), or hypothetical, 
extracted, pro forma or simulated trading results) must be placed after 
all required performance information;
    (ii) Supplemental non-performance information relating to a required 
disclosure may be included with the related required disclosure; and
    (iii) Other supplemental information may be included after all 
required disclosures; Provided, however, That any proprietary trading 
results as defined inSec. 4.35(a)(7), and any hypothetical, extracted, 
pro forma or simulated trading results included in the Disclosure 
Document must appear as the last disclosure therein following all 
required and non-required disclosures.
    (o) Material information. Nothing set forth inSec. 4.31,Sec. 
4.34,Sec. 4.35 orSec. 4.36 shall relieve a commodity trading advisor 
from any obligation under the Act or the regulations thereunder, 
including the obligation to disclose all material information to 
existing or prospective clients even if the information is not 
specifically required by such sections.

[60 FR 38189, July 25, 1995, as amended at 66 FR 53522, Oct. 23, 2001; 
75 FR 55430, Sept. 10, 2010; 77 FR 11285, Feb. 24, 2012; 77 FR 17330, 
Mar. 26, 2012; 77 FR 54359, Sept. 5, 2012]



Sec.  4.35  Performance disclosures.

    (a) General principles--(1) Capsule performance information. Unless 
otherwise specified, disclosure of the past performance of an account or 
trading program required under thisSec. 4.35 must include the 
following information:
    (i) The name of the commodity trading advisor or other person 
trading the account and the name of the trading program;
    (ii) The date on which the commodity trading advisor or other person 
trading the account began trading client accounts and the date when 
client funds began being traded pursuant to the trading program;
    (iii) The number of accounts directed by the trading advisor or 
other person trading the account pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (iv)(A) The total assets under the management of the trading advisor 
or other person trading the account, as of the date of the Disclosure 
Document; and
    (B) The total assets traded pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (v) The largest monthly draw-down for the account or trading program 
specified during the most recent five calendar year and year-to-date 
expressed as a percentage of client funds and indicating the month and 
year of

[[Page 250]]

the draw-down (the capsule must include a definition of ``draw-down'' 
that is consistent withSec. 4.10(k));
    (vi) The worst peak-to-valley draw-down for the trading program 
specified during the most recent five calendar year and year-to-date, 
expressed as a percentage of net asset value and indicating the months 
and year of the draw-down;
    (vii) Subject toSec. 4.35(a)(2) for the offered trading program, 
the annual and year-to-date rate-of-return for the program specified for 
the five most recent calendar years and year-to-date, computed on a 
compounded monthly basis; Provided, however, That performance of the 
offered trading program must include monthly rates of return for such 
period; and
    (viii) In the case of the offered trading program:
    (A)(1) The number of accounts traded pursuant to the offered trading 
program that were opened and closed during the period specified inSec. 
4.35(a)(5) with a positive net lifetime rate of return as of the date 
the account was closed; and
    (2) A measure of the variability of returns for accounts that were 
both opened and closed during the period specified inSec. 4.35(a)(5) 
and closed with positive net lifetime rates of return; and
    (B)(1) The number of accounts traded pursuant to the offered trading 
program that were opened and closed during the period specified inSec. 
4.35(a)(5) with negative net lifetime rates of return as of the date the 
account was closed; and
    (2) A measure of the variability of returns for accounts that were 
both opened and closed during the period specified inSec. 4.35(a)(5) 
and closed with negative net lifetime rates of return.
    (C) The measure of variability required by Sec.Sec. 
4.35(a)(1)(viii)(A)(2) and (B)(2) may be provided as a range of both 
positive and negative net lifetime returns, or by any other form of 
disclosure that meets the objective of disclosure of the variability of 
returns experienced by clients in the trading program whose accounts 
were opened and closed during the period specified inSec. 4.35(a)(5). 
The net lifetime rate of return shall be calculated as the compounded 
product of the monthly rates of return for each month the account is 
open.
    (2) Additional requirements with respect to the offered trading 
program. (i) The performance of the offered trading program must be 
identified as such and separately presented first;
    (ii) The rate of return of the offered trading program must be 
presented on a monthly basis for the period specified inSec. 
4.35(a)(5), either in a numerical table or in a bar graph;
    (iii) A bar graph used to present monthly rates of return for the 
offered trading program:
    (A) Must show percentage rate of return on the vertical axis and 
one-month increments on the horizontal axis;
    (B) Must be scaled in such a way as to clearly show month-to-month 
differences in rates of return; and
    (C) Must separately display numerical percentage annual rates of 
return for the period covered by the bar graph; and
    (iv) The commodity trading advisor must make available to 
prospective and existing clients upon request a table showing at least 
quarterly the information required to be calculated pursuant toSec. 
4.35(a)(6).
    (3) Composite presentation. (i) Unless such presentation would be 
misleading, the performance of accounts traded pursuant to the same 
trading program may be presented in composite form on a program-by-
program basis, using the format set forth inSec. 4.35(a)(1).
    (ii) Accounts that differ materially with respect to rates of return 
may not be presented in the same composite.
    (iii) The commodity trading advisor must discuss all material 
differences among the accounts included in a composite.
    (4) Current information. All performance information presented in 
the Disclosure Document must be current as of a date not more than three 
months preceding the date of the Document.
    (5) Time period for required performance. All required performance 
information must be presented for the most recent five calendar years 
and year-to-date or for the life of the trading program or account, if 
less than five years.

[[Page 251]]

    (6) Calculation of, and recordkeeping concerning, performance 
information. (i) All performance information presented in a Disclosure 
Document, including performance information contained in any capsule and 
performance information not specifically required by Commission rules, 
must be current as of a date not more than three months preceding the 
date of the Document, and must be supported by the following amounts, 
calculated on an accrual basis of accounting in accordance with 
generally accepted accounting principles, as specified below or by a 
method otherwise approved by the Commission.
    (A) The beginning net asset value for the period, which shall 
represent the previous period's ending net asset value;
    (B) All additions, whether voluntary or involuntary, during the 
period;
    (C) All withdrawals and redemptions, whether voluntary or 
involuntary, during the period;
    (D) The net performance for the period, which shall represent the 
change in the net asset value net of additions, withdrawals, 
redemptions, fees and expenses;
    (E) The ending net asset value for the period, which shall represent 
the beginning net asset value plus or minus additions, withdrawals and 
redemptions, and net performance; and
    (F) The rate of return for the period, computed on a compounded 
monthly basis, which shall be calculated by dividing the net performance 
by the beginning net asset value.
    (ii) All supporting documents necessary to substantiate the 
computation of such amounts must be maintained in accordance withSec. 
1.31.
    (7) Performance of partially-funded accounts. Notwithstanding the 
foregoing, a commodity trading advisor will be deemed in compliance with 
thisSec. 4.35(a) concerning the performance of partially-funded 
accounts if the commodity trading advisor presents the performance of 
such accounts in a manner that is balanced and is not in violation of 
the antifraud provisions of the Commodity Exchange Act or the 
Commission's regulations thereunder.
    (8) Proprietary trading results. (i) Proprietary trading results 
shall not be included in a Disclosure Document unless such performance 
is prominently labeled as proprietary and is set forth separately after 
all disclosures in accordance withSec. 4.34(n), together with a 
discussion of any differences between such performance and the 
performance of the offered trading program, including, but not limited 
to, differences in costs, leverage and trading.
    (ii) For the purposes ofSec. 4.34(n) and thisSec. 4.35(a), 
proprietary trading results means the performance of any account in 
which fifty percent or more of the beneficial interest is owned or 
controlled by:
    (A) The commodity trading advisor or any of its principals;
    (B) An affiliate or family member of the commodity trading advisor; 
or
    (C) Any person providing services to the account.
    (9) Required legend. Any past performance presentation, whether or 
not required by Commission rules, must be preceded with the following 
statement, prominently displayed:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    (b) Performance to be disclosed. Except as provided inSec. 
4.35(a)(7), the commodity trading advisor must disclose the actual 
performance of all accounts directed by the commodity trading advisor 
and by each of its trading principals; Provided, however, that if the 
trading advisor or its trading principals previously have not directed 
any accounts, the trading advisor must prominently disclose this fact 
with one of the following statements, as applicable:
    (1) THIS TRADING ADVISOR PREVIOUSLY HAS NOT DIRECTED ANY ACCOUNTS; 
or
    (2) NONE OF THE TRADING PRINCIPALS OF THIS TRADING ADVISOR HAS 
PREVIOUSLY DIRECTED ANY ACCOUNTS; or
    (3) NEITHER THIS TRADING ADVISOR NOR ANY OF ITS TRADING PRINCIPALS 
HAVE PREVIOUSLY DIRECTED ANY ACCOUNTS.


If the commodity trading advisor is a sole proprietorship, reference to 
its

[[Page 252]]

trading principals need not be included in the prescribed statement.

[60 FR 38191, July 25, 1995, as amended at 68 FR 42967, July 21, 2003; 
68 FR 47235, Aug. 8, 2003]



Sec.  4.36  Use, amendment and filing of Disclosure Document.

    (a) Subject to paragraph (c) of this section, all information 
contained in the Disclosure Document must be current as of the date of 
the Document; Provided, however, that performance information must be 
current as of a date not more than three months preceding the date of 
the Document.
    (b) No commodity trading advisor may use a Disclosure Document dated 
more than nine months prior to the date of its use.
    (c)(1) If the commodity trading advisor knows or should know that 
the Disclosure Document is materially inaccurate or incomplete in any 
respect, it must correct that defect and must distribute the correction 
to:
    (i) All existing clients in the trading program within 21 calendar 
days of the date upon which the trading advisor first knows or has 
reason to know of the defect; and
    (ii) Each previously solicited prospective client for the trading 
program prior to entering into an agreement to direct or to guide such 
prospective client's commodity interest account pursuant to the program. 
The trading advisor may furnish the correction by way of an amended 
Disclosure Document, a sticker on the Document, or other similar means.
    (2) The trading advisor may not use the Disclosure Document until 
such correction is made.
    (d)(1) The commodity trading advisor must electronically file with 
the National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the Disclosure Document 
for each trading program that it offers or that it intends to offer not 
less than 21 calendar days prior to the date the trading advisor first 
intends to deliver the Document to a prospective client in the trading 
program; and
    (2) The commodity trading advisor must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the subsequent 
amendments to the Disclosure Document for each trading program that it 
offers or that it intends to offer within 21 calendar days of the date 
upon which the trading advisor first knows or has reason to know of the 
defect requiring the amendment.

[60 FR 38192, July 25, 1995, as amended at 62 FR 18268, Apr. 15, 1997; 
65 FR 58650, Oct. 2, 2000; 67 FR 77411, Dec. 18, 2002; 74 FR 9569, Mar. 
5, 2009]



                          Subpart D_Advertising



Sec.  4.40  [Reserved]



Sec.  4.41  Advertising by commodity pool operators, commodity trading
advisors, and the principals thereof.

    (a) No commodity pool operator, commodity trading advisor, or any 
principal thereof, may advertise in a manner which:
    (1) Employs any device, scheme or artifice to defraud any 
participant or client or prospective participant or client;
    (2) Involves any transaction, practice or course of business which 
operates as a fraud or deceit upon any participant or client or any 
prospective participant or client; or
    (3) Refers to any testimonial, unless the advertisement or sales 
literature providing the testimonial prominently discloses:
    (i) That the testimonial may not be representative of the experience 
of other clients;
    (ii) That the testimonial is no guarantee of future performance or 
success; and
    (iii) If, more than a nominal sum is paid, the fact that it is a 
paid testimonial.
    (b)(1) No person may present the performance of any simulated or 
hypothetical commodity interest account, transaction in a commodity 
interest or series of transactions in a commodity interest of a 
commodity pool operator, commodity trading advisor, or any principal 
thereof, unless such performance is accompanied by one of the following:

[[Page 253]]

    (i) The following statement: ``These results are based on simulated 
or hypothetical performance results that have certain inherent 
limitations. Unlike the results shown in an actual performance record, 
these results do not represent actual trading. Also, because these 
trades have not actually been executed, these results may have under-or 
over-compensated for the impact, if any, of certain market factors, such 
as lack of liquidity. Simulated or hypothetical trading programs in 
general are also subject to the fact that they are designed with the 
benefit of hindsight. No representation is being made that any account 
will or is likely to achieve profits or losses similar to these being 
shown.'' ; or
    (ii) A statement prescribed pursuant to rules promulgated by a 
registered futures association pursuant to section 17(j) of the Act.
    (2) If the presentation of such simulated or hypothetical 
performance is other than oral, the prescribed statement must be 
prominently disclosed and in immediate proximity to the simulated or 
hypothetical performance being presented.
    (c) The provisions of this section shall apply:
    (1) To any publication, distribution or broadcast of any report, 
letter, circular, memorandum, publication, writing, advertisement or 
other literature or advice, whether by electronic media or otherwise, 
including information provided via internet or e-mail, the texts of 
standardized oral presentations and of radio, television, seminar or 
similar mass media presentations; and
    (2) Regardless of whether the commodity pool operator or commodity 
trading advisor is exempt from registration under the Act.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 60 
FR 38192, July 25, 1995; 72 FR 8109, Feb. 23, 2007]

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                Sec. Appendix A to Part 4-- Form CPO-PQR
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[77 FR 11286, Feb. 24, 2012]



Sec. Appendix B to Part 4--Adjustments for Additions and Withdrawals in 
                    the Computation of Rate of Return

    This appendix provides guidance concerning alternate methods by 
which commodity pool operators and commodity trading advisors may 
calculate the rate of return information required by Rules 
4.25(a)(7)(i)(F) and 4.35(a)(6)(i)(F). The methods described herein are 
illustrative of calculation methods the Commission has reviewed and 
determined may be appropriate to address potential material distortions 
in the computation of rate of return due to additions and withdrawals 
that occur during a performance reporting period. A commodity pool 
operator or commodity trading advisor may present to the Commission 
proposals regarding any alternative method of addressing the effect of 
additions and withdrawals on the rate of return computation, including 
documentation supporting the rationale for use of that alternate method.

                   1. Compounded Rate of Return Method

    Rate of return for a period may be calculated by computing the net 
performance divided by the beginning net asset value for each trading 
day in the period and compounding each daily rate of return to determine 
the rate of return for the period. If daily compounding is not 
practicable, the rate of return may be compounded on the basis of each 
sub-period within which an addition or withdrawal occurs during a month. 
For example:

----------------------------------------------------------------------------------------------------------------
                                                    Account value                  Change in value
----------------------------------------------------------------------------------------------------------------
Start of month..................................           $10,000  +10% ($1,000 profit).
End of 1st acct. period.........................            11,000  $4,000 addition.
Start of 2nd acct. period.......................            15,000  -20% ($3,000 loss).
End of 2nd acct. period.........................            12,000  $2,000 withdrawal.
Start of 3rd acct. period.......................            10,000  +25% ($2,500 profit).
End of month....................................           12,500
----------------------------------------------------------------------------------------------------------------
Compounded ROR = [(1 + .1)(1 - .2)(1 + .25)] - 1 = 10%.

                         2. Time-weighted method

    Time-weighting allows for adjustment to the denominator of the rate 
of return calculation for additions and withdrawals, weighted for the 
amount of time such funds were available during the period. Several 
methods exist for time-weighting, all of which will have the same 
arithmetic result. These methods include: dividing the net performance 
by the average weighted account

[[Page 305]]

sizes for the month; dividing the net performance by the arithmetic mean 
of the account sizes for each trading day during the period; and taking 
the number of days funds were available for trading divided by the total 
number of days in the period.

[68 FR 47236, Aug. 8, 2003; 68 FR 53430, Sept. 10, 2003]



                 Sec. Appendix C to Part 4--Form CTA-PR
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[77 FR 11337, Feb. 24, 2012]

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PART 5_OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS--Table of Contents



Sec.
5.1 Definitions.
5.2 Prohibited transactions.
5.3 Registration of persons engaged in retail forex transactions.
5.4 Applicability of part 4 of this chapter to commodity pool operators 
          and commodity trading advisors.
5.5 Distribution of ``Risk Disclosure Statement'' by retail foreign 
          exchange dealers, futures commission merchants and introducing 
          brokers regarding retail forex transactions.
5.6 Maintenance of minimum financial requirements by retail foreign 
          exchange dealers and futures commission merchants offering or 
          engaging in retail forex transactions.
5.7 Minimum financial requirements for retail foreign exchange dealers 
          and futures commission merchants offering or engaging in 
          retail forex transactions.
5.8 Aggregate retail forex assets.
5.9 Security deposits for retail forex transactions.
5.10 Risk assessment recordkeeping requirements for retail foreign 
          exchange dealers.
5.11 Risk assessment reporting requirements for retail foreign exchange 
          dealers.
5.12 Financial reports of retail foreign exchange dealers.
5.13 Reporting to customers of retail foreign exchange dealers and 
          futures commission merchants; monthly and confirmation 
          statements.
5.14 Records to be kept by retail foreign exchange dealers and futures 
          commission merchants.
5.15 Unlawful representations.
5.16 Prohibition of guarantees against loss.
5.17 Authorization to trade.
5.18 Trading and operational standards.
5.19 Pending legal proceedings.
5.20 Special calls for account and transaction information.
5.21 Supervision.
5.22 Registered futures association membership.
5.23 Notice of bulk transfers and bulk liquidations.
5.24 Applicability of other parts of this chapter.
5.25 Applicability of the Act.

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 
6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, and 23, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (Jul. 21, 2010).

    Source: 75 FR 55432, Sept. 10, 2010, unless otherwise noted.



Sec.  5.1  Definitions.

    (a) Affiliated person of a futures commission merchant means a 
person described in section 2(c)(2)(B)(i)(II)(cc)(BB) of the Act;
    (b) Aggregate retail forex assets means an amount of liquid assets 
held in accordance withSec. 5.8 of this part;
    (c) Associated person of an affiliated person of a futures 
commission merchant means any natural person associated with an 
affiliated person of a futures commission merchant as a partner, officer 
or employee (or any natural person occupying a similar status or 
performing similar functions), in any capacity which involves:
    (1) The solicitation or acceptance of retail forex customers' orders 
(other than in a clerical capacity); or
    (2) The supervision of any person or persons so engaged;
    (d)(1) Commodity pool operator, for purposes of this part, means any 
person who operates or solicits funds, securities, or property for a 
pooled investment vehicle that is not an eligible contract participant 
as defined in section 1a(18) of the Act, and that engages in retail 
forex transactions;
    (2) Associated person of a commodity pool operator, for purposes of 
this part, means any natural person associated with a commodity pool 
operator as defined in paragraph (d)(1) of this section as a partner, 
officer, employee, consultant or agent (or any natural person occupying 
a similar status or performing similar functions), in any capacity which 
involves:
    (i) The solicitation of funds, securities, or property for a 
participation in a pooled investment vehicle; or
    (ii) The supervision of any person or persons so engaged;
    (e)(1) Commodity trading advisor, for purposes of this part, means 
any person who exercises discretionary trading authority or obtains 
written authorization to exercise discretionary trading authority over 
any account for or on behalf of any person that is not an eligible 
contract participant as defined in section 1a(18) of the Act, in 
connection with retail forex transactions;

[[Page 310]]

    (2) Associated person of a commodity trading advisor, for purposes 
of this part, means any natural person associated with a commodity 
trading advisor as defined in paragraph (e)(1) of this section as a 
partner, officer, employee, consultant or agent (or any natural person 
occupying a similar status or performing similar functions), in any 
capacity which involves:
    (i) The solicitation of a client's or prospective client's 
discretionary account; or
    (ii) The supervision of any person or persons so engaged;
    (f)(1) Introducing broker, for purposes of this part, means any 
person who solicits or accepts orders from a customer that is not an 
eligible contract participant as defined in section 1a(18) of the Act, 
in connection with retail forex transactions;
    (2) Associated person of an introducing broker, for purposes of this 
part, means any natural person associated with an introducing broker as 
defined in paragraph (g)(1) of this section as a partner, officer, 
employee, or agent (or any natural person occupying a similar status or 
performing similar functions), in any capacity which involves:
    (i) The solicitation or acceptance of retail forex customers' orders 
(other than in a clerical capacity); or
    (ii) The supervision of any person or persons so engaged;
    (g) Primarily or substantially means, when used to describe the 
extent of a futures commission merchant's engagement in the activities 
described in section 1a(28)(A)(i)(I)(aa)(AA) of the Act and section 
1a(28)(A)(i)(II) of the Act insofar as that section references the 
activities described in section 1a(28)(A)(i)(I)(aa)(AA), that:
    (1) Such activities account for more than fifty percent of the 
futures commission merchant's gross revenues, computed in accordance 
with generally accepted accounting principles, on an annual basis;
    (2) The futures commission merchant receives gross revenues, 
computed in accordance with generally accepted accounting principles, 
from such activities in excess of $500,000 in any twelve month period; 
or
    (3) The futures commission merchant is a clearing member of a 
registered derivatives clearing organization.
    (h)(1) Retail foreign exchange dealer means any person that is, or 
that offers to be, the counterparty to a retail forex transaction, 
except for a person described in item (aa), (bb), (cc)(AA) or (dd) of 
section 2(c)(2)(B)(i)(II) of the Act;
    (2) Associated person of a retail foreign exchange dealer means any 
natural person associated with a retail foreign exchange dealer as 
defined in paragraph (i)(1) of this section as a partner, officer or 
employee (or any natural person occupying a similar status or performing 
similar functions), in any capacity which involves:
    (i) The solicitation or acceptance of retail forex customers' orders 
(other than in a clerical capacity); or
    (ii) The supervision of any person or persons so engaged;
    (i) Retail forex account means the account of a person who is not an 
eligible contract participant as defined in section 1a(18) of the Act, 
established with a retail foreign exchange dealer or a futures 
commission merchant, in which account retail forex transactions 
(including options on contracts for the purchase or sale of foreign 
currency) with such retail foreign exchange dealer or futures commission 
merchant as counterparty are undertaken, or which account is established 
in order to enter into such transactions.
    (j) Retail forex account agreement means the contractual agreement 
between a futures commission merchant or retail foreign exchange dealer 
and any person who is not an eligible contract participant as defined in 
section 1a(18) of the Act, which agreement contains the terms governing 
the person's retail forex account with such futures commission merchant 
or retail foreign exchange dealer.
    (k) Retail forex customer means a person, other than an eligible 
contract participant as defined in section 1a(18) of the Act, acting on 
its own behalf and trading in any account, agreement, contract or 
transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.
    (l) Retail forex obligation means the net credit balance at a retail 
foreign

[[Page 311]]

exchange dealer or futures commission merchant that would be obtained by 
combining all money, securities and property deposited by a retail forex 
customer into a retail forex account or accounts, adjusted for the 
realized and unrealized net profit or loss, if any, accruing on the open 
trades, contracts or transactions in the retail forex account or 
accounts, without including any retail forex customers' accounts that 
contain negative net liquidating balances.
    (m) Retail forex transaction means any account, agreement, contract 
or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act. 
A retail forex transaction does not include an account, agreement, 
contract or transaction in foreign currency that is a contract of sale 
of a commodity for future delivery (or an option thereon) that is 
executed, traded on or otherwise subject to the rules of a contract 
market designated pursuant to section 5(a) of the Act.

[75 FR 55432, Sept. 10, 2010, as amended at 77 FR 66332, Nov. 2, 2012]



Sec.  5.2  Prohibited transactions.

    (a) Scope. The provisions of this section shall be applicable to any 
retail forex transaction.
    (b) Fraudulent conduct prohibited. It shall be unlawful for any 
person, by use of the mails or by any means or instrumentality of 
interstate commerce, directly or indirectly, in or in connection with 
any retail forex transaction:
    (1) To cheat or defraud or attempt to cheat or defraud any person;
    (2) Willfully to make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (3) Willfully to deceive or attempt to deceive any person by any 
means whatsoever.
    (c) Acting as counterparty and exercising discretion prohibited. (1) 
No person who acts as the counterparty for any retail forex transaction 
may do so for an account for which the person or any affiliate of the 
person is authorized (by contract, power of attorney or otherwise) to 
cause transactions to be effected without the client's specific 
authorization.
    (2) For purposes of this paragraph (c), an ``affiliate'' of a person 
means a person controlling, controlled by or under common control with, 
the first person.



Sec.  5.3  Registration of persons engaged in retail forex transactions.

    (a) Subject to paragraph (b) of this section, each of the following 
is subject to the registration provisions under the Act and to part 3 of 
this chapter:
    (1)(i) Any affiliated person of a futures commission merchant, as 
defined inSec. 5.1(a) of this part, which affiliated person:
    (A) Solicits or accepts orders from any person that is not an 
eligible contract participant in connection with any retail forex 
transaction; or
    (B) Accepts money, securities, or property (or extends credit in 
lieu thereof) in connection with such solicitation or acceptance of 
orders in order to engage in any retail forex transaction, is required 
to register as a retail foreign exchange dealer; and
    (ii) Any associated person of an affiliated person of a futures 
commission merchant, as defined inSec. 5.1(c) of this part, is 
required to register as an associated person of an affiliated person of 
a futures commission merchant.
    (2)(i) Any commodity pool operator, as defined inSec. 5.1(d)(1) of 
this part, is required to register as a commodity pool operator;
    (ii) Any associated person of a commodity pool operator, as defined 
inSec. 5.1(d)(2) of this part, is required to register as an 
associated person of a commodity pool operator;
    (3)(i) Any commodity trading advisor, as defined inSec. 5.1(e)(1) 
of this part, is required to register as a commodity trading advisor;
    (ii) Any associated person of a commodity trading advisor, as 
defined inSec. 5.1(e)(2) of this part, is required to register as an 
associated person of a commodity trading advisor;
    (4)(i) Any person registered as a futures commission merchant:
    (A) That is not primarily or substantially engaged in the business 
activities described in section 1a(28)(A)(i)(I)(aa)(AA) of the Act and

[[Page 312]]

section 1a(28)(A)(i)(II) of the Act insofar as that section references 
the activities described in section 1a(28)(A)(i)(I)(aa)(AA);
    (B) That solicits or accepts orders from any person that is not an 
eligible contract participant in connection with any retail forex 
transaction; and
    (C) That accepts money, securities, or property (or extends credit 
in lieu thereof) in connection with such solicitation or acceptance of 
orders in order to engage in retail forex transactions, is required to 
register as a retail foreign exchange dealer;
    (ii) Any associated person of a futures commission merchant 
described in paragraph (a)(4)(i) of this section is required to register 
as an associated person of a futures commission merchant;
    (5)(i) Any introducing broker, as defined inSec. 5.1(f)(1) of this 
part, is required to register as an introducing broker;
    (ii) Any associated person of an introducing broker, as defined in 
Sec.  5.1(f)(2) of this part, is required to register as an associated 
person of an introducing broker;
    (6)(i) Any retail foreign exchange dealer, as defined inSec. 
5.1(h)(1) of this part is required to register as a retail foreign 
exchange dealer;
    (ii) Any associated person of a retail foreign exchange dealer, as 
defined inSec. 5.1(h)(2) of this part, is required to register as an 
associated person of a retail foreign exchange dealer;
    (b) Any person described in paragraph (a) of this section that is 
already registered in the required capacity specified in paragraph (a) 
is not required under this section to register twice in the same 
capacity; Provided, however, that a person already registered as an 
associated person of one class of registrant may also be required to 
register as an associated person of another class of registrant in order 
to comply with this section.

[75 FR 55432, Sept. 10, 2010, as amended at 76 FR 56106, Sept. 12, 2011]



Sec.  5.4  Applicability of part 4 of this chapter to commodity pool
operators and commodity trading advisors.

    Part 4 of this chapter applies to any person required pursuant to 
the provisions of this part 5 to register as a commodity pool operator 
or as a commodity trading advisor. Failure by any such person to comply 
with the requirements of part 4 will constitute a violation of this 
section and the relevant section of part 4.



Sec.  5.5  Distribution of ``Risk Disclosure Statement'' by retail
foreign exchange dealers, futures commission merchants and introducing
brokers regarding retail forex transactions.

    (a) Except as provided inSec. 5.23 of this part, no retail foreign 
exchange dealer, futures commission merchant, or in the case of an 
introduced account no introducing broker, may open an account that will 
engage in retail forex transactions for a retail forex customer, unless 
the retail foreign exchange dealer, futures commission merchant or 
introducing broker first:
    (1)(i) In the case of a retail foreign exchange dealer or a person 
required to register as an introducing broker solely by reason of this 
part, furnishes the retail forex customer with a separate written 
disclosure statement containing only the language set forth in paragraph 
(b) of this section and the disclosure required by paragraph (e) of this 
section;
    (ii) In the case of a futures commission merchant or a person 
required to register as an introducing broker because it engages in the 
activities described inSec. 1.3(mm) of this chapter, furnishes the 
retail forex customer with a separate written disclosure statement 
containing only the language set forth in paragraph (b) of this section 
and the disclosure required by paragraph (e) of this section; Provided, 
however, that the disclosure statement may be attached to other 
documents as the initial page(s) of such documents and as the only 
material on such page(s); and
    (2) Receives from the retail forex customer an acknowledgment signed 
and dated by the retail forex customer that he received and understood 
the disclosure statement.

[[Page 313]]

    (b) The language set forth in the written disclosure statement 
required by paragraph (a) of this section shall be as follows:

                        RISK DISCLOSURE STATEMENT

    OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS INVOLVE THE LEVERAGED 
TRADING OF CONTRACTS DENOMINATED IN FOREIGN CURRENCY CONDUCTED WITH A 
FUTURES COMMISSION MERCHANT OR A RETAIL FOREIGN EXCHANGE DEALER AS YOUR 
COUNTERPARTY. BECAUSE OF THE LEVERAGE AND THE OTHER RISKS DISCLOSED 
HERE, YOU CAN RAPIDLY LOSE ALL OF THE FUNDS YOU DEPOSIT FOR SUCH TRADING 
AND YOU MAY LOSE MORE THAN YOU DEPOSIT.
    YOU SHOULD BE AWARE OF AND CAREFULLY CONSIDER THE FOLLOWING POINTS 
BEFORE DETERMINING WHETHER SUCH TRADING IS APPROPRIATE FOR YOU.
    (1) TRADING IS NOT ON A REGULATED MARKET OR EXCHANGE--YOUR DEALER IS 
YOUR TRADING PARTNER WHICH IS A DIRECT CONFLICT OF INTEREST. BEFORE YOU 
ENGAGE IN ANY RETAIL FOREIGN EXCHANGE TRADING, YOU SHOULD CONFIRM THE 
REGISTRATION STATUS OF YOUR COUNTERPARTY.
    The off-exchange foreign currency trading you are entering into is 
not conducted on an interbank market, nor is it conducted on a futures 
exchange subject to regulation as a designated contract market by the 
Commodity Futures Trading Commission. The foreign currency trades you 
transact are trades with the futures commission merchant or retail 
foreign exchange dealer as your counterparty. WHEN YOU SELL, THE DEALER 
IS THE BUYER. WHEN YOU BUY, THE DEALER IS THE SELLER. As a result, when 
you lose money trading, your dealer is making money on such trades, in 
addition to any fees, commissions, or spreads the dealer may charge.
    (2) AN ELECTRONIC TRADING PLATFORM FOR RETAIL FOREIGN CURRENCY 
TRANSACTIONS IS NOT AN EXCHANGE. IT IS AN ELECTRONIC CONNECTION FOR 
ACCESSING YOUR DEALER. THE TERMS OF AVAILABILITY OF SUCH A PLATFORM ARE 
GOVERNED ONLY BY YOUR CONTRACT WITH YOUR DEALER.
    Any trading platform that you may use to enter off-exchange foreign 
currency transactions is only connected to your futures commission 
merchant or retail foreign exchange dealer. You are accessing that 
trading platform only to transact with your dealer. You are not trading 
with any other entities or customers of the dealer by accessing such 
platform. The availability and operation of any such platform, including 
the consequences of the unavailability of the trading platform for any 
reason, is governed only by the terms of your account agreement with the 
dealer.
    (3) YOUR DEPOSITS WITH THE DEALER HAVE NO REGULATORY PROTECTIONS.
    All of your rights associated with your retail forex trading, 
including the manner and denomination of any payments made to you, are 
governed by the contract terms established in your account agreement 
with the futures commission merchant or retail foreign exchange dealer. 
Funds deposited by you with a futures commission merchant or retail 
foreign exchange dealer for trading off-exchange foreign currency 
transactions are not subject to the customer funds protections provided 
to customers trading on a contract market that is designated by the 
Commodity Futures Trading Commission. Your dealer may commingle your 
funds with its own operating funds or use them for other purposes. In 
the event your dealer becomes bankrupt, any funds the dealer is holding 
for you in addition to any amounts owed to you resulting from trading, 
whether or not any assets are maintained in separate deposit accounts by 
the dealer, may be treated as an unsecured creditor's claim.
    (4) YOU ARE LIMITED TO YOUR DEALER TO OFFSET OR LIQUIDATE ANY 
TRADING POSITIONS SINCE THE TRANSACTIONS ARE NOT MADE ON AN EXCHANGE OR 
MARKET, AND YOUR DEALER MAY SET ITS OWN PRICES.
    Your ability to close your transactions or offset positions is 
limited to what your dealer will offer to you, as there is no other 
market for these transactions. Your dealer may offer any prices it 
wishes, and it may offer prices derived from outside sources or not in 
its discretion. Your dealer may establish its prices by offering spreads 
from third party prices, but it is under no obligation to do so or to 
continue to do so. Your dealer may offer different prices to different 
customers at any point in time on its own terms. The terms of your 
account agreement alone govern the obligations your dealer has to you to 
offer prices and offer offset or liquidating transactions in your 
account and make any payments to you. The prices offered by your dealer 
may or may not reflect prices available elsewhere at any exchange, 
interbank, or other market for foreign currency.
    (5) PAID SOLICITORS MAY HAVE UNDISCLOSED CONFLICTS
    The futures commission merchant or retail foreign exchange dealer 
may compensate introducing brokers for introducing your account in ways 
which are not disclosed to you. Such paid solicitors are not required to 
have, and may not have, any special expertise in trading, and may have 
conflicts of interest based on the method by which they

[[Page 314]]

are compensated. Solicitors working on behalf of futures commission 
merchants and retail foreign exchange dealers are required to register. 
You should confirm that they are, in fact registered. You should 
thoroughly investigate the manner in which all such solicitors are 
compensated and be very cautious in granting any person or entity 
authority to trade on your behalf. You should always consider obtaining 
dated written confirmation of any information you are relying on from 
your dealer or a solicitor in making any trading or account decisions.
    FINALLY, YOU SHOULD THOROUGHLY INVESTIGATE ANY STATEMENTS BY ANY 
DEALERS OR SALES REPRESENTATIVES WHICH MINIMIZE THE IMPORTANCE OF, OR 
CONTRADICT, ANY OF THE TERMS OF THIS RISK DISCLOSURE. SUCH STATEMENTS 
MAY INDICATE POTENTIAL SALES FRAUD.
    THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND 
OTHER ASPECTS OF TRADING OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS WITH 
A FUTURES COMMISSION MERCHANT OR RETAIL FOREIGN EXCHANGE DEALER.
    I hereby acknowledge that I have received and understood this risk 
disclosure statement.

________________________________________________________________________

Date
________________________________________________________________________

Signature of Customer

    (c) The acknowledgment required by paragraph (a) of this section 
must be retained by the retail foreign exchange dealer, futures 
commission merchant or introducing broker in accordance withSec. 1.31 
of this chapter.
    (d) This section does not relieve a retail foreign exchange dealer, 
futures commission merchant or introducing broker from any other 
disclosure obligation it may have under applicable law.
    (e)(1) Immediately following the language set forth in paragraph (b) 
of this section, the statement required by paragraph (a) of this section 
shall include, for each of the most recent four calendar quarters during 
which the counterparty maintained retail forex customer accounts:
    (i) The total number of non discretionary retail forex customer 
accounts maintained by the retail foreign exchange dealer or futures 
commission merchant;
    (ii) The percentage of such accounts that were profitable during the 
quarter; and
    (iii) The percentage of such accounts that were not profitable 
during the quarter.
    (2) Identification of retail forex customer accounts for the purpose 
of this disclosure and the calculation in determining whether each such 
account was profitable or not profitable must be made in accordance with 
Sec.  5.18(i) of this part. Such statement of profitable trades shall 
include the following legend: PAST PERFORMANCE IS NOT NECESSARILY 
INDICATIVE OF FUTURE RESULTS. Each retail foreign exchange dealer or 
futures commission merchant shall provide, upon request, to any retail 
forex customer or prospective retail forex customer the total number of 
non discretionary retail forex accounts maintained by such foreign 
exchange dealer or futures commission merchant, the percentage of such 
accounts that were profitable and the percentage of such accounts that 
were not profitable, calculated in accordance withSec. 5.18(i) of this 
part, for each calendar quarter during the most recent five year period 
during which such retail foreign exchange dealer or futures commission 
merchant maintained non discretionary retail forex customer accounts.



Sec.  5.6  Maintenance of minimum financial requirements by retail
foreign exchange dealers and futures commission merchants offering
or engaging in retail forex transactions.

    (a) Each futures commission merchant offering or engaging in retail 
forex transactions or who files an application for registration as a 
futures commission merchant that will offer or engage in retail forex 
transactions and each person registered as a retail foreign exchange 
dealer or who files an application for registration as a retail foreign 
exchange dealer, who knows or should have known that its adjusted net 
capital at any time is less than the minimum required bySec. 5.7 of 
this part or by the capital rule of a registered futures association of 
which it is a member, must:
    (1) Give telephonic notice, to be confirmed in writing by facsimile 
notice,

[[Page 315]]

that the applicant's or registrant's adjusted net capital is less than 
that required bySec. 5.7 of this part. The notice must be given 
immediately after the applicant or registrant knows or should know that 
its adjusted net capital is less than that required by any of the 
aforesaid rules to which the applicant or registrant is subject; and
    (2) Provide together with such notice documentation in such form as 
necessary to adequately reflect the applicant's or registrant's capital 
condition as of any date such person's adjusted net capital is less than 
the minimum required. The applicant or registrant must provide similar 
documentation for other days as the Commission may request.
    (b) Each applicant or registrant, who knows or should have known 
that its adjusted net capital at any time is less than the greatest of:
    (1) $22,000,000;
    (2) 110 percent of the amount required bySec. 5.7(a)(1)(i)(B) of 
this part; or
    (3) 110 percent of the amount of adjusted net capital required by a 
registered futures association of which the futures commission merchant 
or retail foreign exchange dealer is a member, must file written notice 
to that effect within 24 hours of such event.
    (c) If an applicant or registrant at any time fails to make or keep 
current the books and records required by these regulations, such 
applicant or registrant must, on the same day such event occurs, provide 
facsimile notice of such fact, specifying the books and records which 
have not been made or which are not current, and within 48 hours after 
giving such notice file a written report stating what steps have been 
and are being taken to correct the situation.
    (d) Whenever any applicant or registrant discovers or is notified by 
an independent public accountant, pursuant toSec. 1.16(e)(2) of this 
chapter, of the existence of any material inadequacy, as specified in 
Sec.  1.16(d)(2) of this chapter, such applicant or registrant must give 
facsimile notice of such material inadequacy within 24 hours, and within 
48 hours after giving such notice file a written report stating what 
steps have been and are being taken to correct the material inadequacy.
    (e) Whenever any self-regulatory organization learns that a member 
registrant has failed to file a notice or written report as required by 
Sec.  5.6 of this part, that self-regulatory organization must 
immediately report this failure by telephone, confirmed in writing 
immediately by facsimile notice, as provided in paragraph (h) of this 
section.
    (f) A retail foreign exchange dealer or a futures commission 
merchant offering or engaging in retail forex transactions shall provide 
written notice of a substantial reduction in capital as compared to that 
last reported in a financial report filed with the Commission pursuant 
toSec. 5.12 of this part. This notice shall be provided as follows:
    (1) If any event or series of events, including any withdrawal, 
advance, loan or loss cause, on a net basis, a reduction in net capital 
of 20 percent or more, notice must be provided within two business days 
of the event or series of events causing the reduction; and
    (2) If the equity capital of the retail foreign exchange dealer or 
futures commission merchant offering or engaging in retail forex 
transactions or the equity capital of a subsidiary or affiliate of the 
retail foreign exchange dealer or futures commission merchant offering 
or engaging in retail forex transactions consolidated pursuant toSec. 
1.17(f) of this chapter would be withdrawn by action of a stockholder or 
a partner or a limited liability company member or by redemption or 
repurchase of shares of stock by any of the consolidated entities or 
through the payment of dividends or any similar distribution, or an 
unsecured advance or loan would be made to a stockholder, partner, sole 
proprietor, limited liability company member, employee or affiliate, 
such that the withdrawal, advance or loan would cause, on a net basis, a 
reduction in excess adjusted net capital of 30 percent or more, notice 
must be provided at least two business days prior to the withdrawal, 
advance or loan that would cause the reduction: Provided, however, That 
the provisions of paragraphs (f)(1) and (f)(2) of this section do not 
apply to any retail foreign exchange transaction in the ordinary course 
of business between a retail foreign exchange dealer

[[Page 316]]

and any affiliate where the retail foreign exchange dealer makes payment 
to or on behalf of such affiliate for such transaction and then receives 
payment from such affiliate for such transaction within two business 
days from the date of the transaction.
    (3) Upon receipt of such notice from a futures commission merchant 
offering or engaging in retail forex transactions or a retail foreign 
exchange dealer, the Director of the Division of Clearing and 
Intermediary Oversight or the Director's designee may require that the 
futures commission merchant offering or engaging in retail forex 
transactions or retail foreign exchange dealer provide or cause a 
Material Affiliated Person (as that term is defined inSec. 5.10(a)(2) 
of this part) to provide, within three business days from the date of 
the request or such shorter period as the Director or designee may 
specify, such other information as the Director or designee determines 
to be necessary based upon market conditions, reports provided by the 
retail foreign exchange dealer or futures commission merchant offering 
or engaging in retail forex transactions, or other available 
information.
    (g) Whenever a person registered as a futures commission merchant 
offering or engaging in retail forex transactions or a retail foreign 
exchange dealer knows or should know that the total amount of its retail 
forex obligation exceeds the amount of the aggregate retail forex assets 
the registrant maintains in accordance with the provisions ofSec. 5.8 
of this chapter, the registrant must report such deficiency immediately 
by telephone notice, confirmed immediately in writing by facsimile 
notice.
    (h) Every notice and written report required to be given or filed 
with the Commission by this section by an applicant must be filed with 
the regional office of the Commission with jurisdiction over the state 
in which the applicant's principal place of business is located, and 
with the National Futures Association. Every notice and written report 
required to be given or filed with the Commission by this section by a 
registrant or self-regulatory organization must be filed with the 
regional office of the Commission with jurisdiction over the state in 
which the registrant's principal place of business is located, and with 
the registrant's designated self-regulatory organization. In addition, 
every notice and written report required to be given by this section 
must also be filed with the Chief Accountant of the Division of Clearing 
and Intermediary Oversight at the Commission's principal office in 
Washington, DC.
    (i) In lieu of filing paper copies with the Commission, all filings 
or other notices prepared by a futures commission merchant or retail 
foreign exchange dealer pursuant to this section may be submitted to the 
Commission in electronic form using a form of user authentication 
assigned in accordance with procedures established by or approved by the 
Commission, and otherwise in accordance with instructions issued by or 
approved by the Commission, if the futures commission merchant, retail 
foreign exchange dealer or a designated self-regulatory organization has 
provided the Commission with the means necessary to read and to process 
the information contained in such report. Any such electronic submission 
must clearly indicate the registrant or applicant on whose behalf such 
filing is made and the use of such user authentication in submitting 
such filing will constitute and become a substitute for the manual 
signature of the authorized signer.



Sec.  5.7  Minimum financial requirements for retail foreign exchange
dealers and futures commission merchants offering or engaging 
in retail forex transactions.

    (a)(1)(i) Each futures commission merchant offering or engaging in 
retail forex transactions and each retail foreign exchange dealer must 
maintain adjusted net capital equal to or in excess of the greatest of:
    (A) $20,000,000;
    (B) $20,000,000 plus five percent of the futures commission 
merchant's or retail foreign exchange dealer's total retail forex 
obligation in excess of $10,000,000;
    (C) any amount required underSec. 1.17 of this chapter, as 
applicable; or

[[Page 317]]

    (D) the amount of adjusted net capital required by a registered 
futures association of which the futures commission merchant or retail 
foreign exchange dealer is a member.
    (ii) Section 1.17 of this chapter shall apply to retail foreign 
exchange dealers as if such retail foreign exchange dealers were futures 
commission merchants, or as applicable, applicants or registrants, as 
stated inSec. 1.17 for the purpose of determining the adjusted net 
capital under this section. For the purpose of applying this section, 
``applicant'' or ``registrant'' shall include retail foreign exchange 
dealers and futures commission merchants offering or engaging in retail 
forex transactions and applicants therefore.
    (2) No person applying for registration as a retail foreign exchange 
dealer or a futures commission merchant that will engage in retail forex 
transactions shall be so registered unless such person affirmatively 
demonstrates to the satisfaction of a registered futures association 
that it complies with the financial requirements of this section.
    (3) Each registrant must be in compliance with this section at all 
times and must be able to demonstrate such compliance to the 
satisfaction of the Commission or the registrant's designated self-
regulatory organization.
    (4) A registrant who is not in compliance with this section, or is 
unable to demonstrate such compliance as required by paragraph (a)(3) of 
this section, shall, as directed by and under the supervision of the 
Commission or the registrant's designated self-regulatory organization, 
either liquidate or transfer all retail forex accounts (including the 
novation of retail forex contracts) and refund or transfer all funds 
associated with such retail forex accounts and immediately cease 
offering or engaging in retail forex transactions until such time as the 
firm is able to demonstrate to the Commission or the registrant's 
designated self-regulatory organization such compliance: Provided, 
however, That if such registrant immediately demonstrates to the 
satisfaction of the Commission or the registrant's designated self-
regulatory organization the ability to achieve compliance, the 
Commission or the registrant's designated self-regulatory organization 
may in its discretion allow such registrant up to a maximum of 10 
business days, or such additional time as determined by the Commission, 
in which to achieve compliance without having to liquidate positions or 
transfer accounts and cease doing business as required above. Nothing in 
this paragraph (a)(4) shall be construed as preventing the Commission or 
the registrant's designated self-regulatory organization from taking 
action against a registrant for non-compliance with any of the 
provisions of this section.
    (b) For the purposes of this section:
    (1) Where the applicant or registrant has an asset or liability 
which is defined in Securities Exchange Act Rule 15c3-1 (Sec.  240.15c3-
1 of this title) the inclusion or exclusion of all or part of such asset 
or liability for the computation of adjusted net capital shall be in 
accordance withSec. 240.15c3-1 of this title, unless specifically 
stated otherwise in this section or inSec. 1.17 of this chapter.
    (2) The adjusted net capital of an applicant or registrant for the 
purpose of this section shall be determined by the application ofSec. 
1.17 pursuant to paragraph (a)(1)(ii) of this section, with the 
following additions:
    (i) All positions in retail forex accounts and other financial 
positions and instruments of the applicant or registrant must be marked 
to market and adjusted daily by referencing to current market prices or 
rates of exchange.
    (ii) Current assets must exclude any retail forex account which 
liquidates to a deficit or contains a debit ledger balance only and is 
not secured in accordance withSec. 1.17(c)(3).
    (iii) Current assets must exclude any unsecured receivable accrued 
from any over-the-counter transaction in foreign currency, options on 
foreign currency or options on contracts for the purchase or sale of 
foreign currency, or arising from the deposit of collateral or 
compensating balances with respect to such transactions, unless such 
unsecured receivable is from a person who is an eligible contract 
participant that also is:

[[Page 318]]

    (A) A bank or trust company regulated by a United States banking 
regulator;
    (B) A broker-dealer registered with the Securities and Exchange 
Commission and a member of the Financial Industry Regulatory Authority;
    (C) A futures commission merchant registered with the Commission and 
a member of the National Futures Association;
    (D) A retail foreign exchange dealer registered with the Commission 
and a member of the National Futures Association;
    (E) An entity regulated as a foreign equivalent of any of the 
persons listed in paragraphs (b)(2)(iii)(A) through (D) of this section, 
if such person is regulated in a money center country as defined in 
Sec.  1.49 of this chapter and recognized by the futures commission 
merchant's or retail foreign exchange dealer's designated self-
regulatory organization as a foreign equivalent;
    (F) Any other entity approved by the futures commission merchant's 
or retail foreign exchange dealer's designated self-regulatory 
organization.
    (iv) The value attributed to any retail forex transaction that is an 
option shall be the difference between the option's exercise value or 
striking value and the market value of the underlying. In the case of a 
call, if the market value of the underlying is less than the exercise 
value or striking value of such call, it shall be given no value; and, 
in the case of a put, if the market value of the underlying is more than 
the exercise value or striking value of the put, it shall be given no 
value.
    (v)(A) In computing adjusted net capital, the capital deductions set 
forth inSec. 1.17(c)(5)(ii) of this chapter shall apply to retail 
forex transactions other than options. The capital deductions which 
apply are six percent for net positions in Euros, British pounds, 
Canadian dollars, Japanese yen, or Swiss francs and 20 percent for net 
positions in all other foreign currencies, Provided, however, That there 
shall be no capital deductions for retail forex transactions covered (as 
defined inSec. 1.17(j) of this chapter) by the applicant or registrant 
by open futures contracts to the extent such futures contracts are not 
otherwise designated as cover for any other net capital purposes. For 
purposes of this paragraph (b)(2)(v)(A), such retail forex transactions 
shall be treated as if they were inventory and cover were therefore 
applicable. A retail foreign exchange dealer or futures commission 
merchant may not use an affiliate (unless approved by the firm's 
designated self-regulatory organization) or any person that is 
considered unregulated under the rules of the firm's designated self-
regulatory organization to cover its currency positions for purposes of 
this section.
    (B) In computing adjusted net capital, the capital deductions set 
forth inSec. 1.17(c)(5)(vi) of this chapter shall apply to all retail 
forex transactions that are options.
    (C) For the purpose of applying capital deductions on open 
proprietary futures positions underSec. 1.17(c)(5)(x) of this chapter, 
net or individual positions in retail forex transactions shall not 
constitute cover underSec. 1.17(j) for the purpose of applying such 
charges.
    (c) An applicant or registrant must prepare, and keep current, 
ledgers or other similar records which show or summarize, with 
appropriate references to supporting documents, each transaction 
affecting the applicant's or registrant's asset, liability, income, 
expense and capital accounts, and in which (except as otherwise 
permitted in writing by the Commission) all the applicant's or 
registrant's asset, liability and capital accounts are classified into 
the account classification subdivisions specified on Form 1-FR-FCM. Each 
applicant or registrant shall prepare and keep current such records.
    (d) An applicant or registrant must make and keep as a record in 
accordance withSec. 5.14 of this part formal computations of its 
adjusted net capital and of its minimum financial requirements pursuant 
to this section as of the close of business each month and on other such 
dates called for by the Commission, the National Futures Association, or 
another self-regulatory organization of which the firm is a member. Such 
computations must be completed and made available for inspection by any 
representative of the Commission, the National Futures Association, a 
self-regulatory organization of which the firm is a member, or

[[Page 319]]

the United States Department of Justice commencing the first month-end 
after the date the application for registration is filed.



Sec.  5.8  Aggregate retail forex assets.

    (a) Each retail foreign exchange dealer and futures commission 
merchant offering or engaging in retail forex transactions shall 
calculate its total retail forex obligation and shall at all times hold 
assets solely of the type permissible underSec. 1.25 of this chapter 
equal to or in excess of the total retail forex obligation at one or 
more qualifying institutions in the United States or money center 
countries as defined inSec. 1.49 of this chapter.
    (b) For assets held in the United States, a qualifying institution 
is:
    (1) A bank or trust company regulated by a United States banking 
regulator;
    (2) A broker-dealer registered with the Securities and Exchange 
Commission and a member of the Financial Industry Regulatory Authority; 
or
    (3) A futures commission merchant registered with the Commission and 
a member of the National Futures Association.
    (c) For assets held in a money center country, a qualifying 
institution is:
    (1) A bank or trust company regulated in a money center country, 
Provided that the bank or trust company has regulatory capital in excess 
of $1 billion;
    (2) An entity regulated in a money center country as an equivalent 
of a broker-dealer or futures commission merchant as determined by the 
retail foreign exchange dealer's or futures commission merchant's 
designated self-regulatory organization, Provided that the entity 
maintains regulatory capital in excess of $100 million; or
    (3) A futures commission merchant registered with the Commission and 
a member of the National Futures Association.
    (d) Assets held in a money center country are not eligible to meet 
the requirements of paragraph (a) of this section unless the retail 
foreign exchange dealer or futures commission merchant has entered into 
an agreement that is acceptable to the firm's designated self-regulatory 
organization and that authorizes the qualifying institution to provide 
account information to the Commission and the firm's designated self-
regulatory organization.
    (e) In computing its adjusted net capital pursuant toSec. 5.7 of 
this part, a retail foreign exchange dealer or futures commission 
merchant may not include aggregate retail forex assets as current assets 
or otherwise record any property received from retail forex customers as 
an asset without recording a corresponding liability to the retail forex 
customers.



Sec.  5.9  Security deposits for retail forex transactions.

    (a) Each futures commission merchant engaging, or offering to 
engage, in retail forex transactions and each retail foreign exchange 
dealer must collect from each retail forex customer a minimum security 
deposit for each retail forex transaction equal to the applicable 
percentage as set by the registered futures association of which they 
are a member; Provided, that the registered futures association's 
security deposit requirement cannot be less than:
    (1) 2% of the notional value of the retail forex transaction for 
major currency pairs and 5% of the notional value of the retail forex 
transaction for all other currency pairs;
    (2) For short options, 2% for major currency pairs and 5% for all 
other currency pairs of the notional value of the retail forex 
transaction, plus the premium received by the retail forex customer; or
    (3) For long options, the full premium charged and received by the 
futures commission merchant or retail foreign exchange dealer from the 
retail forex customer.
    (b) Security deposits must be made in the form of cash or other 
financial instruments that comply with the requirements specified in 
Sec.  1.25 of this chapter.
    (c) A futures commission merchant or retail foreign exchange dealer 
is required to collect additional security deposits from a retail forex 
customer, or liquidate the retail forex customer's positions, if the 
amount of the retail forex customer's security deposits

[[Page 320]]

maintained with the futures commission merchant or retail foreign 
exchange dealer are not sufficient to meet the requirements of this 
section.
    (d) A major currency pair security deposit percentage is only 
applicable when both sides of a retail over-the-counter foreign exchange 
transaction involve major currencies.
    (e) Any registered futures association whose members serve as 
counterparties to retail forex transaction shall designate which 
currencies are ``major currencies'', and shall review, no less 
frequently than annually, major currency designations and security 
deposit requirements, and shall adjust the designations and requirements 
as necessary.



Sec.  5.10  Risk assessment recordkeeping requirements for retail
foreign exchange dealers.

    (a) Requirement to maintain and preserve information. (1) Each 
retail foreign exchange dealer registered with the Commission pursuant 
to section 2(c)(2)(B)(i)(II)(ff) of the Act shall prepare, maintain and 
preserve the following information:
    (i) An organizational chart which includes the retail foreign 
exchange dealer and each of its affiliated persons. Included in the 
organizational chart shall be a designation of which affiliated persons 
are ``Material Affiliated Persons'' as that term is used in paragraph 
(a)(2) of this section, which Material Affiliated Persons file routine 
financial or risk exposure reports with the Securities and Exchange 
Commission, a federal banking agency, an insurance commissioner or other 
similar official or agency of a state, or a foreign regulatory 
authority, and which Material Affiliated Persons are dealers in 
financial instruments with off-balance sheet risk and, if a Material 
Affiliated Person is such a dealer, whether it is also an end-user of 
such instruments;
    (ii) Written policies, procedures, or systems concerning the retail 
foreign exchange dealer's:
    (A) Method(s) for monitoring and controlling financial and 
operational risks to it resulting from the activities of any of its 
affiliated persons;
    (B) Financing and capital adequacy, including information regarding 
sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets of the retail foreign exchange 
dealer, the structure of debt capital, and sources of alternative 
funding;
    (C) Establishing and maintaining internal controls with respect to 
market risk, credit risk, and other risks created by the retail foreign 
exchange dealer's trading activities, including systems and policies for 
supervising, monitoring, reporting and reviewing trading activities in 
forex transactions, securities, futures contracts, commodity options, 
forward contracts and financial instruments; policies for hedging or 
managing risks created by trading activities or supervising accounts 
carried for affiliates, including a description of the types of reviews 
conducted to monitor positions; and policies relating to restrictions or 
limitations on trading activities: Provided, however, that if the retail 
foreign exchange dealer has no such written policies, procedures or 
systems, it must so state in writing;
    (iii) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the retail 
foreign exchange dealer's organizational structure, which shall include 
the retail foreign exchange dealer and its other Material Affiliated 
Persons, prepared in accordance with generally accepted accounting 
principles, which consolidated balance sheets shall be audited by an 
independent certified public accountant if an annual audit is performed 
in the ordinary course of business, but which otherwise may be 
unaudited, and which shall include appropriate explanatory notes. The 
consolidating balance sheets may be those prepared by the retail foreign 
exchange dealer's highest level Material Affiliated Person as part of 
its internal financial reporting process. Any additional information 
required to be filed underSec. 5.11(a)(2)(iii) of this part shall also 
be maintained and preserved; and
    (iv) Fiscal year-end consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated

[[Page 321]]

Person within the retail foreign exchange dealer's organizational 
structure, which shall include the retail foreign exchange dealer and 
its other Material Affiliated Persons, prepared in accordance with 
generally accepted accounting principles, which consolidated statements 
shall be audited by an independent certified public accountant if an 
annual audit is performed in the ordinary course of business, but which 
otherwise may be unaudited, and which shall include appropriate 
explanatory notes. The consolidating statements may be those prepared by 
the retail foreign exchange dealer's highest level Material Affiliated 
Person as part of its internal financial reporting process. Any 
additional information required to be filed underSec. 5.11(a)(2)(iii) 
shall also be maintained and preserved.
    (2) The determination of whether an affiliated person of a retail 
foreign exchange dealer is a Material Affiliated Person shall involve 
consideration of all aspects of the activities of, and the relationship 
between, both entities, including without limitation, the following 
factors:
    (i) The legal relationship between the retail foreign exchange 
dealer and the affiliated person;
    (ii) The overall financing requirements of the retail foreign 
exchange dealer and the affiliated person, and the degree, if any, to 
which the retail foreign exchange dealer and the affiliated person are 
financially dependent on each other;
    (iii) The degree to which the retail foreign exchange dealer and the 
affiliated person directly or indirectly engage in over-the-counter 
transactions with each other;
    (iv) The degree, if any, to which the retail foreign exchange dealer 
or its customers rely on the affiliated person for operational support 
or services in connection with the retail foreign exchange dealer's 
business;
    (v) The level of market, credit or other risk present in the 
activities of the affiliated person; and
    (vi) The extent to which the affiliated person has the authority or 
the ability to cause a withdrawal of capital from the retail foreign 
exchange dealer.
    (3) For purposes of this section andSec. 5.11 of this part, the 
term Material Affiliated Person does not include a natural person.
    (4) The information, reports and records required by this section 
shall be maintained and preserved, and made readily available for 
inspection, in accordance with the provisions ofSec. 1.31 of this 
chapter.
    (b) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. A retail 
foreign exchange dealer shall be deemed to be in compliance with the 
recordkeeping requirements of paragraphs (a)(1)(i), (iii) and (iv) of 
this section with respect to a Material Affiliated Person if:
    (1) The Material Affiliated Person is required to maintain and 
preserve information pursuant toSec. 240.17h-1T of this title, or such 
other risk assessment regulations as the Securities and Exchange 
Commission may adopt, and the retail foreign exchange dealer maintains 
and makes available for inspection by the Commission in accordance with 
the provisions of this section copies of the records and reports 
maintained and filed on Form 17-H (or such other forms or reports as may 
be required) by the Material Affiliated Person with the Securities and 
Exchange Commission pursuant to Sec.Sec. 240.17h-1T and 240.17h-2T of 
this title, or such other risk assessment regulations as the Securities 
and Exchange Commission may adopt;
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the retail foreign 
exchange dealer or such Material Affiliated Person maintains and makes 
available for inspection by the Commission in accordance with the 
provisions of this section copies of all reports submitted by such 
Material Associated Person to the Federal banking agency pursuant to 
section 5211 of the Revised Statutes, section 9 of the Federal Reserve 
Act, section 7(a) of the Federal Deposit Insurance Act, section 10(b) of 
the Home Owners' Loan Act, or section 5 of the Bank Holding Company Act 
of 1956; or

[[Page 322]]

    (3) In the case of a Material Affiliated Person that is subject to 
the supervision of an insurance commissioner or other similar official 
or agency of a state, the retail foreign exchange dealer or such 
Material Affiliated Person maintains and makes available for inspection 
by the Commission in accordance with the provisions of this section 
copies of the annual statements with schedules and exhibits prepared by 
the Material Affiliated Person on forms prescribed by the National 
Association of Insurance Commissioners or by a state insurance 
commissioner.
    (c)(1) Special provisions with respect to Material Affiliated 
Persons subject to the supervision of a Foreign Regulatory Authority. A 
retail foreign exchange dealer shall be deemed to be in compliance with 
the recordkeeping requirements of paragraphs (a)(1)(iii) and (iv) of 
this section with respect to a Material Affiliated Person if such retail 
foreign exchange dealer maintains and makes available, or causes such 
Material Affiliated Person to make available, for inspection by the 
Commission in accordance with the provisions of this section copies of 
any financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that:
    (i) The retail foreign exchange dealer agrees to use its best 
efforts to obtain from the Material Affiliated Person and to cause the 
Material Affiliated Person to provide, directly or through its foreign 
futures authority or other foreign regulatory authority, any 
supplemental information the Commission may request and there is no 
statute or other bar in the foreign jurisdiction that would preclude the 
retail foreign exchange dealer, the Material Affiliated Person, the 
foreign futures authority or other foreign regulatory authority from 
providing such information to the Commission; or
    (ii) The foreign futures authority or other foreign regulatory 
authority with whom the Material Affiliated Person files such reports 
has entered into an information-sharing agreement with the Commission 
which is in effect as of the retail foreign exchange dealer's fiscal 
year-end and which will allow the Commission to obtain the type of 
information required herein.
    (2) The retail foreign exchange dealer shall maintain a copy of the 
original report and a copy translated into the English language. For the 
purposes of this section, the term ``Foreign Futures Authority'' shall 
have the meaning set forth in section 1a(26) of the Act.
    (d) Exemptions. The Commission may exempt any retail foreign 
exchange dealer from any provision of this section if it finds that the 
exemption is not contrary to the public interest and the purposes of the 
provisions from which the exemption is sought. The Commission may grant 
the exemption subject to such terms and conditions as it may find 
appropriate.
    (e) Location of records. A retail foreign exchange dealer required 
to maintain records concerning Material Affiliated Persons pursuant to 
this section may maintain those records either at the principal office 
of the Material Affiliated Person or at a records storage facility, 
provided that, except as set forth in paragraph (c) of this section, the 
records are located within the boundaries of the United States and the 
records are kept and available for inspection in accordance withSec. 
1.31 of this chapter. If such records are maintained at a place other 
than the retail foreign exchange dealer's principal place of business, 
the Material Affiliated Person or other entity maintaining the records 
shall file with the Commission a written undertaking, in a form 
acceptable to the Commission, signed by a duly authorized person, to the 
effect that the records will be treated as if the retail foreign 
exchange dealer were maintaining the records pursuant to this section 
and that the entity maintaining the records will permit examination of 
such records at any time, or from time to time during business hours, by 
representatives or designees of the Commission and promptly furnish the 
Commission representative or its designee true, correct, complete and 
current hard copy of all or any part of such records. The election to 
maintain records at the principal place of business of the Material 
Affiliated Person

[[Page 323]]

or at a records storage facility pursuant to the provisions of this 
paragraph shall not relieve the retail foreign exchange dealer required 
to maintain and preserve such records from any of its responsibilities 
under this section orSec. 5.11 of this part.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a retail foreign 
exchange dealer concerning a Material Affiliated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (g) Implementation schedule. Each retail foreign exchange dealer who 
is subject to the requirements of this section shall maintain and 
preserve the information required by paragraphs (a)(1)(i) and (ii) of 
this section commencing 60 calendar days after registration becomes 
effective and the information required by paragraphs (a)(1)(iii) and 
(iv) of this section commencing 105 calendar days following the first 
fiscal year-end occurring after registration becomes effective.

[75 FR 55432, Sept. 10, 2010, as amended at 76 FR 56106, Sept. 12, 2011]



Sec.  5.11  Risk assessment reporting requirements for retail foreign 
exchange dealers.

    (a) Reporting requirements with respect to information required to 
be maintained bySec. 5.10 of this part. (1) Each retail foreign 
exchange dealer registered with the Commission pursuant to Section 
2(c)(2)(B)(i)(II)(ff) of the Act shall file the following with the 
regional office of the Commission with which it files periodic financial 
reports within 60 calendar days after the effective date of such 
registration:
    (i) A copy of the organizational chart maintained by the retail 
foreign exchange dealer pursuant toSec. 5.10(a)(l)(i) of this part. 
Where there is a material change in information provided, an updated 
organizational chart shall be filed within sixty calendar days after the 
end of the fiscal quarter in which the change has occurred; and
    (ii) Copies of the financial, operational, and risk management 
policies, procedures and systems maintained by the retail foreign 
exchange dealer pursuant toSec. 5.10(a)(l)(ii) of this part. If the 
retail foreign exchange dealer has no such written policies, procedures 
or systems, it must file a statement so indicating. Where there is a 
material change in information provided, such change shall be reported 
within sixty calendar days after the end of the fiscal quarter in which 
the change has occurred.
    (2) Each retail foreign exchange dealer registered with the 
Commission pursuant to section 2(c)(2)(B)(i)(II)(ff) of the Act shall 
file the following with the regional office with which it files periodic 
financial reports within 105 calendar days after the end of each fiscal 
year or, if a filing is made pursuant to a written notice issued under 
paragraph (a)(2)(iii) of this section, within the time period specified 
in the written notice:
    (i) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the retail 
foreign exchange dealer's organizational structure, which shall include 
the retail foreign exchange dealer and its other Material Affiliated 
Persons, prepared in accordance with generally accepted accounting 
principles, which consolidated balance sheets shall be audited by an 
independent certified public accountant if an annual audit is performed 
in the ordinary course of business, but which otherwise may be 
unaudited, and which consolidated balance sheets shall include 
appropriate explanatory notes. The consolidating balance sheets may be 
those prepared by the retail foreign exchange dealer's highest level 
Material Affiliated Person as part of its internal financial reporting 
process;
    (ii) Fiscal year-end annual consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated Person within the retail foreign exchange dealer's 
organizational structure, which shall include the retail foreign 
exchange dealer and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which 
consolidated

[[Page 324]]

statements shall include appropriate explanatory notes. The 
consolidating statements may be those prepared by the retail foreign 
exchange dealer's highest level Material Affiliated Person as part of 
its internal financial reporting process; and
    (iii) Upon receiving written notice from any representative of the 
Commission and within the time period specified in the written notice, 
such additional information which the Commission determines is necessary 
for a complete understanding of a particular affiliate's financial 
impact on the retail foreign exchange dealer's organizational structure.
    (3) For the purposes of this section, the term Material Affiliated 
Person shall have the meaning used inSec. 5.10 of this part.
    (4) The reports required to be filed pursuant to paragraphs (a)(1) 
and (2) of this section shall be considered filed when received by the 
regional office of the Commission with whom the retail foreign exchange 
dealer files financial reports pursuant toSec. 5.12 of this part.
    (b) Exemptions. The Commission may exempt any retail foreign 
exchange dealer from any provision of this section if it finds that the 
exemption is not contrary to the public interest and the purposes of the 
provisions from which the exemption is sought. The Commission may grant 
the exemption subject to such terms and conditions as it may find 
appropriate.
    (c) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. (1) In the 
case of a Material Affiliated Person that is required to maintain and 
preserve information pursuant toSec. 240.17h-1T of this title, or such 
other risk assessment regulations as the Securities and Exchange 
Commission may adopt, the retail foreign exchange dealer shall be deemed 
to be in compliance with the reporting requirements of paragraph (a)(2) 
of this section with respect to such Material Affiliated Person if the 
retail foreign exchange dealer maintains and makes available for 
inspection by the Commission in accordance with the provisions of this 
section copies of the records and reports maintained and filed on Form 
17-H (or such other forms or reports as may be required) by the Material 
Affiliated Person with the Securities and Exchange Commission pursuant 
to Sec.Sec. 240.17h-1T and 240.17h-2T of this title, or such other 
risk assessment regulations as the Securities and Exchange Commission 
may adopt;
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the retail foreign 
exchange dealer shall be deemed to be in compliance with the reporting 
requirements of paragraph (a)(2) of this section with respect to such 
Material Affiliated Person if the retail foreign exchange dealer or such 
Material Affiliated Person maintains in accordance withSec. 5.10 of 
this part copies of all reports filed by the Material Affiliated Person 
with the Federal banking agency pursuant to section 5211 of the Revised 
Statutes, section 9 of the Federal Reserve Act, section 7(a) of the 
Federal Deposit Insurance Act, section 10(b) of the Home Owners' Loan 
Act, or section 5 of the Bank Holding Company Act of 1956.
    (3) In the case of a retail foreign exchange dealer that has a 
Material Affiliated Person that is subject to the supervision of an 
insurance commissioner or other similar official or agency of a state, 
such retail foreign exchange dealer shall be deemed to be in compliance 
with the reporting requirements of paragraph (a)(2) of this section with 
respect to the Material Affiliated Person if:
    (i) With respect to a Material Affiliated Person organized as a 
mutual insurance company or a non-public stock company, the retail 
foreign exchange dealer or such Material Affiliated Person maintains in 
accordance withSec. 5.14 of this part copies of the annual statements 
with schedules and exhibits prepared by the Material Affiliated Person 
on forms prescribed by the National Association of Insurance 
Commissioners or by a state insurance commissioner; and
    (ii) With respect to a Material Affiliated Person organized as a 
public stock company, the retail foreign exchange

[[Page 325]]

dealer or such Material Affiliated Person maintains, in addition to the 
annual statements with schedules and exhibits required to be maintained 
pursuant toSec. 1.14 of this chapter, copies of the filings made by 
the Material Affiliated Person pursuant to sections 13 or 15 of the 
Securities Exchange Act of 1934 and the Investment Company Act of 1940.
    (4) No retail foreign exchange dealer shall be required to furnish 
to the Commission any examination report of any Federal banking agency 
or any supervisory recommendations or analyses contained therein with 
respect to a Material Affiliated Person that is subject to the 
regulation of a Federal banking agency. All information received by the 
Commission pursuant to this section concerning a Material Affiliated 
Person that is subject to examination by or the reporting requirements 
of a Federal banking agency shall be deemed confidential for the 
purposes of section 8 of the Act.
    (5) The furnishing of any information or documents by a retail 
foreign exchange dealer pursuant to this section shall not constitute an 
admission for any purpose that a Material Affiliated Person is otherwise 
subject to the Act.
    (d) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of a Foreign Regulatory Authority. A retail 
foreign exchange dealer shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to a Material Affiliated Person if such retail foreign exchange dealer 
furnishes, or causes such Material Affiliated Person to make available, 
in accordance with the provisions of this section, copies of any 
financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that:
    (1) The retail foreign exchange dealer agrees to use its best 
efforts to obtain from the Material Affiliated Person and to cause the 
Material Affiliated Person to provide, directly or through its foreign 
futures authority or other foreign regulatory authority, any 
supplemental information the Commission may request and there is no 
statute or other bar in the foreign jurisdiction that would preclude the 
retail foreign exchange dealer, the Material Affiliated Person, the 
foreign futures authority or other foreign regulatory authority from 
providing such information to the Commission; or
    (2) The foreign futures authority or other foreign regulatory 
authority with whom the Material Affiliated Person files such reports 
has entered into an information sharing agreement with the Commission 
which is in effect as of the retail foreign exchange dealer's fiscal 
year-end and which will allow the Commission to obtain the type of 
information required herein. The retail foreign exchange dealer shall 
file a copy of the original report and a copy translated into the 
English language. For the purposes of this section, the term ``Foreign 
Futures Authority'' shall have the meaning set forth in section 1a(26) 
of the Act.
    (e) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a retail foreign 
exchange dealer concerning a Material Associated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (f) Implementation schedule. Each retail foreign exchange dealer who 
is subject to the requirements of this section shall file the 
information required by paragraph (a)(1) of this section within 60 
calendar days after registration is granted, and the information 
required by paragraph (a)(2) of this section within 105 calendar days 
after registration is granted.

[75 FR 55432, Sept. 10, 2010, as amended at 76 FR 56106, Sept. 12, 2011]



Sec.  5.12  Financial reports of retail foreign exchange dealers.

    (a)(1) Each person who files an application for registration as a 
retail foreign exchange dealer with the National Futures Association 
shall submit, concurrently with the filing of such application, either:
    (i) A Form 1-FR-FCM certified by an independent public accountant as 
of a date not more than 45 days prior to the date on which such report 
is filed; or
    (ii) A Form 1-FR-FCM as of a date not more than 17 business days 
prior to the date on which such report is filed

[[Page 326]]

and a Form 1-FR-FCM certified by an independent public accountant as of 
a date not more than one year prior to the date on which such report is 
filed.
    (2) Each such person must include with such financial report a 
statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (3) The provisions of paragraph (a)(1) of this section do not apply 
to any person succeeding to and continuing the business of another 
retail foreign exchange dealer.
    (b)(1) Each person registered as a retail foreign exchange dealer 
must file a Form 1-FR-FCM as of the close of business each month. Each 
Form 1-FR must be filed no later than 17 business days after the date 
for which the report is made.
    (2) In addition to the monthly financial reports required by 
paragraph (b)(1) of this section, each person registered as a retail 
foreign exchange dealer must file a Form 1-FR-FCM as of the close of its 
fiscal year, which must be certified by an independent public accountant 
and must be filed no later than 90 days after the close of the retail 
foreign exchange dealer's fiscal year.
    (3) A Form 1-FR-FCM required to be certified by an independent 
public accountant which is filed by a retail foreign exchange dealer 
must be filed in paper form and may not be filed electronically with the 
Commission. A Form 1-FR-FCM required to be certified by an independent 
public accountant which is filed by an applicant for registration as a 
retail foreign exchange dealer with the National Futures Association 
must be filed electronically in accordance with electronic filing 
procedures established by the National Futures Association, however a 
paper copy of any such filing with the original manually signed 
certification must be maintained by the applicant for registration as a 
retail foreign exchange dealer in accordance withSec. 1.31.
    (c) Each Form 1-FR-FCM required by the provisions of paragraphs 
(a)(1) and (b)(2) of this section to be certified by an independent 
public accountant must be certified in accordance withSec. 1.16 of 
this chapter, and must be accompanied by the accountant's report on 
material inadequacies in accordance with the provisions ofSec. 
1.16(c)(5) of this chapter. In all other respects, the independent 
public accountant shall act in accordance with the provisions ofSec. 
1.16 (except paragraph (f)) of this chapter: Provided, however, that the 
term ``Sec.  5.7'' shall be substituted for the term ``Sec.  1.17,'' and 
the term ``retail foreign exchange dealer'' shall be substituted for the 
term ``futures commission merchant.''
    (d) Upon receiving written notice from any representative of the 
Commission, National Futures Association, or any self-regulatory 
organization of which the firm is a member, a retail foreign exchange 
dealer or applicant for such registration, must, monthly or at such 
times as specified, furnish the Commission, National Futures 
Association, or self-regulatory organization a Form 1-FR-FCM or such 
other financial information requested in the written notice. Each such 
Form 1-FR-FCM or such other information must be furnished within the 
time period specified in the written notice, and in accordance with the 
provisions of paragraph (i) of this section.
    (e)(1) Each Form 1-FR-FCM filed pursuant to thisSec. 5.12 which is 
not required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) A statement of income (loss) for the period between the date of 
the most recent statement of financial condition filed with the 
Commission and the date for which the report is made;
    (iii) A statement of changes in ownership equity for the period 
between the date of the most recent statement of financial condition 
filed with the Commission and the date for which the report is made;
    (iv) A statement of changes in liabilities subordinated to claims of 
general creditors for the period between the

[[Page 327]]

date of the most recent statement of financial condition filed with the 
Commission and the date for which the report is made;
    (v) A statement of the computation of the minimum capital 
requirements pursuant toSec. 5.7 of this part as of the date for which 
the report is made; and
    (vi) In addition to the information expressly required, such further 
material information as may be necessary to make the required statements 
and schedules not misleading.
    (2) Each Form 1-FR-FCM filed pursuant to thisSec. 5.12 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss), cash flows, changes in ownership 
equity, and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent certified 
statement of financial condition filed with the Commission and the date 
for which the report is made: Provided, That for an applicant filing 
pursuant to paragraph (a) of this section the period must be the year 
ending as of the date of the statement of financial condition;
    (iii) A statement of the computation of the minimum capital 
requirements pursuant toSec. 5.7 of this part as of the date for which 
the report is made;
    (iv) Appropriate footnote disclosures;
    (v) A reconciliation, including appropriate explanations, of the 
statement of the computation of the minimum capital requirements 
pursuant toSec. 5.7 of this part, in the certified Form 1-FR-FCM with 
the applicant's or registrant's corresponding uncertified most recent 
Form 1-FR-FCM filing when material differences exist or, if no material 
differences exist, a statement so indicating; and
    (vi) In addition to the information expressly required, such further 
material information as may be necessary to make the required statements 
not misleading.
    (3) The statements required by paragraphs (e)(2)(i) and (ii) of this 
section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraph (b)(2) of this 
section or accompanying the application for registration pursuant to 
paragraph (a)(1) of this section, rather than in the format specifically 
prescribed by these regulations: Provided, the statement of financial 
condition is presented in a format as consistent as possible with the 
Form 1-FR-FCM and a reconciliation is provided reconciling such 
statement of financial condition to the statement of the computation of 
the minimum capital requirements pursuant toSec. 5.7 of this part. 
Such reconciliation must be certified by an independent public 
accountant in accordance withSec. 1.16 of this chapter.
    (4) Attached to each Form 1-FR-FCM filed pursuant to this section 
must be an oath or affirmation that to the best knowledge and belief of 
the individual making such oath or affirmation the information contained 
in the Form 1-FR-FCM is true and correct. The individual making such 
oath or affirmation must be: If the registrant or applicant is a sole 
proprietorship, the proprietor; if a partnership, any general partner; 
if a corporation, the chief executive officer or chief financial 
officer; and, if a limited liability company or limited liability 
partnership, the chief executive officer, the chief financial officer, 
the manager, the managing member, or those members vested with the 
management authority for the limited liability company or limited 
liability partnership.
    (f) Election of fiscal year. (1) An applicant wishing to establish a 
fiscal year other than the calendar year may do so by notifying the 
National Futures Association of its election of such fiscal year, in 
writing, concurrently with the filing of the Form 1-FR-FCM pursuant to 
paragraph (a)(1) of this section, but in no event may such fiscal year 
end more than one year from the date of the Form 1-FR-FCM filed pursuant 
to paragraph (a)(1) of this section. An applicant that does not so 
notify the National Futures Association will be deemed to have elected 
the calendar year as its fiscal year.
    (2)(i) A registrant must continue to use its elected fiscal year, 
calendar or

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otherwise, unless a change in such fiscal year has been approved 
pursuant to this paragraph (f)(2).
    (ii) A registrant may file with its designated self-regulatory 
organization an application to change its fiscal year, a copy of which 
the registrant must file with the Commission. The application shall be 
approved or denied in writing by the registrant's designated self-
regulatory organization. The registrant must file immediately with the 
Commission a copy of any notice it receives from its designated self-
regulatory organization to approve or deny the registrant's application 
to change its fiscal year. A written notice of approval shall become 
effective upon the filing by the registrant of a copy with the 
Commission, and a written notice of denial shall be effective as of the 
date of the notice.
    (g) In the event a retail foreign exchange dealer or applicant for 
registration as a retail foreign exchange dealer finds that it cannot 
file its Form 1-FR-FCM for any period within the time specified in 
paragraph (b)(1) or (2) of this section without substantial undue 
hardship, it may request approval for an extension of time by filing an 
application for an extension of time with, in the case of a registrant, 
its designated self-regulatory organization, or, in the case of an 
applicant, the National Futures Association. The registrant or applicant 
also must file a copy of its application for an extension of time with 
the Commission. The application shall be approved or denied in writing 
by the National Futures Association or designated self-regulatory 
organization, as applicable. The registrant or applicant must file 
immediately with the Commission a copy of any notice it receives 
approving or denying the request for extension of time. A written notice 
of approval shall become effective upon the filing by the registrant or 
applicant of a copy with the Commission, and a written notice of denial 
shall be effective as of the date of the notice.
    (h) Public availability of reports. (1) Forms 1-FR-FCM filed 
pursuant to this section will be treated as exempt from mandatory public 
disclosure for purposes of the Freedom of Information Act and the 
Government in the Sunshine Act and parts 145 and 147 of this chapter, 
except for the information described in paragraph (i)(2) of this 
section.
    (2) The following information in Forms 1-FR-FCM will be publicly 
available:
    (i) The amount of the applicant's or registrant's adjusted net 
capital; the amount of its minimum net capital requirement underSec. 
5.7 of this chapter; the amount of its adjusted net capital in excess of 
its minimum net capital requirement; and the amount of the retail forex 
obligation owed to its retail forex customers; and
    (ii) The Statement of Financial Condition and the opinion of the 
independent public accountant in the certified annual financial reports 
of retail foreign exchange dealers.
    (3) All information that is exempt from mandatory public disclosure 
under paragraph (h)(1) of this section will, however, be available for 
official use by any official or employee of the United States or any 
State, by the National Futures Association or any other self-regulatory 
organization of which the person filing such report is a member, and by 
any other person to whom the Commission believes disclosure of such 
information is in the public interest. Nothing in this paragraph (h) 
will limit the authority of any self-regulatory organization to request 
or receive any information relative to its members' financial condition.
    (i)(1) In the case of an applicant, all filings or other notices 
provided for in this section will be considered filed when received by 
the regional office of the Commission with jurisdiction over the state 
in which the applicant's principal place of business is located and by 
the National Futures Association. In the case of a registrant, all 
filings or other notices provided for in this section will be considered 
filed when received by the regional office of the Commission with 
jurisdiction over the state in which the registrant's principal place of 
business is located and by the registrant's designated self-regulatory 
organization. Any copy that under paragraph (f)(2) or (g) of this 
section is required to be filed with the Commission shall be filed with 
the regional office of the Commission with

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jurisdiction over the state in which the registrant's principal place of 
business is located.
    (2) All filings or other notices filed pursuant to this section 
which need not be certified in accordance withSec. 1.16 may be 
submitted to the Commission in electronic form using a a form of user 
authentication assigned in accordance with procedures established by or 
approved by the Commission, and otherwise in accordance with 
instructions issued by or approved by the Commission, if the retail 
foreign exchange dealer or a designated self-regulatory organization has 
provided the Commission with the means necessary to read and to process 
the information contained in such report. Any such electronic submission 
must clearly indicate the registrant or applicant on whose behalf such 
filing is made and the use of such user authentication in submitting 
such filing will constitute and become a substitute for the manual 
signature of the authorized signer. In the case of a Form 1-FR filed via 
electronic transmission in accordance with procedures established by or 
approved by the Commission, such transmission must be accompanied by the 
user authentication assigned to the authorized signer under such 
procedures, and the use of such user authentication will constitute and 
become a substitute for the manual signature of the authorized signer 
for the purpose of making the oath or affirmation referred to in 
paragraph (e)(4) of this section.



Sec.  5.13  Reporting to customers of retail foreign exchange dealers
and futures commission merchants; monthly and confirmation statements.

    (a) Monthly statements. Each retail foreign exchange dealer or 
futures commission merchant must promptly furnish in writing to each 
retail forex customer, as of the close of the last business day of each 
month or as of any regular monthly date selected, except for accounts in 
which there are neither open positions at the end of the statement 
period nor any changes to the account balance since the prior statement 
period, but in any event not less frequently than once every three 
months, a statement which clearly shows:
    (1) For each retail forex customer:
    (i) The open retail forex transactions with prices at which 
acquired;
    (ii) The net unrealized profits or losses in all open retail forex 
transactions marked to the market; and
    (iii) Any money, securities or other property carried with the 
retail foreign exchange dealer or futures commission merchant; and
    (iv) A detailed accounting of all financial charges and credits to 
such retail forex accounts during the monthly reporting period, 
including money, securities or property received from or disbursed to 
such customer and realized profits and losses; and
    (2) For each retail forex customer engaging in forex options 
transactions:
    (i) All forex options purchased, sold, exercised, or expired during 
the monthly reporting period, identified by underlying retail forex 
transaction or underlying currency, strike price, transaction date, and 
expiration date;
    (ii) The open forex option positions carried for such customer as of 
the end of the monthly reporting period, identified by underlying retail 
forex transaction or underlying currency, strike price, transaction 
date, and expiration date;
    (iii) All open forex option positions marked to the market and the 
amount each position is in the money, if any;
    (iv) Any money, securities or other property carried with the retail 
foreign exchange dealer or futures commission merchant; and
    (v) A detailed accounting of all financial charges and credits to 
such retail forex account(s) during the monthly reporting period, 
including money, securities and property received from or disbursed to 
such customer, premiums charged and received, and realized profits and 
losses.
    (b) Confirmation statement. Each retail foreign exchange dealer or 
futures commission merchant must, not later than the next business day 
after any retail forex or forex option transaction, furnish:
    (1) To each retail forex customer, a written confirmation of each 
retail forex transaction caused to be executed by it for the customer, 
including offsetting transactions executed during the same business day 
and the rollover of

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an open retail forex transaction to the next business day.
    (2) To each retail forex customer engaging in forex option 
transactions, a written confirmation of each forex option transaction, 
containing at least the following information:
    (i) The retail forex customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as well 
as each mark-up thereon, if applicable, and all other commissions, 
costs, fees and other charges incurred in connection with the forex 
option transaction;
    (iii) The strike price;
    (iv) The underlying retail forex transaction or underlying currency;
    (v) The final exercise date of the forex option purchased or sold; 
and
    (vi) The date the forex option transaction was executed.
    (3) To each retail forex customer engaging in forex option 
transactions, upon the expiration or exercise of any forex option, a 
written confirmation statement thereof, which statement shall include 
the date of such occurrence, a description of the forex option involved, 
and, in the case of exercise, the details of the retail forex or 
physical currency position which resulted therefrom including, if 
applicable, the final trading date of the retail forex transaction 
underlying the option.
    (4) Notwithstanding the provisions of paragraphs (b)(1) through (3) 
of this section, a retail forex transaction or forex option transaction 
that is caused to be executed for a pooled investment vehicle that 
engages in retail forex transactions need be confirmed only to the 
operator of such pooled investment vehicle.
    (c) Controlled accounts. With respect to any account controlled by 
any person other than the retail forex customer or forex option customer 
for whom such account is carried, each retail foreign exchange dealer or 
futures commission merchant shall promptly furnish in writing to such 
other person the information required by paragraphs (a) and (b) of this 
section.
    (d) Recordkeeping. Each retail foreign exchange dealer or futures 
commission merchant shall retain, in accordance withSec. 1.31 of this 
chapter, a copy of each monthly statement and confirmation required by 
this section.
    (e) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the retail foreign exchange dealer or futures commission 
merchant is providing the statement was introduced by an introducing 
broker and the names of the retail foreign exchange dealer or futures 
commission merchant and introducing broker.
    (f) Electronic transmission of statements. (1) The statements 
required by this section may be furnished to a retail forex customer by 
means of electronic media if the retail forex customer so consents, 
Provided, however, that a retail foreign exchange dealer or futures 
commission merchant must, prior to the transmission of any statement by 
means of electronic media, disclose the electronic medium or source 
through which statements will be delivered, the duration, whether 
indefinite or not, of the period during which consent will be effective, 
any charges for such service, the information that will be delivered by 
such means, and that consent to electronic delivery may be revoked at 
any time, and provided, further, that a retail foreign exchange dealer 
or futures commission merchant must obtain the retail forex customer's 
signed consent acknowledging such disclosure prior to the transmission 
of any statement by means of electronic media.
    (2) Any statement required to be furnished to a person other than a 
retail forex customer in accordance with paragraph (f) of this section 
may be furnished by electronic media.
    (3) A retail foreign exchange dealer or futures commission merchant 
who furnishes statements to a retail forex customer by means of 
electronic media must retain a daily confirmation statement for such 
retail forex customer as of the end of the trading session, reflecting 
all transactions made during that session for the customer, in 
accordance withSec. 1.31 of this chapter.
    (g) Combination with other statements. Any futures commission 
merchant required to deliver statements to retail forex customers in 
accordance withSec. 1.33 of this chapter may combine into

[[Page 331]]

one monthly statement or confirmation statement, as the case may be, the 
information required by this section and the information required by 
Sec.  1.33, provided that retail forex account information is separately 
identified from any other trading or account activity of the retail 
forex customer.



Sec.  5.14  Records to be kept by retail foreign exchange dealers
and futures commission merchants.

    (a) No person shall be registered as a retail foreign exchange 
dealer under the Act unless, commencing on the date his application for 
such registration is filed, he prepares and keeps current ledgers or 
other similar records which show or summarize, with appropriate 
references to supporting documents, each transaction affecting his 
asset, liability, income, expense and capital accounts, and in which 
(except as otherwise permitted in writing by the Commission) all his 
asset, liability and capital accounts are classified into either the 
account classification subdivisions specified on Form 1-FR-FCM or 
categories that are in accord with generally accepted accounting 
principles as applicable. Each person so registered shall prepare and 
keep current such records.
    (b) Each applicant or registrant must make and keep as a record in 
accordance withSec. 1.31 of this chapter formal computations of its 
adjusted net capital and of its minimum financial requirements pursuant 
toSec. 1.17 orSec. 5.7 of this chapter, or the requirements of the 
designated self-regulatory organization to which it is subject, as 
applicable, as of the close of business each month. Such computations 
must be completed and made available for inspection by any 
representative of the National Futures Association, in the case of an 
applicant, or of the Commission or designated self-regulatory 
organization, if any, in the case of a registrant, within 17 business 
days after the date for which the computations are made, commencing the 
first month end after the date the application for registration is 
filed.



Sec.  5.15  Unlawful representations.

    It shall be unlawful for any person registered pursuant to the 
requirements of this part to represent or imply in any manner whatsoever 
that such person has been sponsored, recommended or approved, or that 
its abilities or qualifications have been reviewed or evaluated, by the 
Commission, the Federal government or any agency thereof.



Sec.  5.16  Prohibition of guarantees against loss.

    (a) No retail foreign exchange dealer, futures commission merchant 
or introducing broker may in any way represent that it will, with 
respect to any retail foreign exchange transaction in any account 
carried by a retail foreign exchange dealer or futures commission 
merchant for or on behalf of any person:
    (1) Guarantee such person against loss;
    (2) Limit the loss of such person; or
    (3) Not call for or attempt to collect security deposits, margin, or 
other deposits as established for retail forex customers.
    (b) No person may in any way represent that a retail foreign 
exchange dealer, futures commission merchant or introducing broker will 
engage in any of the acts or practices described in paragraph (a) of 
this section.
    (c) This section shall not be construed to prevent a retail foreign 
exchange dealer, futures commission merchant or introducing broker from 
assuming or sharing in the losses resulting from an error or mishandling 
of an order.
    (d) This section shall not affect any guarantee entered into prior 
to October 18, 2010, but this section shall apply to any extension, 
modification or renewal thereof entered into after such date.



Sec.  5.17  Authorization to trade.

    No retail foreign exchange dealer, futures commission merchant, 
introducing broker or any of their associated persons may directly or 
indirectly effect a retail forex transaction for the account of any 
customer unless before the transaction the customer, or person 
designated by the customer to control the account specifically 
authorized

[[Page 332]]

the retail foreign exchange dealer, futures commission merchant, 
introducing broker or any of their associated persons to effect the 
transaction. A transaction is ``specifically authorized'' if the 
customer or person designated by the customer to control the account 
specifies:
    (a) The precise retail forex transaction to be effected;
    (b) The exact amount of the foreign currency to be purchased or 
sold; and
    (c) In the case of an option, the identity of the foreign currency 
or contract that underlies the option.



Sec.  5.18  Trading and operational standards.

    (a) For purposes of this section:
    (1) The term retail forex counterparty includes, as appropriate:
    (i) A retail foreign exchange dealer as defined inSec. 5.1 of this 
part;
    (ii) A futures commission merchant as defined in section 1a(28) of 
the Act; and
    (iii) An affiliated person of a futures commission merchant as 
defined inSec. 5.1 of this part.
    (2) The term related person when used in reference to a retail forex 
counterparty means any general partner, officer, director, owner of more 
than ten percent of the equity interest, associated person or employee 
of the retail forex counterparty, and any relative or spouse of any of 
the foregoing persons, or any relative of such spouse, who shares the 
same home as any of the foregoing persons.
    (b) Prior to engaging in a retail forex transaction, each retail 
forex counterparty shall, at a minimum, establish and enforce internal 
rules, procedures and controls to:
    (1) Ensure, to the extent possible, that each order received from a 
retail forex customer which order is executable at or near the price 
that the retail forex counterparty has quoted to the customer is entered 
for execution before any order in any retail forex transaction for any 
proprietary account, any other account in which a related person of the 
retail forex counterparty has an interest, or any account for which such 
a related person may originate orders without the prior specific consent 
of the account owner (if such related person has gained knowledge of the 
retail forex customer's order prior to the transmission of an order for 
a proprietary account), an account in which such a related person has an 
interest, or an account in which such a related person may originate 
orders without the prior specific consent of the account owner; and
    (2) Prevent related persons of forex counterparties from placing 
orders, directly or indirectly, with another person in a manner designed 
to circumvent the provisions of paragraph (b)(1) of this section;
    (3) Fairly and objectively establish settlement prices for retail 
forex transactions; and
    (4) Record and maintain essential information regarding customer 
orders and account activity, and to provide such information to 
customers upon request. Such information shall include:
    (i) Transaction records for the customer's account, including:
    (A) The date and time each order is received by the retail forex 
counterparty;
    (B) The price at which each order is placed, or, in the case of an 
option, the premium paid
    (C) If the transaction was entered into by means of a trading 
platform, the price quoted on the trading platform when the order was 
placed, or, in the case of an option, the premium quoted;
    (D) The customer account identification information;
    (E) The currency pair;
    (F) The size of the transaction;
    (G) Whether the order was a buy or sell order;
    (H) The type of order, if the order was not a market order;
    (I) If a trading platform is used, the date and time the order is 
transmitted to the trading platform;
    (J) If a trading platform is used, the date and time the order is 
executed;
    (K) The size and price at which the order is executed, or in the 
case of an option, the amount of the premium paid for each option 
purchased, or the amount credited for each option sold; and
    (L) For options, whether the option is a put or call, the strike 
price, and expiration date.

[[Page 333]]

    (ii) Account records that contain the following information:
    (A) The funds in the account, net of any commissions and fees;
    (B) The net profits and losses on open trades; and
    (C) The funds in the account plus or minus the net profits and 
losses on open trades. (In the case of open option positions, the 
account balance should be adjusted for the net option value);
    (iii) If a trading platform is used, daily logs showing each price 
change on the platform, the time of the change to the nearest second, 
and the trading volume at that time and price; and
    (iv) Any method or algorithm used to determine the bid or asked 
price for any retail forex transaction or the prices at which customer 
orders are executed, including, but not limited to, any markups, fees, 
commissions or other items which affect the profitability or risk of 
loss of a retail forex customer's transaction.
    (c) No retail forex counterparty shall disclose that an order of 
another person is being held by the retail forex counterparty, unless 
such disclosure is necessary to the effective execution of such order or 
is made at the request of an authorized representative of the 
Commission, or a futures association registered with the Commission 
pursuant to section 17 of the Act.
    (d) No retail forex counterparty shall knowingly handle the account 
of any related person of another retail forex counterparty unless it:
    (1) Receives written authorization from a person designated by such 
other retail forex counterparty with responsibility for the surveillance 
over such account pursuant to paragraph (b)(2) of this section;
    (2) Prepares immediately upon receipt of an order for such account a 
written record of such order, including the account identification and 
order number, and records thereon to the nearest minute, by time-stamp 
or other timing device, the date and time the order is received; and
    (3) Transmits on a regular basis to such other retail forex 
counterparty copies of all statements for such account and of all 
written records prepared upon the receipt of orders for such account 
pursuant to paragraph (b)(2) of this section.
    (e) No related person of a retail forex counterparty shall have an 
account, directly or indirectly, with another retail forex counterparty 
unless:
    (1) It receives written authorization to maintain such an account 
from a person designated by the retail forex counterparty of which it is 
a related person with responsibility for the surveillance over such 
account pursuant to paragraph (b)(2) of this section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such other retail forex counterparty upon receipt of 
orders for such account pursuant to paragraph (d)(2) of this section are 
transmitted on a regular basis to the retail forex counterparty of which 
it is a related person.
    (f) No retail forex counterparty shall:
    (1) Enter into a retail forex transaction, to be executed pursuant 
to a market or limit order at a price that is not at or near the price 
at which other retail forex customers, during that same time period, 
have executed retail forex transactions with the retail forex 
counterparty; Provided, however, that this paragraph (f)(1) shall not 
prohibit such practice if done in accordance with the rules of a 
registered futures association, and of which such retail foreign 
exchange dealer, futures commission merchant or affiliated person of a 
futures commission merchant is a member;
    (2) Adjust or alter prices for a retail forex transaction after the 
transaction has been confirmed to the retail forex customer; Provided, 
however, that this paragraph (f)(2) shall not prohibit such practice if 
in accordance with the rules of a registered futures association, and of 
which such retail foreign exchange dealer, futures commission merchant 
or affiliated person of a futures commission merchant is a member;
    (3)(i) Provide a retail forex customer a new bid price for a retail 
forex transaction that is higher than its previous bid without providing 
a new asked price that is also higher than its previous asked price by a 
similar amount;
    (ii) Provide a retail forex customer a new bid price for a retail 
forex transaction that is lower than its previous

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bid without providing a new asked price that is also lower than its 
previous asked price by a similar amount; or
    (4) Establish a new position for a retail forex customer (except one 
that offsets an existing position for that retail forex customer) where 
the retail forex counterparty holds outstanding orders of other retail 
forex customers for the same currency pair at a comparable price.
    (g)(1) Each retail forex counterparty and each CPO, CTA and IB 
subject to this part 5 shall maintain a record of all communications 
received by such person concerning facts giving rise to possible 
violations of the Act, rules, regulations or orders thereunder, related 
to their retail forex business. The record shall contain the name of the 
complainant, if provided, the date of the communication, the agreement, 
contract or transaction, the substance of the communication, and the 
name of the person who received the communication.
    (2) Each retail forex counterparty and each CPO, CTA and IB subject 
to this part 5 shall provide to the Division of Enforcement of the 
Commission, electronically, a copy of the record of each communication 
received pursuant to paragraph (g)(1) of this section. Such copy shall 
be provided to the Division of Enforcement of the Commission no later 
than 30 calendar days after the communication is received: Provided, 
however, that in the case of a communication concerning facts giving 
rise to possible fraud under the Act or Commission regulations, such 
copy shall be provided to the Division of Enforcement of the Commission 
within three business days after the communication is received.
    (h) An introducing broker as defined inSec. 5.1(f)(1) of this 
part, applicant for registration as an introducing broker as defined in 
Sec.  5.1(f)(1) of this part, or person succeeding to and continuing the 
business of another introducing broker as defined inSec. 5.1(f)(1) of 
this part must comply with all provisions applicable to an introducing 
broker under this chapter; Provided, however, that an introducing broker 
operating pursuant to, or an applicant for registration as an 
introducing broker who has filed concurrently with its application for 
registration, a guarantee agreement meeting the requirements ofSec. 
1.10(j) of this chapter is not subject to the minimum capital and 
related financial reporting requirements of Sec.Sec. 1.10, 1.12 and 
1.17 of this chapter.
    (i)(1) Each retail forex counterparty shall prepare and maintain on 
a quarterly basis (calendar quarter) a calculation of the percentage of 
nondiscretionary retail forex customer accounts open for any period of 
time during the quarter that were profitable, and the percentage of such 
accounts that were not profitable. In calculating whether a retail forex 
account was profitable or not profitable during the quarter, the FCM or 
RFED must compute the realized and unrealized gains and/or losses on all 
retail forex transactions carried in the retail forex account at any 
time during the quarter, and subtract all fees, commissions, and any 
other charges posted to the retail forex account during the quarter, and 
add any interest income and other income or rebates credited to the 
retail forex account during the quarter. All deposits and/or withdrawals 
of funds made by a retail forex customer during the quarter must be 
excluded from the computation of whether the retail forex account was 
profitable or not profitable during the quarter. Computations that 
result in a zero or negative number shall be considered a retail forex 
account that was not profitable. Computations that result in a positive 
number shall be considered a retail forex account that was profitable. 
RFEDs and FCMs shall maintain such calculations along with data 
supporting such calculations for five years in accordance withSec. 
1.31.
    (2) In calculating its percentages of nondiscretionary retail forex 
customer accounts that were profitable or not profitable, the retail 
forex counterparty may only use those retail forex accounts, as defined 
inSec. 5.1(i) of this part, that are nondiscretionary accounts; 
provided, that the retail forex account is not a proprietary account, as 
defined in paragraph (i)(3) of this section.

[[Page 335]]

    (3) Proprietary account for this section means a retail forex 
account carried on the books of a retail foreign exchange dealer or a 
futures commission merchant for one of the following persons, or of 
which ten percent or more is owned by one of the following persons, or 
of which an aggregate of ten percent or more of which is owned by more 
than one of the following persons:
    (i) Such retail foreign exchange dealer or futures commission 
merchant itself;
    (ii) If the retail foreign exchange dealer or futures commission 
merchant is a partnership, a general partner in such partnership;
    (iii) If the retail foreign exchange dealer or futures commission 
merchant is a limited partnership, a limited or special partner in such 
partnership whose duties include:
    (A) The management of the partnership business or any part thereof,
    (B) The handling of retail forex transactions of such partnership,
    (C) The keeping of records pertaining to retail forex transactions, 
or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) If the retail foreign exchange dealer or futures commission 
merchant is a corporation or association, an officer, director or owner 
of ten percent or more of the capital stock, of such organization;
    (v) An employee of such retail foreign exchange dealer or futures 
commission merchant whose duties include:
    (A) The management of the business of such retail foreign exchange 
dealer or futures commission merchant or any part thereof,
    (B) The handling of retail forex transactions of such retail foreign 
exchange dealer or futures commission merchant,
    (C) The keeping of records pertaining to retail forex transactions 
of such retail foreign exchange dealer or futures commission merchant, 
or
    (D) The signing or co-signing of checks or drafts on behalf of such 
retail foreign exchange dealer or futures commission merchant;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that directly or indirectly controls such 
retail foreign exchange dealer or futures commission merchant; or
    (viii) A business affiliate that, directly or indirectly is 
controlled by or is under common control with, such retail foreign 
exchange dealer or futures commission merchant.
    (j) Each retail forex counterparty shall designate one or more 
principals to serve as a chief compliance officer(s). The chief 
compliance officer(s) shall certify to the Commission and a registered 
national futures association annually that the retail forex counterparty 
has in place processes to establish, maintain, review, modify and test 
policies and procedures reasonably designed to achieve compliance with 
the Act, rules, regulations and orders thereunder. The certification 
shall include a statement that the counterparty has in place compliance 
processes, and that the chief compliance officer(s) has apprised the 
chief executive officer of the compliance efforts to date and identify 
and address significant compliance problems and plans to address those 
problems.

[75 FR 55432, Sept. 10, 2010, as amended at 76 FR 56106, Sept. 12, 2011]



Sec.  5.19  Pending legal proceedings.

    (a) Every retail foreign exchange dealer or futures commission 
merchant and each CPO, CTA or IB subject to this part 5 shall submit to 
the Commission copies of any dispositive or partially dispositive 
decision for which a notice of appeal has been filed, the notice of 
appeal and such further documents as the Commission may thereafter 
request filed in any material legal proceeding to which the retail 
foreign exchange dealer, futures commission merchant, CPO, CTA or IB is 
a party or to which its property or assets is subject with respect to 
retail forex transactions.
    (b) Every retail foreign exchange dealer or futures commission 
merchant and each CPO, CTA or IB subject to this part 5 shall submit to 
the Commission copies of any dispositive or partially dispositive 
decision concerning which a notice of appeal has been filed, the notice 
of appeal, and such further documents as the Commission may

[[Page 336]]

thereafter request filed in any material legal proceeding instituted 
against any person who is a principal of the retail foreign exchange 
dealer, futures commission merchant CPO, CTA or IB (as the term 
``principal'' is defined inSec. 3.1(a) of this chapter) arising from 
conduct in such person's capacity as a principal of the retail foreign 
exchange dealer, futures commission merchant, CPO, CTA or IB and 
alleging violations, with regard to retail forex transactions, of:
    (1) The Act or any rule, regulation, or order thereunder; or
    (2) Provisions of state law relating to a duty or obligation owed by 
such a principal.
    (c) All documents required by this section to be submitted to the 
Commission shall be mailed via first-class or submitted by other more 
expeditious means to the Commission's headquarters office in Washington, 
DC, Attention: Director, Division of Enforcement. All documents required 
by this section to be submitted to the Commission as to matters pending 
on October 18, 2010 shall be mailed to the Commission within 45 days of 
that effective date. Thereafter, all decisions and notices of appeal 
required to be submitted by retail foreign exchange dealers, futures 
commission merchants, CPOs, CTAs or IBs shall be mailed within 10 days 
of the filing or receipt by the retail foreign exchange dealer or 
futures commission merchant of the relevant notice of appeal. For 
purposes of paragraph (a) and (b) of this section, a ``material legal 
proceeding'' includes but is not limited to actions involving alleged 
violations of the Commodity Exchange Act or the Commission's 
regulations. However, a legal proceeding is not ``material'' for the 
purposes of this rule if the proceeding is not in a federal or state 
court or if the Commission is a party.



Sec.  5.20  Special calls for account and transaction information.

    (a) Preparation and transmission of information upon special call. 
All information required upon special call shall be prepared in such 
form and manner and in accordance with such instructions, and shall be 
transmitted at such time and to such office of the Commission, as may be 
specified in the call.
    (b) Special calls for information on controlled accounts from retail 
foreign exchange dealers, futures commission merchants and introducing 
brokers. Upon call by the Commission, each retail foreign exchange 
dealer, futures commission merchant and introducing broker shall file 
with the Commission the names and addresses of all persons who, by power 
of attorney or otherwise, exercise trading control over any customer's 
account in retail forex transactions.
    (c) Special calls for information on open transactions in accounts 
carried or introduced by retail foreign exchange dealers, futures 
commission merchants, and introducing brokers. Upon special call by the 
Commission for information relating to retail forex transactions held or 
introduced on the dates specified in the call, each retail foreign 
exchange dealer, futures commission merchant, or introducing broker 
shall furnish to the Commission the following information concerning 
accounts of traders owning or controlling such retail forex transaction 
positions, as may be specified in the call:
    (1) The name, address, and telephone number of the person for whom 
each account is carried;
    (2) The principal business or occupation of the person for whom each 
account is introduced or carried, as specified in the call;
    (3) The name, address and principal business or occupation of any 
person who controls the trading of each account;
    (4) The name and address of any person having a financial interest 
of ten percent or more in each account;
    (5) The number of open retail forex transaction positions introduced 
or carried in each account, as specified in the call; and
    (6) The total number of retail forex transactions against which 
delivery has been made.
    (d) Delegation of authority to the Director of the Division of 
Clearing and Intermediary Oversight and the Director of the Division of 
Market Oversight. The Commission hereby delegates, until the Commission 
orders otherwise, to the Director of the Division of Clearing and

[[Page 337]]

Intermediary Oversight and the Director of the Division of Market 
Oversight, or to the respective Director's designees, the authority set 
forth in this section to make special calls for information on 
controlled accounts from retail foreign exchange dealers, futures 
commission merchants and from introducing brokers, and to make special 
calls for information on open contracts in accounts carried or 
introduced by futures commission merchants, introducing brokers, and 
foreign brokers. Either Director may submit to the Commission for its 
consideration any matter that has been delegated pursuant to this 
section. Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated in 
this section to the Directors.



Sec.  5.21  Supervision.

    Each Commission registrant subject to this part 5, except an 
associated person who has no supervisory duties, must diligently 
supervise the handling by its partners, officers, employees and agents 
(or persons occupying a similar status or performing a similar function) 
of all retail forex accounts carried, operated, advised or introduced by 
the registrant and all other activities of its partners, officers, 
employees and agents (or persons occupying a similar status or 
performing a similar function) relating to its business as a Commission 
registrant.



Sec.  5.22  Registered futures association membership.

    (a) Each person registered as a retail foreign exchange dealer must 
become and remain a member of at least one futures association that is 
registered under section 17 of the Act and that provides for the 
membership therein of such retail foreign exchange dealer.
    (b) Each person required to register as:
    (1) An introducing broker, because the person solicits or accepts 
orders for retail forex transactions;
    (2) A commodity pool operator because the person operates, or 
solicits funds, securities, or property for, a pooled investment vehicle 
that engages in retail forex transactions; or
    (3) A commodity trading advisor because the person exercises 
discretionary trading authority, or obtains written authorization to 
exercise discretionary trading authority over, an account in connection 
with retail forex transactions, must become and remain a member of at 
least one futures association that is registered under section 17 of the 
Act and that provides for the membership therein of such person.



Sec.  5.23  Notice of bulk transfers and bulk liquidations.

    (a) Notice and disclosure to retail forex customers of a bulk 
transfer. (1) A retail foreign exchange dealer, futures commission 
merchant or introducing broker must obtain the written prior and 
specific consent of its retail forex customer to the assignment of any 
position or transfer of any account of the retail forex customer to 
another retail foreign exchange dealer, futures commission merchant or 
introducing broker, unless made at the retail forex customer's request.
    (2) Absent a request of the retail forex customer or the consent 
described in paragraph (a)(1) of this section, assignments of positions 
and transfers of accounts of retail forex customers may be permitted 
under rules of the retail forex dealer's, futures commission merchant's, 
or introducing broker's designated self-regulatory organization that 
establish notice and other requirements with respect to the assignment 
of positions and transfers of accounts of retail forex customers. If 
such rules permit implied consent as a result of the failure of the 
retail forex customer to object after having received notice of the 
proposed assignment or transfer, such rules must provide that the notice 
must include a statement that the retail forex customer is not required 
to accept the proposed assignment or transfer and may direct the 
transferor firm to liquidate the positions of the retail forex customer 
or transfer the account to a firm of the retail forex customer's 
selection.
    (3) For assignments and transfers made under this section, other 
than at the retail forex customer's request, the

[[Page 338]]

transferee retail foreign exchange dealer, futures commission merchant 
or introducing broker must provide to the retail forex customer the risk 
disclosure statements and forms of acknowledgment required by part 5 of 
this chapter and receive the required signed acknowledgments within 
sixty days of such assignments or transfers. This requirement shall not 
apply:
    (i) If the transferee retail foreign exchange dealer, futures 
commission merchant or introducing broker has clear written evidence 
that the retail forex customer has received and acknowledged receipt of 
the required disclosure statements; or
    (ii) If the transfer of accounts is made from one introducing broker 
to another introducing broker guaranteed by the same retail foreign 
exchange dealer or futures commission merchant pursuant to a guarantee 
agreement in accordance with the requirements ofSec. 1.10(j) of this 
chapter and such retail foreign exchange dealer or futures commission 
merchant maintains the relevant acknowledgments required by part 5 of 
this chapter.
    (b) Notice to the Commission. Each retail foreign exchange dealer, 
futures commission merchant or introducing broker shall file with the 
Commission prior notice of any transfer of accounts of any retail forex 
customer that is not initiated at the request of the customer, where the 
transfer involves 50 percent or more of the transferor's total number of 
retail forex customer accounts.
    (c) Contents of notice to the Commission. The notice required by 
paragraph (b) of this section shall include:
    (1) The name, principal business address and telephone number of the 
transferor futures retail foreign exchange dealer, futures commission 
merchant or introducing broker;
    (2) The name, principal business address and telephone number of 
each transferee retail foreign exchange dealer, futures commission 
merchant or introducing broker;
    (3) The designated self-regulatory organization for the transferor 
and transferee firms;
    (4) A brief statement as to the reasons for the transfer;
    (5) A copy of any notices to customers regarding the transfers; and
    (6) A statement of the number of accounts to be transferred.
    (d) Notice of the bulk liquidation of retail forex transactions. A 
retail foreign exchange dealer or futures commission merchant may not 
initiate the bulk liquidation of properly margined retail forex 
transactions unless such liquidation complies with the rules and 
procedures of the retail forex dealer's or futures commission merchant's 
designated self-regulatory organization and the retail forex dealer or 
futures commission merchant provides the Commission with prior written 
notice of the liquidation.
    (e) Contents of notice of bulk liquidation. The notice required by 
paragraph (d) of this section shall include:
    (1) The name, principal business address and telephone number of the 
initiating retail foreign exchange dealer or futures commission 
merchant;
    (2) A brief statement of the reasons for the liquidation;
    (3) A copy of any notices to customers regarding the liquidation; 
and
    (4) A statement of the number of accounts to be liquidated.
    (f) Filing of notices. The notice required by paragraph (b) and (d) 
of this section shall be filed five business days prior to the transfer 
or liquidation of the retail forex transaction with the Deputy Director, 
Compliance and Registration Section, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581; the 
National Futures Association Attn: Vice President-Compliance; and the 
designated self-regulatory organization for the transferor firm.
    (g) No effect on other obligations. The requirements of this section 
shall not affect the obligations of a retail foreign exchange dealer, 
futures commission merchant or introducing broker under the rules of a 
self-regulatory organization or applicable customer account agreement 
with respect to assignments of positions or transfers of accounts or 
liquidation of positions.
    (h) Corrective notice. If a proposed transfer is not completed in 
accordance with the notice required to be filed by

[[Page 339]]

paragraph (b) of this section, a corrective notice shall be filed within 
five business days of the date such proposed transfer was to occur 
explaining why the proposed transfer was not completed.



Sec.  5.24  Applicability of other parts of this chapter

    Insofar as it is consistent with the requirements of this part, all 
other provisions of this chapter that apply to a person shall apply to 
such person as though such provisions were expressly set forth in this 
part.



Sec.  5.25  Applicability of the Act.

    Except as otherwise specified in this part and unless the context 
otherwise requires, the provisions of Sections 4b, 4c(b), 4f, 4g, 4k, 
4m, 4n, 4o, 6(c)-(e), 6b, 6c, 8(a)-(e), 8a and 12(f) of the Act shall 
apply to retail forex transactions that are subject to the requirements 
of this part as though such provisions were set forth herein and 
included specific references to retail forex transactions and the 
persons defined inSec. 5.1 of this part.



PART 7_REGISTERED ENTITY RULES ALTERED OR SUPPLEMENTED BY THE 
COMMISSION--Table of Contents



    Authority: 7 U.S.C. 7a-2(c) and 12a(7), as amended by Title VII of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 
111-203, 124 Stat. 1376 (2010).

    Source: 77 FR 66332, Nov. 2, 2012, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  7.1  Scope of rules.

    This part sets forth registered entity rules altered or supplemented 
by the Commission pursuant to section 8a(7) of the Act.

Subparts B-C [Reserved]

                            PART 8 [RESERVED]



PART 9_RULES RELATING TO REVIEW OF EXCHANGE DISCIPLINARY, ACCESS DENIAL
OR OTHER ADVERSE ACTIONS--Table of Contents



                      Subpart A_General Provisions

Sec.
9.1 Scope of rules.
9.2 Definitions.
9.3 Provisions referenced.
9.4 Filing and service; official docket.
9.5 Motions.
9.6 Sanctions for noncompliance.
9.7 Settlement.
9.8 Practice before the Commission.
9.9 Waiver of rules; delegation of authority.

  Subpart B_Notice and Effective Date of Disciplinary Action or Access 
                              Denial Action

9.10 [Reserved]
9.11 Form, contents and delivery of notice of disciplinary or access 
          denial action.
9.12 Effective date of disciplinary or access denial action.
9.13 Publication of notice.
9.14-9.19 [Reserved]

           Subpart C_Initial Procedure With Respect to Appeals

9.20 Notice of appeal.
9.21 Record of exchange proceeding.
9.22 Appeal brief.
9.23 Answering brief.
9.24 Petition for stay pending review.
9.25 Limited participation of interested persons.
9.26 Participation of Commission staff.
9.27-9.29 [Reserved]

  Subpart D_Commission Review of Disciplinary, Access Denial or Other 
                             Adverse Action

9.30 Scope of review.
9.31 Commission review of disciplinary or access denial action on its 
          own motion.
9.32 Oral argument.
9.33 Final decision by the Commission.

    Authority: 7 U.S.C. 4a, 6c, 7a, 12a, 12c, 16a, unless otherwise 
noted.

    Source: 52 FR 25366, July 7, 1987, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  9.1  Scope of rules.

    (a) Matters included. This part governs the review by the 
Commission, pursuant to section 8c of the Act, as amended, of any 
suspension, expulsion,

[[Page 340]]

disciplinary or access denial action, or other adverse action by an 
exchange.
    (b) Matters excluded. This part does not apply to and the Commission 
will not accept notices of appeal, or petitions for stay pending review, 
of:
    (1) Any arbitration proceeding, regardless of whether the proceeding 
was conducted pursuant to the provisions of section 5a(a)(11) of the Act 
or involved a controversy between members of an exchange;
    (2) Except as provided in Sec.Sec. 9.11(a), 9.11(b)(1)-(5), 
9.11(c), 9.12(a) and 9.13 (concerning the notice, effective date and 
publication of a disciplinary or access denial action), any summary 
action authorized under the provisions ofSec. 8.27 of this chapter 
imposing a minor penalty for the violation of exchange rules relating to 
decorum or attire, or relating to the timely submission of accurate 
records required for clearing or verifying each day's transactions or 
other similar activities; and
    (3) Any exchange action arising from a claim, grievance, or dispute 
involving cash market transactions which are not a part of, or directly 
connected with, any transaction for the purchase, sale, delivery or 
exercise of a commodity for future delivery or a commodity option.

The Commission will, upon its own motion or upon motion filed pursuant 
toSec. 9.21(b), promptly notify the appellant and the exchange that it 
will not accept the notice of appeal or petition for stay of matters 
specified in this paragraph. The determination to decline to accept a 
notice of appeal will be without prejudice to the appellant's right to 
seek alternate forms of relief that may be available in any other forum.
    (c) Applicability of these part 9 rules. Unless otherwise ordered, 
these rules will apply in their entirety to all appeals, and matters 
relating thereto filed on or after August 6, 1987. Any part 9 proceeding 
pending before the Commission on August 6, 1987, will continue to be 
governed by the Commission's former part 9 rules, 17 CFR part 9 (1987), 
except that the parties to any part 9 proceeding pending on August 6, 
1987, may, within 30 days after August 6, 1987, by written stipulation 
executed by all parties, and filed with the Proceedings Clerk before the 
Commission's final decision is rendered, elect to have the matter 
governed by the provisions of this part 9, as amended.

[52 FR 25366, July 7, 1987, as amended at 59 FR 5701, Feb. 8, 1994]



Sec.  9.2  Definitions.

    For purposes of this part:
    (a) Access denial action means any proceeding other than a 
disciplinary action by an exchange that denies or limits the privileges 
of membership, but excludes any exchange action that solely limits the 
ability of a member of an exchange to participate in the internal 
corporate affairs of the exchange.
    (b) Disciplinary action means any suspension, expulsion or other 
penalty (as defined inSec. 8.03(i) of this chapter) imposed on a 
member of an exchange by that exchange for violations of rules of the 
exchange, including summary actions.
    (c) Exchange means any board of trade which has been designated as a 
contract market.
    (d) Exchange proceeding means any formal or informal proceeding by 
an exchange which results in a disciplinary action, access denial action 
or other adverse action.
    (e) Mail means properly addressed and postpaid first class mail, and 
includes overnight delivery service.
    (f) Member of an exchange means any person who is admitted to 
membership or has been granted membership privileges on an exchange, any 
employee, officer, partner, director or affiliate of such member or 
person with membership privileges including any associated person, and 
any other person under the supervision or control of such member or 
person with membership privileges.
    (g) Other adverse action and adverse action include any exchange 
action, other than an access denial action or disciplinary action, that 
adversely affects any person, whether or not a member of the exchange, 
but exclude any exchange action that solely involves the internal 
corporate affairs of the exchange.
    (h) Party includes the person filing a notice of appeal or petition 
for stay who has been the subject of a disciplinary, access denial or 
other adverse action by an exchange; that exchange;

[[Page 341]]

any person participating in a proceeding under this part pursuant to 
Sec.  9.25; and the Division of Market Oversight and/or the Division of 
Clearing and Intermediary Oversight when participating in a proceeding 
under this part pursuant toSec. 9.26.
    (i) Record of the exchange proceeding means all testimony, exhibits, 
papers and records produced at or filed in an exchange disciplinary or 
access denial proceeding or served on a party to that proceeding; all 
documents, minutes or other exchange records serving as a basis for or 
reflecting the findings, rationale and conclusions concerning the 
adverse action taken by an exchange; a transcript of any proceeding 
before any body of the exchange in connection with the exchange 
proceeding; and a copy of all exchange rules which form the basis for 
the exchange proceeding.
    (j) Rules of the exchange means any constitutional provision, 
article of incorporation, bylaw, rule, regulation, resolution, or 
written and publicly available interpretation or stated policy of the 
exchange, or instrument corresponding thereto.
    (k) Summary action means a disciplinary action resulting in the 
imposition of a penalty on a member of an exchange for violation of 
rules of the exchange authorized under the provisions ofSec. 8.17(b) 
(penalty for impeding progress of hearing),Sec. 8.25 (member 
responsibility action) orSec. 8.27 (penalty for violation of rules 
relating to decorum, attire, submission of records or similar 
activities) of this chapter.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987, as amended at 67 
FR 62352, Oct. 7, 2002]



Sec.  9.3  Provisions referenced.

    Except as otherwise provided in this part, the following provisions 
of the Commission's rules relating to reparations contained in part 12 
of this chapter apply to this part:Sec. 12.3 (Business address; 
hours);Sec. 12.5 (Computation of time);Sec. 12.6 (Extensions of 
time; adjournments; postponements);Sec. 12.7 (Ex parte 
communications); andSec. 12.12 (Signature).



Sec.  9.4  Filing and service; official docket.

    (a) Filing with the Proceedings Clerk; proof of filing; proof of 
service. Any document that is required by this part to be filed with the 
Proceedings Clerk must be filed by delivering it in person or by mail 
to: Proceedings Clerk, Office of Proceedings, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581. To be timely filed under this part, a document must be 
delivered or mailed to the Proceedings Clerk within the time prescribed 
for filing. A party must use a means of filing which is at least as 
expeditious as that used in serving that document upon the other 
parties. Proof of filing must be made by attaching to the document for 
filing an affidavit of filing executed by any person 18 years of age or 
older or a proof of filing executed by an attorney-at-law qualified to 
practice before the Commission. The proof of filing must certify that 
the attached document was deposited in the mail, with first-class 
postage prepaid, addressed to the Proceedings Clerk, Office of 
Proceedings, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, on the date specified in the affidavit. Proof of service of a 
document must be made by filing with the Proceedings Clerk, 
simultaneously with the filing of the required document, an affidavit of 
service executed by any person 18 years of age or older or a 
certification of service executed by an attorney-at-law qualified to 
practice before the Commission. The proof of service must identify the 
persons served, state that service has been made, set forth the date of 
service, and recite the manner of service.
    (b) Formalities of filing--(1) Number of copies. Unless otherwise 
specifically provided, an original and two conformed copies of all 
documents filed with the Commission in accordance with the provisions of 
this part must be filed with the Proceedings Clerk.
    (2) Title page. All documents filed with the Proceedings Clerk must 
include at the head thereof, or on a title page, the name of the 
Commission, the title of the proceeding, the docket number (if one has 
been assigned by the Proceedings Clerk), the subject of the particular 
document and the name of the person on whose behalf the document is 
being filed.
    (3) Paper, spacing, type. All documents filed with the Proceedings 
Clerk

[[Page 342]]

must be typewritten, must be on one grade of good white paper no less 
than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or more 
than 11\1/2\ inches long, and must be bound on the top only. They must 
be double-spaced, except for long quotations (3 or more lines) and 
footnotes which should be single-spaced.
    (4) Signature. The original copy of all papers must be signed in ink 
by the person filing the same or by his duly authorized agent or 
attorney.
    (c) Service--(1) General requirements. All documents filed with the 
Proceedings Clerk must, at or before the time of filing, be served upon 
all parties. A party must use a means of service which is at least as 
expeditious as that used in filing that document with the Proceedings 
Clerk. One copy of all motions, petitions or applications made in the 
course of the proceeding, all notices of appeal, all briefs, and letters 
to the Commission or an employee thereof must be served by a party upon 
all other parties.
    (2) Manner of service. Service may be either personal or by mail. 
Service by mail is complete upon deposit of the document in the mail. 
Where service is effected by mail, the time within which the person 
served may respond thereto will be increased by three days.
    (3) Designation of person to receive service. The first document 
filed in a proceeding by or on behalf of any party must state on the 
first page the name and postal address of the person who is authorized 
to receive service for the party of all documents filed in the 
proceeding. Thereafter, service of documents must be made upon the 
person authorized unless service on a different authorized person or on 
the party himself is ordered by the Commission, or unless pursuant to 
Sec.  9.8 the person authorized is changed by the party upon due notice 
to all other parties. Parties must file and serve notification of any 
changes in the information provided pursuant to this subparagraph as 
soon as practicable after the change occurs.
    (4) Service of orders and decisions. A copy of all notices, rulings, 
opinions and orders of the Commission will be served on each of the 
parties and will be deemed served upon deposit in the mail.
    (d) Official docket. Upon receipt of a notice of appeal filed in 
accordance withSec. 9.20, or a petition for stay pending review filed 
in accordance withSec. 9.24, the Proceedings Clerk will establish and 
thereafter maintain the official docket of that proceeding and will 
assign a docket number to the proceeding.

[52 FR 25366, July 7, 1987, as amended at 60 FR 49334, Sept. 25, 1995]



Sec.  9.5  Motions.

    (a) In general. An application for a form of relief not otherwise 
specifically provided for in this part must be made by a written motion, 
filed with the Proceedings Clerk. The motion must state the relief 
sought and the basis for the relief and may set forth the authority 
relied upon.
    (b) Answer to motions. Any party may serve and file a written 
response to a motion within ten days after service of the motion, or 
within such longer or shorter period as established by these rules, or 
as the Commission may direct.
    (c) Motions for procedural orders. Motions for procedural orders, 
including motions for extensions of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such action may request reconsideration, vacation or modification of the 
action.
    (d) Dilatory motions. Frivolous or repetitive motions dealing with 
the same subject matter will not be permitted and such motions will 
summarily be denied.



Sec.  9.6  Sanctions for noncompliance.

    In the event that any party fails to file any document or make any 
appearance which is required under this part, the Commission may, in its 
discretion, and upon its own motion or upon the motion of any party to 
the proceeding, dismiss the proceeding before it, or, based on the 
record before it, affirm, modify, set aside, or remand for further 
proceedings, in whole or in part, the decision of the exchange.



Sec.  9.7  Settlement.

    At any time before there has been a final determination by the 
Commission with respect to any notice of appeal

[[Page 343]]

filed in accordance withSec. 9.20, the parties may file a stipulation 
for dismissal based on a settlement agreement. Thereupon, the Commission 
may issue an order terminating the proceeding before the Commission as 
to the parties to the settlement agreement. The entry of such an order 
does not affect the Commission's authority under the Act.



Sec.  9.8  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. An individual may appear pro se 
(on his own behalf); a general partner may represent the partnership; a 
bona fide officer of a corporation, trust or association may represent 
the corporation, trust or association.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest Court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with provisions of part 14 
of this chapter may represent parties as an attorney in proceedings 
before the Commission.
    (b) Debarment of counsel or representative during the course of a 
proceeding. Whenever, while a proceeding is pending before the 
Commission, the Commission finds that a person acting as counsel or 
representative for any party to the proceeding is guilty of contemptuous 
conduct, the Commission may order that such person be precluded from 
further acting as counsel or representative in the proceeding. The 
proceeding will not be delayed or suspended pending disposition of the 
appeal; Provided, That the Commission may suspend the proceedings for a 
reasonable time for the purpose of enabling the party to obtain other 
counsel or representative.
    (c) Withdrawal of representation. Withdrawal from representation of 
a party will be only by leave of the Commission. Such leave to withdraw 
may be conditioned on the attorney's (or representative's) submission of 
an affidavit averring that the party represented has actual knowledge of 
the withdrawal, and such affidavit must include the name and address of 
a successor counsel (or representative) or a statement that the 
represented party has determined to proceed pro se, in which case, the 
statement must include the address where that party can thereafter be 
served.



Sec.  9.9  Waiver of rules; delegation of authority.

    (a) Standards for waiver; notice to parties. To prevent undue 
hardship on any party or for other good cause shown the Commission may 
waive any rule in this part in a particular case and may order 
proceedings in accordance with its direction upon a determination that 
no party will be prejudiced thereby and that the ends of justice will be 
served. Reasonable notice will be given to all parties of any action 
taken pursuant to this paragraph.
    (b) Delegation of authority. (1) The Commission hereby delegates, 
until the Commission orders otherwise, to the General Counsel, or to any 
employee under the General Counsel's supervision as the General Counsel 
may designate, the authority:
    (i) To waive or modify any of the requirements of Sec.Sec. 9.20-
9.25 and to waive or modify the requirements of the Commission's rules 
relating to reparations incorporated bySec. 9.3 insofar as such 
requirements pertain to changes in time permitted for filing, and to the 
form, execution, service and filing of documents;
    (ii) To enter orders under Sec.Sec. 9.5, 9.6 and 9.7;
    (iii) To decline to accept any notice of appeal, or petition for 
stay pending review, of matters excluded from this part by Sec.Sec. 
9.1(b), 9.2(a) and 9.2(b), and to so notify the appellant and the 
exchange;
    (iv) To stay the effective date of a disciplinary action for a 
period of time, not to exceed four days, to enable the Commission to 
rule on a petition for stay filed underSec. 9.24;
    (v) To decline to accept any document which has not been timely 
filed or perfected, as specified in these rules;
    (vi) To order the filing of the record of the exchange proceeding 
notwithstanding the submission of a motion underSec. 9.21(b) that the 
Commission not accept a notice of appeal; and
    (vii) To enter any order which will facilitate or expedite 
Commission review.

[[Page 344]]

    (2) Within seven days after service of a ruling issued pursuant to 
paragraph (b)(1) of this section, a party may file with the Proceedings 
Clerk a petition for Commission reconsideration of the ruling. Unless 
the Commission orders otherwise, the filing of a petition for 
reconsideration will not operate to stay the effective date of such 
ruling.
    (3) The General Counsel, or his designee, may submit to the 
Commission for its consideration any matter which has been delegated 
pursuant to paragraph (b)(1) of this section.
    (4) Nothing in this section will be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated to 
the General Counsel, or his designee, under this section.

[52 FR 25366, July 7, 1987, as amended at 60 FR 54801, Oct. 26, 1995; 64 
FR 46270, Aug. 25, 1999; 78 FR 1145, Jan. 8, 2013]



  Subpart B_Notice and Effective Date of Disciplinary Action or Access 
                              Denial Action



Sec.  9.10  [Reserved]



Sec.  9.11  Form, contents and delivery of notice of disciplinary
or access denial action.

    (a) When required. Whenever an exchange decision pursuant to which a 
disciplinary action or access denial action is to be imposed has become 
final, the exchange must, within thirty days thereafter, provide written 
notice of such action to the person against whom the action was taken 
and to the Commission: Provided, That the exchange is not required to 
notify the Commission of any summary action, as authorized under the 
provisions ofSec. 8.27 of this chapter, which results in the 
imposition of minor penalties for the violation of exchange rules 
relating to decorum or attire. No final disciplinary or access denial 
action may be made effective by the exchange except as provided inSec. 
9.12.
    (b) Contents of notice. For purposes of this part, the written 
notice of a disciplinary action or access denial action may be either a 
copy of a written decision which accords withSec. 8.16,Sec. 8.18, or 
Sec.  8.19(c) of this chapter (including copies of any materials 
incorporated by reference) or other written notice which must include:
    (1) The name of the person against whom the disciplinary action or 
access denial action was taken;
    (2) A statement of the reasons for the disciplinary action or access 
denial action together with a listing of any rules which the person who 
was the subject of the disciplinary action or access denial action was 
charged with having violated or which otherwise serve as the basis of 
the exchange action;
    (3) A statement of the conclusions and findings made by the exchange 
with regard to each rule violation charged or, in the event of 
settlement, a statement specifying those rule violations which the 
exchange has reason to believe were committed;
    (4) The terms of the disciplinary action or access denial action;
    (5) The date on which the action was taken and the date the exchange 
intends to make the disciplinary or access denial action effective; and
    (6) Except as otherwise provided inSec. 9.1(b), a statement 
informing the party subject to the disciplinary action or access denial 
action of the availability of Commission review of the exchange action 
pursuant to section 8c of the Act and this part.
    (c) Delivery and filing of the notice. Delivery of the notice must 
be made either personally to the person who was the subject of the 
disciplinary action or access denial action or by mail to such person at 
that person's last known address. A copy of the notice must be filed on 
the same date with the Commission, either in person during normal 
business hours or by mail to: Division of Market Oversight, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581. The notice filed with the Commission must 
additionally include the date on which the notice was delivered to the 
person disciplined or denied access and state whether delivery was 
personal or by mail.
    (d) Effect of delivery and filing by mail. Filing by mail to the 
Commission and delivery by mail to the person disciplined or denied 
access will be complete upon deposit in the mail of a

[[Page 345]]

properly addressed and postpaid document. Where delivery to the person 
disciplined or denied access is effected by such mail, the time within 
which a notice of appeal or petition for stay may be filed will be 
increased by three days.
    (e) Certification. Copies of the notice and the submission of any 
additional information provided pursuant to this section must be 
certified as true and correct by a duly authorized officer, agent or 
employee of the exchange.

[52 FR 25366, July 7, 1987, as amended at 60 FR 49334, Sept. 25, 1995; 
67 FR 62352, Oct. 7, 2002]



Sec.  9.12  Effective date of disciplinary or access denial action.

    (a) Effective date. Any disciplinary or access denial action taken 
by an exchange will not become effective until at least fifteen days 
after the written notice prescribed bySec. 9.11 is delivered to the 
person disciplined or denied access; Provided, however, That the 
exchange may cause a disciplinary action to become effective prior to 
that time if:
    (1) As authorized bySec. 8.25 of this chapter, the exchange 
reasonably believes, and so states in its written decision, that 
immediate action is necessary to protect the best interests of the 
marketplace; or
    (2) As authorized bySec. 8.17(b) of this chapter, the exchange 
determines, and so states in its written decision, that the actions of a 
person who is within the exchange's jurisdiction have impeded the 
progress of a disciplinary hearing; or
    (3) As authorized bySec. 8.27 of this chapter, the exchange 
determines that a person has violated exchange rules relating to decorum 
or attire, or timely submission of accurate records required for 
clearing or verifying each day's transactions or other similar 
activities; or
    (4) The person against whom the action is taken has consented to the 
penalty to be imposed and to the timing of its effectiveness.
    (b) Notice of early effective date. If the exchange determines in 
accordance with paragraph (a)(1) of this section that a disciplinary 
action will become effective prior to the expiration of fifteen days 
after written notice thereof, it must notify the person disciplined in 
writing, either personally or by telegram or other means of written 
telecommunication to the person's last known address, stating the 
reasons for the determination. The exchange must also by telegram or 
other means of written telecommunication immediately notify the 
Commission (Attention: Contracts Markets Section, Division of Market 
Oversight). Where notice is delivered by telegram or other means of 
written telecommunication, the time within which the person so notified 
may file a petition for stay pursuant toSec. 9.24(a)(2) will be 
increased by one day.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987, as amended at 67 
FR 62352, Oct. 7, 2002]



Sec.  9.13  Publication of notice.

    Whenever an exchange suspends, expels or otherwise disciplines, or 
denies any person access to the exchange, it must make public its 
findings by disclosing at least the information contained in the notice 
required bySec. 9.11(b). An exchange must make such findings public as 
soon as the disciplinary action or access denial action becomes 
effective in accordance with the provisions ofSec. 9.12 by posting a 
notice in a conspicuous place on its premises to which its members and 
the public regularly have access for a period of five consecutive 
business days. Thereafter, the exchange must maintain and make available 
for public inspection a record of the information contained in the 
disciplinary or access denial notice.



Sec.Sec. 9.14-9.19  [Reserved]



           Subpart C_Initial Procedure With Respect to Appeals



Sec.  9.20  Notice of appeal.

    (a) Time to file. Except as provided inSec. 9.1(b), any person who 
is the subject of disciplinary or access denial action by an exchange or 
any person who is otherwise adversely affected by any other action of an 
exchange may, at any time within thirty days after notice of the 
disciplinary or access denial action has been delivered to the person 
disciplined or denied access in accordance withSec. 9.11, or within 
thirty days after notice

[[Page 346]]

of another adverse action, file a notice of appeal of such disciplinary, 
access denial or other adverse action. The Commission may dismiss any 
appeal for which a notice of appeal is not timely filed.
    (b) Contents. The notice of appeal need consist only of a brief 
statement indicating that the party is requesting Commission review of 
the exchange action, and must include:
    (1) The name and address of the appellant, and any duly authorized 
agent or officer of the appellant;
    (2) The name and docket number of the exchange proceeding;
    (3) The date on which the disciplinary, access denial or other 
adverse action was imposed by the exchange or the date on which the 
final exchange decision was rendered, and the dates upon which the 
exchange action has or will become final and effective;
    (4) A copy of the notice provided to the appellant by the exchange 
in accordance with the provisions ofSec. 9.11, in the case of a 
disciplinary or access denial action, or otherwise, in the case of any 
other adverse exchange action;
    (5) The relief sought from the action of the exchange;
    (6) The appellant's request for a copy of the record of the exchange 
proceeding, or portions of the record not in the appellant's possession, 
and a representation that the appellant agrees to pay the exchange 
reasonable fees, as provided in the rules of the exchange, for printing 
that copy; and
    (7) A nonrefundable filing fee of $100 remitted by check, bank draft 
or money order, payable to the Commodity Futures Trading Commission.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987]



Sec.  9.21  Record of exchange proceeding.

    (a) Filing of record. Within thirty days after service of the notice 
of appeal, the exchange must file two copies of the record of the 
exchange proceeding (as defined inSec. 9.2(i)) with the Proceedings 
Clerk, and serve a copy on the appellant and any other party to the 
proceeding, provided that such person has agreed to pay the exchange 
reasonable fees, as provided in the rules of the exchange, for printing 
the copy. The record must be bound as a unit, must be chronologically 
indexed and tabbed, must be certified as correct by a duly authorized 
official, agent or employee of the exchange, and must contain a 
certificate of service on the appellant or any other party to the 
proceeding (or waiver of service for failure to pay costs pursuant to 
this rule).
    (b) Motion that the Commission not accept notice of appeal. Within 
fifteen days after service of the notice of appeal, the exchange may 
file a motion that the Commission not accept a notice of appeal of any 
matter that the exchange contends is excluded from this part by 
Sec.Sec. 9.1(b), 9.2(a) and 9.2(g). Such motion must be accompanied by 
an affidavit averring facts in support of the motion. The filing of such 
motion will operate to stay the filing of the record and subsequent 
submissions pending the Commission's ruling on such motion. The 
appellant may serve and file a written response to such motion within 
ten days after service of the motion.



Sec.  9.22  Appeal brief.

    (a) Time to file. Any person who has filed a notice of appeal in 
accordance with the provisions ofSec. 9.20 must perfect the appeal by 
filing an appeal brief with the Proceedings Clerk within thirty days 
after service of the record of the exchange proceeding. The Commission 
may dismiss any appeal for which an appeal brief is not timely filed.
    (b) Contents. Each appeal brief submitted to the Commission pursuant 
to this section must include, in the order indicated:
    (1) A statement of the issues presented for review;
    (2) A statement of the case. The statement must first indicate 
briefly the nature of the case and include a full description of the 
disciplinary, access denial or other adverse action. There must follow a 
clear and concise statement of all facts relevant to the consideration 
of the appeal, including, if known, each alleged act or omission forming 
the basis of the exchange action, with appropriate references to the 
record of the exchange proceeding;
    (3) An argument. The argument may be preceded by a summary. The 
argument must contain the contentions of the appellant with respect to 
the issues

[[Page 347]]

presented, and the reasons therefor, and citations to relevant 
authorities and to parts of the record of the exchange proceeding; and
    (4) A conclusion stating the precise relief sought.
    (c) Length of appeal brief. Without prior leave of the Commission, 
the appeal brief may not exceed thirty-five pages, exclusive of any 
table of contents, table of cases, index and appendix containing 
transcripts of testimony, exhibits, statutes, rules, regulations or 
similar materials.



Sec.  9.23  Answering brief.

    (a) Time for filing answering brief. Within thirty days after 
service of the appeal brief, the exchange must file with the Commission 
an answering brief.
    (b) Contents of answering brief. The answering brief generally must 
follow the same style as prescribed for the appeal brief but may omit a 
statement of the issues or of the case if the exchange does not dispute 
the issues or the statement of the case contained in the appeal brief.
    (c) Length of answering brief. Without prior leave of the 
Commission, the answering brief may not exceed thirty-five pages, 
exclusive of any table of contents, table of cases, index and appendix 
containing transcripts of testimony, exhibits, statutes, rules, 
regulations or similar materials.



Sec.  9.24  Petition for stay pending review.

    (a) Time to file. (1) Within ten days after the notice of the 
disciplinary or access denial action has been delivered in accordance 
withSec. 9.11 to a person disciplined or denied access, that person 
may petition the Commission to stay the disciplinary or access denial 
action pending consideration by the Commission of the notice of appeal 
and, if granted, the appeal underlying the notice of appeal. The 
petition for stay must be accompanied by the notice of appeal.
    (2) Within ten days after a notice of summary action has been 
delivered in accordance withSec. 9.12(b) to a person who is the 
subject of a summary action authorized bySec. 8.25 of this chapter, 
that person may petition the Commission to stay the effectiveness of the 
summary action pending completion of the exchange proceeding conducted 
as authorized bySec. 8.26 of this chapter.
    (3) The Commission may deny any petition for stay which is not 
timely filed or which is not otherwise in accord with these rules.
    (b) Contents of petition for stay. A petition filed under this 
section must state the reasons that the stay is requested and the facts 
relied upon, as specified inSec. 9.20. Averments of the petition must 
be supported by affidavits, other sworn statements or copies thereof, or 
a stipulation as to those facts which are not in dispute. Based upon the 
petition, the Commission, in its discretion, may order a stay of the 
disciplinary action or access denial action.
    (c) Response to petition. The exchange may serve and file a written 
response to any petition for a stay within five days after service of 
the petition.
    (d) Standards for granting petition for stay. The Commission will 
promptly determine whether to grant or deny a petition for stay and may 
act upon a petition at any time, without waiting for a response thereto. 
In determining whether to grant or deny the petition for stay, the 
Commission will consider, among other things, whether the petitioner has 
established:
    (1) Petitioner's likelihood of success on the merits; and
    (2) That denial of the stay would cause irreparable harm to the 
petitioner; and
    (3) That granting the stay would not endanger orderly trading or 
otherwise cause substantial harm to the exchange or market participants; 
and
    (4) That granting the stay would not be contrary to the Act, and the 
rules, regulations and orders of the Commission thereunder or otherwise 
contrary to the public interest.
    (e) Ex parte stays. The Commission may act upon a petition for stay, 
without waiting for the exchange's response thereto only where 
petitioner:
    (1) Expressly requests an ex parte stay;
    (2) Files a proof of service; and
    (3) Clearly establishes by affidavit that immediate and irreparable 
injury, loss or damage will result to the petitioner before the exchange 
can be heard in opposition.

[[Page 348]]


Any order granting a stay prior to the filing of the exchange's reply 
will expire by its terms within such time after service of the 
Commission's ruling on the petition, not to exceed ten days, as the 
Commission fixes, unless within the time so fixed the order, for good 
cause shown, is extended for a like period or unless the exchange 
consents that it may be extended for a longer period. In any case, the 
exchange may move for dissolution or modification of the stay, and the 
Commission will proceed to determine such motion as expeditiously as the 
ends of justice require.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987]



Sec.  9.25  Limited participation of interested persons.

    On its own motion or upon motion of any person asserting a direct 
and substantial interest in the outcome of a proceeding conducted under 
this part, the Commission, in its discretion, may permit the limited 
participation by such interested person in the proceeding. A motion for 
leave to participate in the proceeding must identify the interest of 
that person and must state the reasons why participation in the 
proceeding by that person is desirable, and must state whether that 
person requests a copy of the record of the exchange proceeding to the 
extent permitted by section 8c(a)(2) of the Act and that such person 
agrees to pay the exchange reasonable fees, as provided in the rules of 
the exchange, for printing the copy.

[52 FR 25366, July 7, 1987, as amended at 59 FR 5701, Feb. 8, 1994]



Sec.  9.26  Participation of Commission staff.

    Within twenty days after receipt of the answering brief, the 
Division of Market Oversight and/or the Division of Clearing and 
Intermediary Oversight may file with the Proceedings Clerk a notice of 
intention to participate in the proceedings as amicus curiae. Within 
thirty days after filing the notice of intention to participate, the 
Division may file a brief as amicus curiae. Without prior leave of the 
Commission, the brief may not exceed thirty-five pages. The brief must 
be filed and served on the appellant, exchange and any other parties to 
the proceeding in the manner specified by these rules. Within ten days 
after service of the Division's brief, any party may file a reply to the 
Division's brief. After the filing of the notice of intent to 
participate, no employee of the Division(s) filing the notice may 
thereafter make any communication relating to the proceeding, other than 
on the record of the proceeding before the Commission, to any 
Commissioner or Commission decisional employee.

[52 FR 25366, July 7, 1987, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.Sec. 9.27-9.29  [Reserved]



  Subpart D_Commission Review of Disciplinary, Access Denial or Other 
                             Adverse Action



Sec.  9.30  Scope of review.

    On review, the Commission may, in its discretion, consider sua 
sponte any issues arising from the record before it and may base its 
determination thereon, or limit the issues to those presented in the 
statement of issues in the briefs, treating those issues not raised as 
waived. If the Commission determines to consider any issue not raised by 
the parties, it may issue an order that notifies the parties of such 
determination and provides an opportunity for the parties to address any 
issue considered sua sponte by the Commission.



Sec.  9.31  Commission review of disciplinary or access denial action
on its own motion.

    (a) Request for additional information. Where a person disciplined 
or denied access has not appealed the exchange decision to the 
Commission, upon review of the notice specified inSec. 9.11, the 
Division of Market Oversight or the Division Clearing and Intermediary 
Oversight may request that the exchange file with the Division the 
record of the exchange proceeding, or designated portions of the record, 
a brief statement of the evidence and testimony adduced to support the 
exchange's findings that a rule or rules of the exchange were violated 
and such recordings, transcripts and other documents

[[Page 349]]

applicable to the particular exchange proceeding as the Division may 
specify. The exchange must promptly advise the person who is the subject 
of the disciplinary or access denial action of the Division's request. 
Within thirty days after service of the Division's request, the exchange 
must file the information requested with the Division and, upon request, 
deliver that information to the person who is the subject of the 
disciplinary or access denial action. Delivery and filing must be in the 
manner prescribed bySec. 9.11(c). A person subject to the disciplinary 
action or access denial action requesting a copy of the information 
furnished to the Division must, if the exchange rules so provide, agree 
to pay the exchange reasonable fees for printing the copy.
    (b) Review on motion of the Commission. The Commission may institute 
review of an exchange disciplinary or access denial action on its own 
motion. Other than in extraordinary circumstances, such review will be 
initiated within 180 days after the Commission has received the notice 
of exchange action provided for inSec. 9.11. If the Commission should 
institute review on its own motion, it will issue an order permitting 
the person who is the subject of the disciplinary or access denial 
action an opportunity to file an appropriate submission, and the 
exchange an opportunity to file a reply thereto.

[52 FR 25366, July 7, 1987, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.  9.32  Oral argument.

    (a) On motion of Commission. On its own motion, the Commission may, 
in its discretion, hear oral argument by the parties any time before the 
decision of the Commission is filed with the Proceedings Clerk.
    (b) On request of party. Any party may file with the Proceedings 
Clerk a request in writing for the opportunity to present oral argument 
before the Commission, which the Commission may, in its discretion, 
grant or deny. A request under this paragraph must be filed concurrently 
with the party's brief.
    (c) Reporting and transcription. Oral argument before the Commission 
will be recorded and transcribed unless the Commission directs 
otherwise. In the event the Commission affords the parties the 
opportunity to present oral argument before the Commission, the oral 
argument will proceed in accordance with the provisions ofSec. 10.103 
(b) and (d) of this chapter.



Sec.  9.33  Final decision by the Commission.

    (a) Opinion and order. Upon review, the Commission may affirm, 
modify, set aside, or remand for further proceedings, in whole or in 
part, the decision of the exchange. The Commission's decision will be 
contained in its opinion and order which will be based upon the record 
before it, including the record of the exchange proceeding, and any oral 
argument made in accordance withSec. 9.32. Except as provided in 
paragraph (b) of this section, the opinion and order will constitute the 
final decision of the Commission, effective upon service on the parties. 
In the event the Commission is equally divided as to its decision, the 
Commission will affirm without opinion the decision of the exchange, 
which will constitute the Commission's final decision.
    (b) Order of summary affirmance. If the Commission finds that the 
result reached in the decision of the exchange is substantially correct 
and that none of the arguments on appeal made by the appellant raise 
important questions of law or policy, the Commission may, by appropriate 
order, summarily affirm the decision of the exchange without opinion, 
which will constitute the Commission's final decision. Unless the 
Commission expressly indicates otherwise in its order, an order of 
summary affirmance does not reflect a Commission determination to adopt 
the exchange final decision, including any rationale contained therein, 
as its opinion and order, and neither the exchange's final decision nor 
the Commission's order of summary affirmance will serve as a Commission 
precedent in other proceedings.
    (c) Standards of review. In reviewing an exchange disciplinary, 
access denial or other adverse action, the Commission will consider 
whether:
    (1) The exchange disciplinary, access denial or other adverse action 
was

[[Page 350]]

taken in accordance with the rules of the exchange;
    (2) Fundamental fairness was observed in the conduct of the 
proceeding resulting in the disciplinary, access denial or other adverse 
action;
    (3)(i) In the case of a disciplinary action, the record contains 
substantial evidence of a violation of the rules of the exchange, or 
(ii) in the case of an access denial or other adverse action, the record 
contains substantial evidence supporting the exchange action; and
    (4) The disciplinary, access denial or other adverse action 
otherwise accords with the Act and the rules, regulations and orders of 
the Commission thereunder.



PART 10_RULES OF PRACTICE--Table of Contents



                      Subpart A_General Provisions

Sec.
10.1 Scope and applicability of rules of practice.
10.2 Definitions.
10.3 Suspension, amendment, revocation and waiver of rules.
10.4 Business address; hours.
10.5 Computation of time.
10.6 Changes in time permitted for filing.
10.7 Date of entry of orders.
10.8 Presiding officers.
10.9 Separation of functions.
10.10 Ex parte communications.
10.11 Appearance in adjudicatory proceedings.
10.12 Service and filing of documents; form and execution.

  Subpart B_Institution of Adjudicatory Proceedings; Pleadings; Motions

10.21 Commencement of the proceeding.
10.22 Complaint and notice of hearing.
10.23 Answer.
10.24 Amendments and supplemental pleadings.
10.25 Form of pleadings.
10.26 Motions and other papers.

               Subpart C_Parties and Limited Participation

10.31 Parties.
10.32 Substitution of parties.
10.33 Intervention as a party.
10.34 Limited participation.
10.35 Permission to state views.
10.36 Commission review of rulings.

   Subpart D_Prehearing Procedures; Prehearing Conferences; Discovery 
                               Depositions

10.41 Prehearing conferences; procedural matters.
10.42 Discovery.
10.43 Stipulations.
10.44 Depositions and interrogatories.

                           Subpart E_Hearings

10.61 Time and place of hearing.
10.62 Appearances.
10.63 Consolidation; separate hearings.
10.64 Public hearings.
10.65 Record of hearing.
10.66 Conduct of the hearing.
10.67 Evidence.
10.68 Subpoenas.
10.69 Reopening hearings.

          Subpart F_Post Hearing Procedures; Initial Decisions

10.81 Filing the transcript of evidence.
10.82 Proposed findings and conclusions; briefs.
10.83 Oral arguments.
10.84 Initial decision.

               Subpart G_Disposition Without Full Hearing

10.91 Summary disposition.
10.92 Shortened procedure.
10.93 Obtaining default order.
10.94 Setting aside of default.

            Subpart H_Appeals to the Commission; Settlements

10.101 Interlocutory appeals.
10.102 Review of initial decisions.
10.103 Oral argument before the Commission.
10.104 Scope of review; Commission decision.
10.105 Review by Commission on its own initiative.
10.106 Reconsideration; stay pending judicial review.
10.107 Leave to adduce additional evidence.
10.108 Settlements.
10.109 Delegation of authority to Chief of the Opinions Section.

                      Subpart I_Restitution Orders

10.110 Basis for issuance of restitution orders.
10.111 Recommendation of procedure for implementing restitution.
10.112 Administration of restitution.
10.113 Right to challenge distribution of funds to customers.

[[Page 351]]

10.114 Acceleration of establishment of restitution procedure.

Appendix A to Part 10--Commission Policy Relating to the Acceptance of 
          Settlements in Administrative and Civil Proceedings

    Authority: Pub. L. 93-463, sec. 101(a)(11), 88 Stat. 1391; 7 U.S.C. 
2(a)(12).

    Source: 41 FR 2511, Jan. 16, 1976, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  10.1  Scope and applicability of rules of practice.

    These rules of practice are generally applicable to adjudicatory 
proceedings before the Commodity Futures Trading Commission under the 
Commodity Exchange Act. These include proceedings for:
    (a) Denial, suspension, revocation, conditioning, restricting or 
modifying of registration as a futures commission merchant, retail 
foreign exchange dealer, introducing broker, or associated person, floor 
broker, floor trader, commodity pool operator, commodity trading advisor 
or leverage transaction merchant pursuant to sections 6(c), 8a(2), 
8a(3), 8a(4) and 8a(11) of the Act, 7 U.S.C. 9 and 15, 12a(2), 12a(3), 
12a(4) and 12(a)(11), or denial, suspension, or revocation of 
designation as a contract market pursuant to sections 6(a) and 6(b) of 
the Act, 7 U.S.C. 8;
    (b) The issuance of cease and desist orders pursuant to sections 6b 
and 6(d) of the Act, 7 U.S.C. 13a and 13b;
    (c) Denial of trading privileges pursuant to section 6(c) of the 
Act, 7 U.S.C. 9 and 15;
    (d) The assessment of civil penalties pursuant to sections 6(c) and 
6b of the Act, 7 U.S.C. 9 and 15 and 13a;
    (e) The issuance of restitution orders pursuant to section 6(c) of 
the Act, 7 U.S.C. 9; and
    (f) Any other proceedings where the Commission declares them to be 
applicable.

These rules do not apply to:
    (g) Investigations conducted pursuant to sections 8 and 16(a) of the 
Act, 7 U.S.C. 12 and 20(a), except as specifically made applicable by 
the Rules Relating to Investigations set forth in part 11 of this 
chapter;
    (h) Reparation proceedings under section 14 of the Act, 7 U.S.C. 18, 
except as specifically made applicable by the Rules Relating to 
Reparation Proceedings set forth in part 12 of this chapter;
    (i) Public rulemaking, except as specifically made applicable by the 
Rules Relating to Public Rulemaking Procedures sets forth in part 13 of 
this title.

The rules shall be construed to secure the just, speedy and inexpensive 
determination of every proceeding with full protection for the rights of 
all parties therein.

[41 FR 2511, Jan. 16, 1976, as amended at 49 FR 8225, Mar. 5, 1984; 57 
FR 19597, Apr. 15, 1993; 59 FR 5701, Feb. 8, 1994; 63 FR 55791, Oct. 19, 
1998; 64 FR 30903, June 9, 1999; 75 FR 55449, Sept. 10, 2010]



Sec.  10.2  Definitions.

    For purposes of this part:
    (a) Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1, et 
seq.;
    (b) Adjudicatory proceeding means a judicial-type proceeding leading 
to the formulation of a final order;
    (c) Administrative Law Judge means an administrative law judge 
appointed pursuant to the provisions of 5 U.S.C. 3105 (provisions of the 
rules in this part which refer to Administrative Law Judges may be 
applicable to other Presiding Officers as well, as set forth inSec. 
10.8);
    (d) Administrative Procedure Act means those provisions of the 
Administrative Procedure Act, as codified, which are contained in 5 
U.S.C. 551 through 559;
    (e) Commission means the Commodity Futures Trading Commission;
    (f) Complaint means any document initiating an adjudicatory 
proceeding, whether designated a complaint or an order for proceeding or 
otherwise;
    (g) Division of Enforcement means that office in the Commission that 
prosecutes a complaint issued by the Commission;
    (h) Hearing means that part of a proceeding which involves the 
submission of evidence, either by oral presentation or written 
submission;
    (i) Proceedings Clerk means that member of the Commission's staff 
designated as such in the Commission's Office of Proceedings.

[[Page 352]]

    (j) Order means the whole or any part of a final procedural or 
substantive disposition of a matter by the Commission or by the 
Presiding Officer in a matter other than rulemaking;
    (k) Party includes a person or agency named or admitted as a party 
to a proceeding;
    (l) Person includes an individual, partnership, corporation, 
association, exchange or other entity or organization;
    (m) Pleading means the complaint, the answer to the complaint, any 
supplement or amendment thereto, and any reply that may be permitted to 
any answer, supplement or amendment;
    (n) Presiding Officer means a member of the Commission, and 
Administrative Law Judge, or a hearing officer designated by the 
Commission to conduct a hearing on a specific matter, or the Commission 
itself, if it is to preside at or accept the introduction of evidence in 
a particular proceeding (provisions of the rules in this part which 
refer to Administrative Law Judges may be applicable to other Presiding 
Officers as well, as set forth inSec. 10.8);
    (o) Respondent means a party to an adjudicatory proceeding against 
whom findings may be made or relief or remedial action may be taken.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54801, Oct. 26, 1995]



Sec.  10.3  Suspension, amendment, revocation and waiver of rules.

    (a) These rules may, from time to time, be suspended, amended or 
revoked in whole or in part. Notice of such action will be published in 
the Federal Register.
    (b) In the interest of expediting decision or to prevent undue 
hardship on any party or for other good cause the Commission may order 
the adoption of expedited procedures and may waive any rule in subparts 
A through H of this part in a particular case and may order proceedings 
in accordance with its direction upon a determination that no party will 
be prejudiced and that the ends of justice will be served. Reasonable 
notice shall be given to all parties of any action taken pursuant to 
this provision.
    (c) The Presiding Officer, to expedite decision or to prevent undue 
hardship on any party, may waive any rule in subparts A through G of 
this part when neither party is prejudiced thereby. Reasonable notice 
shall be given to all parties of any action taken pursuant to this 
provision.
    (d) Notwithstanding any provision of this part, the Commission may 
in any proceeding commenced pursuant to section 6(c) of the Act require 
a respondent to show cause why an order should not be entered against 
the respondent and may specify a day and place for the hearing not less 
than three days after service upon the respondent of the Commission's 
complaint and notice of hearing in such proceeding.

(Secs. 2(a), 6(b) and 8a, 42 Stat. 1001, as amended, 49 Stat. 1498, 
1499, as amended 88 Stat.; 49 Stat. 1500, as amended, 88 Stat. 1392; 88 
Stat. 1389, 1391; 7 U.S.C. 4a, 9 and 12a)

[41 FR 2511, Jan. 16, 1976, as amended at 44 FR 61327, Oct. 25, 1979; 59 
FR 5701, Feb. 8, 1994]



Sec.  10.4  Business address; hours.

    The Office of Proceedings is located at Three Lafayette Centre, 1155 
21st Street NW., Washington, DC 20581. Faxes must be sent to (202) 418-
5532, and emails must be sent to [email protected]. The office is 
open from 8:15 a.m. to 4:45 p.m., Eastern Time, Monday through Friday, 
except on federal holidays.

[78 FR 12934, Feb. 26, 2013]



Sec.  10.5  Computation of time.

    In computing any period of time prescribed by these rules or allowed 
by the Commission or the Presiding Officer, the day of the act, event, 
or default from which the designated period of time begins to run shall 
not be included. The last day of the period so computed is to be 
included unless it is a Saturday, a Sunday, or a legal holiday; in which 
event the period runs until the end of the next day which is not a 
Saturday, a Sunday or a legal holiday. Intermediate Saturdays, Sundays, 
and legal holidays shall be excluded from the computation only when the 
period of time prescribed or allowed is less than seven days.

[[Page 353]]



Sec.  10.6  Changes in time permitted for filing.

    Except as otherwise provided by law or by these rules, for good 
cause shown the Commission or the Presiding Officer before whom a matter 
is then pending, on their own motion or the motion of a party, at any 
time may extend or shorten the time limit prescribed by the rules for 
filing any document. In any instance in which a time limit is not 
prescribed for an action to be taken in a proceeding, the Commission or 
the Presiding Officer may set a time limit for that action.



Sec.  10.7  Date of entry of orders.

    In computing any period of time involving the date of the entry of 
an order the date of entry shall be the date the order is served by the 
Proceedings Clerk.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54801, Oct. 26, 1995]



Sec.  10.8  Presiding officers.

    Unless otherwise determined by the Commission, all proceedings 
within the scope of this part shall be assigned to an Administrative Law 
Judge for hearing. If the Commission determines that a proceeding within 
the scope of this part shall be conducted before a Presiding Officer who 
is not an Administrative Law Judge, all provisions of this part or of 
part 3 of this chapter that refer to and grant authority to or impose 
obligations upon an Administrative Law Judge shall be read as referring 
to and granting authority to and imposing obligations upon the 
designated Presiding Officer.
    (a) Functions and responsibilities of Administrative Law Judge. The 
Administrative Law Judge shall be responsible for the fair and orderly 
conduct of the proceeding and shall have the authority to:
    (1) Administer oaths and affirmations;
    (2) Issue subpoenas;
    (3) Rule on offers of proof;
    (4) Receive relevant evidence;
    (5) Examine witnesses;
    (6) Regulate the course of the hearing;
    (7) Hold prehearing conferences;
    (8) Consider and rule upon all motions;
    (9) Make decisions in accordance withSec. 10.84 of these rules;
    (10) Certify interlocutory matters to the Commission for its 
determination in accordance withSec. 10.101 of these rules;
    (11) Take such action as is just or appropriate, if a party or agent 
of a party fails to comply with an order issued by the Administrative 
Law Judge;
    (12) Take any other action required to give effect to these Rules of 
Practice, including but not limited to requesting the parties to file 
briefs and statements of position with respect to any issue in the 
proceeding.
    (b) Disqualification of Administrative Law Judge--(1) At his own 
request. An Administrative Law Judge may withdraw from any proceeding 
when he considers himself to be disqualified. In such event he 
immediately shall notify the Commission and each of the parties of his 
withdrawal and of his reason for such action.
    (2) Upon the request of a party. Any party or person who has been 
granted leave to be heard pursuant to these rules may request an 
Administrative Law Judge to disqualify himself on the grounds of 
personal bias, conflict or similar bases. Interlocutory review of an 
adverse ruling by the Administrative Law Judge may be sought without 
certification of the matter by the Administrative Law Judge, in 
accordance with the procedures set forth inSec. 10.101.

[41 FR 2511, Jan. 16, 1976, as amended at 78 FR 12934, Feb. 26, 2013]



Sec.  10.9  Separation of functions.

    (a) An Administrative Law Judge will not be responsible to or 
subject to the supervision or direction of any officer, employee, or 
agent of the Commission engaged in the performance of investigative or 
prosecutorial functions for the Commission.
    (b) No officer, employee or agent of the Commission who is engaged 
in the performance of investigative or prosecuting functions in 
connection with any proceeding shall, in that proceeding or any 
factually related proceeding, participate or advise in the decision of 
the Administrative Law Judge or the Commission except as witness or

[[Page 354]]

counsel in the proceeding, without the express written consent of the 
respondents in the proceeding. This provision shall not apply to the 
members of the Commission.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55791, Oct. 19, 1998]



Sec.  10.10  Ex parte communications.

    (a) Definitions. For purposes of this section:
    (1) Commission decisional employee means employees of the Commission 
who are or may reasonably be expected to be involved in the 
decisionmaking process in any proceeding, including, but not limited to:
    (i) Members of the personal staffs of the Commissioners;
    (ii) Members of the staffs of the Administrative Law Judges;
    (iii) The Deputy General Counsel for Opinions and Review and staff 
of the Office of General Counsel.
    (iv) Members of the staff of the Office of Proceedings; and
    (v) Other Commission employees who may be assigned to hear or to 
participate in the decision of a particular matter;
    (2) Ex parte communication means an oral or written communication 
not on the public record with respect to which reasonable prior notice 
to all parties is not given, but does not include requests for status 
reports on any matter or proceeding covered by this part;
    (3) Interested person includes parties and other persons who might 
be adversely affected or aggrieved by the outcome of a proceeding; their 
officers, agents, employees, associates, affiliates, attorneys, 
accountants or other representatives; and any other person having a 
direct or indirect pecuniary or other interest in the outcome of a 
proceeding;
    (4) Party includes a person or agency named or admitted as a party, 
or properly seeking and entitled as of right to be admitted as a party, 
to a proceeding, and a person or agency permitted limited participation 
or to state views in a proceeding by the Commission.
    (b) Prohibitions against ex parte communications. (1) No interested 
person outside the Commission shall make or knowingly cause to be made 
to any Commissioner, Administrative Law Judge or Commission decisional 
employee an ex parte communication relevant to the merits of a 
proceeding.
    (2) No Commissioner, Administrative Law Judge or Commission 
decisional employee shall make or knowingly cause to be made to any 
interested person outside the Commission an ex parte communication 
relevant to the merits of a proceeding.
    (c) Procedures for handling ex parte communications. A Commissioner, 
Administrative Law Judge or Commission decisional employee who receives, 
or who makes or knowingly causes to be made, an ex parte communication 
prohibited by paragraph (b) of this section shall:
    (1) Place on the public record of the proceeding:
    (i) All such written communications;
    (ii) Memoranda stating the substance of all such oral 
communications; and
    (iii) All written responses, and memoranda stating the substance of 
all oral responses, to the materials described in paragraphs (c) (1)(i) 
and (1)(ii) of this section; and
    (2) Promptly give written notice of such communication and responses 
thereto to all parties to the proceedings to which the communication or 
responses relate.
    (d) Sanctions. (1) Upon receipt of an ex parte communication 
knowingly made or knowingly caused to be made by a party in violation of 
the prohibition contained in paragraph (b)(1) of this section, the 
Commission, Administrative Law Judge or other Commission employee 
presiding at the hearing may, to the extent consistent with the 
interests of justice and the policy of the Act, require the party to 
show cause why his claim or interest in the proceeding should not be 
dismissed, denied, disregarded, or otherwise adversely affected on 
account of such violation.
    (2) Any attorney or accountant who knowingly makes or knowingly 
causes to be made, or who knowingly solicits or knowingly causes the 
solicitation of, an ex parte communication which violates the 
prohibitions contained in paragraph (b) of this section may, on

[[Page 355]]

that basis alone, be deemed to have engaged in unprofessional conduct of 
the type proscribed by 17 CFR 14.8(c).
    (3) Any Commissioner, Administrative Law Judge or Commission 
decisional employee who knowingly makes or knowingly cause to be made, 
or who knowingly solicits or knowingly causes the solicitation of, an ex 
parte communication which violates the prohibitions contained in 
paragraph (b) of this section may, on that basis alone, be deemed to 
have engaged in conduct of the type proscribed by 17 CFR 140.735-
3(b)(3).
    (e) Applicability of prohibitions and sanctions against ex parte 
communications. (1) The prohibitions of this section against ex parte 
communications shall apply:
    (i) To any person who has actual knowledge that a proceeding has 
been or will be commenced by order of the Commission; and
    (ii) To all persons after public notice has been given that a 
proceeding has been or will be commenced by order of the Commission.
    (2) The prohibitions of this section shall remain in effect until a 
final order has been entered in the proceeding which is no longer 
subject to review or reconsideration by the Commission or to review by 
any court.
    (3) Nothing in this section shall constitute authority to withhold 
information from Congress.

(Sec. 4, Pub. L. 94-409, 90 Stat. 1246, 1247 (5 U.S.C. 551(14), 556(d) 
and 557(d)); sec. 101(a)(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C. 
4a(j) (Supp. V, 1975))

[42 FR 13700, Mar. 11, 1977, as amended at 60 FR 54801, Oct. 26, 1995]



Sec.  10.11  Appearance in adjudicatory proceedings.

    (a) Appearance--(1) By non-attorneys. An individual may appear pro 
se (in his own behalf), a member of a partnership may represent the 
partnership, a bona fide officer of a corporation, trust or association 
may represent the corporation, trust or association, an officer or 
employee of a State Commission or of a department or political 
subdivision of a State may represent the State Commission or the 
department or political subdivision of the State in any proceeding.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest Court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with the provisions of part 
14 of this title, may represent parties in proceedings before the 
Commission.
    (b) Debarment of counsel or representative by administrative law 
judge during the course of a proceeding. (1) Whenever, while a 
proceeding is pending before him, the Administrative Law Judge finds 
that a person acting as counsel or representative for any party to the 
proceeding is guilty of contemptuous conduct, the Administrative Law 
Judge may order that such person be precluded from further acting as 
counsel or representative in such proceeding. An immediate appeal to the 
Commission may be sought from any such order, pursuant to the terms of 
Sec.  10.101, but the proceeding shall not be delayed or suspended 
pending disposition of the appeal: Provided, That the Administrative Law 
Judge may suspend the proceedings for a reasonable time for the purpose 
of enabling the party to obtain other counsel or representative.
    (2) Whenever the Administrative Law Judge has issued an order 
precluding a person from further acting as counsel for representative in 
the proceeding, the Administrative Law Judge within a reasonable time 
thereafter, shall submit to the Commission a report of the facts and 
circumstances surrounding the issuance of the order and shall recommend 
what action the Commission should take respecting the appearance of such 
person as counsel or representative in other proceedings before the 
Commission.



Sec.  10.12  Service and filing of documents; form and execution.

    (a) Service by a party or other participant in a proceeding. (1) 
When one party serves another with documents under these rules, a copy 
must be served on all other parties as well as filed with the 
Proceedings Clerk. Similarly, when a person files a document with the 
Office of Proceedings, the person must serve a copy of the document on 
all other parties.

[[Page 356]]

    (2) How service is made. Service shall be made by:
    (i) Personal service;
    (ii) First-class or a more expeditious form of United States mail or 
an overnight or similar commercial delivery service;
    (iii) Facsimile (``fax''); or
    (iv) Electronic mail (``email'').
    (3) Service by email or fax shall be permitted at the discretion of 
the Presiding Officer, with the parties' consent. The consent of a party 
must specify the email address or fax number to be used. Signed 
documents that are served by email must be in PDF or other non-alterable 
form.
    (4) Service will be complete at the time of personal service; upon 
deposit in the mail or with an overnight or similar commercial delivery 
service of a properly addressed document for which all postage or 
delivery service fees have been paid; or upon transmission by fax or 
email. Service by email or by fax will not be effective if the party 
making service learns that the attempted service did not reach the 
person to be served.
    (5) Where service is effected by mail or a commercial delivery 
service (but not by fax or email), the time within which the person 
being served may respond shall be extended by five (5) days.
    (6) Statement of service. A statement of service shall be made by 
filing with the Proceedings Clerk, simultaneously with the filing of the 
document, a statement signed by the party making service or by his 
attorney or representative that:
    (i) Confirms that service has been made,
    (ii) Identifies each person served,
    (iii) Sets forth the date of service, and
    (iv) Recites the manner of service.
    (b) Service of decisions and orders. A copy of all rulings, opinions 
and orders shall be served by the Proceedings Clerk on each of the 
parties.
    (c) Designation of person to receive service. The first page of the 
first document filed in a proceeding by a party or participant must 
include the name and contact information of a person authorized to 
receive service on the party or participant's behalf. Contact 
information must include a post office address and daytime telephone 
number, and should also include the person's fax or email. Thereafter 
service of documents shall be made upon the person authorized unless 
service on the party himself is ordered by the Administrative Law Judge 
or the Commission, or unless no person authorized to receive service can 
be found, or unless the person authorized to receive service is changed 
by the party upon due notice to all other parties.
    (d) Filing of documents with the Proceedings Clerk. (1) All 
documents which are required to be served upon a party shall be filed 
concurrently with the Proceedings Clerk. A document shall be filed by 
delivering it in person or by first-class mail or a more expeditious 
form of United States mail or by overnight or similar commercial 
delivery service to Proceedings Clerk, Office of Proceedings, Three 
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581; or faxing 
the document to (202) 418-5532; or emailing it to [email protected] 
in accordance with the conditions set forth in paragraph (a)(2) of this 
section.
    (2) To be timely filed under this part, a document must be delivered 
in person; mailed by first-class or a more expeditious form of United 
States mail or by an overnight or similar commercial delivery service; 
or faxed or emailed to the Proceedings Clerk within the time prescribed 
for filing.
    (e) Formalities of filing. (1) An original of all documents shall be 
filed with the Proceedings Clerk. If a party files a document with the 
Proceedings Clerk by fax or email, they should not also send paper 
copies.
    (2) First page. The first page of all documents filed with the 
Proceedings Clerk must include the Commission's name, the docket number, 
the title of proceeding, the subject of the document, and the name of 
the person on whose behalf the document is being filed. In subsequent 
filings, the case title may be abbreviated by listing the name of the 
first respondent, followed by ``et al.'' In the complaint, the title of 
the action shall include the names of all the respondents, but in 
documents subsequently filed it is sufficient to state the name of the 
first respondent

[[Page 357]]

named in the complaint with an appropriate indication of other parties.
    (3) Format. Documents must be legible and printed on normal white 
paper of eight and one half by eleven inches. The typeface, margins, and 
spacing of all documents presented for filing must meet the following 
requirements: all text must be 12-point type or larger, except for text 
in footnotes which may be 10-point type; all documents must have at 
least one-inch margins on all sides; all text must be double-spaced, 
except for headings, text in footnotes, or block quotations, which may 
be single-spaced. Emailed documents must be in PDF or other non-
alterable form.
    (4) Signatures. (i) The original of all documents must be signed by 
the person filing the same or by his duly authorized agent or attorney.
    (ii) Effect. The signature on any document of any person acting 
either for himself or as attorney or agent for another constitutes 
certification by him that:
    (A) He has read the document and knows the contents thereof;
    (B) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (C) To the best of his knowledge, information, and belief, every 
statement contained in the document is true and not misleading; and
    (D) The document is not being interposed for delay.
    (5) Length and form of briefs. All briefs of more than fifteen pages 
shall include an index and a table of cases and other authorities cited. 
No brief shall exceed 50 pages in length without prior permission of the 
Presiding Officer or the Commission.
    (f) Official docket. The Proceedings Clerk will maintain the 
official docket for each proceeding. The official docket is available 
for public inspection in the Commission's Office of Proceedings.

[41 FR 2511, Jan. 16, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 54802, Oct. 26, 1995; 63 FR 55791, Oct. 19, 1998; 73 FR 63360, Oct. 
24, 2008; 78 FR 12935, Feb. 26, 2013]



 Subpart B_Institution of Adjudica- tory Proceedings; Pleadings; Motions



Sec.  10.21  Commencement of the proceeding.

    An adjudicatory proceeding is commenced when a complaint and notice 
of hearing is filed with the Office of Proceedings.

[63 FR 55791, Oct. 19, 1998; 63 FR 68829, Dec. 14, 1998]



Sec.  10.22  Complaint and notice of hearing.

    (a) Content. The complaint and notice of hearing shall include:
    (1) The legal authority and jurisdiction under which the hearing is 
held;
    (2) The matters of fact and law to be considered and determined.

The complaint shall set forth the matters of fact alleged therein in 
such manner as will permit a specific response to each allegation. The 
notice shall notify the respondent of his right to a hearing and shall 
specify the time required bySec. 10.23 of these rules for the filing 
of an answer and the consequence of failure to file an answer.
    (b) Service. The Proceedings Clerk shall give appropriate notice to 
each respondent by serving them with a copy of the complaint and notice 
of hearing. Service may be made in person, by confirmed telegraphic 
notice, or by registered mail or certified mail, addressed to the last 
known business or residence address of the person to be served or the 
address of his duly authorized agent for service. If a respondent is not 
found at his last known business or residence address and no forwarding 
address is available, additional service may be made, at the discretion 
of the Commission, as follows:
    (1) By publishing a notice of the filing of the proceeding and a 
summary of the complaint, approved by the Commission or the 
Administrative Law Judge, once a week for three consecutive weeks in one 
or more newspapers having a general circulation where the respondent's 
last known business or residence address was located and, if 
ascertainable, where the respondent is believed to reside or be doing 
business currently; and

[[Page 358]]

    (2) By continuously displaying the complaint on the Commission's 
Internet web site during the period referred to in paragraph (b)(1) of 
this section.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55791, Oct. 19, 1998]



Sec.  10.23  Answer.

    (a) When required. Following service of a complaint and notice of 
hearing as set forth inSec. 10.22 of these rules, unless otherwise 
specified in the notice of hearing, each respondent shall file an answer 
with the Proceedings Clerk within 20 days.
    (b) Content of answer. The answer shall include:
    (1) A statement that the respondent admits, denies, or does not have 
and is unable to obtain sufficient information to admit or deny each 
allegation; a statement of a lack of information shall have the effect 
of a denial; any allegation not expressly denied shall be deemed to be 
admitted;
    (2) A statement of the facts supporting each affirmative defense.
    (c) Effect of failure to file answer. A party who fails to file an 
answer within 20 days shall be in default and, pursuant to procedures 
set forth inSec. 10.93 of these rules, the proceeding may be 
determined against him by the Administrative Law Judge upon his 
consideration of the complaint, the allegations of which shall then be 
deemed to be true.
    (d) Admission of all allegations of fact. If a respondent's answer 
admits the truth of all the material allegations of fact contained in 
the complaint, it shall constitute a waiver of hearing on those 
allegations. However, the Administrative Law Judge may conduct a 
hearing, if so requested, by any of the parties. Following waiver, the 
parties may submit proposed findings and conclusions and briefs, as 
provided inSec. 10.82 and may appeal any initial decision to the 
Commission as provided inSec. 10.102 of these rules.
    (e) Motion for more definite statement. Where a reasonable showing 
is made by a respondent that he cannot frame a responsive answer based 
on the allegations in the complaint, he may move for a more definite 
statement of the charges against him before filing an answer. A motion 
for a more definite statement shall be filed within ten days after 
service of the complaint and shall specify the defects complained of and 
the particular allegation as to which a more definite statement is 
sought.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.24  Amendments and supplemental pleadings.

    (a) Complaint and notice of hearing. The Commission may, at any 
time, amend the complaint and notice of hearing in any proceeding. If 
the Commission so amends the complaint and notice of hearing, the 
Administrative Law Judge shall adjust the scheduling of the proceeding 
to the extent necessary to avoid any prejudice to any of the parties to 
the proceeding. Upon motion to the Administrative Law Judge and with 
notice to all other parties and the Commission, the Division of 
Enforcement may amend a complaint to correct typographical and clerical 
errors or to make other technical, non-substantive revisions within the 
scope of the original complaint.
    (b) Other pleadings. Except for the complaint and notice of hearing, 
a party may amend any pleading once as a matter of course at any time 
before a responsive pleading is served or, if the pleading is one to 
which no responsive pleading is permitted, he may amend it within 20 
days after it is served. Otherwise a party may amend a pleading only by 
leave of the Administrative Law Judge, which shall be freely given when 
justice so requires.
    (c) Response to amended pleadings. Any party may file a response to 
any amendment to any pleading, including the complaint, within ten days 
after the date of service upon him of the amendment or within the time 
provided to respond to the original pleading, whichever is later.
    (d) Pleadings to conform to the evidence. When issues not raised by 
the pleadings but reasonably within the scope of a proceeding initiated 
by the complaint are tried with the express or implied consent of the 
parties, they

[[Page 359]]

shall be treated in all respects as if they had been raised in the 
pleadings.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55791, Oct. 19, 1998]



Sec.  10.25  Form of pleadings.

    All averments of claim and defense shall be made in consecutively 
numbered paragraphs. The contents of each paragraph shall be limited as 
far as practicable to a single set of circumstances.



Sec.  10.26  Motions and other papers.

    (a) Presentation. An application for a form of relief not otherwise 
specifically provided for in these rules shall be made by motion, filed 
with the Proceedings Clerk, which shall be in writing unless made on the 
record during a hearing. The motion shall state: (1) The relief sought; 
(2) the basis for relief; and (3) the authority relied upon. If a motion 
is supported by briefs, affidavits or other papers, they shall be served 
and filed with the motion. All motions and applications, unless 
otherwise provided in these rules, shall be directed to the 
Administrative Law Judge prior to the filing of an initial decision in a 
proceeding, and to the Commission after the initial decision has been 
filed.
    (b) Answers to motions. Any party may serve and file a written 
response to a motion within ten days after service of the motion upon 
him or within such longer or shorter period as established by these 
rules or as the Administrative Law Judge or the Commission may direct. 
The absence of a response to a motion may be considered by the 
Administrative Law Judge or the Commission in deciding whether to grant 
the requested relief.
    (c) Motions for procedural orders. Motions for procedural orders, 
including motions for extension of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such order may request reconsideration, vacation or modification of the 
order.
    (d) Dilatory motions. Repetitive or numerous motions dealing with 
the same subject matter shall not be permitted.
    (e) Review by the Commission. Interloctory review by the Commission 
of a ruling on a motion by an Administrative Law Judge may be sought in 
accordance with the procedures and under the circumstances set forth in 
Sec.  10.101 of these rules.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55791, Oct. 19, 1998]



               Subpart C_Parties and Limited Participation



Sec.  10.31  Parties.

    The parties to an adjudicatory proceeding shall include the Division 
of Enforcement, each respondent named in the complaint and each person 
permitted to intervene pursuant toSec. 10.33 of these rules. A 
respondent shall cease to be a party or purposes of a pending proceeding 
when (a) a default order is entered against him pursuant toSec. 10.93; 
or (b) the Commission accepts an offer of settlement pursuant toSec. 
10.108 of these rules.



Sec.  10.32  Substitution of parties.

    Upon motion and for good cause shown the Administrative Law Judge 
may order a substitution of parties.



Sec.  10.33  Intervention as a party.

    (a) Petition for Leave to Intervene. Any person whose interests may 
be affected substantially by the matters to be considered in a 
proceeding may petition the Administrative Law Judge for leave to 
intervene as a party in the proceeding any time after the institution of 
a proceeding and before such proceeding has been submitted for final 
consideration. Petitions for leave to intervene shall be in writing and 
shall set forth with specificity the nature of the petitioner's interest 
in the proceeding and the manner in which his interests may be affected 
substantially. The Administrative Law Judge may direct a petitioner 
requesting intervention to submit himself for examination as to his 
interest in the proceeding.
    (b) Response to petition. A petition for leave to intervene shall be 
served by the petitioner upon all parties to the proceeding, who may 
support or oppose the petition in a document filed within ten days after 
service of the petition upon them or within such other period

[[Page 360]]

as the Administrative Law Judge may direct in a particular case.
    (c) Leave to intervene--when granted. No person shall be admitted as 
a party to a proceeding by intervention unless the Administrative Law 
Judge is satisfied that (1) a substantial interest of the person seeking 
to intervene may be adversely affected by the matter to be considered in 
the proceeding; (2) that his intervention will not materially prejudice 
the rights of any party, through delay or otherwise; (3) that his 
participation as a party will otherwise be consistent with the public 
interest; and (4) that leave to be heard pursuant toSec. 10.34 would 
be inadequate for the protection of his interests. The burden shall be 
upon the petitioner to satisfy the Administrative Law Judge on these 
issues.
    (d) Rights of intervenor. A person who has been granted leave to 
intervene shall from that time forward have all the rights and 
responsibilities of a party to the proceeding.



Sec.  10.34  Limited participation.

    (a) Petitions for leave to be heard. Any person may, in the 
discretion of the Administrative Law Judge, be given leave to be heard 
in any proceeding as to any matter affecting his interests. Petitions 
for leave to be heard shall be in writing, shall set forth (1) the 
nature and extent of the applicant's interest in the proceeding; (2) the 
issues on which he wishes to participate; and (3) in what manner he 
wishes to participate. The Administrative Law Judge may direct any 
person requesting leave to be heard to submit himself to examination as 
to his interest in the proceeding.
    (b) Rights of a participant. Leave to be heard pursuant toSec. 
10.34(a) may include such rights of a party as the Administrative Law 
Judge may deem appropriate, except that oral argument before the 
Commission may be permitted only by the Commission.



Sec.  10.35  Permission to state views.

    Any person may, in the discretion of the Administrative Law Judge be 
permitted to file a memorandum or make an oral statement of his views, 
and the Administrative Law Judge may, in his discretion, accept for the 
record written communications received from any person.



Sec.  10.36  Commission review of rulings.

    Interlocutory review by the Commission of a ruling as to matters 
within the scope ofSec. 10.33,Sec. 10.34 orSec. 10.35 may be 
sought in accordance with the procedures set forth inSec. 10.101 of 
these rules without certification by the Administrative Law Judge.



  Subpart D_Prehearing Procedures; Prehearing Conferences; Discovery; 
                               Depositions



Sec.  10.41  Prehearing conferences; procedural matters.

    In any proceeding the Administrative Law Judge may direct that one 
or more conferences be held for the purpose of:
    (a) Clarifying issues;
    (b) Examining the possibility of obtaining stipulations, admissions 
of fact and of authenticity or contents of documents;
    (c) Determining matters of which official notice may be taken;
    (d) Discussing amendments to pleadings;
    (e) Limiting the number of witnesses;
    (f) Considering objections to the introduction of documentary 
evidence and the testimony of witnesses identified in prehearing 
materials filed or otherwise furnished by the parties pursuant toSec. 
10.42;
    (g) Discussing adoption of shortened procedures pursuant toSec. 
10.92;
    (h) Promoting a fair and expeditious hearing.

At or following the conclusion of a prehearing conference, the 
Administrative Law Judge shall serve a prehearing memorandum containing 
agreements reached and any procedural determinations made by him, unless 
the conference shall have been recorded and transcribed in written form 
and a copy of the transcript has been made available to each party.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55791, Oct. 19, 1998]

[[Page 361]]



Sec.  10.42  Discovery.

    (a) Prehearing materials--(1) In general. Unless otherwise ordered 
by an Administrative Law Judge, the parties to a proceeding shall 
furnish to all other parties to the proceeding on or before a date set 
by the Administrative Law Judge in the form of a prehearing memorandum 
or otherwise:
    (i) An outline of its case or defense;
    (ii) The legal theories upon which it will rely;
    (iii) The identity, and the city and state of residence, of each 
witness, other than an expert witness, who is expected to testify on its 
behalf, along with a brief summary of the matters to be covered by the 
witness's expected testimony;
    (iv) A list of documents which it intends to introduce at the 
hearing, along with copies of any such documents which the other parties 
do not already have in their possession and to which they do not have 
reasonably ready access.
    (2) Expert witnesses. Unless otherwise ordered by the Administrative 
Law Judge, in addition to the information described in paragraph (a)(1) 
of this section, any party who intends to call an expert witness shall 
also furnish to all other parties to the proceeding on or before a date 
set by the Administrative Law Judge:
    (i) A statement identifying the witness and setting forth his or her 
qualifications;
    (ii) A list of any publications authored by the witness within the 
preceding ten years;
    (iii) A list of all cases in which the witness has testified as an 
expert, at trial or in deposition, within the preceding four years;
    (iv) A complete statement of all opinions to be expressed by the 
witness and the basis or reasons for those opinions; and
    (v) A list of any documents, data or other written information which 
were considered by the witness in forming his or her opinions, along 
with copies of any such documents, data or information which the other 
parties do not already have in their possession and to which they do not 
have reasonably ready access.
    (3) The foregoing procedures shall not be deemed applicable to 
rebuttal evidence submitted by any party at the hearing.
    (4) In any action where a party fails to comply with the 
requirements of this paragraph (a), the Administrative Law Judge may 
make such orders in regard to the failure as are just, taking into 
account all of the relevant facts and circumstances of the failure to 
comply.
    (b) Investigatory materials--(1) In general. Unless otherwise 
ordered by the Commission or the Administrative Law Judge, the Division 
of Enforcement shall make available for inspection and copying by the 
respondents, prior to the scheduled hearing date, any of the following 
documents that were obtained by the Division prior to the institution of 
proceedings in connection with the investigation that led to the 
complaint and notice of hearing:
    (i) All documents that were produced pursuant to subpoenas issued by 
the Division or otherwise obtained from persons not employed by the 
Commission, together with each subpoena or written request, or relevant 
portion thereof, that resulted in the furnishing of such documents to 
the Division; and
    (ii) All transcripts of investigative testimony and all exhibits to 
those transcripts.
    (2) Documents that may be withheld. The Division of Enforcement may 
withhold any document that would disclose:
    (i) The identity of a confidential source;
    (ii) Confidential investigatory techniques or procedures;
    (iii) Separately the market positions, business transactions, trade 
secrets or names of customers of any persons other than the respondents, 
unless such information is relevant to the resolution of the proceeding;
    (iv) Information relating to, or obtained with regard to, another 
matter of continuing investigatory interest to the Commission or another 
domestic or foreign governmental entity, unless such information is 
relevant to the resolution of the proceeding; or
    (v) Information obtained from a domestic or foreign governmental 
entity or from a foreign futures authority

[[Page 362]]

that either is not relevant to the resolution of the proceeding or was 
provided on condition that the information not be disclosed or that it 
only be disclosed by the Commission or a representative of the 
Commission as evidence in an enforcement or other proceeding.
    (3) Nothing in paragraphs (b)(1) and (b)(2) of this section shall 
limit the ability of the Division of Enforcement to withhold documents 
or other information on the grounds of privilege, the work product 
doctrine or other protection from disclosure under applicable law. When 
the investigation by the Division of Enforcement that led to the pending 
proceeding encompasses transactions, conduct or persons other than those 
involved in the proceeding, the requirements of (b)(1) of this section 
shall apply only to the particular transaction, conduct and persons 
involved in the proceeding.
    (4) Index of withheld documents. When documents are made available 
for inspection and copying pursuant to paragraph (b)(1) of this section, 
the Division of Enforcement shall furnish the respondents with an index 
of all documents that are withheld pursuant to paragraphs (b)(2) or 
(b)(3) of this section, except for any documents that are being withheld 
because they disclose information obtained from a domestic or foreign 
governmental entity or from a foreign futures authority on condition 
that the information not be disclosed or that it only be disclosed by 
the Commission or a representative of the Commission as evidence in an 
enforcement or other proceeding, in which case the Division shall inform 
the other parties of the fact that such documents are being withheld at 
the time it furnishes its index under this paragraph, but no further 
disclosures regarding those documents shall be required. This index 
shall describe the nature of the withheld documents in a manner that, to 
the extent practicable without revealing any information that itself is 
privileged or protected from disclosure by law or these rules, will 
enable the other parties to assess the applicability of the privilege or 
protection claimed.
    (5) Arrangements for inspection and copying. Upon request by the 
respondents, all documents subject to inspection and copying pursuant to 
this paragraph (b) shall be made available to the respondents at the 
Commission office nearest the location where the respondents or their 
counsel live or work. Otherwise, the documents shall be made available 
at the Commission office where they are ordinarily maintained or at any 
other location agreed upon by the parties in writing. Upon payment of 
the appropriate fees set forth in appendix B to part 145 of this 
chapter, any respondent may obtain a photocopy of any document made 
available for inspection. Without the prior written consent of the 
Division of Enforcement, no respondent shall have the right to take 
custody of any documents that are made available for inspection and 
copying, or to remove them from Commission premises.
    (6) Failure to make documents available. In the event that the 
Division of Enforcement fails to make available documents subject to 
inspection and copying pursuant to this paragraph (b), no rehearing or 
reconsideration of a matter already heard or decided shall be required, 
unless the respondent demonstrates prejudice caused by the failure to 
make the documents available.
    (7) Requests for confidential treatment; protective orders. If a 
person has requested confidential treatment of information submitted by 
him or her, either pursuant to rules adopted by the Commission under the 
Freedom of Information Act (part 145 of this chapter) or under the 
Commission's Rules Relating to Investigations (part 11 of this chapter), 
the Division of Enforcement shall notify him or her, if possible, that 
the information is to be disclosed to parties to the proceeding and he 
or she may apply to the Administrative Law Judge for an order protecting 
the information from disclosure, consideration of which shall be 
governed bySec. 10.68(c)(2).
    (c) Witness statements--(1) In general. Each party to an 
adjudicatory proceeding shall make available to the other parties any 
statement of any person whom the party calls, or expects to call, as a 
witness that relates to the anticipated testimony of the witness and is 
in the party's possession. Such statements shall include the following:

[[Page 363]]

    (i) Transcripts of investigative, deposition, trial or similar 
testimony given by the witness,
    (ii) Written statements signed by the witness, and
    (iii) Substantially verbatim notes of interviews with the witness, 
and all exhibits to such transcripts, statements and notes. For purposes 
of this paragraph (c), ``substantially verbatim notes'' means notes that 
fairly record the exact words of the witness, subject to minor, 
inconsequential deviations. Such statements shall include memoranda and 
other writings authored by the witness that contain information relating 
to his anticipated testimony. The Division of Enforcement shall produce 
witness statements pursuant to this paragraph prior to the scheduled 
hearing date, at a time to be designated by the Administrative Law 
Judge. Respondents shall produce witness statements pursuant to this 
paragraph at the close of the Division's case in chief during the 
hearing. If necessary, the Administrative Law Judge shall, upon request, 
grant the Division a continuance of the hearing in order to review and 
analyze any witness statements produced by the respondents.
    (2) Nothing in paragraph (c)(1) of this section shall limit the 
ability of a party to withhold documents or other information on the 
grounds of privilege, the work product doctrine or other protection from 
disclosure under applicable law.
    (3) Index of withheld documents. When a party makes witness 
statements available pursuant to paragraph (c)(1) of this section, he or 
she shall furnish each of the other parties with an index of all 
documents that the party is withholding on the grounds of privilege or 
work product. This index shall describe the nature of the withheld 
documents in a manner that, to the extent practicable without revealing 
information that itself is privileged or protected from disclosure by 
law or these rules, will enable the other parties to assess the 
applicability of the privilege or protection claimed.
    (4) Failure to produce witness statements. In the event that a party 
fails to make available witness statements subject to production 
pursuant to this section, no rehearing or reconsideration of a matter 
already heard or decided shall be required, unless another party 
demonstrates prejudice caused by the failure to make the witness 
statements available.
    (d) Modification of production requirements. The Administrative Law 
Judge shall modify any of the requirements of paragraphs (a) through (c) 
of this section that any party can show is unduly burdensome or is 
otherwise inappropriate under all the circumstances.
    (e) Admissions--(1) Request for admissions. Any party may serve upon 
any other party, with a copy to the Proceedings Clerk, a written request 
for admission of the truth of any facts relevant to the pending 
proceeding set forth in the request. Each matter of which an admission 
is requested shall be separately set forth. Unless prior written 
approval is obtained from the Administrative Law Judge, the number of 
requests shall not exceed 50 in number including all discrete parts and 
subparts.
    (2) Response. A matter shall be considered to be admitted unless, 
within 15 days after service of the request, or within such other time 
as the Administrative Law Judge may allow, the party upon whom the 
request is directed serves upon the requesting party a sworn written 
answer or objection to the matter. If objection is made, the reasons 
therefor shall be stated. The response shall specifically deny the 
matter or set forth in detail the reasons why the answering party cannot 
truthfully admit or deny the matter. A denial shall fairly meet the 
substance of the requested admission and when good faith requires that a 
party qualify his answer and deny only a part of the matter, he shall 
specify so much of it as is true and qualify or deny the remainder. An 
answering party may not give a lack of information or knowledge as a 
reason for failure to admit or deny unless he states that he has made 
reasonable inquiry and that the information known or reasonably 
available to him is insufficient to enable him to admit or deny. A party 
who considers that a matter of which an admission has been requested 
presents a genuine issue for trial may not, on that ground alone, object 
to the request; he may

[[Page 364]]

deny the matter or set forth reasons why he cannot admit or deny it.
    (3) Determining sufficiency of answers or objections. The party who 
has requested the admissions may move to determine the sufficiency of 
the answers or objections. Unless the objecting party sustains his 
burden of showing that the objection is justified, the Administrative 
Law Judge shall order that an answer be served. If the Administrative 
Law Judge determines that an answer does not comply with the 
requirements of this rule, he may order either that the matter is 
admitted or that an amended answer be served.
    (4) Effect of admission. Any matter admitted under this rule is 
conclusively established and may be used at a hearing as against the 
party who made the admission. However, the Administrative Law Judge may 
permit withdrawal or amendment when the presentation on the merits of 
the proceeding will be served thereby and the party who obtains the 
admission fails to satisfy the Administrative Law Judge that withdrawal 
or amendment will prejudice him in maintaining his action or defense on 
the merits.
    (f) Objections to authenticity or admissibility of documents--(1) 
Identification of documents. The Administrative Law Judge, acting on his 
or her own initiative or upon motion by any party, may direct each party 
to serve upon the other parties, with a copy to the Proceedings Clerk, a 
list identifying the documents that it intends to introduce at the 
hearing and requesting the other parties to file and serve a response 
disclosing any objection, together with the factual or legal grounds 
therefor, to the authenticity or admissibility of each document 
identified on the list. A copy of each document identified on the list 
shall be served with the request, unless the party being served already 
has the document in his possession or has reasonably ready access to it.
    (2) Objections to authenticity or admissibility. Within 20 days 
after service or at such other time as may be designated by the 
Administrative Law Judge, each party upon whom the list described in 
paragraph (f)(1) of this section was served shall file a response 
disclosing any objection, together with the factual or legal grounds 
therefor, to the authenticity or admissibility of each document 
identified on the list. Except for relevance, waste of time or needless 
presentation of cumulative evidence, all objections not raised may be 
deemed waived.
    (3) Rulings on objections. In his or her discretion, the 
Administrative Law Judge may treat as a motion in limine any list served 
by a party pursuant to paragraph (f)(1) of this section, where any other 
party has filed a response objecting to the authenticity or the 
admissibility on any item listed. In that event, after affording the 
parties an opportunity to file briefs containing arguments on the motion 
to the degree necessary for a decision, the ALJ may rule on any 
objection to the authenticity or admissibility of any document 
identified on the list in advance of trial, to the extent appropriate.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55792, Oct. 19, 1998; 63 FR 68829, Dec. 14, 1998]



Sec.  10.43  Stipulations.

    The parties may by stipulation in writing at any stage of the 
proceeding, or orally made at hearing, agree upon any pertinent facts in 
the proceeding. It is desirable that the facts be thus agreed upon so 
far as and whenever practicable. Stipulations may be received in 
evidence at a hearing and when received in evidence shall be binding on 
the parties thereto.



Sec.  10.44  Depositions and interrogatories.

    (a) When permitted. If it appears that:
    (1) A prospective witness will be unable to attend or testify at a 
hearing on the basis of age, illness, infirmity, imprisonment or on the 
basis that he is or will be outside of the United States at the time of 
the hearing (unless it appears that the absence of the witness was 
procured by the party seeking to take the deposition),
    (2) His testimony is material,
    (3) It is necessary to take his deposition in the interest of 
Justice, the Administrative Law Judge may by order

[[Page 365]]

direct that his deposition be taken either orally or in the form of 
written interrogatories, and may issue a subpoena to compel the 
attendance of the witness for deposition.
    (b) Application for deposition. Any party desiring to take the 
deposition of a witness shall make application in writing to the 
Administrative Law Judge for an order to take deposition. In addition to 
the showing required inSec. 10.44(a), the application shall include:
    (1) The name and post office address of the witness;
    (2) The specific matters concerning which the witness is expected to 
testify and their relevance;
    (3) The reasons why the deposition should be taken, supported by 
affidavits and a physician's certificate, where appropriate;
    (4) The time when, the place where, and the name and address of the 
person before whom the deposition is to be taken;
    (5) A specification of the documents and materials which the 
deponent is requested to produce;
    (6) Application for any subpoenas.
    (c) Service and reply. A copy of the application to take deposition 
shall be served upon every other party to the proceeding and upon the 
person sought to be deposed. Any party or the deponent may serve and 
file an opposition to the application within seven days after the 
application is filed.
    (d) Time when, place where, and officer before whom deposition is 
taken--(1) Where the deposition is taken. Unless otherwise ordered or 
agreed to by stipulation, depositions shall be taken in the city or 
municipality where the deponent is located.
    (2) Officer before whom taken. (i) Within the United States or a 
territory of the United States, depositions shall be taken before an 
officer authorized to administer oaths by the laws of the United States 
or of the place where the examination is held.
    (ii) Within a foreign country, depositions may be taken before an 
officer or person designated by the Administrative Law Judge or agreed 
upon by the parties by a stipulation in writing to be filed with the 
Proceedings Clerk.
    (e) Procedures for taking oral depositions. (1) Oral examination and 
crossexamination of witnesses shall be conducted in a manner similar to 
that permitted at a formal hearing. All questions and testimony shall be 
recorded verbatim, except to the extent that all parties present or 
represented may agree that a matter shall be off the record.
    (2) All objections made at the time of the examination to the 
qualifications of the officer taking the deposition, or to the manner of 
taking it, or to the evidence presented, or to the conduct of any party, 
or any other objection to the proceeding shall be noted by the officer 
upon the deposition, and shall subsequently be determined by the 
Administrative Law Judge. Evidence objected to shall be taken subject to 
the objections. However, the parties may stipulate that, except as to 
objections to the form of questions, all objections to the matters 
testified to in a deposition are preserved for the hearing, whether or 
not raised at the time of deposition.
    (3) During the taking of a deposition a party or deponent may 
request and obtain an adjournment to permit an application to be made to 
the Administrative Law Judge for an order suspending the deposition on 
grounds of bad faith in the conduct of the examination, annoyance, 
embarrassment, oppression of a deponent or party, or improper questions. 
An attorney who requests and obtains an adjournment for this purpose but 
fails, without good cause, promptly to apply for relief to the 
Administrative Law Judge may be found guilty of contemptuous conduct in 
accordance withSec. 10.11(b) of these rules.
    (f) Procedures for use of interrogatories. (1) If depositions are to 
be taken and submitted on written interrogatories, the interrogatories 
shall be filed in triplicate with the application for deposition and 
served on the parties. Within ten days after service, any party may 
file, in triplicate, with the Proceedings Clerk, his objections, if any, 
to such interrogatories and may file such cross-interrogatories as he 
desires to submit. Other parties shall have ten days to file their 
objections to cross-interrogatories. Objections shall be settled by the 
Administrative Law Judge.

[[Page 366]]

    (2) When a deposition is taken upon written interrogatories and 
cross-interrogatories, no party shall be present or represented and no 
person other than the witness, a stenographic reporter, and the officer 
shall be present. The officer shall propound the interrogatories and 
cross-interrogatories to the witness, and the interrogatories and 
responses thereto shall be transcribed and reduced to writing.
    (g) Use of depositions at hearing. (1) Any part or all of a 
deposition, to the extent admissible under rules of evidence applied as 
though the witness were then present and testifying at the hearing, may 
be used against any party who had reasonable notice of the taking of the 
deposition, if the Administrative Law Judge finds that:
    (i) The witness is dead;
    (ii) The witness is unable to attend or testify because of age, 
illness, infirmity, or imprisonment;
    (iii) The witness is out of the United States at the time of the 
hearing, unless it appears that the absence of the witness was procured 
by the party offering the deposition.
    (2) If only part of a deposition is offered in evidence by a party, 
an adverse party may require him to introduce any other part which ought 
in fairness to be considered with the part introduced, and any party may 
introduce any other parts.
    (3) Objection may be made at a hearing to receiving in evidence any 
deposition or part thereof for any reason which would require the 
exclusion of the evidence if the witness were then present and 
testifying.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



                           Subpart E_Hearings



Sec.  10.61  Time and place of hearing.

    (a) Notice. All parties shall be notified of the time and place of 
hearing, which shall be fixed with due regard for the public interest 
and the convenience and necessity of the parties and their 
representatives.
    (b) Requests for change. A request for postponement of a hearing or 
for a change in the place assigned for hearing will be granted by the 
Administrative Law Judge only for good cause shown.



Sec.  10.62  Appearances.

    (a) Who may appear. The parties may appear in person, by counsel or 
by other representatives of their choosing, subject to the provisions of 
Sec.  10.11 of these rules and part 14 of this chapter, dealing with 
appearance and practice before the Commission.
    (b) Effect of failure to appear. (1) If any party to the proceeding, 
after filing an answer fails to appear at the hearing or any part 
thereof, he shall to that extent be deemed to have waived the right to 
an oral hearing in the proceeding. In the event that a party appears at 
the hearing and no party appears for the opposing side, the party who is 
present may present his evidence, in whole or in part, in the form of 
affidavits or by oral testimony, before the Administrative Law Judge.
    (2) A failure to appear at a hearing shall not constitute a waiver 
of a party's right to propose findings of fact based on the record in 
the proceeding, to propose conclusions of law or to submit briefs, in 
the manner provided inSec. 10.82, if the non-appearing party submits 
prior to the scheduled hearing or within three days thereafter, a notice 
of appearance indicating his intent to continue to participate in the 
proceeding. Otherwise, his failure to appear will constitute a default, 
and a default order may be sought in accordance with procedures set 
forth inSec. 10.93 of these rules.



Sec.  10.63  Consolidation; separate hearings.

    (a) Consolidation. Two or more proceedings involving a common 
question of law or fact may be joined for hearing of any or all the 
matters in issue or may be consolidated by order of the Administrative 
Law Judge. The Administrative Law Judge may make such rulings concerning 
the conduct of such proceedings as may tend to avoid unnecessary costs 
or delay.
    (b) Separate Hearings. The Administrative Law Judge, for the 
convenience of the parties, to avoid prejudice, or to expedite final 
resolution of the issues, may order a separate hearing of any

[[Page 367]]

claim or issue, or grant a separate hearing to any respondent.



Sec.  10.64  Public hearings.

    All hearings shall be public, except that upon application of a 
respondent or affected witness the Administrative Law Judge may direct 
that specific documents or testimony be received and retained non-
publicly in order to prevent unwarranted disclosure of trade secrets or 
sensitive commercial or financial information or an unwarranted invasion 
of personal privacy.



Sec.  10.65  Record of hearing.

    (a) Reporting and transcription. Hearings for the purpose of taking 
evidence shall be recorded and transcribed in written form under the 
supervision of the Administrative Law Judge by a reporter employed by 
the Commission for that purpose. The original transcript shall be a part 
of the record and shall be the sole official transcript. Copies of 
transcripts, except those portions granted non-public treatment, shall 
be available from the reporter at rates not to exceed the maximum rates 
fixed by the contract between the Commission and the reporter.
    (b) Corrections. Any party may submit a timely request to the 
Administrative Law Judge to correct the transcript. Corrections may be 
submitted to the Administrative Law Judge by stipulation of the parties, 
or by motion by any party, and upon notice to all parties to the 
proceeding, the Administrative Law Judge may specify corrections of the 
transcript. A copy of such specification shall be furnished to all 
parties and made a part of the record. Corrections shall be made by the 
official reporter, who shall furnish substitute pages of the transcript, 
under the usual certificate of the reporter, for insertion in the 
official record. The original uncorrected pages shall be retained in the 
files of the Proceedings Clerk.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.66  Conduct of the hearing.

    (a) Expedition. Hearings shall proceed expeditiously and insofar as 
practicable hearings shall be held at one place and shall continue, 
without suspension, until concluded.
    (b) Rights of parties. Every party shall be entitled to due notice 
of hearings, the right to be represented by counsel, and the right to 
cross-examine witnesses, present oral and documentary evidence, submit 
rebuttal evidence, raise objections, make arguments and move for 
appropriate relief. Nothing in this paragraph limits the authority of 
the Commission or the Administrative Law Judge to exercise authority 
under other provisions of the Commission's rules, to enforce the 
requirement that evidence presented be relevant to the proceeding or to 
limit cross-examination to the subject matter of the direct examination 
and matters affecting the credibility of the witness.
    (c) Examination of witnesses. All witnesses at a hearing for the 
purpose of taking evidence shall testify under oath or affirmation, 
which shall be administered by the Administrative Law Judge. A witness 
may be cross-examined by each adverse party and, in the discretion of 
the Administrative Law Judge, may be cross-examined, without regard to 
the scope of direct examination, as to any matter which is relevant to 
the issues in the proceeding.
    (d) Expert witnesses. The Administrative Law Judge, at his 
discretion, may order that direct testimony of expert witnesses be made 
by verified written statement rather than presented orally at the 
hearing. Any expert witness whose testimony is presented in this manner 
shall be available for oral cross-examination, and may be examined 
orally upon re-direct following cross-examination.
    (e) Exhibits. The original of each exhibit introduced in evidence or 
marked for identification shall be filed and retained in the docket of 
the proceeding, unless the Administrative Law Judge permits the 
substitution of copies for the original documents. A copy of each 
exhibit introduced by a party or marked for identification at his 
request shall be supplied by him to the Administrative Law Judge and to 
each other party to the proceeding.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55793, Oct. 19, 1998; 63 
FR 68829, Dec. 14, 1998]

[[Page 368]]



Sec.  10.67  Evidence.

    (a) Admissibility. Relevant, material and reliable evidence shall be 
admitted. Irrelevant, immaterial, unreliable and unduly repetitious 
evidence shall be excluded.
    (b) Official notice. (1) Official notice may be taken of
    (i) Any material fact which might be judicially noticed by a 
district court of the United States; or
    (ii) Any matter in the public official records of the Commission.
    (2) If official notice is requested or taken of a material fact, any 
party, upon timely request, shall be afforded an opportunity to 
establish the contrary.
    (c) Objections. A party shall timely and briefly state the grounds 
relied upon for any objection made to the introduction of evidence. If a 
party has had no opportunity to object to a ruling at the time it is 
made, he shall not thereafter be prejudiced by the absence of an 
objection.
    (d) Exceptions. Formal exception to an adverse ruling is not 
required. It shall be sufficient that a party, at the time the ruling is 
sought or entered, makes known to the Administrative Law Judge the 
action he wishes the Administrative Law Judge to take or his objection 
to the action being taken and his grounds therefor.
    (e) Excluded evidence. When an objection to a question propounded to 
a witness is sustained, the examining attorney may make a specific offer 
of what he expects to prove by the answer of the witness, or the 
Administrative Law Judge may, in his discretion, receive the evidence in 
full. Rejected exhibits, adequately marked for identification, shall be 
retained in the record so as to be available for consideration by any 
reviewing authority.
    (f) Affidavits. Affidavits may be admitted by the Administrative Law 
Judge only if the evidence is otherwise admissible and the parties agree 
that affidavits may be used.
    (g) Official government records. An official government record or 
any entry therein, when admissible for any purpose, may be evidenced by 
an official publication thereof or by a copy attested by the officer 
having legal custody of the record or by his deputy, accompanied by a 
certificate that such officer has custody. If the office in which the 
record is kept is within the United States the certificate may be made 
by a judge of a court of record in the district or political subdivision 
in which the record is kept, authenticated by the seal of his office. If 
the office in which the record is kept is in a foreign state or country, 
the certificate may be made by any officer in the Foreign Service of the 
United States stationed in the foreign state or country in which the 
record is kept and authenticated by the seal of his office. A written 
statement signed by an officer having custody of an official record or 
by his deputy, that after diligent search, no record or entry dealing 
with a specific matter is found to exist, accompanied by a certificate 
as provided above, is admissible as evidence that the records of his 
office contain no such record or entry.
    (h) Entries in the regular course of business. Any writing or 
record, whether in the form of an entry in a book or otherwise, made as 
a memorandum or record of any act, transaction, occurrence, or event, 
will be admissible as evidence thereof if it shall appear that it was 
made in the regular course of business by a person who had a duty to 
report or record it.



Sec.  10.68  Subpoenas.

    (a) Application for and issuance of subpoenas--(1) Application for 
and issuance of subpoena ad testificandum. Any party may apply to the 
Administrative Law Judge for the issuance of a subpoena requiring a 
person to appear and testify (subpoena ad testificandum) at the hearing. 
All requests for the issuance of a subpoena ad testificandum shall be 
submitted in duplicate and in writing and shall be served upon all other 
parties to the proceeding, unless the request is made on the record at 
the hearing or the requesting party can demonstrate why, in the interest 
of fairness or justice, the requirement of a written submission or 
service on one or more of the other parties is not appropriate. A 
subpoena ad testificandum shall be issued upon a showing by the 
requesting party of the general relevance of the testimony being sought 
and the tender of an original and two

[[Page 369]]

copies of the subpoena being requested, except in those situations 
described in paragraph (b) of this section, where additional 
requirements are set forth.
    (2) Application for subpoena duces tecum. An application for a 
subpoena requiring a person to produce specified documentary or tangible 
evidence (subpoena duces tecum) at any designated time or place may be 
made by any party to the Administrative Law Judge. All requests for the 
issuance of a subpoena duces tecum shall be submitted in duplicate and 
in writing and shall be served upon all other parties to the proceeding, 
unless the request is made on the record at the hearing or the 
requesting party can demonstrate why, in the interest of fairness or 
justice, the requirement of a written submission or service on one or 
more of the other parties is not appropriate. Except in those situations 
described in paragraph (b) of this section, where additional 
requirements are set forth, each application for the issuance of a 
subpoena duces tecum shall contain a statement or showing of general 
relevance and reasonable scope of the evidence being sought and be 
accompanied by an original and two copies of the subpoena being 
requested, which shall describe the documentary or tangible evidence to 
be subpoenaed with as much particularity as is feasible.
    (3) Standards for issuance of subpoena duces tecum. The 
Administrative Law Judge considering any application for a subpoena 
duces tecum shall issue the subpoena requested if he is satisfied the 
application complies with this section and the request is not 
unreasonable, oppressive, excessive in scope or unduly burdensome. No 
attempt shall be made to determine the admissibility of evidence in 
passing upon an application for a subpoena duces tecum and no detailed 
or burdensome showing shall be required as a condition to the issuance 
of any subpoena.
    (4) Denial of application. In the event the Administrative Law Judge 
determines that a requested subpoena or any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
may refuse to issue the subpoena, or may issue it only upon such 
conditions as he determines fairness requires.
    (b) Special requirements relating to application for and issuance of 
subpoenas for commission records and for the appearance of commission 
employees or employees of other agencies--(1) Form. An application for 
the issuance of subpoena shall be made in the form of a written motion 
served upon all other parties, if the subpoena would require
    (i) The production of documents, papers, books, physical exhibits, 
or other material in the records of the Commission;
    (ii) The appearance of a Commissioner or an official or employee of 
the Commission;
    (iii) The appearance of a Commissioner or an official or employee of 
any other state or federal agency in his official capacity.
    (2) Content. The motion shall specifically describe the material to 
be produced, the information to be disclosed, or the testimony to be 
elicited from the witness, and shall show
    (i) The relevance of the material, information, or testimony to the 
matters at issue in the proceeding;
    (ii) The reasonableness of the scope of the proposed subpoena; and
    (iii) That such material, information, or testimony is not available 
from other sources.
    (3) Rulings. The motion shall be decided by the Administrative Law 
Judge and shall provide such terms or conditions for the production of 
the material, the disclosure of the information or the appearance of the 
witness as may appear necessary and appropriate for the protection of 
the public interest.
    (4) Commission review of rulings. Interlocutory review by the 
Commission of a ruling made under this section may be sought in 
accordance with the procedures set forth inSec. 10.101 without 
certification by the Administrative Law Judge.
    (c) Motions to quash subpoenas; protective orders--(1) Application. 
Within 10 days after a subpoena has been served or at any time prior to 
the return date thereof, a motion to quash or modify the subpoena or for 
a protective order limiting the use or disclosure of any information, 
documents or testimony covered by the subpoena may be filed with the 
Administrative Law Judge

[[Page 370]]

who issued it. At the same time, a copy of the motion shall be served on 
the party who requested the subpoena and all other parties to the 
proceeding. The motion shall include a brief statement setting forth the 
basis for the requested relief. If the Administrative Law Judge to whom 
the motion has been directed has not acted upon the motion by the return 
date, the subpoena shall be stayed pending his or her final action.
    (2) Disposition. After due notice to the person upon whose request 
the subpoena was issued, and after opportunity for response by that 
person, the Administrative Law Judge may (i) quash or modify the 
subpoena, or (ii) condition denial of the application to quash or modify 
the subpoena upon just and reasonable terms, including, in the case of a 
subpoena duces tecum, a requirement that the person in whose behalf the 
subpoena was issued shall advance the reasonable cost of producing 
documentary or other tangible evidence. The Administrative Law Judge may 
issue a protective order sought under paragraph (c)(1) of this section 
or under any other section of these rules upon a showing of good cause. 
In considering whether good cause exists to issue a protective order, 
the Administrative Law Judge shall weigh the harm resulting from 
disclosure against the benefits of disclosure. Good cause shall only be 
established upon a showing that the person seeking the protective order 
will suffer a clearly defined and serious injury if the order is not 
issued, provided, however, that any such injury shall be balanced 
against the public's right of access to judicial records. No protective 
order shall be granted that will prevent the Division of Enforcement or 
any respondent from adequate presenting its case.
    (d) Attendance and mileage fees. Persons summoned to testify either 
by deposition or at a hearing under requirement of subpoena are entitled 
to the same fees and mileage as are paid to witnesses in the courts of 
the United States. Fees and mileage are paid by the party at whose 
instance the persons are called.
    (e) Service of subpoenas--(1) How effected. Service of a subpoena 
upon a party shall be made in accordance withSec. 10.12(a) of these 
rules except that only one copy of a subpoena need be served. Service of 
a subpoena upon any other person shall be made by delivering a copy of 
the subpoena to him as provided in paragraphs (e)(2) or (e)(3) of this 
section, as applicable, and by tendering to him or her the fees for one 
day's attendance and mileage as specified in paragraph (d) of this 
section. When the subpoena is issued at the instance of the Commission, 
fees and mileage need not be tendered at the time of service.
    (2) Service upon a natural person. Delivery of a copy of a subpoena 
and tender of the fees to a natural person may be effected by
    (i) Handing them to the person;
    (ii) Leaving them at his office with the person in charge thereof 
or, if there is no one in charge, by leaving them in a conspicuous place 
therein;
    (iii) Leaving them at his dwelling place or usual place of abode 
with some person of suitable age and discretion then residing therein;
    (iv) Mailing them by registered or certified mail to him at his last 
known address; or
    (v) Any other method whereby actual notice is given to him and the 
fees and mileage are timely made available.
    (3) Service upon other persons. When the person to be served is not 
a natural person, delivery of a copy of the subpoena and tender of the 
fees and mileage may be effected by
    (i) Handing them to a registered agent for service, or to any 
officer, director, or agent in charge of any office of such person;
    (ii) Mailing them by registered or certified mail to any such 
representative at his last known address; or
    (iii) Any other method whereby actual notice is given to any such 
representative and the fees and mileage are timely made available.
    (f) Enforcement of subpoenas. Upon failure of any person to comply 
with a subpoena issued at the request of a party, that party may 
petition the Commission in its discretion to institute an action in an 
appropriate U.S. District Court for enforcement of that subpoena. When 
instituting an action to enforce a subpoena requested by the

[[Page 371]]

Division of Enforcement, the Commission, in its discretion, may delegate 
to the Director of the Division or any Commission employee designated by 
the Director and acting under his or her direction, or to any other 
employee of the Commission, authority to serve as the Commission's 
counsel in such subpoena enforcement action.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55794, Oct. 19, 1998; 63 FR 68829, Dec. 14, 1998; 64 FR 30903, June 
9, 1999]



Sec.  10.69  Reopening hearings.

    Any party may petition the Administrative Law Judge to reopen a 
hearing to adduce additional evidence at any time prior to issuance of 
the initial decision. The petition shall show that the evidence sought 
to be adduced is relevant and material and that there were reasonable 
grounds for failure to adduce such evidence at the time of the original 
hearing.



          Subpart F_Post Hearing Procedures; Initial Decisions



Sec.  10.81  Filing the transcript of evidence.

    As soon as practicable after the close of the hearing, the reporter 
shall transmit to the Proceedings Clerk the transcript of the testimony 
and the exhibits introduced in evidence at the hearing, except such 
portions of the transcript and exhibits as shall have been delivered to 
the Administrative Law Judge.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.82  Proposed findings and conclusions; briefs.

    In any proceeding involving a hearing or an opportunity for hearing, 
the parties may file written proposed findings of fact and conclusions 
of law. Briefs may be filed in support of proposed findings and 
conclusions either as part of the same document or in a separate 
document. Any proposed finding or conclusion not briefed may be regarded 
as waived.
    (a) Proposed findings and briefs; time for filing. Where the parties 
file proposed findings and briefs, the following schedule shall apply, 
unless otherwise determined by the Administrative Law Judge:
    (1) Initial submission. Proposed findings, conclusions and an 
initial brief shall be served and filed by the Division of Enforcement 
and intervenors on the side of the Division of Enforcement within 45 
days of the close of the hearing;
    (2) Answering submission. Proposed findings, conclusions, and an 
answering brief shall be served and filed by the respondents and 
intervenors on the side of the respondents within 30 days after service 
of the initial findings, conclusions and briefs upon the respondents;
    (3) Reply. A reply brief may be filed by the Division of Enforcement 
and intervenors on the side of the Division of Enforcement within 15 
days after filing of the answering submission;
    (4) Submissions by limited participants. Submissions by a person 
admitted as a limited participant pursuant toSec. 10.34 of these 
rules, are permitted under such terms as determined by the 
Administrative Law Judge.
    (b) Alternative procedures for submissions. In his discretion the 
Administrative Law Judge may lengthen or shorten the periods for the 
filing of submissions, may direct simultaneous filings, may direct that 
respondents make the first filing, or may otherwise modify the 
procedures set forth in paragraph (a) of this section for purposes of a 
particular proceeding.
    (c) Briefs. (1) The initial brief should include:
    (i) A short, clear and concise statement of the case;
    (ii) Specification of the questions to be resolved; and
    (iii) The argument, presenting clearly the points of fact and law 
relied upon in support of the position taken on each question.
    (2) The answering brief shall generally follow the same style as 
prescribed for the initial brief but may omit a statement of the case if 
the party does not dispute the statement of the case contained in the 
initial brief;
    (3) Reply briefs should be limited to rebuttal of matters in the 
prior briefs.
    (d) Content and form of proposed findings and conclusions. (1) The 
findings of fact shall be confined to the material

[[Page 372]]

issues of fact presented on the record, with exact citations to the 
transcripts of record and exhibits in support of each proposed finding.
    (2) The proposed findings and conclusions of the party filing 
initially shall be set forth in consecutively numbered paragraphs and 
all counter-statement of proposed findings and conclusions shall, in 
addition to any other matter, indicate which paragraphs of initial 
proposals are not disputed.



Sec.  10.83  Oral arguments.

    In his discretion the Administrative Law Judge may hear oral 
arguments by the parties any time before he files his initial decision 
with the Proceedings Clerk. The argument shall be recorded and 
transcribed in written form.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.84  Initial decision.

    (a) When initial decision is required. The Administrative Law Judge 
shall make an initial decision in any proceeding in which a hearing is 
required to be conducted in conformity with the requirements of the 
Administrative Procedure Act, as codified, 5 U.S.C. 557. He shall make 
an initial decision in other proceedings in which the Commission directs 
him to make such a decision.
    (b) Filing of initial decision. After the parties have been afforded 
an opportunity to file their proposed findings of fact, proposed 
conclusions of law and supporting briefs pursuant toSec. 10.82, the 
Administrative Law Judge shall prepare upon the basis of the record in 
the proceeding and shall file with the Proceedings Clerk his or her 
decision, a copy of which shall be served by the Proceedings Clerk upon 
each of the parties.
    (c) Effect of initial decision. The initial decision shall become 
the decision of the Commission 30 days after service thereof, except:
    (1) The decision shall not become final as to any party who shall 
have filed a notice of appeal pursuant toSec. 10.102 of these rules; 
and
    (2) The decision shall not become final as to any party to the 
proceeding if, within 30 days after the initial decision and order, the 
Commission itself shall have placed the case on its own docket for 
review or stayed the effective date of the decision.

In the event that the initial decision becomes the final decision of the 
Commission with respect to a party, that party shall be duly notified 
thereof by the Proceedings Clerk. The notice shall state that the time 
for filing a notice of appeal by the party has expired, that the 
Commission has determined not to review the initial decision on its own 
initiative and shall specify the date on which a final order in the 
proceeding shall become effective as against that party.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 61 
FR 21954, May 13, 1996; 63 FR 55794, Oct. 19, 1998]



               Subpart G_Disposition Without Full Hearing



Sec.  10.91  Summary disposition.

    (a) Filing of motions, answers. Any party who believes that there is 
no genuine issue of material fact to be determined and that he is 
entitled to a decision as a matter of law may move for a summary 
disposition in his favor of all or any part of the proceeding. Such 
motion shall be filed at or before the first prehearing conference or at 
such later time as may be allowed by the Administrative Law Judge. Any 
adverse party within 20 days after service of the motion, may serve 
opposing papers or may countermove for summary disposition.
    (b) Supporting papers. A motion for summary judgment shall include a 
statement of material facts as to which the moving party contends there 
is no genuine issue, supported by the pleadings, and by affidavits, 
other verified statements, including investigative transcripts, 
admissions, stipulations, and depositions. The motion may also be 
supported by briefs containing points and authorities in support of the 
contention of the party making the motion. When a motion is made and 
supported as provided in this section, an adverse party may not rest 
upon the mere allegations, but shall serve and file in response a 
statement setting forth those material facts as to which

[[Page 373]]

he contends a genuine issue exists, supported by affidavits or 
otherwise. He may also submit a brief of points and authorities.
    (c) Form of affidavits. Supporting and opposing affidavits shall be 
made upon personal knowledge, shall set forth such facts as would be 
admissible in evidence, and shall show affirmatively that the affiant is 
competent to testify on the matters stated therein. Sworn or certified 
copies of all papers or parts thereof referred to in an affidavit shall 
be attached thereto or served therewith.
    (d) Oral argument. Oral argument may be granted at the discretion of 
the Administrative Law Judge.
    (e) Ruling on motion. The Administrative Law Judge shall grant a 
motion for summary disposition if the undisputed pleaded facts, 
affidavits, other verified statements, admissions, stipulations, and 
depositions, and matters of official notice show that (1) there is no 
genuine issue as to any material fact, (2) there is no necessity that 
further facts be developed in the record, and (3) such party is entitled 
to a decision as a matter of law.
    (f) Review of ruling; appeal. An order denying a motion for summary 
disposition is subject to interlocutory review under the provisions of 
Sec.  10.101 on the same terms as a ruling on any other motion. An order 
granting a motion for summary disposition is reviewable by the 
Commission in accordance with the provisions ofSec. 10.102 relating to 
appeals of initial decisions.



Sec.  10.92  Shortened procedure.

    (a) How initiated. With the consent of the parties, in lieu of a 
full oral hearing, the Administrative Law Judge may order a shortened 
procedure as to the submission of direct evidence may be ordered in a 
proceeding. An order for shortened procedure shall list the names and 
addresses of all persons who are parties to the proceeding and shall 
direct compliance with the procedures established in this section. The 
order shall be served by the Proceedings Clerk upon all parties.
    (b) Filing of statements--(1) Opening statement. Within 20 days 
after receipt of notice that the shortened procedure will be used, the 
Division of Enforcement shall serve upon all other parties and file with 
the Proceedings Clerk, in triplicate, an opening statement, in support 
of the complaint;
    (2) Answering statement. Within 20 days after receipt of the opening 
statement of the Division, each respondent may serve upon all other 
parties and file with the Proceedings Clerk, in triplicate, in support 
of his answer, an answering statement.
    (3) Statement in reply. Within ten days after receipt of all 
answering statements, or within ten days after the expiration of the 
period within which answering statements may be served, the Division of 
Enforcement may serve upon all other parties and file with the 
Proceedings Clerk, in triplicate, a statement in reply, which shall be 
confined strictly to replying to the facts and arguments set forth in 
the answering statements.
    (c) Joint statements. Parties having a common interest may serve and 
file joint statements.
    (d) Failure to file statement. Any party who, without the express 
permission of the Administrative Law Judge, should fail to file a 
statement within the time prescribed by this section after service upon 
him of an order for shortened procedures shall be in default and shall 
be deemed to have waived any further hearing.
    (e) Content of statements. As used in this section, the term 
``statement'' includes
    (1) Statements of fact signed and sworn to by persons having 
knowledge of those facts;
    (2) Documents filed as part of the proof of the alleged facts (which 
shall be duly authenticated under oath or otherwise in a manner that 
would render them admissible in evidence at an oral hearing under the 
rules in this part); and
    (3) Briefs containing argument to sustain the contentions of the 
party submitting the statement.
    (f) Verification. The facts asserted in any statement filed under 
shortened procedure must be sworn to by persons having knowledge thereof 
and, except under unusual circumstances, the persons should be those who 
would appear as witnesses to substantiate the facts

[[Page 374]]

asserted should a full oral hearing become necessary.
    (g) Hearings--(1) Request for cross-examination or other hearings. 
If cross-examination is desired of any witness whose affidavit or other 
verified statement has been submitted, the name of the witness and the 
subject matter of the desired cross-examination shall be stated at the 
end of the answering statement or statement in reply as the case may be. 
Oral hearings under other circumstances may also be requested but will 
be granted only under exceptional circumstances. Any request filed under 
this subparagraph shall include a justification of the need for oral 
hearing.
    (2) Hearings issues limited. The order setting the proceeding for 
oral hearing, if hearing is found necessary, will specify the matters 
upon which the parties are not in agreement and concerning which oral 
evidence is to be introduced. Unless material facts are in dispute, oral 
hearing will not be held.
    (h) Subsequent procedure. Post-hearing procedures shall be the same 
as those in proceedings in which the shortened procedures have not been 
followed.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 64 
FR 30903, June 9, 1999]



Sec.  10.93  Obtaining default order.

    When a respondent has failed to (a) file an answer as provided in 
Sec.  10.23 of these rules or (b) failed to appear or file a notice of 
appearance as provided inSec. 10.62 of these rules or (c) failed to 
file a statement under the shortened procedures as provided inSec. 
10.92 of these rules, the Division of Enforcement may move the 
Administrative Law Judge to enter findings and conclusions and a default 
order against that respondent based upon the matters set forth in the 
complaint, which shall be deemed to be true for purposes of this 
determination.



Sec.  10.94  Setting aside of default.

    In order to prevent injustice and on such conditions as may be 
appropriate, (a) the Commission may at any time set aside a default 
order obtained underSec. 10.93; and (b) the Administrative Law Judge 
may set aside a default order obtained underSec. 10.93 at any time 
prior to filing of his initial decision in a proceeding in which there 
are remaining respondents. Any motion to set aside a default shall be 
made within a reasonable time, and shall state the reasons for the 
failure to file or appear and specify the nature of the proposed defense 
in the proceeding.



            Subpart H_Appeals to the Commission; Settlements



Sec.  10.101  Interlocutory appeals.

    Interlocutory review by the Commission of a ruling on a motion by an 
Administrative Law Judge may be sought in accordance with the following 
procedures:
    (a) Scope of review. The Commission will not review a ruling of the 
Administrative Law Judge prior to the Commission's consideration of the 
entire proceeding in the absence of extraordinary circumstances. An 
interlocutory appeal may be permitted, in the discretion of the 
Commission, under the following circumstances:
    (1) Appeal from an adverse ruling pursuant toSec. 10.8(b) on a 
motion to disqualify an Administrative Law Judge;
    (2) Appeal from a ruling pursuant toSec. 10.11(b) suspending an 
attorney from participation in a particular proceeding.
    (3) Appeal from a ruling pursuant to Sec.Sec. 10.33 and 10.34 
denying intervention or limited participation;
    (4) Appeal from a ruling pursuant toSec. 10.68(b) requiring the 
appearance of an officer or employee of the Commission or another 
government agency or the production of Commission records;
    (5) Upon a determination by the Administrative Law Judge, certified 
to the Commission either in writing or on the record, that
    (i) A ruling sought to be appealed involves a controlling question 
of law or policy;
    (ii) An immediate appeal may materially advance the ultimate 
resolution of the issues in the proceeding; and
    (iii) Subsequent reversal of the ruling would cause unnecessary 
delay or expense to the parties.
    (b) Procedure to obtain interlocutory review--(1) In general. An 
application for

[[Page 375]]

interlocutory review may be filed within five days after notice of the 
Administrative Law Judge's ruling on a matter described in paragraphs 
(a)(1), (a)(2), (a)(3) or (a)(4) of this section, except if a request 
for certification under paragraph (a)(5) of this section has been filed 
with the Administrative Law Judge within five days after notice of the 
Administrative Law Judge's ruling on the matter. If a request for 
certification has been filed, an Application for interlocutory review 
under paragraphs (a)(1) through (a)(5) of this section may be filed 
within five days after notification of the Administrative Law Judge's 
ruling on such request.
    (2) An application for review shall:
    (i) Designate the ruling or part thereof from which appeal is being 
taken;
    (ii) Present the points of fact and law relied upon in support of 
the position taken; and
    (iii) Not exceed 15 pages.
    (3) Any party that opposes the application may file a response, not 
to exceed 15 pages, within five days after service of the application.
    (4) The Commission will determine whether to grant a review based 
upon the application for review and the response thereto, without oral 
argument or further written presentation, unless the Commission shall 
otherwise direct.
    (c) Proceedings not stayed. The filing of an application for review 
and the grant of review shall not stay proceedings before an 
Administrative Law Judge unless the Administrative Law Judge or the 
Commission shall so order. The Commission will not consider a motion for 
a stay unless the motion shall have first been made to the 
Administrative Law Judge and denied.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55794, Oct. 19, 1998; 64 
FR 30903, June 9, 1999]



Sec.  10.102  Review of initial decisions.

    (a) Notice of appeal--(1) In general. Any party to a proceeding may 
appeal to the Commission an initial decision or a dismissal or other 
final disposition of the proceeding by the Administrative Law Judge as 
to any party. The appeal shall be initiated by serving and filing with 
the Proceedings Clerk a notice of appeal within 15 days after service of 
the initial decision or other order terminating the proceeding; where 
service of the initial decision or other order terminating the 
proceeding is effected by mail or commercial carrier, the time within 
which the party served may file a notice of appeal shall be increased by 
3 days.
    (2) Cross appeals. If a timely notice of appeal is filed by one 
party, any other party may file a notice of appeal within 15 days after 
service of the first notice or within 15 days after service of the 
initial decision or other order terminating the proceeding, whichever is 
later.
    (3) Confirmation of filing. The Proceedings Clerk shall confirm the 
filing of a notice of appeal by mailing a copy thereof to each other 
party.
    (b) Briefs: Time for filing. The appeal shall be perfected through 
the filing of an appeal brief.
    (1) Appeal brief. The appeal brief shall be filed within 30 days 
after filing of the notice of appeal.
    (2) Answering brief. Within 30 days after service of the appeal 
brief upon any other party that party may file an answering brief.
    (3) Reply brief. Within 14 days after service of an answering brief, 
the party that filed the first brief may file a reply brief.
    (4) No further briefs shall be permitted, unless so ordered by the 
Commission on its own motion.
    (5) Cross appeals. In the event that any party files a notice of 
cross appeal pursuant to paragraph (a)(2) of this section, the 
Commission shall, to the extent practicable, adjust the briefing 
schedule and any page limitations otherwise applicable under this 
section so as to accommodate consolidated briefing by the parties.

If the appeal brief is not filed within the time specified the opposing 
party may move for dismissal of the appeal.
    (c) Briefs. An original of all briefs submitted under this section 
shall be filed with the Proceedings Clerk.
    (d) Briefs: Content and form. (1) The appeal brief should include, 
in the order indicated:
    (i) A statement of the issues presented for review.
    (ii) A statement of the case. The statement shall first indicate 
briefly

[[Page 376]]

the nature of the case. There shall follow a statement of the facts 
relevant to the issues presented for review, with appropriate references 
to the record.
    (iii) An argument. The argument may be preceded by a summary. The 
argument shall contain the contentions of the party to the appeal with 
respect to the issues presented, and the reasons therefor, and citations 
to supporting authorities, statutes and parts of the record.
    (iv) A conclusion stating the precise relief sought.
    (2) The answering brief generally shall follow the same style as 
prescribed for the appeal brief but may omit a statement of the issues 
or of the case if the party does not dispute the issues and statement of 
the case contained in the appeal brief. Any reply brief shall be 
confined to matters raised in the answering brief and shall be limited 
to 15 pages in length.
    (3) Any matter not briefed shall be deemed waived, and may not be 
argued before the Commission.
    (e) Appendix to briefs--(1) Designation of contents of appendix. At 
the time an appellant serves and files its appeal brief, it shall also 
serve and file a designation of those specific parts of the record to 
which it wishes to direct the particular attention of the Commission and 
that it wishes to have included in the appendix, including, but not 
necessarily limited to, particular pages of the transcript and portions 
of exhibits filed in the proceeding. The designation shall be set forth 
in a document wholly separate and apart from the brief, shall enumerate 
those specific parts of the record that the appellant wishes to have 
included in the appendix and shall not incorporate by reference 
citations to the record contained in its brief or in any other document. 
If an appellee deems it necessary to direct the particular attention of 
the Commission to specific parts of the record not designated by any 
appellant, it shall serve and file with its answering brief a 
designation of additional portions of the record for inclusion in the 
appendix. Any reply brief filed by the appellant may, if necessary, 
supplement the appellant's previous designation. In designating parts of 
the record for inclusion in the appendix, the principal parts of the 
record relied upon should be designated, but the parties shall have 
regard to the fact that the entire record is always available to the 
Commission for reference and examinations and shall not engage in 
unnecessary designation. The fact that a part of the record is not 
included in an appendix shall not prevent any party or the Commission 
from relying thereon.
    (2) Preparation of the appendix. Within 15 days after the last 
answering brief or reply brief of a party was due to be filed, the 
Office of Proceedings shall prepare an appendix to the briefs which will 
contain a list of the relevant docket entries filed in the proceedings 
before the Administrative Law Judge, the initial decision and order of 
the Administrative Law Judge, the pleadings filed on behalf of the 
parties who are participating in the appeal and such other parts of the 
record designated by the parties to the appeal in accordance with the 
procedures set forth in paragraph (e)(1) of this section. The 
Proceedings Clerk shall cause one copy of the appendix to be served on 
each of the parties to the appeal and shall cause ten copies of the 
appendix to be placed in the docket of the proceeding for the use of the 
Commission.
    (3) Objections to appendix. Any party who believes that an error or 
omission has been made in the preparation of the appendix or that the 
appendix is misleading, prejudicial or otherwise inadequate may on that 
basis file a motion with the Commission to amend or supplement the 
appendix within 30 days of the date of the mailing of the appendix.

The Commission has determined that once an appeal goes to the 
Commission, it is in a better position than the Chief Administrative Law 
Judge to review motions objecting to the appendix or seeking to 
supplement the appendix. Consequently, upon the adoption of this 
amendment, the Commission and not the Chief Administrative Law Judge 
will consider any objection to the appendix pursuant to paragraph (e)(3) 
of this section. As provided by the amendment, a motion raising 
objections to the appendix must be filed within 30 days after the date 
of the mailing of the appendix.

[[Page 377]]

    (f) Effect of failure to file an appeal. Timely appeal to the 
Commission for review of an initial decision is mandatory as a 
prerequisite to seeking judicial review of a final decision entered 
pursuant to these Rules of Practice.

(7 U.S.C. Secs. 4a, 12a; 5 U.S.C. Sec. 10)

[41 FR 2511, Jan. 16, 1976, as amended at 41 FR 18071, Apr. 30, 1976; 41 
FR 19932, May 14, 1976; 47 FR 5999, Feb. 10, 1982; 60 FR 54802, Oct. 26, 
1995; 61 FR 21954, May 13, 1996; 63 FR 55794, Oct. 19, 1998; 63 FR 
68829, Dec. 14, 1998; 64 FR 30903, June 9, 1999; 78 FR 12935, Feb. 26, 
2013]



Sec.  10.103  Oral argument before the Commission.

    (a) Request. Any party may file with the Proceedings Clerk a request 
in writing for the opportunity to present oral argument before the 
Commission, which the Commission may in its discretion grant or deny. A 
request for oral argument must be made within the time provided for 
filing the initial briefs.
    (b) Time allowed. Unless otherwise directed by the Commission, not 
more than one-half hour will be allowed for oral argument by any 
participant. Where the same or similar interests are represented by more 
than one participant, an aggregate of not more than one-half hour will 
be allowed the interests so represented irrespective of the number of 
participants, the time to be divided equally among such participants or 
as they may agree among themselves. In appropriate cases the Commission 
may, in its discretion, extend, shorten or reallocate the time 
prescribed herein.
    (c) Reporting and transcription. Oral arguments before the 
Commission shall be reported and transcribed in written form unless the 
Commission shall direct otherwise.
    (d) Commissioners not present at oral argument. A member of the 
Commission who was not present at the oral argument may participate in 
the decision of the proceeding. Any Commissioner participating in the 
decision who was not present at the argument will review the transcript 
of argument.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.104  Scope of review; Commission decision.

    (a) Scope of review. The Commission will ordinarily consider the 
whole record on review, and base its determination thereon. However, it 
may limit the issues to those presented in the statement of issues in 
the brief.
    (b) Decision on review. On review, the Commission may affirm, 
reverse, modify, set aside or remand for further proceedings, in whole 
or in part, the initial decision by the Administrative Law Judge and 
make any findings or conclusions which in its judgment are proper based 
on the record in the proceeding. The Commission's decision shall be 
contained in its opinion and order. In the event the Commission is 
equally divided as to its decision the initial decision will be 
affirmed, without opinion.
    (c) Contents of record. The record of the proceeding before the 
Commission for final decision shall include:
    (1) The complaint, notice of hearing, answers and any amendments 
thereto;
    (2) Any application, motion or objection made during the course of 
the proceeding, briefs in support thereof, rulings thereon and 
exceptions thereto;
    (3) Any admission or stipulations between the parties, and documents 
or papers filed in connection with prehearing conferences; and the 
record of prehearing conferences, if recorded;
    (4) The transcript of testimony taken at the hearing, together with 
exhibits received at the hearing;
    (5) Any statements filed under the shortened procedure;
    (6) Portions of the official public records of the Commission 
specified in any of the above;
    (7) Any proposed findings of fact, conclusions of law and briefs in 
support thereof, which were filed in connection with the hearing;
    (8) Any written communication accepted by the Administrative Law 
Judge pursuant to Sec.Sec. 10.34 and 10.35 relating to limited 
participation;
    (9) The initial decision and the petition for review;
    (10) Any other documents which appear on the docket of the 
proceeding.

[[Page 378]]



Sec.  10.105  Review by Commission on its own initiative.

    The Commission may on its own initiative, within 30 days after the 
initial decision has been served on all parties, direct review of any 
initial decision of an Administrative Law Judge. The Commission shall 
determine the scope of the review and the issues which will be 
considered and make provisions for the filing of briefs and oral 
argument, if deemed appropriate by the Commission. Notice that the 
Commission has directed review on its own initiative shall be served on 
all parties by the Proceedings Clerk.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.106  Reconsideration; stay pending judicial review.

    (a) Reconsideration. Within 15 days after service of a Commission 
opinion and order any party may file with the Commission a petition for 
reconsideration of the opinion and order, setting forth the relief 
desired and the grounds in support thereof. Any petition filed under 
this section must be confined to new questions raised by the opinion or 
order and concerning which the petitioner had no opportunity to argue 
before the Commission. The filing of a petition for reconsideration 
shall not operate to stay the effective date of the Commission's order.
    (b) Stay pending judicial appeal--(1) Application for stay. Within 
15 days after service of a Commission opinion and order imposing upon 
any party any of the sanctions listed in Sec.Sec. 10.1(a) through 
10.1(e), that party may file an application with the Commission 
requesting that the effective date of the order be stayed pending 
judicial review. The application shall state the reasons why a stay is 
warranted and the facts relied upon in support of the stay. Any 
averments contained in the application must be supported by affidavits 
or other sworn statements or verified statements made under penalty of 
perjury in accordance with the provisions of 28 U.S.C. 1746.
    (2) Standards for issuance of stay. The Commission may grant an 
application for a stay pending judicial appeal upon a showing that:
    (i) The applicant is likely to succeed on the merits of his appeal;
    (ii) Denial of the stay would cause irreparable harm to the 
applicant; and
    (iii) Neither the public interest nor the interest of any other 
party will be adversely affected if the stay is granted.
    (3) Civil monetary penalties and restitution. Nothwithstanding the 
requirements set forth in paragraph (b)(2) of this section, the 
Commission shall grant any application to stay the imposition of a civil 
monetary penalty or an order to pay a specific sum as restitution if the 
applicant has filed with the Proceedings Clerk a surety bond 
guaranteeing full payment of the penalty or restitution plus interest in 
the event that the Commission's opinion and order is sustained or the 
applicant's appeal is not perfected or is dismissed for any reason and 
the Commission has determined that neither the public interest nor the 
interest of any other party will be affected by granting the 
application. The required surety bond shall be in the form of an 
undertaking by a surety company on the approved list of sureties issued 
by the Treasury Department of the United States, and the amount of 
interest shall be calculated in accordance with 28 U.S.C. 1961(a) and 
(b), beginning on the date 30 days after the Commission's opinion and 
order was served on the applicant. In the event the Commission denies 
the applicant's motion for a stay, the Proceedings Clerk shall return 
the surety bond to the applicant.
    (c) Response. Unless otherwise requested by the Commission, no 
response to a petition for reconsideration pursuant to paragraph (a) of 
this section or an application for a stay pursuant to paragraph (b) of 
this section shall be filed. The Commission shall set the time for 
filing any response at the time it asks for a response. the Commission 
shall not grant any such petition or application without providing other 
parties to the proceeding with an opportunity to respond.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55795, Oct. 19, 1998; 63 
FR 68829, Dec. 14, 1998; 64 FR 30903, June 9, 1999]

[[Page 379]]



Sec.  10.107  Leave to adduce additional evidence.

    Any time prior to issuance of the final decision the Commission may, 
upon its own motion or upon application in writing by any party, after 
notice to the parties and an opportunity for them to be heard, reopen 
the hearing for the reception of further evidence. The application shall 
show to the satisfaction of the Commission that the additional evidence 
is material, and that there were reasonable grounds for failure to 
adduce such evidence at the hearing. The Commission may hear the 
additional evidence or may refer the proceeding to the Administrative 
Law Judge for the taking of the additional evidence.



Sec.  10.108  Settlements.

    (a) When offers may be made. Parties may at any time during the 
course of the proceeding propose offers of settlement. All offers of 
settlement shall be in writing.
    (b) Content of offer of settlement. Each offer of settlement made by 
a respondent shall:
    (1) Acknowledge service of the Complaint;
    (2) Admit the jurisdiction of the Commission with respect to the 
matters set forth in the Complaint;
    (3) Include a waiver of:
    (i) A hearing,
    (ii) All post-hearing procedures,
    (iii) Judicial review, and
    (iv) Any objection to the staff's participation in the Commission's 
consideration of the offer;
    (4) Stipulate the record basis on which an order may be entered, 
which may consist solely of the complaint and the findings contained in 
the offer of settlement; and
    (5) Consent to the entry of an order reflecting the terms of 
settlement agreed upon, including, where appropriate:
    (i) Findings by the Commission that the respondent has violated 
specified provisions of the Act, and
    (ii) The imposition of sanctions.
    (c) Submission of offer of settlement. Offers of settlement made by 
a respondent shall be submitted in writing to the Division of 
Enforcement, which shall present them to the Commission with the 
Division's recommendation. The respondent will be informed if the 
recommendation will be unfavorable, in which event the offer shall not 
be presented to the Commission unless the respondent so requests. Any 
offer of settlement not presented to the Commission shall be null and 
void with respect to any acknowledgement, admission, waiver, stipulation 
or consent contained in the offer and shall not be used in any manner in 
the proceeding by any party thereto.
    (d) Acceptance of offer by the Commission. The Commission will 
accept an offer of settlement only by issuing its opinion and order 
based on the offer. Upon issuance of the opinion and order, the 
proceeding shall be terminated as to the respondent involved and so 
noted on the docket by the Proceedings Clerk.
    (e) Rejection of offer of settlement; effect of rejection. When the 
Commission rejects an offer of settlement, the party making the offer 
shall be notified of the Commission's action and the offer of settlement 
shall be deemed withdrawn. A rejected offer of settlement and any 
documents relating thereto shall not constitute a part of the record in 
the proceeding; and the offer will be null and void with respect to any 
acknowledgment, admission, waiver, stipulation or consent contained in 
the offer and shall not be used in any manner in the proceeding by any 
party thereto.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec.  10.109  Delegation of authority to Chief of the Opinions Section.

    The Commodity Futures Trading Commission hereby delegates, until 
such time as it orders otherwise, the following function to the General 
Counsel, to be performed by him or by such person or persons under his 
direction as he may designate from time to time:
    (a) With respect to proceedings conducted pursuant to the Commodity 
Exchange Act, as amended, 7 U.S.C. 1 et seq., and subject to the 
Commission's Rules of Practice as set forth in part 10 of this chapter, 
to:
    (1) Consider and decide miscellaneous motions for procedural orders 
that may

[[Page 380]]

be directed to the Commission pursuant to part 10 of these rules after 
the initial decision or other order disposing of the entire proceeding 
has been filed; such motions may be acted upon at anytime, without 
awaiting a response;
    (2) Remand, with or without specific instructions, initial decisions 
or other orders disposing of the entire proceeding to the appropriate 
officer in the following situations:
    (i) Where a default order has been made pursuant toSec. 10.93 of 
these rules and a motion to vacate the default or equivalent request has 
been directed to the Commission underSec. 10.94 without the benefit of 
a prior ruling by the Administrative Law Judge;
    (ii) Where, in his judgment, clarification or supplementation of the 
initial decision or other order disposing of the entire proceeding prior 
to Commission review is appropriate; however, the General Counsel or his 
designee may not direct that the record be reopened;
    (iii) Where, in his judgment, a ministerial act necessary to the 
proper conduct of the proceeding has not been performed;
    (3) Deny applications for interlocutory Commission review of a 
ruling of the Administrative Law Judge in cases in which the 
Administrative Law Judge has not certified the ruling to the Commission 
in the manner prescribed bySec. 10.101(a) of the rules; and the ruling 
does not concern the disqualification of, or a motion to disqualify, an 
Administrative Law Judge; and the ruling does not concern the suspension 
of, or failure to suspend, an attorney from participation in a 
particular proceeding, or the denial of intervention or limited 
participation;
    (4) Deny any application for interlocutory review in a proceeding if 
it is not filed in accordance withSec. 10.101(b) of these rules;
    (5) Dismiss any appeal from an initial decision or other disposition 
of the entire proceeding by an Administrative Law Judge, where such 
appeal is not filed and perfected in accordance withSec. 10.102 of 
these rules;
    (6) Strike any filing that does not meet the requirements of, or is 
not perfected in accordance with, part 10 of these rules;
    (7) Stay, for a limited period of time not to exceed ten working 
days, any order of the Commission entered in a proceeding subject to 
these rules;
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which the General Counsel or his designee believes it 
appropriate, he may submit the matter to the Commission for its 
consideration;
    (c) Within seven (7) days after service of a ruling issued pursuant 
to paragraph (a) of this section, a party may file with the Proceedings 
Clerk a petition for Commission reconsideration of the ruling. Unless 
the Commission orders otherwise, the filing of a petition for 
reconsideration shall not operate to stay the effective date of such 
ruling.

[50 FR 33515, Aug. 20, 1985, as amended at 60 FR 54802, Oct. 26, 1995; 
64 FR 43071, Aug. 9, 1999]



                      Subpart I_Restitution Orders

    Source: 63 FR 55795, Oct. 19, 1998, unless otherwise noted.



Sec.  10.110  Basis for issuance of restitution orders.

    (a) Appropriateness of restitution as a remedy. In any proceeding in 
which an order requiring restitution may be entered, the Administrative 
Law Judge shall, as part of his or her initial decision, determine 
whether restitution is appropriate. In deciding whether restitution is 
appropriate, the Administrative Law Judge, in his or her discretion, may 
consider the degree of complexity likely to be involved in establishing 
claims, the likelihood that claimants can obtain compensation through 
their own efforts, the ability of the respondent to pay claimants 
damages that his or her violations have caused, the availability of 
resources to administer restitution and any other matters that justice 
may require.
    (b) Restitution order. If the Administrative Law Judge determines 
that restitution is an appropriate remedy in a proceeding, he or she 
shall issue an order specifying the following:
    (1) All violations that form the basis for restitution;

[[Page 381]]

    (2) The particular persons, or class or classes of persons, who 
suffered damages proximately caused by each such violation;
    (3) The method of calculating the amount of damages to be paid as 
restitution; and
    (4) If then determinable, the amount of restitution the respondent 
shall be required to pay.



Sec.  10.111  Recommendation of procedure for implementing restitution.

    Except as provided bySec. 10.114, after such time as any order 
requiring restitution becomes effective (i.e., becomes final and is not 
stayed), the Division of Enforcement shall petition the Commission for 
an order directing the Division to recommend to the Commission or, in 
the Commission's discretion, the Administrative Law Judge a procedure 
for implementing restitution. Each party that has been ordered to pay 
restitution shall be afforded an opportunity to review the Division of 
Enforcement's recommendations and be heard.



Sec.  10.112  Administration of restitution.

    Based on the recommendations submitted pursuant toSec. 10.111, the 
Commission or the Administrative Law Judge, as applicable, shall 
establish in writing a procedure for identifying and notifying 
individual persons who may be entitled to restitution, receiving and 
evaluating claims, obtaining funds to be paid as restitution from the 
party and distributing such funds to qualified claimants. As necessary 
or appropriate, the Commission or the Administrative Law Judge may 
appoint any person, including an employee of the Commission, to 
administer, or assist in administering, such restitution procedure. 
Unless otherwise ordered by the Commission, all costs incurred in 
administering an order of restitution shall be paid from the restitution 
funds obtained from the party who was so sanctioned; provided, however, 
that if the administrator is a Commission employee, no fee shall be 
charged for his or her services or for services performed by any other 
Commission employee working under his or her direction.



Sec.  10.113  Right to challenge distribution of funds to customers.

    Any order of an Administrative Law Judge directing or authorizing 
the distribution of funds paid as restitution to individual customers 
shall be considered a final order for appeal purposes to be subject to 
Commission review pursuant toSec. 10.102.



Sec.  10.114  Acceleration of establishment of restitution procedure.

    The procedures provided for by Sec.Sec. 10.111 through 10.113 may 
be initiated prior to the issuance of the initial decision of the 
Administrative Law Judge and may be combined with the hearing in the 
proceeding, either upon motion by the Division of Enforcement or if the 
Administrative Law Judge, acting on his own initiative or upon motion by 
a respondent, concludes that the presentation, consideration and 
resolution of the issues relating to the restitution procedure will not 
materially delay the conclusion of the hearing or the issuance of the 
initial decision.



Sec. Appendix A to Part 10--Commission Policy Relating to the Acceptance 
         of Settlements in Administrative and Civil Proceedings

    It is the policy of the Commission not to accept any offer of 
settlement submitted by any respondent or defendant in an administrative 
or civil proceeding, if the settling respondent or defendant wishes to 
continue to deny the allegations of the complaint or the findings of 
fact or conclusions of law to be made in the settlement order entered by 
the Commission or a court. In accepting a settlement and entering an 
order finding violations of the Act and/or regulations promulgated under 
the Act, the Commission makes uncontested findings of fact and 
conclusions of law. Similarly, in settling a civil proceeding with a 
defendant the Commission invites the federal court to make conclusions 
of law and, in some instances, findings of fact. The Commission does not 
believe it would be appropriate for it to be making or inviting a court 
to make such uncontested findings of violations if the party against 
whom the findings and conclusions are to be entered is continuing to 
deny the alleged misconduct.
    The refusal of a settling respondent or defendant to admit the 
allegations in a Commission-instituted complaint or the findings of fact 
or conclusions of law in the settlement order entered by the Commission 
or a court shall be treated as a denial, unless the

[[Page 382]]

party states that he or she neither admits nor denies the allegations or 
the findings and conclusions. In that event, the proposed offer of 
settlement, consent or consent order must include a provision stating 
that, by neither admitting nor denying the allegations, findings or 
conclusions, the settling respondent or defendant agrees that neither he 
or she nor any of his or her agents or employees under his authority or 
control shall take any action or make any public statement denying, 
directly or indirectly, any allegation in the complaint or findings or 
conclusions in the order, or creating, or tending to create, the 
impression that the complaint or the order is without a factual basis; 
provided, however, that nothing in this provision shall affect the 
settling respondent's or defendant's--
    i. Testimonial obligation, or
    ii. Right to take legal positions in other proceedings to which the 
Commission is not a party.

[64 FR 30903, June 9, 1999]



PART 11_RULES RELATING TO INVESTIGATIONS--Table of Contents



Sec.
11.1 Scope and applicability of rules.
11.2 Authority to conduct investigations.
11.3 Confidentiality of investigations.
11.4 Subpoenas.
11.5 Transcripts.
11.6 Oath; false statements.
11.7 Rights of witnesses.
11.8 Sequestration.

Appendix A to Part 11--Informal Procedure Relating to the Recommendation 
          of Enforcement Proceedings

    Authority: 7 U.S.C. 4a(j), 9 and 15, 12, 12a(5), 12(f).

    Source: 41 FR 29799, July 19, 1976, unless otherwise noted.



Sec.  11.1  Scope and applicability of rules.

    The rules of this part apply to investigatory proceedings conducted 
by the Commission or its staff pursuant to sections 6(c) and 8 and 12(f) 
of the Commodity Exchange Act, as amended, 7 U.S.C. 9 and 15 and 12 and 
16(f) (Supp. IV, 1974), to determine whether there have been violations 
of that Act, or the rules, regulations or orders adopted thereunder, or, 
in accordance with the provisions of section 12(f) of the Act, whether 
there have been violations of the laws, rules or regulations relating to 
futures or options matters administered or enforced by a foreign futures 
authority, or whether an application for designation or registration 
under the Act should be denied. Except as otherwise specified herein, 
the rules will apply to the conduct of investigation whether or not the 
Commission has authorized the use of subpoenas in the particular matter 
to compel the production of evidence.

[63 FR 5233, Feb. 2, 1998]



Sec.  11.2  Authority to conduct investigations.

    (a) The Director of the Division of Enforcement and members of the 
Commission staff acting pursuant to his authority and under his 
direction may conduct such investigations as he deems appropriate to 
determine whether any persons have violated, are violating, or are about 
to violate the provisions of the Commodity Exchange Act, as amended, or 
the rules, regulations or orders adopted by the Commission pursuant to 
that Act, or, in accordance with the provisions of section 12(f) of the 
Act, whether any persons have violated, are violating or are about to 
violate the laws, rules or regulations relating to futures or options 
matters administered or enforced by a foreign futures authority, or 
whether an applicant for registration or designation meets the requisite 
statutory criteria. For this purpose, the Director may obtain evidence 
through voluntary statements and submissions, through exercise of 
inspection powers over boards of trade, reporting traders, and persons 
required by law to register with the Commission, or when authorized by 
order of the Commission, through the issuance of subpoenas. The Director 
shall report to the Commission the results of his investigations and 
recommend to the Commission such enforcement action as he deems 
appropriate. In particular matters the Director of the Division of 
Clearing and Intermediary Oversight and the Chief Economist and Director 
of the Division of Market Oversight, and members of their staffs acting 
within the scope of their respective responsibilities, are also 
authorized to investigate, report and recommend to the Commission in 
accordance with these rules.
    (b) The Commission hereby delegates, until the Commission orders 
otherwise, to its Regional Directors

[[Page 383]]

and to the Director, the Deputy Directors, the Program Coordinator, the 
Chief Counsel, the Associate Directors, and the Regional Counsel of the 
Division of Enforcement the authority to grant to any employee of the 
Division of Enforcement all or a portion of the authority which the 
Commission, by order, has authorized specified employees of the 
Commission to perform in connection with a Commission investigation 
conducted by the Division of Enforcement. With the approval of the 
Executive Director, the Director of the Division of Enforcement may also 
grant such authority to any Commission employee under the direction of 
the Executive Director.

(Secs. 2a(11) and 6(b) of the Act, 7 U.S.C. 4a(j) and 15 (1976), as 
amended by the Futures Trading Act of 1978, Pub. L. 95-405, sec. 13, 92 
Stat. 871 (1978))

[41 FR 29799, July 19, 1976, as amended at 43 FR 55348, Nov. 28, 1978; 
60 FR 54802, Oct. 26, 1995; 61 FR 1709, Jan. 23, 1996; 62 FR 17702, Apr. 
11, 1997; 63 FR 5233, Feb. 2, 1998; 67 FR 62352, Oct. 7, 2002]



Sec.  11.3  Confidentiality of investigations.

    All information and documents obtained during the course of an 
investigation, whether or not obtained pursuant to subpoena, and all 
investigative proceedings shall be treated as non-public by the 
Commission and its staff except to the extent that (a) the Commission 
directs or authorizes the public disclosure of the investigation; (b) 
the information or documents are made a matter of public record during 
the course of an adjudicatory proceeding; or (c) disclosure is required 
by the Freedom of Information Act, 5 U.S.C. 552, and the rules adopted 
by the Commission thereunder, 17 CFR part 145. Procedures by which 
persons submitting information to the Commission during the course of an 
investigation may specifically seek confidential treatment of 
information for purposes of Freedom of Information Act disclosure are 
set forth in 17 CFR 145.9. A request for confidential treatment of 
information for purposes of the Freedom of Information Act shall not, 
however, prevent disclosure for law enforcement purposes or when 
disclosure is otherwise found appropriate in the public interest and 
permitted by law.



Sec.  11.4  Subpoenas.

    (a) Issuance of subpoenas. The Commission or any member of the 
Commission or of its staff who, by order of the Commission, has been 
authorized to issue subpoenas in the course of a particular 
investigation may issue a subpoena directing the person named therein to 
appear before a designated person at a specified time and place to 
testify or to produce documentary evidence, or both, relating to any 
matter under investigation.
    (b) Authorization to issue subpoenas. An order of the Commission 
authorizing one or more members of the Commission or of its staff to 
issue subpoenas in the course of a particular investigation shall 
include:
    (1) A general description of the scope of the investigation;
    (2) The authority under which the investigation is being conducted; 
and
    (3) A designation of the members of the Commission or of its staff 
authorized by the Commission to issue subpoenas.
    (c) Service. Service of subpoenas issued for investigative purposes 
shall be effected in the following manner:
    (1) Service upon a natural person. Delivery of a copy of a subpoena 
to a natural person may be effected by
    (i) Handing it to the person;
    (ii) Leaving it at his office with the person in charge thereof or, 
if there is no one in charge, by leaving it in a conspicuous place 
therein;
    (iii) Leaving it at his dwelling place or usual place of abode with 
some person of suitable age and discretion then residing therein;
    (iv) Mailing it by registered or certified mail to him at his last 
known address; or
    (v) Any other method whereby actual notice is given to him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, delivery of a copy of the subpoena may be effected by 
(i) handing it to a registered agent for service, or to any officer, 
director, or agent in charge of any office of such person; (ii) mailing 
it by registered or certified mail to any such representative at his 
last known address; or (iii) any other method whereby actual notice is 
given to any such representative.

[[Page 384]]

    (d) Witness fees and mileage. Witnesses appearing pursuant to 
subpoena shall be paid the same fees and mileage that are paid to 
witnesses in the courts of the United States.
    (e) Pursuant to the authority granted under Sections 2(a)(11) and 
8a(5) of the Act, the Commission hereby delegates to the Director of the 
Division of Enforcement, with the concurrence of the General Counsel or 
General Counsel's delegee, and until such time as the Commission orders 
otherwise, the authority to invoke, in case of contumacy by, or refusal 
to obey a subpoena issued to, any person, the aid of any court of the 
United States within the jurisdiction in which the investigation or 
proceeding is conducted, or where such person resides or transacts 
business, in requiring the attendance and testimony of witnesses and the 
production of books, papers, correspondence, memoranda and other records 
pursuant to subpoenas issued in accordance with section 6(c) of the Act 
for the purpose of securing effective enforcement of the provisions of 
this Act, for the purpose of any investigation or proceeding under this 
Act, and for the purpose of any action taken under section 12(f) of the 
Act.
    (f) Notwithstanding the delegation of authority to the Director set 
forth in paragraph (e) of this section, in any case in which the 
Director believes it appropriate the matter may be submitted to the 
Commission for its consideration. Nothing in this section shall prohibit 
the Commission from exercising the authority delegated in paragraph (e) 
of this section.

[41 FR 29799, July 19, 1976, as amended at 67 FR 37322, May 29, 2002]



Sec.  11.5  Transcripts.

    Transcripts of testimony taken in the course of an investigative 
proceeding shall be recorded solely by an official reporter or other 
person or by other means authorized by the Commission or by a member of 
the Commission or its staff conducting the investigation for the 
Commission.



Sec.  11.6  Oath; false statements.

    (a) Oath. At the discretion of the member of the Commission or staff 
member conducting the investigation, testimony of a witness may be taken 
under oath.
    (b) Penalties for false statements and other false information. Any 
person making false statements under oath during the course of a 
Commission investigation is subject to the criminal penalties for 
perjury in 18 U.S.C. 1621. Any person who knowingly and willfully makes 
false or fraudulent statements, whether under oath or otherwise, or who 
falsifies, conceals or covers up a material fact, or submits any false 
writing or document, knowing it to contain false, fictitious or 
fraudulent information, is subject to the criminal penalties set forth 
in 18 U.S.C. 1001.



Sec.  11.7  Rights of witnesses.

    (a) Orders authorizing issuance of subpoenas. Any person upon whom a 
subpoena has been served compelling him to furnish documentary evidence 
or testimony in an investigation shall, upon his request, be permitted 
to examine a copy of the Commission's order pursuant to which the 
subpoena has been issued. However, a copy of the order shall not be 
furnished for his retention except with the express approval of either 
the Director, a Deputy Director, the Program Coordinator, the Chief 
Counsel, an Associate Director, or a Regional Counsel of the Division of 
Enforcement, or a Regional Director of the Commission; approval shall 
not be given unless it has been shown by the person seeking to retain a 
copy that his retention of a copy would be consistent both with the 
protection of privacy of persons involved in the investigation and with 
the unimpeded conduct of the investigation.
    (b) Copies of testimony or data. A person compelled to submit data 
or evidence in the course of an investigatory proceeding shall be 
entitled to retain or, upon payment of appropriate fees as set forth in 
the Schedule of Fees for records services, 17 CFR part 145b, procure a 
copy or transcript thereof, except that the witness may for good cause 
be limited to inspection of the official transcript of his testimony.
    (c) Right to counsel. A person compelled to appear, or who appears 
in person by request or permission of the

[[Page 385]]

Commission or its staff during an investigation, may be accompanied, 
represented, and advised by counsel. Subject to the provisions ofSec. 
11.8(b) of this part, he may be represented by any attorney-at-law who 
is admitted to practice before the highest court in any State or 
territory or the District of Columbia, who has not been suspended or 
disbarred from appearance and practice before the Commission in 
accordance with the provisions of part 14 of this title, and who has not 
been excluded from further participation in the particular investigatory 
proceeding for good cause established in accordance with paragraph 
(c)(2) of this section.
    (1) The right to be accompanied, represented and advised by counsel 
shall mean the right of a person testifying to have an attorney present 
with him during any aspect of an investigative proceeding and to have 
this attorney advise his client before, during and after the conclusion 
of such examination. At the conclusion of the examination, counsel may 
request the person presiding to permit the witness to clarify any of his 
answers which may need clarification in order that his answers not be 
left equivocal or incomplete on the record. For his use in protecting 
the interests of his client with respect to that examination counsel may 
make summary notes during the examination.
    (2) With due regard for the rights of a witness, the Commission may 
for good cause exclude a particular attorney from further participation 
in any investigation in which the Commission has found the attorney to 
have engaged in dilatory, obstructionist or contumacious conduct. The 
person conducting an investigation may report to the Commission 
instances of apparently dilatory, obstructionist or contumacious conduct 
on the part of an attorney. After due notice to the attorney, the 
Commission may take such action as the circumstances warrant based upon 
a written transcript evidencing the conduct of the attorney in that 
investigation or such other or additional written or oral presentation 
as the Commission may permit or direct.
    (d) Self-Incrimination; immunity--(1) Self-Incrimination. Except as 
provided in paragraph (d)(2) of this section, a witness testifying or 
otherwise giving information in an investigation may refuse to answer 
questions on the basis of the right against self-incrimination granted 
by the Fifth Amendment of the Constitution of the United States.
    (2) Immunity. \2\ If the Commission believes that the testimony or 
other information sought to be obtained from any individual may be 
necessary to the public interest and that individual has refused or is 
likely to refuse to testify or provide other information on the basis of 
his privilege against self-incrimination, the Commission, with the 
approval of the Attorney General, may issue an order requiring the 
individual to give testimony or provide other information which he 
previously refused to give on the basis of self-incrimination. Whenever 
a witness refuses, on the basis of his privilege against self-
incrimination, to testify or provide other information in an 
investigation under this part, and the person presiding over the 
investigation communicates to the witness an order issued by the 
Commission requiring the witness to give testimony or provide other 
information, the witness may not refuse to comply with the order on the 
basis of his privilege against self-incrimination; but no testimony or 
other information compelled under the order (or any information directly 
or indirectly derived from such testimony or other information) may be 
used against the witness in any criminal case, except a prosecution for 
perjury, giving a false statement, or otherwise failing to comply with 
the order.
---------------------------------------------------------------------------

    \2\ This subsection shall be effective on and after such date as 
section 6001 of Title 18 of the United States Code has been amended to 
include the Commodity Futures Trading Commission among those agencies 
which may, with the approval of the Attorney General, grant immunity to 
witnesses to the extent and in the manner prescribed in 18 U.S.C. 6001 
et seq.

[41 FR 29799, July 19, 1976, as amended at 61 FR 1709, Jan. 23, 1996]



Sec.  11.8  Sequestration.

    (a) Sequestration of witnesses. All witnesses and potential 
witnesses shall be sequestered and prohibited from being present during 
the examination of any

[[Page 386]]

other witness unless otherwise permitted in the discretion of the person 
conducting the investigation.
    (b) Sequestration of counsel. When a reasonable basis exists to 
believe that an investigation may be obstructed or impeded, directly or 
indirectly, by an attorney's representation of more than one witness 
during the course of an investigation, the member of the Commission or 
of the Commission's staff conducting the investigation may prohibit that 
attorney from being present during the testimony of any witness other 
than the witness in whose behalf counsel first appeared in the 
investigatory proceeding. To the extent practicable, consistent with the 
integrity of the investigation, the attorney will be advised of the 
reasons for his having been sequestered.



     Sec. Appendix A to Part 11--Informal Procedure Relating to the 
                Recommendation of Enforcement Proceedings

    The Division of Enforcement (``Division''), in its discretion, may 
inform persons who may be named in a proposed enforcement proceeding of 
the nature of the allegations pertaining to them. The Division, in its 
discretion, may advise such persons that they may submit a written 
statement prior to the consideration by the Commission of any staff 
recommendation for the commencement of such proceeding. Unless otherwise 
provided for by either the Director, a Deputy Director, the Program 
Coordinator, the Chief Counsel, an Associate Director, or a Regional 
Counsel of the Division, or a Regional Director of the Commission, such 
written statements shall be submitted within 14 days after persons are 
informed by the Division of Enforcement of the nature of the proposed 
allegations pertaining to them and shall be no more than 20 pages, 
double spaced on 8\1/2\ by 11 inch paper, setting forth their views of 
factual, legal or policy matters relevant to the commencement of an 
enforcement proceeding. Any statement of fact included in the submission 
must be sworn to by a person with personal knowledge of such fact. 
Statements shall be forwarded to the Director, Division of Enforcement, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581, with copies to the staff conducting 
the investigation, shall clearly identify the specific investigation, 
and, if desired, may request that the statement be forwarded to the 
Commission. Similarly, persons who become involved in an investigation, 
and submit a written statement on their initiative, should follow the 
relevant procedures described herein. In the event the Division 
recommends the commencement of an enforcement proceeding to the 
Commission, any written statement will be forwarded to the Commission if 
so requested. The Commission may, in its discretion, consider all, any 
portion or none of the submission when it considers the staff 
recommendation to commence an enforcement proceeding.

[52 FR 19501, May 26, 1987, as amended at 60 FR 49334, Sept. 25, 1995; 
61 FR 1709, Jan. 23, 1996]



PART 12_RULES RELATING TO REPARATIONS--Table of Contents



Subpart A_General Information and Preliminary Consideration of Pleadings

Sec.
12.1 Scope and applicability of rules of practice relating to 
          reparations.
12.2 Definitions.
12.3 Business address; hours.
12.4 Suspension, amendment, revocation and waiver of rules.
12.5 Computation of time.
12.6 Extensions of time; adjournments; postponements.
12.7 Ex parte communications in reparation proceedings.
12.8 Separation of functions.
12.9 Practice before the Commission.
12.10 Service.
12.11 Formalities of filing of documents with the Proceedings Clerk.
12.12 Signature.
12.13 Complaint; election of procedure.
12.14 Withdrawal of complaint.
12.15 Notification of complaint.
12.16 Response to complaint.
12.17 Satisfaction of complaint.
12.18 Answer; election of procedure.
12.19 Counterclaim.
12.20 Response to counterclaim; reply; election of procedure.
12.21 Voluntary dismissal.
12.22 Default proceedings.
12.23 Setting aside of default.
12.24 Parallel proceedings.
12.25 Filing fees.
12.26 Commencement of a reparation proceeding.
12.27 Termination of consideration of pleadings.

                           Subpart B_Discovery

12.30 Methods of discovery.
12.31 Production of documents and tangible items.
12.32 Depositions on written interrogatories.
12.33 Admissions.

[[Page 387]]

12.34 Discovery by a decisionmaking official.
12.35 Consequences of a party's failure to comply with a discovery 
          order.
12.36 Subpoenas to compel discovery.

     Subpart C_Rules Applicable to Voluntary Decisional Proceedings

12.100 Scope and applicability of rules.
12.101 Functions and responsibilities of the Judgment Officer.
12.102 Disqualification of Judgment Officer.
12.103 Filing of documents; subscription; service.
12.104 Amendments to pleadings; motions.
12.105 Submission of proof only in documentary or tangible form.
12.106 Final decision and order.

      Subpart D_Rules Applicable to Summary Decisional Proceedings

12.200 Scope and applicability of rules.
12.201 Functions and responsibilities of the Judgment Officer.
12.202 Disqualification of Judgment Officer.
12.203 Filing of documents; subscription; service.
12.204 Amended and supplemental pleadings.
12.205 Motions.
12.206 Pre-decision conferences.
12.207 Summary disposition.
12.208 Submissions of proof.
12.209 Oral testimony.
12.210 Initial decision.

       Subpart E_Rules Applicable to Formal Decisional Proceedings

12.300 Scope and applicability of rules.
12.301-12.302 [Reserved]
12.303 Pre-decision conferences.
12.304 Functions and responsibilities of the Administrative Law Judge.
12.305 Disqualification of Administrative Law Judge.
12.306 Filing of documents; subscription; service.
12.307 Amended and supplemental pleadings.
12.308 Motions.
12.309 Interlocutory review by the Commission.
12.310 Summary disposition.
12.311 Disposition of proceeding or issues without oral hearing.
12.312 Oral hearing.
12.313 Subpoenas for attendance at an oral hearing.
12.314 Initial decision.
12.315 Consequences of overstating damages claims not in excess of 
          $30,000.

                Subpart F_Commission Review of Decisions

12.400 Scope and applicability of rules.
12.401 Appeal to the Commission.
12.402 Appeal of disposition of less than all claims or parties in a 
          proceeding.
12.403 Commission review on its own motion.
12.404 The record of proceedings.
12.405 Leave to adduce additional evidence.
12.406 Final decision of the Commission.
12.407 Satisfaction of reparation award; enforcement; sanctions.
12.408 Delegation of authority to the General Counsel.

    Authority: 7 U.S.C. 2(a)(12), 12a(5), and 18.

    Source: 49 FR 6621, Feb. 22, 1984, unless otherwise noted.



Subpart A_General Information and Preliminary Consideration of Pleadings



Sec.  12.1  Scope and applicability of rules of practice relating to reparations.

    (a) Part 12 Reparation Rules. These rules of practice are applicable 
to reparation applications filed pursuant to section 14 of the Commodity 
Exchange Act, as amended, 7 U.S.C. section 18. The rules in this part 
shall be construed liberally so as to secure the just, speedy and 
inexpensive determination of the issues presented with full protection 
for the rights of all parties.
    (b) Other rules of practice. Unless specifically made applicable, 
other Rules of Practice promulgated under the Commodity Exchange Act, as 
amended, shall not apply to reparation matters.
    (c) Applicability of these part 12 Reparation Rules. These rules 
shall apply in their entirety to all reparation complaints and matters 
relating thereto.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9635, Mar. 1, 1994]



Sec.  12.2  Definitions.

For purposes of this part:
    Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1, et 
seq.;
    Administrative Law Judge means an administrative law judge appointed 
pursuant to the provisions of 5 U.S.C. 3105;
    Commission means the Commodity Futures Trading Commission;
    Commission decisional employee means an employee or employees of the 
Commission who are or may reasonably be

[[Page 388]]

expected to be involved in the decisionmaking process in any proceeding, 
including, but not limited to: A Judgment Officer; members of the 
personal staffs of the Commissioners, but not the Commissioners 
themselves; members of the staffs of the Administrative Law Judges, but 
not an Administrative Law Judge; members of the staffs of the Judgment 
Officers; members of the Office of the General Counsel; members of the 
staff of the Office of Proceedings; and other Commission employees who 
may be assigned to hear or to participate in the decision of a 
particular matter.
    Complainant means a person who, individually or jointly with others, 
has applied to the Commission for a reparation award pursuant to section 
14(a) of the Act, but shall not include a cross claimant or any other 
type of third party claimant. The term ``complainant'' under these rules 
applies equally to two or more persons who have applied jointly for a 
reparation award;
    Complaint means any document which constitutes an application for a 
reparation award pursuant to section 14(a) of the Act, regardless of 
whether it is denominated as such;
    Counterclaim means an application for a reparation award by a 
respondent against a complainant which satisfies the requirements of 
Sec.  12.19. A counterclaim does not mean a cross claim or other type of 
third party claim;
    Director of the Office of Proceedings means an employee of the 
Commission who serves as the administrative head of that Office, with 
responsibility and authority to assure that these part 12 Reparation 
Rules are administered in a manner which will effectuate the purposes of 
section 14(b) of the Act. The Director is authorized to convene meetings 
of all personnel in the Office of Proceedings, including Administrative 
Law Judges and their personally assigned law clerks. The Director shall 
have the authority to delegate his duties to administer Sec.Sec. 
12.15, 12.24, 12.26 and 12.27, and, shall have the authority to assign 
and, if necessary, reassign the duties of, and set reasonable standards 
for performance for, all personnel in the Office, including the Judgment 
Officers, but not including Administrative Law Judges and their 
personally assigned law clerks;
    Ex parte communication means an oral or written communication not on 
the public record with respect to which reasonable prior notice to all 
parties is not given, but does not include:
    (1) A discussion, after consent has been obtained from all of the 
named parties, between a party and a Judgment Officer or Administrative 
Law Judge, or the staffs of the foregoing, pertaining solely to the 
possibility of settling the case without the need for a decision;
    (2) Requests for status reports, including questions relating to 
service of the complaint, and the registration status of any persons, on 
any matter or proceeding covered by these rules; or
    (3) Requests made to the Office of Proceedings or the Office of the 
General Counsel for interpretation of these rules.
    Formal decisional procedure means, where the amount of total damages 
claimed exceeds $30,000, exclusive of interest and costs, a procedure 
elected by the complainant or a respondent where the parties may be 
granted an oral hearing. A formal decisional proceeding is governed by 
subpart E;
    Hearing means that part of a proceeding which involves the 
submission of proof, either by oral presentation or written submission;
    Interested person means any party, and includes any person or agency 
permitted limited participation or to state views in a reparation 
proceeding, or other person who might be adversely affected or aggrieved 
by the outcome of a proceeding (including the officers, agents, 
employees, associates, affiliates, attorneys, accountants or other 
representatives of such persons), and any other person having a direct 
or indirect pecuniary or other interest in the outcome of a proceeding;
    Judgment Officer means an employee of the Commission who is 
authorized to conduct all reparations proceedings. In appropriate 
circumstances, the functions of a Judgment Officer may be performed by 
an Administrative Law Judge;
    Office of the General Counsel refers to the members of the 
Commission's staff

[[Page 389]]

who provide assistance to the Commission in its direct review of any 
proceeding conducted pursuant to these rules;
    Office of Proceedings means that Office within the Commission 
comprised of the Administrative Law Judges, Judgment Officers, the 
Director of that Office, the Proceedings Clerk, and members of the 
staffs of the foregoing, which administers these part 12 Reparation 
Rules, other than the rules authorizing direct review by the Commission;
    Order means the whole or any part of a final procedural or 
substantive disposition of a reparation proceeding by the Commission, an 
Administrative Law Judge, a Judgment Officer, or the Proceedings Clerk;
    Party means a complainant, respondent or any other person or agency 
named or admitted as a party in a reparation matter;
    Person means any individual, association, partnership, corporation 
or trust;
    Pleading means the complaint, the answer to the complaint, any 
supplement or amendment thereto, and any reply to the foregoing;
    Proceeding means a case in which the pleadings have been forwarded 
and in which a procedure has been commenced pursuant toSec. 12.26;
    Proceedings Clerk means that member of the Commission's staff in the 
Office of Proceedings who shall maintain the Commission's reparation 
docket, assign reparation cases to an appropriate decisionmaking 
official, and act as custodian of the records of proceedings;
    Punitive damages means damages awarded (no more than two times the 
amount of actual damages) in the case of any action arising from a 
willful and intentional violation in the execution of an order on the 
floor of a contract market. An order does not have to be actually 
executed to render a violation subject to punitive damages. As a 
prerequisite to an award of punitive damages, a complainant must claim 
actual and punitive damages, prove actual damages, and demonstrate that 
punitive damages are appropriate;
    Registrant means any person who--
    (1) Was registered under the Act at the time of the alleged 
violation;
    (2) Is subject to reparation proceedings by virtue of section 4m of 
the Commodity Exchange Act, regardless of whether such person was ever 
registered under the Act; or
    (3) Is otherwise subject to reparation proceedings under the Act;
    Reparation award means the amount of monetary damages a party may be 
ordered to pay;
    Respondent means any person or persons against whom a complainant 
seeks a reparation award pursuant to section 14(a) of the Act;
    Summary decisional procedure means, where the amount of total 
damages claimed does not exceed $30,000, exclusive of interest and 
costs, a procedure elected by the complainant or the respondent wherein 
an oral hearing need not be held and proof in support of each party's 
case may be supplied in the form and manner prescribed bySec. 12.208. 
A summary decisional proceeding is governed by subpart D;
    Voluntary decisional procedure means, regardless of the amount of 
damages claimed, a procedure which the complainant and the respondent 
have chosen voluntarily to submit their claims and counterclaims, 
allowable under these rules, for an expeditious resolution by a Judgment 
Officer. By electing the voluntary decisional procedure, parties agree 
that a decision issued by a Judgment Officer shall be without 
accompanying findings of fact and shall be final without right of 
Commission review or judicial review. A voluntary decisional proceeding 
is governed by subpart C of these rules.

[59 FR 9635, Mar. 1, 1994, as amended at 78 FR 12936, Feb. 26, 2013]



Sec.  12.3  Business address; hours.

    The Office of Proceedings is located at Three Lafayette Centre, 1155 
21st Street NW., Washington, DC 20581. Faxes must be sent to (202) 418-
5532, and emails must be sent to [email protected]. The office is 
open from 8:15 a.m. to 4:45 p.m., Eastern Time, Monday through Friday 
except on federal holidays.

[78 FR 12936, Feb. 26, 2013]

[[Page 390]]



Sec.  12.4  Suspension, amendment, revocation and waiver of rules.

    (a) Suspension or change of rules. These rules may, from time to 
time, be suspended, amended or revoked in whole or in part. Notice of 
such action will be published in the Federal Register.
    (b) Commission waiver of procedures. In the interest of expediting 
decision or to prevent undue hardship on any party or for other good 
cause the Commission may order the adoption of expedited procedures, may 
waive any rule in this part in a particular case, and may order 
proceedings in accordance with its direction upon a determination that 
no party will be prejudiced thereby, and that the ends of justice will 
be served. Reasonable notice shall be given to all parties of any action 
taken pursuant to this provision.



Sec.  12.5  Computation of time.

    (a) In general. In computing any period of time prescribed by these 
rules or allowed by the Commission, the Director of the Office of 
Proceedings, a Judgment Officer, or an Administrative Law Judge, the day 
of the act, event, or default from which the designated period of time 
begins to run is not to be included. The last day of the period so 
computed is to be included unless it is a Saturday, a Sunday, or a legal 
holiday, in which event the period runs until the end of the next day 
which is not a Saturday, a Sunday or a legal holiday.

Intermediate Saturday, Sundays, and legal holidays shall be excluded 
from the computation only when the period of time prescribed or allowed 
is less than seven (7) days.
    (b) Date of service of orders. In computing any period of time 
involving the date of service of an order, the date of service shall be 
the date the order is served by the Proceedings Clerk, which, unless 
otherwise indicated, shall be the date stamped on the order by the 
Proceedings Clerk.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec.  12.6  Extensions of time; adjournments; postponements.

    (a) In general. Except as otherwise provided by law or by these 
rules, for good cause shown, the Commission, or a Judgment Officer, 
Administrative Law Judge, or the Director of the Office of Proceedings, 
before whom a matter is then pending, on their own motion or the motion 
of a party, may at any time extend or shorten the time limit prescribed 
by the rules for filing any document. In any instance in which a time 
limit is not prescribed for an action to be taken concerning any matter, 
the Commission or one of the other officials mentioned above may set a 
time limit for that action.
    (b) Motions for extension of time. Absent extraordinary 
circumstances, in any instance in which a time limit that has been 
prescribed for an action to be taken concerning any matter exceeds seven 
days from the date of the order establishing the time limit, requests 
for extension of time shall be filed at least five (5) days prior to the 
expiration of the time limit and shall explain why an extension of time 
is necessary.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992; 59 
FR 9636, Mar. 1, 1994]



Sec.  12.7  Ex parte communications in reparation proceedings.

    (a) Prohibitions against ex parte communications. (1) No interested 
person outside the Commission shall make or knowingly cause to be made 
to any Commissioner, Administrative Law Judge, or Commission decisional 
employee an ex parte communication relevant to the merits of a 
proceeding.
    (2) No Commissioner, Administrative Law Judge, or Commission 
decisional employee shall make or knowingly cause to be made to any 
interested person outside the Commission an ex parte communication 
relevant to the merits of a proceeding.
    (b) Procedures for handling ex parte communications. A Commissioner, 
Administrative Law Judge or Commission decisional employee who receives, 
or who makes or knowingly causes to be made, an ex parte communication 
prohibited by paragraph (a) of this section shall:

[[Page 391]]

    (1) Place on the public record of the proceeding:
    (i) All such written communications;
    (ii) Memoranda stating the substance of all such oral 
communications; and
    (iii) All written responses, and memoranda stating the substance of 
all oral responses, to the materials described in paragraphs (b)(1) (i) 
and (ii) of this section; and
    (2) Promptly give written notice of such communication and responses 
thereto to all parties to the proceedings to which the communication or 
responses relate.
    (c) Sanctions. (1) Upon receipt of an ex parte communication 
knowingly made or knowingly caused to be made by a party in violation of 
the prohibition contained in paragraph (a)(1) of this section, the 
Commission, Administrative Law Judge, or Judgment Officer may, to the 
extent consistent with the interests of justice and the policy of the 
Act, require the party to show cause why his claim or interest in the 
proceeding should not be dismissed, denied, disregarded, or otherwise 
adversely affected on account of such violation.
    (2) Any attorney or accountant who knowingly makes or knowingly 
causes to be made, or who knowingly solicits or knowingly causes the 
solicitation of, an ex parte communication which violates the 
prohibitions contained in paragraph (a) of this section may be deemed to 
have engaged in unprofessional conduct of the type proscribed by 17 CFR 
14.8(c).
    (3) Any Commissioner, Administrative Law Judge, or Commission 
decisional employee who knowingly makes or knowingly causes to be made, 
or who knowingly solicits or knowingly causes the solicitation of, an ex 
parte communication which violates the prohibitions contained in 
paragraph (a) of this section may be deemed to have engaged in conduct 
of the type proscribed by 5 CFR 2635.101(b).
    (d) Applicability of prohibitions and sanctions against ex parte 
communications. (1) The prohibitions of this section against ex parte 
communications shall apply:
    (i) To any person who has actual knowledge that a proceeding has 
been or will be commenced by order of the Commission; and
    (ii) To all persons after public notice has been given that a 
proceeding has been or will be commenced by order of the Commission.
    (2) The prohibitions of this section shall remain in effect until a 
final order has been entered in the proceeding which is no longer 
subject to review by the Commission or to appellate review by a court.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9636, Mar. 1, 1994]



Sec.  12.8  Separation of functions.

    (a) A Judgment Officer, or Administrative Law Judge will not be 
responsible to or subject to the supervision or direction of any 
officer, employee, or agent of the Commission engaged in the performance 
of investigative or prosecutorial functions for the Commission.
    (b) No officer, employee, or agent of the Federal Government engaged 
in the performance of investigative or prosecutorial functions in 
connection with any proceeding shall, in that proceeding or a factually 
related proceeding, participate or advise in the decision of a Judgment 
Officer, or Administrative Law Judge, except as a witness in the 
proceeding, without the express written consent of the parties to the 
proceeding. This provision shall not apply to the Commissioners.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec.  12.9  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. An individual may appear pro se 
(on his own behalf); a general partner may represent the partnership; a 
bona fide officer of a corporation, trust or association may represent 
the corporation, trust or association.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest Court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with provisions of part 14 
of this chapter may represent parties as an attorney in proceedings 
before the Commission.

[[Page 392]]

    (b) Debarment of counsel or representative during the course of a 
proceeding. (1) Whenever, while a proceeding is pending before him, a 
Judgment Officer or an Administrative Law Judge finds that a person 
acting as counsel or representative for any party to the proceeding is 
guilty of contemptuous conduct, such official may order that such person 
be precluded from further acting as counsel or representative in the 
proceeding. An immediate appeal to the Commission may be taken from any 
such order, pursuant to the provisions ofSec. 12.309, but the 
proceeding shall not be delayed or suspended pending disposition of the 
appeal; Provided, That the official may suspend the proceedings for a 
reasonable time for the purpose of enabling the party to obtain other 
counsel or representative.
    (2) Whenever the Judgment Officer or Administrative Law Judge has 
issued an order precluding a person from further acting as counsel or 
representative in a proceeding, such official, within a reasonable time 
thereafter, shall submit to the Commission a report of the facts and 
circumstances surrounding the issuance of the order and shall recommend 
what action the Commission should take respecting the appearance of such 
person as counsel or representative in other proceedings before the 
Commission.
    (c) Withdrawal of representation. Withdrawal from representation of 
a party shall be only by leave of the decisionmaking official (or the 
Commission) before whom the proceeding is then pending. Such leave to 
withdraw may be conditioned on the attorney's (or representative's) 
submission of an affidavit averring that the party represented has 
actual knowledge of the withdrawal, and such affidavit shall include the 
name and address of a successor counsel (or representative) or a 
statement that the represented party has determined to proceed pro se, 
in which case, the statement shall include the address where that party 
can thereafter be served.



Sec.  12.10  Service.

    (a) General requirements--(1) When service is required; number of 
copies. When one party serves another with documents under these rules, 
a copy must be served on all other parties as well as filed with the 
Proceedings Clerk. Similarly, when a person files a document with the 
Office of Proceedings, the person must serve a copy of the document on 
all other parties. This rule does not apply to a complaint filed 
pursuant toSec. 12.13 of these rules, which shall only be filed with 
the Commission.
    (2) How service is made. Service shall be made by:
    (i) Personal service;
    (ii) First-class or a more expeditious form of United States mail or 
an overnight or similar commercial delivery service;
    (iii) Facsimile (``fax''); or
    (iv) Electronic mail (``email'').
    (3) Service by fax or email shall be permitted at the discretion of 
the Presiding Officer, with the parties' consent. The consent of a party 
must specify the email address or fax number to be used. Signed 
documents that are served by email attachment must be in PDF or other 
non-alterable form.
    (4) Service will be complete at the time of personal service; upon 
deposit in the mail or with an overnight or similar commercial delivery 
service of a properly addressed document for which all postage or 
delivery service fees have been paid; or upon transmission by fax or 
email. Service by email or by fax will not be effective if the party 
making service learns that the attempted service did not reach the 
person to be served.
    (5) Where service is effected by mail or commercial delivery service 
(but not by fax or email), the time within which the person served may 
respond thereto shall be extended by five (5) days.
    (6) Statement of service. A statement of service shall be made by 
filing with the Proceedings Clerk, simultaneously with the filing of the 
document, a statement signed by the party making service or by his 
attorney or representative that:
    (i) Confirms that service has been made;
    (ii) Identifies each person served;
    (iii) Sets forth the date of service; and
    (iv) Recites the manner of service.
    (b) Service of orders and decisions. A copy of all notices, rulings, 
opinions,

[[Page 393]]

and orders of the Proceedings Clerk, the Director of the Office of 
Proceedings, a Judgment Officer, an Administrative Law Judge, the 
General Counsel or any employee under the General Counsel's supervision 
as the General Counsel may designate, or the Commission shall be served 
by the Proceedings Clerk on each of the parties. The Commission, in its 
discretion and with due consideration for the convenience of the 
parties, may serve the aforementioned documents to the parties by 
electronic means.
    (c) Designation of person to receive service. The first page of the 
first document filed in a proceeding by a party or participant shall 
include the contact information of a person authorized to receive 
service on their behalf. Thereafter, service of documents shall be made 
upon the person authorized unless service on the party himself is 
ordered by a Judgment Officer, an Administrative Law Judge or the 
Commission, or unless no person authorized to receive service can be 
found, or unless the person authorized to receive service is changed by 
the party upon due notice to all other parties.

[78 FR 12936, Feb. 26, 2013]



Sec.  12.11  Formalities of filing of documents with the Proceedings
Clerk.

    (a) If a party files by personal delivery or mail, an original of 
all documents shall be filed with the Proceedings Clerk. If a party 
files a document by fax or email in accordance withSec. 12.10(a)(2), 
they should not also send paper copies.
    (b) First page. The first page of all documents filed with the 
Proceedings Clerk must include the Commission's name, the docket number, 
the title of the proceeding, the subject of the document and the name of 
the person on whose behalf the document is being filed. In the 
complaint, the title of the proceeding shall include the names of all 
the complainants and respondents, but in documents subsequently filed it 
is sufficient to state the name of the first complainant and first 
respondent named in the complaint.
    (c) Format. Documents must be legible and printed on normal white 
paper of eight and one half by eleven inches. Documents emailed in 
accordance with the requirements ofSec. 12.10(a)(2) must be in PDF or 
other non-alterable form. The typeface, margins, and spacing of all 
typed documents presented for filing should meet the following 
requirements: all text should be 12-point type or larger, except for 
text in footnotes which may be 10-point type; all documents should have 
at least one-inch margins on all sides; all text must be double-spaced, 
except for headings, text in footnotes, or block quotations, which may 
be single-spaced.
    (d) Signature. (1) The original of all papers must be signed by the 
person filing the same or by his duly authorized agent or attorney.
    (2) Effect. The signature on any document of any person acting 
either for himself or as attorney or agent for another constitutes 
certification by him that:
    (i) He has read the document and knows the contents thereof;
    (ii) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (iii) To the best of his knowledge, information, and belief, every 
statement contained in the document is true and not misleading; and
    (iv) The document has been filed in good faith and has not been 
filed to cause delay.
    (e) Length and form of briefs. All briefs filed containing more than 
15 pages shall include an index and a table of cases and other 
authorities cited. No brief shall exceed 25 pages in length without 
prior permission of the Presiding Officer.
    (f) All documents which are required to be served upon a party shall 
be filed concurrently with the Proceedings Clerk. A document shall be 
filed by delivering it in person or by first-class mail or a more 
expeditious form of United States mail or by overnight or similar 
commercial delivery service to Proceedings Clerk, Office of Proceedings, 
Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581; or 
faxing the document to (202) 418-5532; or emailing it to PROC--
[email protected] in accordance with the conditions set forth in 
paragraph (a)(2) of this section.

[[Page 394]]

    (g) To be timely filed under this part, a document must be delivered 
in person; mailed by first-class or a more expeditious form of United 
States mail or by an overnight or similar commercial delivery service; 
or faxed or emailed to the Proceedings Clerk within the time prescribed 
for filing.

[78 FR 12936, Feb. 26, 2013]



Sec.  12.12  Signature.

    (a) By whom. All documents filed with the Commission shall be signed 
personally:
    (1) By the person or persons on whose behalf they are tendered for 
filing;
    (2) By a general partner, officer or director of a partnership, 
corporation, association, or other legal entity; or
    (3) By an attorney-at-law having authority with respect thereto.

The Proceedings Clerk may require appropriate evidence of the authority 
of a person subscribing a document on behalf of another person.
    (b) Effect. The signature on any document of any person acting 
either for himself or as attorney or agent for another constitutes 
certification by him that:
    (1) He has read the document subscribed and knows the contents 
thereof;
    (2) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (3) To the best of his knowledge, information, and belief, every 
statement contained in the document is true and not misleading; and
    (4) The document is not being interposed for delay.



Sec.  12.13  Complaint; election of procedure.

    (a) In general. Any person complaining of a violation of any 
provision of the Act or a rule, regulation or order of the Commission 
thereunder by any person who is a registrant (as defined inSec. 12.2) 
may, at any time within two years after the cause of action accrues, 
apply to the Commission for a reparation award by filing a written 
complaint which satisfies the requirements of this rule.
    (b) Form of complaint. The form of each complaint filed under 
paragraph (a) of this section shall meet the following requirements:
    (1) Content. Each complaint shall include:
    (i) The name, residence address, and telephone number (during 
business hours) of the complainant;
    (ii) The name, address, and telephone number, if known, of each 
person alleged in the complaint to have violated the Act or any rule, 
regulation or order thereunder;
    (iii) If known, the specific provisions of the Act, rule, 
regulation, or order claimed to have been violated;
    (iv) A complete description of complainant's case, including, but 
not limited to:
    (A) A description of all relevant facts concerning each and every 
act or omission which it is claimed constitutes a violation of the Act; 
and
    (B) A description of all facts which show or tend to show the manner 
in which it is claimed that the complainant was injured by the alleged 
violations;
    (v) The amount of damages the complainant claims to have suffered 
and the method by which those damages have been computed, the amount of 
punitive damages (no more than two times the amount of such actual 
damages) the complainant claims, if any, and how complainant plans to 
demonstrate that punitive damages are appropriate;
    (vi) A statement indicating whether an arbitration proceeding or 
civil court litigation, based on the same set of facts set forth and 
involving any party named as a respondent in the complaint, has been 
instituted, and whether such a proceeding has reached a final 
disposition or is presently pending;
    (vii) A statement indicating whether any of the respondents is the 
subject of receivership or bankruptcy proceedings that are presently 
pending;
    (viii) An election of a decisional procedure pursuant to subpart C, 
D, or E. (A procedure pursuant to subpart D may be elected only if the 
total amount of damages claimed, exclusive of interest and costs, does 
not exceed $30,000. A procedure pursuant to subpart E may be elected 
only if the total amount claimed as damages, exclusive

[[Page 395]]

of interest and costs, exceeds $30,000); and
    (ix) A filing fee in the amount prescribed bySec. 12.25 of these 
rules shall be submitted with the complaint at the time of its filing.
    (2) Subscription and verification of the complaint. Each complaint 
shall be signed personally by an individual complainant or by a duly 
authorized officer or agent of a complainant who is not a natural 
person. His signature shall be given under oath or affirmation under 
penalty of law attesting either that he knows the facts set forth in the 
complaint to be true, or that he believes the facts set forth to be 
true, in which event the information upon which he formed that belief 
shall be set forth with particularity.
    (3) Time and place of filing of complaint. A complaint shall be 
filed by delivering a copy thereof, in proper form, to the Commission at 
its principal offices in Washington, DC, addressed to the Office of 
Proceedings, attention of the Proceedings Clerk. The complaint may be 
filed in person, during normal business hours, or by certified mail, or 
registered mail with return receipt requested. If filing is by mail, it 
shall be addressed to the Proceedings Clerk, Office of Proceedings, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. The complaint shall not be served on 
any person or party named therein. Upon the filing of the complaint and 
the appropriate filing fee, the Proceedings Clerk shall assign a docket 
number to the matter and shall maintain the official docket.
    (4) Bond required if complainant is nonresident; filing date of 
nonresident's complaint. (i) If a complaint in reparations is filed by a 
nonresident of the United States, the complaint shall not be considered 
duly filed in proper form unless it is accompanied by:
    (A) A bond in double the amount of the claim either with a surety 
company approved by the Treasury Department of the United States or two 
personal sureties, each of whom shall be a citizen of the United States 
and shall qualify as financially responsible for the entire amount of 
the bond, which bond shall run to the respondent and be conditioned upon 
the payment of costs (including reasonable attorney's fees, for the 
respondent if the respondent shall prevail) and any reparation award 
that may be issued by the Commission against the complainant on any 
counterclaim asserted by respondent; or
    (B) A written request that the bond requirement be waived in 
accordance with section 14(c) of the Commodity Exchange Act, accompanied 
by sufficient proof that the country of which the complainant is a 
resident permits the filing of a complaint by a resident of the United 
States against a citizen of that country without the furnishing of a 
bond.
    (ii) The provisions of paragraphs (b)(4)(i)(A) or (b)(4)(i)(B) of 
this section must be satisfied within two years after the complainant's 
cause of action accrues.
    (iii) When mailed from a foreign country, a nonresident's complaint 
shall be deemed filed on the date that it is received in proper form by 
the Commission's Proceedings Clerk, not on the date of mailing from the 
country of origin.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 51 
FR 35507, Oct. 6, 1986; 59 FR 9636, Mar. 1, 1994; 60 FR 49335, Sept. 25, 
1995]



Sec.  12.14  Withdrawal of complaint.

    At any time prior to service of notification to the complainant 
pursuant toSec. 12.15(a) of the Director of the Office of Proceedings' 
determination to forward the complaint to a registrant, complainant may 
file a written notice of withdrawal of the complaint which shall 
terminate the Commission's consideration of the complaint without 
prejudice to complainant's right to re-file a reparations complaint 
based upon the same set of facts within two years after the cause of 
action accrues. If the complainant has previously filed a notice of 
withdrawal of a complaint based upon the same set of facts, the notice 
of withdrawal of complaint shall terminate the case with prejudice to 
complainant's rights to re-file a complaint in reparations based on the 
same set of facts, but such termination shall be regarded by the 
Commission as without prejudice to complainant's right to seek redress 
in such alternative forums

[[Page 396]]

as may be available for adjudication of his claims.



Sec.  12.15  Notification of complaint.

    (a) Forwarding of complaint to registrant. If, in the opinion of the 
Director of the Office of Proceedings, the facts set forth in a 
complaint warrant such action as to any of the registrants, a copy of 
the complaint, together with any attachments thereto, shall be forwarded 
by serving by registered mail or certified mail any such registrant 
named therein at an address previously designated with the Commission by 
the registrant for receipt of reparation complaints, as provided in 
Commission Regulation 17 CFR 3.30, or, if no such designation has been 
filed with the Commission, at such address as will accomplish actual 
notice to the respondent. Should the Director determine to forward the 
complaint, the complainant shall be notified of this determination at 
the time the complaint is forwarded.
    (b) Determination not to forward complaint. The Director may, in his 
discretion, refuse to forward a complaint as to a particular respondent 
if it appears that the matters alleged therein are not cognizable in 
reparations, or that grounds exist pursuant toSec. 12.24 (c) or (d) 
for refusing to forward the complaint. If the Director of the Office of 
Proceedings should determine not to forward the complaint to all 
registrants named in the complaint in accordance with this Section, no 
proceeding shall be held thereon and the complainant shall be notified 
to that effect. If the Director determines to forward the complaint as 
to less than all of the registrants, the complainant shall be so 
notified. A termination of the complaint as to any registrant shall be 
regarded by the Commission as without prejudice to the right of the 
complainant to seek such alternative forms of relief as may be 
available.



Sec.  12.16  Response to complaint.

    Within 25 days after the complaint has been served by the Office of 
Proceedings on the registrant, or within such additional time (not to 
exceed 10 days absent extraordinary circumstances) as the Director of 
the Office of Proceedings, or his/her delegee may grant, for good cause 
shown, each registrant shall either--
    (a) Satisfy the complaint in accordance withSec. 12.17 of these 
rules; or
    (b) Answer the complaint in the manner prescribed bySec. 12.18 of 
these rules.

[59 FR 9636, Mar. 1, 1994]



Sec.  12.17  Satisfaction of complaint.

    A respondent may satisfy the complaint (a) by paying to the 
complainant either the amount to which the complainant claims to be 
entitled as set forth in the complaint or such other amount as the 
complainant will accept in satisfaction of his claim; and (b) by 
submitting to the Commission notice of satisfaction and withdrawal of 
the complaint, duly executed by the complainant and the respondent.



Sec.  12.18  Answer; election of procedure.

    An answer filed pursuant toSec. 12.16 of these rules shall meet 
the following requirements:
    (a) Content. Each answer shall contain:
    (1) The full name, current address and telephone number (during 
business hours) of each respondent on whose behalf the answer is filed;
    (2) A complete description of each registrant's case, including but 
not limited to, a precise and detailed statement of the facts which 
constitute each registrant's ground for defense;
    (3) Admissions, if any, as to the registrant's liability for the 
amount (or any portion thereof) claimed as damages;
    (4) A statement indicating whether the registrant is (and if the 
answer is filed on behalf of two or more registrants, which if any of 
them are) in receivership or subject to bankruptcy proceedings;
    (5) A statement indicating whether an arbitration or civil court 
litigation, based on the same set of facts set forth in the complaint 
(involving any or all of the parties named therein), is pending;
    (6) A counterclaim which the registrant wishes to pursue underSec. 
12.19 of these rules;
    (7) An election of an alternative decisional procedure pursuant to 
subparts C, D, or E of these rules. (A proceeding pursuant to subpart D 
may be

[[Page 397]]

elected only if the amount of actual damages claimed in the complaint or 
as counterclaims, exclusive of interest, costs, and punitive damages, 
does not exceed $30,000. A procedure pursuant to subpart E may be 
elected only if the amount of actual damages claimed in the complaint or 
as counterclaims, exclusive of interest, costs, and punitive damages 
exceeds $30,000;
    (8) If appropriate, a filing fee in the amount prescribed bySec. 
12.25 shall be submitted with an answer at the time of its filing.
    (b) Motion for reconsideration of determination to forward the 
complaint. An answer may include a motion for reconsideration of the 
determination to forward the complaint, specifying the grounds therefor, 
which the Director of the Office of Proceedings, in his discretion, may 
grant by terminating the case pursuant toSec. 12.27, or deny by 
forwarding the pleadings and matters of record for an elected decisional 
proceeding pursuant toSec. 12.26. The inclusion in an answer of a 
motion for reconsideration shall not preclude a respondent, if the 
motion is denied, from moving for dismissal at a later stage of the 
proceeding for the same reasons cited in a motion for reconsideration 
pursuant to this paragraph.
    (c) Subscription and verification of the answer. An answer shall be 
signed personally by each registrant on behalf of whom it is filed or by 
a duly authorized officer or agent of any such registrant who is not a 
natural person. Each registrant's signature shall be given under oath, 
or by affirmation under penalty of law, attesting that he has read the 
answer; that to the best of his knowledge all of the statements in the 
answer, the counterclaim (if any), and the materials required by these 
rules to be appended thereto, are accurate and true, and that the answer 
(and counterclaim, if any) has not been interposed for delay.
    (d) Affidavit of service. The registrant shall file with his answer 
an affidavit showing that he has served a true copy of the answer upon 
the complainant, either personally or by first-class mail addressed to 
the complainant at the address set forth in the complaint.
    (e) Time and place of filing an answer. An answer shall be filed by 
mailing or delivering a copy thereof, in proper form, to the Commission 
at its principal office in Washington, DC, addressed to the Office of 
Proceedings, Attention of the Proceedings Clerk. The answer may be filed 
in person, during normal business hours, or by certified mail, or 
registered mail with return receipt requested. If filing is by mail, it 
shall be addressed to the Proceedings Clerk, Office of Proceedings, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 60 
FR 49335, Sept. 25, 1995]



Sec.  12.19  Counterclaim.

    A registrant may, at the time of filing an answer to a complaint, 
set forth as a counterclaim: (a) Facts alleging a violation and a 
request for a reparation award that would be a proper subject for a 
complaint underSec. 12.13 of these rules; or
    (b) Any claim which at the time the complaint is served the 
registrant has against the complainant if it arises out of the 
transaction or occurrence or series of transactions or occurrences set 
forth in the complaint.



Sec.  12.20  Response to counterclaim; reply; election of procedure.

    (a) Response to counterclaim. If an answer asserts a counterclaim, 
the complainant shall, within thirty (30) days after service upon him of 
the answer by the respondent: (1) Satisfy the counterclaim as if it were 
a complaint, in the manner prescribed bySec. 12.17 of these rules; or 
(2) file a reply to the counterclaim with the Commission.
    (b) Form and content of reply. Should the complainant, under this 
paragraph, elect to file a reply to a counterclaim, the reply shall be 
strictly confined to the matters alleged in the counterclaim and shall 
conform to the form and content and other requirements set forth in 
Sec.  12.18 of these rules.
    (c) Election of decisional procedure. If neither the complainant nor 
the respondent, in the complaint or answer respectively, has previously 
made an election of the summary decisional

[[Page 398]]

procedure or the formal decisional procedure, the complainant may make 
such an election in his reply.



Sec.  12.21  Voluntary dismissal.

    (a) At any time after the Director of the Office of Proceedings has 
served notification to the parties pursuant toSec. 12.15 of these 
rules of his determination to forward the complaint to the respondent 
for a response, either the complainant or the respondent may obtain 
dismissal of the complaint (or the proceeding, if one has commenced) by 
filing a stipulation of dismissal, duly executed by all of the 
complainants and each respondent against whom the complaint has been 
forwarded (or added as a party in the course of a proceeding); Provided 
however, That if the stipulation is filed after any respondent has filed 
an answer, the terms of the stipulation shall include a dismissal of any 
counterclaims in the answer.
    (b) A dismissal of a complaint pursuant to this paragraph shall be 
with prejudice to complainant's right to re-file a claim in reparations 
based upon the same set of facts as alleged in the dismissed complaint. 
Unless otherwise stated in the stipulation, a dismissal ordered pursuant 
to this paragraph shall be regarded by the Commission as without 
prejudice to the parties' right to seek redress in such alternative 
forums as may be available for adjudication of their claims.
    (c) Upon receiving a written stipulation of dismissal which 
satisfies the requirements of this rule, the official before whom the 
matter or proceeding is pending shall issue an order of dismissal, and 
serve a copy thereof upon each of the parties.
    (d) This rule shall be applicable at all stages of a reparation 
proceeding.



Sec.  12.22  Default proceedings.

    (a) Institution of a default proceeding. Failure timely to respond 
to a complaint or a counterclaim, as required by Sec.Sec. 12.16 and 
12.20 of these rules, or, if applicable, to pay a filing fee required by 
Sec.  12.25(b) or (c), shall be treated as an admission of the 
allegations of the complaint or counterclaim by the non-responding 
party, shall constitute a waiver by such party of any decisional 
procedure afforded by these Rules on the facts set forth in the 
complaint or counterclaim, and shall result in the institution of a 
default proceeding.
    (b) Default procedure. Upon a party's failure to respond timely to a 
complaint or counterclaim as prescribed in Sec.Sec. 12.16 and 12.20 of 
these rules, or timely to comply withSec. 12.25 (b) or (c), the 
Director of the Office of Proceedings shall forward the pleadings, and 
other materials then of record, to a Judgment Officer or Administrative 
Law Judge who may thereafter enter findings and conclusions concerning 
the questions of violations and damages and, if warranted, enter a 
reparation award against the non-responding party. If the facts which 
are treated as admitted are considered insufficient to support a 
violation or the amount of reparations sought, the Judgment Officer or 
Administrative Law Judge may order production of supplementary evidence 
from the party not in default and may enter a default order and an award 
based thereon.
    (c) Finality. A default order issued pursuant to this rule, or 
pursuant to any other provisions of these part 12 Reparation Rules, 
shall become the final decision and order of the Commission thirty (30) 
days after service thereof, unless the order is set aside pursuant to 
Sec.  12.23(a) of these rules, or unless the Commission takes review of 
such order on its own motion on or before the thirtieth day.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec.  12.23  Setting aside of default.

    (a) Default order not final. In order to prevent injustice or for 
good cause shown, and on such conditions as may be appropriate, a non-
final default order (including any award therein) may be set aside by 
the official who issued the order.
    (1) Procedure for setting aside non-final default order. Any party 
or person who is the subject of a default order issued pursuant to these 
rules may, at any time before the order becomes final pursuant toSec. 
12.22(c), file and serve a motion to set aside the default, which shall 
set forth reasons why the act or omission for which the party was 
defaulted was not willful, why there is a

[[Page 399]]

reasonable likelihood of success for the party's claim or defense if 
heard on the merits, and why no prejudice will be sustained by other 
parties if the default is set aside. A motion to set aside a default 
order filed pursuant to this paragraph (a)(1) shall be decided, in the 
first instance, by the official who issued the default order.
    (2) Review. A denial of a motion to set aside a non-final default 
order by the official who issued the order shall be treated as an 
initial decision, which may be appealed to the Commission in accordance 
with the requirements ofSec. 12.401 of these rules. A grant of a 
motion to set aside a non-final default order may be appealed only in 
accordance with the requirements ofSec. 12.309 of these rules.
    (b) Default order final. A default order that has become final 
pursuant toSec. 12.22(c) shall not be set aside except upon a motion 
filed and served by the defaulted party showing that he should be 
relieved from the default order because of fraud perpetrated on a 
decisionmaking official or the Commission, mistake, excusable neglect, 
or because the order is void for want of jurisdiction. Such a motion 
shall also show that, if the default order were set aside, there would 
be a reasonable likelihood of success for his claim or defense on the 
merits and that no party would be prejudiced thereby. Motions to set 
aside a final default order for fraud, mistake, or excusable neglect 
shall be filed within one year after the order was issued. All motions 
to set aside default orders shall be decided, in the first instance, by 
the official who issued the order. A denial of a motion to set aside a 
default order that has become final shall be treated as an initial 
decision, which may be appealed to the Commission in accordance with the 
requirements ofSec. 12.401 of these rules. A grant of a motion to set 
aside a final default order shall be treated as a non-final order which 
may be appealed only in accordance with the requirements ofSec. 12.309 
of these rules.



Sec.  12.24  Parallel proceedings.

    (a) Definition. For purposes of this section, a parallel proceeding 
shall include:
    (1) An arbitration proceeding or civil court proceeding, involving 
one or more of the respondents as a party, which is pending at the time 
the reparation complaint is filed and involves claims or counterclaims 
that are based on the same set of facts which serve as a basis for all 
of the claims in the reparations complaint, and which either:
    (i) Was commenced at the instance of the complainant in reparations; 
or
    (ii) Involves counterclaims by the complainant in reparations 
alleging violations of the Commodity Exchange Act, or any regulation or 
order issued thereunder; or
    (iii) Is governed by a compulsory counterclaim rule of federal court 
procedure which required the complainant in reparations to assert all of 
his claims (including those based on alleged violations of the Commodity 
Exchange Act, and any regulation or order issued thereunder) as 
counterclaims in that proceeding;
    (2) The appointment by a court of a receivership over the assets, 
property or proceeds of a respondent named in a reparation complaint 
where the responsibility of the receivership includes the resolution of 
claims made by customers; or
    (3) A petition filed under any chapter of the Bankruptcy Code, 11 
U.S.C. 101 et seq., as amended, commenced pursuant to 11 U.S.C. 301 or 
302 by a respondent in a reparation proceeding, or the issuance by a 
bankruptcy court of an order for relief after the filing against a 
respondent in a reparation proceeding of an involuntary petition in 
bankruptcy pursuant to 11 U.S.C. 303.
    (b) Notice. At the time a complaint in reparations is filed pursuant 
to these rules, or at any time thereafter, any party, receiver or 
trustee, or counsel to any of the foregoing with knowledge of a parallel 
proceeding shall promptly notify the Commission, by first-class mail 
addressed to the Office of Proceedings, attention of the Proceedings 
Clerk, and serve notice on all other parties, including the receiver or 
trustee. The notice shall include the following information:
    (1) The caption of the parallel proceeding;

[[Page 400]]

    (2) The name of the court or the arbitration tribunal (including 
address and phone number, if known);
    (3) The docket number or numbers;
    (4) The date the parallel proceeding was filed (and the current 
status if known); and
    (5) If a proceeding in bankruptcy or receivership is pending, the 
date of the appointment and name and address of the receiver or trustee.

A copy of any relevant complaint, petition or order shall be attached to 
the notice.
    (c) Effect of pending arbitration or civil court litigation. (1) The 
Director of the Office of Proceedings shall refuse to institute an 
elected decisional procedure concerning a reparation complaint filed 
under this part in which there is a parallel proceeding described in 
paragraph (a)(1) of this section and shall return the complaint to the 
complaining person. The effective date of the Director's termination of 
the complaint without prejudice shall be fifteen (15) days from the date 
of service of notice of the action taken pursuant to this paragraph.
    (2) If notice of a parallel proceeding described in paragraph (a)(1) 
of this section is received before the initial decision is filed (or 
before a final decision underSec. 12.106 of the rules is entered), a 
proceeding in which a decisional procedure has been commenced shall be 
dismissed, without prejudice. The effective date of the order of 
dismissal shall be fifteen (15) days from the date of service of the 
order by the Proceedings Clerk.
    (d) Effect of receivership or bankruptcy proceedings. (1) The 
Director of the Office of Proceedings shall refuse to institute an 
elected decisional procedure as to a respondent in any reparation 
complaint filed pursuant to this part who is the subject of a parallel 
proceeding described in paragraph (a)(2) or (a)(3) of this section, and 
shall notify all parties, including the receiver or trustee, that as to 
that respondent a reparation proceeding shall not be instituted. The 
effective date of the Director's action shall be fifteen (15) days from 
the date of service of the notice thereof.
    (2) A proceeding in which an elected decisional procedure has been 
commenced shall be ordered dismissed, without prejudice, as to any 
respondent who becomes the subject of a parallel proceeding described in 
paragraph (a)(2) or (a)(3) of this section if notice pursuant to 
paragraph (b) of this section is received before the filing of an 
initial decision (or before a final decision is issued pursuant toSec. 
12.106) as to that respondent. The Proceedings Clerk shall notify all 
parties, including the receiver or trustee, of the order. The effective 
date of the order shall be fifteen (15) days from the date of the 
service of the order by the Proceedings Clerk.
    (e) Exceptions. At the time notice of a parallel proceeding is filed 
pursuant to paragraph (b) of this section, or any time thereafter, any 
party, or the receiver or trustee, may file and serve upon other parties 
a statement in support of or in opposition to any action taken or to be 
taken pursuant to paragraph (c) or (d) of this section. This statement 
shall be addressed to the Office of Proceedings, attention of the 
Proceedings Clerk. Upon receipt of any such statement, the Proceedings 
Clerk shall immediately forward the statement to the official with 
responsibility over the case. The notice and the statements filed by the 
parties shall be reviewed by that official who, on or before the 
effective date of action taken pursuant to paragraphs (c)(1), (c)(2), 
(d)(1), and (d)(2), of this section, may take such actions as, in his 
opinion, are necessary to ensure that the parties to the matter or 
proceedings are not unduly prejudiced.
    (f) No right of appeal to the Commission. Any action taken, or order 
issued, pursuant to paragraphs (c)(1), (c)(2), (d)(1), or (d)(2), of 
this section that has become effective shall be deemed a final order 
which is not subject to appeal pursuant to subpart F of these rules.



Sec.  12.25  Filing fees.

    (a) Fees payable upon filing a complaint. (1) A complainant who, in 
the complaint, has elected the voluntary decisional procedure shall, at 
the time of filing the complaint, pay a filing fee of $50.00;
    (2) A complainant who, in the complaint wherein the amount of 
damages

[[Page 401]]

claimed does not exceed $30,000, exclusive of interest and costs, has 
not elected the voluntary decisional procedure shall, at the time of 
filing the complaint, pay a filing fee of $125.00.
    (3) A complainant who, in the complaint wherein the amount of 
damages claimed exceeds $30,000, exclusive of interest and costs, has 
not elected the voluntary decisional procedure shall, at the time of 
filing the complaint, pay a filing fee of $250.00.
    (b) Fees payable upon filing an answer. (1) If a complainant, in the 
complaint, has elected the voluntary decisional procedure, a respondent 
who, in his answer, elects the summary decisional procedure (available 
only where the amount of damages claimed in the complaint or as 
counterclaims does not exceed $30,000) shall, at the time of filing the 
answer, pay a filing fee of $75.00.
    (2) If a complainant, in the complaint, has elected the voluntary 
decisional procedure, a respondent who, in his answer, elects the formal 
decisional procedure (available only where the amount of damages claimed 
in the complaint or as counterclaims exceeds $30,000) shall, at the time 
of filing the answer, pay a filing fee of $200.00.
    (c) Fees payable upon filing a reply. In any case in which a 
counterclaim has been made, unless a complainant in the complaint, or 
the respondent in an answer, has elected the summary decisional 
procedure or the formal decisional procedure a complainant, who in his 
reply elects either of these procedures, shall, at the time of filing 
the reply, pay a filing fee of $75.00 or $200.00, respectively, 
depending whether the procedure elected by complainant is pursuant to 
subparts D or E.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9637, Mar. 1, 1994]



Sec.  12.26  Commencement of a reparation proceeding.

    (a) Commencement of voluntary decisional proceeding. Where 
complainant and respondent in the complaint and answer have elected the 
voluntary decisional procedure pursuant to subpart C of these rules and 
the complainant has paid the filing fee required bySec. 12.25 of these 
rules, the Director of the Office of Proceedings shall, if in his 
opinion the facts warrant taking such action, forward the pleadings and 
all materials of record to the Proceedings Clerk for a proceeding to be 
conducted in accordance with subpart C of these rules. The Proceedings 
Clerk shall forthwith notify the parties of such action. Such 
notification shall be accompanied by an order issued by the Proceedings 
Clerk requiring the parties to complete all discovery, as provided in 
subpart B of these rules, within 50 days thereafter. A voluntary 
decisional proceeding commences upon service of such notification and 
order. As soon as practicable after service of such notification, the 
Proceedings Clerk shall assign the case to a Judgment Officer for a 
final decision.
    (b) Commencement of summary decisional proceeding. Where the amount 
claimed as damages, exclusive of interest and costs, in the complaint or 
in counterclaim does not exceed $30,000, and either a complainant or a 
respondent in the complaint, answer, or reply, has elected the summary 
decisional procedure pursuant to subpart D of these rules, and has paid 
the filing fee required bySec. 12.25, the Director of the Office of 
Proceedings shall, if in his opinion the facts warrant taking such 
action, forward the pleadings and all materials of record to the 
Proceedings Clerk for a proceeding to be conducted in accordance with 
subpart D of these rules. The Proceedings Clerk shall forthwith notify 
the parties of such action. Such notification shall be accompanied by an 
order issued by the Proceedings Clerk requiring the parties to complete 
all discovery, as provided in subpart B of these rules, within 50 days 
thereafter. A summary decisional proceeding commences upon service of 
such notification. As soon as practicable after service of such 
notification, the Proceedings Clerk shall assign the case to a Judgment 
Officer for disposition.
    (c) Commencement of formal decisional proceeding. Where the amount 
claimed as damages in the complaint or as counterclaims exceeds $30,000, 
exclusive of interest and costs, and either a complainant or a 
respondent in the complaint, answer or reply, has elected

[[Page 402]]

the formal decisional procedure pursuant to subpart E of this part, and 
has paid the filing fee required bySec. 12.25, the Director of the 
Office of Proceedings shall, if in his opinion the facts warrant taking 
such action, forward the pleadings and the materials of record to the 
Proceedings Clerk for a proceeding to be conducted in accordance with 
subpart E of this part. The Proceedings Clerk shall forthwith notify the 
parties of such action. Such notification shall be accompanied by an 
order issued by the Proceedings Clerk requiring the parties to complete 
all discovery, as provided in subpart B of this part, within 50 days 
thereafter. A formal decisional proceeding commences upon service of 
such notification and order. As soon as practicable after service of 
such notification, the Proceedings Clerk shall assign the case to a 
Judgment Officer. All provisions of this part that refer to and grant 
authority to or impose obligations upon an Administrative Law Judge 
shall be read as referring to and granting authority to and imposing 
obligations upon the Judgment Officer.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 76 
FR 63188, Oct. 12, 2011]



Sec.  12.27  Termination of consideration of pleadings.

    If the Director of the Office of Proceedings should determine not to 
proceed in a manner set forth inSec. 12.26 (a), (b), or (c), 
consideration of the complaint and the answer (and reply, if any) shall 
terminate, and no proceeding shall be held on the allegations in any 
such pleadings. Such termination shall be regarded by the Commission as 
without prejudice to the right of the parties to seek such alternative 
forms of relief as may be available to them. If the consideration of the 
pleadings should be terminated, the Proceedings Clerk shall immediately 
notify the parties to that effect by registered or certified mail. A 
determination by the Director not to proceed in the manner set forth in 
Sec.  12.26 (a), (b), or (c) of these rules is not subject to appeal 
pursuant to subpart F of these rules.



                           Subpart B_Discovery



Sec.  12.30  Methods of discovery.

    (a) In general. Parties may obtain discovery by the following 
methods in accordance with the procedures and limitations set forth in 
the section indicated:
    (1) Production of documents or other items (Sec.  12.31);
    (2) Deposition on written interrogatories (Sec.  12.32);
    (3) Admissions (Sec.  12.33).
    (b) Scope of discovery. The scope of discovery is as follows:
    (1) Relevancy. Except as provided below, discovery may be obtained 
regarding any matter not privileged, which is relevant to the subject 
matter in the pending proceeding, including the existence, description, 
nature, custody, condition and location of any books, documents, or 
other tangible items, and the identity and location of persons having 
knowledge of any discoverable matters. Tax returns and personal bank 
account records shall not be discoverable, except upon motion by the 
party seeking discovery showing the need for disclosure of information 
contained therein, and that the same information could not be obtained 
through other means.
    (2) Protective orders. Upon motion by a party or the person from 
whom discovery is sought, filed within twenty days after the 
objectionable discovery notice or request is served, and for good cause 
shown, the official presiding over discovery may issue any order to 
protect a party or person from annoyance, embarrassment, oppression, or 
undue burden or expense, or to prevent the raising of issues untimely or 
inappropriate to the proceeding, or the inappropriate disclosure of 
trade secrets or sensitive commercial or financial information. Relief 
through a protective order may include one or more of the following:
    (i) That discovery not be had;
    (ii) That discovery may be had only on specified terms and 
conditions;
    (iii) That certain matters not be inquired into, or that the scope 
of the discovery be limited to certain matters;
    (iv) That a trade secret or other confidential commercial 
information not

[[Page 403]]

be disclosed or be disclosed only in a designated way; and
    (v) That the parties simultaniously file specified documents or 
information in sealed envelopes to be opened only as directed by the 
decisionmaking official.
    (3) Motions for order compelling discovery. It shall be the duty of 
a party to obtain an order compelling discovery from another party if 
the latter party fails to comply with a discovery notice, by filing a 
motion therefor within twenty days after the time allowed by these rules 
for compliance with the notice has expired.
    (c) Sanctions for abuse of discovery. If an Administrative Law Judge 
or a Judgement Officer finds that any party, without substanial 
justification, has necessitated the filing of a motion for a protective 
order or for an order compelling discovery, or any other discovery-
related motions, that party shall, if the motion is granted, be ordered 
to pay, at the termination of the proceeding, the reasonable expenses of 
the moving party incurred in filing the motion, unless the 
decisionmaking official finds that circumstances exist which would make 
an award of such expenses unjust. If a decisionmaking official finds 
that any party, without substantial justification, has filed a motion 
for a protective order or for an order compelling discovery, or any 
discovery-related motions, that party shall, if the motion is denied, be 
ordered to pay, at the termination of the proceeding, the reasonable 
expenses of an adverse party incurred in opposing the motion, unless the 
decisionmaker finds that circumstances exist which would make an award 
of such expenses unjust.
    (d) Time limit. Absent an extension of time, all discovery notices 
or requests shall be served within (30) days (and all discovery shall be 
completed within (50) days) after the notification and the order 
required bySec. 12.26 (a), (b), or (c) has been served on the parties. 
Upon motion by a party and for good cause shown, the time allowed for 
discovery may be enlarged for one additional period not to exceed thirty 
(30) days.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984; 49 FR 17750, 
Apr. 25, 1984; 59 FR 9637, Mar. 1, 1994]



Sec.  12.31  Production of documents and tangible items.

    (a) By a party. Any party, within the time prescribed inSec. 
12.30(d) and subject to the limitations inSec. 12.30(a), may serve on 
any other party, a notice to produce copies of specifically designated 
categories of documents, papers, books, accounts, letters, photographs, 
objects, or tangible things which are in the party's possession, custody 
or control. A copy of the notice shall be served on all other parties to 
the proceeding. All documents requested in the notice to produce shall 
be served on the party seeking the discovery within twenty (20) days 
after service of the notice to produce.
    (b) By a non-party. Any party may, by filing an appropriate motion 
showing the need for the materials and an application for a subpoena in 
accordance with the procedure precribed inSec. 12.313 and within the 
time prescribed bySec. 12.30(d) of these rules, seek leave to serve 
upon a non-party a notice to produce copies of any specifically 
designated categories of materials as are described in paragraph (a) of 
this section. After an appropriate order and subpoena has been issued, 
such party may serve upon a non-party a notice to produce such 
materials. All materials requested in the notice to produce, and, if 
applicable, a detailed explanation of why any of the specified materials 
cannot be produced, shall be served on the party seeking discovery 
within such time (not to exceed thirty (30) days) as the subpoena shall 
specify. Enforcement of the order and subpoena may be sought in 
accordance withSec. 12.313.



Sec.  12.32  Depositions on written interrogatories.

    (a) Notice. Any party, within the time prescribed bySec. 12.30(d), 
may serve on any other party or any officer or agent of a party a notice 
of the taking of a deposition on written interrogatories.
    (b) Number. The number of written interrogatories served upon any 
one party shall not exceed thirty. For the purpose of this rule, each 
sub-interrogatory or divisible part of an interrogatory shall be 
regarded as one interrogatory. Leave to serve additional interrogatories 
shall not be granted absent extraordinary circumstances.

[[Page 404]]

    (c) Reply. (1) Each interrogatory served shall be answered by the 
party served or if the party is a corporation, partnership, association, 
or government agency, by any officer or agent thereof selected by the 
responding party.
    (2) Each interrogatory shall be answered separately and fully in 
writing, unless objected to, in which event the reasons for objection 
shall be stated in lieu of an answer. For the purposes of this rule, an 
evasive or incomplete answer shall be treated as a failure to answer. 
The answers are to be signed and verified by the person making them. The 
person upon whom a notice to take a deposition on written 
interrogatories has been served shall serve a copy of the answers and 
objections within twenty (20) days after service of the interrogatories.
    (d) Deposition of a non-party. The deposition on written 
interrogatories of a non-party may be taken only within the time 
prescribed bySec. 12.30(d), and only pursuant to an order entered and 
subpoena issued in accordance with the provisions ofSec. 12.313 of 
these rules; provided however, that the deposition on written 
interrogatories of a Commission member or employee may only be taken 
upon a showing that the Commission member or employee has personal 
knowledge of the matters sought to be discovered (i.e., not obtained 
pursuant to a Commission investigation), that the information sought to 
be discovered is material and that the information sought to be 
discovered is not available from other sources.
    (e) Filing of depositions on written interrogatories in a voluntary 
or summary decisional proceeding. In proceedings commenced pursuant to 
Sec.  12.26 (a) and (b) of these rules, copies of all depositions on 
written interrogatories shall be filed by the party on whose behalf the 
discovery was obtained.



Sec.  12.33  Admissions.

    (a) Request for admissions. Any party may, within the time permitted 
bySec. 12.30(d) of these rules, serve upon any other party a written 
request for admissions of the truth of any matters set forth in the 
request that relate to statements or opinions of fact or of the 
application of law to fact, including the genuineness of any document 
described in the request. Copies of documents shall be served with the 
request unless they have been or are otherwise furnished or made 
available for inspection and copying. A copy of the request shall be 
filed with the Proceedings Clerk.
    (b) Reply. Each matter of which an admission is requested shall be 
separately set forth. The matter is admitted unless within twenty (20) 
days after service of the request, the party upon whom the request is 
directed files and serves upon the party requesting the admission a 
verified written answer or objection to the matter. If objection is 
made, the reasons therefor shall be stated. The answer shall 
specifically deny the matter or set forth in detail the reasons why the 
answering party cannot truthfully admit or deny the matter. A denial 
shall fairly meet the substance of the requested admission and when good 
faith requires that a party qualify his answer and deny only a part of 
the matter of which an admission is requested, he shall specify so much 
of it as is true and qualify or deny the remainder. An answering party 
may not give a lack of information or knowledge as a reason for failure 
to admit or deny unless he states that he has made reasonable inquiry 
and that the information known or reasonably available to him is 
insufficient to enable him to admit or deny. A party who considers that 
a matter of which an admission has been requested presents a genuine 
issue for trial may not, on that ground alone, object to the request; he 
may deny the matter or set forth reasons why he cannot admit or deny it.
    (c) Determining sufficiency of answers or objections. The party who 
has requested the admissions may move to determine the sufficiency of 
the answers or objections. Unless the objecting party sustains his 
burden of showing that the objection is justified, the official 
presiding over discovery shall order that an answer be served. If such 
official determines that an answer does not comply with the requirements 
of this rule, he may order either that the matter is admitted or that an 
amended answer be served.

[[Page 405]]

    (d) Effect of admission. Any matter admitted under this rule is 
conclusively established and may be used as proof against the party who 
made the admission. However, the discovery or decisionmaking official 
may permit withdrawal or amendment when the presentation of the merits 
of the proceeding will be served thereby and the party who obtains the 
admission fails to satisfy such official that withdrawal or amendments 
will prejudice him in maintaining his action or defense on the merits.



Sec.  12.34  Discovery by a decisionmaking official.

    (a) Applicability. The provisions of this rule shall apply to all 
decisional proceedings commenced pursuant toSec. 12.26. For the 
purposes of this rule, the term ``decisionmaking official'' shall mean a 
Judgment Officer or Administrative Law Judge assigned to render a 
decision in the proceeding.
    (b) Production of documents and tangible things--(1) Order for 
production. A decisionmaking official may, upon his own motion, order a 
party or non-party to produce copies of specifically designated 
documents, papers, books, accounts, or tangible things (or categories of 
any of the foregoing) which are in the possession, custody or control of 
the party, non-party or agent thereof, against whom the order is 
directed. Except as provided in paragraph (b)(2) of this section, a 
party or non-party ordered to produce documents or any of the above 
items under this rule shall file and serve the documents and items 
listed in the order within twenty (20) days from the date of service of 
the order, or within such period of time as the decisionmaking official 
may direct. The decisionmaking official may issue subpoenas to compel 
the production by parties or non-parties of such documents and tangible 
things as are described in this section.
    (2) Trade secrets, commercially sensitive or confidential 
information. If any party or person against whom an order to produce has 
been directed acting in good faith has reason to believe that any 
documents or other tangible thing ordered to be produced contains a 
trade secret, or commercially sensitive or other confidential 
information, the party or person may, in lieu of serving any such 
document, in accordance with paragraph (b)(1) of this section, file and 
serve a written request for confidential treatment of such documents. 
Any such request for confidential treatment shall be accompanied by a 
verified statement identifying with particularity the information on 
those documents considered to be trade secrets, commercially sensitive 
or confidential information, with reasons therefor, and indicating which 
portions, if any, of those documents may be served on other parties 
without disclosure of such information. Upon considering a request for 
confidential treatment in accordance with this subsection, the 
decisionmaking official may, if he finds that the information identified 
in the request warrants confidential treatment and is not probative of 
any material fact in controversy, make copies of the documents produced, 
delete such information from the copies, and serve the copies as 
modified upon the other parties, with or without an appropriate 
protective order limiting dissemination to the parties and their 
counsel, if any.
    (3) Inability to produce. Any party or person who cannot produce 
documents or other tangible things called for in an order for 
production, because those documents or things are not in his possession, 
custody or control, shall file and serve within the time provided in 
paragraph (b)(1) of this section a verified statement identifying the 
documents which cannot be produced and setting forth with particularity 
the reasons for non-production.
    (c) Order for written testimony. The decisionmaking official may, 
upon his own motion, order a party or non-party witness to submit 
verified statements or written responses to interrogatories, or both, as 
to all relevant matters within the party's personal knowledge which are 
required in response to the order. A party or person ordered to file 
affidavits and/or verified written responses to interrogatories shall 
file and serve the documents within such period of time as the 
decisionmaking official may direct. The official may issue subpoenas to 
compel the filing by parties

[[Page 406]]

or non-parties of such verified statements and written responses as are 
described in this subsection.

[49 FR 6621, Feb. 22, 1984, as amended at 78 FR 12937, Feb. 26, 2013]



Sec.  12.35  Consequences of a party's failure to comply with a
discovery order.

    If a party fails to comply with an order compelling discovery, or an 
order issued pursuant toSec. 12.34, the official assigned to render 
the decision in the case may, upon motion by a party or on his own 
motion, take such action in regard thereto as is just, including but not 
limited to the following:
    (a) Infer that the documents or things not produced would have been 
adverse to the party;
    (b) Rule that for the purposes of the proceeding the information in 
or contents of the documents or things not produced be taken as 
established adversely to the party;
    (c) Rule that the party may not be heard to object to introduction 
and use of secondary evidence to show what the withheld documents or 
other evidence would have shown;
    (d) Rule that a pleading, or part of a pleading, or a motion or 
other submission by the party, to which the order for production 
related, be stricken;
    (e) Dismiss the entire proceeding with prejudice to matters alleged 
in the complaint, but without prejudice to counterclaims; and
    (f) Issue a default order and render a decision against the party, 
whose rights shall thereafter be determined by Sec.Sec. 12.22 and 
12.23 of these rules.



Sec.  12.36  Subpoenas to compel discovery.

    An application for a subpoena requiring a party or non-party to 
comply with a discovery order issued pursuant to Sec.Sec. 12.31 and 
12.32, may be made, in writing, by any party without notice to other 
parties, and may be filed simultaneously with the motion for the 
discovery order. The standards for issuance or denial of such an 
application, the service requirement, and the method for enforcing such 
subpoenas shall be determined by the provisions ofSec. 12.313 of these 
rules.



     Subpart C_Rules Applicable to Voluntary Decisional Proceedings



Sec.  12.100  Scope and applicability of rules.

    (a) In general. The rules set forth in this subpart are applicable 
only to proceedings forwarded pursuant toSec. 12.26(a) of the 
Reparation Rules. The rules of subpart B permitting discovery are 
applicable in a voluntary decisional proceeding. Unless specifically 
made applicable, the rules prescribed in subparts D, E, and F shall not 
apply in a voluntary decisional proceeding.
    (b) Waiver by electing the voluntary decisional procedure. By 
electing the voluntary decisional procedure, parties waive the 
opportunity for an oral hearing and whatever rights they may have 
otherwise had: to receive a written statement of the findings of fact 
upon which the final decision is based; to prejudgment interest in 
connection with a reparation award; to appeal to the Commission the 
final decision; and to appeal the final decision to a U.S. Court of 
Appeals pursuant to section 14(e) of the Commodity Exchange Act, 7 
U.S.C. 18(e).



Sec.  12.101  Functions and responsibilities of the Judgment Officer.

    The Judgment Officer shall be responsible for the fair and orderly 
conduct of the proceeding and shall have the authority:
    (a) To rule upon discovery-related motions, and to take such action 
pursuant toSec. 12.35 as is appropriate if a party fails to comply 
with a discovery order;
    (b) To issue orders for the production of documents and tangible 
things and orders for written testimony, as provided inSec. 12.34;
    (c) To issue subpoenas pursuant to Sec.Sec. 12.34 and 12.36;
    (d) To issue orders of default for good cause shown against any 
party who fails to participate in the proceeding, or to comply with any 
provisions of these rules;
    (e) To receive submissions of proof;
    (f) Make the final decision in accordance withSec. 12.106 of these 
rules; and

[[Page 407]]

    (g) Issue such orders as are necessary and appropriate to effectuate 
the orderly conduct of the proceeding.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 78 
FR 12937, Feb. 26, 2013]



Sec.  12.102  Disqualification of Judgment Officer.

    (a) At his own request. A Judgment Officer may withdraw from a 
voluntary decisional proceeding when he considers himself to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event he shall immediately notify the Commission 
and each of the parties of his withdrawal and of his basis for such 
action.
    (b) Upon the request of a party. Any party may request a Judgment 
Officer to disqualify himself on the grounds of personal bias, conflict 
of interest, or similar bases. Interlocutory review of an adverse ruling 
by the Judgment Officer may be sought without certification of the 
matter by the Judgment Officer only in accordance with the procedures 
set forth inSec. 12.309 of the Reparation Rules.



Sec.  12.103  Filing of documents; subscription; service.

    Except as otherwise specifically provided in these rules, all 
documents filed in a voluntary decisional proceeding, including (but not 
limited to) amended or supplemental pleadings, motions, discovery 
requests and responses thereto, and submissions of proof, shall meet the 
requirements of Sec.Sec. 12.11 and 12.12 of the Reparation Rules as to 
form, and shall be filed and served in accordance withSec. 12.10 of 
the Reparation Rules.



Sec.  12.104  Amendments to pleadings; motions.

    (a) Amendments and supplemental pleadings. At any time prior to the 
issuance of the final decision, the parties may, by unanimous express 
written consent, amend or supplement the pleadings. Supplemental 
pleadings may set forth transactions or occurrences or events which have 
happened since the date of the pleadings to be amended or supplemented, 
and which are relevant to any of the issues involved.
    (b) Motions. Except as specifically permitted by rule in this 
subpart, motions, other than discovery-related motions and motions 
relating to procedural orders, shall be prohibited. Motions for 
procedural orders, including motions for extension of time, may be acted 
upon at any time.



Sec.  12.105  Submission of proof only in documentary or tangible form.

    Proof in support of the complaint and in support of the respondent's 
answer (including counterclaims, if any), and any reply thereto, may be 
found in those verified documents, in verified statements of non-party 
witnesses, in other verified statements of fact, and in other documents 
and tangible evidence. No oral testimony by, or examination of, the 
parties or their witnesses shall be permitted.



Sec.  12.106  Final decision and order.

    (a) When a final decision is required. After all submissions of 
proof have been received, the Judgment Officer shall make the final 
decision. Upon its issuance, the final decision shall forthwith be filed 
with the Proceedings Clerk, and immediately served on the parties. The 
Proceedings Clerk shall also serve a notice, to accompany the final 
decision, of the effect of a failure by a party ordered to pay a 
reparation award to file the documents required bySec. 12.407(c) of 
these rules.
    (b) Content of final decision. The final decision shall contain:
    (1) A briefly stated conclusion, not accompanied by findings of 
fact, as to whether the respondent violated any provision of the Act, 
Commission's regulations or orders, resulting in damages to the 
complainant; and
    (2) If one or more counterclaims have been permitted in the 
proceeding, a brief conclusion, not accompanied by findings of fact, as 
to whether the complainant is liable to the respondent for such 
counterclaims; and
    (3) A determination of the amount of damages, if any, sustained by 
complainant or respondent in connection with reparation claims or 
counterclaims, and an order against a party found liable for damages 
directing that party to pay an award. An award in

[[Page 408]]

favor of the complainant shall not exceed the amount of damages in the 
complaint (including any amendment thereto), and an award in favor of a 
respondent shall not exceed the amount of damages claimed in a 
counterclaim (including any amendment thereto).

A conclusion made pursuant to paragraph (b)(1) of this section shall not 
be deemed a finding of the Commission for the purposes of Section 8a of 
the Commodity Exchange Act.
    (c) No assessment of prejudgment interest or costs; assessment of 
post-judgment interest. A party found liable for damages in a voluntary 
decisional proceeding shall not be assessed prejudgment interest, 
attorney's fees, or costs (other than the filing fee and costs assessed 
as a sanction for abuse of discovery). Post-judgment interest shall be 
awarded at a rate determined in accordance with 28 U.S.C. 1961(a).
    (d) Effect of final decision and order: No appeal. A party may not 
appeal to the Commission a final decision issued pursuant to subpart C 
of these rules. In accordance with the election and waivers described in 
Sec.  12.100(b), a final decision may not be appealed to a U.S. Court of 
Appeals pursuant to section 14(e) of the Commodity Exchange Act, but a 
final decision shall be recognized as a final order of the Commission 
for all other purposes including the judicial enforcement of an award 
made in connection with the final decision pursuant to section 14(d) of 
the Commodity Exchange Act.
    (e) Effective date of final decision. A final decision and order 
shall become effective thirty (30) days after service, unless the 
Commission pursuant toSec. 12.403 takes review of the decision on its 
own motion on or before the thirtieth day. Any reparation award ordered 
in a final decision pursuant to this rule shall be satisfied in full 
within forty-five (45) days after service thereof, unless the Commission 
pursuant toSec. 12.403(b) stays the duty of satisfaction. Any party 
who fails timely to satisfy such an award is subject to the automatic 
suspension provisions ofSec. 12.407(c).

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 73 
FR 70275, Nov. 20, 2008]



      Subpart D_Rules Applicable to Summary Decisional Proceedings



Sec.  12.200  Scope and applicability of rules.

    The rules set forth in this subpart are applicable only to 
proceedings forwarded pursuant toSec. 12.26(b) of the Reparation 
Rules. The rules in subpart B permitting discovery are applicable in a 
summary decisional proceeding. Unless specifically made applicable, the 
rules prescribed in subparts C and E shall not apply to such 
proceedings. Parties to a proceeding forwarded pursuant toSec. 
12.26(b) may, by signed agreement filed at any time prior to the 
issuance of the initial decision, or of any other order disposing of all 
issues in the proceeding, elect to have all of the issues in the 
proceeding decided pursuant to the voluntary decisional procedure. Upon 
receiving a timely filed stipulation signed by all parties evidencing 
such an election, the Judgment Officer shall conduct the proceeding and 
render a decision pursuant to subpart C of these rules.



Sec.  12.201  Functions and responsibilities of the Judgment Officer.

    The Judgment Officer shall be responsible for the fair and orderly 
conduct of the proceeding and shall have the authority:
    (a) In his discretion, to conduct pre-decision conferences in 
accordance withSec. 12.206 of these rules;
    (b) To rule upon all discovery-related motions, and to take such 
action pursuant toSec. 12.35 as is appropriate if a party fails to 
comply with a discovery order;
    (c) To issue orders for the production of documents and tangible 
things and orders for written testimony, as provided inSec. 12.34 of 
these rules;
    (d) To take such action as is appropriate underSec. 12.35 of these 
rules, if a party fails to comply with an order issued by the Judgment 
Officer pursuant toSec. 12.34;
    (e) To rule on all motions permitted pursuant toSec. 12.205;
    (f) To issue default orders for good cause against parties who fail 
to participate in the proceeding or to comply with these rules;

[[Page 409]]

    (g) If an oral hearing is ordered, to preside at the hearing, which 
shall include the authority to receive relevant evidence, to administer 
oaths and affirmations, to examine witnesses, and to rule on offers of 
proof;
    (h) To issue subpoenas in accordance with the provisions of 
Sec.Sec. 12.34, 12.36 and 12.209 of these rules;
    (i) To make the initial decision in accordance withSec. 12.210 of 
these rules; and
    (j) To issue such orders as are necessary and appropriate to 
effectuate the orderly conduct of the proceeding.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9637, Mar. 1, 1994]



Sec.  12.202  Disqualification of Judgment Officer.

    (a) At his own request. A Judgment Officer may withdraw from a 
summary decisional proceeding when he considers himself to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event, he shall immediately notify the Commission 
and each of the parties of his withdrawal and of his basis for such 
action.
    (b) Upon the request of a party. Any party may request a Judgment 
Officer to disqualify himself on the grounds of personal bias, conflict 
of interest, or similar bases. Interlocutory review of an order denying 
such a request may be sought without certification of the matter by the 
Judgment Officer only in accordance with the procedures set forth in 
Sec.  12.309 of the Reparation Rules.



Sec.  12.203  Filing of documents; subscription; service.

    Except as otherwise specifically provided in these rules, all 
documents filed in a summary decisional proceeding, including (but not 
limited to) amended or supplemental pleadings, motions, discovery 
notices and responses thereto, documents produced or filed pursuant to 
Sec.  12.34 of these rules, and submissions of proof, shall meet the 
requirements of Sec.Sec. 12.11 and 12.12 of these rules as to form, 
and shall be filed and served in accordance withSec. 12.10 of the 
Reparation Rules.



Sec.  12.204  Amended and supplemental pleadings.

    (a) Amendments to pleadings. At any time before the parties have 
concluded their submission of proof, the Judgment Officer may allow 
amendments of the pleadings either upon written consent of the parties, 
or for good cause shown, provided however, that any pleading as amended 
shall not contain an allegation of damages in excess of $30,000. Any 
party may file a response to a motion to amend the pleadings within ten 
(10) days after the date of service upon him of the motion;
    (b) Supplemental pleadings. At any time before the parties have 
concluded their submissions of proof, and upon such terms as are just, 
the Judgment Officer may, upon motion by a party, permit a party to 
serve a supplemental pleading setting forth transactions, occurrences or 
events which have happened since the date of the pleadings sought to be 
supplemented and which are relevant to any of the issues in the 
proceeding: Provided However, That any pleading as supplemented may not 
contain an allegation of damages in excess of $30,000. Any party may 
file a response to a motion to supplement the pleadings within ten (10) 
days after the date of service upon him of the motion.
    (c) Pleadings to conform to the evidence. When issues not raised by 
the pleadings but reasonably within the scope of a summary decisional 
proceeding are tried with the express or implied consent of the parties, 
they shall be treated in all respects as if they had been raised in the 
pleadings.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994]



Sec.  12.205  Motions.

    (a) In general. Motions for relief not otherwise specifically 
provided for in subpart D of these rules, other than discovery-related 
motions and motions for extensions of time and similar procedural 
orders, shall not be allowed. Except as otherwise specifically provided 
in these rules, all motions permitted under these rules shall be 
directed to the Judgment Officer prior to the filing of the initial 
decision, and to

[[Page 410]]

the Commission after the initial decision has been filed. Motions for 
extensions of time and similar procedural orders may be acted upon at 
any time, without awaiting a response thereto. Any party adversely 
affected by such action may request reconsideration, vacation or 
modification of such action.
    (b) Answer to motions. Any party may serve and file a written 
response to a motion within ten (10) days after service of the motion 
upon him, or within such longer or shorter period as is established by 
these rules, or as the Judgment Officer or the Commission may direct.
    (c) Dismissal--(1) By the Judgment Officer. A Judgment Officer, 
acting upon his own motion, may
    (i) Dismiss the entire proceeding without prejudice to 
counterclaims, if he finds that the matters alleged in the complaint 
fail to state a claim cognizable in reparations; or
    (ii) Order dismissal of any claim, counterclaim, or party from the 
proceeding if he finds, after review of the record, that such claim or 
counterclaim (by itself or as applied to any party) is not cognizable in 
reparations.
    (2) Motion for dismissal by a party. Any party who believes that 
grounds exist for dismissal of the entire complaint, or of any claim 
therein, or of any counterclaim or party from the proceeding, may file a 
motion for dismissal specifying the claims or parties to be dismissed 
and the reasons therefor. Upon consideration of the whole record, the 
Judgment Officer may grant or deny such motion, in whole or in part.
    (3) Content and effect of order of dismissal. Any order of dismissal 
entered pursuant to this rule shall contain a brief statement of the 
findings and conclusions which serve as the basis for the order. An 
order of dismissal of the entire proceeding pursuant to this rule shall 
have the effect of an initial decision (seeSec. 12.213(d)), and may be 
appealed to the Commission in accordance with the requirements ofSec. 
12.401 of these rules.



Sec.  12.206  Pre-decision conferences.

    At any time after a summary decisional proceeding has been commenced 
pursuant toSec. 12.26(b), the Judgment Officer may, in his discretion, 
conduct one or more pre-decision conferences to be held in Washington, 
DC or by telephone, with all parties, for the purposes of:
    (a) Discussing the advisability of electing the voluntary decisional 
procedure;
    (b) Encouraging settlement of the entire case, or any part thereof, 
(such discussions may be ex parte with the consent of all parties);
    (c) Simplifying or clarifying issues;
    (d) Obtaining stipulations, admissions of fact and of authenticity 
of documents;
    (e) Discussing amendments or supplements to the pleadings;
    (f) Encouraging an early settlement of disputes relating to 
discovery; and
    (g) Discussing any matters of relevance in the proceeding.

At or following the conclusion of such a conference, the Judgment 
Officer may serve a pre-decision memorandum and order setting forth the 
agreements, if any, reached by the parties, any procedural 
determinations made by him, and the issues for resolution not disposed 
of by the admissions or agreements by the parties. Such order, when 
issued, shall control the subsequent course of the proceeding unless 
modified to prevent injustice.



Sec.  12.207  Summary disposition.

    (a) Filing of motions, answers. Any party who believes that there is 
no genuine issue of material fact to be determined and that he is 
entitled to a decision as a matter of law concerning all issues of 
liability in the proceeding may file a motion for summary disposition at 
any time until the parties have concluded their submissions of proof. 
Any adverse party, within ten (10) days after service of the motion, may 
file and serve opposing papers or may countermove for summary 
disposition.
    (b) Supporting papers. A motion for summary disposition shall 
include a statement of the material facts as to which the moving party 
contends there is no genuine issue, supported by the pleadings, and by 
affidavits, other verified statements, admissions, stipulations, and 
interrogatories. The motion may also be supported by briefs containing 
points and authorities in

[[Page 411]]

support of the contention of the party making the motion. When a motion 
is made and supported as provided in this section, unless otherwise 
ordered by the Judgment Officer, an adverse party may not rest upon the 
mere allegations, but shall serve and file in response a statement 
setting forth those material facts as to which he contends a genuine 
issue exists, supported by affidavits and other verified material. He 
may also submit a brief of points and authorities.
    (c) Summary disposition upon motion of the Judgment Officer. If the 
Judgment Officer believes that there may be no genuine issue of material 
fact to be determined and that one of the parties may be entitled to a 
decision as a matter of law, he may direct the parties to submit papers 
in support of and in opposition to summary disposition, substantially as 
provided in paragraphs (a) and (b) of this section.
    (d) Ruling on summary disposition. The Judgment Officer may grant 
summary disposition if the undisputed pleaded facts, affidavits, other 
verified statements, admissions, stipulations, and matters of official 
notice show that (1) there is no genuine issue as to any material fact; 
(2) there is no necessity that further facts be developed in the record; 
and (3) a party is entitled to a decision in his favor as a matter of 
law.
    (e) Review of ruling; appeal. An application for interlocutory 
review of an order denying a motion for summary disposition shall not be 
allowed. An order granting summary disposition as to all of the issues 
and all of the parties in the proceeding shall have the same effect as 
an initial decision (seeSec. 12.210(d)), and may be appealed to the 
Commission, in accordance withSec. 12.401 of these rules.



Sec.  12.208  Submissions of proof.

    (a) Documentary evidence. Each party may file and serve verified 
statements of fact and affidavits of non-party witnesses with personal 
knowledge of the facts which they aver to be true. Proof in support of 
the complaint and in support of the respondent's answer may be found in 
those verified documents, in affidavits of non-party witnesses, in other 
verified statements of fact, and in other documents and tangible 
exhibits.
    (b) Oral testimony and examination. The Judgment Officer may order 
an oral hearing for the presentation of testimony and examination of the 
parties and their witnesses when appropriate and necessary for the 
resolution of factual issues, upon motion by either a party or the 
Judgment Officer. An oral hearing held under this section will be 
convened by conference telephone call as provided inSec. 12.209(b), 
except that an in-person hearing may be held in Washington, DC, under 
the circumstances set forth inSec. 12.209(c).

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994]



Sec.  12.209  Oral testimony.

    (a) Generally. When the Judgment Officer determines that an oral 
hearing is necessary and appropriate, such oral hearing will be held 
either by telephone or in person in Washington, DC, as set forth below. 
The Judgment Officer, in his or her discretion with consideration for 
the convenience of the parties and their witnesses, will determine the 
time and date of such hearing. During an oral hearing, in his or her 
discretion, the Judgment Officer may regulate appropriately the course 
and sequence of testimony and examination of the parties and their 
witnesses and limit the issues.
    (b) Telephonic hearings. When a Judgment Officer has determined to 
hold an oral hearing by telephone, an order to that effect will be 
issued at least 15 days prior to the hearing notifying the parties of 
the date and time of the hearing. The order will direct the parties to 
confirm, at least 48 hours in advance of the hearing, that the correct 
telephone numbers for the parties and their witnesses are on file with 
the Office of Proceedings, and warn that failure to provide correct 
telephone numbers may be deemed waiver of that party's right to 
participate in the hearing, to present evidence, or to cross-examine 
other witnesses. If a party is unavailable by telephone at the appointed 
time, any other party in attendance may present testimony, and the 
Judgment Officer also may impose any appropriate sanction listed in 
Sec.  12.35. All telephonic hearings will be recorded

[[Page 412]]

electronically but will be transcribed only upon direction of the 
Judgment Officer (if necessary) or in the event of Commission review. 
The parties may secure a copy of the recording of the hearing from the 
Proceedings Clerk upon written request and payment of the cost of the 
recording.
    (c) Washington, DC hearings. In exceptional circumstances and when 
an in-person hearing is determined to be necessary in resolving the 
issues, the Judgment Officer may order an in-person hearing in 
Washington, DC upon written request by a party and the agreement of at 
least one opposing party. The Judgment Officer will issue notice of the 
time, date, and location of an in-person hearing to the parties at least 
30 days in advance of the hearing. Except as otherwise provided herein, 
an in-person hearing will be held and recorded in the manner prescribed 
inSec. 12.312(c) through (f) of these rules. A party not agreeing to 
appear at the hearing in Washington, DC, may be ordered to participate 
by telephone. Any party not appearing in person or by telephone will be 
deemed to have waived the right to participate in the hearing, to 
present evidence, or to cross-examine other witnesses; further, that 
party may be subject to such action underSec. 12.35 as the Judgment 
Officer may find appropriate. The Judgment Officer may order any party 
who requests or agrees to appear at a hearing in Washington, DC and 
fails to appear without good cause, to pay any reasonable costs 
unnecessarily incurred by parties appearing at such a hearing.
    (d) Compulsory process. An application for a subpoena requiring a 
non-party to participate in a telephonic hearing or to appear at an in-
person hearing in Washington, DC, may be made in writing to the Judgment 
Officer without notice to the other parties. The standards for issuance 
or denial of an application for a subpoena, the service and travel fee 
requirements, and the method for enforcing such subpoenas are set forth 
atSec. 12.313 of these rules.

[59 FR 9637, Mar. 1, 1994]



Sec.  12.210  Initial decision.

    (a) In general. Proposed findings of fact and conclusions of law 
briefs shall not be allowed. As soon as practicable after all 
submissions of proof have been received, the Judgment Officer shall make 
the initial decision, which he shall forthwith file with the Proceedings 
Clerk. Upon filing of an initial decision, the Proceedings Clerk shall 
immediately serve upon the parties a copy of the initial decision and a 
notification of the effect of a party's failure timely to appeal the 
initial decision to the Commission, as provided in paragraphs (d) and 
(e) of this section, as well as the effect of a failure by a party who 
has been ordered to pay a reparation award timely to file the documents 
required bySec. 12.407(c).
    (b) Content of initial decision. In the initial decision in a 
summary decisional proceeding, the Judgment Officer shall:
    (1) Include a brief statement of his findings as to the facts, with 
references to those portions of the record which support his findings;
    (2) Make a determination whether or not the respondent has violated 
any provision of the Commodity Exchange Act, or rule, regulation or 
order thereunder;
    (3) Make a determination whether the complainant is liable to any 
respondent who has made a counterclaim in the proceeding;
    (4) Determine the amount of damages, if any, that the complainant 
has sustained as a result of respondent's violations, the amount of 
punitive damages, if any, for which respondent is liable to complainant, 
which shall not exceed $30,000, exclusive of interest and costs; and the 
amount, if any, for which complainant is liable to respondents based on 
counterclaims, which, in aggregate, shall not exceed $30,000, exclusive 
of interest and costs; and
    (5) Include an order directing either the respondent or the 
complainant, depending upon whose liability is greater, to pay an amount 
based on the difference in the amounts determined pursuant to paragraph 
(b)(4) of this section, on or before a date fixed in the order.
    (c) Costs; prejudgment interest. The Judgment Officer may, in the 
initial decision, award costs (including the costs of instituting the 
proceeding, and if appropriate, reasonable attorneys'

[[Page 413]]

fees) and, if warranted as a matter of law under the circumstances of 
the particular case, prejudgment interest to the party in whose favor a 
judgment is entered.
    (d) Effect of initial decision. The initial decision shall become 
the final decision and order of the Commission thirty (30) days after 
service thereof, except:
    (1) The initial decision shall not become the final decision as to a 
party who shall have timely filed and perfected an appeal thereof to the 
Commission in accordance withSec. 12.401 of these rules; and
    (2) The initial decision shall not become final as to any party to 
the proceeding if, within thirty (30) days after service of the initial 
decision, the Commission itself shall have placed the case on its own 
docket for review or stayed the effective date of the initial decision.
    (e) Effect of failure to file and perfect an appeal to the 
Commission. Unless the Commission takes review on its own motion, the 
timely filing and perfection of an appeal to the Commission of the 
initial decision is mandatory as a prerequisite to appellate judicial 
review of a final decision and order entered pursuant to these rules.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9638, Mar. 1, 1994]



       Subpart E_Rules Applicable to Formal Decisional Proceedings



Sec.  12.300  Scope and applicability of rules.

    The rules set forth in this subpart are applicable to proceedings 
forwarded pursuant toSec. 12.26(c) of the Reparation Rules. The rules 
in subpart B permitting discovery are applicable in a formal decisional 
proceeding, as supplemented bySec. 12.301. Unless specifically made 
applicable, the rules prescribed in subparts C and D shall not apply to 
formal decisional proceedings. Parties to a proceeding forwarded 
pursuant toSec. 12.26(c) may, by written agreement filed at any time 
prior to the issuance of an initial decision, or of any other order 
disposing of all issues in the proceeding, elect to have all issues in 
the proceeding decided pursuant to the voluntary decisional procedure. 
Upon receiving a timely filed stipulation signed by all parties 
evidencing such an election, the Administrative Law Judge shall conduct 
the proceeding and render a decision pursuant to subpart C of these 
rules.



Sec.Sec. 12.301-12.302  [Reserved]



Sec.  12.303  Pre-decision conferences.

    During the time period permitted for discovery pursuant toSec. 
12.30(d), and thereafter, the Administrative Law Judge may, in his 
discretion, conduct one or more pre-decision conferences to be held in 
Washington, DC or by telephone, with all parties for the purposes of:
    (a) Discussing the advisability of electing the voluntary decisional 
procedure;
    (b) Encouraging a settlement of the entire case, or any part thereof 
(such discussions may be ex parte with the consent of all parties);
    (c) Simplifying or clarifying issues;
    (d) Obtaining stipulations, admissions of fact and of authenticity 
of documents;
    (e) Discussing amendments or supplements to the pleadings;
    (f) Encouraging an early settlement of disputes relating to 
discovery; and
    (g) Discussing any matters of relevance in the proceeding.

At or following the conclusion of a pre-decision conference, the 
Administrative Law Judge may serve a pre-decision memorandum and order 
setting forth the agreements reached by the parties, any procedural 
determinations made by him, and the issues for resolution not disposed 
of by admissions or agreements by the parties. Such an order shall 
control the subsequent course of the proceeding unless modified to 
prevent injustice.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec.  12.304  Functions and responsibilities of the Administrative 
Law Judge.

    Once he has been assigned the case, the Administrative Law Judge 
shall be responsible for the fair and orderly conduct of a formal 
decisional proceeding and shall have the authority:
    (a) To issue such orders as are described inSec. 12.34 of these 
rules;

[[Page 414]]

    (b) To issue subpoenas pursuant to Sec.Sec. 12.34, 12.36, and 
12.313 of these rules;
    (c) To take such action as is appropriate pursuant toSec. 12.35 if 
a party fails to comply with a discovery order, or an order issued 
pursuant toSec. 12.34 of these rules;
    (d) [Reserved]
    (e) In his discretion, to conduct pre-decision conferences, for the 
purposes prescribed inSec. 12.303, at any time after a proceeding has 
commenced pursuant toSec. 12.26(c);
    (f) To issue pre-hearing orders as required bySec. 12.312(a);
    (g) To certify interlocutory matters to the Commission for its 
determination in accordance withSec. 12.309;
    (h) To issue orders of dismissal pursuant toSec. 12.308;
    (i) To issue default orders for good cause against parties who fail 
to participate in the proceeding, or to comply with these rules;
    (j) If appropriate, to issue orders for summary disposition in the 
manner prescribed bySec. 12.310;
    (k) If an oral hearing is ordered, to preside at the oral hearing, 
which shall include the authority to receive relevant evidence, to 
administer oaths and affirmations, to examine witnesses, and to rule on 
offers of proof;
    (l) To make the initial decision; and
    (m) To issue such orders, and take any other actions as are required 
to give effect to these rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984; 49 FR 17750, 
Apr. 25, 1984, as amended at 57 FR 20637, May 14, 1992]



Sec.  12.305  Disqualification of Administrative Law Judge.

    (a) At his own request. An Administrative Law Judge may withdraw 
from a formal decisional proceeding when he considers himself to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event, he shall immediately notify the Commission 
and each of the parties of his withdrawal and of his basis for such 
action.
    (b) Upon the request of a party. Any party may request an 
Administrative Law Judge to disqualify himself on the grounds of 
personal bias, conflict of interest, or similar bases. Interlocutory 
review of an order denying such a request may be sought without 
certification of the matter by an Administrative Law Judge, only in 
accordance with the procedures set forth inSec. 12.309 of these rules.



Sec.  12.306  Filing of documents; subscription; service.

    Except as otherwise specifically provided in these rules, all 
documents filed in a formal decisional proceeding including, but not 
limited to, amended or supplemental pleadings, motions, discovery 
notices or requests, and responses thereto, documents filed or produced 
pursuant toSec. 12.34 of these rules, and submissions of proof, shall 
meet the requirements of Sec.Sec. 12.11 and 12.12 of the rules as to 
form, and shall be filed and served in accordance withSec. 12.10 of 
the Reparation Rules.



Sec.  12.307  Amended and supplemental pleadings.

    (a) Amendments to pleadings. At any time before the parties have 
concluded their submissions of proof, the Administrative Law Judge may 
allow amendments of the pleadings either upon written consent of the 
parties or for good cause shown. Any party may file a response to a 
motion to amend the pleadings within ten (10) days after the date of 
service upon him of the motion.
    (b) Supplemental pleadings. At any time before the parties have 
concluded their submissions of proof, and upon such terms as are just, 
an Administrative Law Judge may, upon motion by a party, permit a party 
to serve a supplemental pleading setting forth transactions, occurrences 
or events which have happened since the date of the pleadings sought to 
be supplemented and which are relevant to the issues in the proceeding. 
Any party may file a response to a motion to supplement the pleadings 
with ten (10) days after the date of service upon him of the motion.
    (c) Pleadings to conform to the evidence. When issues not raised by 
the pleadings but reasonably within the scope of a formal decisional 
proceeding are tried with the express or implied consent of the parties, 
they shall be treated in all respects as if they had been raised in the 
pleadings.

[[Page 415]]



Sec.  12.308  Motions.

    (a) In general. An application for a form of relief not otherwise 
specifically provided for in this subpart E shall be made by a motion, 
which shall be in writing (unless made on the record during an oral 
hearing). The motion shall state the relief sought and the basis for the 
relief and may set forth the authority relied upon. All motions, unless 
otherwise provided in these rules, shall be directed to the 
Administrative Law Judge before the initial decision is filed, and to 
the Commission after the initial decision is filed.
    (b) Answer to motions. Any party may serve and file a written 
response to a motion within ten (10) days after service of the motion 
upon him, or within such longer or shorter period as established by 
these rules, or as the Administrative Law Judge or the Commission may 
direct.
    (c) Dismissal--(1) By the Administrative Law Judge. The 
Administrative Law Judge, acting on his own motion, may, at any time 
after he has been assigned the case:
    (i) Dismiss the entire proceeding, without prejudice to 
counterclaims, if he finds that none of the matters alleged in the 
complaint state a claim that is cognizable in reparations; or
    (ii) Order dismissal of any claim, counterclaim, or party from the 
proceeding if he finds that such claim or counterclaim (by itself, or as 
applied to a party) is not cognizable in reparations.
    (2) Motion for dismissal by a party. Any party who believes that 
grounds exist for dismissal of the entire complaint, of any claim 
therein, of any counterclaim, or of a party from the proceeding, may 
file a motion for dismissal specifying the claims, counterclaims, or 
parties to be dismissed and the reasons therefor. Upon consideration of 
the whole record, the Administrative Law Judge may grant or deny such 
motion, in whole or in part.
    (3) Content and effect of order of dismissal. Any order of dismissal 
entered pursuant to this rule shall contain a brief statement of the 
findings and conclusions which serve as the basis for the order. An 
order of dismissal of the entire proceeding pursuant to this rule shall 
have the effect of an initial decision which may be appealed to the 
Commission in accordance with the requirements set forth inSec. 12.401 
of these rules.
    (d) Motions for procedural orders. Motions for procedural orders, 
including motions for extensions of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such action may request reconsideration, vacation or modification of 
such action.
    (e) Dilatory motions. Repetitive or numerous motions dealing with 
the same subject matter shall not be permitted.



Sec.  12.309  Interlocutory review by the Commission.

    Interlocutory review by the Commission of a ruling on a motion by an 
Administrative Law Judge may be sought only as prescribed in this rule:
    (a) When interlocutory appeal may be taken. An interlocutory appeal 
may be permitted, in the discretion of the Commission, under the 
following circumstances:
    (1) The appeal is from a ruling pursuant toSec. 12.102,Sec. 
12.202, orSec. 12.305 refusing to grant a motion to disqualify a 
Judgment Officer or Administrative Law Judge;
    (2) The appeal is from a ruling pursuant toSec. 12.9 suspending an 
attorney from participation in a reparation proceeding;
    (3) Upon a determination by the Administrative Law Judge certified 
to the Commission either in writing or on the record, that
    (i) A ruling sought to be appealed involves a controlling question 
of law or policy;
    (ii) An immediate appeal may materially advance the ultimate 
resolution of the issues in the proceeding; and
    (iii) Subsequent reversal of the ruling would cause unnecessary 
delay or expense to the parties; or
    (4) The appeal is from a ruling which satisfies the conditions of 
paragraphs (a)(3) (i)-(iii) of this section, despite the absence of 
certification, and extraordinary circumstances are shown to exist.
    (b) Procedure to obtain interlocutory review. An application for 
interlocutory review may be served and filed within ten (10) days after 
service of a ruling

[[Page 416]]

described in paragraphs (a)(1), (a)(2), and (a)(4) of this section or of 
notice that a determination has been made pursuant to paragraph (a)(3) 
of this section. The application for interlocutory review shall contain:
    (1) A statement of the facts necessary to an understanding of the 
controlling questions determined by the Administrative Law Judge, and to 
an understanding of the extraordinary circumstances warranting 
interlocutory review by the Commission;
    (2) A statement of the question or issue involved in the ruling upon 
which the application for review is based;
    (3) A statement of the reasons why, in the opinion of the party 
requesting review, the ruling was erroneous and should be reversed or 
modified; and
    (4) A copy of all papers filed by the parties that relate to the 
subject matter of the ruling at issue, including the order containing 
the ruling.

Within seven (7) days after service of the application for interlocutory 
review, any party may file a response in opposition to the application.
    (c) Standard for review. In the absence of extraordinary 
circumstances, the Commission will not review a ruling of an 
Administrative Law Judge prior to the Commission's consideration of the 
proceeding pursuant to subpart F of these rules. A Commission denial of 
an application for interlocutory review shall be without prejudice to 
the applying party's right to raise any argument made in the application 
as an issue in an appeal taken pursuant to subpart F of these rules.
    (d) Proceedings not stayed. The filing of an application for 
interlocutory review and a grant of review shall not stay proceedings 
before an Administrative Law Judge (or a Judgment Officer, if 
applicable) unless that official or the Commission shall so order. The 
Commission will not consider a motion for a stay unless the motion shall 
have first been made to the Administrative Law Judge (or, if applicable, 
the Judgment Officer) and denied.
    (e) Interlocutory review by the Commission on its own motion. 
Nothing in this rule should be construed as restricting the Commission 
from acting on its own motion to review on an interlocutory basis any 
ruling of an Administrative Law Judge, Proceedings Officer or a Judgment 
Officer in any proceeding commenced pursuant toSec. 12.26 of these 
rules.



Sec.  12.310  Summary disposition.

    (a) Filing of motions, answers. Any party who believes that there is 
no genuine issue of material fact to be determined and that he is 
entitled to a decision as a matter of law concerning all issues of 
liability in the proceeding may file a motion for summary disposition at 
any time before a determination is made by the Administrative Law Judge 
to order an oral hearing in the proceeding. Any adverse party, within 
ten (10) days after service of the motion, may file and serve opposing 
papers or may countermove for summary disposition.
    (b) Supporting papers. A motion for summary disposition shall 
include a statement of all material facts as to which the moving party 
contends that there is no genuine issue, supported by the pleadings, and 
by affidavits, other verified statements, admissions, stipulations, and 
interrogatories. The motion may also be supported by briefs containing 
points and authorities in support of the contention of the party making 
the motion. When a motion is made and supported as provided in this 
section, unless otherwise ordered by the Administrative Law Judge, an 
adverse party may not rest upon the mere allegations, but shall serve 
and file in response a statement setting forth those material facts as 
to which he contends a genuine issue exists, supported by affidavits and 
other verified material. He may also submit a brief of points and 
authorities.
    (c) Oral argument. Oral argument may be heard at the discretion of 
the Administrative Law Judge and shall be heard in Washington, DC, or by 
telephonic conference call. Such argument shall be recorded, and written 
transcripts shall be made in the event that a grant or denial of summary 
disposition is reviewed by the Commission.
    (d) Summary disposition upon motion of the Administrative Law Judge. 
If the Administrative Law Judge believes that there may be no genuine 
issue of material fact to be determined and that one

[[Page 417]]

of the parties may be entitled to a decision as a matter of law, he may 
direct the parties to submit papers in support of and in opposition to 
summary disposition, and may hear oral argument, substantially as 
provided in paragraphs (a), (b) and (c) of this section.
    (e) Ruling on summary disposition. The Administrative Law Judge 
shall grant summary disposition if the undisputed pleaded facts, 
affidavits, other verified statements, admissions, stipulations, and 
matters of official notice, show that (1) there is no genuine issue as 
to any material fact; (2) there is no necessity that further facts be 
developed in the record; and (3) a party is entitled to a decision as a 
matter of law.
    (f) Review of ruling; appeal. An application for interlocutory 
review of an order denying a motion for summary disposition shall not be 
allowed. Interlocutory review of an order granting summary disposition 
which disposes of less than all of the issues in the proceeding may be 
sought only in accordance withSec. 12.309 of these rules. An order 
granting summary disposition which is dispositive of all issues, and as 
to all parties, in the proceeding may be appealed to the Commission in 
accordance with the requirements set forth inSec. 12.401 of these 
rules.



Sec.  12.311  Disposition of proceeding or issues without oral hearing.

    If the Administrative Law Judge determines that the documentary 
proof and other tangible forms of proof submitted by the parties are 
sufficient to permit resolution of some or all of the factual issues in 
the proceeding without the need for oral testimony, he may order that 
all proof relating to such issues be submitted in documentary and 
tangible form, and dispose of such issues without an oral hearing. In 
such an event, proof in support of the complaint, answer, and reply, may 
be found in those verified documents, in depositions on written 
interrogatories, in admissible documents obtained through discovery, in 
other verified statements of fact, documents and tangible evidence.



Sec.  12.312  Oral hearing.

    (a) Notification; prehearing order. If and when the proceeding has 
reached the stage of an oral hearing, the Administrative Law Judge, 
giving due regard for the convenience of the parties, shall set a time 
for hearing, as well as a location prescribed by paragraph (b) of this 
section, and shall file with the Proceedings Clerk, for immediate 
service upon the parties:
    (1) An order requiring the parties to file and serve, within fifteen 
days after service of the order, a prehearing memorandum setting forth 
briefly:
    (i) A statement of all issues to be tried at the hearing;
    (ii) An identification of each witness expected to be called by that 
party;
    (iii) A summary of the testimony each witness is expected to 
provide; and
    (2) A notice stating the time and location of the hearing.

Prior to the hearing, the Administrative Law Judge may issue an order 
based on the contents of the parties' memoranda filed pursuant to 
paragraph (a)(1) of this section, which, unless modified to prevent 
injustice, shall control the scope of matters to be tried at the oral 
hearing. If any change in the time or place of the hearing becomes 
necessary, it shall be made by the Administrative Law Judge, who, in 
such event, shall file with the Proceedings Clerk a notice of the 
change. Such notice shall be served upon the parties, unless it is made 
during the course of an oral hearing and made a part of the transcript. 
Hearings shall proceed expeditiously and, absent extraordinary 
circumstances, shall be held in one location and shall continue, without 
suspension, until concluded.
    (b) Location of hearing. Unless the Director of the Office of 
Proceedings for reasons of administrative economy or practical necessity 
determines otherwise, and except as provided in this subparagraph, the 
location of an oral hearing shall be in one of the following cities: 
Albuquerque, N.M.; Atlanta, Ga.; Boston, Mass.; Chicago, Ill.; 
Cincinnati, Ohio; Columbia, S.C.; Denver, Colo.; Houston, Tex.; Kansas 
City, Mo.; Los Angeles, Cal.; Minneapolis, Minn.; New Orleans, La.; New 
York, N.Y.; Oklahoma City, Okla.; Phoenix, Ariz.; San Diego, Cal.; San 
Francisco, Cal.; Seattle, Wash.; St. Petersburg, Fla.;

[[Page 418]]

and Washington, DC. The Administrative Law Judge may, in any case where 
a party avers, in an affidavit, that none of the foregoing cities is 
located within 300 miles of his principal residence, waive this 
paragraph and, upon giving due regard for the convenience of all of the 
parties, order that the hearing be held in a more convenient locale.
    (1) Who may appear. The parties may appear in person, by counsel, or 
by other representatives of their choosing, subject to the provisions of 
Sec.  12.9 of these rules concerning practice before the Commission.
    (2) Effect of failure to appear. If any party to the proceeding 
fails to appear at the hearing, or at any part thereof, he shall to that 
extent be deemed to have waived the opportunity for an oral hearing in 
the proceeding. The Administrative Law Judge, for just cause, may take 
such action as is appropriate pursuant toSec. 12.35 of these rules 
against a party who fails to appear at the hearing. In the event that a 
party appears at the hearing and no party appears for the opposing side, 
the party who is present may present his evidence, in whole or in part, 
in the form of affidavits or by oral testimony, before the 
Administrative Law Judge.
    (c) Public hearings. All oral hearings shall be public except that 
upon application of a party or affected witness the Administrative Law 
Judge may direct that specific documents or testimony be received and 
retained non-publicly in order to prevent unwarranted disclosure of 
trade secrets or sensitive commercial or financial information or an 
unwarranted invasion of personal privacy.
    (d) Conduct of the hearing. Subject to paragraph (e) of this 
section, and except as otherwise provided, at an oral hearing every 
party shall be entitled to:
    (1) Conduct direct and cross-examination of parties and witnesses. 
All witnesses at a hearing for the purpose of taking evidence shall 
testify under oath or affirmation, which shall be administered by the 
Administrative Law Judge. Unless otherwise ordered by the Administrative 
Law Judge, parties shall be entitled to present oral direct testimony 
and other documentary proof, and to conduct direct examination and cross 
examine adverse parties and witnesses. To expedite the hearing, the 
Administrative Law Judge may, in his discretion, order that the direct 
testimony of the parties and their witnesses be presented in documentary 
form, by affidavit, interrogatory, and other documents. In any event, 
the Administrative Law Judge, in his discretion, may permit cross 
examination, without regard to the scope of direct testimony, as to any 
matter which is relevant to the issues in the proceeding;
    (2) Introduce exhibits. The original of each exhibit introduced in 
evidence or marked for identification shall be filed unless the 
Administrative Law Judge permits the substitution of copies for the 
original documents. A copy of each exhibit introduced by a party or 
marked for identification at his request shall be supplied by him to the 
Administrative Law Judge and to each other party to the proceeding. 
Exhibits shall be maintained by the reporter who shall serve as 
custodian of the exhibits until they are transmitted to the Proceedings 
Clerk pursuant to paragraph (f) of this section;
    (3) Make objections. A party shall timely and briefly state the 
grounds relied upon for any objection made to the introduction of 
evidence. Formal exception to an adverse ruling shall not be required; 
and
    (4) Make offers of proof. When an objection to a question propounded 
to a witness is sustained, the examiner may make a specific offer of 
what he expects to prove by the answer of the witness. Rejected 
exhibits, adequately marked for identification, shall be retained in the 
record so as to be available for consideration by any reviewing 
authority.
    (e) Admissibility of evidence. Relevant, material and reliable 
evidence shall be admitted. Irrelevant, immaterial, unreliable and 
unduly repetitious evidence shall be excluded.
    (f) Record of an oral hearing. Oral hearings for the purpose of 
taking evidence shall be recorded and shall be transcribed in written 
form under the supervision of the Administrative Law Judge by a reporter 
employed by the Commission for that purpose. The original transcript 
shall be a part of

[[Page 419]]

the record and shall be the sole official transcript. Copies of 
transcripts, except those portions granted non-public treatment, shall 
be available from the reporter at rates not to exceed the maximum rates 
fixed by the contract between the Commission and the reporter. As soon 
as practicable after the close of the hearing, the reporter shall 
transmit to the Proceedings Clerk the transcript of the testimony and 
the exhibits introduced in evidence at the hearing, except such portions 
of the transcript and exhibits as shall have already been delivered to 
the Administrative Law Judge.
    (g) Proposed findings of fact and conclusions law; briefs. An 
Administrative Law Judge, upon his own motion or upon motion of a party, 
may permit the filing of post-hearing proposed findings of fact and 
conclusions of law. Absent an order permitting such findings and 
conclusions, none shall be allowed. Unless otherwise ordered by the 
Administrative Law Judge and for good cause shown, the proposed findings 
and conclusions (including briefs in support thereof), shall not exceed 
twenty-five (25) pages and shall be filed not later than forty-five (45) 
days after the close of the oral hearing.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec.  12.313  Subpoenas for attendance at an oral hearing.

    (a) In general--(1) Application for issuance of subpoenas. An 
application for a subpoena requiring a party or other person to appear 
and testify at an oral hearing (subpoena ad testificandum) or to appear 
and testify and to produce specified documentary or tangible evidence at 
the hearing (subpoena duces tecum), shall (unless made orally at a 
hearing) be filed in writing and in duplicate, but need not be served 
upon other parties. The application shall be accompanied by the original 
and one copy of the subpoena.
    (2) Standards for issuance or denial of subpoenas. The 
Administrative Law Judge considering any application for a subpoena 
shall issue the subpoena if he is satisfied the application complies 
with this rule and the request is not unreasonable, oppressive, 
excessive in scope or unduly burdensome. In the event the Adminstrative 
Law Judge determines that a requested subpoena or any of its terms is 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
may refuse to issue the subpoena, or may issue it only upon such 
conditions as he determines fairness requires.
    (b) Special requirements relating to application for an issuance of 
subpoenas for the appearance of commission employees--(1) Form. An 
application for the issuance of a subpoena shall be made in the form of 
a written motion served upon all other parties, if the subpoena would 
require the appearance of a Commissioner or an official or employee of 
the Commission.
    (2) Content. The motion shall specifically describe the material to 
be produced, the information to be disclosed, or the testimony to be 
elicited from the witness, and shall show
    (i) The relevance of the material, information, or testimony to the 
matters at issue in the proceeding;
    (ii) The reasonableness of the scope of the proposed subpoena; and
    (iii) That such material, information, or testimony is not available 
from other sources.
    (3) Rulings. The motion shall be decided by the Administrative Law 
Judge and his order shall provide such terms and conditions for the 
production of the material, the disclosure of the information, or the 
appearance of the witnesses as may appear necessary and appropriate for 
the protection of the public interest.
    (c) Service of subpoenas--(1) How effected. Service of a subpoena 
upon a party shall be made in accordance withSec. 12.10 of these 
rules. Service of a subpoena upon any other person shall be made by 
delivering a copy of the subpoena to him as provided in paragraph (c) 
(2) or (3) of this section, and by tendering to him the fees for one 
day's attendance and the mileage as specified in paragraph (e) of this 
section. When the subpoena is issued at the instance of any officer or 
agency of the United States, fees and mileage need not be tendered at 
the time of service.
    (2) Service upon a natural person. Delivery of a copy of a subpoena 
and tender of fees and mileage to a natural person may be effected by 
(i) handing

[[Page 420]]

them to the person; (ii) leaving them at his office with the person in 
charge thereof or, if there is no one in charge, by leaving the subpoena 
in a conspicuous place therein; (iii) leaving them at his dwelling place 
or usual place of abode with some person of suitable age and discretion 
then residing therein; (iv) mailing them by registered or certified mail 
to him at his last known address; or (v) any other method whereby actual 
notice is given to him and the fees and mileage are timely made 
available.
    (3) Service upon other persons. When the person to be served is not 
a natural person, delivery of a copy of the subpoena and tender of the 
fees and mileage may be effected by
    (i) Handing them to a registered agent for service, or to any 
officer, director, or agent in charge of any office of such person;
    (ii) Mailing them by registered or certified mail to any such 
representative at his last known address; or
    (iii) Any other method whereby actual notice is given to any such 
representative and the fees and mileage are timely made available.
    (d) Motion to quash subpoena. At or any time before the time 
specified in the subpoena for compliance therewith, a person upon whom a 
subpoena has been served may file a motion to quash or modify the 
subpoena with the Administrative Law Judge who issued the subpoena, and 
serve a copy of the motion on the party who requested the subpoena. Such 
motion shall include a brief statement of the reasons therefor. After 
due notice to the person upon whose request the subpoena was issued, and 
an opportunity for that person to respond, the Administrative Law Judge 
may (1) quash or modify the subpoena, or (2) condition denial of the 
application to quash or modify the subpoena upon just and reasonable 
terms, including, on the case of a subpoena duces tecum, a requirement 
that the person on whose behalf the subpoena was issued shall advance 
the reasonable cost of producing documentary or other tangible evidence.
    (e) Attendance and mileage fees. Persons summoned to testify at a 
hearing under requirement of subpoenas are entitled to the same fees and 
mileage as are paid to witnesses in the courts of the United States. 
Fees and mileage shall be paid by the party at whose instance the 
persons are subpoenaed or called.
    (f) Enforcement of subpoenas. Upon failure of any person to comply 
with a subpoena issued at the request of a party, that party may 
petition the Commission, in its discretion, to institute an action in an 
appropriate U.S. District Court for enforcement of the subpoena.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec.  12.314  Initial decision.

    (a) In general. The Administrative Law Judge as soon as practicable 
after the parties have completed their submissions of proof, or after 
the conclusion of an oral hearing if one is held, shall render the 
initial decision, which he shall forthwith file with the Proceedings 
Clerk, and a copy of which shall be served immediately by the 
Proceedings Clerk upon each of the parties. The Proceedings Clerk shall 
also serve a notice, to accompany the initial decision, of the effect of 
a party's failure timely to appeal to the Commission the initial 
decision, as provided in paragraphs (d) and (e) of this section, and the 
effect of a failure of a party who has been ordered to pay a reparation 
award timely to file the documents required bySec. 12.407(c).
    (b) Content of initial decision. In the initial decision the 
Administrative Law Judge shall:
    (1) Include a brief statement of his findings as to the facts, with 
references to those portions of the record which support his findings;
    (2) Make a determination whether or not the respondent has violated 
any provision of the Commodity Exchange Act, or rule, regulation or 
order thereunder;
    (3) Make a determination whether the complainant is liable to any 
respondent who has made a counterclaim in the proceeding;
    (4) Determine the amount of damages, if any, that the complainant 
has sustained as a result of respondent's violations, the amount of 
punitive damages if warranted, and the amount, if any, for which 
complainant is liable

[[Page 421]]

to a respondent based on a counterclaim; and
    (5) Include an order directing either the respondent or the 
complainant, depending upon whose liability is greater, to pay an amount 
based on the difference in the amounts determined pursuant to paragraph 
(b)(4) of this section, on or before a date fixed in the order.
    (c) Costs, prejudgment interest. Except as provided in Sec.Sec. 
12.30(c) and 12.315 of these rules, the Administrative Law Judge may, in 
the initial decision, award costs (including the cost of instituting the 
proceeding and, if appropriate, reasonable attorney's fees) and, if 
warranted as a matter of law under the cirumstances of the particular 
case, prejudgment interest, to the party in whose favor a judgment is 
entered.
    (d) Effect of initial decision. The initial decision and order shall 
become the final decision and order of the Commission, without further 
order by the Commission, thirty (30) days after service thereof, except 
that:
    (1) The initial decision shall not become the final decision as to a 
party who shall have timely filed and perfected an appeal thereof to the 
Commission, in accordance withSec. 12.401 of these rules; and
    (2) The initial decision shall not become final as to any party to 
the proceeding if, within thirty (30) days after service of the initial 
decision, the Commission itself shall have placed the case on its own 
docket for review or stayed the effective date of the initial decision.
    (e) Effect of failure to file and perfect an appeal to the 
Commission. Unless the Commission takes review of an initial decision on 
its own motion, the timely filing and perfection of an appeal to the 
Commission of the initial decision is mandatory as a prerequisite to 
appellate judicial review of a final decision and order entered pursuant 
to these rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9638, Mar. 1, 1994]



Sec.  12.315  Consequences of overstating damages claims not in
excess of $30,000.

    If a party, who has claimed damages in excess of $30,000, is 
adjudged to be entitled to recover less than the sum or value of 
$30,000, computed without regard to a damage award to which an opposing 
party may be adjudged to be entitled, and exclusive of interest and 
costs, the Administrative Law Judge may assess such party the cost of 
the transcript of an oral hearing, if such a hearing is held, and, 
depending upon whether such party paid any part of the filing fee for 
the proceeding, deny the party such costs or impose such costs on that 
party.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9638, Mar. 1, 1994]



                Subpart F_Commission Review of Decisions



Sec.  12.400  Scope and applicability of rules.

    The rules set forth in this subpart are applicable to proceedings 
forwarded pursuant toSec. 12.26 (b) and (c) of these rules. Except as 
provided in Sec.Sec. 12.106(e) and 12.403(b) of these rules, the rules 
set forth in this subpart are not applicable to proceedings forwarded 
pursuant toSec. 12.26(a) of the Reparation Rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec.  12.401  Appeal to the Commission.

    (a) How effected. Any aggrieved party to a proceeding forwarded 
pursuant toSec. 12.26 (b) or (c) of these rules may appeal to the 
Commission an initial decision or other disposition of the entire 
proceeding by complying with the requirements of this section. An 
appealing party shall serve upon all parties and file with the 
Proceedings Clerk a notice of appeal within fifteen (15) days after 
service of the initial decision or other order disposing of the entire 
proceeding. The notice need consist only of a brief statement indicating 
the filing party's intent to appeal the initial decision, and shall 
include the date upon which the initial decision was rendered, the names 
of all parties, and the docket number of the proceeding. A

[[Page 422]]

non-refundable appellate filing fee in the amount of $50 shall be paid 
at the time of filing a notice of appeal. The failure of a party timely 
to file and serve a notice of appeal, and to pay the appellate filing 
fee, in accordance with this paragraph, or to perfect the appeal in 
accordance with paragraph (b) of this section, shall constitute a 
voluntary waiver of any objection to the initial decision, or other 
order disposing of the proceeding, and of all further administrative or 
judicial review under these rules and the Commodity Exchange Act.
    (b) Perfecting the appeal; appeal brief. An appeal shall be 
perfected by the appealing party by timely filing with the Proceedings 
Clerk an appeal brief which meets the requirements of paragraphs (b) and 
(d) of this section. An original and one copy of the appeal brief shall 
be filed within thirty (30) days after filing of the notice of appeal. 
By motion of the appealing party, the Commission may, for good cause 
shown, extend the time for filing the appeal brief. If the appeal brief 
is not filed within the time prescribed in this subparagraph, the 
Commission may, upon its own motion or upon motion by a party, dismiss 
the appeal, in which event the initial decision shall become the final 
decision and order of the Commission, effective upon service of the 
order of dismissal.
    (c) Answering brief. Any party upon whom the appealing party serves 
a brief may, within thirty (30) days after service of the appeal brief, 
file an original and one copy of an answering brief, and serve one copy 
thereof, unless the time limit is extended by the Commission upon motion 
of the party and for good cause shown.
    (d) Briefs. Parties filing an appeal brief or answering brief 
pursuant to this section shall meet the requirements ofSec. 12.11 of 
these rules as to form. The content of briefs shall satisfy the 
requirements ofSec. 10.102(d) of the Commission's regulations, 17 CFR 
10.102(d), except that any party, with leave of the Commission, may file 
an informal document in lieu of a brief. No brief shall exceed thirty-
five (35) pages in length without leave of the Commission.
    (e) Oral argument. Any party may request, in writing and within the 
time provided for filing the initial briefs, the opportunity to present 
oral argument before the Commission, which the Commission may, in its 
discretion, grant or deny. In the event the Commission affords the 
parties the opportunity to present oral argument before the Commission, 
the oral argument shall proceed in accordance with the provisions of 
Sec.  10.103 of the Commission's regulations, 17 CFR 10.103.
    (f) Scope of review. On review, the Commission may, in its 
discretion, consider sua sponte any issues arising from the record and 
may base its determination thereon, or limit the issues to those 
presented in the statement of issues in the briefs, treating those 
issues not raised as waived.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 7, 1984]



Sec.  12.402  Appeal of disposition of less than all claims or parties
in a proceeding.

    (a) In general. Where two or more different claims for relief are 
presented, or where multiple parties are involved, in a proceeding 
forwarded pursuant toSec. 12.26 (b) or (c) of these rules, the 
Judgment Officer or Administrative Law Judge, may upon his own motion or 
by motion of a party, direct that an initial decision or other order 
disposing of one or more, but fewer than all of the claims or parties, 
shall be final and immediately appealable to the Commission. Such a 
direction may be made only upon an express determination that there is 
no just reason for delay. When such a direction is made, a party may 
appeal the initial decision or order in accordance with the procedure 
prescribed bySec. 12.401 of these rules.
    (b) When decision is not appealable. In the absence of such a 
direction by the Judgment Officer or an Administrative Law Judge, an 
initial decision or order disposing of fewer than all of the claims or 
all of the parties shall be subject to revision by the decisionmaker at 
any time before a disposition is made of all remaining claims or 
parties, and no appeal may be taken to the Commission pursuant to this 
rule.

[[Page 423]]



Sec.  12.403  Commission review on its own motion.

    (a) In general. The Commission may on its own motion, within 30 days 
after it has been served on all parties, determine to review an initial 
decision, or other order disposing of all issues in the proceeding as to 
all claims and all parties, in a proceeding forwarded pursuant toSec. 
12.26 (b) and (c) of these rules. In such event, the Commission may 
determine the scope of the issues on review, and make provisions for the 
filing of briefs or, if deemed appropriate, such other means for the 
parties to present their views. The parties shall be duly notified 
thereof by the Proceedings Clerk.
    (b) Commission review of a final decision in a voluntary decisional 
proceeding. If such action is necessary to prevent manifest injustice, 
the Commission may, upon its own motion, review a final decision issued 
pursuant toSec. 12.106 of these rules by appropriate order filed with 
the Proceedings Clerk within 30 days after service upon the parties of 
the final decision. In such event, the Commission may determine the 
scope of the issue on review, make provisions for the filing of briefs 
(or, if deemed appropriate, such other means for the parties to present 
their views). The parties shall be duly notified thereof by the 
Proceedings Clerk.



Sec.  12.404  The record of proceedings.

    The record of proceedings on appeal before the Commission shall 
include: The pleadings; motions and requests filed, and rulings thereon; 
the transcript of the testimony taken at an oral hearing, together with 
the exhibits filed therein; the transcript of testimony taken during an 
oral examination by telephone; any statements or stipulations filed in 
any proceeding; any documents or papers filed in connection with 
prehearing conferences; such proposed findings of fact, conclusions, and 
orders and briefs as may have been permitted to be filed in connection 
with an oral hearing; such statements of objections, and briefs in 
support thereof, as may have been filed in the proceedings; and the 
initial (or final) decision, or other order disposing of issues in the 
proceeding.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9638, Mar. 1, 1994]



Sec.  12.405  Leave to adduce additional evidence.

    Any time prior to issuance of its final decision pursuant toSec. 
12.406, the Commission may, after notice to the parties and an 
opportunity for them to present their views, reopen the hearing to 
receive further evidence. The application shall show to the satisfaction 
of the Commission that the additional evidence is material, and that 
there were reasonable grounds for failure to adduce such evidence at the 
hearing. The Commission may receive the additional evidence or may 
remand the proceeding to the Judgment Officer or Administrative Law 
Judge to receive the additional evidence.



Sec.  12.406  Final decision of the Commission.

    (a) Opinion and order. Unless the Commission, in accordance with 
paragraph (b) of this section, orders summary affirmance of the initial 
decision, the Commission's opinion and order in a proceeding appealed 
pursuant toSec. 12.401 of these rules shall constitute the 
Commission's final decision, effective upon service. On review, the 
Commission may affirm, reverse, modify, set aside or remand for further 
proceedings, in whole or in part, the initial decision and make any 
findings or conclusions which in its judgment are warranted based on the 
record in the proceeding.
    (b) Order on summary affirmance. If the Commission, in its opinion, 
finds that the result reached in the initial decision is substantially 
correct and that none of the arguments on appeal made by the appealing 
party raise any important question of law or policy, the Commission may, 
by appropriate order, summarily affirm the initial decision and order 
without opinion, which shall constitute the Commission's final decision, 
effective upon service. Unless the Commission expressly indicates 
otherwise in its order, an order of summary affirmance does

[[Page 424]]

not reflect a Commission determination to adopt the initial decision, 
including any rationale contained therein, as its opinion and order, and 
neither initial decision nor the Commission's order of summary 
affirmance shall serve as a Commission precedent in other proceedings.
    (c) Filing and service of final decision. The Commission shall, upon 
issuance of a final decision pursuant to thisSec. 12.406, file the 
final decision with the Proceeding's Clerk, who shall forthwith serve 
upon each of the parties a copy of the final decision as well as notice 
of the effect of a party's failure to pay a reparation award as provided 
inSec. 12.407 of these rules, and of an aggrieved party's right to 
obtain judicial review of the final decision pursuant to section 14(e) 
of the Act, 7 U.S.C. 18(e).
    (d) Date of the reparation order. For purposes of computing the 30-
day period for filing the appeal bond required by section 14(e) of the 
Act, 7 U.S.C. 18(e), ``the date of the reparation order'' shall be the 
date that the Commission's opinion and order (or order of summary 
affirmance, as the case may be) is filed with the Proceedings Clerk. 
This date shall be reflected by the date stamp on the first page of the 
Commission's order.

[49 FR 6621, Feb. 22, 1984, as amended at 53 FR 17692, May 18, 1988]



Sec.  12.407  Satisfaction of reparation award; enforcement; sanctions.

    (a) Satisfaction of reparation award--(1) Where initial decision has 
become the final decision. Any reparation award ordered in an initial 
decision, or similar dispositive order (but not a final decision issued 
pursuant toSec. 12.106 of these rules), shall be satisfied in full 
within forty-five (45) days after service of the initial decision, 
unless a timely appeal thereof has been perfected pursuant toSec. 
12.401, or unless the Commission, pursuant toSec. 12.403(a), has 
stayed the effective date of the initial decision.
    (2) Final decision pursuant toSec. 12.406. Any reparation award 
ordered in a final decision of the Commission issued pursuant toSec. 
12.406 of these rules shall be satisfied in full within fifteen (15) 
days after service of the final decision, or such other longer period of 
time as may be specified in the final decision, unless a petition for 
review is filed in accordance with section 14(e) of the Act, 7 U.S.C. 
18(e).
    (b) Enforcement of reparation award. If any person against whom a 
reparation award has been made does not timely comply with paragraph (a) 
or (b) of this section, the party in whose favor the award is made is 
entitled to seek enforcement of award in accordance with the procedure 
prescribed in section 14(d) of the Commodity Exchange Act, 7 U.S.C. 
18(d).
    (c) Automatic suspension. A person required to pay a reparation 
award shall be prohibited from trading on all contract markets and if 
such person is registered, his registration shall be suspended 
automatically, without further notice, unless such person shall, within 
fifteen (15) days after the time limit for satisfaction of an award (as 
prescribed in paragraph (a) or (b) of this section) expires, file with 
the Proceedings Clerk and serve on the other parties:
    (1) A copy of a certified check or the equivalent showing 
statisfaction of the award; or
    (2) A sworn release executed by each recipient of a reparation 
award, which has not been satisfied by payment with a certified check or 
the equivalent; or
    (3) A verified statement that a judicial appeal has been filed and 
perfected in accordance with section 14(e) of the Act, 7 U.S.C. 18(e). 
(This paragraph is applicable only in proceedings commenced pursuant to 
Sec.  12.26 (b) or (c), and only if the person has timely filed and 
perfected an appeal to the Commission as prescribed inSec. 12.401.)
    (d) Reinstatement. The sanctions imposed in accordance with 
paragraph (c) of this section shall remain in effect until the person 
required to pay the reparation award demonstrates to the satisfaction of 
the Commission that he has paid the amount required in full including 
prejudgment interest if awarded and post-judgment interest at the 
prevailing rate computed in accordance with 28 U.S.C. 1961 from the date 
directed in the final order to the date of payment, compounded annually. 
In the event an award of post-judgment interest is inadvertently 
omitted, such interest nevertheless shall run as calculated in 
accordance with 28 U.S.C. 1961 and the part 12 Rules.

[[Page 425]]

    (e) Automatic suspension after appeal. If on appeal to the U.S. 
Court of Appeals the appellee prevails, or if the appeal is dismissed, 
the automatic prohibition against trading and suspension of registration 
shall become effective at the expiration of thirty (30) days from the 
date of judgment on the appeal, but if the judgment is stayed by a court 
of competent jurisdiction, the suspension shall become effective ten 
(10) days after the expiration of such stay, unless prior thereto the 
judgment of the court or the final order of the Commission has been 
satisfied.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 50 
FR 40332, Oct. 3, 1985; 73 FR 70275, Nov. 20, 2008]



Sec.  12.408  Delegation of authority to the General Counsel.

    Pursuant to the authority granted under section 2(a)(4) and 2(a)(11) 
of the Commodity Exchange Act, as amended, 7 U.S.C. 4a(c) and 4a(j), the 
Commission hereby delegates, until such time as it orders otherwise, the 
following functions to the General Counsel, to be performed by him or 
such person or persons under his direction as he may designate from time 
to time:
    (a) With respect to reparation proceedings conducted pursuant to 
section 14 of the Commodity Exchange Act, as amended, 7 U.S.C. 18, and 
subject to the Commission's Reparation Rules as set forth in part 12 of 
this chapter, to:
    (1) Consider and decide miscellaneous procedural motions that may be 
directed to the Commission pursuant to part 12 of these rules after the 
initial decision or other order disposing of the entire proceeding has 
been filed;
    (2) Remand, with or without specific instructions, initial decisions 
or other orders disposing of the entire proceeding to the appropriate 
officer (Director of the Office of Proceedings, Judgment Officer, or 
Administrative Law Judge) in the following situations:
    (i) Where a default order or award has been made pursuant to part 12 
of these rules and a motion to vacate the default or an equivalent 
request has been made; or
    (ii) Where, in his judgment, clarification or supplementation of an 
initial decision or other order disposing of the entire proceeding prior 
to Commission review is appropriate; and
    (iii) Where, in his judgment, a ministerial act necessary to the 
proper conduct of the proceeding has not been performed.
    (3) Deny applications for interlocutory review by the Commission of 
a ruling of an Administrative Law Judge in cases in which the 
Administrative Law Judge has not certified the ruling to the Commission 
in the manner prescribed bySec. 12.309 of these rules, and the ruling 
does not concern the disqualification of, or a motion to disqualify, an 
Administrative Law Judge, or Judgment Officer, or the suspension of, or 
failure to suspend, an attorney from participating in reparation 
proceedings;
    (4) Dismiss any appeal from an initial decision or other disposition 
of the entire proceeding by an Administrative Law Judge (or Judgment 
Officer), in a proceeding where such appeal is not filed or perfected in 
accordance withSec. 12.401, and deny any application for interlocutory 
review if it is not filed in accordance withSec. 12.309 of these 
rules;
    (5) Strike any filing that does not meet the requirements of, or is 
not perfected in accordance with, these part 12 rules; and
    (6) Enter any order that, in his judgment, will facilitate or 
expedite Commission review of an initial decision or other order 
disposing of the entire proceeding.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which he believes it appropriate, the General Counsel or 
his designee may submit the matter to the Commission for its 
consideration.
    (c) Within seven (7) days after service of a ruling issued pursuant 
to thisSec. 12.408, a party may file with the Commission a petition 
for reconsideration of the ruling. Unless the Commission orders 
otherwise, the filing of a petition for reconsideration shall not 
operate to stay the effective date of such ruling.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984; 49 FR 17750, 
Apr. 25, 1984, as amended at 57 FR 20638, May 14, 1992; 59 FR 9638, Mar. 
1, 1994; 64 FR 43071, Aug. 9, 1999]

[[Page 426]]



PART 13_PUBLIC RULEMAKING PROCEDURES--Table of Contents



Sec.
13.1 Scope.
13.2 Petition for issuance, amendment, or repeal of a rule.
13.3 Notice of proposed rulemaking.
13.4 Public participation in rulemaking.
13.5 Exceptions to notice requirement and public participation.
13.6 Promulgation of rules; publication.

    Authority: Pub. L. 93-463, Sec. 101(a) (11), 88 Stat. 1391, 7 U.S.C. 
4a(j), unless otherwise noted.

    Source: 41 FR 17537, Apr. 27, 1976, unless otherwise noted.



Sec.  13.1  Scope.

    The rules of part 13 set forth the procedures of the Commodity 
Futures Trading Commission for the formulation, amendment or repeal of a 
rule or regulation, insofar as those procedures directly affect the 
public. Unless otherwise stated, the rules apply to all rulemaking by 
the Commission, except to the extent the rulemaking involves Commission 
management or personnel or public property, loans, grants, benefits or 
contracts.



Sec.  13.2  Petition for issuance, amendment, or repeal of a rule.

    Any person may file a petition with the Secretariat of the 
Commission for the issuance, amendment or repeal of a rule of general 
application. The petition shall be directed to Secretariat, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581, and shall set forth the text of any proposed 
rule or amendment or shall specify the rule the repeal of which is 
sought. The petition shall further state the nature of the petitioner's 
interest and may state arguments in support of the issuance, amendment 
or repeal of the rule. The Secretariat shall acknowledge receipt of the 
petition, refer it to the Commission for such action as the Commission 
deems appropriate, and notify the petitioner of the action taken by the 
Commission. Except in affirming a prior denial or when the denial is 
self-explanatory, notice of a denial in whole or in part of a petition 
shall be accompanied by a brief statement of the grounds of denial.

[41 FR 17537, Apr. 27, 1976, as amended at 60 FR 49335, Sept. 25, 1995]



Sec.  13.3  Notice of proposed rulemaking.

    Whenever the Commission proposes to issue, amend, or repeal any rule 
or regulation of general application, there shall first be published in 
the Federal Register a notice of the proposed action. The notice shall 
include:
    (a) A statement of the time, place and nature of the rulemaking 
procedures, with particular reference to the manner in which interested 
persons shall be afforded the opportunity to participate in such 
proceedings;
    (b) Reference to the authority under which the rule is proposed; and
    (c) Either the terms or substance of the proposed rule or a 
description of the subjects and issues involved.



Sec.  13.4  Public participation in rulemaking.

    (a) Written comments. Interested persons will be afforded an 
opportunity to participate in a rulemaking proceeding of which notice 
has been given pursuant toSec. 13.3 of these rules through the 
submission of statements, information, opinion, and arguments in the 
manner stated in the notice.
    (b) Hearings. When required or permitted by law the Commission may 
hold hearings in connection with a rulemaking proceeding at which 
interested persons may be heard, either by oral presentation or upon 
written submission, and may adopt such procedures as in its judgment 
will best serve the purpose of the rulemaking proceeding.



Sec.  13.5  Exceptions to notice requirement and public participation.

    (a) Notice underSec. 13.3 and public participation underSec. 
13.4 shall not be required when persons subject to the rules are named 
and are either personally served or otherwise given actual notice of 
proposed rulemaking in accordance with law.
    (b) Except when notice or hearing is required by statute the 
provisions of Sec.Sec. 13.3 and 13.4 shall not apply:

[[Page 427]]

    (1) To interpretative rules, general statements of policy, or rules 
of agency organization, procedure or practice; or
    (2) When the Commission for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the release issued) 
that notice and public procedure thereon are impracticable, unnecessary, 
or contrary to the public interest.



Sec.  13.6  Promulgation of rules; publication.

    After consideration of all relevant matters of fact, law, and 
policy, including all relevant matters presented by interested persons 
in the proceedings, the Commission will take such action on the proposed 
rule as it deems appropriate. Any rule adopted will be published in the 
Federal Register and the announcement of the rule will incorporate a 
concise statement of the rule's basis and purpose, as well as any 
necessary findings. Announcement will also be made in the Federal 
Register if a proposal is subsequently withdrawn. The required 
publication or service of a substantive rule shall be made not less than 
30 days before its effective date, except:
    (a) A substantive rule which grants or recognizes an exception or 
relieves a restriction;
    (b) Interpretative rules and statements of policy; or
    (c) As otherwise provided by the Commission for good cause found and 
published with the rule.



PART 14_RULES RELATING TO SUSPENSION OR DISBARMENT FROM APPEARANCE 
AND PRACTICE--Table of Contents



Sec.
14.1 Scope.
14.2 Definitions of appearance and practice.
14.3 Hearings.
14.4 Violation of Commodity Exchange Act.
14.5 Criminal conviction.
14.6 Disbarment or suspension by licensing authority.
14.7 Finding of violation of Commodity Exchange Act or Federal 
          securities laws in another proceeding.
14.8 Lack of requisite qualifications, character and integrity.
14.9 Duty to file information concerning adverse judicial or 
          administrative action.
14.10 Reinstatement.

    Authority: Pub. L. 93-463, sec. 101(a) (11), 88 Stat. 1391, 7 U.S.C. 
4a(j), unless otherwise noted.

    Source: 41 FR 28472, July 12, 1976, unless otherwise noted.



Sec.  14.1  Scope.

    The rules of this part describe the circumstances under which 
persons may be denied, either temporarily or permanently, the privilege 
of appearing or practicing before the Commission as an attorney or 
accountant. An attorney may also be excluded from further participation 
in a particular adjudicatory proceeding in accordance with the 
provisions ofSec. 10.11(b) of this chapter or from further 
participation in a particular investigatory proceeding in accordance 
with the provisions ofSec. 11.7(c)(2) of this chapter.



Sec.  14.2  Definitions of appearance and practice.

    (a) Appearance. For the purpose of this part, ``appearance'' refers 
to the representation of a person by another who appears in his behalf 
at any adjudicatory, investigatory or rulemaking proceeding conducted 
before the Commission, including but not limited to those proceedings 
encompassed in parts 10 through 13 of the Commission's rules.
    (b) Practice. For the purpose of this part, practicing before the 
Commission shall include but shall not be limited to:
    (1) The preparation of any statement, opinion or other paper by any 
attorney or accountant filed with or submitted to the Commission on 
behalf of another person in or in connection with any application, 
notification, report or other document; and
    (2) Transacting any other formal business with the Commission, on 
behalf of another person, in the capacity of an attorney or accountant.



Sec.  14.3  Hearings.

    Hearings required or permitted to be held under provisions of this 
part shall be held before an Administrative Law Judge, utilizing the 
procedures established in the rules of practice (part 10) for 
adjudicatory proceedings. Any proceeding brought under provisions of

[[Page 428]]

this part shall, unless otherwise determined by the Commission, be 
prosecuted by the General Counsel of the Commission or by such attorneys 
in his office as he may assign.



Sec.  14.4  Violation of Commodity Exchange Act.

    The Commission may deny, temporarily or permanently, the privilege 
of appearing or practicing before it in any way to any person who is 
found by the Commission, after notice of and opportunity for hearing in 
the matter, to have violated, caused, or aided and abetted any violation 
of the Commodity Exchange Act, as amended, 7 U.S.C. 1 et seq., or the 
rules and regulations adopted thereunder.



Sec.  14.5  Criminal conviction.

    Any person who after licensing or certification to practice his 
profession by any competent authority has been convicted of any felony 
or of a misdemeanor involving fraud or involving moral turpitude in 
matters related to the regulatory responsibilities of the Commission, 
and whose conviction has not been reversed by an appellate court, may 
not appear or practice before the Commission. A conviction within the 
meaning of this section shall be deemed to have occurred when the 
convicting court enters its judgment or order, regardless of whether an 
appeal is pending or could be taken, and includes a judgment on a plea 
of nolo contendere.



Sec.  14.6  Disbarment or suspension by licensing authority.

    Any attorney who has been suspended or disbarred by a Court of the 
United States or any state or territory or the District of Columbia and 
any person whose license to practice as an accountant has been revoked 
or suspended in any state or territory or the District of Columbia may 
not appear or practice before the Commission during the period when such 
suspension or revocation is in effect. A suspension or revocation shall 
be deemed to have occurred when the disbarring, suspending or revoking 
agency or tribunal enters its order, regardless of whether appeal is 
pending or could be taken, and includes a judgment or order on a plea of 
nolo contendere or the procedural equivalent of such a plea. For 
purposes of this section it shall be irrelevant that any attorney or 
accountant who has been suspended, disbarred, or otherwise disqualified 
from practice before a court or in a jurisdiction continues in 
professional good standing before other courts or in other 
jurisdictions.



Sec.  14.7  Finding of violation of Commodity Exchange Act or Federal
securities laws in another proceeding.

    (a) Temporary suspension. The Commission, with due regard to the 
public interest, and without preliminary hearing, may by order 
temporarily suspend from appearing or practicing before it any person 
who, on or after the effective date of this rule has been by name:
    (1) Permanently enjoined by reason of his misconduct by any court of 
competent jurisdiction (i) whether by consent, default, upon summary 
judgment or after trial, in any action brought by the Commission based 
upon violations of any provision of the Commodity Exchange Act, as 
amended, or of the rules and regulations adopted thereunder, or (ii) 
after trial or upon summary judgment in any action brought by the U.S. 
Securities and Exchange Commission based upon any violation of the 
federal securities laws (15 U.S.C. 77a to 80b-20) or of rules and 
regulations adopted thereunder;
    (2) Found by any court of competent jurisdiction (whether by 
consent, default, upon summary judgment or after trial) in any action 
brought by the Commission to which he is a party, or found by the 
Commission (whether by consent, default, upon summary disposition or 
after hearing) in any administrative proceeding in which the Commission 
is a complainant and to which he is a party, to have committed, caused, 
or aided and abetted a violation of any provision of the Commodity 
Exchange Act, as amended, or of the rules and regulations promulgated 
under any of those statutes;
    (3) Found upon summary judgment or after trial by any court of 
competent jurisdiction in any action brought by the U.S. Securities and 
Exchange Commission to which he is a party, or found by the Securities 
and Exchange

[[Page 429]]

Commission, upon summary disposition or after hearing, in any 
administrative proceeding in which the Securities and Exchange 
Commission is a complainant and to which he is a party, to have 
committed, caused, or aided or abetted a violation of any provision of 
the federal securities laws (15 U.S.C. 77a to 80b-20) or of the rules 
and regulations adopted thereunder.
    (b) Petition to lift suspension. Any person temporarily suspended 
from appearing and practicing before the Commission in accordance with 
paragraph (a) of this section may, within 30 days after service upon him 
of temporary suspension, petition the Commission to lift the temporary 
suspension. If no petition has been received by the Commission within 30 
days after service of the order by mail the suspension shall become 
permanent.
    (c) Consideration of petition. Within 30 days after the filing of 
the petition described in paragraph (b) of this section the Commission 
shall either lift the temporary suspension or set the matter down for 
hearing or both. After opportunity for hearing, the Commission may 
censure the petitioner or may disqualify the petitioner from appearing 
or practicing before the Commission for a period of time or permanently 
or may determine that no action is appropriate.
    (d) Hearing. A showing that the petitioner has been enjoined or has 
been found to have committed, caused or aided or abetted violations as 
described in paragraph (a) of this section, without more, may be a basis 
for censure or disqualification; that showing having been made, the 
burden shall then be on the petitioner to show why he should not be 
censured or disqualified. A petitioner will not be heard to contest any 
findings against him or admissions made by him in the judicial or 
administrative proceedings upon which the proposed censure or 
disqualification is based. A petitioner who has consented to the entry 
of a permanent injunction as described in paragraph (a)(1) of this 
section without admitting the facts set forth in the complaint shall 
nevertheless be presumed for all purposes under this section to have 
been enjoined by reason of the misconduct alleged in the complaint.



Sec.  14.8  Lack of requisite qualifications, character and integrity.

    In addition to those matters specifically referred to in Sec.Sec. 
14.4 through 14.7, the Commission may, after notice and opportunity for 
hearing in the matter, deny, temporarily or permanently, the privilege 
of appearing or practicing before it to any person who is found by the 
Commission by a preponderance of the evidence:
    (a) Not to possess the requisite qualifications to represent others; 
or
    (b) To be lacking in character or integrity; or
    (c) To have engaged in unethical or improper unprofessional conduct 
either in the course of an adjudicatory, investigative, rulemaking or 
other proceeding before the Commission or otherwise.



Sec.  14.9  Duty to file information concerning adverse judicial 
or administrative action.

    Any person appearing or practicing before the Commission who has 
been the subject of a conviction, suspension, disbarment, revocation, 
injunction or finding of the kind described in Sec.Sec. 14.5 through 
14.7, unless based on action instituted by the Commission, shall 
promptly file a copy of the relevant order, judgment or decree with the 
Secretariat of the Commission at Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581, together with any related opinion or 
statement of the agency or tribunal involved. Any person who has been 
the subject of administrative or judicial action of the kind described 
in Sec.Sec. 14.5 through 14.7 and who has not filed a copy of the 
order, judgment or decree within thirty days after its entry shall for 
that reason alone be disqualified from appearing or practicing before 
the Commission until such time as the appropriate filing shall be made, 
but neither the filing of these documents nor the failure of a person to 
file them shall in any way affect the operations of any other provision 
of this part.

[41 FR 28472, July 12, 1976, as amended at 60 FR 49335, Sept. 25, 1995]



Sec.  14.10  Reinstatement.

    Any person who is disqualified from appearing or practicing before 
the

[[Page 430]]

Commission under any of the provisions of this part may at any time file 
an application of reinstatement and the applicant may, in the 
Commission's discretion, be afforded a hearing on the application. 
However, denial of the privilege of appearing or practicing before the 
Commission shall continue unless and until the applicant has been 
reinstated by order of the Commission.



PART 15_REPORTS_GENERAL PROVISIONS--Table of Contents



Sec.
15.00 Definitions of terms used in parts 15 to 19, and 21 of this 
          chapter.
15.01 Persons required to report.
15.02 Reporting forms.
15.03 Reporting levels.
15.04 [Reserved]
15.05 Designation of agent for foreign persons.
15.06 Delegations.

    Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a, 9, 
12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 
(2010).



Sec.  15.00  Definitions of terms used in parts 15 to 19,
and 21 of this chapter.

    As used in parts 15 to 19, and 21 of this chapter:
    (a) Cash or Spot, when used in connection with any commodity, means 
the actual commodity as distinguished from a futures or options contract 
in such commodity.
    (b) Clearing member means any person who is a member of, or enjoys 
the privilege of clearing trades in his own name through, the clearing 
organization of a designated contract market, registered derivatives 
transaction execution facility, or registered entity under section 
1a(29) of the Act.
    (c) Clearing organization means the person or organization which 
acts as a medium for clearing transactions in commodities for future 
delivery or commodity option transactions, or for effecting settlements 
of contracts for future delivery or commodity option transactions, for 
and between members of any designated contract market, registered 
derivatives transaction execution facility or registered entity under 
section 1a(29) of the Act.
    (d) Compatible data processing media means data processing media 
approved by the Commission or its designee.
    (e) Customer means ``customer'' (as defined inSec. 1.3(k) of this 
chapter) and ``options customer'' (as defined inSec. 1.3(jj) of this 
chapter).
    (f) Customer trading program means any system of trading offered, 
sponsored, promoted, managed or in any other way supported by, or 
affiliated with, a futures commission merchant, an introducing broker, a 
commodity trading advisor, a commodity pool operator, or other trader, 
or any of its officers, partners or employees, and which by agreement, 
recommendations, advice or otherwise, directly or indirectly controls 
trading done and positions held by any other person. The term includes, 
but is not limited to, arrangements where a program participant enters 
into an expressed or implied agreement not obtained from other customers 
and makes a minimum deposit in excess of that required of other 
customers for the purpose of receiving specific advice or 
recommendations which are not made available to other customers. The 
term includes any program which is of the character of, or is commonly 
known to the trade as, a managed account, guided account, discretionary 
account, commodity pool or partnership account.
    (g) Discretionary account means a commodity futures or commodity 
option trading account for which buying or selling orders can be placed 
or originated, or for which transactions can be effected, under a 
general authorization and without the specific consent of the customer, 
whether the general authorization for such orders or transactions is 
pursuant to a written agreement, power of attorney, or otherwise.
    (h) Exclusively self-cleared contract means a cleared contract for 
which no persons, other than a reporting market and its clearing 
organization, are permitted to accept any money, securities, or property 
(or extend credit in lieu thereof) to margin, guarantee, or secure any 
trade.
    (i) Foreign clearing member means a ``clearing member'' (as defined 
by paragraph (b) of this section) who resides or is domiciled outside of 
the United States, its territories or possessions.

[[Page 431]]

    (j) Foreign trader means any trader (as defined in paragraph (s) of 
this section) who resides or is domiciled outside of the United States, 
its territories or possessions.
    (k) Futures, futures contract, future delivery or contract for 
future delivery, means any contract for the purchase or sale of any 
commodity for future delivery that is executed on or subject to the 
rules of a reporting market, including all agreements, contracts and 
transactions that are treated by a clearing organization as fungible 
with such contracts.
    (l) Guided account program means any customer trading program which 
limits trading to the purchase or sale of a particular contract for 
future delivery of a commodity or a particular commodity option that is 
advised or recommended to the participant in the program.
    (m) Managed account program means a customer trading program which 
includes two or more discretionary accounts traded pursuant to a common 
plan, advice or recommendations.
    (n) Open contracts means ``open contracts'' (as defined inSec. 
1.3(t) of this chapter) and commodity option positions held by any 
person on or subject to the rules of a board of trade which have not 
expired, been exercised, or offset.
    (o) Option, options, option contract, or options contract, unless 
specifically provided otherwise, means any contract for the purchase or 
sale of a commodity option that is executed on or subject to the rules 
of a reporting market, including all agreements, contracts and 
transactions that are treated by a clearing organization as fungible 
with such contracts.
    (p) Reportable position means:
    (1) For reports specified in parts 17, 18 andSec. 19.00(a)(2) and 
(a)(3) of this chapter any open contract position that at the close of 
the market on any business day equals or exceeds the quantity specified 
inSec. 15.03 of this part in either:
    (i) Any one futures of any commodity on any one reporting market, 
excluding futures contracts against which notices of delivery have been 
stopped by a trader or issued by the clearing organization of a 
reporting market; or
    (ii) Long or short put or call options that exercise into the same 
future of any commodity, or other long or short put or call commodity 
options that have identical expirations and exercise into the same 
commodity, on any one reporting market.
    (2) For the purposes of reports specified inSec. 19.00(a)(1) of 
this chapter, any combined futures and futures-equivalent option open 
contract position as defined in part 150 of this chapter in any one 
month or in all months combined, either net long or net short in any 
commodity on any one reporting market, excluding futures positions 
against which notices of delivery have been stopped by a trader or 
issued by the clearing organization of a reporting market, which at the 
close of the market on the last business day of the week exceeds the net 
quantity limit in spot, single or in all-months fixed inSec. 150.2 of 
this chapter for the particular commodity and reporting market.
    (q) Reporting market means a designated contract market, registered 
entity under section 1a(29) of the Act, and unless determined otherwise 
by the Commission with respect to the facility or a specific contract 
listed by the facility, a registered derivatives transaction execution 
facility.
    (r) Special account means any commodity futures or option account in 
which there is a reportable position.
    (s) Trader means a person who, for his own account or for an account 
which he controls, makes transactions in commodity futures or options, 
or has such transactions made.

[74 FR 12188, Mar. 23, 2009, as amended at 76 FR 43862, July 22, 2011; 
77 FR 66332, Nov. 2, 2012]



Sec.  15.01  Persons required to report.

    Pursuant to the provisions of the Act, the following persons shall 
file reports with the Commission with respect to such commodities, on 
such forms, at such time, and in accordance with such directions as are 
hereinafter set forth:
    (a) Reporting markets--as specified in parts 16, 17, and 21 of this 
chapter.
    (b) Futures commission merchants, clearing members, foreign brokers, 
introducing brokers, and traders--as

[[Page 432]]

specified in parts 17 and 21 of this chapter.
    (c) Traders who hold or control reportable positions as specified in 
part 18 of this chapter.
    (d) Persons, as specified in part 19 of this chapter, either:
    (1) Who hold or control futures and option positions that exceed the 
amounts set forth inSec. 150.2 of this chapter for the commodities 
enumerated in that section, any part of which constitutes bona fide 
hedging positions (as defined inSec. 1.3(z) of this chapter); or
    (2) Who are merchants or dealers of cotton holding or controlling 
positions for future delivery in cotton that equal or exceed the amount 
set forth inSec. 15.03.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0009)

[41 FR 3206, Jan. 21, 1976, as amended at 41 FR 48112, Nov. 2, 1976; 43 
FR 45827, Oct. 4, 1978; 46 FR 59964, Dec. 8, 1981; 46 FR 63036, Dec. 30, 
1981; 47 FR 57013, Dec. 22, 1982; 56 FR 14194, Apr. 8, 1991; 62 FR 6113, 
Feb. 11, 1997; 62 FR 13301, Mar. 20, 1997; 71 FR 37817, July 3, 2006; 74 
FR 12189, Mar. 23, 2009]



Sec.  15.02  Reporting forms.

    Forms on which to report may be obtained from any office of the 
Commission or via the Internet (http://www.cftc.gov). Forms to be used 
for the filing of reports follow, and persons required to file these 
forms may be determined by referring to the rule listed in the column 
opposite the form number.

------------------------------------------------------------------------
          Form  No.                          Title                 Rule
------------------------------------------------------------------------
40...........................  Statement of Reporting Trader....   18.04
'01..........................  Positions of Special Accounts....   17.00
102..........................  Identification of Special           17.01
                                Accounts.
204..........................  Cash Positions of Grain Traders     19.00
                                (including Oilseeds and
                                Products).
304..........................  Cash Positions of Cotton Traders.   19.00
------------------------------------------------------------------------


(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0009)

[69 FR 76397, Dec. 21, 2004]



Sec.  15.03  Reporting levels.

    (a) Definitions. For purposes of this section:
    Broad-based security index is a group or index of securities that 
does not constitute a narrow-based security index.
    HedgeStreet products are contracts offered by HedgeStreet, Inc., a 
designated contract market, that pay up to $10.00 if in the money upon 
expiration.
    Major foreign currency is the currency, and the cross-rates between 
the currencies, of Japan, the United Kingdom, Canada, Australia, 
Switzerland, Sweden and the European Monetary Union.
    Narrow-based security index has the same meaning as in section 
1a(25) of the Commodity Exchange Act.
    Security futures product has the same meaning as in section 1a(32) 
of the Commodity Exchange Act.
    (b) The quantities for the purpose of reports filed under parts 17 
and 18 of this chapter are as follows:

------------------------------------------------------------------------
                                                               Number of
                          Commodity                            contracts
------------------------------------------------------------------------
Agricultural:
  Cocoa......................................................        100
  Coffee.....................................................         50
  Corn.......................................................        250
  Cotton.....................................................        100
  Feeder Cattle..............................................         50
  Frozen Concentrated Orange Juice...........................         50
  Lean Hogs..................................................        100
  Live Cattle................................................        100
  Milk, Class III............................................         50
  Oats.......................................................         60
  Rough Rice.................................................         50
  Soybeans...................................................        150
  Soybean Meal...............................................        200
  Soybean Oil................................................        200
  Sugar No. 11...............................................        500
  Sugar No. 14...............................................        100
  Wheat......................................................        150
Broad-Based Security Indexes:
  Municipal Bond Index.......................................        300
  S&P 500 Stock Price Index..................................      1,000
  Other Broad-Based Securities Indexes.......................        200
Financial:
  30-Day Fed Funds...........................................        600
  3-Month (13-Week) U.S. Treasury Bills......................        150
  2-Year U.S. Treasury Notes.................................      1,000
  3-Year U.S. Treasury Notes.................................        750
  5-Year U.S. Treasury Notes.................................      2,000
  10-Year U.S. Treasury Notes................................      2,000
  30-Year U.S. Treasury Bonds................................      1,500
  1-Month LIBOR Rates........................................        600
  3-Month Eurodollar Time Deposit Rates......................      3,000
  3-Month Euroyen............................................        100
  2-Year German Federal Government Debt......................        500
  5-Year German Federal Government Debt......................        800
  10-Year German Federal Government Debt.....................      1,000
  Goldman Sachs Commodity Index..............................        100
  Major Foreign Currencies...................................        400
  Other Foreign Currencies...................................        100
  U.S. Dollar Index..........................................         50
Natural Resources:
  Copper.....................................................        100
  Crude Oil, Sweet...........................................        350

[[Page 433]]

 
  Crude Oil, Sweet--No. 2 Heating Oil Crack Spread...........        250
  Crude Oil, Sweet--Unleaded Gasoline Crack Spread...........        150
  Gold.......................................................        200
  Natural Gas................................................        200
  No. 2 Heating Oil..........................................        250
  Platinum...................................................         50
  Silver Bullion.............................................        150
  Unleaded Gasoline..........................................        150
  Unleaded Gasoline--No. 2 Heating Oil Spread Swap...........        150
Security Futures Products:
  Individual Equity Security.................................      1,000
  Narrow-Based Security Index................................        200
Hedge Street Products........................................        \1\
                                                                 125,000
TRAKRS.......................................................        \1\
                                                                  50,000
All Other Commodities........................................        25
------------------------------------------------------------------------
\1\ For purposes of part 17, positions in HedgeStreet Products and
  TRAKRS should be reported by rounding down to the nearest 1,000
  contracts and dividing by 1,000.


[69 FR 76397, Dec. 21, 2004, as amended at 71 FR 37817, July 3, 2006]



Sec.  15.04  [Reserved]



Sec.  15.05  Designation of agent for foreign persons.

    (a) For purposes of this section, the term ``futures contract'' 
means any contract for the purchase or sale of any commodity for future 
delivery, or a contract identified underSec. 36.3(c)(1)(i) traded on 
an electronic trading facility operating in reliance on the exemption 
set forth inSec. 36.3 of this chapter, traded or executed on or 
subject to the rules of any designated contract market, or for the 
purposes of paragraph (i) of this section, a reporting market (including 
all agreements, contracts and transactions that are treated by a 
clearing organization as fungible with such contracts); the term 
``option contract'' means any contract for the purchase or sale of a 
commodity option, or as applicable, any other instrument subject to the 
Act, traded or executed on or subject to the rules of any designated 
contract market, or for the purposes of paragraph (i) of this section, a 
reporting market (including all agreements, contracts and transactions 
that are treated by a clearing organization as fungible with such 
contracts); the term ``customer'' means any person for whose benefit a 
foreign broker makes or causes to be made any futures contract or option 
contract; and the term ``communication'' means any summons, complaint, 
order, subpoena, special call, request for information, or notice, as 
well as any other written document or correspondence.
    (b) Any futures commission merchant who makes or causes to be made 
any futures contract or option contract for the account of any foreign 
broker or foreign trader, and any introducing broker who introduces such 
an account to a futures commission merchant, shall thereupon be deemed 
to be the agent of the foreign broker or the foreign trader for purposes 
of accepting delivery and service of any communication issued by or on 
behalf of the Commission to the foreign broker or the foreign trader 
with respect to any futures or option contracts which are or have been 
maintained in such accounts carried by the futures commission merchant. 
In the case of a futures commission merchant who makes or causes to be 
made any futures or option contract for the account of a foreign broker, 
the futures commission merchant and the introducing broker, if any, 
shall also be the agent of the customers of the foreign broker 
(including any customer who is also a foreign broker and its customers) 
who have positions in the foreign broker's futures or option contract 
account carried by the futures commission merchant for purposes of 
accepting delivery and service of any communication issued by or on 
behalf of the Commission to the customer with respect to any futures or 
option contracts which are or have been maintained in such accounts 
carried by the futures commission merchant. Service or delivery of any 
communication issued by or on behalf of the Commission to a futures 
commission merchant or to an introducing broker pursuant to such agency 
shall constitute valid and effective service or delivery upon the 
foreign broker, a customer of the foreign broker or the foreign trader. 
A futures commission merchant or an introducing broker who has been 
served with, or to whom there has been delivered, a communication issued 
by or on behalf of the Commission to a foreign broker, a customer of the 
foreign broker or the foreign trader shall transmit the communication 
promptly and in a manner which is reasonable

[[Page 434]]

under the circumstances, or in a manner specified by the Commission in 
the communication, to the foreign broker, a customer of the foreign 
broker or the foreign trader.
    (c) It shall be unlawful for any futures commission merchant and for 
any introducing broker to open or cause to be opened a futures or 
options contract account for, or to effect or cause to be effected 
transactions in futures contracts or option contracts for an existing 
account of, a foreign broker or foreign trader unless the futures 
commission merchant or introducing broker informs the foreign broker or 
foreign trader prior thereto, in any reasonable manner which the futures 
commission merchant or introducing broker deems to be appropriate, of 
the requirements of this section.
    (d) The requirements of paragraphs (b) and (c) of this section shall 
not apply to any account carried by a futures commission merchant or 
introduced by an introducing broker if the foreign broker, customer of a 
foreign broker, or foreign trader for whose benefit such account is 
carried or introduced has duly executed and maintains in effect a 
written agency agreement in compliance with this paragraph with a person 
domiciled in the United States and has provided a copy of the agreement 
to the futures commission merchant and to the introducing broker, if 
any, prior to the opening of an account, or placing orders for 
transactions in futures contracts or option contracts of an existing 
account, with the futures commission merchant or introducing broker. 
This agreement must authorize the person domiciled in the United States 
to serve as the agent of the foreign broker and customers of the foreign 
broker or the foreign trader for purposes of accepting delivery and 
service of all communications issued by or on behalf of the Commission 
to the foreign broker, customers of the foreign broker, or foreign 
trader and must provide an address in the United States where the agent 
will accept delivery and service of communications from the Commission. 
This agreement must be filed with the Commission by the futures 
commission merchant or introducing broker prior to the opening of an 
account for the foreign broker or foreign trader or the effecting of a 
transaction in futures or option contracts for an existing account of a 
foreign broker or foreign trader. Unless otherwise specified by the 
Commission, the agreements required to be filed with the Commission 
shall be filed with the Secretary of the Commission at Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. A foreign broker, 
customer of a foreign broker, or foreign trader shall notify the 
Commission immediately if the written agency agreement is terminated, 
revoked or is otherwise no longer in effect. If a futures commission 
merchant carrying, or an introducing broker introducing, an account for 
a foreign broker or foreign trader knows or should know that the 
agreement has expired, has been terminated or is otherwise no longer in 
effect, the futures commission merchant or introducing broker shall 
notify the Secretary of the Commission immediately. If the written 
agency agreement expires, terminates or is not in effect, the futures 
commission merchant, introducing broker, and the foreign broker, 
customers of the foreign broker, or foreign trader are subject to the 
provisions of paragraphs (b) and (c) of this section.
    (e) Any designated contract market that permits a foreign broker to 
intermediate contracts, agreements or transactions, or permits a foreign 
trader to effect contracts, agreements or transactions on the facility 
or exchange, shall be deemed to be the agent of the foreign broker and 
any of its customers for whom the transactions were executed, or the 
foreign trader, for purposes of accepting delivery and service of any 
communication issued by or on behalf of the Commission to the foreign 
broker, any of its customers or the foreign trader with respect to any 
contracts, agreements or transactions executed by the foreign broker or 
the foreign trader on the designated contract market. Service or 
delivery of any communication issued by or on behalf of the Commission 
to a designated contract market shall constitute valid and effective 
service upon the foreign broker, any of its customers, or the foreign 
trader. A designated contract market which has

[[Page 435]]

been served with, or to which there has been delivered, a communication 
issued by or on behalf of the Commission to a foreign broker, any of its 
customers, or a foreign trader shall transmit the communication promptly 
and in a manner which is reasonable under the circumstances, or in a 
manner specified by the Commission in the communication, to the foreign 
broker, any of its customers or the foreign trader.
    (f) It shall be unlawful for any designated contract market to 
permit a foreign broker, any of its customers or a foreign trader to 
effect contracts, agreements or transactions on the facility unless the 
designated contract market prior thereto informs the foreign broker, any 
of its customers or the foreign trader, in any reasonable manner the 
facility deems to be appropriate, of the requirements of this section.
    (g) The requirements of paragraphs (e) and (f) of this section shall 
not apply to any contracts, transactions or agreements traded on any 
designated contract market if the foreign broker, any of its customers 
or the foreign trader has duly executed and maintains in effect a 
written agency agreement in compliance with this paragraph with a person 
domiciled in the United States and has provided a copy of the agreement 
to the designated contract market prior to effecting any contract, 
agreement or transaction on the facility. This agreement must authorize 
the person domiciled in the United States to serve as the agent of the 
foreign broker, any of its customers or the foreign trader for purposes 
of accepting delivery and service of all communications issued by or on 
behalf of the Commission to the foreign broker, any of its customers or 
the foreign trader and must provide an address in the United States 
where the agent will accept delivery and service of communications from 
the Commission. This agreement must be filed with the Commission by the 
designated contract market prior to permitting the foreign broker, any 
of its customers or the foreign trader to effect any transactions in 
futures or option contracts. Unless otherwise specified by the 
Commission, the agreements required to be filed with the Commission 
shall be filed with the Secretary of the Commission at Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581. A foreign broker, 
any of its customers or a foreign trader shall notify the Commission 
immediately if the written agency agreement is terminated, revoked, or 
is otherwise no longer in effect. If the designated contract market 
knows or should know that the agreement has expired, been terminated, or 
is no longer in effect, the designated contract market shall notify the 
Secretary of the Commission immediately. If the written agency agreement 
expires, terminates, or is not in effect, the designated contract market 
and the foreign broker, any of its customers or the foreign trader are 
subject to the provisions of paragraphs (e) and (f) of this section.
    (h) The provisions of paragraphs (e), (f) and (g) of this section 
shall not apply to a designated contract market on which all 
transactions of foreign brokers, their customers or foreign traders in 
futures or option contracts are executed through, or the resulting 
transactions are maintained in, accounts carried by a registered futures 
commission merchant or introduced by a registered introducing broker 
subject to the provisions of paragraphs (a), (b), (c) and (d) of this 
section.
    (i) Any reporting market that is a registered entity under section 
1a(29)(E) of the Act that permits a foreign clearing member or foreign 
trader to clear or effect contracts, agreements or transactions on the 
trading facility or its clearing organization, shall be deemed to be the 
agent of the foreign clearing member or foreign trader with respect to 
any such contracts, agreements or transactions cleared or executed by 
the foreign clearing member or the foreign trader. Service or delivery 
of any communication issued by or on behalf of the Commission to the 
reporting market shall constitute valid and effective service upon the 
foreign clearing member or foreign trader. The reporting market which 
has been served with, or to which there has been delivered, a 
communication issued by or on behalf of the Commission to a foreign 
clearing member or foreign

[[Page 436]]

trader shall transmit the communication promptly and in a manner which 
is reasonable under the circumstances, or in a manner specified by the 
Commission in the communication, to the foreign clearing member or 
foreign trader.
    (1) It shall be unlawful for any such reporting market to permit a 
foreign clearing member or a foreign trader to clear or effect 
contracts, agreements or transactions on the facility or its clearing 
organization unless the reporting market prior thereto informs the 
foreign clearing member or foreign trader of the requirements of this 
section.
    (2) The requirements of paragraphs (i) and (i)(1) of this section 
shall not apply to any contracts, transactions or agreements if the 
foreign clearing member or foreign trader has duly executed and 
maintains in effect a written agency agreement in compliance with this 
paragraph with a person domiciled in the United States and has provided 
a copy of the agreement to the reporting market prior to effecting or 
clearing any contract, agreement or transaction on the trading facility 
or its clearing organization. This agreement must authorize the person 
domiciled in the United States to serve as the agent of the foreign 
clearing member or foreign trader for the purposes of accepting delivery 
and service of all communications issued by or on behalf of the 
Commission to the foreign clearing member or the foreign trader and must 
provide an address in the United States where the agent will accept 
delivery and service of communications from the Commission. This 
agreement must be filed with the Commission by the reporting market 
prior to permitting the foreign clearing member or the foreign trader to 
clear or effect any transactions in futures or option contracts. Unless 
otherwise specified by the Commission, the agreements required to be 
filed with the Commission shall be filed with the Secretary of the 
Commission at Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (3) A foreign clearing member or a foreign trader shall notify the 
Commission immediately if the written agency agreement is terminated, 
revoked, or is otherwise no longer in effect. If the reporting market 
knows or should know that the agreement has expired, been terminated, or 
is no longer in effect, the reporting market shall notify the Secretary 
of the Commission immediately. If the written agency agreement expires, 
terminates, or is not in effect, the reporting market, the foreign 
clearing member and the foreign trader shall be subject to the 
provisions of paragraphs (i) and (i)(1) of this section.

[46 FR 63036, Dec. 30, 1981, and 47 FR 57013, Dec. 22, 1982, as amended 
at 48 FR 35300, Aug. 3, 1983; 60 FR 49335, Sept. 25, 1995; 66 FR 42269, 
Aug. 10, 2001; 71 FR 37818, July 3, 2006; 74 FR 12189, Mar. 23, 2009; 77 
FR 66332, Nov. 2, 2012]



Sec.  15.06  Delegations.

    (a) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to approve data processing media, as referenced 
inSec. 15.00(d), for data submissions to the Director of the Division 
of Market Oversight, to be exercised by such Director or by such other 
employee or employees of such Director as designated from time to time 
by the Director. The Director may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.
    (b) [Reserved]

[74 FR 12190, Mar. 23, 2009]



PART 16_REPORTS BY CONTRACT MARKETS AND SWAP EXECUTION FACILITIES--
Table of Contents



Sec.
16.00 Clearing member reports.
16.01 Publication of market data on futures, swaps and options thereon: 
          trading volume, open contracts, prices, and critical dates.
16.02 Daily trade and supporting data reports.
16.03-16.05 [Reserved]
16.06 Errors or omissions.
16.07 Delegation of authority to the Director of the Division of Market 
          Oversight.

    Authority: 7 U.S.C. 2, 6a, 6c, 6g, 6i, and 7, and 7b-3, as amended 
by Pub. L. 111-203, 124 Stat. 1376.

[[Page 437]]



Sec.  16.00  Clearing member reports.

    (a) Information to be provided. Each reporting market shall submit 
to the Commission, in accordance with paragraph (b) of this section, a 
report for each business day, showing for each clearing member, by 
proprietary and customer account, the following information separately 
for futures by commodity and by future, and, for options, by underlying 
futures contract (for options on futures contracts) or by underlying 
commodity (for other commodity options), and by put, by call, by 
expiration date and by strike price:
    (1) The total of all long open contracts and the total of all short 
open contracts carried at the end of the day covered by the report, 
excluding from open futures contracts the number of contracts against 
which delivery notices have been stopped or against which delivery 
notices have been issued by the clearing organization of the reporting 
market;
    (2) The quantity of contracts bought and the quantity of contracts 
sold during the day covered by the report;
    (3) [Reserved]
    (4) The quantity of purchases of futures for commodities or for 
derivatives positions and the quantity of sales of futures for 
commodities or for derivatives positions which are included in the total 
quantity of contracts bought and sold during the day covered by the 
report, and the names of the clearing members who made the purchases or 
sales;
    (5) For futures, the quantity of the commodity for which delivery 
notices have been issued by the clearing organization of the reporting 
market and the quantity for which notices have been stopped during the 
day covered by the report.
    (b) Form, manner and time of filing reports. Unless otherwise 
approved by the Commission or its designee, reporting markets shall 
submit the information required by paragraph (a) of this section as 
follows:
    (1) Using the format, coding structure, and electronic data 
transmission procedures approved in writing by the Commission or its 
designee; provided however, the information shall be made available to 
the Commission or its designee in hard copy upon request; and
    (2) When such data is first available but not later than 12:00 p.m. 
on the business day following the day to which the information pertains. 
Unless otherwise specified by the Commission or its designee, the stated 
time is eastern time for information concerning markets located in that 
time zone, and central time for information concerning all other 
markets.
    (c) Exclusively self-cleared contracts. Unless determined otherwise 
by the Commission, paragraph (a) of this section shall not apply to 
transactions involving exclusively self-cleared contracts.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[46 FR 54526, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57014, Dec. 22, 1982; 51 FR 4717, Feb. 7, 1986; 52 FR 18910, May 20, 
1987; 62 FR 24031, May 2, 1997; 69 FR 76398, Dec. 21, 2004; 71 FR 37818, 
July 3, 2006; 77 FR 66333, Nov. 2, 2012]



Sec.  16.01  Publication of market data on futures, swaps and options
thereon: trading volume, open contracts, prices, and critical dates.

    (a) Trading volume and open contracts. (1) Each reporting market, as 
defined in part 15 of this chapter, must separately record for each 
business day the information prescribed in paragraphs (a)(2)(i) through 
(vi) of this section for each of the following contract categories:
    (i) For futures, by commodity and by futures expiration date;
    (ii) For options, by underlying futures contracts for options on 
futures contracts or by underlying commodity for options on commodities, 
and by put, by call, by expiration date and by strike price;
    (iii) For swaps or class of swaps, by product type and by term life 
of the swap; and
    (iv) For options on swaps or classes of options on swaps, by 
underlying swap contracts for options on swap contracts or by underlying 
commodity for options on swaps on commodities, and by put, by call, by 
expiration date and by strike price.
    (2) Each reporting market must record for each trading session the 
following trading volume and open interest summary data:

[[Page 438]]

    (i) The option delta, where a delta system is used;
    (ii) The total gross open contracts for futures, excluding those 
contracts against which delivery notices have been stopped;
    (iii) For futures products that specify delivery, open contracts 
against which delivery notices have been issued on that business day;
    (iv) The total volume of trading, excluding transfer trades or 
office trades:
    (A) For swaps and options on swaps, trading volume shall be reported 
in terms of the number of contracts traded for standard-sized contracts 
(i.e., contracts with a set contract size for all transactions) or in 
terms of notional value for non-standard-sized contracts (i.e., 
contracts whose contract size is not set and can vary for each 
transaction).
    (B) [Reserved]
    (v) The total volume of futures/options/swaps/swaptions exchanged 
for commodities or for derivatives positions that are included in the 
total volume of trading; and
    (vi) The total volume of block trades included in the total volume 
of trading.
    (b) Prices. (1) Each reporting market must record the following 
contract types separately
    (i) For futures, by commodity and by futures expiration;
    (ii) For options, by underlying futures contracts for options on 
futures contracts or by underlying commodity for options on commodities, 
and by put, by call, by expiration date and by strike price;
    (iii) For swaps, by product type and contract month or term life of 
the swap; and
    (iv) For options on swaps or classes of options on swaps, by 
underlying swap contracts for options on swap contracts or by underlying 
commodity for options on swaps on commodities, and by put, by call, by 
expiration date and by strike price.
    (2) Each reporting market must record for the trading session and 
for the opening and closing periods of trading as determined by each 
reporting market:
    (i) The opening and closing prices of each futures, option, swap or 
swaption;
    (ii) The price that is used for settlement purposes, if different 
from the closing price; and
    (iii) The lowest price of a sale or offer, whichever is lower, and 
the highest price of a sale or bid, whichever is higher, that the 
reporting market reasonably determines accurately reflects market 
conditions. Bids and offers vacated or withdrawn shall not be used in 
making this determination. A bid is vacated if followed by a higher bid 
or price and an offer is vacated if followed by a lower offer or price.
    (3) If there are no transactions, bids, or offers during the opening 
or closing periods, the reporting market may record as appropriate:
    (i) The first price (in lieu of opening price data) or the last 
price (in lieu of closing price data) occurring during the trading 
session, clearly indicating that such prices are the first and last 
prices; or
    (ii) Nominal opening or nominal closing prices that the reporting 
market reasonably determines to accurately reflect market conditions, 
clearly indicating that such prices are nominal.
    (4) Additional information. Each reporting market must record the 
following information with respect to transactions in commodity futures, 
commodity options, swaps or options on swaps on that reporting market:
    (i) The method used by the reporting market in determining nominal 
prices and settlement prices; and
    (ii) If discretion is used by the reporting market in determining 
the opening and/or closing ranges or the settlement prices, an 
explanation that certain discretion may be employed by the reporting 
market and a description of the manner in which that discretion may be 
employed. Discretionary authority must be noted explicitly in each case 
in which it is applied (for example, by use of an asterisk or footnote).
    (c) Critical dates. Each reporting market must report to the 
Commission, for each futures contract, the first notice date and the 
last trading date, and for each option contract, the expiration date in 
accordance with paragraph (d) of this section.
    (d) Form, manner and time of filing reports. Unless otherwise 
approved by the Commission or its designee, reporting

[[Page 439]]

markets must submit to the Commission the information specified in 
paragraphs (a), (b), and (c) of this section as follows:
    (1) Using the format, coding structure and electronic data 
transmission procedures approved in writing by the Commission or its 
designee; provided however, that the information must be made available 
to the Commission or its designee in hard copy upon request;
    (2) When each such form of the data is first available, but not 
later than 7:00 a.m. on the business day following the day to which the 
information pertains for the delta factor and settlement price and not 
later than 12:00 p.m. for the remainder of the information. Unless 
otherwise specified by the Commission or its designee, the stated time 
is U.S. eastern standard time for information concerning markets located 
in that time zone, and U.S. central time for information concerning all 
other markets; and
    (3) For information on reports to the Commission for swap or options 
on swap contracts, refer to part 20 of this chapter.
    (e) Publication of recorded information. (1) Reporting markets must 
make the information in paragraph (a) of this section readily available 
to the news media and the general public without charge, in a format 
that readily enables the consideration of such data, no later than the 
business day following the day to which the information pertains. The 
information in paragraphs (a)(2)(iv) through (vi) of this section shall 
be made readily available in a format that presents the information 
together.
    (2) Reporting markets must make the information in paragraphs (b)(2) 
and (3) of this section readily available to the news media and the 
general public, and the information in paragraph (b)(4)(ii) of this 
section readily available to the general public, in a format that 
readily enables the consideration of such data, no later than the 
business day following the day to which the information pertains. 
Information in paragraph (b)(4)(i) of this section must be made 
available in the registered entity's rulebook, which is publicly 
accessible on its Web site.

[77 FR 36696, June 19, 2012, as amended at 77 FR 66333, Nov. 2, 2012]



Sec.  16.02  Daily trade and supporting data reports.

    Reporting markets shall provide trade and supporting data reports to 
the Commission on a daily basis. Such reports shall include transaction-
level trade data and related order information for each futures or 
options contract. Reports shall also include time and sales data, 
reference files and other information as the Commission or its designee 
may require. All reports must be submitted at the time, and in the 
manner and format, and with the specific content specified by the 
Commission or its designee. Upon request, such information shall be 
accompanied by data that identifies or facilitates the identification of 
each trader for each transaction or order included in a submitted trade 
and supporting data report if the reporting market maintains such data.

[74 FR 12190, Mar. 23, 2009]



Sec.Sec. 16.03-16.05  [Reserved]



Sec.  16.06  Errors or omissions.

    Unless otherwise approved by the Commission or its designee, 
reporting markets shall file corrections to errors or omissions in data 
previously filed with the Commission pursuant to Sec.Sec. 16.00 and 
16.01 in the format and using the coding structure and electronic data 
submission procedures approved in writing by the Commission or its 
designee.

[71 FR 37819, July 3, 2006]



Sec.  16.07  Delegation of authority to the Director of the Division
of Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the authority set forth in paragraphs (a), (b) and (c) of 
this section to the Director of the Division of Market Oversight, to be 
exercised by such Director or by such other employee or employees of 
such Director as may be designated from time to time by the Director. 
The Director of the Division of

[[Page 440]]

Market Oversight may submit to the Commission for its consideration any 
matter which has been delegated in this paragraph. Nothing in this 
paragraph prohibits the Commission, at its election, from exercising the 
authority delegated in this paragraph.
    (a) Pursuant to Sec.Sec. 16.00(b) and 16.01(d), as applicable, the 
authority to determine whether reporting markets must submit data in 
hard copy, and the time that such data may be submitted where the 
Director determines that a reporting market is unable to meet the 
requirements set forth in the regulations;
    (b) Pursuant to Sec.Sec. 16.00(b)(1), 16.01(d)(1), and 16.06, the 
authority to approve the format, coding structure and electronic data 
transmission procedures used by reporting markets.
    (c) Pursuant toSec. 16.02, the authority to determine the specific 
content of any daily trade and supporting data report, request that such 
reports be accompanied by data that identifies or facilitates the 
identification of each trader for each transaction or order included in 
a submitted trade and supporting data report, and establish the time for 
the submission of and the manner and format of such reports.

[62 FR 24032, May 2, 1997, as amended at 67 FR 62352, Oct. 7, 2002; 71 
FR 37819, July 3, 2006; 74 FR 12190, Mar. 23, 2009]



PART 17_REPORTS BY REPORTING MARKETS, FUTURES COMMISSION MERCHANTS,
CLEARING MEMBERS, AND FOREIGN BROKERS--Table of Contents



Sec.
17.00 Information to be furnished by futures commission merchants, 
          clearing members and foreign brokers.
17.01 Special account designation and identification.
17.02 Form, manner and time of filing reports.
17.03 Delegation of authority to the Director of the Division of Market 
          Oversight.
17.04 Reporting omnibus accounts to the carrying futures commission 
          merchant or foreign broker.

    Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 7, 7a and 12a, as 
amended by Title XIII of the Food, Conservation and Energy Act of 2008, 
Public Law No. 110-246, 122 Stat. 1624 (June 18, 2008), unless otherwise 
noted.



Sec.  17.00  Information to be furnished by futures commission
merchants, clearing members and foreign brokers.

    (a) Special accounts--reportable futures and options positions, 
delivery notices, and exchanges of futures. (1) Each futures commission 
merchant, clearing member and foreign broker shall submit a report to 
the Commission for each business day with respect to all special 
accounts carried by the futures commission merchant, clearing member or 
foreign broker, except for accounts carried on the books of another 
futures commission merchant or clearing member on a fully-disclosed 
basis. Except as otherwise authorized by the Commission or its designee, 
such report shall be made in accordance with the format and coding 
provisions set forth in paragraph (g) of this section. The report shall 
show each futures position, separately for each reporting market and for 
each future, and each put and call options position separately for each 
reporting market, expiration and strike price en each special account as 
of the close of market on the day covered by the report and, in 
addition, the quantity of exchanges of futures for commodities or for 
derivatives positions and the number of delivery notices issued for each 
such account by the clearing organization of a reporting market and the 
number stopped by the account. The report shall also show all positions 
in all contract months and option expirations of that same commodity on 
the same reporting market for which the special account is reportable.
    (2) A report covering the first day upon which a special account is 
no longer reportable shall also be filed showing the information 
specified in paragraph (a)(1) of this section.
    (b) Interest in or control of several accounts. Except as otherwise 
instructed by the Commission or its designee and as specifically 
provided inSec. 150.4 of this chapter, if any person holds or has a 
financial interest in or controls more than one account, all such 
accounts shall be considered by the futures commission merchant, 
clearing member or foreign broker as a single account for

[[Page 441]]

the purpose of determining special account status and for reporting 
purposes. For purposes of this section, the following shall apply:
    (1) Accounts of eligible entities--Accounts of eligible entities as 
defined inSec. 150.1 of this chapter that are traded by an independent 
account controller shall, together with other accounts traded by the 
independent account controller or in which the independent controller 
has a financial interest, be considered a single account.
    (2) Accounts controlled by two or more persons--Accounts that are 
subject to day-to-day trading control by two or more persons shall, 
together with other accounts subject to control by exactly the same 
persons, be considered a single account.
    (3) Account ownership. Multiple accounts owned by a trader shall be 
considered a single account as provided under Sec.Sec. 150.4(b), (c) 
and (d) of this chapter.
    (c) [Reserved]
    (d) Net positions. Futures commission merchants, clearing members 
and foreign brokers shall report positions net long or short in each 
future of a commodity and each strike price of a put or call option for 
each expiration month in all special accounts, except as specified in 
paragraph (e) of this section.
    (e) Gross positions. In the following cases, the futures commission 
merchant, clearing member or foreign broker shall report gross long and 
short positions in each future of a commodity and each strike price of a 
put or call option for each expiration month in all special accounts:
    (1) Positions which are reported to an exchange or the clearinghouse 
of an exchange on a gross basis, which the exchange uses for calculating 
total open interest in a commodity;
    (2) Positions in accounts owned or held jointly with another person 
or persons;
    (3) Positions in multiple accounts subject to trading control by the 
same trader; and
    (4) Positions in omnibus accounts.
    (f) Omnibus accounts. If the total open long positions or the total 
open short positions for any future of a commodity carried in an omnibus 
account is a reportable position, the omnibus account is in Special 
Account status and shall be reported by the futures commission merchant 
or foreign broker carrying the account in accordance with paragraph (a) 
of this section.
    (g) Media and file characteristics. (1) Except as otherwise approved 
by the Commission or its designee, all required records shall be 
submitted together in a single file. Each record will be 80 characters 
long. The specific record format is shown in the table below:

                              Record Layout
------------------------------------------------------------------------
                                       Type
      Beginning column        Length    \1\              Name
------------------------------------------------------------------------
1...........................       2  AN      Report Type.
3...........................       3  AN      Reporting Firm.
6...........................       2  ......  Reserved.
8...........................      12  AN      Account Number.
20..........................       8  AN      Report Date.
28..........................       2  AN      Exchange Code.
30..........................       1  AN      Put or Call.
31..........................       5  AN      Commodity Code (1).
36..........................       8  AN      Expiration Date (1).
44..........................       7  S       Strike Price.
51..........................       1  AN      Exercise Style.
52..........................       7  N       Long--Buy--Stopped.
59..........................       7  N       Short--Sell--Issued.
66..........................       5  AN      Commodity Code (2).
71..........................       8  AN      Expiration Date (2).
79..........................       2  ......  Reserved.
80..........................       1  AN      Record Type.
------------------------------------------------------------------------
\1\ AN--Alpha--numeric, N--Numeric, S--Signed numeric.

    (2) Field definitions are as follows:
    (i) Report type. This report format will be used to report three 
types of data: long and short futures and options positions, futures 
delivery notices issued and stopped, and exchanges of futures for a 
commodity or for a derivatives position bought and sold. Valid values 
for the report type are ``RP'' for reporting positions, ``DN'' for 
reporting notices, and ``EP'' for reporting exchanges of futures for a 
commodity or for a derivatives position.
    (ii) Reporting firm. The clearing member number assigned by an 
exchange or clearing house to identify reporting firms. If a firm is not 
a clearing member, a three-character alpha-numeric identifier assigned 
by the Commission.
    (iii) Account number. A unique identifier assigned by the reporting 
firm to each special account. The field is zero filled with account 
number right-justified. Assignment of the account number is subject to 
the provisions of Sec.Sec. 17.00 (b) and (c) and 17.01(a).

[[Page 442]]

    (iv) Report date. The format is YYYYMMDD, where YYYY is the year, MM 
is the month, and DD is the day of the month.
    (v) Exchange. This is a two-character field approved by the 
Commission to identify the exchange on which a position is held.
    (vi) Put or Call. Valid values for this field are ``C'' for a call 
option and ``P'' for a put option. For futures, the field is blank.
    (vii) Commodity (1). An exchange-assigned commodity code for the 
futures or options contract.
    (viii) Expiration date (1). The date format is YYYYMMDD and 
represents the expiration date or delivery date of the reported futures 
or options contract. For date-specific instruments such as flexible 
products, the full date must be reported. For other options and futures, 
this field is used to report the expiration year and month for an 
options contract or a delivery year and month for a futures contract. 
The day portion of the field for these contracts contains spaces.
    (ix) Strike price. This is a signed numeric field for reporting 
options strike prices. The strike prices should be right-justified and 
the field zero-filled. Strike prices must be reported in the same 
formats that are used by an exchange. For futures, the field is left 
blank.
    (x) Exercise style. Valid values for this field are ``A'' for 
American style options, i.e., those that can be exercised at any time 
during the life of the options; and ``E'' for European, i.e., those that 
can be exercised only at the end of an option's life. This field is 
required only for flexible instruments or as otherwise specified by the 
Commission.
    (xi) Long-Buy-Stopped (Short-Sell-Issued). When report type is 
``RP'', report long (short) positions open at the end of a trading day. 
When report is ``DN'', report delivery notices stopped (issued) on 
behalf of the account. When report type is ``EP'', report purchases 
(sales) of futures for a commodity or for a derivatives position for the 
account. Report all information in contracts. Position data are reported 
on a net or gross basis in accordance with paragraphs (d) and (e) of 
this section.
    (xii) Commodity (2). The exchange assigned commodity code for a 
futures contract or other instrument that a position is exercised into 
from a date-specific or flexible option.
    (xiii) Expiration date (2). Similar to other dates, the format is 
YYYYMMDD and represents the expiration date or delivery month and year 
of the future or other instrument that a position is exercised into from 
a date-specific or flexible option.
    (xiv) Record type (1). Record type is used to correct errors or 
delete records that have previously been submitted. Valid values are 
``A'', ``C'', ``D'' or ``blank''. An A or ``blank'' is used in this 
field for all new records. If the record corrects information for a 
previously provided record, this field must contain a ``C'' or ``blank'' 
and the record must contain all information on the previously 
transmitted record. If the record deletes information on a previously 
provided record, this field must contain a ``D'' and all information on 
the previously transmitted record.
    (h) Correction of errors and omissions. Unless otherwise approved by 
the Commission or its designee, corrections to errors and omissions in 
data provided pursuant toSec. 17.00(a) shall be filed on series `01 
forms or in the format, coding structure and data transmission 
procedures approved in writing by the Commission or its designee.
    (i) Exclusively self-cleared contracts. Unless determined otherwise 
by the Commission, reporting markets that list exclusively self-cleared 
contracts shall meet the requirements of paragraphs (a) through (h) of 
this section, as they apply to trading in such contracts by all clearing 
members, on behalf of all clearing members.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[41 FR 3207, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affectingSec. 
17.00, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.

[[Page 443]]



Sec.  17.01  Special account designation and identification.

    When a special account is reported for the first time, the futures 
commission merchant, clearing member, or foreign broker shall identify 
the account to the Commission on Form 102, in the form and manner 
specified inSec. 17.02, showing the information in paragraphs (a) 
through (f) of this section.
    (a) Special account designator. A unique identifier for the account, 
provided, that the same designator is assigned for option and futures 
reporting, and the designator is not changed or assigned to another 
account without prior approval of the Commission or its designee.
    (b) Special account identification. The name, address, business 
phone, and for individuals, the person's job title and employer for the 
following:
    (1) The person originating the account, if the special account is a 
house omnibus or customer omnibus account; or
    (2) The person (i.e., individual, corporation, partnership, etc.) 
who owns the special account, if such person (or an employee or officer) 
also controls the trading of the special account. And, in addition:
    (i) The registration status of the person as a commodity trading 
advisor or a securities investment advisor;
    (ii) The legal organization of the person and the person's principal 
business or occupation;
    (iii) Account numbers and account names included in the special 
account, if different than supplied in paragraph (b)(2) of this section;
    (iv) The name and location of all persons not identified in 
paragraph (b)(2) of this section having a ten percent or more financial 
interest in the special account, indicating those having discretionary 
trading over the account; and
    (v) For special accounts with five or fewer persons having trading 
authority, the names and locations of all persons with trading authority 
that have not been identified in paragraphs (b)(2) or (b)(2)(iv) of this 
section; or
    (3) The account controller, if trading of the special account is 
controlled by a person or legal entity who is an independent account 
controller for the account owners as defined inSec. 150.1(e). And, in 
addition:
    (i) The registration status of the person as a commodity trading 
advisor or a securities investment advisor;
    (ii) [Reserved]
    (iii) If fewer than ten accounts are under control of the 
independent advisor, for each account the account number and the name 
and location of each person having a ten percent or more financial 
interest in the account; and
    (iv) On call by the Commission or its designee, for each account 
controlled by the independent advisor, the account number and account 
name and the name and location of each person having a ten percent or 
more financial interest in the account.
    (c) [Reserved]
    (d) Commercial use. For futures or options, commodities in which 
positions or transactions in the account are associated with a 
commercial activity of the account owner in a related cash commodity or 
activity (i.e., those considered as hedging, risk-reducing, or otherwise 
off-setting with respect to the cash commodity or activity).
    (e) Account executive. The name and business telephone number of the 
associated person of the futures commission merchant who has solicited 
and is responsible for the account or, in the case of an introduced 
account, the name and business telephone number of the introducing 
broker who introduced the account.
    (f) Reporting firms. The name and address of the futures commission 
merchant, clearing member, or foreign broker carrying the account, and 
the name, title and business phone of the authorized representative of 
the firm filing the Form 102 and the date of the Form 102. The 
authorized representative shall sign the Form 102 or satisfy such other 
requirements for authenticating the report as instructed in writing by 
the Commission or its designee.
    (g) Form 102 updates. If, at the time an account is in special 
account status and a Form 102 filed by a futures commission merchant, 
clearing member, or foreign broker is then no longer accurate because 
there has been a change in

[[Page 444]]

the information required under paragraph (b) of this section since the 
previous filing, the futures commission merchant, clearing member, or 
foreign broker shall file an updated Form 102 with the Commission within 
three business days after such change occurs.
    (h) Exclusively self-cleared contracts. Unless determined otherwise 
by the Commission, reporting markets that list exclusively self-cleared 
contracts shall meet the requirements of paragraphs (a) through (g) of 
this section, as they apply to trading in such contracts by all clearing 
members, on behalf of all clearing members.

[61 FR 6312, Feb. 20, 1996, as amended at 65 FR 14458, Mar. 17, 2000; 69 
FR 76400, Dec. 21, 2004; 71 FR 37820, July 3, 2006]



Sec.  17.02  Form, manner and time of filing reports.

    Unless otherwise instructed by the Commission or its designee, the 
reports required to be filed by reporting markets, futures commission 
merchants, clearing members and foreign brokers under Sec.Sec. 17.00 
and 17.01 shall be filed as specified in paragraphs (a) and (b) of this 
section.
    (a) Section 17.00(a) reports. Reports filed underSec. 17.00(a) 
shall be submitted through electronic data transmission procedures 
approved in writing by the Commission or its designee not later than 9 
a.m. on the business day following that to which the information 
pertains. Unless otherwise specified by the Commission or its designee, 
the stated time is eastern time for information concerning markets 
located in that time zone, and central time for information concerning 
all other markets.
    (b) Section 17.01 reports. For data submitted pursuant toSec. 
17.01 on Form 102:
    (1) On call by the Commission or its designee, identify the type of 
special account specified by items 1(a), 1(b), or 1(c) of Form 102, and 
the name and location of the person to be identified in item 1(d) on the 
Form 102, and submit such information by facsimile or telephone, in 
accordance with instructions by the Commission or its designee, on the 
same day that the special account in question is first reported to the 
Commission; and
    (2) Submit a completed Form 102 within three business days of the 
first day that the special account in question is reported to the 
Commission in accordance with instructions by the Commission or its 
designee.

[71 FR 37820, July 3, 2006]



Sec.  17.03  Delegation of authority to the Director of the Division 
of Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the authority set forth in the paragraphs below to the 
Director of the Division of Market Oversight to be exercised by such 
Director or by such other employee or employees of such Director as 
designated from time to time by the Director. The Director of the 
Division of Market Oversight may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.
    (a) Pursuant toSec. 17.00(a) and (h), the authority to determine 
whether futures commission merchants, clearing members and foreign 
brokers can report the information required under paragraphs (a) and (h) 
ofSec. 17.00 on series '01 forms or using some other format upon a 
determination that such person is unable to report the information using 
the format, coding structure or electronic data transmission procedures 
otherwise required.
    (b) Pursuant toSec. 17.02, the authority to instruct or approve 
the time at which the information required under Sec.Sec. 17.00 and 
17.01 must be submitted by futures commission merchants, clearing 
members and foreign brokers provided that such persons are unable to 
meet the requirements set forth in Sec.Sec. 17.01(g) and 17.02.
    (c) Pursuant toSec. 17.01(f), the authority to determine whether 
to permit an authorized representative of a firm filing the Form 102 to 
use a means of authenticating the report other than by signing the Form 
102 and, if so, to determine the alternative means of authentication 
that shall be used.
    (d) Pursuant toSec. 17.00(a), the authority to approve a format 
and coding

[[Page 445]]

structure other than that set forth inSec. 17.00(g).

[62 FR 24034, May 2, 1997, as amended at 67 FR 62352, Oct. 7, 2002; 69 
FR 76400, Dec. 21, 2004; 71 FR 37820, July 3, 2006; 74 FR 12191, Mar. 
23, 2009]



Sec.  17.04  Reporting omnibus accounts to reporting firms.

    (a) Any futures commission merchant, clearing member or foreign 
broker who establishes an omnibus account with another futures 
commission merchant, clearing member or foreign broker shall report to 
that futures commission merchant, clearing member or foreign broker the 
total open long positions and the total open short positions in each 
future of a commodity and, for commodity options transactions, the total 
open long put options, the total open short put options, the total open 
long call options, and the total open short call options for each 
commodity options expiration date and each strike price in such account 
at the close of trading each day. The information required by this 
section shall be reported in sufficient time to enable the futures 
commission merchant, clearing member or foreign broker with whom the 
omnibus account is established to comply with the regulations of this 
part and the reporting requirements established by the reporting 
markets.
    (b) In determining open long and open short futures positions, and 
open purchased long and open granted short option positions, in an 
omnibus account for purposes of complying with Sec.Sec. 17.00(f), 
1.37(b) and 1.58 of this chapter, a futures commission merchant, 
clearing member or foreign broker shall total the open long positions of 
all traders and the open short positions of all traders in each future 
of a commodity and, for commodity options transactions, shall total the 
open long put options, the open short put options, the open long call 
options, and the open short call options of all traders for each 
commodity option expiration date and each strike price. The futures 
commission merchant, clearing member or foreign broker shall, if both 
open long and short positions in the same future or option are carried 
for the same trader, compute open long or open short positions as 
instructed in this paragraph.
    (1) Include both the total open long and the total open short 
positions of the trader if:
    (i) The positions represent transactions on a reporting market which 
requires long and short positions in the same future or option held in 
accounts for the same trader to be recorded and reported on a gross 
basis; or
    (ii) The account is an omnibus account of another futures commission 
merchant, clearing member or foreign broker; or
    (2) Include only the net long or net short positions of the trader 
if the positions represent transactions on a reporting market which does 
not require long and short positions in the same future or option held 
in accounts for the same trader to be recorded and reported on a gross 
basis.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[46 FR 63036, Dec. 30, 1981, and 47 FR 21028, May 17, 1982, as amended 
at 62 FR 24034, May 2, 1997; 69 FR 76400, Dec. 21, 2004; 71 FR 37820, 
July 3, 2006; 74 FR 12191, Mar. 23, 2009]



PART 18_REPORTS BY TRADERS--Table of Contents



Sec.
18.00 Information to be furnished by traders.
18.01 Interest in or control of several accounts.
18.02 [Reserved]
18.03 Delegation of authority to the Director of the Division ofMarket 
          Oversight.
18.04 Statement of reporting trader.
18.05 Maintenance of books and records.
18.06 [Reserved]

    Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 12a and 
19, as amended by Title XIII of the Food, Conservation and Energy Act of 
2008, Public Law 110-246, 122 Stat. 1624 (June 18, 2008); 5 U.S.C. 552 
and 552(b), unless otherwise noted.



Sec.  18.00  Information to be furnished by traders.

    Every trader who owns, holds or controls, or has held, owned or 
controlled, a reportable futures or options position in a commodity 
shall within one business day after a special call upon such trader by 
the Commission or its designee file reports to the Commission concerning 
transactions and positions

[[Page 446]]

in such futures or options. Reports shall be filed for the period of 
time that the trader held or controlled a reportable position and shall 
be prepared and submitted as instructed in the call. The report shall 
show for each day covered by the report the following information, as 
specified in the call, separately for each future or option and for each 
reporting market:
    (a) Open contracts;
    (b) Purchases and sales;
    (c) Delivery notices issued and stopped;
    (d) Purchases and sales of futures for commodities or for 
derivatives positions; and
    (e) Options exercised.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[69 FR 76400, Dec. 21, 2004, as amended at 71 FR 37821, July 3, 2006]



Sec.  18.01  Interest in or control of several accounts.

    If any trader holds, has a financial interest in or controls 
positions in more than one account, whether carried with the same or 
with different futures commission merchants or foreign brokers, all such 
positions and accounts shall be considered as a single account for the 
purpose of determining whether such trader has a reportable position 
and, unless instructed otherwise in the special call to report under 
Sec.  18.00 for the purpose of reporting.

[74 FR 12191, Mar. 23, 2009]



Sec.  18.02  [Reserved]



Sec.  18.03  Delegation of authority to the Director of the Division
of Market and Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls on traders for 
information as set forth in Sec.Sec. 18.00, 18.04 and 18.05 to the 
Director of the Division of Market Oversight to be exercised by the 
Director or by such other employee or employees of the Director as may 
be designated from time to time by the Director. The Director of the 
Division of Market Oversight may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.

[62 FR 6114, Feb. 11, 1997, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.  18.04  Statement of reporting trader.

    Every trader who holds or controls a reportable futures and option 
position shall after a special call upon such trader by the Commission 
or its designee file with the Commission a ``Statement of Reporting 
Trader'' on the Form 40 at such time and place as directed in the call. 
All traders shall complete part A of the Form 40 and, in addition, shall 
complete:

Part B--If the trader is an individual, a partnership or a joint tenant.
Part C--If the trader is a corporation or type of trader other than an 
individual, partnership, or joint tenant.

    (a) Information to be furnished by all traders in part A of the Form 
40 shall include:
    (1) Name and address of reporting trader.
    (2) Principal business and occupation of the reporting trader and, 
in addition, whether transactions are made for, on behalf of, or in 
association with, a customer trading program of a futures commission 
merchant, a commodity pool, a producer cooperative, any business 
activities in which the trader is commercially engaged, or for personal 
use.
    (3) Type of trader.
    (4) Registration status with the Commission, if any.
    (5) The name and address of each person whose option or futures 
trading is controlled by the reporting trader. Provided that if the 
reporting trader is a customer trading program, or the commodity trading 
advisor thereof, that is a managed or guided account program in which 
ten or more persons participate, the information furnished may be 
limited to the name of any commodity pool which participates in the 
program and the name and address of the CPO.
    (6) The name, address and business phone of each person who controls 
the trading of the reporting trader.
    (7) The names and locations of all futures commission merchants, 
clearing

[[Page 447]]

members, introducing brokers, and foreign brokers through whom accounts 
owned or controlled by the reporting trader are carried or introduced at 
the time of filing a Form 40, if such accounts are carried through more 
than one futures commission merchant, clearing member or foreign broker 
or carried through more than one office of the same futures commission 
merchant, clearing member or foreign broker, or introduced by more than 
one introducing broker clearing accounts through the same futures 
commission merchant, and the name of the reporting trader's account 
executive at each firm or office of the firm.
    (8) The names and locations (city and state) of persons who 
guarantee the futures or option trading accounts of the reporting trader 
or who have a financial interest of 10 percent or more in the reporting 
trader or the accounts of the reporting trader.
    (9) The following information concerning other option or futures 
trading accounts which the reporting trader guarantees or other futures 
or option traders or accounts in which the reporting trader has a 
financial interest of 10 percent or more:
    (i) The names of traders for whom the reporting trader guarantees 
accounts or in which the reporting trader has a financial interest;
    (ii) The names of the accounts that the reporting trader guarantees 
or in which the reporting trader has a financial interest; and
    (iii) The names and locations of the brokerage firms at which the 
accounts are carried.
    (10) Information concerning ownership or control by a foreign 
government, agent of a foreign government entity specially acknowledged 
by a statute or regulation of a foreign jurisdiction or entity financed 
by a foreign government either through ownership of capital assets or 
provision of operating expenses.
    (11) Signature of the trader and date of signing the report. If the 
reporting trader is an organization, the signature must be that of a 
partner, officer or trustee authorized to sign on behalf of that 
organization.
    (b) Information to be furnished in part B of the Form 40 shall 
include:
    (1) Business telephone number of the reporting trader.
    (2) Employer and job title if the reporting trader is an individual.
    (3) The following information if a trader makes transactions or 
holds positions in a futures or option contract where such transactions 
or positions normally represent a substitute for transactions to be made 
or positions to be taken at a later time in a physical marketing 
channel, and the transactions or positions are economically appropriate 
to the reduction of risks in the conduct and management of a commercial 
enterprise:
    (i) Commercial activity associated with use of the option or futures 
market (such as and including production, merchandising or processing of 
a cash commodity, asset or liability risk management by depository 
institutions, or security portfolio risk management).
    (ii) Physical commodities underlying use of the futures or option 
markets.
    (iii) Futures or option markets used.
    (4) The name, address, and type of any organization in which the 
reporting trader participates in the management if such organization 
holds another futures or option trading account.
    (5) If the reporting trader is a partnership or joint tenant, the 
name and address of each partner (excluding limited partners in 
commodity pools) or joint tenant and the name of the partner or joint 
tenant who ordinarily places orders.
    (c) Information to be furnished in part C of the Form 40 shall 
include:
    (1) Whether or not the reporting trader is organized under the laws 
of any state (including the District of Columbia) or territory or 
possession of the United States or under the laws of any foreign 
jurisdiction. Reporting traders organized outside the jurisdiction of 
the United States must indicate the country of origin.
    (2) The names of parent firms and whether or not they are organized 
under the laws of any state (including the District of Columbia) or 
territory of possession of the United States and the location of each 
headquarter's office.
    (3) Names and locations of all subsidiary firms that trade in 
commodity

[[Page 448]]

futures or options and whether or not the subsidiary firms are organized 
under the law of any state (including the District of Columbia) or 
territory or possession of the United States.
    (4) Name, address, and business telephone number of person(s) 
actually controlling the trading and, if different persons are 
responsible for different commodities or options, the commodities or 
options for which each controller has responsibility.
    (5) Name, office address and business telephone number of person or 
persons to contact regarding trading.
    (6) The following information if a trader makes transactions or 
holds positions in a futures or option contract where such transactions 
or positions normally represent a substitute for transactions to be made 
or positions to be taken at a later time in a physical marketing channel 
and the transactions or positions are economically appropriate to the 
reduction of risks in the conduct and management of a commercial 
enterprise:
    (i) Commercial activity associated with use of the option or futures 
market (e.g., production, merchandising or processing of a cash 
commodity, asset/liability risk management by depository institutions, 
security portfolio risk management, etc.)
    (ii) Physical commodities underlying use of the futures or option 
markets.
    (iii) Futures or option markets used.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[43 FR 60149, Dec. 26, 1978, as amended at 46 FR 59967, Dec. 8, 1981; 46 
FR 63036, Dec. 30, 1981; 47 FR 57015, Dec. 22, 1982; 48 FR 35300, Aug. 
3, 1983; 48 FR 52703, Nov. 22, 1983; 51 FR 4720, Feb. 7, 1986; 58 FR 
33330, June 17, 1993; 62 FR 6114, Feb. 11, 1997; 62 FR 13301, Mar. 20, 
1997; 74 FR 12191, Mar. 23, 2009]



Sec.  18.05  Maintenance of books and records.

    (a) Every trader who holds or controls a reportable futures or 
option position shall keep books and records showing all details 
concerning all positions and transactions in the commodity:
    (1) On all reporting markets;
    (2) Executed over the counter or pursuant to part 35 of this 
chapter;
    (3) On exempt commercial markets operating under a Commission 
grandfather relief order issued pursuant to Section 723(c)(2)(B) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-
203, 124 Stat. 1376 (2010));
    (4) On exempt boards of trade operating under a Commission 
grandfather relief order issued pursuant to Section 734(c)(2) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-
203, 124 Stat. 1376 (2010)); and
    (5) On foreign boards of trade.
    (b) Every such trader shall also keep books and records showing all 
details concerning all positions and transactions in the cash commodity, 
its products and byproducts, and all commercial activities that the 
trader hedges in the futures or option contract in which the trader is 
reportable.
    (c) The trader shall upon request furnish to the Commission any 
pertinent information concerning such positions, transactions, or 
activities in a form acceptable to the Commission.

[72 FR 60771, Oct. 26, 2007, as amended at 74 FR 12192, Mar. 23, 2009; 
77 FR 66334, Nov. 2, 2012]



Sec.  18.06  [Reserved]



PART 19_REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS PURSUANT
TO   1.3(z) OF THIS CHAPTER AND BY MERCHANTS AND DEALERS IN COTTON--
Table of Contents



Sec.
19.00 General provisions.
19.01 Reports on stocks and fixed price purchases and sales pertaining 
          to futures positions in wheat, corn, oats, soybeans, soybean 
          oil, soybean meal or cotton.
19.02 Reports pertaining to cotton call purchases and sales.
19.03-19.10 [Reserved]

    Authority: 7 U.S.C. 6g(a), 6i, and 12a(5), as amended by Title XIII 
of the Food, Conservation and Energy Act of 2008, Public Law 110-246, 
122 Stat. 1624 (June 18, 2008), unless otherwise noted.

    Source: 43 FR 45828, Oct. 4, 1978; 46 FR 63036, Dec. 30, 1981, 
unless otherwise noted.

[[Page 449]]



Sec.  19.00  General provisions.

    (a) Who must file series '04 reports. The following persons are 
required to file series '04 reports:
    (1) All persons holding or controlling futures and option positions 
that are reportable pursuant toSec. 15.00(p)(2) of this chapter and 
any part of which constitute bona fide hedging positions as defined in 
Sec.  1.3(z) of this chapter;
    (2) Merchants and dealers of cotton holding or controlling positions 
for futures delivery in cotton that are reportable pursuant toSec. 
15.00(p)(1)(i) of this chapter, or
    (3) All persons holding or controlling positions for future delivery 
that are reportable pursuant toSec. 15.00(p)(1) of this chapter who 
have received a special call for series '04 reports from the Commission 
or its designee. Filings in response to a special call shall be made 
within one business day of receipt of the special call unless otherwise 
specified in the call. For the purposes of this paragraph, the 
Commission hereby delegates to the Director of the Division of Market 
Oversight, or to such other person designated by the Director, authority 
to issue calls for series '04 reports.
    (b) Manner of reporting. The manner of reporting the information 
required inSec. 19.01 is subject to the following:
    (1) Excluding products or byproducts of the cash commodity hedged. 
If the regular business practice of the reporting trader is to exclude 
certain products or byproducts in determining his cash positions for 
bona fide hedging (as defined inSec. 1.3(z) of this chapter), the same 
shall be excluded in the report. Such persons shall furnish to the 
Commission upon request detailed information concerning the kind and 
quantity of product or byproduct so excluded.
    (2) Cross hedges. Cash positions that represent a commodity or 
products or byproducts of a commodity that is different from the 
commodity for future delivery in which such cash position is being 
hedged shall be shown both in terms of the commodity for future delivery 
and in terms of the cash commodity as provided for on the appropriate 
series '04 form.
    (3) Standards and conversion factors. In computing their cash 
position, every person shall use such standards and conversion factors 
that are usual in the particular trade or that otherwise reflect the 
value-fluctuation-equivalents of the cash position in terms of the 
commodity for future delivery. Such person shall furnish to the 
Commission upon request detailed information concerning the basis for 
and derivation of such conversion factors.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[43 FR 45828, Oct. 4, 1978, as amended at 46 FR 63036, Dec. 30, 1981; 56 
FR 14194, Apr. 8, 1991; 57 FR 41390, Sept. 10, 1992; 62 FR 6114, Feb. 
11, 1997; 62 FR 13301, Mar. 20, 1997; 71 FR 37821, July 3, 2006; 74 FR 
12192, Mar. 23, 2009]



Sec.  19.01  Reports on stocks and fixed price purchases and sales 
pertaining to futures positions in wheat, corn, oats, soybeans,
soybean oil, soybean meal or cotton.

    (a) Information required. Persons required to file '04 reports under 
Sec.  19.00(a)(1) orSec. 19.00(a)(3) of this chapter shall file CFTC 
Form 304 reports for cotton and Form 204 reports for other commodities 
showing the composition of the fixed price cash position of each 
commodity hedged including:
    (1) The quantity of stocks owned of such commodities and their 
products and byproducts.
    (2) The quantity of fixed price purchase commitments open in such 
cash commodities and their products and byproducts.
    (3) The quantity of fixed price sale commitments open in such cash 
commodities and their products and byproducts; and in addition for 
cotton,
    (4) The quantity of equity in cotton held by the Commodity Credit 
Corporation under the provisions of the Upland Cotton Program of the 
Agricultural Stabilization and Conservation Service of the U.S. 
Department of Agriculture.
    (5) The quantity of certificated cotton owned.
    (b) Time and place of filing reports--Except for reports filed in 
response to special calls made underSec. 19.00(a)(3), each report 
shall be made monthly, as of the close of business on the last Friday of 
the month, and filed at the appropriate Commission office specified in 
paragraph (b)(1) or (2) of this section not later than the second 
business day following the date of the report in the

[[Page 450]]

case of the 304 report and not later than the third business day 
following the date of the report in the case of the 204 report. Reports 
may be transmitted by facsimile or, alternatively, information on the 
form may be reported to the appropriate Commission office by telephone 
and the report mailed to the same office, not later than midnight of its 
due date.
    (1) CFTC Form 204 reports with respect to transactions in wheat, 
corn, oats, soybeans, soybean meal and soybean oil should be sent to the 
Commission's office in Chicago, IL, unless otherwise specifically 
authorized by the Commission or its designee.
    (2) CFTC Form 304 reports with respect to transactions in cotton 
should be sent to the Commission's office in New York, NY, unless 
otherwise specifically authorized by the Commission or its designee.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[43 FR 45828, Oct. 4, 1978, as amended at 46 FR 63036, Dec. 30, 1981; 57 
FR 41390, Sept. 10, 1992; 71 FR 37821, July 3, 2006; 74 FR 12192, Mar. 
23, 2009]



Sec.  19.02  Reports pertaining to cotton call purchases and sales.

    (a) Information required. Persons required to file '04 reports under 
Sec.  19.00(a)(2) of this chapter shall file CFTC Form 304 reports 
showing the quantity of call cotton bought or sold on which the price 
has not been fixed, together with the respective futures on which the 
purchase or sale is based. As used herein, call cotton refers to spot 
cotton bought or sold, or contracted for purchase or sale at a price to 
be fixed later based upon a specified future.
    (b) Time and place of filing reports. Each report shall be made 
weekly as of the close of business on Friday and filed at the 
Commission's office in New York, NY, not later than the second business 
day following the date of the report. Reports may be transmitted by 
facsimile or, alternatively, information on the form may be reported to 
the appropriate Commission office by telephone and the report mailed to 
the same office, not later than midnight of its due date.

[57 FR 41391, Sept. 10, 1992]



Sec.Sec. 19.03-19.10  [Reserved]



PART 20_LARGE TRADER REPORTING FOR PHYSICAL COMMODITY SWAPS--
Table of Contents



Sec.
20.1 Definitions.
20.2 Covered contracts.
20.3 Clearing organizations.
20.4 Reporting entities.
20.5 Series S filings.
20.6 Maintenance of books and records.
20.7 Form and manner of reporting and submitting information or filings.
20.8 Delegation of authority to the Director of the Division of Market 
          Oversight.
20.9 Sunset provision.
20.10 Compliance schedule.
20.11 Diversified commodity indices.

Appendix A to Part 20--Guidelines on Futures Equivalency
Appendix B to Part 20--Explanatory Guidance on Data Record Layouts

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 76 FR 43862, July 22, 2011, unless otherwise noted.



Sec.  20.1  Definitions.

    As used in, and solely for the purposes of, this part:
    Business day means ``business day'' as that term is defined inSec. 
1.3 of this chapter.
    Cleared product means a paired swap or swaption that a clearing 
organization offers or accepts for clearing.
    Clearing member means any person who is a member of, or enjoys the 
privilege of, clearing trades in its own name through a clearing 
organization.
    Clearing organization means the person or organization that acts as 
a medium between clearing members for the purpose of clearing swaps or 
swaptions or effecting settlements of swaps or swaptions.
    Closed swap or closed swaption means a swap or swaption that has 
been settled, exercised, closed out or terminated.

[[Page 451]]

    Commodity reference price means the price series (including 
derivatives contract and cash market prices or price indices) used by 
the parties to a swap or swaption to determine payments made, exchanged, 
or accrued under the terms of the contracts.
    Counterparty means, from the perspective of one side to a contract, 
the person that is the direct legal counterparty corresponding to the 
other side of the contract.
    Clearing member customer means any person for whom a reporting 
entity clears a swap or swaption position.
    Futures equivalent means an economically equivalent amount of one or 
more futures contracts that represents a position or transaction in one 
or more paired swaps or swaptions consistent with the conversion 
guidelines in appendix A of this part.
    Open swap or swaption means a swap or swaption that has not been 
closed.
    Paired swap or paired swaption means an open swap or swaption that 
is:
    (1) Directly or indirectly linked, including being partially or 
fully settled on, or priced at a differential to, the price of any 
commodity futures contract listed inSec. 20.2; or
    (2) Directly or indirectly linked, including being partially or 
fully settled on, or priced at a differential to, the price of the same 
commodity for delivery at the same location or locations.
    Person means any ``person'' as that term is defined inSec. 1.3 of 
this chapter.
    Reportable account or consolidated account that is reportable means 
a consolidated account that includes a reportable position.
    Reportable position means:
    (1)(i) A position, in any one futures equivalent month, comprised of 
50 or more futures equivalent paired swaps or swaptions based on the 
same commodity underlying a futures contract listed inSec. 20.2, 
grouped separately by swaps and swaptions, then grouped by gross long 
contracts on a futures equivalent basis or gross short contracts on a 
futures equivalent basis;
    (ii) For a consolidated account (described inSec. 20.4(a)) that 
includes a reportable position as defined in paragraph (1)(i) of this 
definition, all other positions in that account that are based on the 
commodity that renders the account reportable; and
    (iii) The first reporting day on which a consolidated account 
(described inSec. 20.4(a)) no longer includes a reportable position as 
described in paragraph (1)(i) of this definition (because on such day, 
the reporting entity's consolidated account shall continue to be 
considered and treated as if it in fact included reportable positions as 
described in paragraph (1)(i) of this definition); or
    (2) At the discretion of a reporting entity, and as an alternative 
to paragraph (1) of this definition, so long as the same method is 
consistently applied to all consolidated accounts (as described inSec. 
20.4(a)) of the reporting entity, all positions on a gross basis in a 
consolidated account that are based on the same commodity.
    Reporting day means the period of time between a clearing 
organization or reporting entity's usual and customary last internal 
valuation of paired swaps or swaptions and the next such period, so long 
as the period of time is consistently observed on a daily basis and the 
Commission is notified, upon its request, of the manner by which such 
period is calculated and any subsequent changes thereto.
    Reporting entity means:
    (1) A clearing member; or
    (2) A swap dealer in one or more paired swaps or swaptions as that 
term is defined in section 1a of the Act and any Commission definitional 
regulations adopted thereunder.
    Swap means:
    (1) Until the effective date of any definitional rulemaking 
regarding ``swap'' by the Commission under section 1a of the Act, an 
agreement (including terms and conditions incorporated by reference 
therein) which is a commodity swap (including any option to enter into 
such swap) within the meaning of ``swap agreement'' underSec. 
35.1(b)(1) of this chapter, or a master agreement for a commodity swap 
together with all supplements thereto; or
    (2) ``Swap'' as defined in section 1a of the Act and any Commission 
definitional regulations adopted thereunder, upon the effective date of 
such regulations.

[[Page 452]]

    Swaption means an option to enter into a swap or a swap that is an 
option.



Sec.  20.2  Covered contracts.

    The futures and option contracts listed by designated contract 
markets for the purpose of reports filed and information provided under 
this part are as follows:

            Covered Agricultural and Exempt Futures Contracts
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Chicago Board of Trade (``CBOT'') Corn.
CBOT Ethanol.
CBOT Oats.
CBOT Rough Rice.
CBOT Soybean Meal.
CBOT Soybean Oil.
CBOT Soybeans.
CBOT Wheat.
Chicago Mercantile Exchange (``CME'') Butter.
CME Cheese.
CME Dry Whey.
CME Feeder Cattle.
CME Hardwood Pulp.
CME Lean Hogs.
CME Live Cattle.
CME Milk Class III.
CME Non Fat Dry Milk.
CME Random Length Lumber.
CME Softwood Pulp.
COMEX (``CMX'') Copper Grade 1.
CMX Gold.
CMX Silver.
ICE Futures U.S. (``ICUS'') Cocoa.
ICUS Coffee C.
ICUS Cotton No. 2.
ICUS Frozen Concentrated Orange Juice.
ICUS Sugar No. 11.
ICUS Sugar No. 16.
Kansas City Board of Trade (``KCBT'') Wheat.
Minneapolis Grain Exchange (``MGEX'') Wheat.
NYSELiffe (``NYL'') Gold, 100 Troy Oz.
NYL Silver, 5000 Troy Oz.
New York Mercantile Exchange (``NYMEX'') Cocoa.
NYMEX Brent Financial.
NYMEX Central Appalachian Coal.
NYMEX Coffee.
NYMEX Cotton.
NYMEX Crude Oil, Light Sweet.
NYMEX Gasoline Blendstock (RBOB).
NYMEX Hot Rolled Coil Steel.
NYMEX Natural Gas.
NYMEX No. 2 Heating Oil, New York Harbor.
NYMEX Palladium.
NYMEX Platinum.
NYMEX Sugar No. 11.
NYMEX Uranium.
Diversified Commodity Index (SeeSec.  20.11).
------------------------------------------------------------------------



Sec.  20.3  Clearing organizations.

    (a) Reporting data records. For each reporting day, with respect to 
paired swaps or swaptions, clearing organizations shall report to the 
Commission, separately for each clearing member's proprietary and 
clearing member customer account, unique groupings of the data elements 
in paragraph (b) of this section (to the extent that there are such 
corresponding elements), in a single data record, so that each reported 
record is distinguishable from every other reported record (because of 
differing data values, as opposed to the arrangement of the elements).
    (b) Populating reported data records with data elements. Data 
records reported under paragraph (a) of this section shall include the 
following data elements:
    (1) An identifier assigned by the Commission to the clearing 
organization;
    (2) The identifier assigned by the clearing organization to the 
clearing member;
    (3) The identifier assigned by the clearing organization for a 
cleared product;
    (4) The reporting day;
    (5) A proprietary or clearing member customer account indicator;
    (6) The futures equivalent month;
    (7) The commodity reference price;
    (8) Gross long swap positions;
    (9) Gross short swap positions;
    (10) A swaption put or call side indicator;
    (11) A swaption expiration date;
    (12) A swaption strike price;
    (13) Gross long non-delta-adjusted swaption positions; and
    (14) Gross short non-delta-adjusted swaption positions.
    (c) End of reporting day data. For all futures equivalent months, 
clearing organizations shall report end of reporting day settlement 
prices for each cleared product and deltas for every

[[Page 453]]

unique swaption put and call, expiration date, and strike price.



Sec.  20.4  Reporting entities.

    (a) Consolidated accounts. Each reporting entity shall combine all 
paired swap and swaption positions:
    (1) That are principal positions (swaps and swaptions to which the 
reporting entity is a direct legal counterparty), in a single 
consolidated account that it shall attribute to itself; and
    (2) That are positions of the reporting entity's counterparty in a 
single consolidated account that it shall attribute to that specific 
counterparty.
    (b) Reporting data records. Reporting entities shall report to the 
Commission, for each reporting day, and separately for each reportable 
position in a consolidated account described in paragraphs (a)(1) and 
(a)(2) of this section, unique groupings of the data elements in 
paragraph (c) of this section (to the extent that there are such 
corresponding elements), in a single data record, so that each reported 
record is distinguishable from every other reported record (because of 
differing data values, as opposed to the arrangement of the elements).
    (c) Populating reported data records with data elements. Data 
records reported under paragraph (b) of this section shall include the 
following data elements:
    (1) An identifier assigned by the Commission to the reporting 
entity;
    (2) An identifier indicating that a principal or counterparty 
position is being reported;
    (3) A 102S identifier assigned by the reporting entity to its 
counterparty;
    (4) The name of the counterparty whose position is being reported;
    (5) The reporting day;
    (6) If cleared, the identifier for the cleared product assigned by 
the clearing organization;
    (7) The commodity underlying the reportable positions;
    (8) The futures equivalent month;
    (9) A cleared or uncleared indicator;
    (10) A clearing organization identifier;
    (11) The commodity reference price;
    (12) An execution facility indicator;
    (13) Long paired swap positions;
    (14) Short paired swap positions;
    (15) A swaption put or call side indicator;
    (16) A swaption expiration date;
    (17) A swaption strike price;
    (18) Long non-delta-adjusted paired swaption positions;
    (19) Short non-delta-adjusted paired swaption positions;
    (20) Long delta-adjusted paired swaption positions (using 
economically reasonable and analytically supported deltas);
    (21) Short delta-adjusted paired swaption positions (using 
economically reasonable and analytically supported deltas);
    (22) Long paired swap or swaption notional value; and
    (23) Short paired swap or swaption notional value.



Sec.  20.5  Series S filings.

    (a) 102S filing. (1) When a counterparty consolidated account first 
becomes reportable, the reporting entity shall submit a 102S filing, 
which shall consist of the name, address, and contact information of the 
counterparty and a brief description of the nature of such person's 
paired swaps and swaptions market activity.
    (2) A reporting entity may submit a 102S filing only once for each 
counterparty, even if such persons at various times have multiple 
reportable positions in the same or different paired swaps or swaptions; 
however, reporting entities must update a 102S filing if the information 
provided is no longer accurate.
    (3) Reporting entities shall submit a 102S filing within three days 
following the first day a consolidated account first becomes reportable 
or at such time as instructed by the Commission upon special call.
    (b) 40S filing. Every person subject to books or records underSec. 
20.6 shall after a special call upon such person by the Commission file 
with the Commission a 40S filing at such time and place as directed in 
the call. A 40S filing shall consist of the submission of a Form 40, 
which shall be completed by such person as if any references to futures 
or option contracts were references to paired swaps or swaptions as 
defined inSec. 20.1.

[[Page 454]]



Sec.  20.6  Maintenance of books and records.

    (a) Every clearing organization shall keep all records of 
transactions in paired swaps or swaptions, and methods used to convert 
paired swaps or swaptions into futures equivalents, in accordance with 
the requirements ofSec. 1.31 of this chapter.
    (b) Every reporting entity shall keep all records of transactions in 
paired swaps or swaptions, and methods used to convert paired swaps or 
swaptions into futures equivalents, in accordance with the requirements 
ofSec. 1.31 of this chapter.
    (c) Every person with equal to or greater than 50 gross all-months-
combined futures equivalent positions in paired swaps or swaptions on 
the same commodity shall:
    (1) Keep books and records showing all records for transactions 
resulting in such positions, which may be kept and reproduced for 
Commission inspection in the record retention format that such person 
has developed in the normal course of its business operations; and
    (2) Keep books and records showing transactions in the cash 
commodity underlying such positions or its products and byproducts, and 
all commercial activities that are hedged or which have risks that are 
mitigated by such positions, which may be kept in accordance with the 
recordkeeping schedule and reproduced for Commission inspection in the 
record retention format that such person has developed in the normal 
course of its business operations.
    (d) All books and records required to be kept by paragraphs (a) 
through (c) of this section shall be furnished upon request to the 
Commission along with any pertinent information concerning such 
positions, transactions, or activities.



Sec.  20.7  Form and manner of reporting and submitting information
or filings.

    Unless otherwise instructed by the Commission, a clearing 
organization or reporting entity shall submit data records and any other 
information required under this part to the Commission as follows:
    (a) Using the format, coding structure, and electronic data 
transmission procedures approved in writing by the Commission;
    (b) For clearing organizations, not later than 9:00 a.m. eastern 
time on the next business day following the reporting day or at such 
other time as instructed by the Commission; and
    (c) For clearing members and swap dealers, not later than 12:00 p.m. 
eastern time on the second (T+2) business day following the reporting 
day or at such other time as instructed by the Commission.



Sec.  20.8  Delegation of authority to the Director of the Division 
of Market Oversight.

    (a) 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, the 
authority:
    (1) InSec. 20.5(a)(3) for issuing a special call for a 102S 
filing;
    (2) InSec. 20.5(b) for issuing a special call for a 40S filing;
    (3) InSec. 20.6(d) for issuing a special call;
    (4) InSec. 20.7 for providing instructions or determining the 
format, coding structure, and electronic data transmission procedures 
for submitting data records and any other information required under 
this part; and
    (5) InSec. 20.10 for determining the described compliance 
schedules.
    (b) The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which has been delegated 
in this section.
    (c) Nothing in this section prohibits the Commission, at its 
election, from exercising the authority delegated in this section.



Sec.  20.9  Sunset provision.

    (a) Except as otherwise provided in paragraph (b) of this section, 
the sections of this part shall become ineffective and unenforceable 
upon a Commission finding that, through the issuance of an order, 
operating swap data repositories are processing positional data and that 
such processing will enable

[[Page 455]]

the Commission to effectively surveil trading in paired swaps and 
swaptions and paired swap and swaption markets.
    (b) The Commission may determine, in its discretion, to maintain the 
effectiveness and enforceability of any section of this part, or any 
requirement therein, in an order issued under paragraph (a) of this 
section, upon finding that such sections, or requirements therein, 
provide the Commission with positional data or data elements that 
materially improves the accuracy and surveillance utility of the 
positional data processed by swap data repositories.



Sec.  20.10  Compliance schedule.

    (a) Clearinghouses, clearing members and persons with books and 
records obligations shall comply with the requirements of this part upon 
the effective date of this part.
    (b) Swap dealers that are not clearing members shall comply with the 
requirements of this part upon the effective date of final regulations 
further defining the term swap dealer.
    (c) The Commission may permit, for a period not to exceed six 
calendar months following the effective date specified in paragraph (a) 
of this section, the submission of reports pursuant to Sec.Sec. 20.3 
and 20.4 that differ in content, or are submitted in a form and manner 
which is other than prescribed by the provisions of this part, provided 
that the submitter is making a good faith attempt to comply with all of 
the provisions of this part.
    (d) Unless determined otherwise by the Commission, paired swap and 
swaption position and market reports submitted under parts 15 through 
19, or 21 of this chapter, or any order of the Commission, shall 
continue to be submitted under those parts or orders until swap dealers 
are required to comply withSec. 20.4.
    (e) The Commission may extend the compliance date established in 
paragraph (b) of this section by an additional six calendar months based 
on resource limitations or lack of experience in reporting transactions 
to the Commission for a swap dealer that is not an affiliate of a bank 
holding company and:
    (1) Is not registered with the Commission as a futures commission 
merchant and is not an affiliate of a futures commission merchant;
    (2) Is not registered with the Securities and Exchange Commission as 
a broker or dealer and is not an affiliate of a broker or dealer; and
    (3) Is not supervised by any Federal prudential regulator.



Sec.  20.11  Diversified commodity indices.

    For the purpose of reporting in futures equivalents, paired swaps 
and swaptions using commodity reference prices that are commonly known 
diversified indices with publicly available weightings may be reported 
as if such indices underlie a single futures contract with monthly 
expirations for each calendar month and year.



      Sec. Appendix A to Part 20--Guidelines on Futures Equivalency

    The following examples illustrate how swaps should be converted into 
futures equivalents. In general the total notional quantity for each 
swap should be apportioned to referent futures months based on the 
fraction of days remaining in the life of the swap during each referent 
futures month to the total duration of the swap, measured in days. The 
terms used in the examples are to be understood in a manner that is 
consistent with industry practice.

    Example 1--Fixed for Floating WTI Crude Oil Swap Linked to a DCM
                                Contract
Reference Price...................  Daily official next to expire
                                     contract price for the NYMEX Light
                                     Sweet Crude Oil Futures Contract
                                     (``WTI'') in $/bbl through the
                                     NYMEX spot month.
Fixed Price.......................  $80.00 per barrel.
Floating Price....................  The arithmetic average of the
                                     reference price during the pricing
                                     period.
Notional Quantity.................  100,000 bbls/month.
Calculation Period................  One month.
Fixed Price Payer.................  Company A.
Floating Price Payer..............  Company B.
Settlement Type...................  Financial.
Swap Term.........................  Six full months from January 1 to
                                     June 30.
Floating Amount...................  Floating Price * Notional Quantity.
Fixed Amount......................  Fixed Price * Notional Quantity.
------------------------------------------------------------------------


[[Page 456]]

    NYMEX WTI trading in the next to expire futures contract ceases on 
the third business day prior to the 25th of the calendar month preceding 
the contract month. For simplicity in this example, the last trading day 
in each WTI futures contract is shown as the 22nd of the month.

                Futures Equivalent Position on January 1

Total Notional Quantity = 6 months * 100,000 bbls/month = 600,000 bbls
1,000 bbl = 1 futures contract
Therefore 600,000 bbls/1,000 bbls/contract = 600 futures equivalent 
          contracts
Total number of days in swap term = 31 + 28 + 31 + 30 + 31 + 30 = 181

                                Futures Equivalent Position of Swap on January 1
----------------------------------------------------------------------------------------------------------------
                                                                                Company A          Company B
         Dates swap in force           Referent futures   Fraction of days   position (long)    position (short)
                                            month                                [dagger]           [dagger]
----------------------------------------------------------------------------------------------------------------
January 1--January 22...............           February             22/181                 73                -73
January 23--February 22.............              March             31/181                103               -103
February 23--March 22...............              April             28/181                 93                -93
March 23--April 22..................                May             31/181                103               -103
April 23--May 22....................               June             30/181                 99                -99
May 23--June 22.....................               July             31/181                103               -103
June 23--June 30th..................             August              8/181                 27                -27
                                     ---------------------------------------------------------------------------
    Total...........................  .................            181/181                601               -601
----------------------------------------------------------------------------------------------------------------
[dagger] Contracts rounded to the nearest integer.

                Futures equivalent position on January 2

Total Notional Quantity = Remaining swap term * 100,000 bbls/month = 
          596,685 bbls
1,000 bbl = 1 futures contract
Therefore 596,685 bbls/1,000 bbls/contract = 597 futures equivalent 
          contracts
Total number of days = 30 + 28 + 31 + 30 + 31 + 30 = 180

                     Futures Equivalent Position of Swap on January 2 (Example 1 Continued)
----------------------------------------------------------------------------------------------------------------
                                                                                        Company A     Company B
                                                                         Fraction of    position      position
           Dates swap in force                Referent futures month        days         (long)        (short)
                                                                                        [dagger]      [dagger]
----------------------------------------------------------------------------------------------------------------
January 2--January 22....................  February...................        21/180            70           -70
January 23--February 22..................  March......................        31/180           103          -103
February 23--March 22....................  April......................        28/180            93           -93
March 23--April 22.......................  May........................        31/180           103          -103
April 23--May 22.........................  June.......................        30/180            99           -99
May 23--June 22..........................  July.......................        31/180           103          -103
June 23--June 30th.......................  August.....................         8/180            27           -27
                                                                       -----------------------------------------
    Total................................  ...........................       180/180           597          -597
----------------------------------------------------------------------------------------------------------------
[dagger] Contracts rounded to the nearest integer.


                 Example 2--Fixed for Floating Corn Swap
Reference Price...................  Daily official next to expire
                                     contract price for the CBOT Corn
                                     Futures Contract in $/bushel
                                     through the CBOT spot month.
Fixed Price.......................  $5.00 per bushel per month.
Floating Price....................  The arithmetic average of the
                                     reference price during the pricing
                                     period.
Calculation Period................  One month.
Notional Quantity.................  1,000,000 bushels/month.
Fixed Price Payer.................  Company A.
Floating Price Payer..............  Company B.
Settlement Type...................  Financial.
Swap Term.........................  Six full months from January 1 to
                                     June 30.
Floating Amount...................  Floating Price * Notional Quantity.
Fixed Amount......................  Fixed Price * Notional Quantity.
------------------------------------------------------------------------

    Last trading day in the nearby CBOT Corn futures contract is the 
business day preceding the 15th of the contract month. For simplicity in 
this example, the last trading day in each Corn futures contract is 
shown as the 14th of the month. Futures contract months for corn are 
March, May, July, September, and December.

[[Page 457]]

                Futures Equivalent Position on January 1

Total Notional Quantity = 6 contract months * 1,000,000 bushels/month = 
          6,000,000 bushels
5,000 bushels = 1 futures contract
Therefore 6,000,000 bushels/5,000 bushels/contract = 1,200 futures 
          equivalent contracts
Total days = 31 + 28 + 31 + 30 + 31 + 30 = 181

                                Futures Equivalent Position of Swap on January 1
----------------------------------------------------------------------------------------------------------------
                                                                                Company A          Company B
       Dates swap in force           Referent futures     Fraction of days   position (long)    position (short)
                                           month                                 [dagger]           [dagger]
----------------------------------------------------------------------------------------------------------------
January 1-March 14...............  March...............             73/181                483               -483
March 15-May 14..................  May.................             61/181                404               -404
May 15-June 30...................  July................             47/181                311               -311
                                                        --------------------------------------------------------
    Total........................  ....................            181/181              1,198             -1,198
----------------------------------------------------------------------------------------------------------------
[dagger] Contracts rounded to the nearest integer.


  Example 3--Fixed for Floating NY RBOB (Platts) Calendar Swap Futures
Reference Price...................  Platts Oilgram next to expire
                                     contract Price Report for New York
                                     RBOB (Barge) through the NYMEX spot
                                     month.
Fixed Price.......................  $1.8894 per gallon.
Floating Price....................  For each contract month, the
                                     floating price is equal to the
                                     arithmetic average of the high and
                                     low quotations from Platts Oilgram
                                     Price Report for New York RBOB
                                     (Barge) for each business day that
                                     it is determined during the
                                     contract month.
Calculation Period................  One quarter.
Notional Quantity.................  84 million gallons/quarter.
Fixed Price Payer.................  Company A.
Floating Price Payer..............  Company B.
Settlement Type...................  Financial.
Swap Term.........................  Six full months from January 1 to
                                     June 30.
Floating Amount...................  Floating Price * Notional Quantity.
Fixed Amount......................  Fixed Price * Notional Quantity.
------------------------------------------------------------------------

    NYMEX NY RBOB (Platts) Calendar Swap Futures Contract month ends on 
the final business day of the contract month. For simplicity in this 
example, the last trading day in each futures contract is shown as the 
final day of the month.

                Futures Equivalent Position on January 1

Total Notional Quantity = 2 quarters * 84 million = 168 million gallons
42,000 gallons = 1 futures contract
Therefore 168 million/42,000 gallons/futures contract = 4,000 futures 
          equivalent contracts
Total number of days = 31 + 28 + 31 + 30 + 31 + 30 = 181

                                Futures Equivalent Position of Swap on January 1
----------------------------------------------------------------------------------------------------------------
                                                                                Company A          Company B
       Dates swap in force           Referent futures     Fraction of days   position (long)    position (short)
                                           month                                 [dagger]           [dagger]
----------------------------------------------------------------------------------------------------------------
January 1-March 31...............  April...............             90/181               1989              -1989
April 1-June 30..................  July................             91/181               2011              -2011
                                                        --------------------------------------------------------
    Total........................  ....................            181/181               4000              -4000
----------------------------------------------------------------------------------------------------------------
[dagger] Contracts rounded to the nearest integer.


                     Example 4--Calendar Spread Swap
Reference Price...................  The difference between the next to
                                     expire contract price for the NYMEX
                                     WTI Futures contract and the
                                     deferred contract price for the
                                     NYMEX WTI Futures contract.
Fixed Price.......................  $80 per barrel.
Floating Price....................  The arithmetic average of the
                                     reference price during the pricing
                                     period.
Calculation Period................  One month.
Notional Quantity.................  100,000 bbls/month.
Fixed Price Payer.................  Company A.
Floating Price Payer..............  Company B.
Settlement Type...................  Financial.
Swap Term.........................  Six full months from January 1 to
                                     June 30.
Floating Amount...................  Floating Price * Notional Quantity.

[[Page 458]]

 
Fixed Amount......................  Fixed Price * Notional Quantity.
------------------------------------------------------------------------

    NYMEX WTI trading in the next to expire futures contract ceases on 
the third business day prior to the 25th of the calendar month preceding 
the contract month. For simplicity in this example, the last trading day 
in each WTI futures contract is shown as the 22nd of the month.

                Futures Equivalent Position on January 1

Total Notional Quantity = 6 months * 100,000 bbls/month = 600,000 bbls
1,000 bbl = 1 futures contract
Therefore 600,000 bbls/1,000 bbls/contract = 600 futures equivalent 
          contracts
Total number of days = 31 + 28 + 31 + 30 + 31 + 30 = 181

                                                    Futures Equivalent Position of Swap on January 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Applicable
                                                                next to       Company A       Company B      Applicable     Company A        Company B
              Dates swap in force                Fraction of     expire       position         position       deferred       position        position
                                                     days       futures    (long)[dagger]  (short)[dagger]    futures    (short)[dagger]  (long)[dagger]
                                                                 month                                         month
--------------------------------------------------------------------------------------------------------------------------------------------------------
January 1--January 22..........................       22/181     February             73             -73          March            -73               73
January 23--February 22........................       31/181        March            103            -103          April           -103              103
February 23--March 22..........................       28/181        April             93             -93            May            -93               93
March 23--April 22.............................       31/181          May            103            -103           June           -103              103
April 23--May 22...............................       30/181         June             99             -99           July            -99               99
May 23--June 22................................       31/181         July            103            -103         August           -103              103
June 23--June 30th.............................        8/181       August             27             -27      September            -27               27
                                                --------------------------------------------------------------------------------------------------------
    ,n,s,s,n,sTotal.........................      181/181  ...........            601            -601    ...........           -601              601
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] Contracts rounded to the nearest integer.


  Example 5--Columbia Gulf, Mainline Midpoint (``Midpoint') Basis Swap
Reference Price...................  The Platts Gas Daily Columbia Gulf,
                                     Mainline Midpoint (``Midpoint'')
                                     and the next to expire NYMEX (Henry
                                     Hub) Natural Gas Futures contract.
Fixed Price.......................  $0.05 per MMBtu.
Floating Price....................  The Floating Price will be equal to
                                     the arithmetic average of the daily
                                     value of the Platts Gas Daily
                                     Columbia Gulf, Mainline Midpoint
                                     (``Midpoint'') minus the NYMEX
                                     (Henry Hub) Natural Gas Futures
                                     contract daily settlement price.
Calculation Period................  Monthly.
Notional Quantity.................  10,000 MMBtu/calendar day.
Fixed Price Payer.................  Company A.
Floating Price Payer..............  Company B.
Settlement type...................  Financial.
Swap Term.........................  One month from January 1 to January
                                     31.
Floating Amount...................  Floating Price * Notional Quantity *
                                     calendar days in the month.
Fixed Amount......................  Fixed Price * Notional Quantity *
                                     calendar days in the month.
------------------------------------------------------------------------

    NYMEX Henry Hub Natural Gas Futures Contract trading ceases three 
business days prior to the first day of the delivery month. For 
simplicity in this example, the last trading day in the futures contract 
is shown as the 28th of the month.

                Futures Equivalent Position on January 1

Total Notional Quantity for each leg = 1 month * 31 days/month * 10,000 
          MMBtu/day = 310,000 MMBtu
10,000 MMBtu = 1 futures contract
Therefore 310,000 MMBtu/10,000 MMBtu/contract = 31 futures equivalent 
          contracts
Total number of days = 31

[[Page 459]]



                                                    Futures Equivalent Position of Swap on January 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Company A                       Company B
                                                                                            position in      Company A      position in      Company B
                                                                                          Columbia Gulf,    Position in   Columbia Gulf,    position in
                                                               Fraction of    Referent        ainline      NYMEX (Henry      Mainline      NYMEX (Henry
                     Dates swap in force                          days         futures       Midpoint      Hub) natural      Midpoint      Hub) natural
                                                                                month     (``Midpoint'')    gas futures   (``Midpoint'')    gas futures
                                                                                            natural gas       (short)       natural gas       (long)
                                                                                           (long) MMBtu                    (short) MMBtu
--------------------------------------------------------------------------------------------------------------------------------------------------------
January 1--January 28.......................................         28/31      February  [dagger][dagge             -28  [dagger][dagge              28
                                                                                              r][dagger]                      r][dagger]
January 29--January 31......................................          3/31         March  ..............              -3  ..............               3
                                                             -------------------------------------------------------------------------------------------
    ,n,sTotal..............................................         31/31  ............  ..............             -31  ..............              31
--------------------------------------------------------------------------------------------------------------------------------------------------------
 [dagger][dagger][dagger] Note: Because there is no underlying position taken in a basis contract, for reporting purposes, only enter the futures
  equivalent contract quantities into the corresponding futures.


                     Example 6--WTI Swaption (Call)
Swaption Style....................  American.
Option Type.......................  Call.
Swaption Start Date...............  Jan 1 of the current year.
Swaption End Date.................  June 30 of the current year.
Strike Price......................  $80.50/bbl.
Notional Quantity.................  100,000 bbl/month.
Calculation Period................  One month.
Reference Price...................  Daily official next to expire
                                     contract price for WTI NYMEX Crude
                                     Oil Futures Contract in $/bbl
                                     through the NYMEX spot month.
Fixed Price.......................  $80.00 per barrel per month.
Floating Price....................  The arithmetic average of the
                                     reference price during the pricing
                                     period.
Settlement Type...................  Financial.
Swap Term.........................  One month from July 1 to July 31 of
                                     the current year.
Floating Amount...................  Floating Price * Notional Quantity.
Fixed Amount......................  Fixed Price * Notional Quantity.
------------------------------------------------------------------------

    NYMEX WTI trading ceases on the third business day prior to the 25th 
of the calendar month preceding the delivery month. For simplicity in 
this example, the last trading day in each WTI futures contract is shown 
as the 22nd of the month.

                Futures Equivalent Position on January 1

Total Notional Quantity = 1 month*100,000 bbls/month=100,000 bbls
1,000 bbl = 1 futures contract
Therefore 100,000 bbls/1,000 bbls/contract = 100 futures equivalent 
          contracts
Total number of days = 31

                                           Gross Position on January 1
----------------------------------------------------------------------------------------------------------------
                                                                                    Company A       Company B
          Dates swap in force             Referent futures month    Fraction of     position         position
                                                                       days      (long)[dagger]  (short)[dagger]
----------------------------------------------------------------------------------------------------------------
July 1 -July 22.......................  August...................         22/31             70              -70
July 23--July 31......................  September................          9/31             29              -29
                                                                  ----------------------------------------------
    Total.............................  .........................         31/31             99              -99
----------------------------------------------------------------------------------------------------------------
[dagger] Contracts rounded to the nearest integer.


              Delta[dagger][dagger] Adjusted Position and Futures Equivalent Position on January 1
----------------------------------------------------------------------------------------------------------------
                                                    August                                September
               Date               ------------------------------------------------------------------------------
                                           Delta              Position            Delta             Position
----------------------------------------------------------------------------------------------------------------
January 1........................  .2..................                 14                 .2                  5
----------------------------------------------------------------------------------------------------------------
[dagger][dagger] Deltas should be calculated in an economically reasonable and analytically supportable basis.


                       Example 7--WTI Collar Swap
Swaption Style....................  American.
Swaption Start Date...............  Jan 1 of the current year.
Swaption End Date.................  June 30 of the current year.
Call strike Price.................  $70.00 per bbl.
Put strike price..................  $90.00 per bbl.

[[Page 460]]

 
Notional Quantity.................  100,000 barrels per month.
Calculation Period................  One month.
Reference Price...................  Daily official next to expire
                                     contract price for WTI NYMEX Crude
                                     Oil in $/bbl through the NYMEX spot
                                     month.
Fixed Price.......................  $80.00 per barrel.
Floating Price....................  The arithmetic average of the
                                     reference price during the pricing
                                     period.
Settlement Type...................  Financial.
Swap Term.........................  One month from July 1 to July 31 of
                                     the current year.
Floating Amount...................  Floating Price * Notional Quantity.
Fixed Amount......................  Fixed Price * Notional Quantity.
------------------------------------------------------------------------

    NYMEX WTI trading ceases on the third business day prior to the 25th 
of the calendar month preceding the delivery month. For simplicity in 
this example, the last trading day in each WTI futures contract is shown 
as the 22nd of the month.

                Futures Equivalent Position on January 1

Total Notional Quantity = 1 month * 100,000 bbls/month = 100,000 bbls
1,000 bbl = 1 futures contract
Therefore 100,000 bbls/1,000 bbls/contract = 100 futures equivalent 
          contracts
Total number of days = 31

                                                               Gross Position on January 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Company A position              Company B position
            Dates swap in force                  Referent futures month      Fraction of ---------------------------------------------------------------
                                                                                days           Call             Put            Call             Put
--------------------------------------------------------------------------------------------------------------------------------------------------------
July 1-July 22.............................  August.......................         22/31           70.97           70.97          -70.97          -70.97
July 23-July 31............................  September....................          9/31           29.03           29.03          -29.03          -29.03
                                                                           -----------------------------------------------------------------------------
    Total..................................  .............................         31/31          100             100            -100            -100
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                Company (A) Delta[dagger] Adjusted Position on January 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              August                                         September
                                                         -----------------------------------------------------------------------------------------------
                          Date                                   Long call               Short put               Long call               Short put
                                                         -----------------------------------------------------------------------------------------------
                                                             Delta     Position      Delta     Position      Delta                   Delta     Position
--------------------------------------------------------------------------------------------------------------------------------------------------------
January 1...............................................          .7          49          .3         -21          .7          20          .3          -8
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] Deltas should be calculated in an economically reasonable and analytically supportable basis.


                                    Futures Equivalent Position on January 1
----------------------------------------------------------------------------------------------------------------
                                             August[dagger][dagger]               September[dagger][dagger]
                Date                 ---------------------------------------------------------------------------
                                             Long              Short               Long              Short
----------------------------------------------------------------------------------------------------------------
January 1...........................                 70                  0                 28                  0
----------------------------------------------------------------------------------------------------------------
[dagger][dagger] Contracts rounded to the nearest integer.



 Sec. Appendix B to Part 20--Explanatory Guidance on Data Record Layouts

                  Record Layout Examples forSec. 20.3

    The following example (in Tables 1, 2 and 3) covers reporting for a 
particular clearing organization. ``Clearing Organization One'' would 
report, for the 27th of September 2010, the following eleven unique data 
record submissions. Each data record submission represents a unique 
position, as indicated bySec. 20.3, held by a clearing member of 
Clearing Organization One. Paragraph (a) ofSec. 20.3 broadly outlines 
the data elements that determine unique positions for reports on 
clearing member positions. Paragraphs (b) ofSec. 20.3 present all of 
the data elements that should be submitted in reference to a particular 
data record for a particular clearing member (in Table 1). Paragraph (c) 
identifies data elements that would comprise end of day record data on 
cleared products (in Tables 2 and 3). Therefore, paragraphs (b) and (c) 
ofSec. 20.3 present all of the data elements that should be submitted 
in reference to a particular data record.
    Because CFTC designated Clearing Organization One (in this example) 
currently has two clearing members, ``Clearing Member One'' and 
``Clearing Member Two,'' positions

[[Page 461]]

cleared for these two distinct clearing members would be subdivided.
    In the following example it is assumed that the clearing member 
accounts are either proprietary or customer (but not both) and therefore 
data record submissions do not have to be delineated by these account 
types. However, if clearing members did have both proprietary and 
customer accounts, then a clearing organization would have to further 
subdivide these clearing member data records by these two account types.
    Clearing Member One currently has five positions with multiple 
cleared product IDs and futures equivalent months/years, and therefore 
these positions also constitute separate data records.
    Clearing Member Two currently has six positions with the following 
varying characteristics: Cleared product IDs; futures equivalent months/
years; commodity reference prices; swaption positions that involve both 
puts and calls; and multiple strike prices. Accordingly, these positions 
must be reported in separate data records. An illustration of how these 
records would appear is included in Table 1 below. Clearing Organization 
One would also have to report the corresponding swaption position 
deltas, strike prices, expiration dates, and settlement prices and swap 
settlement prices. An illustration of these submissions is included in 
Tables 2 and 3 below.

                                       Table 1--Data Records Reported Under Paragraphs (a) and (b) ofSec.  20.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Proprietary/
                                 CFTC clearing     Clearing org      Clearing org                          customer         Futures         Commodity
         Data records               org ID        clearing member   cleared product    Reporting day       account         equivalent    reference price
                                                        ID                ID                              indicator      month and year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1................  CCO--ID--1......  CM--ID--2.......  CP--04..........  9/27/2010.......  C..............  Nov-10.........  NYMEX NY Harbor
                                                                                                                                          No.2.
Data record 2................  CCO--ID--1......  CM--ID--2.......  CP--04..........  9/27/2010.......  C..............  Oct-10.........  NYMEX NY Harbor
                                                                                                                                          No.2.
Data record 3................  CCO--ID--1......  CM--ID--2.......  CP--02..........  9/27/2010.......  C..............  Nov-10.........  NYMEX Henry
                                                                                                                                          Hub.
Data record 4................  CCO--ID--1......  CM--ID--2.......  CP--02..........  9/27/2010.......  C..............  Oct-10.........  NYMEX Henry
                                                                                                                                          Hub.
Data record 5................  CCO--ID--1......  CM--ID--2.......  CP--02..........  9/27/2010.......  C..............  Nov-10.........  NYMEX Henry
                                                                                                                                          Hub.
Data record 6................  CCO--ID--1......  CM--ID--2.......  CP--02..........  9/27/2010.......  C..............  Oct-10.........  NYMEX Henry
                                                                                                                                          Hub.
Data record 7................  CCO--ID--1......  CM--ID--1.......  CP--03..........  9/27/2010.......  P..............  Mar-11.........  NYMEX Light
                                                                                                                                          Sweet.
Data record 8................  CCO--ID--1......  CM--ID--1.......  CP--03..........  9/27/2010.......  P..............  Feb-11.........  NYMEX Light
                                                                                                                                          Sweet.
Data record 9................  CCO--ID--1......  CM--ID--1.......  CP--01..........  9/27/2010.......  P..............  Mar-11.........  NYMEX Light
                                                                                                                                          Sweet.
Data record 10...............  CCO--ID--1......  CM--ID--1.......  CP--01..........  9/27/2010.......  P..............  Feb-11.........  NYMEX Light
                                                                                                                                          Sweet.
Data record 11...............  CCO--ID--1......  CM--ID--1.......  CP--01..........  9/27/2010.......  P..............  Jan-11.........  NYMEX Light
                                                                                                                                          Sweet.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½--------------------------------------------------------------------------------------------------------------------------
NDR..........................  Yes.............  Yes.............  Yes.............  Yes.............  Yes............  Yes............  No.
--------------------------------------------------------------------------------------------------------------------------------------------------------
         Data records              Long swap        Short swap         Put/call          Swaption      Swaption strike     Non-delta        Non-delta
                                    position          position         indicator      expiration date        price        adjusted long   adjusted short
                                                                                                                            swaption         swaption
                                                                                                                            position         position
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1................  0...............  5000
Data record 2................  0...............  2000
Data record 3................  ................  ................  C...............  7/29/2011.......  5.59...........  2000...........  0
Data record 4................  ................  ................  C...............  7/29/2011.......  5.59...........  18000..........  0
Data record 5................  ................  ................  P...............  7/29/2011.......  5.50...........  100............  30
Data record 6................  ................  ................  P...............  7/29/2011.......  5.50...........  900............  270
Data record 7................  5000............  0
Data record 8................  5000............  0
Data record 9................  429.............  1286
Data record 10...............  2281............  6843
Data record 11...............  1290............  3871
NDR..........................  No..............  No..............  Yes.............  Yes.............  Yes............  No.............  No.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 462]]

    Note: The bottom row of Table 1 indicates whether data elements for 
which any difference in one of the elements constitutes a reason for a 
new data record (NDR).

                                                                      Table 2--Example of Data Records Required UnderSec.  20.3(c) for Cleared Swaption Products
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                   CFTC clearing org     Clearing org                         Futures equivalent       Commodity           Swaption         Swaption strike                                             Swaption daily
          Data records                    ID          cleared product ID     Reporting day      month and year      reference price     expiration date          price        Put/call indicator         Delta         settlement price
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  CCO--ID--1........  CP--02............  9/27/2010.........  Nov-10............  NYMEX Henry Hub...  7/29/2011.........  5.59..............  C.................  .5................  6.25
Data record 2...................  CCO--ID--1........  CP--02............  9/27/2010.........  Oct-10............  NYMEX Henry Hub...  7/29/2011.........  5.59..............  C.................  .5................  5.50
Data record 3...................  CCO--ID--1........  CP--02............  9/27/2010.........  Nov-10............  NYMEX Henry Hub...  7/29/2011.........  5.50..............  P.................  .2................  4.53
Data record 4...................  CCO--ID--1........  CP--02............  9/27/2010.........  Oct-10............  NYMEX Henry Hub...  7/29/2011.........  5.50..............  P.................  .2................  4.78
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                Table 3--Example of Data Records Required UnderSec.  20.3(c) for Cleared Swap Products
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   CFTC clearing org     Clearing org                         Futures equivalent       Commodity          Swap daily
          Data records                    ID          cleared product ID     Reporting day      month and year      reference price    settlement price
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  CCO--ID--1........  CP--04............  9/27/2010.........  Nov-10............  NYMEX NY Harbor     20.35
                                                                                                                   No. 2.
Data record 2...................  CCO--ID--1........  CP--04............  9/27/2010.........  Oct-10............  NYMEX NY Harbor     10.50
                                                                                                                   No. 2.
Data record 3...................  CCO--ID--1........  CP--03............  9/27/2010.........  Mar-11............  NYMEX Light Sweet.  15.00
Data record 4...................  CCO--ID--1........  CP--03............  9/27/2010.........  Feb-11............  NYMEX Light Sweet.  21.00
Data record 5...................  CCO--ID--1........  CP--01............  9/27/2010.........  Mar-11............  NYMEX Light Sweet.  17.50
Data record 6...................  CCO--ID--1........  CP--01............  9/27/2010.........  Feb-11............  NYMEX Light Sweet.  21.65
Data record 7...................  CCO--ID--1........  CP--01............  9/27/2010.........  Jan-11............  NYMEX Light Sweet.  12.50
--------------------------------------------------------------------------------------------------------------------------------------------------------

               First Record Layout Example forSec. 20.4:

    This first example shows the data records generated underSec. 20.4 
by a single reporting firm for report date September 27, 2011. Each data 
record represents a unique part of a reportable position in heating oil 
and natural gas by the reporting entity and its counterparties. 
Paragraph (b) ofSec. 20.4 outlines the data elements that determine 
unique positions.
    In this example, the reporting entity clears with one clearing 
organization and therefore the data records do not have to be delineated 
by clearing organization (there is a reportable position stemming from 
an uncleared transaction included as well). However, if the reporting 
entity in this example used multiple clearing organizations, then it 
would have to further subdivide its data submissions by each clearing 
organization.
    The reporting entity reports fifteen records; six principal 
positions and nine counterparty positions. The reported positions 
constitute separate data records because they vary by the following 
characteristics: swap counterparties; futures equivalent months/years; 
clearing organization cleared products; swaptions that were either 
cleared or uncleared; commodity reference prices; and whether the trade 
was entered into on or off execution facilities. An illustration of how 
these records would be reported is included in Table 4 below.
    For the calculation of notional values, assume for simplicity that 
the price of heating oil, for all contract months and for both reference 
prices, is $3/gal. Similarly, assume that the price of natural gas for 
all contract months is $4.25/MMBtu.

    Note: The bottom two rows in Table 4 indicate whether, for uncleared 
and cleared swaps and swaptions, data elements for which any difference 
in one of the elements constitutes a reason for a new data record (NDR).

[[Page 463]]



                                                                 Table 4--Example of Data Records Reported UnderSec.  20.4(c)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Commission          Principal/
          Data records             reporting entity      counterparty          102S Swap       Counterparty name     Reporting day       Clearing org       Commodity code    Futures equivalent
                                          ID          position indicator    counterparty ID                                           cleared product ID                        month and year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  CRE--ID--1........  PRIN..............  ..................  ..................  9/27/2011.........  CPID--05..........  HO................  Jan-12
Data record 2...................  CRE--ID--1........  COUNT.............  CP--01............  Energy Firm 1.....  9/27/2011.........  CPID--05..........  HO................  Jan-12
Data record 3...................  CRE--ID--1........  COUNT.............  CP--02............  Energy Firm 2.....  9/27/2011.........  CPID--05..........  HO................  Jan-12
Data record 4...................  CRE--ID--1........  PRIN..............  ..................  ..................  9/27/2011.........  CPID--04..........  HO................  Feb-12
Data record 5...................  CRE--ID--1........  COUNT.............  CP--03............  Energy Firm 3.....  9/27/2011.........  CPID--04..........  HO................  Feb-12
Data record 6...................  CRE--ID--1........  PRIN..............  ..................  ..................  9/27/2011.........  CPID--04..........  HO................  Mar-12
Data record 7...................  CRE--ID--1........  COUNT.............  CP--04............  ABC--Firm.........  9/27/2011.........  CPID--04..........  HO................  Mar-12
Data record 8...................  CRE--ID--1........  PRIN..............  ..................  ..................  9/27/2011.........  CDIP--07..........  NG................  Mar-12
Data record 9...................  CRE--ID--1........  COUNT.............  CP--05............  XYZ--Firm.........  9/27/2011.........  CDIP--07..........  NG................  Mar-12
Data record 10..................  CRE--ID--1........  COUNT.............  CP--06............  WVU--Firm.........  9/27/2011.........  CDIP--07..........  NG................  Mar-12
Data record 11..................  CRE--ID--1........  COUNT.............  CP--01............  Energy--Firm--1...  9/27/2011.........  CDIP--07..........  NG................  Mar-12
Data record 12..................  CRE--ID--1........  PRIN..............  ..................  ..................  9/27/2011.........  CDIP--07..........  NG................  Mar-12
Data record 13..................  CRE--ID--1........  COUNT.............  CP--07............  MNO--Firm.........  9/27/2011.........  CDIP--07..........  NG................  Mar-12
Data record 14..................  CRE--ID--1........  PRIN..............  ..................  ..................  9/27/2011.........  UNCL..............  NG................  Jan-12
Data record 15..................  CRE--ID--1........  COUNT.............  CP--02............  Energy Firm 2.....  9/27/2011.........  UNCL..............  NG................  Jan-12
NDR Uncleared...................  Yes...............  Yes...............  Yes...............  No................  Yes...............  N/A...............  No................  Yes
NDR Cleared.....................  Yes...............  Yes...............  Yes...............  No................  Yes...............  Yes...............  No................  Yes
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Cleared/uncleared     CFTC clearing org    Commodity reference                          Long swap      Short swap
           Data records                   indicator            identifier               price          Execution facility      position       position
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1.....................  C...................  CCO--ID--1..........  Platts Oilgram Price  EX1.................  200
                                                                                 Report for New York
                                                                                 No. 2 (Barge).
Data record 2.....................  C...................  CCO--ID--1..........  Platts Oilgram Price  EX1.................  .............  50
                                                                                 Report for New York
                                                                                 No. 2 (Barge).
Data record 3.....................  C...................  CCO--ID--1..........  Platts Oilgram Price  EX1.................  .............  150
                                                                                 Report for New York
                                                                                 No. 2 (Barge).
Data record 4.....................  C...................  CCO--ID--1..........  NYMEX NY Harbor No.2  EX2.................  350
Data record 5.....................  C...................  CCO--ID--1..........  NYMEX NY Harbor No.2  EX2.................  .............  350
Data record 6.....................  C...................  CCO--ID--1..........  NYMEX NY Harbor No.2  EX1.................  100
Data record 7.....................  C...................  CCO--ID--1..........  NYMEX NY Harbor No.2  EX1.................  .............  100
Data record 8.....................  C...................  CCO--ID--1..........  NYMEX Henry Hub.....  EX3.................  200            100
Data record 9.....................  C...................  CCO--ID--1..........  NYMEX Henry Hub.....  EX3.................  .............  125
Data record 10....................  C...................  CCO--ID--1..........  NYMEX Henry Hub.....  EX3.................  .............  75
Data record 11....................  C...................  CCO--ID--1..........  NYMEX Henry Hub.....  EX3.................  100
Data record 12....................  C...................  CCO--ID--1..........  NYMEX Henry Hub.....  EX1.................  .............
Data record 13....................  C...................  CCO--ID--1..........  NYMEX Henry Hub.....  EX1.................  .............
Data record 14....................  U...................  U...................  NYMEX Henry Hub.....  NOEX................  .............
Data record 15....................  U...................  U...................  NYMEX Henry Hub.....  NOEX................  .............
NDR Uncleared.....................  Yes.................  N/A.................  Yes.................  Yes.................  No             No
NDR Cleared.......................  Yes.................  Yes.................  No..................  Yes.................  No             No
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Non-delta         Non-delta                                           Long swap or      Short swap or
                                    Put/call          Swaption       Swaption strike    adjusted long    adjusted short    Delta adjusted    Delta adjusted       swaption          swaption
         Data records               indicator      expiration date        price           swaption          swaption        long swaption    short swaption    notional value    notional value
                                                                                          position          position          position          position          position          position
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1.................  ................  ................  ................  ................  ................  ................  ................  $25,200,000.....
Data record 2.................  ................  ................  ................  ................  ................  ................  ................  ................  $6,300,000
Data record 3.................  ................  ................  ................  ................  ................  ................  ................  ................  $18,900,000
Data record 4.................  ................  ................  ................  ................  ................  ................  ................  $44,100,000.....
Data record 5.................  ................  ................  ................  ................  ................  ................  ................  ................  $44,100,000
Data record 6.................  ................  ................  ................  ................  ................  ................  ................  $12,600,000.....
Data record 7.................  ................  ................  ................  ................  ................  ................  ................  ................  $12,600,000
Data record 8.................  ................  ................  ................  ................  ................  ................  ................  $8,500,000......  $4,250,000
Data record 9.................  ................  ................  ................  ................  ................  ................  ................  ................  $5,312,500
Data record 10................  ................  ................  ................  ................  ................  ................  ................  ................  $3,187,500
Data record 11................  ................  ................  ................  ................  ................  ................  ................  $4,250,000......

[[Page 464]]

 
Data record 12................  C...............  2/27/2012.......  4.00............  100.............  ................  80..............  ................  $3,400,000......
Data record 13................  C...............  2/27/2012.......  4.00............  ................  100.............  ................  80..............  ................  $3,400,000
Data record 14................  C...............  12/27/2011......  4.25............  100.............  ................  95..............  ................  $4,037,500......
Data record 15................  C...............  12/27/2011......  4.25............  ................  100.............  ................  95..............  ................  $4,037,500
NDR Uncleared.................  Yes.............  Yes.............  Yes.............  No..............  No..............  No..............  No..............  No..............  No
NDR Cleared...................  Yes.............  Yes.............  Yes.............  No..............  No..............  No..............  No..............  No..............  No
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

              Second Record Layout Example forSec. 20.4:

    In this second example, the data records generated bySec. 20.4(c) 
are displayed for a hypothetical swap, as detailed in Example 1 of 
appendix A. In contrast to the above example, this second example of a 
Sec.  20.4(c) data record is simplistic in that it displays a situation 
where the position records arise from a single swap transaction, in one 
commodity, with a single counterparty.
    For the sake of this example, assume the swap dealer gained long 
exposure from the swap, and that the swap was cleared. The price of 
crude is assumed to be $100/bbl for all contract months on January 1 and 
$95/bbl for all contract months on January 2. An illustration of the 
data records generated for January 1, 2011 and January 2, 2011 as a 
result of this hypothetical swap can be found in Tables 5 and 6, 
respectively.

                                             Table 5--Example of Data Records Reported UnderSec.  20.4(c) for January 1, 2011 (Appx A, Example 1)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Commission          Principal/
          Data records             reporting entity      counterparty          102S swap       Counterparty Name     Reporting day       Clearing org       Commodity code    Futures equivalent
                                          ID          position indicator    counterparty ID                                           cleared product ID                        month and year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Feb-11
Data record 2...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Mar-11
Data record 3...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Apr-11
Data record 4...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  May-11
Data record 5...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Jun-11
Data record 6...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Jul-11
Data record 7...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Aug-11
Data record 8...................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Feb-11
Data record 9...................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Mar-11
Data record 10..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Apr-11
Data record 11..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  May-11
Data record 12..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Jun-11
Data record 13..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Jul-11
Data record 14..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Aug-11
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                             Table 5--Example of Data Records Reported UnderSec.  20.4(c) for January 1, 2011 (Appx A, Example 1)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Commission          Principal/
          Data records             reporting entity      counterparty          102S swap       Counterparty Name     Reporting day       Clearing org       Commodity code    Futures equivalent
                                          ID          position indicator    counterparty ID                                           cleared product ID                        month and year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Feb-11
Data record 2...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Mar-11
Data record 3...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Apr-11
Data record 4...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  May-11
Data record 5...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Jun-11
Data record 6...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Jul-11
Data record 7...................  SD--1.............  PRIN..............  ..................  ..................  1/1/2011..........  CPID--03..........  CL................  Aug-11
Data record 8...................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Feb-11
Data record 9...................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Mar-11
Data record 10..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Apr-11
Data record 11..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  May-11
Data record 12..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Jun-11
Data record 13..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Jul-11
Data record 14..................  SD--1.............  COUNT.............  CP--01............  Energy--Firm--1...  1/1/2011..........  CPID--03..........  CL................  Aug-11
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 465]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Cleared/uncleared   CFTC clearing org       Commodity                                                  Short swap
          Data records                 indicator          identifier        reference price   Execution facility  Long swap position       position
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  73................
Data record 2...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  103...............
Data record 3...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  93................
Data record 4...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  103...............
Data record 5...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  99................
Data record 6...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  103...............
Data record 7...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  27................
Data record 8...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  73
Data record 9...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  103
Data record 10..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  93
Data record 11..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  103
Data record 12..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  99
Data record 13..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  103
Data record 14..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  27
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                             Table 6--Example of Data Records Reported UnderSec.  20.4(c) for January 2, 2011 (Appx A, Example 1)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Commission          Principal/
          Data records             reporting entity      counterparty          102S Swap       Counterparty name     Reporting day       Clearing org       Commodity code    Futures equivalent
                                          ID          position indicator    counterparty ID                                           cleared product ID                        month and year
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  Feb-11
Data record 2...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  Mar-11
Data record 3...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  Apr-11
Data record 4...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  May-11
Data record 5...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  Jun-11
Data record 6...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  Jul-11
Data record 7...................  SD--1.............  PRIN..............  ..................  ..................  1/2/2011..........  CPID--03..........  CL................  Aug-11
Data record 8...................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  Feb-11
Data record 9...................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  Mar-11
Data record 10..................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  Apr-11
Data record 11..................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  May-11
Data record 12..................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  Jun-11
Data record 13..................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  Jul-11
Data record 14..................  SD--1.............  COUNT.............  Counterparty--1...  Energy Firm.......  1/2/2011..........  CPID--03..........  CL................  Aug-11
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Cleared/uncleared   CFTC clearing org       Commodity                                                  Short swap
          Data records                 indicator          identifier        reference price   Execution facility  Long swap position       position
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  70................
Data record 2...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  103...............
Data record 3...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  93................
Data record 4...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  103...............
Data record 5...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  99................
Data record 6...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  103...............
Data record 7...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  27................
Data record 8...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  70
Data record 9...................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  103
Data record 10..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  93
Data record 11..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  103
Data record 12..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  99
Data record 13..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  103
Data record 14..................  C.................  CCO--ID--1........  NYMEX Light Sweet.  EX1...............  ..................  27
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                      Long swap or   Short swap
                                                                                             Non-delta          Non-delta        Delta adjusted     Delta adjusted      swaption     or swaption
         Data records                Put/call           Swaption       Swaption strike     adjusted long      adjusted short     long swaption      long swaption       notional      notional
                                    indicator       expiration date         price        swaption position  swaption position       position           position          value          value
                                                                                                                                                                        position      position
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1.................  .................  .................  .................  .................  .................  .................  .................  $6,650,000
Data record 2.................  .................  .................  .................  .................  .................  .................  .................  $9,785,000
Data record 3.................  .................  .................  .................  .................  .................  .................  .................  $8,835,000
Data record 4.................  .................  .................  .................  .................  .................  .................  .................  $9,785,000
Data record 5.................  .................  .................  .................  .................  .................  .................  .................  $9,405,000
Data record 6.................  .................  .................  .................  .................  .................  .................  .................  $9,785,000

[[Page 466]]

 
Data record 7.................  .................  .................  .................  .................  .................  .................  .................  $2,565,000
Data record 8.................  .................  .................  .................  .................  .................  .................  .................  .............  $6,650,000
Data record 9.................  .................  .................  .................  .................  .................  .................  .................  .............  $9,785,000
Data record 10................  .................  .................  .................  .................  .................  .................  .................  .............  $8,835,000
Data record 11................  .................  .................  .................  .................  .................  .................  .................  .............  $9,785,000
Data record 12................  .................  .................  .................  .................  .................  .................  .................  .............  $9,405,000
Data record 13................  .................  .................  .................  .................  .................  .................  .................  .............  $9,785,000
Data record 14................  .................  .................  .................  .................  .................  .................  .................  .............  $2,565,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART 21_SPECIAL CALLS--Table of Contents



Sec.
21.00 Preparation and transmission of information upon special call.
21.01 Special calls for information on controlled accounts from futures 
          commission merchants, clearing members and introducing 
          brokers.
21.02 Special calls for information on open contracts in accounts 
          carried or introduced by futures commission merchants, 
          clearing members, members of reporting markets, introducing 
          brokers, and foreign brokers.
21.03 Selected special calls-duties of foreign brokers, domestic and 
          foreign traders, futures commission merchants, clearing 
          members, introducing brokers, and reporting markets.
21.04 Special calls for information on customer accounts or related 
          cleared positions.
21.05 Delegation of authority to the Director of the Division of Market 
          Oversight.
21.06 Delegation of authority to the Director of the Division of 
          Clearing and Risk.

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 
7a, 12a, 19 and 21, as amended by Pub. L. 111-203, 124 Stat. 1376; 5 
U.S.C. 552 and 552(b), unless otherwise noted.

    Source: 41 FR 3210, Jan. 21, 1976, unless otherwise noted.



Sec.  21.00  Preparation and transmission of information upon special
call.

    All information required upon special call shall be prepared in such 
form and manner and in accordance with such instructions, and shall be 
transmitted at such time and to such office of the Commission, as may be 
specified in the call.



Sec.  21.01  Special calls for information on controlled accounts from
futures commission merchants, clearing members and introducing brokers.

    Upon call by the Commission, each futures commission merchant, 
clearing member and introducing broker shall file with the Commission 
the names and addresses of all persons who, by power of attorney or 
otherwise, exercise trading control over any customer's account in 
commodity futures or commodity options on any reporting market.

[74 FR 12192, Mar. 23, 2009]



Sec.  21.02  Special calls for information on open contracts in 
accounts carried or introduced by futures commission merchants, 
clearing members, members of reporting markets, introducing brokers,
and foreign brokers.

    Upon special call by the Commission for information relating to 
futures or option positions held or introduced on the dates specified in 
the call, each futures commission merchant, clearing member, member of a 
reporting market, introducing broker, or foreign broker, and, in 
addition, for option information, each reporting market, shall furnish 
to the Commission the following information concerning accounts of 
traders owning or controlling such futures or option positions, except 
for accounts carried on a fully disclosed basis by another futures 
commission merchant or clearing member, as may be specified in the call:
    (a) The name, address, and telephone number of the person for whom 
each account is carried;

[[Page 467]]

    (b) The principal business or occupation of the person for whom each 
account is introduced or carried, as specified in the call;
    (c) The type of each such account;
    (d) The name, address and principal business or occupation of any 
person who controls the trading of each account;
    (e) The name and address of any person having a financial interest 
of ten percent or more in each account;
    (f) The number of open futures or option positions introduced or 
carried in each account, as specified in the call;
    (g) The total number of futures contracts exchanged for commodities 
or for derivatives positions;
    (h) The total number of futures contracts against which delivery 
notices have been issued or received; and
    (i) As applicable, the following identifying information:
    (1) Whether a trader who holds commodity futures or option positions 
is classified as a commercial or as a noncommercial trader for each 
commodity futures or option contract;
    (2) Whether the open commodity futures or option contracts are 
classified as speculative, spreading (straddling), or hedging; and
    (3) Whether any of the accounts in question are omnibus accounts 
and, if so, whether the originator of the omnibus account is another 
futures commission merchant, clearing member or foreign broker.

(Approved by the Office of Management and Budget under control number 
3038-0017)

[46 FR 63036, Dec. 30, 1981, and 47 FR 57016, Dec. 22, 1982, as amended 
at 48 FR 35301, Aug. 3, 1983; 49 FR 1339, Jan. 11, 1984; 51 FR 4720, 
Feb. 7, 1986; 71 FR 37821, July 3, 2006; 72 FR 50211, Aug. 31, 2007; 74 
FR 12192, Mar. 23, 2009]



Sec.  21.03  Selected special calls-duties of foreign brokers, domestic
and foreign traders, futures commission merchants, clearing members,
introducing brokers, and reporting markets.

    (a) For purposes of this section, the term ``accounts of a futures 
commission merchant, clearing member or foreign broker'' means all open 
contracts and transactions in futures and options on the records of the 
futures commission merchant, clearing member or foreign broker; the term 
``beneficial interest'' means having or sharing in any rights, 
obligations or financial interest in any futures or options account; the 
term ``customer'' means any futures commission merchant, clearing 
member, introducing broker, foreign broker, or trader for whom a futures 
commission merchant, clearing member or reporting market that is a 
registered entity under section 1a(29) of the Act makes or causes to be 
made a futures or options contract. Paragraphs (e), (g) and (h) of this 
section shall not apply to any futures commission merchant, clearing 
member or customer whose books and records are open at all times to 
inspection in the United States by any representative of the Commission.
    (b) It shall be unlawful for a futures commission merchant to open a 
futures or options account or to effect transactions in futures or 
options contracts for an existing account, or for an introducing broker 
to introduce such an account, for any customer for whom the futures 
commission merchant or introducing broker is required to provide the 
explanation provided for inSec. 15.05(c) of this chapter, or for a 
reporting market that is a registered entity under section 1a(40)(F) of 
the Act, to cause to open an account, or to cause transactions to be 
effected, in a contract traded in reliance on a Commission grandfather 
relief order issued pursuant to Section 723(c)(2)(B) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 
Stat. 1376 (2010)), for an existing account for any person that is a 
foreign clearing member or foreign trader, until the futures commission 
merchant, introducing broker, clearing member or reporting market has 
explained fully to the customer, in any manner that such person deems 
appropriate, the provisions of this section.
    (c) Upon a determination by the Commission that information 
concerning accounts may be relevant information in enabling the 
Commission to determine whether the threat of a market manipulation, 
corner, squeeze, or other market disorder exists on any reporting 
market, the Commission may issue a call for information from a futures 
commission merchant, clearing

[[Page 468]]

member, introducing broker or customer pursuant to the provisions of 
this section.
    (d) In the event the call is issued to a foreign broker, foreign 
clearing member or foreign trader, its agent, designated pursuant to 
Sec.  15.05 of this chapter, shall, if directed, promptly transmit calls 
made by the Commission pursuant to this section by electronic mail or a 
similarly expeditious means of communication.
    (e) The futures commission merchant, clearing member, introducing 
broker, or customer to whom the special call is issued must provide to 
the Commission the information specified below for the commodity, 
reporting market and delivery months or option expiration dates named in 
the call. Such information shall be filed at the place and within the 
time specified by the Commission.
    (1) For each account of a futures commission merchant, clearing 
member, introducing broker, or foreign broker, including those accounts 
in the name of the futures commission merchant, clearing member or 
foreign broker, on the dates specified in the call issued pursuant to 
this section, such persons shall provide the Commission with the 
following information:
    (i) The name and address of the person in whose name the account is 
carried or introduced and, if the person is not an individual, the name 
of the individual to contact regarding the account;
    (ii) The total open futures and options contracts in the account;
    (iii) The number of futures contracts against which delivery notices 
have been issued or received and the number against which exchanges of 
futures for cash have been transacted during the period of time 
specified in the call;
    (iv) Whether the account is carried for and in the name of another 
futures commission merchant, clearing member, introducing broker, or 
foreign broker; and
    (v) For the accounts which are not carried for and in the name of 
another futures commission merchant, clearing member, introducing 
broker, or foreign broker, the name and address of any other person who 
controls the trading of the account, and the name and address of any 
person who has a ten percent or more beneficial interest in the account.
    (2) Each trader shall provide the Commission with the following 
information:
    (i) The total open futures and options contracts owned or controlled 
on the dates specified in the call;
    (ii) The name and address of any person having a ten percent or more 
beneficial interest in the open futures or options contracts reported 
pursuant to this paragraph;
    (iii) The name and address of any other person who controls the 
trading of the open futures or options contracts reported pursuant to 
this paragraph; and
    (iv) The cash commodity transaction and position information 
required to be maintained pursuant toSec. 18.05 of this chapter as 
specified in the call which relates to futures or options positions of 
the trader in the United States.
    (f) If the Commission has reason to believe that any person has not 
responded as required to a call made pursuant to this section, the 
Commission in writing may inform the reporting market specified in the 
call and that reporting market shall prohibit the execution of, and no 
futures commission merchant, clearing member, introducing broker, or 
foreign broker shall effect a transaction in connection with trades on 
the reporting market and in the months or expiration dates specified in 
the call for or on behalf of the futures commission merchant or customer 
named in the call, unless such trades offset existing open contracts of 
such futures commission merchant or customer.
    (g) Any person named in a special call that believes he or she is or 
may be adversely affected or aggrieved by action taken by the Commission 
under paragraph (f) of this section shall have the opportunity for a 
prompt hearing after the Commission acts. That person may immediately 
present in writing to the Commission for its consideration any comments 
or arguments concerning the Commission's action and may present for 
Commission consideration any documentary or other evidence that person 
deems appropriate. Upon request, the Commission may, in

[[Page 469]]

its discretion, determine that an oral hearing be conducted to permit 
the further presentation of information and views concerning any matters 
by any or all such persons. The oral hearing may be held before the 
Commission or any person designated by the Commission, which person 
shall cause all evidence to be reduced to writing and forthwith transmit 
the same and a recommended decision to the Commission. The Commission's 
directive under paragraph (f) of this section shall remain in effect 
unless and until modified or withdrawn by the Commission.
    (h) If, during the course of or after the Commission acts pursuant 
to paragraph (f) of this section, the Commission determines that it is 
appropriate to undertake a proceeding pursuant to section 6(c) of the 
Act, the Commission shall issue a complaint in accordance with the 
requirements of section 6(c), and, upon further determination by the 
Commission that the conditions described in paragraph (c) of this 
section still exist, a hearing pursuant to section 6(c) of the Act shall 
commence no later than five business days after service of the 
complaint. In the event the person served with the complaint under 
section 6(c) of the Act has, prior to the commencement of the hearing 
under section 6(c) of the Act, sought a hearing pursuant to paragraph 
(g) of this section and the Commission has determined to accord him such 
a hearing, the two hearings shall be conducted simultaneously. Nothing 
in this section shall preclude the Commission from taking other 
appropriate action under the Act or the Commission's regulations 
thereunder, including action under section 6(c) of the Act, regardless 
of whether the conditions described in paragraph (c) of this section 
still exist, and no ruling issued in the course of a hearing pursuant to 
paragraph (g) or this paragraph shall constitute an estoppel against the 
Commission in any other action.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[46 FR 63036, Dec. 30, 1981, and 47 FR 45001, Oct. 13, 1982, as amended 
at 48 FR 35301, Aug. 3, 1983; 59 FR 5702, Feb. 8, 1994; 71 FR 37821, 
July 3, 2006; 74 FR 12192, Mar. 23, 2009; 77 FR 66334, Nov. 2, 2012]



Sec.  21.04  Special calls for information on customer accounts or 
related cleared positions.

    Upon special call by the Commission, each futures commission 
merchant, clearing member or foreign broker shall provide information to 
the Commission concerning customer accounts or related positions cleared 
on a derivatives clearing organization in the format and manner and 
within the time provided by the Commission in the special call.

[76 FR 69430, Nov. 8, 2011]



Sec.  21.05  Delegation of authority to the Director of the Division 
of Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the special call authority set forth in Sec.Sec. 21.01 and 
21.02 to the Director of the Division of Market Oversight to be 
exercised by such Director or by such other employee or employees of 
such Director as designated from time to time by the Director. The 
Director of the Division of Market Oversight may submit to the 
Commission for its consideration any matter which has been delegated in 
this paragraph. Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated in 
this section to the Director.

[74 FR 12193, Mar. 23, 2009. Redesignated at 76 FR 69430, Nov. 8, 2011]



Sec.  21.06  Delegation of authority to the Director of the Division
of Clearing and Risk.

    The Commission hereby delegates, until the Commission orders 
otherwise, the special call authority set forth inSec. 21.04 to the 
Director of the Division of Clearing and Risk to be exercised by such 
Director or by such other employee or employees of such Director as 
designated from time to time by the Director. The Director of the 
Division of Clearing and Risk may submit to the Commission for its 
consideration any matter which has been delegated in this section. 
Nothing in this section

[[Page 470]]

shall be deemed to prohibit the Commission, at its election, from 
exercising the authority delegated in this section to the Director.

[76 FR 69430, Nov. 8, 2011]



PART 22_CLEARED SWAPS--Table of Contents



Sec.
22.1 Definitions.
22.2 Futures commission merchants: Treatment of Cleared Swaps Customer 
          Collateral.
22.3 Derivatives clearing organizations: Treatment of Cleared Swaps 
          Customer Collateral.
22.4 Futures commission merchants and derivatives clearing 
          organizations: Permitted depositories.
22.5 Futures commission merchants and derivatives clearing 
          organizations: Written acknowledgement.
22.6 Futures commission merchants and derivatives clearing 
          organizations: Naming of Cleared Swaps Customer Accounts.
22.7 Permitted depositories: Treatment of Cleared Swaps Customer 
          Collateral.
22.8 Situs of Cleared Swaps Customer Accounts.
22.9 Denomination of Cleared Swaps Customer Collateral and location of 
          depositories.
22.10 Application of other regulatory provisions.
22.11 Information to be provided regarding Cleared Swaps Customers and 
          their Cleared Swaps.
22.12 Information to be maintained regarding Cleared Swaps Customer 
          Collateral.
22.13 Additions to Cleared Swaps Customer Collateral.
22.14 Futures Commission Merchant failure to meet a Cleared Swaps 
          Customer Margin Call in full.
22.15 Treatment of Cleared Swaps Customer Collateral on an individual 
          basis.
22.16 Disclosures to Cleared Swaps Customers.

    Authority: 7 U.S.C. 1a, 6d, 7a-1 as amended by Pub. L. 111-203, 124 
Stat. 1376.

    Source: 77 FR 6371, Feb. 7, 2012, unless otherwise noted.



Sec.  22.1  Definitions.

    For the purposes of this part:
    Cleared Swap. This term refers to a transaction constituting a 
``cleared swap'' within the meaning of section 1a(7) of the Act.
    (1) This term shall exclude any swap (along with money, securities, 
or other property received to margin, guarantee, or secure such a swap) 
that, pursuant to a Commission rule, regulation, or order, is (along 
with such money, securities, or other property) commingled with a 
commodity future or option (along with money, securities, or other 
property received to margin, guarantee, or secure such a future or 
option) that is segregated pursuant to section 4d(a) of the Act.
    (2) This term shall include any trade or contract (along with money, 
securities or other property received to margin, guarantee, or secure 
such a trade or contract), that
    (i) Would be required to be segregated pursuant to section 4d(a) of 
the Act, or
    (ii) Would be subject toSec. 30.7 of this chapter, but which is, 
in either case, pursuant to a Commission rule, regulation, or order (or 
a derivatives clearing organization rule approved in accordance with 
Sec.  39.15(b)(2) of this chapter), commingled with a swap (along with 
money, securities, or other property received to margin, guarantee, or 
secure such a swap) in an account segregated pursuant to section 4d(f) 
of the Act.
    Cleared Swaps Customer. This term refers to any person entering into 
a Cleared Swap, but shall exclude:
    (1) Any owner or holder of a Cleared Swaps Proprietary Account with 
respect to the Cleared Swaps in such account; and
    (2) A clearing member of a derivatives clearing organization with 
respect to Cleared Swaps cleared on that derivatives clearing 
organization. A person shall be a Cleared Swaps Customer only with 
respect to its Cleared Swaps.
    Cleared Swaps Customer Account. This term refers to any account for 
the Cleared Swaps of Cleared Swaps Customers and associated Cleared 
Swaps Customer Collateral that:
    (1) A futures commission merchant maintains on behalf of Cleared 
Swaps Customers (including, in the case of a Collecting Futures 
Commission Merchant, the Cleared Swaps Customers of a Depositing Futures 
Commission Merchant) or
    (2) A derivatives clearing organization maintains for futures 
commission merchants on behalf of Cleared Swaps Customers thereof.

[[Page 471]]

    Cleared Swaps Customer Collateral. (1) This term means all money, 
securities, or other property received by a futures commission merchant 
or by a derivatives clearing organization from, for, or on behalf of a 
Cleared Swaps Customer, which money, securities, or other property:
    (i) Is intended to or does margin, guarantee, or secure a Cleared 
Swap; or
    (ii) Constitutes, if a Cleared Swap is in the form or nature of an 
option, the settlement value of such option.
    (2) This term shall also include accruals, i.e., all money, 
securities, or other property that a futures commission merchant or 
derivatives clearing organization receives, directly or indirectly, 
which is incident to or results from a Cleared Swap that a futures 
commission merchant intermediates for a Cleared Swaps Customer.
    Cleared Swaps Proprietary Account. (1) This term means an account 
for Cleared Swaps and associated collateral that is carried on the books 
and records of a futures commission merchant for persons with certain 
relationships with that futures commission merchant, specifically:
    (i) Where such account is carried for a person falling within one of 
the categories specified in paragraph (2) of this definition, or
    (ii) Where ten percent or more of such account is owned by a person 
falling within one of the categories specified in paragraph (2) of this 
definition, or
    (iii) Where an aggregate of ten percent or more of such account is 
owned by more than one person falling within one or more of the 
categories specified in paragraph (2) of this definition.
    (2) The relationships to the futures commission merchant referred to 
in paragraph (1) of this definition are as follows:
    (i) Such individual himself, or such partnership, corporation or 
association itself;
    (ii) In the case of a partnership, a general partner in such 
partnership;
    (iii) In the case of a limited partnership, a limited or special 
partner in such partnership whose duties include:
    (A) The management of the partnership business or any part thereof;
    (B) The handling, on behalf of such partnership, of:
    (1) The Cleared Swaps of Cleared Swaps Customers or
    (2) The Cleared Swaps Customer Collateral;
    (C) The keeping, on behalf of such partnership, of records 
pertaining to
    (1) the Cleared Swaps of Cleared Swaps Customers or
    (2) the Cleared Swaps Customer Collateral; or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) In the case of a corporation or association, an officer, 
director, or owner of ten percent or more of the capital stock of such 
organization;
    (v) An employee of such individual, partnership, corporation or 
association whose duties include:
    (A) The management of the business of such individual, partnership, 
corporation or association or any part thereof;
    (B) The handling, on behalf of such individual, partnership, 
corporation, or association, of the Cleared Swaps of Cleared Swaps 
Customers or the Cleared Swaps Customer Collateral;
    (C) The keeping of records, on behalf of such individual, 
partnership, corporation, or association, pertaining to the Cleared 
Swaps of Cleared Swaps Customers or the Cleared Swaps Customer 
Collateral; or
    (D) The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, corporation, or association;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that, directly or indirectly, controls 
such individual, partnership, corporation, or association; or
    (viii) A business affiliate that, directly or indirectly, is 
controlled by or is under common control with, such individual, 
partnership, corporation or association. Provided, however, that an 
account owned by any shareholder or member of a cooperative association 
of producers, within the meaning of section 6a of the Act, which 
association is registered as a futures commission merchant and carries 
such account on

[[Page 472]]

its records, shall be deemed to be a Cleared Swaps Customer Account and 
not a Cleared Swaps Proprietary Account of such association, unless the 
shareholder or member is an officer, director, or manager of the 
association.
    Clearing Member. This term means any person that has clearing 
privileges such that it can process, clear and settle trades through a 
derivatives clearing organization on behalf of itself or others. The 
derivatives clearing organization need not be organized as a membership 
organization.
    Collecting Futures Commission Merchant. A futures commission 
merchant that carries Cleared Swaps on behalf of another futures 
commission merchant and the Cleared Swaps Customers of the latter 
futures commission merchant, and as part of carrying such Cleared Swaps, 
collects Cleared Swaps Customer Collateral.
    Commingle. To commingle two or more items means to hold such items 
in the same account, or to combine such items in a transfer between 
accounts.
    Depositing Futures Commission Merchant. A futures commission 
merchant that carries Cleared Swaps on behalf of its Cleared Swaps 
Customers through another futures commission merchant and, as part of 
carrying such Cleared Swaps, deposits Cleared Swaps Customer Collateral 
with such futures commission merchant.
    Permitted Depository. This term shall have the meaning set forth in 
Sec.  22.4 of this part.
    Segregate. To segregate two or more items is to keep them in 
separate accounts, and to avoid combining them in the same transfer 
between two accounts.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012]



Sec.  22.2  Futures Commission Merchants: Treatment of Cleared Swaps
and Associated Cleared Swaps Customer Collateral.

    (a) General. A futures commission merchant shall treat and deal with 
the Cleared Swaps of Cleared Swaps Customers and associated Cleared 
Swaps Customer Collateral as belonging to Cleared Swaps Customers.
    (b) Location of Cleared Swaps Customer Collateral. (1) A futures 
commission merchant must segregate all Cleared Swaps Customer Collateral 
that it receives, and must either hold such Cleared Swaps Customer 
Collateral itself as set forth in paragraph (b)(2) of this section, or 
deposit such collateral into one or more Cleared Swaps Customer Accounts 
held at a Permitted Depository, as set forth in paragraph (b)(3) of this 
section.
    (2) If a futures commission merchant holds Cleared Swaps Customer 
Collateral itself, then the futures commission merchant must:
    (i) Physically separate such collateral from its own property;
    (ii) Clearly identify each physical location in which it holds such 
collateral as a ``Location of Cleared Swaps Customer Collateral'' (the 
``FCM Physical Location'');
    (iii) Ensure that the FCM Physical Location provides appropriate 
protection for such collateral; and
    (iv) Record in its books and records the amount of such Cleared 
Swaps Customer Collateral separately from its own funds.
    (3) If a futures commission merchant holds Cleared Swaps Customer 
Collateral in a Permitted Depository, then:
    (i) The Permitted Depository must qualify pursuant to the 
requirements set forth inSec. 22.4 of this part, and
    (ii) The futures commission merchant must maintain a Cleared Swaps 
Customer Account with each such Permitted Depository.
    (c) Commingling. (1) A futures commission merchant may commingle the 
Cleared Swaps Customer Collateral that it receives from, for, or on 
behalf of multiple Cleared Swaps Customers.
    (2) A futures commission merchant shall not commingle Cleared Swaps 
Customer Collateral with either of the following:
    (i) Funds belonging to the futures commission merchant, except as 
expressly permitted in paragraph (e)(3) of this section; or
    (ii) Other categories of funds belonging to Futures Customers (as 
Sec.  1.3 of this chapter defines that term), or Foreign Futures or 
Foreign Options Customers (asSec. 30.1 of this chapter defines that 
term) of the futures commission

[[Page 473]]

merchant, including Futures Customer Funds (asSec. 1.3 of this chapter 
defines such term) or the foreign futures or foreign options secured 
amount (asSec. 1.3 of this chapter defines such term), except as 
expressly permitted by Commission rule, regulation, or order, or by a 
derivatives clearing organization rule approved in accordance withSec. 
39.15(b)(2) of this chapter.
    (d) Limitations on use. (1) No futures commission merchant shall 
use, or permit the use of, the Cleared Swaps Customer Collateral of one 
Cleared Swaps Customer to purchase, margin, or settle the Cleared Swaps 
or any other trade or contract of, or to secure or extend the credit of, 
any person other than such Cleared Swaps Customer. Cleared Swaps 
Customer Collateral shall not be used to margin, guarantee, or secure 
trades or contracts of the entity constituting a Cleared Swaps Customer 
other than in Cleared Swaps, except to the extent permitted by a 
Commission rule, regulation or order.
    (2) A futures commission merchant may not impose or permit the 
imposition of a lien on Cleared Swaps Customer Collateral, including any 
residual financial interest of the futures commission merchant in such 
collateral, as described in paragraph (e)(4) of this section.
    (3) A futures commission merchant may not include, as Cleared Swaps 
Customer Collateral,
    (i) Money invested in the securities, memberships, or obligations of 
any derivatives clearing organization, designated contract market, swap 
execution facility, or swap data repository, or
    (ii) Money, securities, or other property that any derivatives 
clearing organization holds and may use for a purpose other than those 
set forth inSec. 22.3 of this part.
    (e) Exceptions. Notwithstanding the foregoing:
    (1) Permitted investments. A futures commission merchant may invest 
money, securities, or other property constituting Cleared Swaps Customer 
Collateral in accordance withSec. 1.25 of this chapter.
    (2) Permitted withdrawals. Such share of Cleared Swaps Customer 
Collateral as in the normal course of business shall be necessary to 
margin, guarantee, secure, transfer, adjust, or settle a Cleared Swaps 
Customer's Cleared Swaps with a derivatives clearing organization, or 
with a Collecting Futures Commission Merchant, may be withdrawn and 
applied to such purposes, including the payment of commissions, 
brokerage, interest, taxes, storage, and other charges, lawfully 
accruing in connection with such Cleared Swaps.
    (3) Deposits of own money, securities, or other property. (i) In 
order to ensure that it is always in compliance with paragraph (f) of 
this section, a futures commission merchant may place in an FCM Physical 
Location or deposit in a Cleared Swaps Customer Account its own money, 
securities, or other property (provided, that such securities or other 
property are unencumbered and are of the types specified inSec. 1.25 
of this chapter).
    (ii) Money, securities, or other property deposited by a futures 
commission merchant pursuant to 22.13(b) and available to a derivatives 
clearing organization or Collecting Futures Commission Merchant to meet 
the obligations of the futures commission merchant's Cleared Swaps 
Customers collectively, shall be maintained in an account separate from 
the Cleared Swaps Customer Account.
    (4) Residual financial interest. (i) If, in accordance with 
paragraph (e)(3)(i) of this section, a futures commission merchant 
places in an FCM Physical Location or deposits in a Cleared Swaps 
Customer Account its own money, securities, or other property, then such 
money, securities, or other property (including accruals thereon) shall 
constitute Cleared Swaps Customer Collateral.
    (ii) The futures commission merchant shall have a residual financial 
interest in any portion of such money, securities, or other property in 
excess of that necessary for compliance with paragraph (f)(4) of this 
section.
    (iii) The futures commission merchant may withdraw money, 
securities, or other property from the FCM Physical Location or Cleared 
Swaps Customer Account, to the extent of its residual financial interest 
therein. At the time of such withdrawal, the futures commission merchant 
shall ensure that

[[Page 474]]

the withdrawal does not cause its residual financial interest to become 
less than zero.
    (f) Requirements as to amount. (1) For purposes of thisSec. 
22.2(f), the term ``account'' shall reference the entries on the books 
and records of a futures commission merchant pertaining to the Cleared 
Swaps Customer Collateral of a particular Cleared Swaps Customer.
    (2) The futures commission merchant must reflect in the account that 
it maintains for each Cleared Swaps Customer the market value of any 
Cleared Swaps Customer Collateral that it receives from such customer, 
as adjusted by:
    (i) Any uses permitted underSec. 22.2(d) of this part;
    (ii) Any accruals on permitted investments of such collateral under 
Sec.  22.2(e) of this part that, pursuant to the futures commission 
merchant's customer agreement with that customer, are creditable to such 
customer;
    (iii) Any charges lawfully accruing to the Cleared Swaps Customer, 
including any commission, brokerage fee, interest, tax, or storage fee; 
and
    (iv) Any appropriately authorized distribution or transfer of such 
collateral.
    (3) If the market value of Cleared Swaps Customer Collateral in the 
account of a Cleared Swaps Customer is positive after adjustments, then 
that account has a credit balance. If the market value of Cleared Swaps 
Customer Collateral in the account of a Cleared Swaps Customer is 
negative after adjustments, then that account has a debit balance.
    (4) The futures commission merchant must maintain in segregation, in 
its FCM Physical Locations and/or its Cleared Swaps Customer Accounts at 
Permitted Depositories, an amount equal to the sum of any credit 
balances that the Cleared Swaps Customers of the futures commission 
merchant have in their accounts, excluding from such sum any debit 
balances that the Cleared Swaps Customers of the futures commission 
merchant have in their accounts.
    (5) Notwithstanding the foregoing, the futures commission merchant 
must include, in calculating the sum referenced in paragraph (f)(4) of 
this section, any debit balance that a Cleared Swaps Customer may have 
in its account, to the extent that such balance is secured by ``readily 
marketable securities'' that the Cleared Swaps Customer deposited with 
the futures commission merchant.
    (i) For purposes of this section, ``readily marketable'' shall be 
defined as having a ``ready market'' as such latter term is defined in 
Rule 15c3-1(c)(11) of the Securities and Exchange Commission (Sec.  
241.15c3-1(c)(11) of this title).
    (ii) In order for a debit balance to be deemed secured by ``readily 
marketable securities,'' the futures commission merchant must maintain a 
security interest in such securities, and must hold a written 
authorization to liquidate the securities at the discretion of the 
futures commission merchant.
    (iii) To determine the amount secured by ``readily marketable 
securities,'' the futures commission merchant shall:
    (A) Determine the market value of such securities; and
    (B) Reduce such market value by applicable percentage deductions 
(i.e., ``securities haircuts'') as set forth in Rule 15c3-1(c)(2)(vi) of 
the Securities and Exchange Commission (Sec.  240.15c3-1(c)(2)(vi) of 
this title). The portion of the debit balance, not exceeding 100 per 
cent, that is secured by the reduced market value of such readily 
marketable securities shall be included in calculating the sum referred 
to in paragraph (f)(4) of this section.
    (g) Segregated account; Daily computation and record. (1) Each 
futures commission merchant must compute as of the close of each 
business day, on a currency-by-currency basis:
    (i) The aggregate market value of the Cleared Swaps Customer 
Collateral in all FCM Physical Locations and all Cleared Swaps Customer 
Accounts held at Permitted Depositories (the ``Collateral Value'');
    (ii) The sum referenced in paragraph (f)(4) of this section (the 
``Collateral Requirement''); and
    (iii) The amount of the residual financial interest that the futures 
commission merchant holds in such Cleared Swaps Customer Collateral,

[[Page 475]]

which shall equal the difference between the Collateral Value and the 
Collateral Requirement.
    (2) The futures commission merchant must complete the daily 
computations required by this section prior to noon on the next business 
day and must keep such computations, together with all supporting data, 
in accordance with the requirements ofSec. 1.31 of this chapter.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012]



Sec.  22.3  Derivatives clearing organizations: Treatment of cleared
swaps customer collateral.

    (a) General. A derivatives clearing organization shall treat and 
deal with the Cleared Swaps Customer Collateral deposited by a futures 
commission merchant as belonging to the Cleared Swaps Customers of such 
futures commission merchant and not other persons, including, without 
limitation, the futures commission merchant.
    (b) Location of Cleared Swaps Customer Collateral. (1) The 
derivatives clearing organization must segregate all Cleared Swaps 
Customer Collateral that it receives from futures commission merchants, 
and must either hold such Cleared Swaps Customer Collateral itself as 
set forth in paragraph (b)(2) of this section, or deposit such 
collateral into one or more Cleared Swaps Customer Accounts held at a 
Permitted Depository, as set forth in paragraph (b)(3) of this section.
    (2) If a derivatives clearing organization holds Cleared Swaps 
Customer Collateral itself, then the derivatives clearing organization 
must:
    (i) Physically separate such collateral from its own property, the 
property of any futures commission merchant, and the property of any 
other person that is not a Cleared Swaps Customer of a futures 
commission merchant;
    (ii) Clearly identify each physical location in which it holds such 
collateral as ``Location of Cleared Swaps Customer Collateral'' (the 
``DCO Physical Location'');
    (iii) Ensure that the DCO Physical Location provides appropriate 
protection for such collateral; and
    (iv) Record in its books and records the amount of such Cleared 
Swaps Customer Collateral separately from its own funds, the funds of 
any futures commission merchant, and the funds of any other person that 
is not a Cleared Swaps Customer of a futures commission merchant.
    (3) If a derivatives clearing organization holds Cleared Swaps 
Customer Collateral in a Permitted Depository, then:
    (i) The Permitted Depository must qualify pursuant to the 
requirements set forth inSec. 22.4 of this part; and
    (ii) The derivatives clearing organization must maintain a Cleared 
Swaps Customer Account with each such Permitted Depository.
    (c) Commingling. (1) A derivatives clearing organization may 
commingle the Cleared Swaps Customer Collateral that it receives from 
multiple futures commission merchants on behalf of their Cleared Swaps 
Customers.
    (2) A derivatives clearing organization shall not commingle the 
Cleared Swaps Customer Collateral that it receives from a futures 
commission merchant on behalf of Cleared Swaps Customers with any of the 
following:
    (i) The money, securities, or other property belonging to the 
derivatives clearing organization;
    (ii) The money, securities, or other property belonging to any 
futures commission merchant; or
    (iii) Futures Customer Funds (asSec. 1.3 of this chapter defines 
such term) or the foreign futures or foreign options secured amount (as 
Sec.  1.3 of this chapter defines such term), except as expressly 
permitted by Commission rule, regulation, or order, (or by a derivatives 
clearing organization rule approved in accordance withSec. 39.15(b)(2) 
of this chapter).
    (d) Exceptions; Permitted Investments. Notwithstanding the foregoing 
andSec. 22.15, a derivatives clearing organization may invest the 
money, securities, or other property constituting Cleared Swaps Customer 
Collateral in accordance withSec. 1.25 of this chapter.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012]

[[Page 476]]



Sec.  22.4  Futures Commission Merchants and derivatives clearing
organizations: Permitted Depositories.

    In order for a depository to be a Permitted Depository:
    (a) The depository must (subject toSec. 22.9) be one of the 
following types of entities:
    (1) A bank located in the United States;
    (2) A trust company located in the United States;
    (3) A Collecting Futures Commission Merchant registered with the 
Commission (but only with respect to a Depositing Futures Commission 
Merchant providing Cleared Swaps Customer Collateral); or
    (4) A derivatives clearing organization registered with the 
Commission; and
    (b) The futures commission merchant or the derivatives clearing 
organization must hold a written acknowledgment letter from the 
depository as required bySec. 22.5 of this part.



Sec.  22.5  Futures commission merchants and derivatives clearing 
organizations: Written acknowledgement.

    (a) Before depositing Cleared Swaps Customer Collateral, the futures 
commission merchant or derivatives clearing organization shall obtain 
and retain in its files a separate written acknowledgement letter from 
each depository in accordance with Sec.Sec. 1.20 and 1.26 of this 
chapter, with all references to ``Futures Customer Funds'' modified to 
apply to Cleared Swaps Customer Collateral, and with all references to 
section 4d(a) or 4d(b) of the Act and the regulations thereunder 
modified to apply to section 4d(f) of the Act and the regulations 
thereunder.
    (b) The futures commission merchant or derivatives clearing 
organization shall adhere to all requirements specified in Sec.Sec. 
1.20 and 1.26 of this chapter regarding retaining, permitting access to, 
filing, or amending the written acknowledgement letter, in all cases as 
if the Cleared Swaps Customer Collateral comprised Futures Customer 
Funds subject to segregation pursuant to section 4d(a) or 4d(b) of the 
Act and the regulations thereunder.
    (c) Notwithstanding paragraph (a) of this section, an 
acknowledgement letter need not be obtained from a derivatives clearing 
organization that has made effective, pursuant to section 5c(c) of the 
Act and the regulations thereunder, rules that provide for the 
segregation of Cleared Swaps Customer Collateral, in accordance with all 
relevant provisions of the Act and the regulations thereunder.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012]



Sec.  22.6  Futures commission merchants and derivatives clearing 
organizations: Naming of Cleared Swaps Customer Accounts.

    The name of each Cleared Swaps Customer Account that a futures 
commission merchant or a derivatives clearing organization maintains 
with a Permitted Depository shall:
    (a) Clearly identify the account as a ``Cleared Swaps Customer 
Account'' and
    (b) Clearly indicate that the collateral therein is ``Cleared Swaps 
Customer Collateral'' subject to segregation in accordance with the Act 
and this part.



Sec.  22.7  Permitted depositories: Treatment of Cleared Swaps
Customer Collateral.

    A Permitted Depository shall treat all funds in a Cleared Swaps 
Customer Account as Cleared Swaps Customer Collateral. A Permitted 
Depository shall not hold, dispose of, or use any such Cleared Swaps 
Customer Collateral as belonging to any person other than:
    (a) The Cleared Swaps Customers of the futures commission merchant 
maintaining such Cleared Swaps Customer Account or;
    (b) The Cleared Swaps Customers of the futures commission merchants 
for which the derivatives clearing organization maintains such Cleared 
Swaps Customer Account.



Sec.  22.8  Situs of Cleared Swaps Customer Accounts.

    The situs of each of the following shall be located in the United 
States:
    (a) Each FCM Physical Location or DCO Physical Location;

[[Page 477]]

    (b) Each ``account,'' within the meaning ofSec. 22.2(f)(1), that a 
futures commission merchant maintains for each Cleared Swaps Customer; 
and
    (c) Each Cleared Swaps Customer Account on the books and records of 
a derivatives clearing organization with respect to the Cleared Swaps 
Customers of a futures commission merchant.



Sec.  22.9  Denomination of Cleared Swaps Customer Collateral and 
location of depositories.

    (a) Subject to paragraph (b) of this section, futures commission 
merchants and derivatives clearing organizations may hold Cleared Swaps 
Customer Collateral in the denominations, at the locations and 
depositories, and subject to the segregation requirements specified in 
Sec.  1.49 of this chapter.
    (b) Notwithstanding the requirements inSec. 1.49 of this chapter, 
a futures commission merchant's obligations to a Cleared Swaps Customer 
may be denominated in a currency in which funds have accrued to the 
Cleared Swaps Customer as a result of a Cleared Swap carried through 
such futures commission merchant, to the extent of such accruals.
    (c) Each depository referenced in paragraph (a) of this section 
shall be considered a Permitted Depository for purposes of this part. 
Provided, however, that a futures commission merchant shall only be 
considered a Permitted Depository to the extent that it is acting as a 
Collecting Futures Commission Merchant (asSec. 22.1 of this part 
defines such term).

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012]



Sec.  22.10  Application of other regulatory provisions.

    Sections 1.27, 1.28, 1.29, and 1.30 of this chapter shall apply to 
the Cleared Swaps Customer Collateral in accordance with the terms 
therein.

[77 FR 66335, Nov. 2, 2012]



Sec.  22.11  Information to be provided regarding Cleared Swaps
Customers and their Cleared Swaps.

    (a) Each Depositing Futures Commission Merchant shall:
    (1) The first time that the Depositing Futures Commission Merchant 
intermediates a Cleared Swap for a Cleared Swaps Customer with a 
Collecting Futures Commission Merchant, provide information sufficient 
to identify such Cleared Swaps Customer to the relevant Collection 
Futures Commission Merchant; and
    (2) At least once each business day thereafter, provide information 
to the relevant Collecting Futures Commission Merchant sufficient to 
identify, for each Cleared Swaps Customer, the portfolio of rights and 
obligations arising from the Cleared Swaps that the Depositing Futures 
Commission Merchant intermediates for such Cleared Swaps Customer.
    (b) If an entity serves as both a Depositing Futures Commission 
Merchant and a Collecting Futures Commission Merchant, then:
    (1) The information that such entity must provide to its Collecting 
Futures Commission Merchant pursuant to paragraph (a)(1) of this section 
shall also include information sufficient to identify each Cleared Swaps 
Customer of the Depositing Futures Commission Merchant for which such 
entity serves as a Collecting Futures Commission Merchant; and
    (2) The information that such entity must provide to its Collecting 
Futures Commission Merchant pursuant to paragraph (a)(2) of this section 
shall also include information sufficient to identify, for each Cleared 
Swaps Customer referenced in paragraph (b)(1) of this section, the 
portfolio of rights and obligations arising from the Cleared Swaps that 
such entity intermediates as a Collecting Futures Commission Merchant, 
on behalf of its Depositing Futures Commission Merchant, for such 
Cleared Swaps Customer.
    (c) Each futures commission merchant that intermediates a Cleared 
Swap for a Cleared Swaps Customer, on or subject to the rules of a 
derivatives clearing organization, directly as a Clearing Member shall:
    (1) The first time that such futures commission merchant 
intermediates a Cleared Swap for a Cleared Swaps Customer, provide 
information to the relevant derivatives clearing organization sufficient 
to identify such Cleared Swaps Customer; and

[[Page 478]]

    (2) At least once each business day thereafter, provide information 
to the relevant derivatives clearing organization sufficient to 
identify, for each Cleared Swaps Customer, the portfolio of rights and 
obligations arising from the Cleared Swaps that such futures commission 
merchant intermediates for such Cleared Swaps Customer.
    (d) If the futures commission merchant referenced in paragraph (c) 
of this section is a Collecting Futures Commission Merchant, then:
    (1) The information that it must provide to the derivatives clearing 
organization pursuant to paragraph (c)(1) of this section shall also 
include information sufficient to identify each Cleared Swaps Customer 
of any entity that acts as a Depositing Futures Commission Merchant in 
relation to the Collecting Futures Commission Merchant (including, 
without limitation, each Cleared Swaps Customer of any Depositing 
Futures Commission Merchant for which such entity also serves as a 
Collecting Futures Commission Merchant); and
    (2) The information that it must provide to the derivatives clearing 
organization pursuant to paragraph (c)(2) of this section shall also 
include information sufficient to identify, for each Cleared Swaps 
Customer referenced in paragraph (d)(1) of this section, the portfolio 
of rights and obligations arising from the Cleared Swaps that the 
Collecting Futures Commission Merchant intermediates, on behalf of the 
Depositing Futures Commission Merchant, for such Cleared Swaps Customer.
    (e) Each derivatives clearing organization shall:
    (1) Take appropriate steps to confirm that the information it 
receives pursuant to paragraphs (c)(1) or (c)(2) of this section is 
accurate and complete, and
    (2) Ensure that the futures commission merchant is providing the 
derivatives clearing organization the information required by paragraphs 
(c)(1) or (c)(2) of this section on a timely basis.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66335, Nov. 2, 2012]



Sec.  22.12  Information to be maintained regarding Cleared Swaps
Customer Collateral.

    (a) Each Collecting Futures Commission Merchant receiving Cleared 
Swaps Customer Collateral from an entity serving as a Depositing Futures 
Commission Merchant shall, no less frequently than once each business 
day, calculate and record:
    (1) the amount of collateral required at such Collecting Futures 
Commission Merchant for each Cleared Swaps Customer of the entity acting 
as Depositing Futures Commission Merchant (including, without 
limitation, each Cleared Swaps Customer of any Depositing Futures 
Commission Merchant for which such entity also serves as a Collecting 
Futures Commission Merchant); and
    (2) the sum of the individual collateral amounts referenced in 
paragraph (a)(1) of this section.
    (b) Each Collecting Futures Commission Merchant shall calculate the 
collateral amounts referenced in paragraph (a) of this section with 
respect to the portfolio of rights and obligations arising from the 
Cleared Swaps that the Collecting Futures Commission Merchant 
intermediates, on behalf of the Depositing Futures Commission Merchant, 
for each Cleared Swaps Customer referenced in paragraph (a)(1) of this 
section.
    (c) Each derivatives clearing organization receiving Cleared Swaps 
Customer Collateral from a futures commission merchant shall, no less 
frequently than once each business day, calculate and record:
    (1) the amount of collateral required at such derivatives clearing 
organization for each Cleared Swaps Customer of the futures commission 
merchant; and
    (2) the sum of the individual collateral amounts referenced in 
paragraph (c)(1) of this section.
    (d) If the futures commission merchant referenced in paragraph (c) 
of this section is a Collecting Futures Commission Merchant, then the 
derivatives clearing organization shall also perform and record the 
results of the calculation required in paragraph (c) of this section for 
each Cleared Swaps

[[Page 479]]

Customer of an entity acting as a Depositing Futures Commission Merchant 
in relation to the Collecting Futures Commission Merchant (including, 
without limitation, any Cleared Swaps Customer for which such entity is 
also acting as a Collecting Futures Commission Merchant).
    (e) Each futures commission merchant shall calculate the collateral 
amounts referenced in paragraph (c) of this section with respect to the 
portfolio of rights and obligations arising from the Cleared Swaps that 
the futures commission merchant intermediates (including, without 
limitation, as a Collecting Futures Commission Merchant on behalf of a 
Depositing Futures Commission Merchant), for each Cleared Swaps Customer 
referenced in paragraphs (c)(1) and (d) of this section.
    (f) The collateral requirement referenced in paragraph (a) of this 
section with respect to a Collecting Futures Commission Merchant shall 
be no less than that imposed by the relevant derivatives clearing 
organization with respect to the same portfolio of rights and 
obligations for each relevant Cleared Swaps Customer.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66335, Nov. 2, 2012]



Sec.  22.13  Additions to Cleared Swaps Customer Collateral.

    (a)(1) At the election of the derivatives clearing organization or 
Collecting Futures Commission Merchant, the collateral requirement 
referred to inSec. 22.12(a), (c), and (d) applicable to a particular 
Cleared Swaps Customer or group of Cleared Swaps Customers may be 
increased based on an evaluation of the credit risk posed by such 
Cleared Swaps Customer or group, in which case the derivatives clearing 
organization or Collecting Futures Commission Merchant shall collect and 
record such higher amount as provided inSec. 22.12.
    (2) Nothing in paragraph (a)(1) of this section is intended to 
interfere with the right of a futures commission merchant to increase 
the collateral requirements at such futures commission merchant with 
respect to any of its Cleared Swaps Customers, Futures Customers (as 
Sec.  1.3 of this chapter defines that term), or Foreign Futures or 
Foreign Options Customers (asSec. 30.1 of this chapter defines that 
term).
    (b) Any collateral deposited by a futures commission merchant 
(including a Depositing Futures Commission Merchant) pursuant toSec. 
22.2(e)(3)(ii) of this part, which collateral is identified as such 
futures commission merchant's own property may be used by the 
derivatives clearing organization or Collecting Futures Commission 
Merchant, as applicable, to margin, guarantee or secure the Cleared 
Swaps of any or all of such Cleared Swaps Customers.
    (c) A futures commission merchant may transmit to a derivatives 
clearing organization any collateral posted by a Cleared Swaps Customer 
in excess of the amount required by the derivatives clearing 
organization if:
    (1) the rules of the derivatives clearing organization expressly 
permit the futures commission merchant to transmit collateral in excess 
of the amount required by the derivatives clearing organization; and
    (2) the derivatives clearing organization provides a mechanism by 
which the futures commission merchant is able to, and maintains rules 
pursuant to which the futures commission merchant is required to, 
identify each Business Day, for each Cleared Swaps Customer, the amount 
of collateral posted in excess of the amount required by the derivatives 
clearing organization.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66335, Nov. 2, 2012]



Sec.  22.14  Futures Commission Merchant failure to meet a Cleared
Swaps Customer Margin Call in full.

    (a) A Depositing Futures Commission Merchant which receives a call 
for either initial margin or variation margin with respect to a Cleared 
Swaps Customer Account from a Collecting Futures Commission Merchant, 
which call such Depositing Futures Commission Merchant does not meet in 
full, shall, with respect to each Cleared Swaps Customer of such 
Depositing Futures Commission Merchant whose Cleared Swaps contribute to 
such margin call,
    (1) Transmit to the Collecting Futures Commission Merchant an amount 
equal to the lesser of
    (i) The amount called for; or

[[Page 480]]

    (ii) The remaining Cleared Swaps Collateral on deposit at such 
Depositing Futures Commission Merchant for that Cleared Swaps Customer; 
and
    (2) Advise the Collecting Futures Commission Merchant of the 
identity of each such Cleared Swaps Customer, and the amount transmitted 
on behalf of each such Cleared Swaps Customer.
    (b) If the entity acting as Depositing Futures Commission Merchant 
referenced in paragraph (a) of this section is also a Collecting Futures 
Commission Merchant, then:
    (1) Such entity shall include in the transmission required in 
paragraph (a)(1) of this section any amount that it receives, pursuant 
to paragraph (a)(1) of this section, from a Depositing Futures 
Commission Merchant for which such entity acts as a Collecting Futures 
Commission Merchant; and
    (2) Such entity shall present its Collecting Futures Commission 
Merchant with the information that it receives, pursuant to paragraph 
(a)(2) of this section, from a Depositing Futures Commission Merchant 
for which such entity acts as a Collecting Futures Commission Merchant.
    (c) A futures commission merchant which receives a call for either 
initial or variation margin with respect to a Cleared Swaps Customer 
Account from a derivatives clearing organization, which call such 
futures commission merchant does not meet in full, shall, with respect 
to each Cleared Swaps Customer of such futures commission merchant whose 
Cleared Swaps contribute to such margin call:
    (1) Transmit to the derivatives clearing organization an amount 
equal to the lesser of
    (i) The amount called for; or
    (ii) The remaining Cleared Swaps Collateral on deposit at such 
futures commission merchant for each such Cleared Swaps Customer; and
    (2) Advise the derivatives clearing organization of the identity of 
each such Cleared Swaps Customer, and the amount transmitted on behalf 
of each such Cleared Swaps Customer.
    (d) If the futures commission merchant referenced in paragraph (c) 
is a Collecting Futures Commission Merchant, then:
    (1) Such Collecting Futures Commission Merchant shall include in the 
transmission required in paragraph (c)(1) of this section any amount 
that it receives from a Depositing Futures Commission Merchant pursuant 
to paragraph (a)(1) of this section; and
    (2) Such Collecting Futures Commission shall present the derivatives 
clearing organization with the information that it receives from a 
Depositing Futures Commission Merchant pursuant to paragraph (a)(2) of 
this section.
    (e) If,
    (1) On the business day prior to the business day on which the 
Depositing Futures Commission Merchant fails to meet a margin call with 
respect to a Cleared Swaps Customer Account, such Collecting Futures 
Commission Merchant referenced in paragraph (a) of this section held, 
with respect to such account, Cleared Swaps Collateral of a value no 
less than the amount specified inSec. 22.12(a)(2) of this part, after 
the application of haircuts specified by policies applied by such 
Collecting Futures Commission Merchant in its relationship with the 
Depositing Futures Commission Merchant, and
    (2) As of the close of business on the business day on which the 
margin call is not met, the market value of the Cleared Swaps Collateral 
held by the derivatives clearing organization or Collecting Futures 
Commission Merchant is, due to changes in such market value, less than 
the amount specified inSec. 22.12(a)(2) of this part, then the amount 
of such collateral attributable to each Cleared Swaps Customer pursuant 
toSec. 22.12(a)(1) of this part shall be reduced by the percentage 
difference between the amount specified inSec. 22.12(a)(2) of this 
part and such market value.
    (f) If:
    (1) On the business day prior to the business day on which the 
futures commission merchant fails to meet a margin call with respect to 
a Cleared Swaps Customer Account, the derivatives clearing organization 
referenced in paragraph (c) of this section held, with respect to such 
account, Cleared Swaps Collateral of a value no less than the amount 
specified inSec. 22.12(c)(2) of this part, after the application of 
haircuts specified by the rules

[[Page 481]]

and procedures of such derivatives clearing organization, and
    (2) As of the close of business on the business day on which the 
margin call is not met, the market value of the Cleared Swaps Collateral 
held by the derivatives clearing organization is, due to changes in such 
market value, less than the amount specified inSec. 22.12(c)(2) of 
this part, then the amount of collateral attributable to each Cleared 
Swaps Customer pursuant toSec. 22.12(c)(1) of this part shall be 
reduced by the percentage difference between the amount specified in 
Sec.  22.12(c)(2) and such market value.
    (g) A derivatives clearing organization or Collecting Futures 
Commission Merchant is entitled to reasonably rely upon any information 
provided by a defaulting futures commission merchant underSec. 22.14. 
If the defaulting futures commission merchant does not provide such 
information on the date of the futures commission merchant's default, a 
derivatives clearing organization or Collecting Futures Commission 
Merchant may rely on the information previously provided to it by the 
defaulting futures commission merchant.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66335, Nov. 2, 2012]



Sec.  22.15  Treatment of Cleared Swaps Customer Collateral on an 
individual basis.

    Subject toSec. 22.3(d), each derivatives clearing organization and 
each Collecting Futures Commission Merchant receiving Cleared Swaps 
Customer Collateral from a futures commission merchant shall treat the 
value of collateral required with respect to the portfolio of rights and 
obligations arising out of the Cleared Swaps intermediated for each 
Cleared Swaps Customer, and collected from the futures commission 
merchant, as belonging to such Cleared Swaps Customer, and such amount 
shall not be used to margin, guarantee, or secure the Cleared Swaps or 
other obligations of the futures commission merchant, or of any other 
Cleared Swaps Customer, Futures Customer (asSec. 1.3 of this chapter 
defines that term), or Foreign Futures or Foreign Options Customer (as 
Sec.  30.1 of this chapter defines that term). Nothing contained herein 
shall be construed to limit, in any way, the right of a derivatives 
clearing organization or Collecting Futures Commission Merchant to 
liquidate any or all positions in a Cleared Swaps Customer Account in 
the event of a default of a clearing member or Depositing Futures 
Commission Merchant.

[77 FR 66335, Nov. 2, 2012]



Sec.  22.16  Disclosures to Cleared Swaps Customers.

    (a) A futures commission merchant shall disclose, to each of its 
Cleared Swaps Customers, the governing provisions, as described in 
paragraph (c) of this section, relating to use of Cleared Swaps Customer 
Collateral, transfer, neutralization of the risks, or liquidation of 
Cleared Swaps in the event of a default by the futures commission 
merchant relating to the Cleared Swaps Customer Account, as well as any 
change in such governing provisions.
    (b) If the futures commission merchant referenced in paragraph (a) 
of this section is a Depositing Futures Commission Merchant, then such 
futures commission merchant shall disclose, to each of its Cleared Swaps 
Customers, the governing provisions, as described in paragraph (c) of 
this section, relating to use of Cleared Swaps Customer Collateral, 
transfer, neutralization of the risks, or liquidation of Cleared Swaps 
in the event of a default by:
    (1) Such futures commission merchant or
    (2) Any relevant Collecting Futures Commission Merchant relating to 
the Cleared Swaps Customer Account, as well as any change in such 
governing provisions.
    (c) The governing provisions referred to in paragraphs (a) and (b) 
of this section are the rules of each derivatives clearing organization, 
or the provisions of the customer agreement between the Collecting 
Futures Commission Merchant and the Depositing Futures Commission 
Merchant, on or through which the Depositing Futures Commission Merchant 
will intermediate Cleared Swaps for such Cleared Swaps Customer.

[77 FR 6371, Feb. 7, 2012]

[[Page 482]]



PART 23_SWAP DEALERS AND MAJOR SWAP PARTICIPANTS--Table of Contents



                          Subpart A [Reserved]

Sec.
23.1-23.20 [Reserved]

                         Subpart B_Registration

23.21 Registration of swap dealers and major swap participants.
23.22 Associated persons of swap dealers and major swap participants.
23.23-23.40 [Reserved]

     Subpart F_Reporting, Recordkeeping, and Daily Trading Records 
        Requirements for Swap Dealers and Major Swap Participants

23.200 Definitions.
23.201 Required records.
23.202 Daily trading records.
23.203 Records; retention and inspection.
23.204 Reports to swap data repositories.
23.205 Real-time public reporting.
23.206 Delegation of authority to the Director of the Division of Swap 
          Dealer and Intermediary Oversight to establish an alternative 
          compliance schedule to comply with daily trading records.

  Subpart H_Business Conduct Standards for Swap Dealers and Major Swap 
  Participants Dealing With Counterparties, Including Special Entities

23.400 Scope.
23.401 Definitions.
23.402 General provisions.
23.403-23.409 [Reserved]
23.410 Prohibition on fraud, manipulation and other abusive practices.
23.411-23.429 [Reserved]
23.430 Verification of counterparty eligibility.
23.431 Disclosures of material information.
23.432 Clearing disclosures.
23.433 Communications--fair dealing.
23.434 Recommendations to counterparties--institutional suitability.
23.435-23.439 [Reserved]
23.440 Requirements for swap dealers acting as advisors to Special 
          Entities.
23.441-23.449 [Reserved]
23.450 Requirements for swap dealers and major swap participants acting 
          as counterparties to Special Entities.
23.451 Political contributions by certain swap dealers.

                      Subpart I_Swap Documentation

23.500 Definitions.
23.501 Swap confirmation.
23.502 Portfolio reconciliation.
23.503 Portfolio compression.
23.504 Swap trading relationship documentation.
23.505 End user exception documentation.
23.506 Swap processing and clearing.

      Subpart J_Duties of Swap Dealers and Major Swap Participants

23.600 Risk Management Program for swap dealers and major swap 
          participants.
23.601 Monitoring of position limits.
23.602 Diligent supervision.
23.603 Business continuity and disaster recovery.
23.604 [Reserved]
23.605 Conflicts of interest policies and procedures.
23.606 General information: availability for disclosure and inspection.
23.607 Antitrust considerations.
23.608 Restrictions on counterparty clearing relationships.
23.609 Clearing member risk management.
23.610 Clearing member acceptance for clearing.
23.611 Delegation of authority to the Director of the Division of 
          Clearing and Risk to establish an alternative compliance 
          schedule to comply with clearing member acceptance for 
          clearing.

Appendix A--Guidance on the application of Sec.Sec. 23.434 and 23.440 
          for swap dealers that make recommendations to counterparties 
          or Special Entities

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 9, 
9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.

    Source: 77 FR 2628, Jan. 19, 2012, unless otherwise noted.

Subpart A [Reserved]



Sec.Sec. 23.1-23.20  [Reserved]



                         Subpart B_Registration



Sec.  23.21  Registration of swap dealers and major swap participants.

    (a) Each person who comes within the definition of the term ``swap 
dealer'' in section 1a(49) of the Act, as such term may be further 
defined by the Commission, is subject to the registration provisions 
under the Act and to part 3 of this chapter.
    (b) Each person who comes within the definition of the term ``major 
swap participant'' in section 1a(33) of the Act, as such term may be 
further defined by the Commission, is subject to

[[Page 483]]

the registration provisions under the Act and to part 3 of this chapter.
    (c) Each affiliate of an insured depository institution described in 
section 716(c) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203 section 716(c), 124 Stat. 1376 (2010)) 
is required to be registered as a swap dealer if the affiliate is a swap 
dealer or as a major swap participant if the affiliate is a major swap 
participant.



Sec.  23.22  Associated persons of swap dealers and major swap participants.

    (a) Definition. For the purpose of this section, the term ``person'' 
means an ``associated person of a swap dealer or major swap 
participant'' as defined in section 1a(4) of the Act andSec. 
1.3(aa)(6).
    (b) Fitness. No swap dealer or major swap participant may permit a 
person who is subject to a statutory disqualification under section 
8a(2) or 8a(3) of the Act to effect or be involved in effecting swaps on 
behalf of the swap dealer or major swap participant, if the swap dealer 
or major swap participant knows, or in the exercise of reasonable care 
should know, of the statutory disqualification; Provided, however, that 
the prohibition set forth in this paragraph (b) shall not apply to any 
person listed as a principal or registered as an associated person of a 
futures commission merchant, retail foreign exchange dealer, introducing 
broker, commodity pool operator, commodity trading advisor, or leverage 
transaction merchant, or any person registered as a floor broker or 
floor trader, notwithstanding that the person is subject to a 
disqualification from registration under section 8a(2) or 8a(3) of the 
Act.



Sec.Sec. 23.23-23.40  [Reserved]



     Subpart F_Reporting, Recordkeeping, and Daily Trading Records 
        Requirements for Swap Dealers and Major Swap Participants

    Source: 77 FR 20202, Apr. 3, 2012, unless otherwise noted.



Sec.  23.200  Definitions.

    For purposes of subpart F, the following terms shall be defined as 
provided.
    (a) Business trading unit means any department, division, group, or 
personnel of a swap dealer or major swap participant or any of its 
affiliates, whether or not identified as such, that performs, or 
exercises supervisory authority over the performance of, any pricing 
(excluding price verification for risk management purposes), trading, 
sales, purchasing, marketing, advertising, solicitation, structuring, or 
brokerage activities on behalf of a registrant.
    (b) Clearing unit means any department, division, group, or 
personnel of a registrant or any of its affiliates, whether or not 
identified as such, that performs any proprietary or customer clearing 
activities on behalf of a registrant.
    (c) Complaint means any formal or informal complaint, grievance, 
criticism, or concern communicated to the swap dealer or major swap 
participant in any format relating to, arising from, or in connection 
with, any trading conduct or behavior or with the swap dealer or major 
swap participant's performance (or failure to perform) any of its 
regulatory obligations, and includes any and all observations, comments, 
remarks, interpretations, clarifications, notes, and examinations as to 
such conduct or behavior communicated or documented by the complainant, 
swap dealer, or major swap participant.
    (d) Executed means the completion of the execution process.
    (e) Execution means, with respect to a swap, an agreement by the 
parties (whether orally, in writing, electronically, or otherwise) to 
the terms of a swap that legally binds the parties to such swap terms 
under applicable law.
    (f) Governing body. This term means:
    (1) A board of directors;
    (2) A body performing a function similar to a board of directors;
    (3) Any committee of a board or body; or
    (4) The chief executive officer of a registrant, or any such board, 
body, committee, or officer of a division of a

[[Page 484]]

registrant, provided that the registrant's swaps activities for which 
registration with the Commission is required are wholly contained in a 
separately identifiable division.
    (g) Prudential regulator has the meaning given to such term in 
section 1a(39) of the Commodity Exchange Act and includes the Board of 
Governors of the Federal Reserve System, the Office of the Comptroller 
of the Currency, the Federal Deposit Insurance Corporation, the Farm 
Credit Association, and the Federal Housing Finance Agency, as 
applicable to the swap dealer or major swap participant.
    (h) Registered entity has the meaning given to such term in section 
1a(40) of the Commodity Exchange Act, and includes boards of trade 
designated as contract markets, derivatives clearing organizations, swap 
execution facilities, and swap data repositories.
    (i) Related cash or forward transaction means a purchase or sale for 
immediate or deferred physical shipment or delivery of an asset related 
to a swap where the swap and the related cash or forward transaction are 
used to hedge, mitigate the risk of, or offset one another.
    (j) Swaps activities means, with respect to a registrant, such 
registrant's activities related to swaps and any product used to hedge 
such swaps, including, but not limited to, futures, options, other swaps 
or security-based swaps, debt or equity securities, foreign currency, 
physical commodities, and other derivatives.
    (k) Swap confirmation means the consummation (electronically or 
otherwise) of legally binding documentation (electronic or otherwise) 
that memorializes the agreement of the parties to all the terms of the 
swap. A confirmation must be in writing (whether electronic or 
otherwise) and must legally supersede any previous agreement 
(electronically or otherwise).



Sec.  23.201  Required records.

    (a) Transaction and position records. Each swap dealer and major 
swap participant shall keep full, complete, and systematic records, 
together with all pertinent data and memoranda, of all its swaps 
activities. Such records shall include:
    (1) Transaction records. Records of each transaction, including all 
documents on which transaction information is originally recorded. Such 
records shall be kept in a form and manner identifiable and searchable 
by transaction and by counterparty, and shall include:
    (i) All documents customarily generated in accordance with market 
practice that demonstrate the existence and nature of an order or 
transaction, including, but not limited to, records of all orders 
(filled, unfilled, or cancelled); correspondence; journals; memoranda; 
ledgers; confirmations; risk disclosure documents; statements of 
purchase and sale; contracts; invoices; warehouse receipts; documents of 
title; and
    (ii) The daily trading records required to be kept in accordance 
withSec. 23.202.
    (2) Position records. Records of each position held by each swap 
dealer and major swap participant, identified by product and 
counterparty, including records reflecting whether each position is 
``long'' or ``short'' and whether the position is cleared. Position 
records shall be linked to transaction records in a manner that permits 
identification of the transactions that established the position.
    (3) Records of transactions executed on a swap execution facility or 
designated contract market or cleared by a derivatives clearing 
organization. Records of each transaction executed on a swap execution 
facility or designated contract market or cleared by a derivatives 
clearing organization maintained in compliance with the Act and 
Commission regulations.
    (b) Business records. Each swap dealer and major swap participant 
shall keep full, complete, and systematic records of all activities 
related to its business as a swap dealer or major swap participant, 
including but not limited to:
    (1) Governance. (i) Minutes of meetings of the governing body and 
relevant committee minutes, including handouts and presentation 
materials;
    (ii) Organizational charts for its governing body and relevant 
committees, business trading unit, clearing unit, risk management unit, 
and all other relevant units or divisions;

[[Page 485]]

    (iii) Biographies or resumes of managers, senior supervisors, 
officers, and directors;
    (iv) Job descriptions for manager, senior supervisor, officer, and 
director positions, including job responsibilities and scope of 
authority;
    (v) Internal and external audit, risk management, compliance, and 
consultant reports (including management responses); and
    (vi) Business and strategic plans for the business trading unit.
    (2) Financial records. (i) Records reflecting all assets and 
liabilities, income and expenses, and capital accounts as required by 
the Act and Commission regulations; and
    (ii) All other financial records required to be kept under the Act 
and Commission regulations.
    (3) Complaints. (i) A record of each complaint received by the swap 
dealer or major swap participant concerning any partner, member, 
officer, employee, or agent. The record shall include the complainant's 
name, address, and account number; the date the complaint was received; 
the name of all persons identified in the complaint; a description of 
the nature of the complaint; the disposition of the complaint, and the 
date the complaint was resolved.
    (ii) A record indicating that each counterparty of the swap dealer 
or major swap participant has been provided with a notice containing the 
physical address, email or other widely available electronic address, 
and telephone number of the department of the swap dealer or major swap 
participant to which any complaints may be directed.
    (4) Marketing and sales materials. All marketing and sales 
presentations, advertisements, literature, and communications, and a 
record documenting that the swap dealer or major swap participant has 
complied with, or adopted policies and procedures reasonably designed to 
establish compliance with, all applicable Federal requirements, 
Commission regulations, and the rules of any self-regulatory 
organization of which the swap dealer or major swap participant is a 
member.
    (c) Records of data reported to a swap data repository. With respect 
to each swap, each swap dealer and major swap participant shall 
identify, retain, and produce for inspection all information and data 
required to be reported in accordance with part 45 of this chapter, 
along with a record of the date and time the swap dealer or major swap 
participant made the report.
    (d) Records of real-time reporting data. Each swap dealer and major 
swap participant shall identify, retain, and produce for inspection all 
information and data required to be reported in accordance with part 43 
of this chapter, along with a record of the date and time the swap 
dealer or major swap participant made the report.



Sec.  23.202  Daily trading records.

    (a) Daily trading records for swaps. Each swap dealer and major swap 
participant shall make and keep daily trading records of all swaps it 
executes, including all documents on which transaction information is 
originally recorded. Each swap dealer and major swap participant shall 
ensure that its records include all information necessary to conduct a 
comprehensive and accurate trade reconstruction for each swap. Each swap 
dealer and major swap participant shall maintain each transaction record 
in a manner identifiable and searchable by transaction and counterparty.
    (1) Pre-execution trade information. Each swap dealer and major swap 
participant shall make and keep pre-execution trade information, 
including, at a minimum, records of all oral and written communications 
provided or received concerning quotes, solicitations, bids, offers, 
instructions, trading, and prices, that lead to the execution of a swap, 
whether communicated by telephone, voicemail, facsimile, instant 
messaging, chat rooms, electronic mail, mobile device, or other digital 
or electronic media. Such records shall include, but are not limited to:
    (i) Reliable timing data for the initiation of the trade that would 
permit complete and accurate trade reconstruction; and
    (ii) A record of the date and time, to the nearest minute, using 
Coordinated Universal Time (UTC), by timestamp or other timing device, 
for each

[[Page 486]]

quotation provided to, or received from, the counterparty prior to 
execution.
    (2) Execution trade information. Each swap dealer and major swap 
participant shall make and keep trade execution records, including:
    (i) All terms of each swap, including all terms regarding payment or 
settlement instructions, initial and variation margin requirements, 
option premiums, payment dates, and any other cash flows;
    (ii) The trade ticket for each swap (which, together with the time 
of execution of each swap, shall be immediately recorded electronically 
for further processing);
    (iii) The unique swap identifier, as required bySec. 45.4(a), for 
each swap;
    (iv) A record of the date and time of execution of each swap, to the 
nearest minute, using Coordinated Universal Time (UTC), by timestamp or 
other timing device;
    (v) The name of the counterparty with which each such swap was 
executed, including its unique counterparty identifier, as required by 
Sec.  45.4(b);
    (vi) The date and title of the agreement to which each swap is 
subject, including but not limited to, any swap trading relationship 
documentation and credit support arrangements;
    (vii) The product name of each swap, including its unique product 
identifier, as required bySec. 45.4(c);
    (viii) The price at which the swap was executed;
    (ix) Fees or commissions and other expenses, identified by 
transaction; and
    (x) Any other information relevant to the swap.
    (3) Post-execution trade information. Each swap dealer and major 
swap participant shall make and keep records of post-execution trade 
information containing an itemized record of all relevant post-trade 
processing and events.
    (i) Records of post-trade processing and events shall include all of 
the following, as applicable:
    (A) Confirmation;
    (B) Termination;
    (C) Novation;
    (D) Amendment;
    (E) Assignment;
    (F) Netting;
    (G) Compression;
    (H) Reconciliation;
    (I) Valuation;
    (J) Margining;
    (K) Collateralization; and
    (L) Central clearing.
    (ii) Each swap dealer and major swap participant shall make and keep 
a record of all swap confirmations, along with the date and time, to the 
nearest minute, using Coordinated Universal Time (UTC), by timestamp or 
other timing device; and
    (iii) Each swap dealer and major swap participant shall make and 
keep a record of each swap portfolio reconciliation, including the 
number of portfolio reconciliation discrepancies and the number of swap 
valuation disputes (including the time-to-resolution of each valuation 
dispute and the age of outstanding valuation disputes, categorized by 
transaction and counterparty);
    (iv) Each swap dealer and major swap participant shall make and keep 
a record of each swap portfolio compression exercise in which it 
participates, including the dates of the compression, the swaps included 
in the compression, the identity of the counterparties participating in 
the exercise, the results of the compression, and the name of the third-
party entity performing the compression, if any; and
    (v) Each swap dealer and major swap participant shall make and keep 
a record of each swap that it centrally clears, categorized by 
transaction and counterparty.
    (4) Ledgers. Each swap dealer and major swap participant shall make 
and keep ledgers (or other records) reflecting the following:
    (i) Payments and interest received;
    (ii) Moneys borrowed and moneys loaned;
    (iii) The daily calculation of the value of each outstanding swap;
    (iv) The daily calculation of current and potential future exposure 
for each counterparty;
    (v) The daily calculation of initial margin to be posted by the swap 
dealer or major swap participant for each counterparty and the daily 
calculation of initial margin to be posted by each counterparty;

[[Page 487]]

    (vi) The daily calculation of variation margin payable to or 
receivable from each counterparty;
    (vii) The daily calculation of the value of all collateral, before 
and after haircuts, held by or posted by the swap dealer or major swap 
participant;
    (viii) All transfers of collateral, including any substitutions of 
collateral, identifying in sufficient detail the amounts and types of 
collateral transferred; and
    (ix) All charges against and credits to each counterparty's account, 
including funds deposited, withdrawn, or transferred, and charges or 
credits resulting from losses or gains on transactions.
    (b) Daily trading records for related cash and forward transactions. 
Each swap dealer and major swap participant shall make and keep daily 
trading records of all related cash or forward transactions it executes, 
including all documents on which the related cash or forward transaction 
information is originally recorded. Each swap dealer and major swap 
participant shall ensure that its records include all information 
necessary to conduct a comprehensive and accurate trade reconstruction 
for each related cash or forward transaction. Each swap dealer and major 
swap participant shall maintain each transaction record in a manner 
identifiable and searchable by transaction and by counterparty. Such 
records shall include, but are not limited to:
    (1) A record of all oral and written communications provided or 
received concerning quotes, solicitations, bids, offers, instructions, 
trading, and prices, that lead to the conclusion of a related cash or 
forward transaction, whether communicated by telephone, voicemail, 
facsimile, instant messaging, chat rooms, electronic mail, mobile 
device, or other digital or electronic media;
    (2) Reliable timing data for the initiation of the transaction that 
would permit complete and accurate trade reconstruction;
    (3) A record of the date and time, to the nearest minute, using 
Coordinated Universal Time (UTC), by timestamp or other timing device, 
for each quotation provided to, or received from, the counterparty prior 
to execution;
    (4) A record of the date and time of execution of each related cash 
or forward transaction, to the nearest minute, using Coordinated 
Universal Time (UTC), by timestamp or other timing device;
    (5) All terms of each related cash or forward transaction;
    (6) The price at which the related cash or forward transaction was 
executed; and
    (7) A record of the daily calculation of the value of the related 
cash or forward transaction and any other relevant financial 
information.



Sec.  23.203  Records; retention and inspection.

    (a) Location of records--(1) Records. All records required to be 
kept by a swap dealer or major swap participant by the Act and by 
Commission regulations shall be kept at the principal place of business 
of the swap dealer or major swap participant or such other principal 
office as shall be designated by the swap dealer or major swap 
participant. If the principal place of business is outside of the United 
States, its territories or possessions, then upon the request of a 
Commission representative, the swap dealer or major swap participant 
must provide such records as requested at the place in the United 
States, its territories, or possessions designated by the representative 
within 72 hours after receiving the request.
    (2) Contact information. Each swap dealer and major swap participant 
shall maintain for each of its offices a listing, by name or title, of 
each person at that office who, without delay, can explain the types of 
records the swap dealer or major swap participant maintains at that 
office and the information contained in those records.
    (b) Record retention. (1) The records required to be maintained by 
this chapter shall be maintained in accordance with the provisions of 
Sec.  1.31, except as provided in paragraphs (b)(2) and (3) of this 
section. All records required to be kept by the Act and by Commission 
regulations shall be kept for a period of five years from the date the 
record was made and shall be readily accessible during the first two (2) 
years of the

[[Page 488]]

five-year period. All such records shall be open to inspection by any 
representative of the Commission, the United States Department of 
Justice, or any applicable prudential regulator. Records relating to 
swaps defined in section 1a(47)(A)(v) shall be open to inspection by any 
representative of the Commission, the United States Department of 
Justice, the Securities and Exchange Commission, or any applicable 
prudential regulator.
    (2) Records of any swap or related cash or forward transaction shall 
be kept until the termination, maturity, expiration, transfer, 
assignment, or novation date of the transaction, and for a period of 
five years after such date. Such records shall be readily accessible 
until the termination, maturity, expiration, transfer, assignment, or 
novation date of the transaction and during the first two years of the 
5-year period following such date. Provided, however, that records of 
oral communications communicated by telephone, voicemail, mobile device, 
or other digital or electronic media pursuant toSec. 23.202(a)(1) and 
(b)(1) shall be kept for a period of one year. All such records shall be 
open to inspection by any representative of the Commission, the United 
States Department of Justice, or any applicable prudential regulator. 
Records relating to swaps defined in section 1a(47)(A)(v) shall be open 
to inspection by any representative of the Commission, the United States 
Department of Justice, the Securities and Exchange Commission, or any 
applicable prudential regulator.
    (3) Records of any swap data reported in accordance with part 45 of 
this chapter shall be maintained in accordance with the requirements of 
Sec.  45.2 of this chapter.



Sec.  23.204  Reports to swap data repositories.

    (a) Reporting of swap transaction data to swap data repositories. 
Each swap dealer and major swap participant shall report all information 
and data in accordance with part 45 of this chapter.
    (b) Electronic reporting of swap transaction data. Each swap dealer 
and major swap participant shall have the electronic systems and 
procedures necessary to transmit electronically all information and data 
required to be reported in accordance with part 45 of this chapter.



Sec.  23.205  Real-time public reporting.

    (a) Real-time public reporting of swap transaction and pricing data. 
Each swap dealer and major swap participant shall report all information 
and swap transaction and pricing data required to be reported in 
accordance with the real-time public recording requirements in part 43 
of this chapter.
    (b) Electronic reporting of swap transaction data. Each swap dealer 
and major swap participant shall have the electronic systems and 
procedures necessary to transmit electronically all information and data 
required to be reported in accordance with part 43 of this chapter.



Sec.  23.206  Delegation of authority to the Director of the Division
of Swap Dealer and Intermediary Oversight to establish an alternative
compliance schedule to comply with daily trading records.

    (a) The Commission hereby delegates to the Director of the Division 
of Swap Dealer and Intermediary Oversight or such other employee or 
employees as the Director may designate from time to time, the authority 
to establish an alternative compliance schedule for requirements of 
Sec.  23.202 that are found to be technologically or economically 
impracticable for an affected swap dealer or major swap participant that 
seeks, in good faith, to comply with the requirements ofSec. 23.202 
within a reasonable time period beyond the date on which compliance by 
such swap dealer or major swap participant is otherwise required.
    (b) A request for an alternative compliance schedule under this 
section shall be acted upon by the Director of the Division of Swap 
Dealer and Intermediary Oversight within 30 days from the time such a 
request is received, or it shall be deemed approved.
    (c) Relief granted under this section shall not cause a registrant 
to be out of compliance or deemed in violation of any registration 
requirements.
    (d) Notwithstanding any other provision of this section, in any case 
in

[[Page 489]]

which a Commission employee delegated authority under this section 
believes it appropriate, he or she may submit to the Commission for its 
consideration the question of whether an alternative compliance schedule 
should be established. Nothing in this section shall be deemed to 
prohibit the Commission, at its election, from exercising the authority 
delegated in this section.



  Subpart H_Business Conduct Standards for Swap Dealers and Major Swap 
  Participants Dealing With Counterparties, Including Special Entities

    Source: 77 FR 9822, Feb. 17, 2012, unless otherwise noted.



Sec.  23.400  Scope.

    The sections of this subpart shall apply to swap dealers and, unless 
otherwise indicated, major swap participants. These rules are not 
intended to limit or restrict the applicability of other provisions of 
the Act and rules and regulations thereunder, or other applicable laws, 
rules and regulations. The provisions of this subpart shall apply in 
connection with transactions in swaps as well as in connection with 
swaps that are offered but not entered into.



Sec.  23.401  Definitions.

    (a) Counterparty. The term ``counterparty,'' as appropriate in this 
subpart, includes any person who is a prospective counterparty to a 
swap.
    (b) Major swap participant. The term ``major swap participant'' 
means any person defined in Section 1a(33) of the Act andSec. 1.3 of 
this chapter and, as appropriate in this subpart, any person acting for 
or on behalf of a major swap participant, including an associated person 
defined in Section 1a(4) of the Act.
    (c) Special Entity. The term ``Special Entity'' means:
    (1) A Federal agency;
    (2) A State, State agency, city, county, municipality, other 
political subdivision of a State, or any instrumentality, department, or 
a corporation of or established by a State or political subdivision of a 
State;
    (3) Any employee benefit plan subject to Title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002);
    (4) Any governmental plan, as defined in Section 3 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002);
    (5) Any endowment, including an endowment that is an organization 
described in Section 501(c)(3) of the Internal Revenue Code of 1986 (26 
U.S.C. 501(c)(3)); or
    (6) Any employee benefit plan defined in Section 3 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002), not otherwise 
defined as a Special Entity, that elects to be a Special Entity by 
notifying a swap dealer or major swap participant of its election prior 
to entering into a swap with the particular swap dealer or major swap 
participant.
    (d) Swap dealer. The term ``swap dealer'' means any person defined 
in Section 1a(49) of the Act andSec. 1.3 of this chapter and, as 
appropriate in this subpart, any person acting for or on behalf of a 
swap dealer, including an associated person defined in Section 1a(4) of 
the Act.



Sec.  23.402  General provisions.

    (a) Policies and procedures to ensure compliance and prevent 
evasion. (1) Swap dealers and major swap participants shall have written 
policies and procedures reasonably designed to:
    (i) Ensure compliance with the requirements of this subpart; and
    (ii) Prevent a swap dealer or major swap participant from evading or 
participating in or facilitating an evasion of any provision of the Act 
or any regulation promulgated thereunder.
    (2) Swap dealers and major swap participants shall implement and 
monitor compliance with such policies and procedures as part of their 
supervision and risk management requirements specified in subpart J of 
this part.
    (b) Know your counterparty. Each swap dealer shall implement 
policies and procedures reasonably designed to obtain and retain a 
record of the essential facts concerning each counterparty whose 
identity is known to the swap

[[Page 490]]

dealer prior to the execution of the transaction that are necessary for 
conducting business with such counterparty. For purposes of this 
section, the essential facts concerning a counterparty are:
    (1) Facts required to comply with applicable laws, regulations and 
rules;
    (2) Facts required to implement the swap dealer's credit and 
operational risk management policies in connection with transactions 
entered into with such counterparty; and
    (3) Information regarding the authority of any person acting for 
such counterparty.
    (c) True name and owner. Each swap dealer or major swap participant 
shall obtain and retain a record which shall show the true name and 
address of each counterparty whose identity is known to the swap dealer 
or major swap participant prior to the execution of the transaction, the 
principal occupation or business of such counterparty as well as the 
name and address of any other person guaranteeing the performance of 
such counterparty and any person exercising any control with respect to 
the positions of such counterparty.
    (d) Reasonable reliance on representations. A swap dealer or major 
swap participant may rely on the written representations of a 
counterparty to satisfy its due diligence requirements under this 
subpart, unless it has information that would cause a reasonable person 
to question the accuracy of the representation. If agreed to by the 
counterparties, such representations may be contained in counterparty 
relationship documentation and may satisfy the relevant requirements of 
this subpart for subsequent swaps offered to or entered into with a 
counterparty, provided however, that such counterparty undertakes to 
timely update any material changes to the representations.
    (e) Manner of disclosure. A swap dealer or major swap participant 
may provide the information required by this subpart by any reliable 
means agreed to in writing by the counterparty; provided however, for 
transactions initiated on a designated contract market or swap execution 
facility, written agreement by the counterparty regarding the reliable 
means of disclosure is not required.
    (f) Disclosures in a standard format. If agreed to by a 
counterparty, the disclosure of material information that is applicable 
to multiple swaps between a swap dealer or major swap participant and a 
counterparty may be made in counterparty relationship documentation or 
other written agreement between the counterparties.
    (g) Record retention. Swap dealers and major swap participants shall 
create a record of their compliance with the requirements of this 
subpart and shall retain records in accordance with subpart F of this 
part andSec. 1.31 of this chapter and make them available to 
applicable prudential regulators upon request.



Sec.Sec. 23.403-23.409  [Reserved]



Sec.  23.410  Prohibition on fraud, manipulation, and other abusive
practices.

    (a) It shall be unlawful for a swap dealer or major swap 
participant--
    (1) To employ any device, scheme, or artifice to defraud any Special 
Entity or prospective customer who is a Special Entity;
    (2) To engage in any transaction, practice, or course of business 
that operates as a fraud or deceit on any Special Entity or prospective 
customer who is a Special Entity; or
    (3) To engage in any act, practice, or course of business that is 
fraudulent, deceptive, or manipulative.
    (b) Affirmative defense. It shall be an affirmative defense to an 
alleged violation of paragraph (a)(2) or (3) of this section for failure 
to comply with any requirement in this subpart if a swap dealer or major 
swap participant establishes that the swap dealer or major swap 
participant:
    (1) Did not act intentionally or recklessly in connection with such 
alleged violation; and
    (2) Complied in good faith with written policies and procedures 
reasonably designed to meet the particular requirement that is the basis 
for the alleged violation.
    (c) Confidential treatment of counterparty information. (1) It shall 
be unlawful for any swap dealer or major swap participant to:

[[Page 491]]

    (i) Disclose to any other person any material confidential 
information provided by or on behalf of a counterparty to the swap 
dealer or major swap participant; or
    (ii) Use for its own purposes in any way that would tend to be 
materially adverse to the interests of a counterparty, any material 
confidential information provided by or on behalf of a counterparty to 
the swap dealer or major swap participant.
    (2) Notwithstanding paragraph (c)(1) of this section, a swap dealer 
or major swap participant may disclose or use material confidential 
information provided by or on behalf of a counterparty to the swap 
dealer or major swap participant if such disclosure or use is authorized 
in writing by the counterparty, or is necessary:
    (i) For the effective execution of any swap for or with the 
counterparty;
    (ii) To hedge or mitigate any exposure created by such swap; or
    (iii) To comply with a request of the Commission, Department of 
Justice, any self-regulatory organization designated by the Commission, 
or an applicable prudential regulator, or is otherwise required by law.
    (3) Each swap dealer or major swap participant shall implement 
written policies and procedures reasonably designed to protect material 
confidential information provided by or on behalf of a counterparty from 
disclosure and use in violation of this section by any person acting for 
or on behalf of the swap dealer or major swap participant.



Sec.Sec. 23.411-23.429  [Reserved]



Sec.  23.430  Verification of counterparty eligibility.

    (a) Eligibility. A swap dealer or major swap participant shall 
verify that a counterparty meets the eligibility standards for an 
eligible contract participant, as defined in Section 1a(18) of the Act 
andSec. 1.3 of this chapter, before offering to enter into or entering 
into a swap with that counterparty.
    (b) Special Entity. In verifying the eligibility of a counterparty 
pursuant to paragraph (a) of this section, a swap dealer or major swap 
participant shall also verify whether the counterparty is a Special 
Entity.
    (c) Special Entity election. In verifying the eligibility of a 
counterparty pursuant to paragraph (a) of this section, a swap dealer or 
major swap participant shall verify whether a counterparty is eligible 
to elect to be a Special Entity underSec. 23.401(c)(6) and, if so, 
notify such counterparty of its right to make such an election.
    (d) Safe harbor. A swap dealer or major swap participant may rely on 
written representations of a counterparty to satisfy the requirements of 
this section as provided inSec. 23.402(d). A swap dealer or major swap 
participant will have a reasonable basis to rely on such written 
representations for purposes of the requirements in paragraphs (a) and 
(b) of this section if the counterparty specifies in such 
representations the provision(s) of Section 1a(18) of the Act or 
paragraph(s) ofSec. 1.3 of this chapter that describe its status as an 
eligible contract participant and, in the case of a Special Entity, the 
paragraph(s) of the Special Entity definition inSec. 23.401(c) that 
define its status as a Special Entity.
    (e) This section shall not apply with respect to:
    (1) A transaction that is initiated on a designated contract market; 
or
    (2) A transaction initiated on a swap execution facility, if the 
swap dealer or major swap participant does not know the identity of the 
counterparty to the transaction prior to execution.



Sec.  23.431  Disclosures of material information.

    (a) At a reasonably sufficient time prior to entering into a swap, a 
swap dealer or major swap participant shall disclose to any counterparty 
to the swap (other than a swap dealer, major swap participant, security-
based swap dealer, or major security-based swap participant) material 
information concerning the swap in a manner reasonably designed to allow 
the counterparty to assess:
    (1) The material risks of the particular swap, which may include 
market, credit, liquidity, foreign currency, legal, operational, and any 
other applicable risks;
    (2) The material characteristics of the particular swap, which shall 
include the material economic terms of

[[Page 492]]

the swap, the terms relating to the operation of the swap, and the 
rights and obligations of the parties during the term of the swap; and
    (3) The material incentives and conflicts of interest that the swap 
dealer or major swap participant may have in connection with a 
particular swap, which shall include:
    (i) With respect to disclosure of the price of the swap, the price 
of the swap and the mid-market mark of the swap as set forth in 
paragraph (d)(2) of this section; and
    (ii) Any compensation or other incentive from any source other than 
the counterparty that the swap dealer or major swap participant may 
receive in connection with the swap.
    (b) Scenario Analysis. Prior to entering into a swap with a 
counterparty (other than a swap dealer, major swap participant, 
security-based swap dealer, or major security-based swap participant) 
that is not made available for trading, as provided in Section 2(h)(8) 
of the Act, on a designated contract market or swap execution facility, 
a swap dealer shall:
    (1) Notify the counterparty that it can request and consult on the 
design of a scenario analysis to allow the counterparty to assess its 
potential exposure in connection with the swap;
    (2) Upon request of the counterparty, provide a scenario analysis, 
which is designed in consultation with the counterparty and done over a 
range of assumptions, including severe downside stress scenarios that 
would result in a significant loss;
    (3) Disclose all material assumptions and explain the calculation 
methodologies used to perform any requested scenario analysis; provided 
however, that the swap dealer is not required to disclose confidential, 
proprietary information about any model it may use to prepare the 
scenario analysis; and
    (4) In designing any requested scenario analysis, consider any 
relevant analyses that the swap dealer undertakes for its own risk 
management purposes, including analyses performed as part of its ``New 
Product Policy'' specified inSec. 23.600(c)(3).
    (c) Paragraphs (a) and (b) of this section shall not apply with 
respect to a transaction that is:
    (1) Initiated on a designated contract market or a swap execution 
facility; and
    (2) One in which the swap dealer or major swap participant does not 
know the identity of the counterparty to the transaction prior to 
execution.
    (d) Daily mark. A swap dealer or major swap participant shall:
    (1) For cleared swaps, notify a counterparty (other than a swap 
dealer, major swap participant, security-based swap dealer, or major 
security-based swap participant) of the counterparty's right to receive, 
upon request, the daily mark from the appropriate derivatives clearing 
organization.
    (2) For uncleared swaps, provide the counterparty (other than a swap 
dealer, major swap participant, security-based swap dealer, or major 
security-based swap participant) with a daily mark, which shall be the 
mid-market mark of the swap. The mid-market mark of the swap shall not 
include amounts for profit, credit reserve, hedging, funding, liquidity, 
or any other costs or adjustments. The daily mark shall be provided to 
the counterparty during the term of the swap as of the close of business 
or such other time as the parties agree in writing.
    (3) For uncleared swaps, disclose to the counterparty:
    (i) The methodology and assumptions used to prepare the daily mark 
and any material changes during the term of the swap; provided however, 
that the swap dealer or major swap participant is not required to 
disclose to the counterparty confidential, proprietary information about 
any model it may use to prepare the daily mark; and
    (ii) Additional information concerning the daily mark to ensure a 
fair and balanced communication, including, as appropriate, that:
    (A) The daily mark may not necessarily be a price at which either 
the counterparty or the swap dealer or major swap participant would 
agree to replace or terminate the swap;
    (B) Depending upon the agreement of the parties, calls for margin 
may be based on considerations other than the daily mark provided to the 
counterparty; and

[[Page 493]]

    (C) The daily mark may not necessarily be the value of the swap that 
is marked on the books of the swap dealer or major swap participant.



Sec.  23.432  Clearing disclosures.

    (a) For swaps required to be cleared--right to select derivatives 
clearing organization. A swap dealer or major swap participant shall 
notify any counterparty (other than a swap dealer, major swap 
participant, securities-based swap dealer, or major securities-based 
swap participant) with which it entered into a swap that is subject to 
mandatory clearing under Section 2(h) of the Act, that the counterparty 
has the sole right to select the derivatives clearing organization at 
which the swap will be cleared.
    (b) For swaps not required to be cleared--right to clearing. A swap 
dealer or major swap participant shall notify any counterparty (other 
than a swap dealer, major swap participant, securities-based swap 
dealer, or major securities-based swap participant) with which it 
entered into a swap that is not subject to the mandatory clearing 
requirements under Section 2(h) of the Act that the counterparty:
    (1) May elect to require clearing of the swap; and
    (2) Shall have the sole right to select the derivatives clearing 
organization at which the swap will be cleared.



Sec.  23.433  Communications--fair dealing.

    With respect to any communication between a swap dealer or major 
swap participant and any counterparty, the swap dealer or major swap 
participant shall communicate in a fair and balanced manner based on 
principles of fair dealing and good faith.



Sec.  23.434  Recommendations to counterparties--institutional
suitability.

    (a) A swap dealer that recommends a swap or trading strategy 
involving a swap to a counterparty, other than a swap dealer, major swap 
participant, security-based swap dealer, or major security-based swap 
participant, must:
    (1) Undertake reasonable diligence to understand the potential risks 
and rewards associated with the recommended swap or trading strategy 
involving a swap; and
    (2) Have a reasonable basis to believe that the recommended swap or 
trading strategy involving a swap is suitable for the counterparty. To 
establish a reasonable basis for a recommendation, a swap dealer must 
have or obtain information about the counterparty, including the 
counterparty's investment profile, trading objectives, and ability to 
absorb potential losses associated with the recommended swap or trading 
strategy involving a swap.
    (b) Safe harbor. A swap dealer may fulfill its obligations under 
paragraph (a)(2) of this section with respect to a particular 
counterparty if:
    (1) The swap dealer reasonably determines that the counterparty, or 
an agent to which the counterparty has delegated decision-making 
authority, is capable of independently evaluating investment risks with 
regard to the relevant swap or trading strategy involving a swap;
    (2) The counterparty or its agent represents in writing that it is 
exercising independent judgment in evaluating the recommendations of the 
swap dealer with regard to the relevant swap or trading strategy 
involving a swap;
    (3) The swap dealer discloses in writing that it is acting in its 
capacity as a counterparty and is not undertaking to assess the 
suitability of the swap or trading strategy involving a swap for the 
counterparty; and
    (4) In the case of a counterparty that is a Special Entity, the swap 
dealer complies withSec. 23.440 where the recommendation would cause 
the swap dealer to act as an advisor to a Special Entity within the 
meaning ofSec. 23.440(a).
    (c) A swap dealer will satisfy the requirements of paragraph (b)(1) 
of this section if it receives written representations, as provided in 
Sec.  23.402(d), that:
    (1) In the case of a counterparty that is not a Special Entity, the 
counterparty has complied in good faith with written policies and 
procedures that are reasonably designed to ensure that the persons 
responsible for evaluating the recommendation and making trading 
decisions on behalf of the counterparty are capable of doing so; or

[[Page 494]]

    (2) In the case of a counterparty that is a Special Entity, satisfy 
the terms of the safe harbor inSec. 23.450(d).



Sec.Sec. 23.435-23.439  [Reserved]



Sec.  23.440  Requirements for swap dealers acting as advisors to 
Special Entities.

    (a) Acts as an advisor to a Special Entity. For purposes of this 
section, a swap dealer ``acts as an advisor to a Special Entity'' when 
the swap dealer recommends a swap or trading strategy involving a swap 
that is tailored to the particular needs or characteristics of the 
Special Entity.
    (b) Safe harbors. A swap dealer will not ``act as an advisor to a 
Special Entity'' within the meaning of paragraph (a) of this section if:
    (1) With respect to a Special Entity that is an employee benefit 
plan as defined inSec. 23.401(c)(3):
    (i) The Special Entity represents in writing that it has a fiduciary 
as defined in Section 3 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1002) that is responsible for representing the 
Special Entity in connection with the swap transaction;
    (ii) The fiduciary represents in writing that it will not rely on 
recommendations provided by the swap dealer; and
    (iii) The Special Entity represents in writing:
    (A) That it will comply in good faith with written policies and 
procedures reasonably designed to ensure that any recommendation the 
Special Entity receives from the swap dealer materially affecting a swap 
transaction is evaluated by a fiduciary before the transaction occurs; 
or
    (B) That any recommendation the Special Entity receives from the 
swap dealer materially affecting a swap transaction will be evaluated by 
a fiduciary before that transaction occurs; or
    (2) With respect to any Special Entity:
    (i) The swap dealer does not express an opinion as to whether the 
Special Entity should enter into a recommended swap or trading strategy 
involving a swap that is tailored to the particular needs or 
characteristics of the Special Entity;
    (ii) The Special Entity represents in writing that:
    (A) The Special Entity will not rely on recommendations provided by 
the swap dealer; and
    (B) The Special Entity will rely on advice from a qualified 
independent representative within the meaning ofSec. 23.450; and
    (iii) The swap dealer discloses to the Special Entity that it is not 
undertaking to act in the best interests of the Special Entity as 
otherwise required by this section.
    (c) A swap dealer that acts as an advisor to a Special Entity shall 
comply with the following requirements:
    (1) Duty. Any swap dealer that acts as an advisor to a Special 
Entity shall have a duty to make a reasonable determination that any 
swap or trading strategy involving a swap recommended by the swap dealer 
is in the best interests of the Special Entity.
    (2) Reasonable efforts. Any swap dealer that acts as an advisor to a 
Special Entity shall make reasonable efforts to obtain such information 
as is necessary to make a reasonable determination that any swap or 
trading strategy involving a swap recommended by the swap dealer is in 
the best interests of the Special Entity, including information relating 
to:
    (i) The financial status of the Special Entity, as well as the 
Special Entity's future funding needs;
    (ii) The tax status of the Special Entity;
    (iii) The hedging, investment, financing, or other objectives of the 
Special Entity;
    (iv) The experience of the Special Entity with respect to entering 
into swaps, generally, and swaps of the type and complexity being 
recommended;
    (v) Whether the Special Entity has the financial capability to 
withstand changes in market conditions during the term of the swap; and
    (vi) Such other information as is relevant to the particular facts 
and circumstances of the Special Entity, market conditions, and the type 
of swap or trading strategy involving a swap being recommended.
    (d) Reasonable reliance on representations of the Special Entity. As 
provided inSec. 23.402(d), the swap dealer may rely

[[Page 495]]

on written representations of the Special Entity to satisfy its 
requirement in paragraph (c)(2) of this section to make ``reasonable 
efforts'' to obtain necessary information.



Sec.Sec. 23.441-23.449  [Reserved]



Sec.  23.450  Requirements for swap dealers and major swap participants
acting as counterparties to Special Entities.

    (a) Definitions. For purposes of this section:
    (1) The term ``principal relationship'' means where a swap dealer or 
major swap participant is a principal of the representative of a Special 
Entity or the representative of a Special Entity is a principal of the 
swap dealer or major swap participant. The term ``principal'' means any 
person listed inSec. 3.1(a)(1) through(3) of this chapter.
    (2) The term ``statutory disqualification'' means grounds for 
refusal to register or to revoke, condition, or restrict the 
registration of any registrant or applicant for registration as set 
forth in Sections 8a(2) and 8a(3) of the Act.
    (b)(1) Any swap dealer or major swap participant that offers to 
enter or enters into a swap with a Special Entity, other than a Special 
Entity defined inSec. 23.401(c)(3), shall have a reasonable basis to 
believe that the Special Entity has a representative that:
    (i) Has sufficient knowledge to evaluate the transaction and risks;
    (ii) Is not subject to a statutory disqualification;
    (iii) Is independent of the swap dealer or major swap participant;
    (iv) Undertakes a duty to act in the best interests of the Special 
Entity it represents;
    (v) Makes appropriate and timely disclosures to the Special Entity;
    (vi) Evaluates, consistent with any guidelines provided by the 
Special Entity, fair pricing and the appropriateness of the swap; and
    (vii) In the case of a Special Entity as defined inSec. 
23.401(c)(2) or (4), is subject to restrictions on certain political 
contributions imposed by the Commission, the Securities and Exchange 
Commission, or a self-regulatory organization subject to the 
jurisdiction of the Commission or the Securities and Exchange 
Commission; provided however, that this paragraph (b)(1)(vii) of this 
section shall not apply if the representative is an employee of the 
Special Entity.
    (2) Any swap dealer or major swap participant that offers to enter 
or enters into a swap with a Special Entity as defined inSec. 
23.401(c)(3) shall have a reasonable basis to believe that the Special 
Entity has a representative that is a fiduciary as defined in Section 3 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002).
    (c) Independent. For purposes of paragraph (b)(1)(iii) of this 
section, a representative of a Special Entity will be deemed to be 
independent of the swap dealer or major swap participant if:
    (1) The representative is not and, within one year of representing 
the Special Entity in connection with the swap, was not an associated 
person of the swap dealer or major swap participant within the meaning 
of Section 1a(4) of the Act;
    (2) There is no principal relationship between the representative of 
the Special Entity and the swap dealer or major swap participant;
    (3) The representative:
    (i) Provides timely and effective disclosures to the Special Entity 
of all material conflicts of interest that could reasonably affect the 
judgment or decision making of the representative with respect to its 
obligations to the Special Entity; and
    (ii) Complies with policies and procedures reasonably designed to 
manage and mitigate such material conflicts of interest;
    (4) The representative is not directly or indirectly, through one or 
more persons, controlled by, in control of, or under common control with 
the swap dealer or major swap participant; and
    (5) The swap dealer or major swap participant did not refer, 
recommend, or introduce the representative to the Special Entity within 
one year of the representative's representation of the Special Entity in 
connection with the swap.
    (d) Safe harbor. (1) A swap dealer or major swap participant shall 
be deemed to have a reasonable basis to believe that the Special Entity, 
other than a Special Entity defined in

[[Page 496]]

Sec.  23.401(c)(3), has a representative that satisfies the applicable 
requirements of paragraph (b)(1) of this section, provided that:
    (i) The Special Entity represents in writing to the swap dealer or 
major swap participant that it has complied in good faith with written 
policies and procedures reasonably designed to ensure that it has 
selected a representative that satisfies the applicable requirements of 
paragraph (b) of this section, and that such policies and procedures 
provide for ongoing monitoring of the performance of such representative 
consistent with the requirements of paragraph (b) of this section; and
    (ii) The representative represents in writing to the Special Entity 
and swap dealer or major swap participant that the representative:
    (A) Has policies and procedures reasonably designed to ensure that 
it satisfies the applicable requirements of paragraph (b) of this 
section;
    (B) Meets the independence test in paragraph (c) of this section; 
and
    (C) Is legally obligated to comply with the applicable requirements 
of paragraph (b) of this section by agreement, condition of employment, 
law, rule, regulation, or other enforceable duty.
    (2) A swap dealer or major swap participant shall be deemed to have 
a reasonable basis to believe that a Special Entity defined inSec. 
23.401(c)(3) has a representative that satisfies the applicable 
requirements in paragraph (b)(2) of this section, provided that the 
Special Entity provides in writing to the swap dealer or major swap 
participant the representative's name and contact information, and 
represents in writing that the representative is a fiduciary as defined 
in Section 3 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1002).
    (e) Reasonable reliance on representations of the Special Entity. A 
swap dealer or major swap participant may rely on written 
representations of a Special Entity and, as applicable under this 
section, the Special Entity's representative to satisfy any requirement 
of this section as provided inSec. 23.402(d).
    (f) Chief compliance officer review. If a swap dealer or major swap 
participant initially determines that it does not have a reasonable 
basis to believe that the representative of a Special Entity meets the 
criteria established in this section, the swap dealer or major swap 
participant shall make a written record of the basis for such 
determination and submit such determination to its chief compliance 
officer for review to ensure that the swap dealer or major swap 
participant has a substantial, unbiased basis for the determination.
    (g) Before the initiation of a swap, a swap dealer or major swap 
participant shall disclose to the Special Entity in writing:
    (1) The capacity in which it is acting in connection with the swap; 
and
    (2) If the swap dealer or major swap participant engages in business 
with the Special Entity in more than one capacity, the swap dealer or 
major swap participant shall disclose the material differences between 
such capacities.
    (h) This section shall not apply with respect to a transaction that 
is:
    (1) Initiated on a designated contract market or swap execution 
facility; and
    (2) One in which the swap dealer or major swap participant does not 
know the identity of the counterparty to the transaction prior to 
execution.



Sec.  23.451  Political contributions by certain swap dealers.

    (a) Definitions. For the purposes of this section:
    (1) The term ``contribution'' means any gift, subscription, loan, 
advance, or deposit of money or anything of value made:
    (i) For the purpose of influencing any election for federal, state, 
or local office;
    (ii) For payment of debt incurred in connection with any such 
election; or
    (iii) For transition or inaugural expenses incurred by the 
successful candidate for federal, state, or local office.
    (2) The term ``covered associate'' means:
    (i) Any general partner, managing member, or executive officer, or 
other person with a similar status or function;
    (ii) Any employee who solicits a governmental Special Entity for the 
swap dealer and any person who supervises,

[[Page 497]]

directly or indirectly, such employee; and
    (iii) Any political action committee controlled by the swap dealer 
or by any person described in paragraphs (a)(2)(i) and (a)(2)(ii) of 
this section.
    (3) The term ``governmental Special Entity'' means any Special 
Entity defined inSec. 23.401(c)(2) or (4).
    (4) The term ``official'' of a governmental Special Entity means any 
person (including any election committee for such person) who was, at 
the time of the contribution, an incumbent, candidate, or successful 
candidate for elective office of a governmental Special Entity, if the 
office:
    (i) Is directly or indirectly responsible for, or can influence the 
outcome of, the selection of a swap dealer by a governmental Special 
Entity; or
    (ii) Has authority to appoint any person who is directly or 
indirectly responsible for, or can influence the outcome of, the 
selection of a swap dealer by a governmental Special Entity.
    (5) The term ``payment'' means any gift, subscription, loan, 
advance, or deposit of money or anything of value.
    (6) The term ``regulated person'' means:
    (i) A person that is subject to restrictions on certain political 
contributions imposed by the Commission, the Securities and Exchange 
Commission, or a self-regulatory agency subject to the jurisdiction of 
the Commission or the Securities and Exchange Commission;
    (ii) A general partner, managing member, or executive officer of 
such person, or other individual with a similar status or function; or
    (iii) An employee of such person who solicits a governmental Special 
Entity for the swap dealer and any person who supervises, directly or 
indirectly, such employee.
    (7) The term ``solicit'' means a direct or indirect communication by 
any person with a governmental Special Entity for the purpose of 
obtaining or retaining an engagement related to a swap.
    (b) Prohibitions and exceptions. (1) As a means reasonably designed 
to prevent fraud, no swap dealer shall offer to enter into or enter into 
a swap or a trading strategy involving a swap with a governmental 
Special Entity within two years after any contribution to an official of 
such governmental Special Entity was made by the swap dealer or by any 
covered associate of the swap dealer; provided however, that:
    (2) This prohibition does not apply:
    (i) If the only contributions made by the swap dealer to an official 
of such governmental Special Entity were made by a covered associate:
    (A) To officials for whom the covered associate was entitled to vote 
at the time of the contributions, provided that the contributions in the 
aggregate do not exceed $350 to any one official per election; or
    (B) To officials for whom the covered associate was not entitled to 
vote at the time of the contributions, provided that the contributions 
in the aggregate do not exceed $150 to any one official per election;
    (ii) To a swap dealer as a result of a contribution made by a 
natural person more than six months prior to becoming a covered 
associate of the swap dealer, provided that this exclusion shall not 
apply if the natural person, after becoming a covered associate, 
solicits the governmental Special Entity on behalf of the swap dealer to 
offer to enter into or to enter into a swap or trading strategy 
involving a swap; or
    (iii) To a swap that is:
    (A) Initiated on a designated contract market or swap execution 
facility; and
    (B) One in which the swap dealer does not know the identity of the 
counterparty to the transaction prior to execution.
    (3) No swap dealer or any covered associate of the swap dealer 
shall:
    (i) Provide or agree to provide, directly or indirectly, payment to 
any person to solicit a governmental Special Entity to offer to enter 
into, or to enter into, a swap with that swap dealer unless such person 
is a regulated person; or
    (ii) Coordinate, or solicit any person or political action committee 
to make, any:
    (A) Contribution to an official of a governmental Special Entity 
with which the swap dealer is offering to enter into, or has entered 
into, a swap; or

[[Page 498]]

    (B) Payment to a political party of a state or locality with which 
the swap dealer is offering to enter into or has entered into a swap or 
a trading strategy involving a swap.
    (c) Circumvention of rule. No swap dealer shall, directly or 
indirectly, through or by any other person or means, do any act that 
would result in a violation of paragraph (b) of this section.
    (d) Requests for exemption. The Commission, upon application, may 
conditionally or unconditionally exempt a swap dealer from the 
prohibition under paragraph (b) of this section. In determining whether 
to grant an exemption, the Commission will consider, among other 
factors:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes of the Act;
    (2) Whether the swap dealer:
    (i) Before the contribution resulting in the prohibition was made, 
implemented policies and procedures reasonably designed to prevent 
violations of this section;
    (ii) Prior to or at the time the contribution which resulted in such 
prohibition was made, had no actual knowledge of the contribution; and
    (iii) After learning of the contribution:
    (A) Has taken all available steps to cause the contributor involved 
in making the contribution which resulted in such prohibition to obtain 
a return of the contribution; and
    (B) Has taken such other remedial or preventive measures as may be 
appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the swap dealer, or was 
seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution that resulted in the prohibition, as evidenced by the facts 
and circumstances surrounding the contribution.
    (e) Prohibitions inapplicable. (1) The prohibitions under paragraph 
(b) of this section shall not apply to a contribution made by a covered 
associate of the swap dealer if:
    (i) The swap dealer discovered the contribution within 120 calendar 
days of the date of such contribution;
    (ii) The contribution did not exceed the amounts permitted by 
paragraphs (b)(2)(i)(A) or (B) of this section; and
    (iii) The covered associate obtained a return of the contribution 
within 60 calendar days of the date of discovery of the contribution by 
the swap dealer.
    (2) A swap dealer may not rely on paragraph (e)(1) of this section 
more than twice in any 12-month period.
    (3) A swap dealer may not rely on paragraph (e)(1) of this section 
more than once for any covered associate, regardless of the time between 
contributions.



                      Subpart I_Swap Documentation

    Source: 77 FR 21307, Apr. 9, 2012, unless otherwise noted.



Sec.  23.500  Definitions.

    For purposes of this subpart I, the following terms shall be defined 
as provided.
    (a) Acknowledgment means a written or electronic record of all of 
the terms of a swap signed and sent by one counterparty to the other.
    (b) Bilateral portfolio compression exercise means an exercise in 
which two swap counterparties wholly terminate or change the notional 
value of some or all of the swaps submitted by the counterparties for 
inclusion in the portfolio compression exercise and, depending on the 
methodology employed, replace the terminated swaps with other swaps 
whose combined notional value (or some other measure of risk) is less 
than the combined notional value (or some other measure of risk) of the 
terminated swaps in the exercise.
    (c) Confirmation means the consummation (electronically or 
otherwise) of legally binding documentation

[[Page 499]]

(electronic or otherwise) that memorializes the agreement of the 
counterparties to all of the terms of a swap transaction. A confirmation 
must be in writing (whether electronic or otherwise) and must legally 
supersede any previous agreement (electronically or otherwise). A 
confirmation is created when an acknowledgment is manually, 
electronically, or by some other legally equivalent means, signed by the 
receiving counterparty.
    (d) Execution means, with respect to a swap transaction, an 
agreement by the counterparties (whether orally, in writing, 
electronically, or otherwise) to the terms of the swap transaction that 
legally binds the counterparties to such terms under applicable law.
    (e) Financial entity means a counterparty that is not a swap dealer 
or a major swap participant and that is one of the following:
    (1) A commodity pool as defined in Section 1a(5) of the Act;
    (2) A private fund as defined in Section 202(a) of the Investment 
Advisors Act of 1940;
    (3) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income and Security Act of 1974;
    (4) A person predominantly engaged in activities that are in the 
business of banking, or in activities that are financial in nature as 
defined in Section 4(k) of the Bank Holding Company Act of 1956; and
    (5) A security-based swap dealer or a major security-based swap 
participant.
    (f) Fully offsetting swaps means swaps of equivalent terms where no 
net cash flow would be owed to either counterparty after the offset of 
payment obligations thereunder.
    (g) Material terms means all terms of a swap required to be reported 
in accordance with part 45 of this chapter.
    (h) Multilateral portfolio compression exercise means an exercise in 
which multiple swap counterparties wholly terminate or change the 
notional value of some or all of the swaps submitted by the 
counterparties for inclusion in the portfolio compression exercise and, 
depending on the methodology employed, replace the terminated swaps with 
other swaps whose combined notional value (or some other measure of 
risk) is less than the combined notional value (or some other measure of 
risk) of the terminated swaps in the compression exercise.
    (i) Portfolio reconciliation means any process by which the two 
parties to one or more swaps:
    (1) Exchange the terms of all swaps in the swap portfolio between 
the counterparties;
    (2) Exchange each counterparty's valuation of each swap in the swap 
portfolio between the counterparties as of the close of business on the 
immediately preceding business day; and
    (3) Resolve any discrepancy in material terms and valuations.
    (j) Prudential regulator has the meaning given to the term in 
section 1a(39) of the Commodity Exchange Act and includes the Board of 
Governors of the Federal Reserve System, the Office of the Comptroller 
of the Currency, the Federal Deposit Insurance Corporation, the Farm 
Credit Association, and the Federal Housing Finance Agency, as 
applicable to the swap dealer or major swap participant.
    (k) Swap portfolio means all swaps currently in effect between a 
particular swap dealer or major swap participant and a particular 
counterparty.
    (l) Swap transaction means any event that results in a new swap or 
in a change to the terms of a swap, including execution, termination, 
assignment, novation, exchange, transfer, amendment, conveyance, or 
extinguishing of rights or obligations of a swap.
    (m) Valuation means the current market value or net present value of 
a swap.

[77 FR 55960, Sept. 11, 2012]



Sec.  23.501  Swap confirmation.

    (a) Confirmation. Subject to the compliance schedule in paragraph 
(c) of this section:
    (1) Each swap dealer and major swap participant entering into a swap 
transaction with a counterparty that is a swap dealer or major swap 
participant shall execute a confirmation for the swap transaction as 
soon as technologically practicable, but in any event by the end of 
first business day following the day of execution.

[[Page 500]]

    (2) Each swap dealer and major swap participant entering into a swap 
transaction with a counterparty that is not a swap dealer or a major 
swap participant shall send an acknowledgment of such swap transaction 
as soon as technologically practicable, but in any event by the end of 
the first business day following the day of execution.
    (3)(i) Each swap dealer and major swap participant shall establish, 
maintain, and follow written policies and procedures reasonably designed 
to ensure that it executes a confirmation for each swap transaction that 
it enters into with a counterparty that is a financial entity as soon as 
technologically practicable, but in any event by the end of the first 
business day following the day of execution.
    (ii) Each swap dealer and major swap participant shall establish, 
maintain, and follow written policies and procedures reasonably designed 
to ensure that it executes a confirmation for each swap transaction that 
it enters into with a counterparty that is not a swap dealer, major swap 
participant, or a financial entity not later than the end of the second 
business day following the day of execution.
    (iii) Such procedures shall include a requirement that, upon a 
request by a prospective counterparty prior to execution of any such 
swap, the swap dealer or major swap participant furnish to the 
prospective counterparty prior to execution a draft acknowledgment 
specifying all terms of the swap transaction other than the applicable 
pricing and other relevant terms that are to be expressly agreed at 
execution.
    (4) Swaps executed on a swap execution facility, designated contract 
market, or submitted for clearing by a derivatives clearing 
organization.
    (i) Any swap transaction executed on a swap execution facility or 
designated contract market shall be deemed to satisfy the requirements 
of this section, provided that the rules of the swap execution facility 
or designated contract market establish that confirmation of all terms 
of the transaction shall take place at the same time as execution.
    (ii) Any swap transaction submitted for clearing by a derivatives 
clearing organization shall be deemed to satisfy the requirements of 
this section, provided that:
    (A) The swap transaction is submitted for clearing as soon as 
technologically practicable, but in any event no later than the times 
established for confirmation under paragraphs (a)(1) or (3) of this 
section, and
    (B) Confirmation of all terms of the transaction takes place at the 
same time as the swap transaction is accepted for clearing pursuant to 
the rules of the derivatives clearing organization.
    (iii) If a swap dealer or major swap participant receives notice 
that a swap transaction has not been confirmed by a swap execution 
facility or a designated contract market, or accepted for clearing by a 
derivatives clearing organization, the swap dealer or major swap 
participant shall execute a confirmation for such swap transaction as 
soon as technologically practicable, but in any event no later than the 
times established for confirmation under paragraphs (a)(1) or (3) of 
this section as if such swap transaction were executed at the time the 
swap dealer or major swap participant receives such notice.
    (5) For purposes of this section:
    (i) ``Day of execution'' means the calendar day of the party to the 
swap transaction that ends latest, provided that if a swap transaction 
is--
    (A) Entered into after 4:00 p.m. in the place of a party; or
    (B) Entered into on a day that is not a business day in the place of 
a party, then such swap transaction shall be deemed to have been entered 
into by that party on the immediately succeeding business day of that 
party, and the day of execution shall be determined with reference to 
such business day; and
    (ii) ``Business day'' means any day other than a Saturday, Sunday, 
or legal holiday.
    (b) Recordkeeping. (1) Each swap dealer and major swap participant 
shall make and retain a record of:
    (i) The date and time of transmission to, or receipt from, a 
counterparty of any acknowledgment; and
    (ii) The date and time of transmission to, or receipt from, a 
counterparty of any confirmation.

[[Page 501]]

    (2) All records required to be maintained pursuant to this section 
shall be maintained in accordance withSec. 23.203 and shall be made 
available promptly upon request to any representative of the Commission 
or any applicable prudential regulator, or with regard to swaps defined 
in section 1a(47)(A)(v), to any representative of the Commission, the 
Securities and Exchange Commission, or any applicable prudential 
regulator.
    (c) Compliance schedule. The requirements of paragraph (a) of this 
section are subject to the following compliance schedule:
    (1) For purposes of paragraph (a)(1) of this section, each swap 
dealer and major swap participant entering into a swap transaction that 
is or involves a credit swap or interest rate swap with a counterparty 
that is a swap dealer or major swap participant shall execute a 
confirmation for the swap transaction as soon as technologically 
practicable, but in any event by:
    (i) The end of the second business day following the day of 
execution for the period from the effective date of this section to 
February 28, 2014; and
    (ii) The end of the first business day following the day of 
execution from and after March 1, 2014.
    (2) For purposes of paragraph (a)(1) of this section, each swap 
dealer and major swap participant entering into a swap transaction that 
is or involves an equity swap, foreign exchange swap, or other commodity 
swap with a counterparty that is a swap dealer or major swap participant 
shall execute a confirmation for the swap transaction as soon as 
technologically practicable, but in any event by:
    (i) The end of the third business day following the day of execution 
for the period from the effective date of this section to August 31, 
2013;
    (ii) The end of the second business day following the day of 
execution for the period from September 1, 2013 to August 31, 2014; and
    (iii) The end of the first business day following the day of 
execution from and after September 1, 2014.
    (3) For purposes of paragraph (a)(2) of this section, each swap 
dealer and major swap participant entering into a swap transaction that 
is or involves a credit swap or interest rate swap with a counterparty 
that is not a swap dealer or a major swap participant shall send an 
acknowledgment of such swap transaction as soon as technologically 
practicable, but in any event by:
    (i) The end of the second business day following the day of 
execution for the period from the effective date of this section to 
February 28, 2014; and
    (ii) The end of the first business day following the day of 
execution from and after March 1, 2014.
    (4) For purposes of paragraph (a)(2) of this section, each swap 
dealer and major swap participant entering into a swap transaction that 
is or involves an equity swap, foreign exchange swap, or other commodity 
swap with a counterparty that is not a swap dealer or a major swap 
participant shall send an acknowledgment of such swap transaction as 
soon as technologically practicable, but in any event by:
    (i) The end of the third business day following the day of execution 
for the period from the effective date of this section to August 31, 
2013;
    (ii) The end of the second business day following the day of 
execution for the period from September 1, 2013 to August 31, 2014; and
    (iii) The end of the first business day following the day of 
execution from and after September 1, 2014.
    (5) For purposes of paragraph (a)(3)(i) of this section, each swap 
dealer and major swap participant shall establish, maintain, and follow 
written policies and procedures reasonably designed to ensure that it 
executes a confirmation for each swap transaction that is or involves a 
credit swap or interest rate swap that it enters into with a 
counterparty that is a financial entity as soon as technologically 
practicable, but in any event by:
    (i) The end of the second business day following the day of 
execution for the period from the effective date of this section to 
February 28, 2014; and
    (ii) The end of the first business day following the day of 
execution from and after March 1, 2014.
    (6) For purposes of paragraph (a)(3)(i) of this section, each swap 
dealer and major swap participant shall establish, maintain, and follow 
written policies and procedures reasonably designed to

[[Page 502]]

ensure that it executes a confirmation for each swap transaction that is 
or involves an equity swap, foreign exchange swap, or other commodity 
swap that it enters into with a counterparty that is a financial entity 
as soon as technologically practicable, but in any event by:
    (i) The end of the third business day following the day of execution 
for the period from the effective date of this section to August 31, 
2013;
    (ii) The end of the second business day following the day of 
execution for the period from September 1, 2013 to August 31, 2014; and
    (iii) The end of the first business day following the day of 
execution from and after September 1, 2014.
    (7) For purposes of paragraph (a)(3)(ii) of this section, each swap 
dealer and major swap participant shall establish, maintain, and follow 
written policies and procedures reasonably designed to ensure that it 
executes a confirmation for each swap transaction that is or involves a 
credit swap or interest rate swap that it enters into with a 
counterparty that is not a swap dealer, major swap participant, or a 
financial entity not later than:
    (i) The end of the fifth business day following the day of execution 
for the period from the effective date of this section to August 31, 
2013;
    (ii) The end of the third business day following the day of 
execution for the period from September 1, 2013 to August 31, 2014; and
    (iii) The end of the second business day following the day of 
execution from and after September 1, 2014.
    (8) For purposes of paragraph (a)(3)(ii) of this section, each swap 
dealer and major swap participant shall establish, maintain, and follow 
written policies and procedures reasonably designed to ensure that it 
executes a confirmation for each swap transaction that is or involves an 
equity swap, foreign exchange swap, or other commodity swap that it 
enters into with a counterparty that is not a swap dealer, major swap 
participant, or a financial entity not later than:
    (i) The end of the seventh business day following the day of 
execution for the period from the effective date of this section to 
August 31, 2013;
    (ii) The end of the fourth business day following the day of 
execution for the period from September 1, 2013 to August 31, 2014; and
    (iii) The end of the second business following the day of execution 
from and after September 1, 2014.
    (9) For purposes of paragraph (c) of this section:
    (i) ``Credit swap'' means any swap that is primarily based on 
instruments of indebtedness, including, without limitation: Any swap 
primarily based on one or more broad-based indices related to 
instruments of indebtedness; and any swap that is an index credit swap 
or total return swap on one or more indices of debt instruments;
    (ii) ``Equity swap'' means any swap that is primarily based on 
equity securities, including, without limitation: Any swap primarily 
based on one or more broad-based indices of equity securities; and any 
total return swap on one or more equity indices;
    (iii) ``Foreign exchange swap'' has the meaning set forth in section 
1a(25) of the CEA. It does not include swaps primarily based on rates of 
exchange between different currencies, changes in such rates, or other 
aspects of such rates (sometimes known as ``cross-currency swaps'');
    (iv) ``Interest rate swap'' means any swap which is primarily based 
on one or more interest rates, such as swaps of payments determined by 
fixed and floating interest rates; or any swap which is primarily based 
on rates of exchange between different currencies, changes in such 
rates, or other aspects of such rates (sometimes known as ``cross-
currency swaps''); and
    (v) ``Other commodity swap'' means any swap not included in the 
credit, equity, foreign exchange, or interest rate asset classes, 
including, without limitation, any swap for which the primary underlying 
item is a physical commodity or the price or any other aspect of a 
physical commodity.

[77 FR 55960, Sept. 11, 2012]



Sec.  23.502  Portfolio reconciliation.

    (a) Swaps with swap dealers or major swap participants. Each swap 
dealer and major swap participant shall engage in

[[Page 503]]

portfolio reconciliation as follows for all swaps in which its 
counterparty is also a swap dealer or major swap participant.
    (1) Each swap dealer or major swap participant shall agree in 
writing with each of its counterparties on the terms of the portfolio 
reconciliation.
    (2) The portfolio reconciliation may be performed on a bilateral 
basis by the counterparties or by a qualified third party.
    (3) The portfolio reconciliation shall be performed no less 
frequently than:
    (i) Once each business day for each swap portfolio that includes 500 
or more swaps;
    (ii) Once each week for each swap portfolio that includes more than 
50 but fewer than 500 swaps on any business day during any week; and
    (iii) Once each calendar quarter for each swap portfolio that 
includes no more than 50 swaps at any time during the calendar quarter.
    (4) Each swap dealer and major swap participant shall resolve 
immediately any discrepancy in a material term of a swap identified as 
part of a portfolio reconciliation or otherwise.
    (5) Each swap dealer and major swap participant shall establish, 
maintain, and follow written policies and procedures reasonably designed 
to resolve any discrepancy in a valuation identified as part of a 
portfolio reconciliation or otherwise as soon as possible, but in any 
event within five business days, provided that the swap dealer and major 
swap participant establishes, maintains, and follows written policies 
and procedures reasonably designed to identify how the swap dealer or 
major swap participant will comply with any variation margin 
requirements under section 4s(e) of the Act and regulations under this 
part pending resolution of the discrepancy in valuation. A difference 
between the lower valuation and the higher valuation of less than 10 
percent of the higher valuation need not be deemed a discrepancy.
    (b) Swaps with entities other than swap dealers or major swap 
participants. Each swap dealer and major swap participant shall 
establish, maintain, and follow written policies and procedures 
reasonably designed to ensure that it engages in portfolio 
reconciliation as follows for all swaps in which its counterparty is 
neither a swap dealer nor a major swap participant.
    (1) Each swap dealer or major swap participant shall agree in 
writing with each of its counterparties on the terms of the portfolio 
reconciliation, including agreement on the selection of any third-party 
service provider.
    (2) The portfolio reconciliation may be performed on a bilateral 
basis by the counterparties or by one or more third parties selected by 
the counterparties in accordance with paragraph (b)(1) of this section.
    (3) The required policies and procedures shall provide that 
portfolio reconciliation will be performed no less frequently than:
    (i) Once each calendar quarter for each swap portfolio that includes 
more than 100 swaps at any time during the calendar quarter; and
    (ii) Once annually for each swap portfolio that includes no more 
than 100 swaps at any time during the calendar year.
    (4) Each swap dealer or major swap participant shall establish, 
maintain, and follow written procedures reasonably designed to resolve 
any discrepancies in the material terms or valuation of each swap 
identified as part of a portfolio reconciliation or otherwise with a 
counterparty that is neither a swap dealer nor major swap participant in 
a timely fashion. A difference between the lower valuation and the 
higher valuation of less than 10 percent of the higher valuation need 
not be deemed a discrepancy.
    (c) Reporting. Each swap dealer and major swap participant shall 
promptly notify the Commission and any applicable prudential regulator, 
or with regard to swaps defined in section 1a(47)(A)(v) of the Act, the 
Commission, the Securities and Exchange Commission, and any applicable 
prudential regulator, of any swap valuation dispute in excess of 
$20,000,000 (or its equivalent in any other currency) if not resolved 
within:
    (1) Three (3) business days, if the dispute is with a counterparty 
that is a swap dealer or major swap participant; or
    (2) Five (5) business days, if the dispute is with a counterparty 
that is not

[[Page 504]]

a swap dealer or major swap participant.
    (d) Reconciliation of cleared swaps. Nothing in this section shall 
apply to a swap that is cleared by a derivatives clearing organization.
    (e) Recordkeeping. A record of each swap portfolio reconciliation 
consistent withSec. 23.202(a)(3)(iii) shall be maintained in 
accordance withSec. 23.203.

[77 FR 55960, Sept. 11, 2012]



Sec.  23.503  Portfolio compression.

    (a) Portfolio compression with swap dealers and major swap 
participants--(1) Bilateral offset. Each swap dealer and major swap 
participant shall establish, maintain, and follow written policies and 
procedures for terminating each fully offsetting swap between a swap 
dealer or major swap participant and another swap dealer or major swap 
participant in a timely fashion, when appropriate.
    (2) Bilateral compression. Each swap dealer and major swap 
participant shall establish, maintain, and follow written policies and 
procedures for periodically engaging in bilateral portfolio compression 
exercises, when appropriate, with each counterparty that is also a swap 
dealer or major swap participant.
    (3) Multilateral compression. Each swap dealer and major swap 
participant shall establish, maintain, and follow written policies and 
procedures for periodically engaging in multilateral portfolio 
compression exercises, when appropriate, with each counterparty that is 
also a swap dealer or major swap participant. Such policies and 
procedures shall include:
    (i) Policies and procedures for participation in all multilateral 
portfolio compression exercises required by Commission regulation or 
order; and
    (ii) Evaluation of multilateral portfolio compression exercises that 
are initiated, offered, or sponsored by any third party.
    (b) Portfolio compression with counterparties other than swap 
dealers and major swap participants. Each swap dealer and major swap 
participant shall establish, maintain, and follow written policies and 
procedures for periodically terminating fully offsetting swaps and for 
engaging in portfolio compression exercises with respect to swaps in 
which its counterparty is an entity other than a swap dealer or major 
swap participant, to the extent requested by any such counterparty.
    (c) Portfolio compression of cleared swaps. Nothing in this section 
shall apply to a swap that is cleared by a derivatives clearing 
organization.
    (d) Recordkeeping. (1) Each swap dealer and major swap participant 
shall make and maintain a complete and accurate record of each bilateral 
offset and each bilateral or multilateral portfolio compression exercise 
in which it participates.
    (2) All records required to be maintained pursuant to this section 
shall be maintained in accordance withSec. 23.203 and shall be made 
available promptly upon request to any representative of the Commission 
or any applicable prudential regulator, or with regard to swaps defined 
in section 1a(47)(A)(v) of the Act, to any representative of the 
Commission, the Securities and Exchange Commission, or any applicable 
prudential regulator.

[77 FR 55960, Sept. 11, 2012]



Sec.  23.504  Swap trading relationship documentation.

    (a)(1) Applicability. The requirements of this section shall not 
apply to:
    (i) Swaps executed prior to the date on which a swap dealer or major 
swap participant is required to be in compliance with this section;
    (ii) Swaps executed on a board of trade designated as a contract 
market under section 5 of the Act or to swaps executed anonymously on a 
swap execution facility under section 5h of the Act, provided that such 
swaps are cleared by a derivatives clearing organization and all terms 
of the swaps conform to the rules of the derivatives clearing 
organization andSec. 39.12(b)(6) of this chapter; and
    (iii) Swaps cleared by a derivatives clearing organization.
    (2) Policies and procedures. Each swap dealer and major swap 
participant shall establish, maintain, and follow written policies and 
procedures reasonably designed to ensure that the swap dealer or major 
swap participant executes written swap trading relationship 
documentation with its counterparty

[[Page 505]]

that complies with the requirements of this section. The policies and 
procedures shall be approved in writing by senior management of the swap 
dealer and major swap participant, and a record of the approval shall be 
retained. Other than confirmations of swap transactions underSec. 
23.501, the swap trading relationship documentation shall be executed 
prior to or contemporaneously with entering into a swap transaction with 
any counterparty.
    (b) Swap trading relationship documentation. (1) The swap trading 
relationship documentation shall be in writing and shall include all 
terms governing the trading relationship between the swap dealer or 
major swap participant and its counterparty, including, without 
limitation, terms addressing payment obligations, netting of payments, 
events of default or other termination events, calculation and netting 
of obligations upon termination, transfer of rights and obligations, 
governing law, valuation, and dispute resolution.
    (2) The swap trading relationship documentation shall include all 
confirmations of swap transactions underSec. 23.501.
    (3) The swap trading relationship documentation shall include credit 
support arrangements, which shall contain, in accordance with applicable 
requirements under Commission regulations or regulations adopted by 
prudential regulators and without limitation, the following:
    (i) Initial and variation margin requirements, if any;
    (ii) Types of assets that may be used as margin and asset valuation 
haircuts, if any;
    (iii) Investment and rehypothecation terms for assets used as margin 
for uncleared swaps, if any; and
    (iv) Custodial arrangements for margin assets, including whether 
margin assets are to be segregated with an independent third party, in 
accordance withSec. 23.701(e), if any.
    (4)(i) The swap trading relationship documentation between swap 
dealers, between major swap participants, between a swap dealer and 
major swap participant, between a swap dealer or major swap participant 
and a financial entity, and, if requested by any other counterparty, 
between a swap dealer or major swap participant and such counterparty, 
shall include written documentation in which the parties agree on the 
process, which may include any agreed upon methods, procedures, rules, 
and inputs, for determining the value of each swap at any time from 
execution to the termination, maturity, or expiration of such swap for 
the purposes of complying with the margin requirements under section 
4s(e) of the Act and regulations under this part, and the risk 
management requirements under section 4s(j) of the Act and regulations 
under this part. To the maximum extent practicable, the valuation of 
each swap shall be based on recently-executed transactions, valuations 
provided by independent third parties, or other objective criteria.
    (ii) Such documentation shall include either:
    (A) Alternative methods for determining the value of the swap for 
the purposes of complying with this paragraph in the event of the 
unavailability or other failure of any input required to value the swap 
for such purposes; or
    (B) A valuation dispute resolution process by which the value of the 
swap shall be determined for the purposes of complying with this 
paragraph (b)(4).
    (iii) A swap dealer or major swap participant is not required to 
disclose to the counterparty confidential, proprietary information about 
any model it may use to value a swap.
    (iv) The parties may agree on changes or procedures for modifying or 
amending the documentation required by this paragraph at any time.
    (5) The swap trading relationship documentation of a swap dealer or 
major swap participant shall include the following:
    (i) A statement of whether the swap dealer or major swap participant 
is an insured depository institution (as defined in 12 U.S.C. 1813) or a 
financial company (as defined in section 201(a)(11) of the Dodd-Frank 
Act, 12 U.S.C. 5381(a)(11));
    (ii) A statement of whether the counterparty is an insured 
depository institution or financial company;

[[Page 506]]

    (iii) A statement that in the event either the swap dealer or major 
swap participant or its counterparty is a covered financial company (as 
defined in section 201(a)(8) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, 12 U.S.C. 5381(a)(8)) or an insured depository 
institution for which the Federal Deposit Insurance Corporation (FDIC) 
has been appointed as a receiver (the ``covered party''), certain 
limitations under Title II of the Dodd-Frank Act or the Federal Deposit 
Insurance Act may apply to the right of the non-covered party to 
terminate, liquidate, or net any swap by reason of the appointment of 
the FDIC as receiver, notwithstanding the agreement of the parties in 
the swap trading relationship documentation, and that the FDIC may have 
certain rights to transfer swaps of the covered party under section 
210(c)(9)(A) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, 12 U.S.C. 5390(c)(9)(A), or 12 U.S.C. 1821(e)(9)(A); and
    (iv) An agreement between the swap dealer or major swap participant 
and its counterparty to provide notice if either it or its counterparty 
becomes or ceases to be an insured depository institution or a financial 
company.
    (6) The swap trading relationship documentation of each swap dealer 
and major swap participant shall contain a notice that, upon acceptance 
of a swap by a derivatives clearing organization:
    (i) The original swap is extinguished;
    (ii) The original swap is replaced by equal and opposite swaps with 
the derivatives clearing organization; and
    (iii) All terms of the swap shall conform to the product 
specifications of the cleared swap established under the derivatives 
clearing organization's rules.
    (c) Audit of swap trading relationship documentation. Each swap 
dealer and major swap participant shall have an independent internal or 
external auditor conduct periodic audits sufficient to identify any 
material weakness in its documentation policies and procedures required 
by this section and Commission regulations. A record of the results of 
each audit shall be retained.
    (d) Recordkeeping. Each swap dealer and major swap participant shall 
maintain all documents required to be created pursuant to this section 
in accordance withSec. 23.203 and shall make them available promptly 
upon request to any representative of the Commission or any applicable 
prudential regulator, or with regard to swaps defined in section 
1a(47)(A)(v) of the Act, to any representative of the Commission, the 
Securities and Exchange Commission, or any applicable prudential 
regulator.

[77 FR 55960, Sept. 11, 2012]



Sec.  23.505  End user exception documentation.

    (a) For swaps excepted from a mandatory clearing requirement. Each 
swap dealer and major swap participant shall obtain documentation 
sufficient to provide a reasonable basis on which to believe that its 
counterparty meets the statutory conditions required for an exception 
from a mandatory clearing requirement, as defined in section 2h(7) of 
the Act andSec. 39.6 of this chapter. Such documentation shall 
include:
    (1) The identity of the counterparty;
    (2) That the counterparty has elected not to clear a particular swap 
under section 2h(7) of the Act andSec. 39.6 of this chapter;
    (3) That the counterparty is a non-financial entity, as defined in 
section 2h(7)(C) of the Act;
    (4) That the counterparty is hedging or mitigating a commercial 
risk; and
    (5) That the counterparty generally meets its financial obligations 
associated with non-cleared swaps. Provided, that a swap dealer or major 
swap participant need not obtain documentation of paragraphs (a)(3), 
(4), or (5) of this section if it obtains documentation that its 
counterparty has reported the information listed inSec. 39.6(b)(3) in 
accordance withSec. 39.6(b)(4) of this chapter.
    (b) Recordkeeping. Each swap dealer and major swap participant shall 
maintain all documents required to be obtained pursuant to this section 
in accordance withSec. 23.203 and shall make them available promptly 
upon request to any representative of the Commission or any applicable 
prudential regulator, or with regard to swaps defined in section 
1a(47)(A)(v) of the Act, to

[[Page 507]]

any representative of the Commission, the Securities and Exchange 
Commission, or any applicable prudential regulator.

[77 FR 55960, Sept. 11, 2012]



Sec.  23.506  Swap processing and clearing.

    (a) Swap processing. (1) Each swap dealer and major swap participant 
shall ensure that it has the capacity to route swap transactions not 
executed on a swap execution facility or designated contract market to a 
derivatives clearing organization in a manner acceptable to the 
derivatives clearing organization for the purposes of clearing; and
    (2) Each swap dealer and major swap participant shall coordinate 
with each derivatives clearing organization to which the swap dealer, 
major swap participant, or its clearing member submits transactions for 
clearing, to facilitate prompt and efficient swap transaction processing 
in accordance with the requirements ofSec. 39.12(b)(7) of this 
chapter.
    (b) Swap clearing. With respect to each swap that is not executed on 
a swap execution facility or a designated contract market, each swap 
dealer and major swap participant shall:
    (1) If such swap is subject to a mandatory clearing requirement 
pursuant to section 2(h)(1) of the Act and an exception pursuant to 
2(h)(7) is not applicable, submit such swap for clearing to a 
derivatives clearing organization as soon as technologically practicable 
after execution of the swap, but no later than the close of business on 
the day of execution; or
    (2) If such swap is not subject to a mandatory clearing requirement 
pursuant to section 2(h)(1) of the Act but is accepted for clearing by 
any derivatives clearing organization and the swap dealer or major swap 
participant and its counterparty agree that such swap will be submitted 
for clearing, submit such swap for clearing not later than the next 
business day after execution of the swap, or the agreement to clear, if 
later than execution.



      Subpart J_Duties of Swap Dealers and Major Swap Participants

    Source: 77 FR 20205, Apr. 3, 2012, unless otherwise noted.



Sec.  23.600  Risk Management Program for swap dealers and major
swap participants.

    (a) Definitions. For purposes of subpart J, the following terms 
shall be defined as provided.
    (1) Affiliate. This term means, with respect to any person, a person 
controlling, controlled by, or under common control with, such person.
    (2) Business trading unit. This term means any department, division, 
group, or personnel of a swap dealer or major swap participant or any of 
its affiliates, whether or not identified as such, that performs, or 
personnel exercising direct supervisory authority over the performance 
of any pricing (excluding price verification for risk management 
purposes), trading, sales, marketing, advertising, solicitation, 
structuring, or brokerage activities on behalf of a registrant.
    (3) Clearing unit. This term means any department, division, group, 
or personnel of a registrant or any of its affiliates, whether or not 
identified as such, that performs, or personnel exercising direct 
supervisory authority over the performance of any proprietary or 
customer clearing activities on behalf of a registrant.
    (4) Governing body. This term means:
    (1) A board of directors;
    (2) A body performing a function similar to a board of directors;
    (3) Any committee of a board or body; or
    (4) The chief executive officer of a registrant, or any such board, 
body, committee, or officer of a division of a registrant, provided that 
the registrant's swaps activities for which registration with the 
Commission is required are wholly contained in a separately identifiable 
division.
    (5) Prudential regulator. This term has the same meaning as section 
1a(39) of the Commodity Exchange Act and includes the Board of Governors 
of the Federal Reserve System, the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation,

[[Page 508]]

the Farm Credit Association, and the Federal Housing Finance Agency, as 
applicable to the swap dealer or major swap participant.
    (6) Senior management. This term means, with respect to a 
registrant, any officer or officers specifically granted the authority 
and responsibility to fulfill the requirements of senior management by 
the registrant's governing body.
    (7) Swaps activities. This term means, with respect to a registrant, 
such registrant's activities related to swaps and any product used to 
hedge such swaps, including, but not limited to, futures, options, other 
swaps or security-based swaps, debt or equity securities, foreign 
currency, physical commodities, and other derivatives.
    (b) Risk management program--(1) Purpose. Each swap dealer and major 
swap participant shall establish, document, maintain, and enforce a 
system of risk management policies and procedures designed to monitor 
and manage the risks associated with the swaps activities of the swap 
dealer or major swap participant. For purposes of this regulation, such 
policies and procedures shall be referred to collectively as a ``Risk 
Management Program.''
    (2) Written policies and procedures. Each swap dealer and major swap 
participant shall maintain written policies and procedures that describe 
the Risk Management Program of the swap dealer or major swap 
participant.
    (3) Approval by governing body. The Risk Management Program and the 
written risk management policies and procedures shall be approved, in 
writing, by the governing body of the swap dealer or major swap 
participant.
    (4) Furnishing to the Commission. Each swap dealer and major swap 
participant shall furnish a copy of its written risk management policies 
and procedures to the Commission, or to a futures association registered 
under section 17 of the Act, if directed by the Commission, upon 
application for registration and thereafter upon request.
    (5) Risk management unit. As part of its Risk Management Program, 
each swap dealer and major swap participant shall establish and maintain 
a risk management unit with sufficient authority; qualified personnel; 
and financial, operational, and other resources to carry out the risk 
management program established pursuant to this regulation. The risk 
management unit shall report directly to senior management and shall be 
independent from the business trading unit.
    (c) Elements of the Risk Management Program. The Risk Management 
Program of each swap dealer and major swap participant shall include, at 
a minimum, the following elements:
    (1) Identification of risks and risk tolerance limits. (i) The Risk 
Management Program should take into account market, credit, liquidity, 
foreign currency, legal, operational, settlement, and any other 
applicable risks together with a description of the risk tolerance 
limits set by the swap dealer or major swap participant and the 
underlying methodology in written policies and procedures. The risk 
tolerance limits shall be reviewed and approved quarterly by senior 
management and annually by the governing body. Exceptions to risk 
tolerance limits shall be subject to written policies and procedures.
    (ii) The Risk Management Program shall take into account risks posed 
by affiliates and the Risk Management Program shall be integrated into 
risk management at the consolidated entity level.
    (iii) The Risk Management Program shall include policies and 
procedures for detecting breaches of risk tolerance limits set by the 
swap dealer or major swap participant, and alerting supervisors within 
the risk management unit and senior management, as appropriate.
    (2) Periodic Risk Exposure Reports. (i) The risk management unit of 
each swap dealer and major swap participant shall provide to senior 
management and to its governing body quarterly written reports setting 
forth the market, credit, liquidity, foreign currency, legal, 
operational, settlement, and any other applicable risk exposures of the 
swap dealer or major swap participant; any recommended or completed 
changes to the Risk Management Program; the recommended time frame for 
implementing recommended changes; and the status of any incomplete 
implementation of previously recommended changes to the Risk

[[Page 509]]

Management Program. For purposes of this regulation, such reports shall 
be referred to as ``Risk Exposure Reports.'' The Risk Exposure Reports 
also shall be provided to the senior management and the governing body 
immediately upon detection of any material change in the risk exposure 
of the swap dealer or major swap participant.
    (ii) Furnishing to the Commission. Each swap dealer and major swap 
participant shall furnish copies of its Risk Exposure Reports to the 
Commission within five (5) business days of providing such reports to 
its senior management.
    (3) New product policy. The Risk Management Program of each swap 
dealer and major swap participant shall include a new product policy 
that is designed to identify and take into account the risks of any new 
product prior to engaging in transactions involving the new product. The 
new product policy should include the following elements:
    (i) Consideration of the type of counterparty with which the new 
product will be transacted; the product's characteristics and economic 
function; and whether the product requires a novel pricing methodology 
or presents novel legal and regulatory issues.
    (ii) Identification and analysis of all relevant risks associated 
with the new product and how they will be managed. The risk analysis 
should include an assessment, if relevant, of any product, market, 
credit, liquidity, foreign currency, legal, operational, settlement, and 
any other risks associated with the new product. Product risk 
characteristics may include, if relevant, volatility, non-linear price 
characteristics, jump-to-default risk, and any correlation between the 
value of the product and the counterparty's creditworthiness.
    (iii) An assessment, signed by a supervisor in the risk management 
unit, as to whether the new product would materially alter the overall 
entity-wide risk profile of the swap dealer or major swap participant. 
If the new product would materially alter the overall risk profile of 
the swap dealer or major swap participant, the new product must be pre-
approved by the governing body before any transactions are effectuated.
    (iv) A requirement that the risk management unit review the risk 
analysis to identify any necessary modifications to the Risk Management 
Program and implement such modifications prior to engaging in 
transactions involving the new product.
    (v) Notwithstanding the foregoing, a swap dealer's or major swap 
participant's new product policy may include provisions permitting 
limited preliminary approval of new products--
    (A) At a risk level that would not be material to the swap dealer or 
major swap participant; and
    (B) Solely in order to provide the swap dealer or major swap 
participant with the opportunity to facilitate development of 
appropriate operational and risk management processes for such product.
    (4) Specific risk management considerations. The Risk Management 
Program of each swap dealer and major swap participant shall include, 
but not be limited to, policies and procedures necessary to monitor and 
manage the following risks:
    (i) Market risk. Market risk policies and procedures shall take into 
account, among other things:
    (A) Daily measurement of market exposure, including exposure due to 
unique product characteristics, volatility of prices, basis and 
correlation risks, leverage, sensitivity of option positions, and 
position concentration, to comply with market risk tolerance limits;
    (B) Timely and reliable valuation data derived from, or verified by, 
sources that are independent of the business trading unit, and if 
derived from pricing models, that the models have been independently 
validated by qualified, independent external or internal persons; and
    (C) Periodic reconciliation of profits and losses resulting from 
valuations with the general ledger.
    (ii) Credit risk. Credit risk policies and procedures shall take 
into account, among other things:
    (A) Daily measurement of overall credit exposure to comply with 
counterparty credit limits;

[[Page 510]]

    (B) Monitoring and reporting of violations of counterparty credit 
limits performed by personnel that are independent of the business 
trading unit; and
    (C) Regular valuation of collateral used to cover credit exposures 
and safeguarding of collateral to prevent loss, disposal, 
rehypothecation, or use unless appropriately authorized.
    (iii) Liquidity risk. Liquidity risk policies and procedures shall 
take into account, among other things:
    (A) Daily measurement of liquidity needs;
    (B) Assessing procedures to liquidate all non-cash collateral in a 
timely manner and without significant effect on price; and
    (C) Application of appropriate collateral haircuts that accurately 
reflect market and credit risk.
    (iv) Foreign currency risk. Foreign currency risk policies and 
procedures shall take into account, among other things:
    (A) Daily measurement of the amount of capital exposed to 
fluctuations in the value of foreign currency to comply with applicable 
limits; and
    (B) Establishment of safeguards against adverse currency 
fluctuations.
    (v) Legal risk. Legal risk policies and procedures shall take into 
account, among other things:
    (A) Determinations that transactions and netting arrangements 
entered into have a sound legal basis; and
    (B) Establishment of documentation tracking procedures designed to 
ensure the completeness of relevant documentation and to resolve any 
documentation exceptions on a timely basis.
    (vi) Operational risk. Operational risk policies and procedures 
shall take into account, among other things:
    (A) Secure and reliable operating and information systems with 
adequate, scalable capacity, and independence from the business trading 
unit;
    (B) Safeguards to detect, identify, and promptly correct 
deficiencies in operating and information systems; and
    (C) Reconciliation of all data and information in operating and 
information systems.
    (vii) Settlement risk. Settlement risk policies and procedures shall 
take into account, among other things:
    (A) Establishment of standard settlement instructions with each 
counterparty;
    (B) Procedures to track outstanding settlement items and aging 
information in all accounts, including nostro and suspense accounts; and
    (C) Procedures to ensure timely payments to counterparties and to 
resolve any late payments.
    (5) Use of central counterparties. Each swap dealer and major swap 
participant shall establish policies and procedures relating to its use 
of central counterparties. Such policies and procedures shall:
    (i) Require the use of central counterparties where clearing is 
required pursuant to Commission regulation or order, unless the 
counterparty has properly invoked a clearing exemption under Commission 
regulations;
    (ii) Set forth the conditions for the voluntary use of central 
counterparties for clearing when available as a means of mitigating 
counterparty credit risk; and
    (iii) Require diligent investigation into the adequacy of the 
financial resources and risk management procedures of any central 
counterparty through which the swap dealer or major swap participant 
clears.
    (6) Compliance with margin and capital requirements. Each swap 
dealer and major swap participant shall satisfy all capital and margin 
requirements established by the Commission or prudential regulator, as 
applicable.
    (7) Monitoring of compliance with Risk Management Program. Each swap 
dealer and major swap participant shall establish policies and 
procedures to detect violations of the Risk Management Program; to 
encourage employees to report such violations to senior management, 
without fear of retaliation; and to take specified disciplinary action 
against employees who violate the Risk Management Program.
    (d) Business trading unit. Each swap dealer and major swap 
participant shall establish policies and procedures that, at a minimum:

[[Page 511]]

    (1) Require all trading policies be approved by the governing body 
of the swap dealer or major swap participant;
    (2) Require that traders execute transactions only with 
counterparties for whom credit limits have been established;
    (3) Provide specific quantitative or qualitative limits for traders 
and personnel able to commit the capital of the swap dealer or major 
swap participant;
    (4) Monitor each trader throughout the trading day to prevent the 
trader from exceeding any limit to which the trader is subject, or from 
otherwise incurring unauthorized risk;
    (5) Require each trader to follow established policies and 
procedures for executing and confirming all transactions;
    (6) Establish means to detect unauthorized trading activities or any 
other violation of policies and procedures;
    (7) Ensure that all trade discrepancies are documented and, other 
than immaterial, clerical errors, are brought to the immediate attention 
of management of the business trading unit;
    (8) Ensure that broker statements and payments to brokers are 
periodically audited by persons independent of the business trading 
unit;
    (9) Ensure that use of trading programs is subject to policies and 
procedures governing the use, supervision, maintenance, testing, and 
inspection of the program; and
    (10) Require the separation of personnel in the business trading 
unit from personnel in the risk management unit.
    (e) Review and testing. (1) Risk Management Programs shall be 
reviewed and tested on at least an annual basis, or upon any material 
change in the business of the swap dealer or major swap participant that 
is reasonably likely to alter the risk profile of the swap dealer or 
major swap participant.
    (2) The annual reviews of the Risk Management Program shall include 
an analysis of adherence to, and the effectiveness of, the risk 
management policies and procedures, and any recommendations for 
modifications to the Risk Management Program. The annual testing shall 
be performed by qualified internal audit staff that are independent of 
the business trading unit being audited or by a qualified third party 
audit service reporting to staff that are independent of the business 
trading unit. The results of the quarterly reviews of the Risk 
Management Program shall be promptly reported to and reviewed by, the 
chief compliance officer, senior management, and governing body of the 
swap dealer or major swap participant.
    (3) Each swap dealer and major swap participant shall document all 
internal and external reviews and testing of its Risk Management Program 
and written risk management policies and procedures including the date 
of the review or test; the results; any deficiencies identified; the 
corrective action taken; and the date that corrective action was taken. 
Such documentation shall be provided to Commission staff, upon request.
    (f) Distribution of risk management policies and procedures. The 
Risk Management Program shall include procedures for the timely 
distribution of its written risk management policies and procedures to 
relevant supervisory personnel. Each swap dealer and major swap 
participant shall maintain records of the persons to whom the risk 
management policies and procedures were distributed and when they were 
distributed.
    (g) Recordkeeping. (1) Each swap dealer and major swap participant 
shall maintain copies of all written approvals required by this section.
    (2) All records or reports that a swap dealer or major swap 
participant is required to maintain pursuant to this regulation shall be 
maintained in accordance with Commission RegulationSec. 1.31 and shall 
be made available promptly upon request to representatives of the 
Commission and to representatives of applicable prudential regulators.



Sec.  23.601  Monitoring of position limits.

    (a) Each swap dealer and major swap participant shall establish and 
enforce written policies and procedures that are reasonably designed to 
monitor for and prevent violations of applicable position limits 
established by the Commission, a designated contract market,

[[Page 512]]

or a swap execution facility, and to monitor for and prevent improper 
reliance upon any exemptions or exclusions from such position limits. 
For purposes of this regulation, such policies and procedures shall be 
referred to as ``Position Limit Procedures.'' The Position Limit 
Procedures shall be incorporated into the Risk Management Program of the 
swap dealer or major swap participant.
    (b) For purposes of the Position Limit Procedures, each swap dealer 
and major swap participant shall convert all swap positions into 
equivalent futures positions using the methodology set forth in 
Commission regulations.
    (c) Each swap dealer and major swap participant shall provide 
training to all relevant personnel on applicable position limits on an 
annual basis and shall promptly notify personnel upon any change to 
applicable position limits. Each swap dealer and major swap participant 
shall maintain records of such training and notifications including the 
substance of the training, the identity of those receiving training, and 
the identity of those notified of changes to applicable position limits.
    (d) Each swap dealer and major swap participant shall diligently 
monitor its trading activities and diligently supervise the actions of 
its partners, officers, employees, and agents to ensure compliance with 
the Position Limit Procedures of the swap dealer or major swap 
participant.
    (e) The Position Limit Procedures of each swap dealer and major swap 
participant shall implement an early warning system designed to detect 
and alert its senior management when position limits are in danger of 
being breached (such as when trading has reached a percentage threshold 
of the applicable position limit, and when position limits have been 
exceeded). Any detected violation of applicable position limits shall be 
reported promptly to the firm's governing body. Any detected violation 
of applicable position limits, other than on-exchange violations 
reported to the Commission by a designated contract market or a swap 
execution facility, shall be reported promptly to the Commission. Each 
swap dealer and major swap participant shall maintain a record of any 
early warning received, any position limit violation detected, any 
action taken as a result of either, and the date action was taken.
    (f) Each swap dealer and major swap participant that transacts in 
instruments for which position limits have been established by the 
Commission, a designated contract market, or a swap execution facility 
shall test its Position Limit Procedures for adequacy and effectiveness 
at least once each calendar quarter and maintain records of such tests; 
the results thereof; any action that is taken as a result thereof 
including, without limitation, any recommendations for modifications to 
the firm's Position Limit Procedures; and the date action was taken.
    (g) Each swap dealer and major swap participant shall document its 
compliance with applicable position limits established by the 
Commission, a designated contract market, or a swap execution facility 
in a written report on a quarterly basis. Such report shall be promptly 
reported to and reviewed by the chief compliance officer, senior 
management, and governing body of the swap dealer or major swap 
participant, and shall include, without limitation, a list of all early 
warnings received, all position limit violations, the action taken in 
response, the results of the quarterly position limit testing required 
by this regulation, any deficiencies in the Position Limit Procedures, 
the status of any pending amendments to the Position Limit Procedures, 
and any action taken to amend the Position Limit Procedures to ensure 
compliance with all applicable position limits. Each swap dealer and 
major swap participant shall retain a copy of this report.
    (h) On an annual basis, each swap dealer and major swap participant 
shall audit its Position Limit Procedures as part of the audit of its 
Risk Management Program required by Commission regulations.
    (i) All records required to be maintained pursuant to these 
regulations shall be maintained in accordance with Commission Regulation 
Sec.  1.31 and shall

[[Page 513]]

be made available promptly upon request to representatives of the 
Commission and to representatives of applicable prudential regulators.



Sec.  23.602  Diligent supervision.

    (a) Supervision. Each swap dealer and major swap participant shall 
establish and maintain a system to supervise, and shall diligently 
supervise, all activities relating to its business performed by its 
partners, members, officers, employees, and agents (or persons occupying 
a similar status or performing a similar function). Such system shall be 
reasonably designed to achieve compliance with the requirements of the 
Commodity Exchange Act and Commission regulations.
    (b) Supervisory System. Such supervisory system shall provide, at a 
minimum, for the following:
    (1) The designation, where applicable, of at least one person with 
authority to carry out the supervisory responsibilities of the swap 
dealer or major swap participant for all activities relating to its 
business as a swap dealer or major swap participant.
    (2) The use of reasonable efforts to determine that all supervisors 
are qualified and meet such standards of training, experience, 
competence, and such other qualification standards as the Commission 
finds necessary or appropriate.



Sec.  23.603  Business continuity and disaster recovery.

    (a) Business continuity and disaster recovery plan required. Each 
swap dealer and major swap participant shall establish and maintain a 
written business continuity and disaster recovery plan that outlines the 
procedures to be followed in the event of an emergency or other 
disruption of its normal business activities. The business continuity 
and disaster recovery plan shall be designed to enable the swap dealer 
or major swap participant to continue or to resume any operations by the 
next business day with minimal disturbance to its counterparties and the 
market, and to recover all documentation and data required to be 
maintained by applicable law and regulation.
    (b) Essential components. The business continuity and disaster 
recovery plan of a swap dealer or major swap participant shall include 
the following components:
    (1) Identification of the documents, data, facilities, 
infrastructure, personnel and competencies essential to the continued 
operations of the swap dealer or major swap participant and to fulfill 
the obligations of the swap dealer or major swap participant.
    (2) Identification of the supervisory personnel responsible for 
implementing each aspect of the business continuity and disaster 
recovery plan and the emergency contacts required to be provided 
pursuant to this regulation.
    (3) A plan to communicate with the following persons in the event of 
an emergency or other disruption, to the extent applicable to the 
operations of the swap dealer or major swap participant: employees; 
counterparties; swap data repositories; execution facilities; trading 
facilities; clearing facilities; regulatory authorities; data, 
communications and infrastructure providers and other vendors; disaster 
recovery specialists and other persons essential to the recovery of 
documentation and data, the resumption of operations, and compliance 
with the Commodity Exchange Act and Commission regulations.
    (4) Procedures for, and the maintenance of, back-up facilities, 
systems, infrastructure, alternative staffing and other resources to 
achieve the timely recovery of data and documentation and to resume 
operations as soon as reasonably possible and generally within the next 
business day.
    (5) Maintenance of back-up facilities, systems, infrastructure and 
alternative staffing arrangements in one or more areas that are 
geographically separate from the swap dealer's or major swap 
participant's primary facilities, systems, infrastructure and personnel 
(which may include contractual arrangements for the use of facilities, 
systems and infrastructure provided by third parties).
    (6) Back-up or copying, with sufficient frequency, of documents and 
data essential to the operations of the swap dealer or major swap 
participant or to fulfill the regulatory obligations of the swap dealer 
or major swap participant

[[Page 514]]

and storing the information off-site in either hard-copy or electronic 
format.
    (7) Identification of potential business interruptions encountered 
by third parties that are necessary to the continued operations of the 
swap dealer or major swap participant and a plan to minimize the impact 
of such disruptions.
    (c) Distribution to employees. Each swap dealer and major swap 
participant shall distribute a copy of its business continuity and 
disaster recovery plan to relevant employees and promptly provide any 
significant revision thereto. Each swap dealer and major swap 
participant shall maintain copies of the business continuity and 
disaster recovery plan at one or more accessible off-site locations. 
Each swap dealer and major swap participant shall train relevant 
employees on applicable components of the business continuity and 
disaster recovery plan.
    (d) Commission notification. Each swap dealer and major swap 
participant shall promptly notify the Commission of any emergency or 
other disruption that may affect the ability of the swap dealer or major 
swap participant to fulfill its regulatory obligations or would have a 
significant adverse effect on the swap dealer or major swap participant, 
its counterparties, or the market.
    (e) Emergency contacts. Each swap dealer and major swap participant 
shall provide to the Commission the name and contact information of two 
employees who the Commission can contact in the event of an emergency or 
other disruption. The individuals identified shall be authorized to make 
key decisions on behalf of the swap dealer or major swap participant and 
have knowledge of the firm's business continuity and disaster recovery 
plan. The swap dealer or major swap participant shall provide the 
Commission with any updates to this information promptly.
    (f) Review and modification. A member of the senior management of 
each swap dealer and major swap participant shall review the business 
continuity and disaster recovery plan annually or upon any material 
change to the business. Any deficiencies found or corrective action 
taken shall be documented.
    (g) Testing and audit. Each business continuity and disaster 
recovery plan shall be tested annually by qualified, independent 
internal personnel or a qualified third party service. The date the 
testing was performed shall be documented, together with the nature and 
scope of the testing, any deficiencies found, any corrective action 
taken, and the date that corrective action was taken. Each business 
continuity and disaster recovery plan shall be audited at least once 
every three years by a qualified third party service. The date the audit 
was performed shall be documented, together with the nature and scope of 
the audit, any deficiencies found, any corrective action taken, and the 
date that corrective action was taken.
    (h) Business continuity and disaster recovery plans required by 
other regulatory authorities. A swap dealer or major swap participant 
shall comply with the requirements of this regulation in addition to any 
business continuity and disaster recovery requirements that are imposed 
upon the swap dealer or major swap participant by its prudential 
regulator or any other regulatory or self-regulatory authority.
    (i) Recordkeeping. The business continuity and disaster recovery 
plan of the swap dealer and major swap participant and all other records 
required to be maintained pursuant to this section shall be maintained 
in accordance with Commission RegulationSec. 1.31 and shall be made 
available promptly upon request to representatives of the Commission and 
to representatives of applicable prudential regulators.



Sec.  23.604  [Reserved]



Sec.  23.605  Conflicts of interest policies and procedures.

    (a) Definitions. For purposes of this section, the following terms 
shall be defined as provided.
    (1) Affiliate. This term means, with respect to any person, a person 
controlling, controlled by, or under common control with, such person.
    (2) Business trading unit. This term means any department, division, 
group, or personnel of a swap dealer or major swap participant or any of 
its affiliates, whether or not identified as such,

[[Page 515]]

that performs, or personnel exercising direct supervisory authority over 
the performance of, any pricing (excluding price verification for risk 
management purposes), trading, sales, marketing, advertising, 
solicitation, structuring, or brokerage activities on behalf of a swap 
dealer or major swap participant or any of its affiliates.
    (3) Clearing unit. This term means any department, division, group, 
or personnel of a swap dealer or major swap participant or any of its 
affiliates, whether or not identified as such, that performs, or 
personnel exercising direct supervisory authority over the performance 
of, any proprietary or customer clearing activities on behalf of a swap 
dealer or major swap participant or any of its affiliates.
    (4) Derivative. This term means:
    (i) A contract for the purchase or sale of a commodity for future 
delivery;
    (ii) A security futures product;
    (iii) A swap;
    (iv) Any agreement, contract, or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act;
    (v) Any commodity option authorized under section 4c of the Act; and
    (vi) Any leverage transaction authorized under section 19 of the 
Act.
    (5) Non-research personnel. This term means any employee of the 
business trading unit or clearing unit, or any other employee of the 
swap dealer or major swap participant, other than an employee performing 
a legal or compliance function, who is not directly responsible for, or 
otherwise not involved in, research or analysis intended for inclusion 
in a research report.
    (6) Public appearance. This term means any participation in a 
conference call, seminar, forum (including an interactive electronic 
forum) or other public speaking activity before 15 or more persons 
(individuals or entities), or interview or appearance before one or more 
representatives of the media, radio, television or print media, or the 
writing of a print media article, in which a research analyst makes a 
recommendation or offers an opinion concerning a derivatives 
transaction. This term does not include a password-protected Webcast, 
conference call or similar event with 15 or more existing customers, 
provided that all of the event participants previously received the most 
current research report or other documentation that contains the 
required applicable disclosures, and that the research analyst appearing 
at the event corrects and updates during the public appearance any 
disclosures in the research report that are inaccurate, misleading, or 
no longer applicable.
    (7) Research analyst. This term means the employee of a swap dealer 
or major swap participant who is primarily responsible for, and any 
employee who reports directly or indirectly to such research analyst in 
connection with, preparation of the substance of a research report 
relating to any derivative, whether or not any such person has the job 
title of ``research analyst.''
    (8) Research department. This term means any department or division 
that is principally responsible for preparing the substance of a 
research report relating to any derivative on behalf of a swap dealer or 
major swap participant, including a department or division contained in 
an affiliate of a swap dealer or major swap participant.
    (9) Research report. This term means any written communication 
(including electronic) that includes an analysis of the price or market 
for any derivative, and that provides information reasonably sufficient 
upon which to base a decision to enter into a derivatives transaction. 
This term does not include:
    (i) Communications distributed to fewer than 15 persons;
    (ii) Commentaries on economic, political, or market conditions;
    (iii) Statistical summaries of multiple companies' financial data, 
including listings of current ratings;
    (iv) Periodic reports or other communications prepared for 
investment company shareholders or commodity pool participants that 
discuss individual derivatives positions in the context of a fund's past 
performance or the basis for previously-made discretionary decisions;
    (v) Any communications generated by an employee of the business 
trading unit that is conveyed as a solicitation for entering into a 
derivatives transaction, and is conspicuously identified as such; and

[[Page 516]]

    (vi) Internal communications that are not given to current or 
prospective customers.
    (b) Policies and procedures. Each swap dealer and major swap 
participant subject to this rule must adopt and implement written 
policies and procedures reasonably designed to ensure that the swap 
dealer or major swap participant and its employees comply with the 
provisions of this rule.
    (c) Research analysts and research reports--(1) Restrictions on 
relationship with research department. (i) Non-research personnel shall 
not direct a research analyst's decision to publish a research report of 
the swap dealer or major swap participant, and non-research personnel 
shall not direct the views and opinions expressed in a research report 
of the swap dealer or major swap participant.
    (ii) No research analyst may be subject to the supervision or 
control of any employee of the swap dealer's or major swap participant's 
business trading unit or clearing unit, and no employee of the business 
trading unit or clearing unit may have any influence or control over the 
evaluation or compensation of a research analyst.
    (iii) Except as provided in paragraph (c)(1)(iv) of this section, 
non-research personnel, other than the board of directors and any 
committee thereof, shall not review or approve a research report of the 
swap dealer or major swap participant before its publication.
    (iv) Non-research personnel may review a research report before its 
publication as necessary only to verify the factual accuracy of 
information in the research report, to provide for non-substantive 
editing, to format the layout or style of the research report, or to 
identify any potential conflicts of interest, provided that:
    (A) Any written communication between non-research personnel and 
research department personnel concerning the content of a research 
report must be made either through authorized legal or compliance 
personnel of the swap dealer or major swap participant or in a 
transmission copied to such personnel; and
    (B) Any oral communication between non-research personnel and 
research department personnel concerning the content of a research 
report must be documented and made either through authorized legal or 
compliance personnel acting as an intermediary or in a conversation 
conducted in the presence of such personnel.
    (2) Restrictions on communications. Any written or oral 
communication by a research analyst to a current or prospective 
counterparty relating to any derivative must not omit any material fact 
or qualification that would cause the communication to be misleading to 
a reasonable person.
    (3) Restrictions on research analyst compensation. A swap dealer or 
major swap participant may not consider as a factor in reviewing or 
approving a research analyst's compensation his or her contributions to 
the swap dealer's or major swap participant's trading or clearing 
business. Except for communicating client or customer feedback, ratings, 
and other indicators of research analyst performance to research 
department management, no employee of the business trading unit or 
clearing unit of the swap dealer or major swap participant may influence 
the review or approval of a research analyst's compensation.
    (4) Prohibition of promise of favorable research. No swap dealer or 
major swap participant may directly or indirectly offer favorable 
research, or threaten to change research, to an existing or prospective 
counterparty as consideration or inducement for the receipt of business 
or compensation.
    (5) Disclosure requirements. (i) Ownership and material conflicts of 
interest. A swap dealer or major swap participant must disclose in 
research reports and a research analyst must disclose in public 
appearances:
    (A) Whether the research analyst maintains a financial interest in 
any derivative of a type, class, or, category that the research analyst 
follows, and the general nature of the financial interest; and
    (B) Any other actual, material conflicts of interest of the research 
analyst or swap dealer or major swap participant of which the research 
analyst has knowledge at the time of publication of the research report 
or at the time of the public appearance.

[[Page 517]]

    (ii) Prominence of disclosure. Disclosures and references to 
disclosures must be clear, comprehensive, and prominent. With respect to 
public appearances by research analysts, the disclosures required by 
this paragraph (c)(5) must be conspicuous.
    (iii) Records of public appearances. Each swap dealer and major swap 
participant must maintain records of public appearances by research 
analysts sufficient to demonstrate compliance by those research analysts 
with the applicable disclosure requirements under this paragraph (c)(5).
    (iv) Third-party research reports. (A) For the purposes of this 
paragraph (c)(5)(iv), ``independent third-party research report'' shall 
mean a research report, in respect of which the person or entity 
producing the report:
    (1) Has no affiliation or business or contractual relationship with 
the distributing swap dealer or major swap participant, or that swap 
dealer's or major swap participant's affiliates, that is reasonably 
likely to inform the content of its research reports; and
    (2) Makes content determinations without any input from the 
distributing swap dealer or major swap participant or that swap dealer's 
or major swap participant's affiliates.
    (B) Subject to paragraph (c)(5)(iv)(C) of this section, if a swap 
dealer or major swap participant distributes or makes available any 
independent third-party research report, the swap dealer or major swap 
participant must accompany the research report with, or provide a Web 
address that directs the recipient to, the current applicable 
disclosures, as they pertain to the swap dealer or major swap 
participant, required by this section. Each swap dealer and major swap 
participant must establish written policies and procedures reasonably 
designed to ensure the completeness and accuracy of all applicable 
disclosures.
    (C) The requirements of paragraph (c)(5)(iv)(B) of this section 
shall not apply to independent third-party research reports made 
available by a swap dealer or major swap participant to its customers:
    (1) Upon request; or
    (2) Through a Web site maintained by the swap dealer or major swap 
participant.
    (6) Prohibition of retaliation against research analysts. No swap 
dealer or major swap participant, and no employee of a swap dealer or 
major swap participant who is involved with the swap dealer's or major 
swap participant's pricing, trading, or clearing activities, may, 
directly or indirectly, retaliate against or threaten to retaliate 
against any research analyst employed by the swap dealer or major swap 
participant or its affiliates as a result of an adverse, negative, or 
otherwise unfavorable research report or public appearance written or 
made, in good faith, by the research analyst that may adversely affect 
the swap dealer's or major swap participant's present or prospective 
pricing, trading, or clearing activities.
    (d) Clearing activities. (1) No swap dealer or major swap 
participant shall directly or indirectly interfere with or attempt to 
influence the decision of the clearing unit of any affiliated clearing 
member of a derivatives clearing organization to provide clearing 
services and activities to a particular customer, including but not 
limited to a decision relating to the following:
    (i) Whether to offer clearing services and activities to a 
particular customer;
    (ii) Whether to accept a particular customer for the purposes of 
clearing derivatives;
    (iii) Whether to submit a customer's transaction to a particular 
derivatives clearing organization;
    (iv) Whether to set or adjust risk tolerance levels for a particular 
customer;
    (v) Whether to accept certain forms of collateral from a particular 
customer; or
    (vi) Whether to set a particular customer's fees for clearing 
services based upon criteria that are not generally available and 
applicable to other customers of the swap dealer or major swap 
participant.
    (2) Each swap dealer and major swap participant shall create and 
maintain an appropriate informational partition, as specified in section 
4s(j)(5)(A) of the Act, between business trading units of

[[Page 518]]

the swap dealer or major swap participant and clearing units of any 
affiliated clearing member of a derivatives clearing organization to 
reasonably ensure compliance with the Act and the prohibitions specified 
in paragraph (d)(1) of this section. At a minimum, such informational 
partitions shall require that no employee of a business trading unit of 
a swap dealer or major swap participant shall supervise, control, or 
influence any employee of the clearing unit of any affiliated clearing 
member of a derivatives clearing organization.
    (e) Undue influence on counterparties. Each swap dealer and major 
swap participant must adopt and implement written policies and 
procedures that mandate the disclosure to its counterparties of any 
material incentives and any material conflicts of interest regarding the 
decision of a counterparty:
    (1) Whether to execute a derivative on a swap execution facility or 
designated contract market; or
    (2) Whether to clear a derivative through a derivatives clearing 
organization.
    (f) All records that a swap dealer or major swap participant is 
required to maintain pursuant to this regulation shall be maintained in 
accordance with Commission RegulationSec. 1.31 and shall be made 
available promptly upon request to representatives of the Commission and 
to representatives of the applicable prudential regulator, as defined in 
7 U.S.C. 1a(39).



Sec.  23.606  General information: availability for disclosure
and inspection.

    (a) Disclosure of information. (1) Each swap dealer and major swap 
participant shall make available for disclosure to and inspection by the 
Commission and its prudential regulator, as applicable, all information 
required by, or related to, the Commodity Exchange Act and Commission 
regulations, including:
    (i) The terms and condition of its swaps;
    (ii) Its swaps trading operations, mechanisms, and practices;
    (iii) Financial integrity and risk management protections relating 
to swaps; and
    (iv) Any other information relevant to its trading in swaps.
    (2) Such information shall be made available promptly, upon request, 
to Commission staff and the staff of the applicable prudential 
regulator, at such frequency and in such manner as is set forth in the 
Commodity Exchange Act, Commission regulations, or the regulations of 
the applicable prudential regulator.
    (b) Ability to provide information. (1) Each swap dealer and major 
swap participant shall establish and maintain reliable internal data 
capture, processing, storage, and other operational systems sufficient 
to capture, process, record, store, and produce all information 
necessary to satisfy its duties under the Commodity Exchange Act and 
Commission regulations. Such systems shall be designed to produce the 
information within the time frames set forth in the Commodity Exchange 
Act and Commission regulations or upon request, as applicable.
    (2) Each swap dealer and major swap participant shall establish, 
implement, maintain, and enforce written procedures for the capture, 
processing, recording, storage, and production of all information 
necessary to satisfy its duties under the Commodity Exchange Act and 
Commission regulations.
    (c) Record retention. All records or reports that a swap dealer or 
major swap participant is required to maintain pursuant to this 
regulation shall be maintained in accordance with Commission Regulation 
Sec.  1.31 and shall be made available promptly upon request to 
representatives of the Commission and to representatives of applicable 
prudential regulators.



Sec.  23.607  Antitrust considerations.

    (a) No swap dealer or major swap participant shall adopt any process 
or take any action that results in any unreasonable restraint of trade, 
or impose any material anticompetitive burden on trading or clearing, 
unless necessary or appropriate to achieve the purposes of the Commodity 
Exchange Act.
    (b) Consistent with its obligations under paragraph (a) of this 
section,

[[Page 519]]

each swap dealer and major swap participant shall adopt policies and 
procedures to prevent actions that result in unreasonable restraint of 
trade, or impose any material anticompetitive burden on trading or 
clearing.



Sec.  23.608  Restrictions on counterparty clearing relationships.

    No swap dealer or major swap participant entering into a swap to be 
submitted for clearing with a counterparty that is a customer of a 
futures commission merchant shall enter into an arrangement that:
    (a) Discloses to the futures commission merchant or any swap dealer 
or major swap participant the identity of a customer's original 
executing counterparty;
    (b) Limits the number of counterparties with whom a customer may 
enter into a trade;
    (c) Restricts the size of the position a customer may take with any 
individual counterparty, apart from an overall limit for all positions 
held by the customer with the swap dealer or major swap participant;
    (d) Impairs a customer's access to execution of a trade on terms 
that have a reasonable relationship to the best terms available; or
    (e) Prevents compliance with the timeframes set forth inSec. 
1.74(b),Sec. 23.610(b), orSec. 39.12(b)(7) of this chapter.

[77 FR 21308, Apr. 9, 2012]



Sec.  23.609  Clearing member risk management.

    (a) With respect to clearing activities in futures, security futures 
products, swaps, agreements, contracts, or transactions described in 
section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act, commodity 
options authorized under section 4c of the Act, or leveraged 
transactions authorized under section 19 of the Act, each swap dealer or 
major swap participant that is a clearing member of a derivatives 
clearing organization shall:
    (1) Establish risk-based limits based on position size, order size, 
margin requirements, or similar factors;
    (2) Screen orders for compliance with the risk-based limits in 
accordance with the following:
    (i) For transactions subject to automated execution, the clearing 
member shall use automated means to screen orders for compliance with 
the risk-based limits; and
    (ii) For transactions subject to non-automated execution, the 
clearing member shall establish and maintain systems of risk controls 
reasonably designed to ensure compliance with the limits.
    (3) Monitor for adherence to the risk-based limits intra-day and 
overnight;
    (4) Conduct stress tests under extreme but plausible conditions of 
all positions at least once per week;
    (5) Evaluate its ability to meet initial margin requirements at 
least once per week;
    (6) Evaluate its ability to meet variation margin requirements in 
cash at least once per week;
    (7) Evaluate its ability to liquidate the positions it clears in an 
orderly manner, and estimate the cost of the liquidation; and
    (8) Test all lines of credit at least once per year.
    (b) Each swap dealer or major swap participant that is a clearing 
member of a derivatives clearing organization shall:
    (1) Establish written procedures to comply with this regulation; and
    (2) Keep full, complete, and systematic records documenting its 
compliance with this regulation.
    (3) All records required to be maintained pursuant to these 
regulations shall be maintained in accordance with Commission Regulation 
Sec.  1.31 and shall be made available promptly upon request to 
representatives of the Commission and to representatives of applicable 
prudential regulators.

[77 FR 21308, Apr. 9, 2012]



Sec.  23.610  Clearing member acceptance for clearing.

    (a) Each swap dealer or major swap participant that is a clearing 
member of a derivatives clearing organization shall coordinate with each 
derivatives clearing organization on which it clears to establish 
systems that enable the clearing member, or the derivatives clearing 
organization acting on its behalf, to accept or reject each trade 
submitted to the derivatives

[[Page 520]]

clearing organization for clearing by or for the clearing member as 
quickly as would be technologically practicable if fully automated 
systems were used; and
    (b) Each swap dealer or major swap participant that is a clearing 
member of a derivatives clearing organization shall accept or reject 
each trade submitted by or for it as quickly as would be technologically 
practicable if fully automated systems were used; a clearing member may 
meet this requirement by:
    (1) Establishing systems to pre-screen orders for compliance with 
criteria specified by the clearing member;
    (2) Establishing systems that authorize a derivatives clearing 
organization to accept or reject on its behalf trades that meet, or fail 
to meet, criteria specified by the clearing member; or
    (3) Establishing systems that enable the clearing member to 
communicate to the derivatives clearing organization acceptance or 
rejection of each trade as quickly as would be technologically 
practicable if fully automated systems were used.

[77 FR 21308, Apr. 9, 2012]



Sec.  23.611  Delegation of authority to the Director of the Division
of Clearing and Risk to establish an alternative compliance schedule
to comply with  clearing member acceptance for clearing.

    (a) The Commission hereby delegates to the Director of the Division 
of Clearing and Risk or such other employee or employees as the Director 
may designate from time to time, the authority to establish an 
alternative compliance schedule for requirements ofSec. 23.610 for 
swaps that are found to be technologically or economically impracticable 
for an affected swap dealer or major swap participant that seeks, in 
good faith, to comply with the requirements ofSec. 23.610 within a 
reasonable time period beyond the date on which compliance by such swap 
dealer or major swap participant is otherwise required.
    (b) A request for an alternative compliance schedule under this 
section shall be acted upon by the Director of the Division of Clearing 
and Risk within 30 days from the time such a request is received, or it 
shall be deemed approved.
    (c) An exception granted under this section shall not cause a 
registrant to be out of compliance or deemed in violation of any 
registration requirements.
    (d) Notwithstanding any other provision of this section, in any case 
in which a Commission employee delegated authority under this section 
believes it appropriate, he or she may submit to the Commission for its 
consideration the question of whether an alternative compliance schedule 
should be established. Nothing in this section shall be deemed to 
prohibit the Commission, at its election, from exercising the authority 
delegated in this section.

[77 FR 21308, Apr. 9, 2012]



Sec. Appendix A to Subpart H-- Guidance on the Application of Sec.Sec. 
    23.434 and 23.440 for Swap Dealers That Make Recommendations to 
                   Counterparties or Special Entities

    The following provides guidance on the application of Sec.Sec. 
23.434 and 23.440 to swap dealers that make recommendations to 
counterparties or Special Entities.

    Section 23.434--Recommendations to Counterparties--Institutional 
                               Suitability

    A swap dealer that recommends a swap or trading strategy involving a 
swap to a counterparty, other than a swap dealer, major swap 
participant, security-based swap dealer or major security-based swap 
participant, must undertake reasonable diligence to understand the 
potential risks and rewards associated with the recommended swap or 
trading strategy involving a swap--general suitability (Sec.  
23.434(a)(1))--and have a reasonable basis to believe that the 
recommended swap or trading strategy involving a swap is suitable for 
the counterparty--specific suitability (Sec.  23.434(a)(2)). To satisfy 
the general suitability obligation, a swap dealer must undertake 
reasonable diligence that will vary depending on, among other things, 
the complexity of and risks associated with the swap or swap trading 
strategy and the swap dealer's familiarity with the swap or swap trading 
strategy. At a minimum, a swap dealer's reasonable diligence must 
provide it with an understanding of the potential risks and rewards 
associated with the recommended swap or swap trading strategy.
    Recommendation. Whether a communication between a swap dealer and a

[[Page 521]]

counterparty is a recommendation will turn on the facts and 
circumstances of the particular situation. There are, however, certain 
factors the Commission will consider in reaching such a determination. 
The facts and circumstances determination of whether a communication is 
a ``recommendation'' requires an analysis of the content, context, and 
presentation of the particular communication or set of communications. 
The determination of whether a ``recommendation'' has been made, 
moreover, is an objective rather than a subjective inquiry. An important 
factor in this regard is whether, given its content, context, and manner 
of presentation, a particular communication from a swap dealer to a 
counterparty reasonably would be viewed as a ``call to action,'' or 
suggestion that the counterparty enter into a swap. An analysis of the 
content, context, and manner of presentation of a communication requires 
examination of the underlying substantive information transmitted to the 
counterparty and consideration of any other facts and circumstances, 
such as any accompanying explanatory message from the swap dealer. 
Additionally, the more individually tailored the communication to a 
specific counterparty or a targeted group of counterparties about a 
swap, group of swaps or trading strategy involving the use of a swap, 
the greater the likelihood that the communication may be viewed as a 
``recommendation.''
    Safe harbor. A swap dealer may satisfy the safe harbor requirements 
ofSec. 23.434(b) to fulfill its counterparty-specific suitability duty 
underSec. 23.434(a)(2) if: (1) The swap dealer reasonably determines 
that the counterparty, or an agent to which the counterparty has 
delegated decision-making authority, is capable of independently 
evaluating investment risks with regard to the relevant swap or trading 
strategy involving a swap; (2) the counterparty or its agent represents 
in writing that it is exercising independent judgment in evaluating the 
recommendations of the swap dealer; (3) the swap dealer discloses in 
writing that it is acting in its capacity as a counterparty and is not 
undertaking to assess the suitability of the recommendation; and (4) in 
the case of a counterparty that is a Special Entity, the swap dealer 
complies withSec. 23.440 where the recommendation would cause the swap 
dealer to act as an advisor to a Special Entity within the meaning of 
Sec.  23.440(a).
    To reasonably determine that the counterparty, or an agent to which 
the counterparty has delegated decision-making authority, is capable of 
independently evaluating investment risks of a recommendation, the swap 
dealer can rely on the written representations of the counterparty, as 
provided inSec. 23.434(c). Section 23.434(c)(1) provides that a swap 
dealer will satisfySec. 23.434(b)(1)'s requirement with respect to a 
counterparty other than a Special Entity if it receives representations 
that the counterparty has complied in good faith with the counterparty's 
policies and procedures that are reasonably designed to ensure that the 
persons responsible for evaluating the recommendation and making trading 
decisions on behalf of the counterparty are capable of doing so. Section 
Sec.  23.434(c)(2) provides that a swap dealer will satisfySec. 
23.434(b)(1)'s requirement with respect to a Special Entity if it 
receives representations that satisfy the terms ofSec. 23.450(d) 
regarding a Special Entity's qualified independent representative.
    Prong (4) of the safe harbor clarifies thatSec. 23.434's 
application is broader thanSec. 23.440--Requirements for Swap Dealers 
Acting as Advisors to Special Entities. Section 23.434 is triggered when 
a swap dealer recommends any swap or trading strategy that involves a 
swap to any counterparty. However,Sec. 23.440 is limited to a swap 
dealer's recommendations (1) to a Special Entity (2) of swaps that are 
tailored to the particular needs or characteristics of the Special 
Entity. Thus, a swap dealer that recommends a swap to a Special Entity 
that is tailored to the particular needs or characteristics of the 
Special Entity may comply with its suitability obligation by satisfying 
the safe harbor inSec. 23.434(b); however, the swap dealer must also 
comply withSec. 23.440 in such circumstances.

  Section 23.440--Requirements for Swap Dealers Acting as Advisors to 
                            Special Entities

    A swap dealer ``acts as an advisor to a Special Entity'' underSec. 
23.440 when the swap dealer recommends a swap or trading strategy 
involving a swap that is tailored to the particular needs or 
characteristics of the Special Entity. A swap dealer that ``acts as an 
advisor to a Special Entity'' has a duty to make a reasonable 
determination that a recommendation is in the ``best interests'' of the 
Special Entities and must undertake ``reasonable efforts'' to obtain 
information necessary to make such a determination.
    Whether a swap dealer ``acts as an advisor to a Special Entity'' 
will depend on: (1) Whether the swap dealer has made a recommendation to 
a Special Entity; and (2) whether the recommendation concerns a swap or 
trading strategy involving a swap that is tailored to the particular 
needs or characteristics of the Special Entity. To determine whether a 
communication between a swap dealer and counterparty is a 
recommendation, the Commission will apply the same factors as under 
Sec.  23.434, the suitability rule. However, unlike the suitability 
rule, which covers recommendations regarding any type of swap or trading 
strategy involving a swap, the ``acts as an advisor rule'' and ``best 
interests'' duty will be triggered only if the recommendation is of a 
swap or trading strategy involving a swap that is

[[Page 522]]

``tailored to the particular needs or characteristics of the Special 
Entity.''
    Whether a swap is tailored to the particular needs or 
characteristics of the Special Entity will depend on the facts and 
circumstances. Swaps with terms that are tailored or customized to a 
specific Special Entity's needs or objectives, or swaps with terms that 
are designed for a targeted group of Special Entities that share common 
characteristics, e.g., school districts, are likely to be viewed as 
tailored to the particular needs or characteristics of the Special 
Entity. Generally, however, the Commission would not view a swap that is 
``made available for trading'' on a designated contract market or swap 
execution facility, as provided in Section 2(h)(8) of the Act, as 
tailored to the particular needs or characteristics of the Special 
Entity.
    Safe harbor. UnderSec. 23.440(b)(2), when dealing with a Special 
Entity (including a Special Entity that is an employee benefit plan as 
defined inSec. 23.401(c)(3)),\1\ a swap dealer will not ``act as an 
advisor to a Special Entity'' if: (1) The swap dealer does not express 
an opinion as to whether the Special Entity should enter into a 
recommended swap or swap trading strategy that is tailored to the 
particular needs or characteristics of the Special Entity; (2) the 
Special Entity represents in writing, in accordance withSec. 
23.402(d), that it will not rely on the swap dealer's recommendations 
and will rely on advice from a qualified independent representative 
within the meaning ofSec. 23.450; and (3) the swap dealer discloses 
that it is not undertaking to act in the best interests of the Special 
Entity.
---------------------------------------------------------------------------

    \1\ The guidance in this appendix regarding the safe harbor toSec. 
23.440 is limited to the safe harbor for any Special Entity underSec. 
23.440(b)(2). A swap dealer may separately comply with the safe harbor 
underSec. 23.440(b)(1) for its communications to a Special Entity that 
is an employee benefit plan as defined inSec. 23.401(c)(3).
---------------------------------------------------------------------------

    A swap dealer that elects to communicate within the safe harbor to 
avoid triggering the ``best interests'' duty must appropriately manage 
its communications. To clarify the type of communications that they will 
make under the safe harbor, the Commission expects that swap dealers may 
specifically represent that they will not express an opinion as to 
whether the Special Entity should enter into a recommended swap or 
trading strategy, and that for such advice the Special Entity should 
consult its own advisor. Nothing in the final rule would preclude such a 
representation from being included in counterparty relationship 
documentation. However, such a representation would not act as a safe 
harbor under the rule where, contrary to the representation, the swap 
dealer does express an opinion to the Special Entity as to whether it 
should enter into a recommended swap or trading strategy.
    If a swap dealer complies with the terms of the safe harbor, the 
following types of communications would not be subject to the ``best 
interests'' duty: \2\ (1) Providing information that is general 
transaction, financial, educational, or market information; (2) offering 
a swap or trading strategy involving a swap, including swaps that are 
tailored to the needs or characteristics of a Special Entity; (3) 
providing a term sheet, including terms for swaps that are tailored to 
the needs or characteristics of a Special Entity; (4) responding to a 
request for a quote from a Special Entity; (5) providing trading ideas 
for swaps or swap trading strategies, including swaps that are tailored 
to the needs or characteristics of a Special Entity; and (6) providing 
marketing materials upon request or on an unsolicited basis about swaps 
or swap trading strategies, including swaps that are tailored to the 
needs or characteristics of a Special Entity. This list of 
communications is not exclusive and should not create a negative 
implication that other types of communications are subject to a ``best 
interests'' duty.
---------------------------------------------------------------------------

    \2\ Communications on the list that are not within the meaning of 
the term ``acts as an advisor to a Special Entity'' are outside the 
requirements ofSec. 23.440. By including such communications on the 
list, the Commission does not intend to suggest that they are 
``recommendations.'' Thus, a swap dealer that does not ``act as an 
advisor to a Special Entity'' within the meaning ofSec. 23.440(a) is 
not required to comply with the safe harbor to avoid the ``best 
interests'' duty with respect to its communications.
---------------------------------------------------------------------------

    The safe harbor inSec. 23.440(b)(2) allows a wide range of 
communications and interactions between swap dealers and Special 
Entities without invoking the ``best interests'' duty, including 
discussions of the advantages or disadvantages of different swaps or 
trading strategies. The Commission notes, however, that depending on the 
facts and circumstances, some of the examples on the list could be 
``recommendations'' that would trigger a suitability obligation under 
Sec.  23.434. However, the Commission has determined that such 
activities would not, by themselves, prompt the ``best interests'' duty 
inSec. 23.440, provided that the parties comply with the other 
requirements ofSec. 23.440(b)(2). All of the swap dealer's 
communications, however, must be made in a fair and balanced manner 
based on principles of fair dealing and good faith in compliance with 
Sec.  23.433.
    Swap dealers engage in a wide variety of communications with 
counterparties in the normal course of business, including but not

[[Page 523]]

limited to the six types of communications listed above. Whether any 
particular communication will be deemed to be a ``recommendation'' 
within the meaning of Sec.Sec. 23.434 or 23.440 will depend on the 
facts and circumstances of the particular communication considered in 
light of the guidance in this appendix with respect to the meaning of 
the term ``recommendation.'' Swap dealers that choose to manage their 
communications to comply with the safe harbors provided in Sec.Sec. 
23.434 and 23.440 will be able to limit the duty they owe to 
counterparties, including Special Entities, provided that the parties 
exchange the appropriate representations.



PART 30_FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS--
Table of Contents



Sec.
30.1 Definitions.
30.2 Applicability of the Act and rules.
30.3 Prohibited transactions.
30.4 Registration required.
30.5 Alternative procedures for non-domestic persons.
30.6 Disclosure.
30.7 Treatment of foreign futures or foreign options secured amount.
30.8 [Reserved]
30.9 Fraudulent transactions prohibited.
30.10 Petitions for exemption.
30.11 Applicability of state law.
30.12 Direct foreign order transmittal.
30.13 Commission certification.

Appendix A to Part 30--Interpretative Statement With Respect to the 
          Commission's Exemptive Authority UnderSec. 30.10 of Its 
          Rules
Appendix B to Part 30--Interpretative Statement With Respect to the 
          Secured Amount Requirement Set Forth inSec. 30.7
Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
          Application of Certain of the Part 30 Rules Pursuant toSec. 
          30.10
Appendix D to Part 30--Commission Certification With Respect to Foreign 
          Futures and Options Contracts on a Non-Narrow-Based Security 
          Index

    Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise noted.

    Source: 52 FR 28998, Aug. 5, 1987, unless otherwise noted.



Sec.  30.1  Definitions.

    For the purposes of this part:
    (a) Foreign futures means any contract for the purchase or sale of 
any commodity for future delivery made, or to be made, on or subject to 
the rules of any foreign board of trade.
    (b) Foreign option means any transaction or agreement which is or is 
held out to be of the character of, or is commonly known to the trade 
as, an ``option'', ``privilege'', ``indemnity'', ``bid'', ``offer'', 
``put'', ``call'', ``advance guaranty'' or ``decline guaranty'', made or 
to be made on or subject to the rules of any foreign board of trade.
    (c) Foreign futures or foreign options customer means any person 
located in the United States, its territories or possessions who trades 
in foreign futures or foreign options: Provided, That an owner or holder 
of a proprietary account as defined in paragraph (y) ofSec. 1.3 of 
this chapter shall not be deemed to be a foreign futures or foreign 
options customer within the meaning of Sec.Sec. 30.6 and 30.7 of this 
part.
    (d) Foreign futures and options customer omnibus account is defined 
as an account in which the transactions of one or more foreign futures 
and foreign options customers are combined and carried in the name of 
the originating futures commission merchant rather than in the name of 
each individual foreign futures or foreign options customer.
    (e) Foreign futures and options broker (FFOB) is defined as a non-
U.S. person that is a member of a foreign board of trade, as defined in 
Sec.  1.3(ss) of this chapter, licensed, authorized or otherwise subject 
to regulation in the jurisdiction in which the foreign board of trade is 
located; or a foreign affiliate of a U.S. futures commission merchant, 
licensed, authorized or otherwise subject to regulation in the 
jurisdiction in which the affiliate is located.

[52 FR 28998, Aug. 5, 1987, as amended at 65 FR 47280, Aug. 2, 2000]



Sec.  30.2  Applicability of the Act and rules.

    (a) Except as specified in this part or unless the context otherwise 
requires, the provisions of sections 1a, 2, 4, 4c, 4f, 4g, 4k, 4l, 4m, 
4n, 4o, 4p, 6, 6c, 8, 8a, 9, 12, 13, and 14 of the Act and parts 1, 3, 
4, 10, 11, 12, 13, 14, 21, 155, 166 and 190 of this chapter shall apply 
to the persons and transactions that are subject to the requirements of 
this part as though they were set forth herein and included specific 
references to foreign board of trade, foreign futures, foreign options,

[[Page 524]]

foreign futures and foreign options customers, and foreign futures and 
foreign options secured amount, as appropriate.
    (b) The provisions of Sec.Sec. 1.20 through 1.30, 1.32, 1.35(a) 
(2)-(4) and (c)-(i), 1.36(b), 1.38, 1.39, 1.40 through 1.51, 1.53, 1.54, 
1.55, 1.58, 1.59, 33.2 through 33.6 and parts 15 through 20 of this 
chapter shall not be applicable to the persons and transactions that are 
subject to the requirements of this part.

[52 FR 28998, Aug. 5, 1987, as amended at 59 FR 5703, Feb. 8, 1994]



Sec.  30.3  Prohibited transactions.

    (a) It shall be unlawful for any person to engage in the offer and 
sale of any foreign futures contract or foreign options transaction for 
or on behalf of a foreign futures or foreign options customer, except in 
accordance with the provisions of this part: Provided, that, with the 
exception of the disclosure and antifraud provisions set forth in 
Sec.Sec. 30.6 and 30.9 of this part, the provisions of this part shall 
not apply to transactions executed on a foreign board of trade, and 
carried for or on behalf of a customer at a designated contract market, 
subject to an agreement with and rules of a contract market which permit 
positions in a commodity interest which have been established on one 
market to be liquidated on another market.
    (b) Except as otherwise provided inSec. 30.4 of this part or 
pursuant to an exemption granted underSec. 30.10 of this part, it 
shall be unlawful for any person to engage in the offer and sale of any 
foreign futures contract or foreign option transaction for or on behalf 
of any foreign futures or foreign options customer other than by or 
through a futures commission merchant on a fully-disclosed basis.

[52 FR 28998, Aug. 5, 1987, as amended at 61 FR 10895, Mar. 18, 1996]



Sec.  30.4  Registration required.

    Except as provided inSec. 30.5 of this part, it shall be unlawful 
for any person, with respect to a foreign futures or foreign options 
customer:
    (a) To solicit or accept orders for or involving any foreign futures 
contract or foreign options transaction and, in connection therewith, to 
accept any money, securities or property (or extend credit in lieu 
thereof) to margin, guarantee or secure any trades or contracts that 
result or may result therefrom, unless such person shall have 
registered, under the Act, with the Commission as a futures commission 
merchant and such registration shall not have expired nor been suspended 
nor revoked; provided that, a foreign futures and options broker (as 
defined inSec. 30.1(e)) is not required to register as a futures 
commission merchant: one, in order to accept orders from or to carry a 
U.S. futures commission merchant's foreign futures and options customer 
omnibus account, as that term is defined inSec. 30.1(d); two, in order 
to accept orders from or to carry a U.S. futures commission merchant's 
proprietary account, as that term is defined in paragraph (y) ofSec. 
1.3 of this chapter; and/or three, in order to accept orders from or 
carry a U.S. affiliate account which is proprietary to the foreign 
futures and options broker, as ``proprietary account'' is defined in 
paragraph (y) ofSec. 1.3 of this chapter. Such foreign futures and 
options broker remains subject to all other applicable provisions of the 
Act and of the rules, regulations and orders thereunder. Foreign futures 
and options brokers that have U.S. bank branches, offices or divisions 
engaging in the activity listed in this paragraph are not required to 
register as futures commission merchants if they comply with the 
conditions listed inSec. 30.10(b)(1) through (6).
    (b) Except an individual who elects to be and is registered as an 
associated person of a futures commission merchant, to solicit or accept 
orders for or involving any foreign futures contract or foreign options 
transaction, and who in connection therewith, does not accept any money, 
securities, or property (or extend credit in lieu thereof) to margin, 
guarantee, or secure any trade or contracts that result or may result 
therefrom, unless such person shall have registered, under the Act, with 
the Commission as an introducing broker and such registration shall not 
have expired nor been suspended nor revoked;
    (c) To engage in a business which is of the nature of an investment 
trust,

[[Page 525]]

syndicate, or similar form of enterprise, and, in connection therewith, 
to solicit, accept, or receive funds, securities, or property, either 
directly or through capital contributions, the sale of stock or other 
forms of securities, or otherwise, for the purpose of trading, directly 
or indirectly, in any foreign futures contract or foreign options 
transaction unless such person shall have registered, under the Act, 
with the Commission as a commodity pool operator and such registration 
shall not have expired nor been suspended nor revoked: Provided, 
however, That the registration requirement set forth in this paragraph 
shall not apply to any investment trust, syndicate, or similar form of 
enterprise located outside the United States, its territories or 
possessions which is registered as an investment company under the 
Investment Company Act of 1940 and whose securities are registered in 
accordance with the Securities Act of 1933, or which is otherwise exempt 
from such registration requirements: And, provided further, That no more 
than 10% of the participants in, and the value of the assets of, such 
investment trust, syndicate or similar form of enterprise located 
outside the United States, its territories or possessions, are held by 
or on behalf of foreign futures and foreign options customers.
    (d) To solicit or enter into an agreement to direct, or to guide 
such customer's account by means of a systematic program that recommends 
specific transactions in any foreign option or foreign futures contract 
unless such person shall have registered, under the Act, with the 
Commission as a commodity trading advisor and such registration shall 
not have expired nor been suspended nor revoked: Provided, That the term 
``commodity trading advisor'' does not include
    (1) Any bank or trust company or any person acting as an employee 
thereof,
    (2) Any news reporter, news columnist, or news editor of the print 
or electronic media, or any lawyer, accountant, or teacher,
    (3) The publisher or producer of any print or electronic data of 
general and regular dissemination, including its employees,
    (4) The named fiduciary, or trustee, of any defined benefit plan 
which is subject to the provisions of the Employee Retirement Income 
Security Act of 1974, or any fiduciary whose sole business is to advise 
that plan,
    (5) Any foreign board of trade or clearing organization of such 
board of trade,
    (6) An insurance company subject to regulation by any State, or any 
wholly-owned subsidiary or employee thereof, and
    (7) Such other persons not within the intent of the term ``commodity 
trading advisor'' as the Commission may specify by rule, regulation, or 
order:

And, provided further, That the furnishing of such services by the 
foregoing persons is solely incidental to the conduct of their business 
or profession. Registration as a commodity trading advisor shall not be 
required if such person is registered with the Commission as a futures 
commission merchant, introducing broker, commodity pool operator or 
associated person, or is otherwise exempt from registration pursuant to 
Sec.  30.5.

[52 FR 28998, Aug. 5, 1987, as amended at 69 FR 49803, Aug. 12, 2004]



Sec.  30.5  Alternative procedures for non-domestic persons.

    Any person not located in the United States, its territories or 
possessions, who is required in accordance with the provisions of this 
part to be registered with the Commission, other than a person required 
to be registered as a futures commission merchant, may apply for an 
exemption from registration under this part by filing with the National 
Futures Association a Form 7-R completed and filed in accordance with 
the instructions thereto and designating an agent for service of 
process, as specified below. A person who receives confirmation of an 
exemption pursuant to this section must engage in all transactions 
subject to regulation under part 30 through a registered futures 
commission merchant or a foreign broker who has received confirmation of 
an exemption pursuant toSec. 30.10 in accordance with the provisions 
ofSec. 30.3(b).

[[Page 526]]

    (a) Agent for service of process. Any person who seeks exemption 
from registration under this part shall enter into a written agency 
agreement with the futures commission merchant located in the United 
States through which business is done, with any registered futures 
association, or any other person located in the United States in the 
business of providing services as an agent for service of process, 
pursuant to which agreement such futures commission merchant or other 
person is authorized to serve as the agent of such person for purposes 
of accepting delivery and service of communications issued by or on 
behalf of the Commission, U.S. Department of Justice, any self-
regulatory organization, or any foreign futures or foreign options 
customer. If the written agency agreement is entered into with any 
person other than the futures commission merchant through which business 
is done, the futures commission merchant or foreign broker who has 
received confirmation of an exemption pursuant toSec. 30.10 with whom 
business is conducted must be expressly identified in such agency 
agreement. Service or delivery of any communication issued by or on 
behalf of the Commission, U.S. Department of Justice, any self-
regulatory organization or any foreign futures or foreign options 
customer, pursuant to such agreement, shall constitute valid and 
effective service or delivery upon such person. Unless otherwise 
specified by the Commission, the agreement required by this section 
shall be filed with the National Futures Association. For the purposes 
of this section, the term ``communication'' includes any summons, 
complaint, order, subpoena, request for information, or notice, as well 
as any other written document or correspondence relating to any 
activities of such person subject to regulation under this part.
    (b) Termination of agreement. Whenever the agreement referred to in 
paragraph (a) of this section is terminated or is otherwise no longer in 
effect, the futures commission merchant or any other person that is 
party to the agreement shall immediately notify the National Futures 
Association and the futures commission merchant through which business 
is done, as appropriate. Upon notice, a futures commission merchant 
shall not accept from the person that has entered into such agreement 
any order, other than liquidating order(s), for, or on behalf of a 
foreign futures or foreign options customer. Notwithstanding the 
termination of the agreement referred to in paragraph (a) of this 
section, service or delivery of any communication issued by or on behalf 
of the Commission, U.S. Department of Justice, any self-regulatory 
organization, or any foreign futures or foreign options customer 
pursuant to the agreement shall nonetheless constitute valid and 
effective service or delivery upon such person with respect to any 
transaction entered into on or before the date of the termination of the 
agreement.
    (c) Applicability of other rules. Any person who is located outside 
of the United States, its territories or possessions, and who, in 
accordance with the provisions of paragraph (a) of this section, is 
exempt from registration as an introducing broker, commodity pool 
operator or commodity trading advisor under this part, shall nonetheless 
comply with the provisions ofSec. 30.6 of this part and Sec.Sec. 
1.37 and 1.57 of this chapter as if registered in such capacity.
    (d) Access to records. Any person exempt from registration with the 
Commission in accordance with the provisions of paragraph (a) of this 
section must, upon the request of any representative of the Commission 
or U.S. Department of Justice, provide such records as such person is 
required to maintain under this part as requested at the place in the 
United States designated by the representative within 72 hours after the 
person receives the request.

[52 FR 28998, Aug. 5, 1987, as amended at 64 FR 28914, May 28, 1999; 68 
FR 40499, July 8, 2003]



Sec.  30.6  Disclosure.

    (a) Future commission merchants and introducing brokers. Except as 
provided inSec. 1.65 of this chapter, no futures commission merchant, 
or in the case of an introduced account no introducing broker, may open 
a foreign futures or option account for a foreign futures or

[[Page 527]]

option customer, other than for a customer specified inSec. 1.55(f) of 
this chapter, unless the futures commission merchant or introducing 
broker first furnishes the customer with a separate written disclosure 
statement containing only the language set forth inSec. 1.55(b) of 
this chapter or as otherwise approved underSec. 155(c) of this chapter 
(except for nonsubstantive additions such as captions), which has been 
acknowledged in accordance withSec. 1.55 of this chapter: Provided, 
however, that the risk disclosure statement may be attached to other 
documents as the cover page or the first page of such documents and as 
the only material on such page.
    (b) Commodity pool operators and commodity trading advisors. (1) 
With respect to persons who satisfy the requirements of qualified 
eligible persons, as defined inSec. 4.7(a) of this chapter:
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec.  30.5, may not, directly or indirectly, engage in any of the 
activities described inSec. 30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective qualified eligible person with the Risk Disclosure Statement 
set forth inSec. 4.24(b)(2) of this chapter and the statement inSec. 
4.7(b)(1)(i) of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec.  30.5, may not, directly or indirectly, engage in any of the 
activities described inSec. 30.4(d) unless the trading advisor, at or 
before the time it engages in such activities, first provides each 
qualified eligible person with the Risk Disclosure Statement set forth 
inSec. 4.34(b)(2) of this chapter and the statement inSec. 
4.7(c)(1)(i) of this chapter.
    (2) With respect to persons who do not satisfy the requirements of 
qualified eligible persons, as defined inSec. 4.7(a) of this chapter:
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec.  30.5, may not, directly or indirectly, engage in any of the 
activities described inSec. 30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective participant with the Disclosure Document required to be 
furnished to customers or potential customers pursuant toSec. 4.21 of 
this chapter and files the Disclosure Document in accordance withSec. 
4.26 of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec.  30.5, may not, directly or indirectly, engage in any of the 
activities described inSec. 30.4(d) unless the trading advisor, at or 
before the time it engages in such activities, first provides each 
prospective client with the Disclosure Document required to be furnished 
customers or potential customers pursuant toSec. 4.31 of this chapter 
and files the Disclosure Document in accordance withSec. 4.36 of this 
chapter.
    (c) The acknowledgment required by paragraphs (a) and (b) of this 
section must be retained by the futures commission merchant, introducing 
broker, commodity pool operator or commodity trading advisor in 
accordance withSec. 1.31 of this chapter.
    (d) This section does not relieve a futures commission merchant or 
introducing broker from its obligations underSec. 33.7 of this 
chapter: Provided, however, That a new disclosure statement is not 
required to be furnished if the futures commission merchant or 
introducing broker has previously delivered such statement to the 
foreign options customer in connection with the opening of a commodity 
option account under part 33 of this chapter.
    (e) This section does not relieve a futures commission merchant, 
introducing broker, commodity pool operator or commodity trading advisor 
from any other disclosure obligation it may have under applicable law or 
regulation.

[52 FR 28998, Aug. 5, 1987, as amended at 58 FR 17505, Apr. 5, 1993; 60 
FR 38193, July 25, 1995; 63 FR 8571, Feb. 20, 1998; 64 FR 28914, May 28, 
1999; 65 FR 47859, Aug. 4, 2000]



Sec.  30.7  Treatment of foreign futures or foreign options secured amount.

    (a) Except as provided in this section, a futures commission 
merchant must

[[Page 528]]

maintain in a separate account or accounts money, securities and 
property in an amount at least sufficient to cover or satisfy all of its 
current obligations to foreign futures or foreign options customers 
denominated as the foreign futures or foreign options secured amount. 
Such money, securities and property may not be commingled with the 
money, securities or property of such futures commission merchant, with 
any proprietary account of such futures commission merchant, or used to 
secure or guarantee the obligations of, or extend credit to, such 
futures commission merchant or any proprietary account of such futures 
commission merchant.
    (b) A futures commission merchant may deposit together with the 
secured amount required to be on deposit in the separate account or 
accounts referred to in paragraph (a) of this section money, securities 
or property held for or on behalf of other customers of the futures 
commission merchant for the purpose of entering into foreign futures or 
foreign options transactions. In such a case, the amount that must be 
deposited in such separate account or accounts must be no less than the 
greater of (1) the foreign futures and foreign options secured amount 
plus the amount that would be required to be on deposit if all such 
customers were foreign futures or foreign options customers under this 
part 30, or (2) the foreign futures or foreign options secured amount 
plus the amount required to be held in a separate account or accounts 
for or on behalf of customers pursuant to any law, or rule, regulation 
or order thereunder, or any rule of any self-regulatory organization 
authorized thereunder, in the jurisdiction in which the depository or 
the customer, as appropriate, is located.
    (c)(1) The separate account or accounts referred to in paragraph (a) 
of this section must be maintained under an account name that clearly 
identifies them as such, with any of the following depositories:
    (i) A bank or trust company located in the United States;
    (ii) A bank or trust company located outside the United States that 
has in excess of $1 billion of regulatory capital;
    (iii) A futures commission merchant registered as such with the 
Commission;
    (iv) A derivatives clearing organization;
    (v) The clearing organization of any foreign board of trade;
    (vi) A member of any foreign board of trade; or
    (vii) Such member or clearing organization's designated 
depositories.
    (2) Each futures commission merchant must obtain and retain in its 
files for the period provided inSec. 1.31 of this chapter an 
acknowledgment from such depository that it was informed that such 
money, securities or property are held for or on behalf of foreign 
futures and foreign options customers and are being held in accordance 
with the provisions of these regulations.
    (d) In no event may money, securities or property representing the 
foreign futures or foreign options secured amount be held or commingled 
and deposited with customer funds in the same account or accounts 
required to be separately accounted for and segregated pursuant to 
section 4d of the Act and the regulations thereunder.
    (e) Each futures commission merchant which invests money, securities 
or property on behalf of foreign futures or foreign options customers 
shall keep a record showing the following:
    (1) The date on which such investments were made;
    (2) The name of the person through whom such investments were made;
    (3) The amount of money so invested;
    (4) A description of the obligations in which such investments were 
made;
    (5) The identity of the depositories or other places where such 
obligations are maintained;
    (6) The date on which such investments were liquidated or otherwise 
disposed of and the amount of money received of such disposition, if 
any; and
    (7) The name of the person to or through whom such investments were 
disposed of.
    (f) Each futures commission merchant must compute as of the close of 
each business day:
    (1) The total amount of money, securities and property on deposit in 
separate account(s) in accordance with this section;

[[Page 529]]

    (2) The total amount of money, securities and property required to 
be on deposit in separate account(s) in accordance with this section; 
and
    (3) The amount of the futures commission merchant's residual 
interest in money, securities and property on deposit in separate 
account(s) in accordance with this section. Such computations must be 
completed prior to noon on the next business day and must be kept, 
together with all supporting data, in accordance with the requirements 
ofSec. 1.31.
    (g) Each futures commission merchant that invests customer funds 
held in the account or accounts referred to in paragraph (a) of this 
section must invest such funds pursuant to the requirements ofSec. 
1.25 of this chapter.

[52 FR 28998, Aug. 5, 1987, as amended at 68 FR 5551, Feb. 4, 2003; 76 
FR 78802, Dec. 19, 2011]



Sec.  30.8  [Reserved]



Sec.  30.9  Fraudulent transactions prohibited.

    It shall be unlawful for any person, by use of the mails or by any 
means or instrumentality of interstate commerce, directly or indirectly, 
in or in connection with any account, agreement or transaction involving 
any foreign futures contract or foreign options transaction:
    (a) To cheat or defraud or attempt to cheat or defraud any other 
person;
    (b) To make or cause to be made to any other person any false report 
or statement thereof or to enter or cause to be entered for any person 
any false record thereof;
    (c) To deceive or attempt to deceive any other person by any means 
whatsoever in regard to any such account, agreement or transaction or 
the disposition or execution of any such account, agreement or 
transaction or in regard to any act of agency performed with respect to 
such account, agreement or transaction; or
    (d) To bucket any order, or to fill any order by offset against the 
order or orders of any other person or without the prior consent of any 
person to become the buyer in respect to any selling order of such 
person, or become the seller in respect to any buying order of such 
person.



Sec.  30.10  Petitions for exemption.

    (a) Any person adversely affected by any requirement of this part 
may file a petition with the Secretary of the Commission, which petition 
must set forth with particularity the reasons why that person believes 
that he should be exempt from such requirement. The Commission may, in 
its discretion, grant such an exemption if that person demonstrates to 
the Commission's satisfaction that the exemption is not otherwise 
contrary to the public interest or to the purposes of the provision from 
which exemption is sought. The petition will be granted or denied on the 
basis of the papers filed. The petition may be granted subject to such 
terms and conditions as the Commission may find appropriate.
    (b) Any foreign person that files a petition for an exemption under 
this section shall be eligible for such an exemption notwithstanding its 
presence in the United States through U.S. bank branches or divisions 
if, in conjunction with a petition for confirmation of relief granted 
under an existing Commission order issued pursuant to this section, it 
complies with the following conditions:
    (1) No U.S. bank branch, office or division will engage in the 
trading of futures or options on futures within or from the United 
States, except for its own proprietary account;
    (2) No U.S. bank branch, office or division will refer any foreign 
futures or foreign options customer to the foreign person or otherwise 
be involved in the foreign person's business in foreign futures or 
foreign option transactions;
    (3) No U.S. bank branch, office or division will solicit any foreign 
futures or foreign option business or purchase or sell foreign futures 
or foreign option contracts on behalf of any foreign futures or foreign 
option customers or otherwise engage in any activity subject to 
regulation under this part or engage in any clerical duties related 
thereto. If any U.S. division, office or branch desires to engage in 
such activities, it will only do so through an appropriate Commission 
registrant;

[[Page 530]]

    (4) The foreign person will maintain outside the United States all 
contract documents, books and records regarding foreign futures and 
foreign option transactions;
    (5) The foreign person and each of its U.S. bank branches, offices 
or divisions agree to provide upon request of the Commission, the 
National Futures Association or the U.S. Department of Justice, access 
to their books and records for the purpose of ensuring compliance with 
the foregoing undertakings and consent to make such records available 
for inspection at a location in the United States within 72 hours after 
service of the request; and
    (6) Although it will continue to engage in normal commercial 
activities, no U.S. bank branch, office or division of the foreign 
person will establish relationships in the United States with the 
applicant's foreign futures or foreign option customers for the purpose 
of facilitating or effecting transactions in foreign futures or foreign 
option contracts.

[52 FR 28998, Aug. 5, 1987, as amended at 69 FR 49803, Aug. 12, 2004]



Sec.  30.11  Applicability of state law.

    Pursuant to section 12(e)(2) of the Act, the provisions of any state 
law, including any rule or regulation thereunder, may be applicable to 
any person required to be registered under this part who solicits 
foreign futures and foreign options customers and who shall fail or 
refuse to obtain such registration, unless such person is exempt from 
such registration in accordance with the provisions ofSec. 30.4,Sec. 
30.5 orSec. 30.10 of this part.



Sec.  30.12  Direct foreign order transmittal.

    (a) Authorized customers defined. For the purposes of this section, 
an ``authorized customer'' of a futures commission merchant shall mean 
any foreign futures or foreign options customer, as defined inSec. 
30.1(c), or its designated representative, that:
    (1) The futures commission merchant has authorized to place orders 
for the account of the futures commission merchant's foreign futures and 
options customer omnibus account; and
    (2)(i) Is an eligible swap participant, as defined inSec. 
35.1(b)(2) of this chapter, or
    (ii) Whose investment decisions with respect to foreign futures and 
foreign option transactions are made by a commodity trading advisor 
subject to regulation under the Act, including any investment adviser 
registered as such with the Securities and Exchange Commission that is 
exempt from regulation as a commodity trading advisor under the Act or 
Commission regulations, or a foreign person performing a similar role or 
function subject as such to foreign regulation, provided that the 
commodity trading advisor has total assets under management exceeding 
$50,000,000 and that the commodity trading advisor places the foreign 
futures or foreign options order.
    (b) Procedures for futures commission merchants. It shall be 
unlawful for any futures commission merchant to permit an authorized 
customer to place orders for execution in the futures commission 
merchant's foreign futures and options customer omnibus account directly 
with a person exempt from registration under paragraphs (c) and (d) of 
this section, unless, such futures commission merchant:
    (1) Meets one of the following capital requirements, as determined 
by the futures commission merchant's most recent required filing of a 
Form 1-FR-FCM with the Commission:
    (i) Possesses $20,000,000 in adjusted net capital, as defined by 
Sec.  1.17(c)(5) of this chapter; or
    (ii) Possesses the greater of three times the amount of adjusted net 
capital required bySec. 1.17(a)(1)(i)(A) of this chapter or three 
times the amount of adjusted net capital required bySec. 
1.17(a)(1)(i)(B) of this chapter; and
    (2) Has established control procedures that will serve as guidelines 
for permitting direct contacts between any authorized customer of the 
futures commission merchant and any person exempt from registration 
under paragraphs (c) or (d) of this section, and has in place 
appropriate risk management procedures to monitor its own risk relative 
to its authorized customers' risk aggregated across all markets, 
including, but not limited to, procedures to ensure that each authorized 
customer

[[Page 531]]

satisfies the participation criteria set forth in paragraph (a) of this 
section and to specify the manner in which trades may be executed 
through its customer omnibus account pursuant to this section;
    (3) Furnishes a written disclosure statement to each such authorized 
customer advising the customer of the additional risks the customer may 
be assuming in placing orders directly with the foreign broker. The 
disclosure statement must read as follows:

          Direct Order Transmittal Client Disclosure Statement

    This statement applies to the ability of authorized customers \1\ of 
[FCM] to place orders for foreign futures and options transactions 
directly with non-US entities (each, an ``Executing Firm'') that execute 
transactions on behalf of [FCM's] foreign futures and options customer 
omnibus accounts.
---------------------------------------------------------------------------

    \1\ You should contact your account executive regarding your 
eligibility to participate in the direct order transmittal process.
---------------------------------------------------------------------------

    Please be aware of the following should you be permitted to place 
the type of orders specified above.
     The orders you place with an Executing Firm are 
for [FCM's] foreign futures and options customer omnibus account 
maintained with a foreign clearing firm. Consequently, [FCM] may limit 
or otherwise condition the orders you place with the Executing Firm.
     You should be aware of the relationship of the 
Executing Firm and [FCM]. [FCM] may not be responsible for the acts, 
omissions, or errors of the Executing Firm, or its representatives, with 
which you place your orders. In addition, the Executing Firm may not be 
affiliated with [FCM]. If you choose to place orders directly with an 
Executing Firm, you may be doing so at your own risk.
     It is your responsibility to inquire about the 
applicable laws and regulations that govern the foreign exchanges on 
which transactions will be executed on your behalf. Any orders placed by 
you for execution on that exchange will be subject to such rules and 
regulations, its customs and usages, as well as any local laws that may 
govern transactions on that exchange. These laws, rules, regulations, 
customs and usages may offer different or diminished protection from 
those that govern transactions on US exchanges. In particular, funds 
received from customers to margin foreign futures transactions may not 
be provided the same protections as funds received to margin futures 
transactions on domestic exchanges. Before you trade, you should 
familiarize yourself with the foreign rules which will apply to your 
particular transaction. United States regulatory authorities may be 
unable to compel the enforcement of the rules of regulatory authorities 
or markets in non-US jurisdictions where transactions may be effected.
     It is your responsibility to determine whether 
the Executing Firm has consented to the jurisdiction of the courts in 
the United States. In general, neither the Executing Firm nor any 
individuals associated with the Executing Firm will be registered in any 
capacity with the Commodity Futures Trading Commission. Similarly, your 
contacts with the Executing Firm may not be sufficient to subject the 
Executing Firm to the jurisdiction of courts in the United States in the 
absence of the Executing Firm's consent. Accordingly, neither the courts 
of the United States nor the Commission's reparations program may be 
available as a forum for resolution of any disagreements you may have 
with the Executing Firm, and your recourse may be limited to actions 
outside the United States.
     Unless you object within five (5) days, by giving 
notice as provided in your customer agreement after receipt of this 
disclosure, [FCM] will assume your consent to the aforementioned 
conditions.

    (c) Exemption for foreign futures and options brokers. Any person 
not located in the United States, its territories or possessions, who is 
otherwise required in accordance with this part to be registered with 
the Commission as a futures commission merchant or as an introducing 
broker will be exempt from such registration, notwithstanding that such 
person accepts orders for foreign futures and foreign options 
transactions from authorized customers of a registered futures 
commission merchant that meets the requirements of paragraph (b)(1) of 
this section, provided, that:
    (1) The orders are executed for or on behalf of the foreign futures 
and options customer omnibus account of a registered futures commission 
merchant;
    (2) The person does not solicit or accept any money, securities or 
property (or extend credit in lieu thereof) directly from any U.S. 
foreign futures and options customer to margin, guarantee or secure any 
trades or contracts that result or may result therefrom; and
    (3) The person is a foreign futures and options broker, as defined 
bySec. 30.1(e).

[[Page 532]]

    (d) Exemption for foreign futures and options brokers carrying a 
foreign futures and options customer omnibus account. Any person not 
located in the United States, its territories or possessions, who is 
otherwise required in accordance with this part to be registered with 
the Commission as a futures commission merchant will be exempt from such 
registration, notwithstanding that such person:
    (1) Carries the foreign futures and options customer omnibus account 
of a futures commission merchant that meets the requirements of 
paragraph (b)(1) of this section;
    (2) Accepts orders for foreign futures and foreign options 
transactions from authorized customers for the execution of the trades 
for or on behalf of the foreign futures and options customer omnibus 
account of a registered futures commission merchant either directly or 
pursuant to a give-up arrangement; and
    (3) The person is a foreign futures and options broker, as defined 
bySec. 30.1(e).

[65 FR 47280, Aug. 2, 2000]



Sec.  30.13  Commission certification.

    With respect to foreign futures and options contracts on a non-
narrow-based security index:
    (a) Request for certification. A foreign board of trade may request 
that the Commission certify that a futures contract on a non-narrow-
based security index that trades, or is proposed to be traded thereon, 
conforms to the requirements of section 2(a)(1)(C)(ii) of the Act and 
therefore, that futures contract may be offered or sold to persons 
located within the United States in accordance with section 
2(a)(1)(C)(iv) of the Act. A submission requesting such certification 
must:
    (1) Be filed electronically with the Secretary of the Commission;
    (2) Include the following information in English:
    (i) The terms and conditions of the contract and all other relevant 
rules of the exchange and, if applicable, of the foreign board of trade 
on which the underlying securities are traded, which have an effect on 
the over-all trading of the contract, including circuit breakers, price 
limits, position limits or other controls on trading;
    (ii) Surveillance agreements between the foreign board of trade and 
the exchange(s) on which the underlying securities are traded;
    (iii) Assurances from the foreign board of trade of its ability and 
willingness to share information with the Commission, either directly or 
indirectly;
    (iv) When applicable, information regarding foreign blocking 
statutes and their impact on the ability of United States government 
agencies to obtain information concerning the trading of such contracts;
    (v) Information and data denoted in U.S. dollars where appropriate 
(and the conversion date and rate used) relating to:
    (A) The method of computation, availability, and timeliness of the 
index;
    (B) The total capitalization, number of stocks (including the number 
of unaffiliated issuers if different from the number of stocks), and 
weighting of the stocks by capitalization and, if applicable, by price 
in the index as well as the combined weighting of the five highest-
weighted stocks in the index;
    (C) Procedures and criteria for selection of individual securities 
for inclusion in, or removal from, the index, how often the index is 
regularly reviewed, and any procedures for changes in the index between 
regularly scheduled reviews;
    (D) Method of calculation of the cash-settlement price and the 
timing of its public release;
    (E) Average daily volume of trading, measured by share turnover and 
dollar value, in each of the underlying securities for a six-month 
period of time and, separately, the dollar value of the average daily 
trading volume of the securities comprising the lowest weighted 25% of 
the index for the past six calendar months, calculated pursuant toSec. 
41.11 of this chapter; and
    (vi) A written statement that the contract conforms to the criteria 
enumerated in section 2(a)(1)(C)(ii) of the Act, including:
    (A) A statement that the contract is cash-settled;

[[Page 533]]

    (B) An explanation of why the contract is not readily subject to 
manipulation or to be used to manipulate the underlying security;
    (C) A statement that the index is not a narrow-based security index 
as defined in section 1a(25) of the Act and the analysis supporting that 
statement;
    (vii) A written representation that the foreign board of trade will 
notify the Commission of any material changes in any of the above 
information;
    (viii) When applicable, a request to make the futures contract 
available for trading in accordance with the terms and conditions of, 
and through the electronic trading devices identified in, a Commission 
staff no-action letter stating, subject to compliance with certain 
conditions, that it will not recommend that the Commission take 
enforcement action if the foreign board of trade provides its members or 
participants in the U.S. access to its electronic trading system without 
seeking designation as a designated contract market (``Foreign Board of 
Trade No-Action Letter''), or pursuant to any foreign board of trade 
registration order issued by the Commission (``Foreign Board of Trade 
Registration Order''), and a certification from the foreign board of 
trade that it is in compliance with the terms and conditions of that no-
action letter or Foreign Board of Trade Registration Order; and
    (ix) An explanation of the means by which U.S. persons may access 
these products on the foreign board of trade.
    (b) Termination of review. The Commission, at any time during its 
review, may notify the requesting foreign board of trade that it is 
terminating its review under this section if it appears to the 
Commission that the submission is materially incomplete or fails in form 
or content to meet the requirements of this section.
    (1) Such termination shall not prejudice the foreign board of trade 
from resubmitting a revised version of the contract, which addresses the 
deficiencies or issues identified by the Commission.
    (2) The Commission shall also terminate review under this section if 
requested in writing to do so by the foreign board of trade.
    (c) Notice of denial of certification. The Commission, at any time 
during its review under paragraph (a) of this section, may notify the 
requesting foreign board of trade that it has determined that the 
security index futures contract or underlying index does not conform 
with the requirements of section 2(a)(1)(C)(ii) of the Act.
    (1) This notification will briefly specify the nature of the issues 
raised and the specific requirement of subsections 2(a)(1)(C)(ii)(I)-
(III) of the Act with which the security index futures contract does not 
conform or to which it appears not to conform or the conformance to 
which cannot be ascertained from the submission.
    (2) Such notification shall not prejudice the foreign board of trade 
from resubmitting a revised version of the contract, which addresses the 
deficiencies or issues identified by the Commission.
    (d) Notice of certification. Upon review, if the Commission 
determines that the futures contract and the underlying index meet the 
requirements enumerated in section 2(a)(1)(C)(ii), the Commission will 
issue a letter to the foreign board of trade certifying that the 
security index contract traded on that board conforms to the 
requirements of section 2(a)(1)(C)(ii) of the Act and therefore, that 
futures contract may be offered or sold to persons located within the 
U.S. in accordance with section 2(a)(1)(C)(iv) of the Act and, if 
applicable, may be made available for trading in accordance with the 
terms and conditions of, and through the electronic trading devices 
identified in, the Foreign Board of Trade No-Action Letter or the 
Foreign Board of Trade Registration Order.
    (e) Expedited review. A foreign board of trade may request an 
expedited Commission review and determination of whether a futures 
contract on a security index that trades, or is proposed to be traded 
thereon, conforms to the requirements of section 2(a)(1)(C)(ii) of the 
Act and therefore, may be offered or sold to persons in the U.S. under 
section 2(a)(1)(C)(iv) of the Act. A submission requesting such 
expedited consideration should be filed in English

[[Page 534]]

with the Commission and should include: Information, statements and data 
complying with the form and content requirements in paragraph (a) of 
this section.
    (f) Eligibility for expedited review. In order to qualify for 
expedited review under paragraph (e) of this section, the foreign board 
of trade must either:
    (1) Have previously requested, and received, at least one no-action 
letter from the Office of General Counsel (``Foreign Security Index No-
Action Letter'') or Commission certification regarding a non-narrow 
based security index futures contract traded on that foreign board of 
trade and submit a written statement representing that the board remains 
fully compliant with the terms and conditions of such letter or 
certification; or
    (2) Have received a Foreign Board of Trade No-Action Letter or 
Foreign Board of Trade Registration Order and submit a written statement 
representing that the board remains fully compliant with the terms and 
conditions of such letter or order.
    (g) Deemed to be in conformance. Unless notified pursuant to 
paragraph (h), (i), or (j) of this section, any non-narrow-based foreign 
security index futures contract submitted for expedited review under 
paragraph (e) of this section shall be deemed to be in conformance with 
the requirements of section 2(a)(1)(C)(ii) of the Act and therefore, 
such futures contract may be offered or sold to persons located in the 
U.S. in accordance with section 2(a)(1)(C)(iv) forty-five days after 
receipt by the Commission, or at the conclusion of such extended period 
as described under paragraph (h) of this section, provided that the 
foreign board of trade does not amend the terms or conditions of the 
contract or supplement the request for expedited consideration, except 
as requested by the Commission or for correction of typographical 
errors. Any voluntary substantive amendment by the foreign board of 
trade will be treated as a new submission under this section.
    (h) Extension of review. The Commission may extend the forty-five 
day review period set forth in paragraph (g) of this section for:
    (1) An additional period up to forty-five days, if the request 
raises novel or complex issues that require additional time for review, 
in which case, the Commission will notify the foreign board of trade 
within the initial forty-five day review period and will briefly 
describe the nature of the specific issues for which additional time for 
review will be required; or
    (2) Such extended period as the requesting foreign board of trade 
requests of the Commission in writing.
    (i) Termination of review. The Commission, at any time during its 
review under paragraph (e) of this section or extension thereof as 
described under paragraph (h) of this section, may notify the requesting 
foreign board of trade that it is terminating its review under paragraph 
(e) of this section if it appears to the Commission that the submission 
is materially incomplete or fails in form or substance to meet the 
requirements of this section.
    (1) Such termination shall not prejudice the foreign board of trade 
from resubmitting a revised version of the contract, which addresses the 
deficiencies or issues identified by the Commission.
    (2) The Commission shall also terminate review under this section if 
requested in writing to do so by the foreign board of trade.
    (j) Notice of denial of certification. The Commission, at any time 
during its review pursuant to paragraph (e), may notify the requesting 
foreign board of trade that it has determined that the security index 
futures contracts or underlying index does not conform with the 
requirements of section 2(a)(1)(C)(ii) of the Act.
    (1) This notification will briefly specify the nature of the issues 
raised and the specific requirement of subsections 2(a)(1)(C)(ii)(I)-
(III) of the Act with which the security index futures contract does not 
conform or to which it appears not to conform or the conformance to 
which cannot be ascertained from the submission.
    (2) Such notification shall not prejudice the foreign board of trade 
from resubmitting a revised version of the contract, which addresses the 
deficiencies or issues identified by the Commission.

[[Page 535]]

    (k) Foreign trading systems. A foreign board of trade, who is a 
recipient of a Foreign of Trade No-Action Letter (and is compliant with 
the requirements of such letter) or Foreign Board of Trade Registration 
Order and is requesting Commission certification of its non-narrow-based 
security index futures contract, may request that such contract 
submitted under paragraph (e) of this section be made available for 
trading under that letter or pursuant to the registration order, upon 
expiration of the applicable review period provided for under either 
paragraph (g) or (h) of this section. Absent Commission notification to 
the contrary, the foreign board of trade may make that contract 
available for trading on the Foreign Trading System upon expiration of 
the review period provided under paragraph (g) or (h) of this section.
    (l) Changes in facts and circumstances. Any certification of a non-
narrow based security index futures contracts submitted under paragraph 
(a) or (e) of this section shall be considered to be based on the facts 
and representations contained in the foreign board of trade's 
submissions to the Commission. Accordingly, the foreign board of trade 
shall promptly notify the Commission of any changes in material facts or 
representations.
    (m) Additional contracts on previously-reviewed index: A new non-
narrow-based security index futures contract may be offered or sold in 
the U.S. in reliance on a prior Foreign Security Index No-Action Letter 
or Commission certification, provided that the new contract is based on 
an index that was the subject of such Foreign Security Index No-Action 
Letter or Commission certification; and substantially identical to the 
contract overlying such index. In this context, the foreign board of 
trade may submit the contract to the Commission for an accelerated 
review of fifteen business days for confirmation that the subject 
contract is substantially identical to the existing contract. Unless the 
Commission notifies the foreign board of trade within those fifteen 
business days that the review will be conducted pursuant to either the 
full or expedited review procedure, the foreign board of trade may make 
available such contract for offer or sale within the U.S.
    (n) Grandfathered no-action letters. Any non-narrow based security 
index futures contract that is the subject of an existing no-action 
letter issued by the Office of General Counsel, as of the date of the 
adoption of rule 30.13, shall be deemed to be in conformance with the 
criteria of section 2(a)(1)(C)(ii) of the Act, provided that the foreign 
board of trade submits a written statement representing that the 
contract remains fully compliant with the requirements of such letter.
    (o) Delegation. The Commission hereby delegates, until such time as 
it orders otherwise, to the Director of Market Oversight or his 
designee, in consultation with the General Counsel or his designee, the 
authority reserved to the Commission under paragraph (m) of this 
section. The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which has been delegated 
pursuant to this paragraph (o).

[76 FR 59245, Sept. 26, 2011]



Sec. Appendix A to Part 30--Interpretative Statement With Respect to the 
     Commission's Exemptive Authority UnderSec. 30.10 of Its Rules

    Part 30 of the Commission's regulations establishes the regulatory 
structure governing the offer and sale in the United States of futures 
and options contracts made or to be made on or subject to the rules of a 
foreign board of trade. Section 30.10 of these regulations provides 
that, upon petition, the Commission may exempt any person from any 
requirement of this part. Specifically, section 30.10 states:
    Any person adversely affected by any requirement of this part may 
file a petition with the Secretary of the Commission, which petition 
must set forth with particularity the reasons why that person believes 
that he should be exempt from such requirement. The Commission may, in 
its discretion, grant such an exemption if that person demonstrates to 
the Commission's satisfaction that the exemption is not otherwise 
contrary to the public interest or to the purposes of the provision from 
which exemption is sought. The petition will be granted or denied on the 
basis of the papers filed. The petition may be granted subject to such 
terms and conditions as the Commission may find appropriate.

[[Page 536]]

    As the provisions of this section make clear, any person subject to 
regulation under part 30 may petition the Commission for an exemption. 
In adopting these regulations, however, the Commission noted in 
particular that persons located outside the United States that solicit 
or accept orders directly from United States customers for foreign 
futures or options transactions and that are subject to a comparable 
regulatory scheme in the country in which they are located may apply 
under section 30.10 for exemption from some or all of the requirements 
that would otherwise be applicable to such persons. This interpretative 
statement sets forth the elements that the Commission intends to 
evaluate in determining whether a particular regulatory program may be 
found to be comparable to the Commission's program.
    The Commission wishes to emphasize, however, that this 
interpretative statement is not all inclusive, and that information with 
respect to other aspects of a particular regulatory program may be 
submitted by a petitioner or requested by the Commission. In this 
connection, the Commission would have broad discretion to determine that 
the policies of any program element generally are met, notwithstanding 
the fact that the offshore program does not contain an element identical 
to that of the Commission's regulatory program and conversely may assess 
how particular elements are in fact applied by offshore authorities. 
Thus, for example, in order to find that a particular program is 
comparable, the regulations thereunder would have to be applicable to 
all United States customers, notwithstanding any exemptions that might 
otherwise be available to particular classes of customer located 
offshore. A petitioner, therefore, must set forth with particularity the 
factual basis for a finding of comparability and the reasons why such 
policies and purposes are met, notwithstanding differences of degree and 
kind in its regulatory program.
    No exemptions of a general nature will be granted unless the persons 
to which the exemption is to be applied consent to submit to 
jurisdiction in the United States by designating an agent for service of 
process pursuant to the provisions of rule 30.5 with respect to any 
activities of such persons otherwise subject to regulation under this 
part and to notify the National Futures Association of the commencement 
or termination of business in the United States. In this connection, to 
be exempted, such person must further agree to respond to a request to 
confirm that it continues to do business in the United States.
    Persons located outside the United States may seek an exemption on 
their own behalf or an exemption may be sought on a general basis 
through the governmental agency responsible for the implementation and 
enforcement of the regulatory program in question, or the self-
regulatory organizations of which such persons are members. The 
appropriate petitioner is a matter of judgment and may be determined by 
the parties seeking the exemption. The Commission, however, notes that 
it will be able to address petitions more efficiently if they are filed 
by the governmental agency or self-regulatory organization responsible 
for the regulatory program.
    In this connection, as will be discussed in more detail below, any 
exemption of a general nature based on comparability will be conditioned 
upon appropriate information sharing arrangements between the Commission 
and the relevant governmental agency and/or self-regulatory 
organization. Representations from the appropriate governmental agency 
with respect to the applicability of any blocking statutes that may 
prevent the sharing of information requested under private arrangements 
would also be considered. Finally, in considering an exemption request, 
the Commission will take into account the extent to which United States 
persons or contracts regulated by the Commission are permitted to engage 
in futures-related activities or be offered in the country from which an 
exemption is sought.
    In the Commission's review, the minimum elements of a comparable 
regulatory program would include: (1) Registration, authorization or 
other form of licensing, fitness review or qualification of persons 
through which customer orders are solicited and accepted; (2) minimum 
financial requirements for those persons that accept customer funds; (3) 
protection of customer funds from misapplication; (4) recordkeeping and 
reporting requirements; (5) minimum sales practice standards, including 
disclosure of the risks of futures and opotions transactions and, in 
particular, the risk of transactions undertaken outside the jurisdiction 
of domestic law; and (6) compliance.
    Qualification. Under domestic law, registration identifies to the 
Commission, the public and other governmental agencies the individuals 
and entities that are properly authorized to solicit and accept customer 
orders and are in good standing. Equally important, the procedure 
provides the Commission, through the National Futures Association, the 
opportunity to determine whether applicants are unfit to deal with the 
public. In this connection, the standards for determining whether a 
person through its principals is fit for registration with the 
Commission are set forth in section 8a(2)-8a(4) of the Act. Timely 
access to information as to a firm's good standing and the application 
by relevant authorities of membership and licensing criteria, as well as 
the criteria themselves, will be considered by the Commission in 
assessing comparability.

[[Page 537]]

    Minimum Financial Requirements. Minimum financial requirements for 
persons that handle customer funds serve at least three critical 
functions. First, they provide a cushion together with margin such that 
in the event of a default of a customer, the losses of that customer 
need not adversely affect the funds held on behalf of other customers. 
Second, they help ensure that the person has sufficient funds to operate 
its business and, therefore, is less likely to be tempted to misapply 
customer funds for its own purposes. Third, they ensure that the person 
holding customer funds has some financial stake in its business and, 
therefore, is serious in its intent. In assessing comparability, capital 
rules or their equivalent will be considered together with any 
provisions made for insuring customer losses, the scope of clearing 
guarantees and segregation or customer trust calculation and accounting 
requirements which, to the extent they cover undermargined accounts, can 
provide significant protection of one customer from another customer's 
losses.
    Customer Funds. The Act requires the strict segregation of customer 
funds from those of the person holding such funds. One of the primary 
purposes of this requirement is to prevent the misapplication of those 
funds for purposes other than those intended by the customer, which may 
affect not only the customer but the market as a whole. The purpose of 
segregation is also to identify customer deposits as assets of the 
customer, rather than the firm, in order that in bankruptcy such funds 
are payable only to satisfy the carrying firm's obligations to such 
customers and not other obligations of the firm. In assessing 
comparability of protection of customer funds, the Commission will 
consider protections accorded customer funds in a bankruptcy under 
applicable law, as well as protection from fraud.
    Recordkeeping and Reporting. Recordkeeping requirements have long 
been recognized as the linchpin of the Commission's regulatory scheme. 
Reporting and recordkeeping requirements assist in determining that a 
registrant is acting in accordance with the provisions of the Act and 
the rules, regulations and orders of the Commission thereunder. 
Similarly, reporting requirements ensure that customers are timely 
advised of the transactions that have been executed on their behalf, 
thus ensuring that they are aware of their positions in the markets and 
may object to any transactions that they believe are in error. The 
Commission will consider the types of records maintained, the ability 
through those records to trace funds and transactions, and the period of 
retention and accessibility of records under the information sharing 
arrangements discussed below in considering comparability.
    Sales Practice Standards. In 1982, Congress reaffirmed the 
importance of minimum sales practice standards to protect customers from 
fraud or misrepresentation by requiring any futures association 
registered by the Commission to adopt and enforce rules governing the 
sales practices of its members. The Commission has consistently provided 
that written disclosure of the risks of futures and options trading is 
essential to ensure that potential customers are aware of these risks 
and are not otherwise misled and that other appropriate disclosure is 
made. The Commission will review the type and manner of disclosure given 
and the mechanisms for assuring the disclosure requirements are met and, 
in particular, the treatment of discretionary accounts for which, for 
example, Commission rule 166.2 requires particularized documentation of 
intent to confer discretion in the case of foreign futures and options 
transactions.
    Compliance. Finally, in assessing comparability of a program, the 
Commission will examine the procedures employed by the governmental 
authority or the appropriate self-regulatory organization to audit for 
compliance with, and to take action as appropriate against those persons 
that violate, the requirements of that program.
    Information Sharing. As noted above, any exemption of a general 
nature would also require an information sharing arrangement between the 
Commission and the appropriate governmental or self-regulatory 
organization to ensure Commission access to information on an as needed 
basis as may be necessary to fulfill its regulatory responsibilities. 
The information subject to these arrangements generally would be of a 
type necessary in the first instance to monitor domestic markets and to 
protect domestic customers trading on foreign markets.
    Firm-specific information that is potentially relevant to protection 
of domestic customers engaged in foreign transactions could include the 
following: (1) Registration qualification status; (2) names of 
principals; (3) current capital; (4) location of customer funds; (5) 
address of main office and branches; (6) exchange and self-regulatory 
organization memberships; (7) the existence of any derogatory 
information such as that required to be disclosed on the Commission's 
Form 7-R; (8) notice of limitations imposed on activities; (9) notice of 
undersegregation or undercapitalization; (10) notice of misuse of 
customer funds; and (11) notice of sanctions or of expulsion from 
exchange or self-regulatory organization membership. The Commission 
believes that much of the above information would be public in the 
ordinary course in most jurisdictions. From time to time, the Commission 
also may need immediate access to financial information concerning risks 
posed to domestic firms by the carrying of foreign positions.

[[Page 538]]

    In addition to information that relates to the financial stability 
and creditworthiness of the firm, the Commission should have access to 
transaction-specific information that confirms the execution of orders 
and prices and facilitates tracing of customer funds. Such data could 
include records reflecting: (1) That an order has been received by a 
firm on behalf of one or more United States customers; (2) that an order 
has been executed on an exchange on behalf of one or more United States 
customers; (3) that funds to margin, guarantee or secure United States 
customer transactions have been received by a firm and deposited in an 
appropriate depository; and (4) the price at which a transaction was 
executed and general access to pricing information.
    Again, such information is likely to be maintained in the ordinary 
course of business. Tracing of customer funds would be most essential in 
cases of insolvency where repatriation of funds is at issue.
    The Commission may also seek relevant position data information, 
including the identity of the position holder and related positions, in 
connection with surveillance of a potential ``market disruption.'' This 
is particularly true in the case of integrated markets.
    The Commission wishes to emphasize that the information sharing 
arrangements discussed herein are not necessarily a substitute for, nor 
would they preclude, a more formal agreement or arrangement with respect 
to the sharing of information.

         Marketing Activities by Firms Granted Rule 30.10 Relief

    FR date and citation: November 3, 1992, 57 FR 49644; August 17, 
1994, 59 FR 42158.

[52 FR 28998, Aug. 5, 1987, as amended at 59 FR 42158, Aug. 17, 1994]



Sec. Appendix B to Part 30--Interpretative Statement With Respect to the 
           Secured Amount Requirement Set Forth inSec. 30.7

    1. Rule 30.7 requires FCMs who accept money, securities or property 
from foreign futures and foreign options customers to maintain in a 
separate account or accounts such money, securities and property in an 
amount at least sufficient to cover or satisfy all of its current 
obligations to those customers. \1\ This amount is denominated as the 
``foreign futures or foreign options secured amount'' and that term is 
defined in Rule 1.3(rr). The separate accounts must be maintained under 
an account name that clearly identifies the funds as belonging to 
foreign futures and foreign options customers at a depository that meets 
the requirements of Rule 30.7(c). Further, each FCM must obtain and 
retain in its files for the period provided in Rule 1.31 an 
acknowledgment from the depository that the depository was informed that 
such money, securities or property are held for or on behalf of foreign 
futures and foreign options customers and are being held in accordance 
with the provisions of these regulations.
---------------------------------------------------------------------------

    \1\ ``Foreign futures or foreign options customer'' means ``any 
person located in the United States, its territories or possessions who 
trades in foreign futures or foreign options: Provided, That an owner or 
holder of a proprietary account as defined in paragraph (y) of [Rule 
1.3] shall not be deemed to be a foreign futures or foreign options 
customer within the meaning of [Rules 30.6 and 30.7].'' Rule 30.1(c). 
``Foreign futures'' means ``any contract for the purchase or sale of any 
commodity for future delivery made, or to be made, on or subject to the 
rules of any foreign board of trade.'' Rule 30.1(a). ``Foreign option'' 
means ``any transaction or agreement which is or is held out to be of 
the character of, or is commonly known to the trade as, an `option,' 
`privilege,' `indemnity,' `bid,' `offer,' `put,' `call,' `advance 
guaranty,' or `decline guaranty,' made or to be made on or subject to 
the rules of any foreign board of trade.'' Rule 30.1(b).
---------------------------------------------------------------------------

    2. In a series of orders issued pursuant to Rule 30.10, the 
Commission required that certain foreign firms exempt from registration 
as FCMs essentially comply with the standards of Rule 30.7. \2\ 
Specifically, the Commission stated that ``[the secured amount] 
requirement is intended to ensure that funds

[[Page 539]]

provided by U.S. customers for foreign futures and options transactions, 
whether held at a U.S. FCM under Rule 30.7(c) or a firm exempted from 
registration as an FCM under CFTC Rule 30.10, will receive equivalent 
protection at all intermediaries and exchange clearing organizations.'' 
\3\ The Commission further interpreted Rule 30.7 to require each FCM and 
Rule 30.10 firm to take appropriate action (i.e., set aside funds in a 
``mirror'' account) in the event that it becomes aware of facts leading 
it to conclude that foreign futures and foreign options customer funds 
are not being handled consistent with the requirements of Commission 
rules or relevant order for relief by any subsequent intermediary or 
exchange clearing organization.
---------------------------------------------------------------------------

    \2\ Under Rule 30.10, the Commission may exempt a foreign firm 
acting in the capacity of an FCM from registration under the Commodity 
Exchange Act (``Act'') and compliance with certain Commission rules 
based upon the firm's compliance with comparable regulatory requirements 
imposed by the firm's home-country regulator or self-regulatory 
organization (``SRO''). Once the Commission determines that the foreign 
jurisdiction's regulatory structure offers comparable regulatory 
oversight, the Commission may issue an Order granting general relief 
subject to certain conditions. Firms seeking confirmation of relief 
(referred to herein as ``Rule 30.10 firms'') must make certain 
representations set forth in the Rule 30.10 order issued to the 
regulator or SRO from the firm's home country. For a list of those 
foreign regulators and SROs that have been issued a Rule 30.10 order, 
see appendix C to part 30. In certain cases, where a foreign regulator 
or SRO has requested that firms subject to its jurisdiction be granted 
broader relief to engage in transactions on exchanges other than in its 
home jurisdiction (referred to herein as ``expanded relief''), the 
relief has been granted where the relevant authority has represented 
that it will monitor its firms for compliance with the terms of the 
order in connection with such offshore transactions. Although Rule 30.10 
orders generally exempt foreign intermediaries from compliance with the 
secured amount requirement under Rule 30.7, firms seeking confirmation 
of the expanded relief must represent that, with respect to transactions 
entered into on behalf of U.S. customers on any non-U.S. exchange 
located outside their home country, they will treat U.S. customer funds 
in a manner consistent with the provisions of Rule 30.7. For the most 
recent order granting expanded relief, see 64 FR 50248 (September 16, 
1999) (Singapore Exchange Derivatives Trading Limited).
    \3\ 64 FR 50248, 50251, n.19 (emphasis added).
---------------------------------------------------------------------------

    3. Upon further analysis and reconsideration of this matter, the 
Commission has determined to revise its prior interpretation of the Rule 
30.7 secured amount requirement. The Commission notes that the initial 
depository's ability to identify customer funds affords foreign futures 
and foreign options customers a measure of protection in the event that 
the intermediating FMC or foreign firm becomes insolvent. Moreover, Rule 
30.6(a) requires that foreign futures and foreign options customers 
receive a Rule 1.55 written disclosure explaining that the treatment of 
customer funds outside the U.S. may not afford the same level of 
protection offered in the U.S. These protections exist whetehr the 
intermediating firm is a U.S. FCM or a firm exempt from such 
registration under Rule 30.10. \4\
---------------------------------------------------------------------------

    \4\ Although orders for expanded relief exempt foreign firms from 
compliance with Rule 1.55, sales practice standards and the treatment of 
customer funds constitute two of the specific elements examined in 
evaluating whether the particular foreign regulatory program provides a 
basis for permitting substituted compliance for purposes of exemptive 
relief pursuant to Rule 30.10. appendix A to part 30.
---------------------------------------------------------------------------

    4. The Commission further notes, however, that, in February 1998, 
Rule 30.6 was amended to permit an FCM to open a commodity account for a 
foreign futures or foreign options customer without providing the Rule 
1.55 risk disclosure statement or obtaining an acknowledgment of receipt 
of such statement, provided that the customer is, at the time at which 
the account is opened, one of several types of sophisticated customers 
enumerated in Rule 1.55(f) (``Rule 1.55(f) customers''). \5\ While the 
amendment to Rule 30.6(a) extinguished the obligation to provide a 
standardized risk disclosure statement to Rule 1.55(f) customers at the 
time of the account opening, the Commission stated that FCMs have 
obligations to these customers independent of such a duty that would be 
material in the circumstances of a given transactions. \6\
---------------------------------------------------------------------------

    \5\ 63 FR 8566 (February 20, 1998). The list of sophisticated 
customers referenced in Rule 1.55(f) closely tracks, with one exception, 
the list of ``eligible swap participants'' in Rule 35.1.
    \6\ Id. at 8569.
---------------------------------------------------------------------------

    5. After careful consideration of the issue, the Commission has 
determined that intermediaries should advise all customers (regardless 
of their level of sophistication) to consider making appropriate 
inquiries relating to the treatment of customer funds by depositories 
located outside the jurisdiction of the intermediating firm. 
Accordingly, the Commission has determined that an FCM, at a minimum, 
must provide each foreign futures or foreign option customer with a 
written disclosure tracking the language in either: (1) Rule 1.55(b)(7), 
\7\ or (2) Paragraphs 6

[[Page 540]]

and 8 of appendix A to Rule 1.55(c). \8\ Rule 30.10 firms must provide 
each foreign futures or foreign options customer with a written 
disclosure tracking the language in either Rule 1.55(b)(7) or paragraphs 
6 and 8 of appendix A to Rule 1.55(c), or a comparable disclosure 
statement prescribed by the firm's home country regulator. The 
Commission further encourages all firms, whether domestic or foreign, to 
provide a Rule 1.55 written risk disclosure to all customers, regardless 
of each customer's respective level of experience. The Commission notes 
that, in any instance where a firm provides a Rule 1.55(f) customer with 
a written disclosure, it is not necessary for the firm to obtain an 
acknowledgment of receipt. In addition, those FCMs that already have 
provided customers with a disclosure tracking either Rule 1.55(b)(7) or 
paragraphs 6 and 8 of appendix A to Rule 1.55(c) (or in the case of Rule 
30.10 firm, a comparable disclosure statement prescribed by its home 
country regulatory) need not provide those same customers with an 
additional written disclosure.
---------------------------------------------------------------------------

    \7\ Rule 1.55(b)(7) reads as follows: Foreign futures transactions 
involve executing and clearing trades on a foreign exchange. This is the 
case even if the foreign exchange is formally ``linked'' to a domestic 
exchange whereby a trade executed on one exchange liquidates or 
establishes a position on the other exchange. No domestic organization 
regulates the activities of a foreign exchange, including the execution, 
delivery and clearing of transactions on such exchange, and no domestic 
regulator has the power to compel enforcement of the rules of the 
foreign exchange or the laws of the foreign country. Moreover, such laws 
or regulations will vary depending on the foreign country in which the 
transaction occurs. For these reasons, customers who trade on foreign 
exchanges may not be afforded certain of the protections which apply to 
domestic transactions, including the right to use alternative dispute 
resolution. In particular, funds received from customers to margin 
foreign futures transactions may not be provided the same protections as 
funds received to margin futures transactions on domestic exchanges. 
Before you trade, you should familiarize yourself with the foreign rules 
which will apply to your particular transaction.
    \8\ Appendix A to Rule 1.55(c) is the Generic Risk Disclosure 
Statement, which FCMs may use as an alternative to the Risk Disclosure 
Statement prescribed in Rule 1.55(b). The Commission understands that 
most FCMs, in particular those that are most active in international 
markets, use the Generic Risk Disclosure Statement.
    Paragraphs 6 and 8 of appendix A to Rule 1.55(c) read as follows:
    6. Deposited cash and property.
    You should familiarize yourself with the protections accorded money 
or property you deposit for domestic and foreign transactions, 
particularly in the event of a firm insolvency or bankruptcy. The extent 
to which you may recover your money or property may be governed by 
specified legislation or local rules. In some jurisdictions, property 
which has been specifically identifiable as your own will be pro-rated 
in the same manner as cash for purposes of distribution in the event of 
a shortfall.
    8. Transactions in other jurisdictions.
    Transactions on markets in other jurisdictions, including markets 
formally linked to a domestic market, may expose you to additional risk. 
Such markets may be subject to regulation which may offer different or 
diminished investor protection. Before you trade you should enquire 
about any rules relevant to your particular transactions. Your local 
regulatory authority will be unable to compel the enforcement of the 
rules of the regulatory authorities or markets in other jurisdictions 
where your transactions have been effected. You should ask the firm with 
which you deal for details about the types of redress available in both 
your home jurisdiction and other relevant jurisdictions before you start 
to trade.
---------------------------------------------------------------------------

    6. For the reasons set forth above, the Commission is revising its 
interpretation of the secured amount requirement set forth in Rule 30.7. 
The Commission believes that the Rule 30.7 acknowledgment required of 
FCMs, or other appropriate acknowledgment required by Rule 30.10 firms, 
only applies to the maintenance of the account or accounts containing 
foreign futures and foreign options customer funds by the initial 
depository, and not to the manner in which any subsequent depository 
holds or subsequently transmits those funds. If an FCM receives from the 
initial depository the acknowledgment described in Rule 30,7, furnishes 
to each foreign futures or foreign options customer a written disclosure 
statement tracking the language set forth in Rule 1.55(b)(7) or 
paragraphs 6 and 8 of appendix A of Rule 1.55(c) and otherwise complies 
with the provisions of Rule 30.7, then it may include all funds 
maintained in the separate account or accounts in calculating its 
secured amount requirement. A Rule 30.10 firm must satisfy the same 
requirements, except that it may provide each foreign futures or foreign 
options customer with a comparable disclosure statement prescribed by is 
home regulator.
    7. IF an FCM or Rule 30.10 firm fails to receive the required 
acknowledgment from the initial depository or provide the above written 
disclosure statement (and in certain circumstances, receive from 
customers and acknowledgment of receipt), then it must set aside funds 
with an acceptable depository and receive from such depository the 
required acknowledgment.
    8. The Commission's interpretation of the Rule 30.7 secured amount 
requirement will apply to all regulated activities with all new and 
existing foreign futures and foreign options customers as of October 11, 
2000. The Commission's interpretation does not alter any other 
requirement set forth in Rule 30.7 or any other section of part 30.

[65 FR 60558, Oct. 11, 2000]



Sec. Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
   Application of Certain of the Part 30 Rules Pursuant toSec. 30.10

Firms designated by the Sydney Futures Exchange Limited.
    FR date and citation: November 7, 1988, 53 FR 44856.
    FR date and citation: April 13, 1993, 58 FR 19210.

[[Page 541]]

    FR date and citation: March 7, 1997, 62 FR 10447.
    FR date and citation: 70 FR 40395, July 17, 2006.
Firms designated by the Singapore Derivatives Trading Limited.
    FR date and citation: January 10, 1989, 54 FR 809.
    FR date and citation: September 16, 1999, 64 FR 50251.
    FR date and citation: September 4, 2007, 72 FR 50645.
Firms designated by the Montreal Exchange.
    FR date and citation: March 17, 1989, 54 FR 11182.
    FR date and citation: February 27, 1997, 62 FR 8877.
Firms designated by the Toronto Futures Exchange.
    FR date and citation: March 22, 1990, 55 FR 10614.
Authorized Persons as designated in Annex E to the Mutual Recognition 
Memorandum of Understanding
    FR date and citation: June 13, 1990, 55 FR 2390; December 23, 1991, 
56 FR 66345.
Firms designated by the Tokyo Grain Exchange.
    FR date and citation: February 23, 1993, 58 FR 10957; May 2, 1994, 
59 FR 22506.
Firms designated by the MEFF Sociedad Rectora de Productos Financieros 
Derivados de Renta Fija (``MEFF Renta Fija'').
    FR date and citation: June 9, 1995, 60 FR 30466.
Firms designated by the New Zealand Futures and Options Exchange 
(``NZFOE'').
    FR date and citation: December 10, 1996, 61 FR 64989.
Firms designated by the MEFF Sociedad Rectora de Productos Financieros 
Derivados de Renta Variable (``MEFF Rental Variable.'')
    FR date and citation: April 8, 1997, 62 FR 16690.
Firms designated by the Financial Services Authority (``FSA'').
    FR date and citation: October 10, 2003, 68 FR 58587.
Firms designated by the Australian Stock Exchange Limited (``ASXL'').
    FR date and citation: 68 FR 39006, July 1, 2003.
    FR date and citation: 70 FR 75937, December 22, 2005.
Firms designated by the Taiwan Futures Exchange.
    FR date and citation: March 28, 2007, 72 FR 14413.
Firms designated by the Tokyo Commodity Exchange.
    FR date and citation: February 9, 2006, 71 FR 6759.
Firms designated by the Bolsa de Mercadorias & Futuros.
    FR date and citation: July 8, 2002, 67 FR 45056.
Firms designated by Eurex Deutschland.
    FR date and citation: May 8, 2002, 67 FR 30785.

[54 FR 809, Jan. 10, 1989]

    Editorial Note: For Federal Register citations affecting appendix C 
to part 30, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



  Sec. Appendix D to Part 30--Commission Certification With Respect to 
  Foreign Futures and Options Contracts on a Non-Narrow-Based Security 
                                  Index

    In its analysis of a request for certification by a foreign board of 
trade relating to a security index futures contract traded on that 
foreign board of trade pursuant toSec. 30.13, the Commission will 
evaluate the contract to ensure that it complies with the three criteria 
of section 2(a)(1)(C)(ii) of the Act.
    (1) Because security index futures contracts are cash settled, the 
Commission also evaluates the contract terms and conditions relating to 
cash settlement. In that regard, the Commission examines, among other 
things, whether the cash price series is reliable, acceptable, publicly 
available and timely; that the cash settlement price is reflective of 
the underlying cash market; and that the cash settlement price is not 
readily susceptible to manipulation. In making its determination, the 
Commission considers the design and maintenance of the index, the method 
of index calculation, the nature of the component security prices used 
to calculate the index, the breadth and frequency of index 
dissemination, and any other relevant factors.
    (2) In considering the susceptibility of an index to manipulation, 
the Commission examines several factors, including the structure of the 
primary and secondary markets for the component equities, the liquidity 
of the component stocks, the method of index calculation, the total 
capitalization of stocks underlying the index, the number, weighting and 
capitalization of individual stocks in the index, and the existence of 
surveillance sharing agreements between the board of trade and the 
securities exchange(s) on which the underlying securities are traded.
    (3) To verify that the index is not narrow-based, the Commission 
considers the number and weighting of the component securities and the 
aggregate value of average daily trading volume of the lowest weighted 
quartile of securities. Under the Act, a security index is narrow-based 
if it meets any one of the following criteria:

[[Page 542]]

    (i) The index is composed of fewer than 10 securities;
    (ii) Any single security comprises more than 30% of the total index 
weight;
    (iii) The five largest securities comprise more than 60% of the 
total index weight; or
    (iv) The lowest-weighted securities that together account for 25% of 
the total weight of the index have an aggregate dollar value of average 
daily trading volume of less than US$30 million (or US$50 million if the 
index includes fewer than 15 securities).

[76 FR 59245, Sept. 26, 2011]



PART 31_LEVERAGE TRANSACTIONS--Table of Contents



Sec.
31.1-31.2 [Reserved]
31.3 Fraud in connection with certain transactions in silver or gold 
          bullion or bulk coins, or other commodities.
31.4 Definitions.
31.5 Unlawful conduct.
31.6 Registration of leverage commodities.
31.7 Maintenance of minimum financial, cover and segregation 
          requirements by leverage transaction merchants.
31.8 Cover of leverage contracts.
31.9 Minimum financial requirements.
31.10 Repurchase and resale of leverage contracts by leverage 
          transaction merchants.
31.11 Disclosure.
31.12 Segregation.
31.13 Financial reports of leverage transaction merchants.
31.14 Recordkeeping.
31.15 Reporting to leverage customers.
31.16 Monthly reporting requirements.
31.17 Records of leverage transactions.
31.18 Margin calls.
31.19 Unlawful representations.
31.20 Prohibition of guarantees against loss.
31.21 Leverage contracts entered into prior to April 13, 1984; 
          subsequent transactions.
31.22 Prohibited trading in leverage contracts.
31.23 Limited right to rescind first leverage contract.
31.24 [Reserved]
31.25 Bid and ask prices; carrying charges.
31.26 Quarterly reporting requirement.
31.27 Registered futures association membership.
31.28 Self-regulatory organization adoption and surveillance of minimum 
          financial, cover, segregation and sales practice requirements.
31.29 Arbitration or other dispute settlement procedures.

Appendix A to Part 31--Schedule of Fees for Registration of Leverage 
          Commodities

    Authority: 7 U.S.C. 12a and 23, unless otherwise noted.



Sec.Sec. 31.1-31.2  [Reserved]



Sec.  31.3  Fraud in connection with certain transactions in silver
or gold bullion or bulk coins, or other commodities.

    It shall be unlawful for any person, by use of the mails or any 
means or instrumentality of interstate commerce, directly or indirectly:
    (a) To employ any device, scheme, or artifice to defraud,
    (b) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made in 
the light of the circumstances under which they were made, not 
misleading, or
    (c) To engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon any person, in, or 
in connection with (1) an offer to make or the making of, any 
transaction for the purchase, sale or delivery of silver bullion, gold 
bullion, bulk silver coins, bulk gold coins, or any other commodity 
pursuant to a standardized contract commonly known to the trade as a 
margin account, margin contract, leverage account, or leverage contract, 
or pursuant to any contract, account, arrangement, scheme, or device 
that serves the same function or functions as such a standardized 
contract, or is marketed or managed in substantially the same manner as 
such a standardized contract, or (2) the maintenance or carrying of any 
such contract.

The provisions of this section shall not apply to any transaction 
expressly prohibited by section 19(a) of the Act.

(Secs. 2(a), 8a, and 19 of the Commodity Exchange Act and secs. 2 and 23 
of Pub. L. 95-405 (92 Stat. 865, 870-871); 7 U.S.C. 2 and 12a)

[43 FR 58554, Dec. 15, 1978. Redesignated at 49 FR 5526, Feb. 13, 1984]



Sec.  31.4  Definitions.

    For the purposes of this part:
    (a)-(b) [Reserved]
    (c) Promotional material includes:
    (1) Any text of a standard oral presentation, or any communication 
for

[[Page 543]]

publication in any newspaper, magazine or similar medium or for 
broadcast over television, radio, or other electronic medium which is 
disseminated or directed to a leverage customer or prospective leverage 
customer;
    (2) Any standardized form of report, letter, circular, memorandum, 
or publication which is disseminated or directed to a leverage customer 
or prospective leverage customer; or
    (3) Any other written literature or advice disseminated or directed 
to a leverage customer or prospective leverage customer for the purpose 
of soliciting the entry into a leverage contract;
    (d) Leverage customer means any person who, directly or indirectly, 
enters into, purchases, sells, or otherwise acquires for value any 
interest in a leverage contract with, from or to a leverage transaction 
merchant: Provided, however, That an owner or holder of a proprietary 
leverage account as defined in paragraph (e) of this section shall not 
be deemed to be a customer within the meaning of Sec.Sec. 31.11(a)-(j) 
and (l), 31.12 and 31.26, and such an owner or holder of such a 
proprietary leverage account shall otherwise be deemed to be a leverage 
customer within the meaning of all other sections of these rules.
    (e) Proprietary leverage account means a leverage account carried on 
the books and records of an individual, a partnership, corporation or 
other type association (1) for one of the following persons, or (2) of 
which ten percent or more is owned by one of the following persons, or 
an aggregate of ten percent or more of which is owned by more than one 
of the following persons:
    (i) Such individual himself, or such partnership, corporation or 
association itself;
    (ii) In the case of a partnership, a general partner in such 
partnership;
    (iii) In the case of a limited partnership, a limited or special 
partner in such partnership whose duties include:
    (A) The management of the partnership business or any part thereof,
    (B) The handling of the trades of leverage customers or of the 
leverage customer funds of such partnership,
    (C) The keeping of records pertaining to the trades of leverage 
customers or to the leverage customer funds of such partnership, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) In the case of a corporation or association, an officer, 
director or owner of ten percent or more of the capital stock, of such 
organization;
    (v) An employee of such individual, partnership, corporation or 
association whose duties include:
    (A) The management of the business of such individual, partnership, 
corporation or association or any part thereof,
    (B) The handling of the trades of leverage customers or of the 
leverage customer funds of such individual, partnership, corporation or 
association,
    (C) The keeping of records pertaining to the trades of leverage 
customers or to the leverage customer funds of such individual, 
partnership, corporation or association, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, corporation or association;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that, directly or indirectly, controls 
such individual, partnership, corporation or association;
    (viii) A business affiliate that, directly or indirectly, is 
controlled by or is under common control with, such individual, 
partnership, corporation or association.
    (f) Commercial leverage account means an account of a commercial 
enterprise, such as a producer, processor, dealer or end user of a 
leverage commodity which is the subject of a leverage contract, or the 
products or by-products thereof;
    (g) Leverage commodity means a commodity (gold bullion, silver 
bullion, bulk gold coins, bulk silver coins, or platinum) which is the 
subject of a leverage contract offered for purchase or sale, or 
purchased or sold, by a particular leverage transaction merchant, the 
value of which is reflected in a

[[Page 544]]

widely accepted and broadly disseminated commercial or retail cash price 
series for cash market transactions, which price series reasonably 
reflects the price for the leverage commodity which the customer can 
expect to pay or receive in normal commercial or retail market channels, 
including, if applicable, specified premiums or discounts; each leverage 
commodity is defined by reference to the following distinguishing 
characteristics:
    (1) The nominal size, composition and tolerable ranges of the 
delivery pack or the actual size, composition and tolerable range of the 
component of the delivery pack;
    (2) Minimum guaranteed quality, deliverable countries of origin, 
deliverable markings or imprints, and deliverable refiners or mints;
    (3) The method of pricing; and
    (4) The delivery specifications or alternatives including type and 
location of delivery facilities, packaging, transportation, registration 
and associated costs.
    (h) Ask price of a leverage contract means the price at which a 
leverage transaction merchant sells or is willing to sell a long 
leverage contract to a leverage customer or the price at which a 
leverage transaction merchant resells or is willing to resell a short 
leverage contract to a leverage customer;
    (i) Bid price of a leverage contract means the price at which a 
leverage transaction merchant purchases or is willing to purchase a 
short leverage contract from a leverage customer, or the price at which 
a leverage transaction merchant repurchases or is willing to repurchase 
a long leverage contract from a leverage customer;
    (j) Bid-ask spread of a leverage contract means the difference 
between a leverage transaction merchant's ask price and bid price;
    (k) Initial charges for a leverage contract includes all fees and 
commissions payable to a leverage transaction merchant which are 
incurred when a leverage contract is initially entered into by a 
leverage customer;
    (l) Carrying charges for a leverage contract includes all service 
and interest changes paid periodically by a leverage customer to a 
leverage transaction merchant, or accrued by a leverage transaction 
merchant, while a long leverage contract remains open, or all service 
and interest charges paid periodically by a leverage transaction 
merchant to a leverage customer, or accrued by a leverage customer, 
while a short leverage contract remains open;
    (m) Termination charges for a leverage contract includes all fees 
and commission payable to a leverage transaction merchant which are 
associated with the liquidation, repurchase, resale or settlement by 
delivery on a leverage contract;
    (n) Liquidation of a leverage contract means the unilateral 
termination of a leverage contract by a leverage transaction merchant 
due to a leverage customer's failure to meet one or more margin calls or 
to make other required deposits on a timely basis or as otherwise 
permitted underSec. 31.18;
    (o) Repurchase or resale of a leverage contract means the voluntary 
termination of a leverage contract by mutual agreement between the 
leverage customer and the leverage transaction merchant, which agreement 
is effected by entering into a transaction which is the opposite of the 
initial transaction. A repurchase by a leverage transaction merchant 
takes place if the initial transaction by the leverage customer was a 
purchase of a long leverage contract from the leverage transaction 
merchant, and a resale by a leverage transaction merchant takes place if 
the initial transaction by the leverage customer was a sale of a short 
leverage contract to the leverage transaction merchant;
    (p) Delivery on a leverage contract means the making (in the case of 
an initial sale by a leverage customer) or taking (in the case of an 
initial purchase by a leverage customer) of delivery by a leverage 
customer of the commodity subject to a leverage contract;
    (q) Initial leverage margin means the amount of funds, excluding 
initial charges, which a leverage customer is required to deposit with a 
leverage transaction merchant when entering into a leverage contract;
    (r) Minimum leverage margin means the amount of funds which a 
leverage transaction merchant requires a leverage customer to maintain 
on deposit

[[Page 545]]

for each open leverage contract in the leverage customer's account.
    (s) Maintenance leverage margin means the level to which the funds 
in a leverage customer's account must be restored after a margin call to 
the leverage customer has been effected by the leverage transaction 
merchant.
    (t) Leverage account equity means:
    (1) For all long leverage contracts in a leverage customer's 
account, the amount equal to the aggregate value of such leverage 
contracts in the leverage customer's account, based on the leverage 
transaction merchant's current bid prices for such contracts, less the 
amount owed to the leverage transaction merchant by the leverage 
customer pursuant to such contracts; and
    (2) For all short leverage contracts in a leverage customer's 
account, the aggregate amount owed to the leverage customer by the 
leverage transaction merchant pursuant to all such contracts less the 
amount equal to the value of all such leverage contracts in the leverage 
customer's account, based on the leverage transaction merchant's current 
ask prices for such contracts;
    (u)-(v) [Reserved]
    (w) Leverage contract means a contract, standardized as to terms and 
conditions, for the long-term (ten years or longer) purchase (``long 
leverage contract'') or sale (``short leverage contract'') by a leverage 
customer of a leverage commodity which provides for:
    (1) Participation by the leverage transaction merchant as a 
principal in each leverage transaction;
    (2) Initial and maintenance margin payments by the leverage 
customer;
    (3) Periodic payment by the leverage customer or accrual by the 
leverage transaction merchant of a variable carrying charge or fee on 
the unpaid balance of a long leverage contract, and periodic payment or 
crediting by the leverage transaction merchant to the leverage customer 
of a variable carrying charge or fee on the initial value of the 
contract plus any margin deposits made by the leverage customer in 
connection with a short leverage contract;
    (4) Delivery of a commodity in an amount and form which can be 
readily purchased and sold in normal commercial or retail channels;
    (5) Delivery of the leverage commodity after satisfaction of the 
balance due on the contract; and
    (6) Determination of the contract purchase and repurchase, or sale 
and resale prices by the leverage transaction merchant; and
    (x) Leverage transaction means the purchase or sale of any leverage 
contract, the repurchase or resale of any leverage contract, the 
delivery of the leverage commodity, or the liquidation or rescission of 
any such leverage contract by or to the leverage transaction merchant.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5527, Feb. 13, 1984, as amended at 49 FR 25428, June 21, 1984; 50 
FR 26, Jan. 2, 1985; 50 FR 36414, Sept. 6, 1985; 54 FR 41078, Oct. 5, 
1989]



Sec.  31.5  Unlawful conduct.

    (a) On and after April 13, 1984, it shall be unlawful for any 
person:
    (1) To offer to enter into, enter into or confirm the execution of a 
leverage contract to or with a leverage customer, or to solicit or 
accept a leverage customer's order for a leverage contract, or to accept 
any leverage customer funds from a leverage customer to enter into or 
maintain a leverage contract, unless the leverage commodity which is the 
subject of the leverage contract has been registered with the Commission 
in accordance withSec. 31.6;
    (2) Except as provided in paragraph (a)(3) of this section, to offer 
to enter into, enter into or confirm the execution of a leverage 
contract to or with a leverage customer, or to solicit or accept a 
leverage customer's order for a leverage contract, or to accept any 
leverage customer funds from a leverage customer to enter into or 
maintain a leverage contract, unless that person is registered with the 
Commission in accordance withSec. 3.17 of this chapter and that 
registration has not expired, been suspended (and the period of 
suspension has not expired) or been revoked; or
    (3) Except as provided in paragraph (a)(2) of this section, if such 
person is a natural person, to offer to enter into, enter into or 
confirm the execution of

[[Page 546]]

a leverage contract to or with a leverage customer, or to solicit or 
accept a leverage customer's order (other than in a clerical capacity) 
for a leverage contract, or to supervise any person or persons so 
engaged, unless that person is registered with the Commission in 
accordance withSec. 3.18 of this chapter and that registration has not 
expired, been suspended (and the period of suspension has not expired) 
or been revoked.
    (b) On and after April 13, 1984, it shall be unlawful for any 
leverage transaction merchant to permit any natural person to become or 
remain associated with it as a partner, officer or employee (or in any 
similar status or position involving similar functions) in any capacity 
which involves the offering to enter into, the entry into, or the 
confirmation of the execution of a leverage contract with a leverage 
customer, or the solicitation or acceptance of a leverage customer's 
order (other than in a clerical capacity) for a leverage contract, or 
the supervision of any person or persons so engaged, if the leverage 
transaction merchant knew or should have known that the person was not 
registered with the Commission in accordance withSec. 3.18 of this 
chapter or that the person's registration had expired, been suspended 
(and the period of suspension had not expired) or been revoked.
    (c) On and after November 10, 1986, it shall be unlawful for any 
person to offer to enter into, enter into or confirm the execution of a 
leverage contract to or with a leverage customer, or to solicit or 
accept a leverage customer's order for a leverage contract, or to accept 
any leverage customer funds from a leverage customer to enter into or 
maintain a leverage contract, unless the leverage commodity which is the 
subject of the leverage contract has been registered with the Commission 
in accordance withSec. 31.6 of this part and involves silver bullion, 
gold bullion, bulk silver coins, bulk gold coins, or platinum. This 
paragraph shall not affect any rights or obligations arising out of any 
leverage contract involving any other leverage commodity that was 
entered into, or the execution of which was confirmed, before November 
10, 1986.
    (d) Denial, suspension, or revocation of registration of a leverage 
commodity. The failure or refusal of any leverage transaction merchant 
to comply with any of the provisions of the Act or any of the 
Commission's rules, regulations, or orders thereunder shall be cause for 
refusing to register a leverage commodity, for suspending registration 
of a leverage commodity for a period not to exceed six months, and for 
revoking registration of such leverage commodity with respect to that 
leverage transaction merchant. Any such denial, suspension, or 
revocation proceedings shall be conducted in accordance with the 
procedures set forth in sections 6 and 6(b) of the Act.

[49 FR 5528, Feb. 13, 1984, as amended at 54 FR 41078, Oct. 5, 1989; 59 
FR 5703, Feb. 8, 1994]



Sec.  31.6  Registration of leverage commodities.

    (a) Registration of leverage commodities. Each leverage commodity 
upon which a leverage contract is offered for sale or purchase or is 
sold or purchased by a particular leverage transaction merchant must be 
separately registered with the Commission. Registration will be granted 
only when the following conditions are, and continue to be, met:
    (1) The person requesting registration of a leverage commodity is a 
registered leverage transaction merchant;
    (2) The commodity to be registered is a leverage commodity as 
defined inSec. 31.4(g);
    (3) There exists a widely accepted and broadly disseminated 
commercial or retail cash price series for the commodity;
    (4) The commodity can be readily purchased or sold in normal 
commercial or retail channels by leverage customers making or taking 
delivery on a leverage contract;
    (5) The terms and conditions of the leverage contracts based on the 
leverage commodity are consistent with the Act and the regulations 
thereunder, and are not contrary to the public interest; and
    (6) The terms and conditions of the leverage contracts based on the 
leverage commodity do not include substantial characteristics of other 
interests,

[[Page 547]]

such as options, certificates of deposit, or other regulated 
instruments.
    (b) Application for registration. Applications to register leverage 
commodities should be filed with the Commission at its Washington, DC 
headquarters. Attn: Secretariat. Three copies of each such submission 
should be filed. The Commission may return any application which does 
not comply with the form and content requirements of this section. Each 
applicant must:
    (1) Provide evidence that the person applying for registration of 
the leverage commodity is registered or has applied to the National 
Futures Association for registration as a leverage transaction merchant;
    (2) Provide an explanation of the distinguishing characteristics of 
the leverage commodity for which registration is sought, including a 
complete description of the cash market for the leverage commodity, and 
for the spot, forward, and futures markets for the generic commodity;
    (3) Specify a commercial or retail cash price series including 
prevailing premiums or discounts governing cash market transactions in 
the quantities specified by the leverage contract and justify the use of 
such price series with respect to the particular leverage commodity for 
which registration is sought;
    (4) Provide evidence and a complete evaluation of how the 
distinguishing characteristics of the leverage commodity would be 
expected to affect the ability of leverage customers electing to make or 
take delivery of the commodity at an economic price in normal cash 
market channels;
    (5) Include a description of the commodity inspection and/or 
certification procedures typically required for commercial or retail 
sales of the specified commodity. Such description must be accompanied 
by information regarding the availability of any normally required 
certification or inspection service at the delivery points including 
those of the leverage transaction merchant; and
    (6) Include copies of all leverage contracts which are to be offered 
by the leverage transaction merchant on the leverage commodity.
    (c) Continuing registration of leverage commodities. A registered 
leverage transaction merchant must submit to the Commission for its 
review, at least forty-five (45) days before their effective date, any 
proposed changes in the specifications of the leverage commodity and the 
terms and conditions of the leverage contract from those submitted as 
part of the registration application unless such contract specifically 
provides that such terms and conditions are subject to change. Three 
copies of each such submission must be furnished to the Commission at 
its Washington, DC headquarters. Attn: Secretariat. The Commission may 
return any submission which does not comply with the form and content 
requirements of this section. Each such submission must, in the 
following order:
    (1) Explain how any such changes might affect the ability of 
leverage customers to realize the leverage commodity's economic value 
and how such amendments might affect the ability of leverage customers 
making or taking delivery to buy or sell the leverage commodity;
    (2) Explain the effect of such changes upon the continued 
appropriateness of the commercial or retail cash price series submitted 
pursuant to paragraph (b)(3) of this section, or, as an alternative, 
submit a new price series and a justification of its use; and
    (3) Indicate whether, if such changes are applied to existing 
leverage commodities, there will be a change in the economic value of 
such commodities and, if so, quantify the extent of such changes.
    (d) Authority to disapprove amendments. The Commission may 
disapprove, alter, or amend changes to the distinguishing 
characteristics of the registered leverage commodity, or to the terms 
and conditions of the leverage contracts offered thereon, after 
appropriate notice and opportunity for hearing, when the Commission 
determines that such a change is in violation of any of the provisions 
of the Act or any of the regulations thereunder, or that it is necessary 
or appropriate to ensure the financial solvency of leverage transactions 
or prevent manipulation or fraud. Upon notification by

[[Page 548]]

the Commission of its determination to disapprove, alter or amend such 
changes, the proposed changes will not become effective pending a final 
determination by the Commission to disapprove, alter, or amend such 
changes.
    (e) Authority to alter or amend specifications of the registered 
leverage commodity or the terms and conditions of leverage contract. The 
Commission may alter or amend specific distinguishing characteristics of 
the registered leverage commodity or the terms and conditions of 
leverage contracts after appropriate notice and opportunity for hearing 
when the Commission determines that, in light of intervening events, 
such alterations or amendments would be necessary or appropriate to 
ensure the financial solvency of leverage transactions or prevent 
manipulation or fraud.
    (f)(1) The Commission hereby delegates to the Director of the 
Division of Market Oversight until such time as the Commission orders 
otherwise, all functions reserved to the Commission in paragraphs (b) 
and (c) of this section.
    (2) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the Director under paragraph (f)(1) 
of this section to the Commission for its consideration.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5529, Feb. 13, 1984, as amended at 50 FR 27, Jan. 2, 1985; 50 FR 
2283, Jan. 16, 1985; 54 FR 41079, Oct. 5, 1989; 67 FR 62352, Oct. 7, 
2002]



Sec.  31.7  Maintenance of minimum financial, cover and segregation
requirements by leverage transaction merchants.

    (a) Each person registered as a leverage transaction merchant or who 
files an application for registration as a leverage transaction 
merchant, who knows or should have known that its adjusted net capital 
at any time is less than the minimum required bySec. 31.9, or that its 
cover at any time is less than the minimum required bySec. 31.8, or 
that the amount of leverage customer funds in segregation is less than 
is required bySec. 31.12 or by the capital, cover or segregation rules 
of any designated self-regulatory organization to which such person is 
subject, if any, must:
    (1) Give telegraphic notice as set forth inSec. 1.12(g) of this 
chapter that such applicant's or registrant's adjusted net capital is 
less than is required bySec. 31.9, or its cover is less than is 
required bySec. 31.8, or the amount of leverage customer funds in 
segregation is less than is required bySec. 31.12 or by such other 
capital, cover or segregation rule, identifying the applicable capital, 
cover or segregation rule. This notice must be given within 24 hours 
after such applicant or registrant knows or should have known that its 
adjusted net capital or its cover or the amount of leverage customer 
funds in segregation is less than is required by any of the aforesaid 
rules to which such applicant or registrant is subject; and
    (2) Within 24 hours after giving such notice file a statement of 
financial condition, a statement of the computation of the minimum 
capital requirements pursuant toSec. 31.9 (computed in accordance with 
the applicable capital rule), a schedule of coverage requirements and 
coverage provided, and a schedule of segregation requirements and funds 
on deposit in segregation, all as of the date such applicant's or 
registrant's adjusted net capital or its cover or the amount of leverage 
customer funds in segregation became less than the minimum required.
    (b) Each person registered as a leverage transaction merchant, or 
who files an application for registration as a leverage transaction 
merchant, who knows or should have known that its adjusted net capital 
at any time is less than 120 percent of the amount required bySec. 
31.9 must file written notice to that effect as set forth inSec. 
1.12(g) of this chapter within five business days of such event. Such 
applicant or registrant must also file a Form 2-FR or such other 
financial statement designated by the Commission and/or the designated 
self-regulatory organization, if any, as of the close of business for 
the month during which such event takes place and as of the close of 
business for each month thereafter until three successive months have 
elapsed

[[Page 549]]

during which the applicant's or registrant's adjusted net capital is at 
all times equal to or in excess of the minimums set forth in this 
paragraph (b). Each financial report required by this paragraph (b) must 
be filed within 30 calendar days after the end of the month for which 
such report is being made.
    (c) The requirements of Sec.Sec. 1.12(c), 1.12(d), 1.12(e) and 
1.12(g) of this chapter shall apply to registered leverage transaction 
merchants and to persons who have applied for registration as leverage 
transaction merchants, as if in those paragraphs the term ``leverage 
transaction merchant or applicant therefor'' were substituted for the 
phrase ``applicant or registrant.''

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5530, Feb. 13, 1984, as amended at 50 FR 28, Jan. 2, 1985; 54 FR 
41079, Oct. 5, 1989]



Sec.  31.8  Cover of leverage contracts.

    (a)(1) Each leverage transaction merchant must at all times maintain 
cover of at least 90 percent of the amount of physical commodities 
subject to open long leverage contracts entered into with leverage 
customers, and must at all times also maintain cover of at least 90 
percent of the amount of physical commodities subject to open short 
leverage contracts entered into with leverage customers. At least 25 
percent of the amount of physical commodities subject to open long 
leverage contracts must be covered by the types of permissible cover set 
forth in paragraphs (a)(2) (i) and (ii) of this section.
    (2) Permissible cover for a long leverage contract is limited to:
    (i) Warehouse receipts for the leverage commodity subject to the 
leverage contract held in commercial banks located in the United States 
or in approved contract market depositories: Provided, That the balance 
of the principal and accrued interest on any loan against such warehouse 
receipts does not exceed 70 percent of the current market value of the 
commodity represented by each receipt.
    (ii) Warehouse receipts for gold bullion in the case of leverage 
contracts on bulk gold coins, bulk gold coins in the case of leverage 
contracts on gold bullion, silver bullion in the case of leverage 
contracts on bulk silver coins, bulk silver coins in the case of 
leverage contracts on silver bullion, one type of bulk gold coins for 
leverage contracts involving another type of bulk gold coins on an 
ounce-for-ounce basis if each type of bulk gold coins used as cover is 
the subject of a leverage contract offered by the leverage transaction 
merchant pursuant to registration underSec. 31.6 of this part, and one 
type of bulk silver coins for leverage contracts involving another type 
of bulk silver coins on an ounce-for-ounce basis if each type of bulk 
silver coins used as cover is the subject of a leverage contract offered 
by the leverage transaction merchant pursuant to registration under 
Sec.  31.6 of this part, which are held in commercial banks located in 
the United States or in approved contract market depositories: Provided, 
That the balance of the principal and accrued interest on any loans 
against such warehouse receipts does not exceed 70 percent of the 
current market value of the commodity for which it represents cover.
    (iii) Purchase, in physical form, of the leverage commodity subject 
to the leverage contract, or of the same alternative commodities 
provided for in paragraph (a)(2)(ii) of this section, with settlement 
within two business days shall be considered permissible cover from the 
time the purchase order is confirmed, even though the leverage 
transaction merchant does not have possession or control of a warehouse 
receipt until settlement: Provided, however, That such purchases are not 
made from an affiliated firm, and such purchases at no time constitute 
more than 10 percent of the amount of physical commodities subject to 
open long leverage contracts entered into with leverage customers: And, 
provided further, That the leverage transaction merchant maintains, in 
accordance withSec. 31.14 of this part, detailed records of these 
transactions which will be subject to inspection, copying and audit by 
the Commission and a designated self-regulatory organization.
    (iv) A long spot futures contract on the leverage commodity subject 
to the

[[Page 550]]

leverage contract, or of the same alternative commodities provided for 
in paragraph (a)(2)(ii) of this section, if the leverage transaction 
merchant has stopped a delivery notice which is non-transferable with 
respect to that futures contract and has otherwise complied with any 
procedures, including payment, necessary for taking delivery, even 
though the leverage transaction merchant does not have possession or 
control of a warehouse receipt for two business days: Provided, however, 
That the amount of physical commodities subject to such long spot 
futures contracts at no time constitutes more than 10 percent of the 
amount of physical commodities subject to open long leverage contracts 
entered into with leverage customers: And, provided further, That the 
leverage transaction merchant maintains, in accordance withSec. 31.14 
of this part, detailed records of its deliveries on futures contracts, 
which will be subject to inspection, copying and audit by the Commission 
and a designated self-regulatory organization.
    (v)(A) Purchases for future delivery on or subject to the rules of 
the contract market of the same generic commodity subject to the 
leverage contract, or of the same alternative commodities provided for 
in paragraph (a)(2)(ii) of this section; or
    (B) Purchases of call commodity options for the same generic 
commodity subject to the leverage contract, or of the same alternative 
commodities provided for in paragraph (a)(2)(ii) of this section, on or 
subject to the rules of a contract market in accordance with the 
provisions of part 33 of this chapter: Provided, That the market value 
of the actual commodity or futures contract which is the subject of such 
option is more than the value of the underlying commodity based on the 
strike price of the option.
    (3) Permissible cover for a short leverage contract is limited to:
    (i) Sales for future delivery on or subject to the rules of a 
contract market of the same generic commodity subject to the leverage 
contract, or of the same alternative commodities provided for in 
paragraph (a)(2)(ii) of this section; or
    (ii) Purchases of put commodity options for the same generic 
commodity subject to the leverage contract, or of the same alternative 
commodities provided for in paragraph (a)(2)(ii) of this section, on or 
subject to the rules of a contract market in accordance with the 
provisions of part 33 of this chapter: Provided, That the market value 
of the actual commodity or futures contract which is the subject of such 
option is less than the value of the underlying commodity based on the 
strike price of the option.
    (b) Such leverage transaction merchant must be in compliance with 
paragraph (a) of this section at all times and must be able to 
demonstrate such compliance to the satisfaction of the Commission and/or 
the designated self-regulatory organization. A leverage transaction 
merchant who is not in compliance with paragraph (a) of this section or 
in unable to demonstrate such compliance must immediately cease engaging 
in the business of offering to enter into, entering into, or confirming 
the execution of, any leverage contract until such time as the leverage 
transaction merchant is able to demonstrate such compliance. Nothing in 
this paragraph (b) shall be construed as preventing the Commission or 
the designated self-regulatory organization from taking action against a 
leverage transaction merchant for non-compliance with any of the 
provisions of this section.
    (c) The amount of cover which is actually maintained by a leverage 
transaction merchant, and the amount of cover which must be maintained 
by a leverage transaction merchant in order to comply with the 
requirements of this section, shall be computed as of the close of each 
business day by the leverage transaction merchant. A written record of 
this computation shall be made and kept, together with all supporting 
data, in accordance with the provisions ofSec. 1.31 of this chapter. 
This daily computation shall be made by noon on the next business day 
and shall be computed in a format identical to the Schedule of Coverage 
Requirements and Coverage Provided contained in Form 2-FR. In computing 
the amount of cover actually maintained, the leverage transaction 
merchant

[[Page 551]]

shall include only those warehouse receipts which are unencumbered or 
against which the balance of the principal and accrued interest on cash 
loans for which such receipts serve as collateral does not exceed 70 
percent of the current market value of the commodities underlying such 
receipts.
    (d) A leverage transaction merchant who uses as collateral for cash 
loans warehouse receipts held as cover for leverage contracts shall 
maintain a separate record for such loans which contains the following 
information:
    (1) The date on which the loan was made;
    (2) The name of the commercial bank or futures commission merchant 
making such loan;
    (3) The purpose for which the loan was made;
    (4) The amount of the loan;
    (5) The interest rate on the loan;
    (6) The loan's maturity date;
    (7) The date of any partial or complete liquidation of the loan; and
    (8) A description of the warehouse receipt collateralizing such loan 
including the receipt number, the issuer's name, and the total quantity 
of the commodity covered by the warehouse receipt. Such loans shall be 
evidenced in a written agreement executed by the leverage transaction 
merchant and the lender. The leverage transaction merchant shall retain 
such agreement and any related notes in accordance with the requirements 
ofSec. 31.14 of this part.
    (e) The requirements of paragraphs (a) through (d) of this section 
shall not be applicable if the leverage transaction merchant is a member 
of a designated self-regulatory organization and conforms to minimum 
cover standards and related reporting requirements set by such 
designated self-regulatory organization in its bylaws, rules, 
regulations or resolutions approved by the Commission pursuant to 
section 19 of the Act andSec. 31.28 of this part.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5531, Feb. 13, 1984, as amended at 50 FR 28, Jan. 2, 1985; 54 FR 
41079, Oct. 5, 1989]



Sec.  31.9  Minimum financial requirements.

    (a) Each leverage transaction merchant must at all times maintain 
adjusted net capital equal to or in excess of $2,500,000, plus 20 
percent of the market value of the amount of physical commodities 
subject to leverage contracts entered into by the leverage transaction 
merchant which are uncovered, plus 2\1/2\ percent of the market value of 
the amount of physical commodities subject to short leverage contracts 
entered into by the leverage transaction merchant which are covered.
    (1) For purposes of determining compliance with the provisions of 
paragraph (a) of this section, each leverage transaction merchant must 
compute the market value of the physical commodities subject to leverage 
contracts which it has entered into by using the widely accepted and 
broadly disseminated commercial or retail cash price series submitted 
with the leverage transaction merchant's application for registration of 
the leverage commodity in accordance withSec. 31.6, and cannot include 
any mark-ups or discounts of the leverage transaction merchant.
    (2) The requirements of paragraph (a) of this section shall not be 
applicable if the applicant or registrant is a member of a designated 
self-regulatory organization and conforms to minimum financial standards 
and related reporting requirements set by such designated self-
regulatory organization in its bylaws, rules, regulations or resolutions 
approved by the Commission pursuant to section 19 of the Act andSec. 
31.28 of this part.
    (3) No person applying for registration as a leverage transaction 
merchant shall be so registered unless such person affirmatively 
demonstrates to the satisfaction of the Commission that it complies with 
the financial requirements of this section. Each leverage transaction 
merchant must be in compliance with this section at all times and must 
be able to demonstrate such compliance to the satisfaction of the 
Commission and/or the designated self-regulatory organization.
    (4) A leverage transaction merchant who is not in compliance with 
this section, or is unable to demonstrate such

[[Page 552]]

compliance as required by paragraph (a)(3) of this section, must 
immediately cease engaging in the business of offering to enter into, 
entering into, or confirming the execution of, any leverage contract 
until such time as the leverage transaction merchant is able to 
demonstrate such compliance. Nothing in this paragraph shall be 
construed as preventing the Commission or the designated self-regulatory 
organization from taking action against a leverage transaction merchant 
for non-compliance with any of the provisions of this section. Any 
leverage transaction merchant required immediately to cease doing 
business under this paragraph shall remain liable on all leverage 
contracts previously entered into until all rights of and obligations 
owing to the customers thereunder have been fulfilled.
    (b) For the purposes of this section:
    (1) Where the applicant or registrant has an asset or liability 
which is defined in Securities Exchange Act rule 15c3-1 (Sec.  240.15c3-
1 of this title), the inclusion or exclusion of all or part of such 
asset or liability for the computation of adjusted net capital shall be 
in accordance withSec. 240.15c3-1 of this title, unless specifically 
stated otherwise in this section;
    (2)(i) The term ``customer'' means customer as defined inSec. 
31.4(d);
    (ii) The term ``proprietary account'' means a commodity futures, 
option or leverage account carried on the books of the applicant or 
registrant itself, or for general partners of the applicant or 
registrant; and
    (iii) The term ``noncustomer account'' means a leverage account 
carried on the books of the applicant or registrant for a person which 
is not included in the definition of customer (as defined in paragraph 
(b)(2)(i) of this section) or proprietary account (as defined in 
paragraph (b)(2)(ii) of this section);
    (3) The term ``Business day'' means any day other than a Saturday, 
Sunday or legal holiday;
    (4) The term ``net capital'' has the same meaning as inSec. 1.17 
of this chapter: Provided, however, That the term ``leverage transaction 
merchant'' shall be substituted for the term ``futures commission 
merchant'' inSec. 1.17 of this chapter. In determining net capital, 
the provisions set forth inSec. 1.17(c)(1) of this chapter shall 
apply;
    (5) The term ``current assets'' has the same meaning as inSec. 
1.17(c)(2) of this chapter: Provided, That the provisions ofSec. 
1.17(c)(2)(i) of this chapter shall apply to leverage contract accounts 
as well as commodity futures and option accounts;
    (6) The provisions set forth inSec. 1.17(c)(3) of this chapter 
shall apply;
    (7) The term ``liabilities'' has the same meaning as inSec. 
1.17(c)(4) of this chapter;
    (8) In computing adjusted net capital, the safety factors set forth 
inSec. 1.17(c)(5) of this chapter shall apply: Provided, however, That 
the safety factors set forth inSec. 1.17(c)(5)(ii) (B) and (C) of this 
chapter shall not apply to inventory, to the extent such inventory 
represents cover for leverage contracts entered into by a leverage 
transaction merchant; And, provided further, That the safety factors set 
forth inSec. 1.17(c)(5) (x) and (xii) of this chapter shall not apply 
to any futures contracts or commodity options traded on contract markets 
held in proprietary accounts which represent cover for leverage 
contracts entered into by a leverage transaction merchant;
    (9) The safety factors set forth inSec. 1.17(c)(5) (viii) and (ix) 
of this chapter for undermargined commodity futures and commodity option 
customer and noncustomer accounts shall apply in a like manner to 
undermargined leverage customer and noncustomer accounts, respectively, 
and the term ``leverage transaction merchant'' shall be substituted for 
the terms ``applicable boards of trade'' or ``clearing organization''; 
and
    (10) The provisions set forth inSec. 1.17 (d), (e), (f), (h) and 
(j) of this chapter shall apply.
    (c) No person shall be registered as a leverage transaction merchant 
unless, commencing on the date the person applies for such registration, 
the person prepares, and keeps current, ledgers or other similar records 
which show or summarize, with appropriate references to supporting 
documents, each

[[Page 553]]

transaction affecting his asset, liability, income, expense and capital 
accounts, and in which (except as otherwise permitted in writing by the 
Commission) all his asset, liability and capital accounts are classified 
into either the account classification subdivisions specified on Form 2-
FR or categories that are in accord with generally accepted accounting 
principles. Each person so registered shall prepare and keep current 
such records.
    (d) Each registered leverage transaction merchant, and each person 
who has applied for registration as a leverage transaction merchant, 
must make and keep as a record in accordance withSec. 31.14 of this 
part formal computations of its adjusted net capital and of its minimum 
financial requirements pursuant to this section as of the close of 
business each month. Such computations must be completed and made 
available for inspection by any representative of the National Futures 
Association, in the case of an applicant, or of the Commission, the 
designated self-regulatory organization, if any, or the United States 
Department of Justice in the case of a registrant, within 30 days after 
the date for which the computations are made, commencing the first 
month-end after the date the application for registration is filed.

[49 FR 5531, Feb. 13, 1984; 49 FR 25427, June 21, 1984, as amended at 50 
FR 36414, Sept. 6, 1985; 54 FR 41079, Oct. 5, 1989]



Sec.  31.10  Repurchase and resale of leverage contracts by leverage
transaction merchants.

    (a) No leverage transaction merchant shall offer to sell or sell a 
long leverage contract involving a leverage commodity to any leverage 
customer at any time when such leverage transaction merchant is not 
offering to repurchase from any of its leverage customers any long 
leverage contract, and is not offering to resell to any of its leverage 
customers any short leverage contract, involving the same leverage 
commodity previously sold or purchased by the leverage transaction 
merchant to or from a leverage customer.
    (b) No leverage transaction merchant shall offer to purchase or 
purchase a short leverage contract involving a leverage commodity from 
any leverage customer at any time when such leverage transaction 
merchant is not offering to resell to any of its leverage customers any 
short leverage contract, and is not offering to repurchase from any of 
its leverage customers any long leverage contract, involving the same 
leverage commodity previously purchased or sold by the leverage 
transaction merchant from or to a leverage customer.

[50 FR 36414, Sept. 6, 1985]



Sec.  31.11  Disclosure.

    (a) Except as provided in paragraph (i) of this section, prior to 
the opening of a leverage customer account, a leverage transaction 
merchant soliciting an order for any leverage contract shall furnish to 
the prospective leverage customer a dated Disclosure Document and 
receive from such prospective leverage customer a signed and dated copy 
of the risk disclosure statement contained in such document which 
acknowledges that the customer received and understood the Disclosure 
Document. The Disclosure Document shall contain then current information 
with respect to the leverage contract being offered by the person 
soliciting the order therefor, and shall contain:
    (1) The following bold-faced risk disclosure statement in at least 
ten-point type on the first page of the Disclosure Document:

    BECAUSE OF THE UNPREDICTABLE NATURE OF THE PRICES OF PRECIOUS AND 
OTHER METALS, LEVERAGE CONTRACTS INVOLVE A HIGH DEGREE OF RISK AND ARE 
NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC. THE LEVERAGE CUSTOMER 
SHOULD BE AWARE THAT THE VALUE OF A LEVERAGE CONTRACT ORIGINALLY 
PURCHASED BY A CUSTOMER (``LONG LEVERAGE CONTRACT'') MUST EXCEED THE 
BREAK-EVEN PRICE BEFORE IT IS POSSIBLE TO REALIZE A PROFIT ON THE 
CONTRACT. SIMILARLY, THE VALUE OF A LEVERAGE CONTRACT ORIGINALLY SOLD BY 
A LEVERAGE CUSTOMER (``SHORT LEVERAGE CONTRACT'') MUST BE LESS THAN THE 
BREAK-EVEN PRICE BEFORE IT IS POSSIBLE TO REALIZE A PROFIT ON THE 
CONTRACT. A FILLED IN VERSION OF THE CUSTOMER CONFIRMATION STATEMENT 
REFLECTING A SINGLE TRANSACTION IN A REPRESENTATIVE LEVERAGE COMMODITY

[[Page 554]]

FOR A LONG LEVERAGE TRANSACTION AND A SHORT LEVERAGE TRANSACTION WHICH 
INCLUDES A FORMULA FOR CALCULATING AN ESTIMATE OF THE LEVERAGE 
CONTRACT'S BREAK-EVEN VALUE IS ATTACHED TO THIS DOCUMENT. THIS IS IN THE 
SAME FORMAT AS THE CONFIRMATION STATEMENT YOU WILL RECEIVE TO CONFIRM 
YOUR ACTUAL TRANSACTION. BE CERTAIN THAT YOU UNDERSTAND THE INFORMATION 
PROVIDED BY THIS STATEMENT BEFORE YOU ENTER INTO A LEVERAGE TRANSACTION.
    YOU SHOULD ALSO UNDERSTAND THAT THE CHARGES FOR SIMILAR LEVERAGE 
CONTRACTS WHICH ARE REFLECTED ON THE FILLED-IN CONFIRMATION STATEMENT AS 
ESTIMATED MAY VARY AMONG LEVERAGE FIRMS, AND THAT SUCH FIRMS HAVE 
COMPLETE DISCRETION IN SETTING THEIR CHARGES AND THE PRICE OF THE 
LEVERAGE CONTRACTS THEY OFFER. PRIOR TO ENTERING INTO ANY LEVERAGE 
CONTRACT A PROSPECTIVE LEVERAGE CUSTOMER SHOULD COMPARE THE CHARGES AND 
PRICES OF SUCH FIRMS WITH EACH OTHER AND WITH THE COMMISSIONS FOR AND 
PRICES OF FUTURES CONTRACTS TRADED ON DESIGNATED EXCHANGES.
    YOU SHOULD ALSO BE AWARE THAT YOU ARE SUBJECT TO MARGIN CALLS. THE 
LEVERAGE FIRM RESERVES THE RIGHT TO LIQUIDATE YOUR POSITION IF YOU DO 
NOT RESPOND TO A MARGIN CALL WITHIN THE TIME SPECIFIED IN YOUR LEVERAGE 
AGREEMENT. IN ANY EVENT, IF THE EQUITY IN YOUR CONTRACT AT ANY TIME 
FALLS BELOW 50% OF THE MINIMUM MARGIN, YOUR CONTRACT MAY BE LIQUIDATED 
WITHOUT PRIOR NOTICE. YOU MUST, HOWEVER, BE NOTIFIED OF LIQUIDATION 
WITHIN NO MORE THAN 24 HOURS THEREAFTER AND PERMITTED TO REESTABLISH 
YOUR CONTRACT FOR A PERIOD OF 5 BUSINESS DAYS. LEVERAGE CONTRACTS 
PURCHASED FROM A LEVERAGE TRANSACTION MERCHANT ARE RE-ESTABLISHED AT THE 
THEN PREVAILING BID PRICE AND LEVERAGE CONTRACTS SOLD TO A LEVERAGE 
TRANSACTION MERCHANT ARE RE-ESTABLISHED AT THE THEN PREVAILING ASK PRICE 
WITHOUT COMMISSIONS, FEES OR OTHER MARK-UPS OR CHARGES UNDER RULES SET 
BY THE COMMODITY FUTURES TRADING COMMISSION, AS MORE COMPLETELY 
DESCRIBED IN THIS DISCLOSURE DOCUMENT. IN CASE OF LIQUIDATION, ALL OF 
YOUR FUNDS MAY BE USED TO SETTLE THE DEFICIT IN THE ACCOUNT, AND YOU MAY 
BE LIABLE FOR ADDITIONAL FUNDS TO SETTLE IN FULL.
    IF YOU ARE A FIRST-TIME LEVERAGE CUSTOMER, YOU MAY RESCIND YOUR 
FIRST LEVERAGE TRANSACTION SUBJECT ONLY TO ACTUAL PRICE LOSSES BUT 
OTHERWISE WITHOUT PENALTY FOR THREE BUSINESS DAYS FOLLOWING AND 
INCLUDING THE DAY OF RECEIPT OF THE CONFIRMATION.
    YOU SHOULD BE AWARE THAT IN ORDER TO REALIZE ANY VALUE FROM A LONG 
LEVERAGE CONTRACT, THE LEVERAGE TRANSACTION MERCHANT WHICH SOLD YOU THE 
LEVERAGE CONTRACT MUST REPURCHASE IT, OR YOU MUST PAY THE LEVERAGE 
TRANSACTION MERCHANT THE FULL PURCHASE PRICE FOR THE LEVERAGE CONTRACT, 
TAKE DELIVERY OF THE LEVERAGE COMMODITY, AND THEN SELL THE LEVERAGE 
COMMODITY, POSSIBLY AT A LOWER PRICE THAN THE PRICE PAID TO PURCHASE THE 
LEVERAGE COMMODITY FROM THE LEVERAGE TRANSACTION MERCHANT. YOU SHOULD 
ALSO BE AWARE THAT IN ORDER TO REALIZE ANY VALUE FROM A SHORT LEVERAGE 
CONTRACT, THE LEVERAGE TRANSACTION MERCHANT TO WHICH YOU SOLD THE 
LEVERAGE CONTRACT MUST RESELL IT TO YOU, OR YOU MUST ACQUIRE THE 
LEVERAGE COMMODITY IN ORDER TO MAKE DELIVERY TO THE LEVERAGE TRANSACTION 
MERCHANT, POSSIBLY AT A HIGHER PRICE THAN THE PRICE YOU WILL RECEIVE 
FROM THE LEVERAGE TRANSACTION MERCHANT.
    THERE IS NO MARKET FOR THE LEVERAGE CONTRACT ITSELF OTHER THAN TO 
HAVE IT REPURCHASED BY OR RESOLD TO THE LEVERAGE TRANSACTION MERCHANT. A 
LEVERAGE TRANSACTION MERCHANT IS UNDER NO OBLIGATION TO OFFER TO 
REPURCHASE OR RESELL A LEVERAGE CONTRACT AT ALL TIMES, ALTHOUGH THE 
LEVERAGE TRANSACTION MERCHANT MUST OFFER TO REPURCHASE ANY LONG LEVERAGE 
CONTRACT PREVIOUSLY PURCHASED BY A LEVERAGE CUSTOMER AND MUST ALSO OFFER 
TO RESELL ANY SHORT LEVERAGE CONTRACT PREVIOUSLY SOLD BY A LEVERAGE 
CUSTOMER AT ANY TIME DURING WHICH THE LEVERAGE TRANSACTION MERCHANT IS 
OFFERING TO ENTER INTO NEW LONG OR SHORT LEVERAGE CONTRACTS WITH 
CUSTOMERS INVOLVING THE SAME LEVERAGE COMMODITY. AS NOTED ABOVE, 
HOWEVER, A LEVERAGE TRANSACTION MERCHANT HAS COMPLETE DISCRETION IN 
SETTING THE PRICE AND ANY CHARGES RELATED THERETO.
    THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE 
MERITS OF THESE LEVERAGE CONTRACTS AS AN INVESTMENT VEHICLE

[[Page 555]]

NOR UPON THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE DOCUMENT. ANY 
REPRESENTATION TO THE CONTRARY IS A VIOLATION OF THE COMMODITY EXCHANGE 
ACT AND THE REGULATIONS THEREUNDER.

    (2) Immediately following the statement required by paragraph (a)(1) 
of this section, a section, captioned ``Provisions of Leverage 
Contract'' in at least ten point type, containing the terms and 
conditions of the leverage contract being offered. This information must 
be provided in the order specified in paragraphs (a)(2) (i) through (xi) 
of this section, with a clear demarcation or separation between each 
item according to the paragraph of the section to which it corresponds, 
and include:
    (i) The duration or expiration date of the leverage contract;
    (ii) The distinguishing characteristics of the contract and of the 
leverage commodity, including, in particular, those characteristics of 
the leverage commodity enumerated inSec. 31.4(g)(1)-(4) of this part;
    (iii) A description of the following charges for each leverage 
contract:
    (A) Initial charges;
    (B) Carrying charges;
    (C) Termination charges;
    (iv) A description of the bid and ask prices of each leverage 
contract;
    (v) An explanation of the margins applicable to each leverage 
contract, including, as required, initial margins, minimum margins and 
maintenance margins;
    (vi) A description of the leverage customer's responsibilities with 
respect to margin calls, including the timing of such calls and, if 
applicable, the circumstances under which, time after which, and the 
order in which the leverage transaction merchant may, consistent with 
Sec.  31.18 liquidate a customer's position in the leverage contract;
    (vii) A description of the manner in which a leverage customer may 
seek to have a leverage contract repurchased or resold by the leverage 
transaction merchant, including an explanation of the procedure to be 
followed by the leverage transaction merchant to effect such repurchase 
or resale and the manner in which the repurchase or resale price is 
determined;
    (viii) A statement to the effect that other persons may be unwilling 
to buy from the leverage customer the leverage commodity that is 
deliverable on the leverage contract without first requiring an 
inspection or assay at the expense of the leverage customer; a statement 
to the effect that the leverage transaction merchant may be unwilling to 
accept delivery and pay for such leverage commodity without first 
requiring an inspection or assay at the expense of the leverage 
customer; and a description of any other requirements for the delivery 
of a leverage commodity by a leverage customer to a leverage transaction 
merchant in connection with a short leverage contract;
    (ix) A clear explanation of any force majeure clauses pertaining to 
each leverage contract;
    (x) A description of any material risks not included in the 
statements required by paragraph (a)(1) of this section; and
    (xi) An identification of the commercial or retail cash price series 
filed in accordance withSec. 31.6, along with clearly specified 
premiums and discounts, if applicable, which the leverage customer or 
prospective leverage customer can use to evaluate a leverage contract 
and a widely available source from which such price quotes may be 
obtained on a timely basis.
    (3) A filled-in version of the customer Confirmation Statement in 
the format specified by the Commission for a representative single long 
leverage contract and a representative single short leverage contract 
which includes a formula which can be used to estimate the break-even 
price.
    (4)(i) The name, address of the main business office, main business 
telephone number and form of organization of the leverage transaction 
merchant. If the address of the main business office is a post office 
box number, the leverage transaction merchant must state where its books 
and records will be kept;
    (ii) The name of each principal of the leverage transaction 
merchant;
    (iii) The business background, for the five years preceding the date 
of the statement, of:
    (A) The leverage transaction merchant; and

[[Page 556]]

    (B) Each principal of the leverage transaction merchant.

The leverage transaction merchant must include in the description of the 
business background of each such person the name and main business of 
that person's employers, business associations or business ventures and 
the nature of the person's duties performed for the employers or in 
connection with the associations or ventures.
    (5)(i) A statement whether any principal of the leverage transaction 
merchant has entered into or intends to enter into long or short 
leverage contracts for his own account and, if so, whether leverage 
customers will be permitted to inspect the records of that person's 
trades; and
    (ii) If principals of the leverage transaction merchant will not 
enter into or do not intend to enter into long or short leverage 
contracts for their own account, the leverage transaction merchant must 
so state with respect to each principal.
    (6)(i) Any material administrative or civil action involving any 
activity or conduct, or related to any statute, set forth in sections 
8a(2) or 8a(3) of the Act, or any material criminal action brought 
within the five years preceding the date of the document against the 
leverage transaction merchant or any principal of the leverage 
transaction merchant; and
    (ii) If there has been no such action against any of the foregoing 
persons, the leverage transaction merchant must make a statement to that 
effect with respect to each such person.
    (b)(1) If the leverage transaction merchant knows or should know 
that the Disclosure Document is materially inaccurate or incomplete in 
any respect, it must correct that defect and must distribute the 
correction to:
    (i) All existing leverage customers within 30 calendar days after 
the date upon which the leverage transaction merchant first knows or has 
reason to know of the defect; and
    (ii) Each prospective leverage customer prior to opening an account 
for such person.

The leverage transaction merchant may furnish the correction by means of 
an amended document, a sticker on the document, a notice in a monthly 
statement or by other similar means.
    (2) The leverage transaction merchant may not use the document until 
such correction is made.
    (c) The leverage transaction merchant must date each document and 
amendment thereto as of the date it is first used.
    (d) Subject to the provisions of paragraph (b) of this section, all 
information contained in the document must be current as of the date of 
the document.
    (e)(1) The leverage transaction merchant must file with the National 
Futures Association three copies and with the Commission at its 
Washington, DC headquarters, Attn: Secretariat, one copy of the document 
for each leverage contract that it offers or that it intends to offer 
not less than 21 calendar days prior to the date the leverage 
transaction merchant first intends to furnish the document to a 
prospective leverage customer. The leverage transaction merchant must 
specify with the filing the date it first intends to deliver the 
document to a prospective leverage customer;
    (2) Subject to paragraphs (h) and (m) of this section, the leverage 
transaction merchant must file with the National Futures Association 
three copies and with the Commission at its Washington, DC headquarters, 
Attn: Secretariat, one copy of all subsequent amendments to the document 
for each leverage contract that it offers or that it intends to offer 
within 30 calendar days after the date upon which the leverage 
transaction merchant first knows or has reason to know of the defect 
requiring the amendment.
    (f) This section does not relieve a leverage transaction merchant 
from any obligation under the Act or the regulations thereunder, 
including the obligation to disclose all material information to 
existing or prospective leverage customers even if the information is 
not specifically required by this section.
    (g) If any contract term set forth in accordance with paragraph 
(a)(2) of this section provides that such term is subject to change, the 
leverage transaction merchant must ensure that this fact, the conditions 
under which the

[[Page 557]]

change may take place, and the foreseeable consequences of the change 
are clearly stated in the Disclosure Document, in describing that 
contract term.
    (h) A leverage transaction merchant must transmit a notification to 
each leverage customer within 24 hours of making any change not 
otherwise permitted under the contract terms set forth in accordance 
with paragraph (a)(2) of this section. A notification of any change in 
the interest rate charged by the leverage transaction merchant must also 
be transmitted to each leverage customer within twenty-four hours of 
each change: Provided, however, That no notification is required if the 
change in interest rate is one percent or less as compared to the rate 
charged at the prior month-end and the new interest rate is made 
available to customers by means of a toll-free telephone call, and such 
availability is set forth in the Disclosure Document. The notification 
required by this paragraph must be transmitted by first class mail or 
other, at least equivalent, means of communication.
    (i) A person soliciting or accepting an order for a leverage 
contract is not required to deliver a Disclosure Document leverage to a 
leverage customer, as required by paragraph (a) of this section, if a 
disclosure document meeting all of the requirements of this section 
previously has been delivered by the person to the leverage customer: 
Provided, however, That such a Disclosure Document must be delivered:
    (1) Upon the request of a leverage customer, or
    (2) If the previously delivered Disclosure Document has become 
outdated or has become inaccurate in any material respect.
    (j) Prior to the entry into a leverage contract, the person 
soliciting the order therefor shall inform the leverage customer or the 
prospective leverage customer, to the extent these amounts are known or 
can reasonably be approximated, of all charges for the initiation, 
carrying and termination of a leverage contract and the leverage 
transaction merchant's bid-ask spread on the leverage contract as set 
forth in paragraph (a)(2)(iii) and (a)(2)(iv), respectively, of this 
section and the margins applicable to such contracts as set forth in 
paragraph (a)(2)(v) and (a)(2)(vi) of this section.
    (k)(1) Not later than the next business day after the entry into a 
long leverage contract with a customer, each leverage transaction 
merchant shall furnish to such customer, by first-class mail or other, 
at least equivalent, means of communication, a written Confirmation 
Statement in a format specified by the Commission containing:
    (i) For a leverage customer's first leverage transaction, the 
following bold-faced statement in at least ten-point type:

    IF YOU ARE A FIRST-TIME LEVERAGE CUSTOMER, YOU MAY RESCIND YOUR 
FIRST LEVERAGE TRANSACTION SUBJECT ONLY TO ACTUAL PRICE LOSSES BUT 
OTHERWISE WITHOUT PENALTY FOR THREE BUSINESS DAYS FOLLOWING AND 
INCLUDING RECEIPT OF THIS CONFIRMATION. ACTUAL LOSSES ON A LEVERAGE 
CONTRACT PURCHASED FROM A LEVERAGE TRANSACTION MERCHANT ARE CALCULATED 
BY SUBTRACTING THE ASK PRICE OF THE LEVERAGE CONTRACT AT THE TIME OF THE 
CUSTOMER'S RESCISSION FROM THE ASK PRICE AT WHICH THE LEVERAGE CONTRACT 
WAS PURCHASED AND WHICH APPEARS ON THIS CONFIRMATION. TO RESCIND THIS 
CONTRACT SEND A TELEGRAM TO (name and address of LTM) OR YOU MAY 
TELEPHONE (name of LTM) AT (telephone number). IF YOU RESCIND BY 
TELEPHONE, YOU MUST ALSO SEND IMMEDIATE WRITTEN AFFIRMATION BY TELEGRAM, 
CERTIFIED LETTER OR BY AT LEAST EQUIVALENT MEANS TO THE ADDRESS PROVIDED 
ABOVE; and

    (ii) For every leverage transaction, the following information:
    (A) The date the leverage contract was entered into;
    (B) The transaction identification number;
    (C) The name of the leverage commodity;
    (D) The expiration date of the leverage contract;
    (E) The total cost of the leverage contracts covered in the 
Confirmation Statement, which equals the leverage transaction merchant's 
ask price in dollars per unit multiplied by the number of units 
multiplied by the number of contracts;
    (F) The total unpaid balance for this transaction;

[[Page 558]]

    (G) The total initial charges for the transaction;
    (H) The total initial margin for the transaction, in dollars and as 
a percentage of the contract price;
    (I) The total amount due (or paid) to initiate the transaction, 
which equals the total initial charges plus the total initial margin in 
dollars;
    (J) The current equity in the individual customer's account as of 
the date of this transaction, but excluding this transaction;
    (K) The total variable carrying charges to be billed each period, in 
dollars and as an annual percentage rate, based on the carrying charge 
rate prevailing at the time the contract is entered into;
    (L) The total bid/ask spread, based on prices prevailing at the time 
the contract is entered into;
    (M) The total termination charges incurred if the contract is 
repurchased, liquidated by the leverage transaction merchant or settled 
by delivery, based on charges prevailing at the time the contract is 
entered into;
    (N) Any other charges associated with terminating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (O) Any special charges associated with liquidating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (P) The total delivery charges incurred if the customer takes 
delivery on the contract, based on charges prevailing at the time the 
contract is entered into;
    (Q) The following formula enabling a customer to calculate the 
estimated total contract value to break-even: Initial contract value 
plus the bid-ask spread plus the intitial charges plus any other charges 
plus the termination charges plus the carrying charges for the period 
the contract is intended to be held open;
    (R) The total minimum margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (S) The total maintenance margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (T) The commercial or retail cash price series filed in accordance 
withSec. 31.6 available to the leverage customer to evaluate the 
leverage contract (including any applicable premiums or discounts), and 
where quotes of this series can be obtained on a timely basis; and
    (2) Not later than the next business day after entry into a short 
leverage contract with a customer, each leverage transaction merchant 
shall furnish to such customer by first-class mail or other, at least 
equivalent, means of communication, a written Confirmation Statement in 
a format specified by the Commission containing:
    (i) For a leverage customer's first leverage transaction, the 
following bold-faced statement in at least ten-point type:

IF YOU ARE A FIRST-TIME LEVERAGE CUSTOMER, YOU MAY RESCIND YOUR FIRST 
LEVERAGE TRANSACTION SUBJECT ONLY TO ACTUAL PRICE LOSSES BUT OTHERWISE 
WITHOUT PENALTY FOR THREE BUSINESS DAYS FOLLOWING AND INCLUDING RECEIPT 
OF THIS CONFIRMATION. ACTUAL LOSSES ON A LEVERAGE CONTRACT SOLD TO A 
LEVERAGE TRANSACTION MERCHANT ARE CALCULATED BY SUBTRACTING THE BID 
PRICE AT WHICH THE CONTRACT WAS SOLD TO THE LEVERAGE TRANSACTION 
MERCHANT AND WHICH APPEARS ON THIS CONFIRMATION FROM THE BID PRICE OF 
THE LEVERAGE CONTRACT AT THE TIME OF THE CUSTOMER'S RESCISSION. TO 
RESCIND THIS CONTRACT SEND A TELEGRAM TO (name and address of LTM) OR 
YOU MAY TELEPHONE (name of LTM) AT (telephone number). IF YOU RESCIND BY 
TELEPHONE, YOU MUST ALSO SEND IMMEDIATE WRITTEN AFFIRMATION BY TELEGRAM, 
CERTIFIED LETTER OR BY AT LEAST EQUIVALENT MEANS TO THE ADDRESS PROVIDED 
ABOVE: and

    (ii) For every leverage transaction, the following information:
    (A) The date the leverage contract was entered into;
    (B) The transaction identification number;
    (C) The name of the leverage commodity;
    (D) The expiration date of the leverage contract;
    (E) The total cost of the leverage contracts covered in the 
Confirmation Statement, which equals the leverage transaction merchant's 
bid price in

[[Page 559]]

dollars per unit multiplied by the number of units multiplied by the 
number of contracts;
    (F) The total initial charges for the transaction;
    (G) The total initial margin for the transaction, in dollars and as 
a percentage of the contract price;
    (H) The total amount due (or paid) to initiate the transaction, 
which equals the total initial charges plus the total initial margin in 
dollars;
    (I) The current equity in the individual customer's account as of 
the date of this transaction, but excluding this transaction;
    (J) The total variable carrying charges to be credited each period, 
in dollars and as an annual percentage rate, based on the carrying 
charge rate prevailing at the time the contract is entered into;
    (K) The total bid/ask spread, based on prices prevailing at the time 
the contract is entered into;
    (L) The total termination charges incurred if the contract is 
resold, liquidated by the leverage transaction merchant or settled by 
delivery, based on charges prevailing at the time the contract is 
entered into;
    (M) Any other charges associated with terminating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (N) Any special charges associated with liquidating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (O) The total delivery (including assay) charges incurred if the 
customer makes delivery on the contract, based on charges prevailing at 
the time the contract is entered into;
    (P) The following formula enabling a customer to calculate the 
estimated total contract value to break-even: Initial contract value 
plus carrying charges for the period the contract is intended to be held 
open, minus the bid-ask spread, minus the initial charges, minus any 
other charges, minus the termination charges;
    (Q) The total minimum margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (R) The total maintenance margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (S) The commercial or retail cash price series filed in accordance 
withSec. 31.6 available to the leverage customer to evaluate the 
leverage contract (including any applicable premiums or discounts), and 
where quotes of this series can be obtained on a timely basis.
    (l) Each leverage transaction merchant shall furnish, upon request, 
by first-class mail or other generally accepted means of communication, 
to all leverage customers with open leverage contracts and to 
prospective leverage customers who are being solicited to enter leverage 
contracts with it, a true copy of portions of the quarterly unaudited or 
annual audited financial statement most recently filed with the 
Commission pursuant toSec. 31.13, except that the portions of those 
statements which will generally be accorded non-public treatment by the 
Commission need not be so furnished.
    (m)(1) Notwithstanding any other provision in this section, if a 
leverage transaction merchant is not offering to enter into, entering 
into or confirming the execution of, soliciting or accepting a leverage 
customer's order for, or accepting any leverage customer funds from a 
leverage customer to enter into or maintain any short leverage contract, 
the leverage transaction merchant may delete or disregard references to 
short leverage contracts in its Disclosure Document as follows:
    (i) The third sentence of the first paragraph of the required bold-
faced risk disclosure statement in paragraph (a)(1) of this section;
    (ii) The words ``and a short leverage transaction'' in the fourth 
sentence of the first paragraph of the required bold-faced risk 
disclosure statement in paragraph (a)(1) of this section;
    (iii) The words ``and leverage contracts sold to a leverage 
transaction merchant are re-established at the then prevailing ask 
price'' in the fifth sentence of the third paragraph of the required 
bold-faced risk disclosure statement in paragraph (a)(1) of this 
section;
    (iv) The second sentence of the fifth paragraph of the required 
bold-faced

[[Page 560]]

risk disclosure statement in paragraph (a)(1) of this section;
    (v) The words ``or resold to'' in the first sentence of the sixth 
paragraph of the required bold-faced risk disclosure statement in 
paragraph (a)(1) of this section;
    (vi) The words ``or resell,'' ``and must also offer to resell any 
short leverage contract previously sold by a leverage customer,'' and 
``or short'' in the second sentence of the sixth paragraph of the 
required bold-faced risk disclosure statement in paragraph (a)(1) of 
this section;
    (vii) The words ``or resold'' and ``or resale'' (twice) in paragraph 
(a)(2)(vii) of this section;
    (viii) All of the words following the first semicolon in paragraph 
(a)(2)(viii) of this section;
    (ix) The words ``and a representative single short leverage 
contract'' in paragraph (a)(3) of this section; and
    (x) The words ``or short'' in paragraphs (a)(5)(i) and (a)(5)(ii) of 
this section.
    (2) Any leverage transaction merchant using a Disclosure Document 
that deletes or disregards references to short leverage contracts as 
permitted by paragraph (m)(1) of this section must file, in accordance 
with the provisions of paragraph (e)(2) of this section, a new 
Disclosure Document meeting all of the requirements of paragraphs (a) 
through (i) of this section at least 30 calendar days before it begins 
to offer any short leverage contract.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5532, Feb. 13, 1984; 49 FR 25427, June 21, 1984, as amended at 50 
FR 29, Jan. 2, 1985; 50 FR 36415, Sept. 6, 1985; 54 FR 41080, Oct. 5, 
1989; 54 FR 46503, Nov. 3, 1989]



Sec.  31.12  Segregation.

    (a) Any person that accepts leverage customer funds from a leverage 
customer to enter into or maintain a leverage contract shall treat and 
deal with such leverage customer funds as belonging to that leverage 
customer. Such leverage customer funds: (1) Shall be separately 
accounted for and segregated as belonging to the leverage customer, (2) 
shall be kept in the United States, (3) shall not be commingled with the 
funds of any other person, and (4) shall not be used to secure or extend 
the credit of any leverage customer or person other than the one for 
whom the leverage customer funds are held: Provided, however, That the 
leverage customer funds treated as belonging to a leverage customer may 
for convenience be commingled with other leverage customer funds and 
deposited in the same account or accounts with a futures commission 
merchant or with a bank or trust company located in the United States 
under conditions set forth in paragraph (b) of this section. Any 
leverage customer funds when so deposited with a futures commission 
merchant, bank or trust company, shall be deposited under an account 
name which clearly indicates that the account contains leverage customer 
funds that are segregated as required by this section. Each person so 
depositing any leverage customer funds shall obtain and retain in its 
files for the period provided inSec. 1.31 of this chapter an 
acknowledgment from the futures commission merchant, bank or trust 
company wherein the leverage customer funds have been deposited that the 
futures commission merchant, bank or trust company has been informed 
that the leverage customer funds deposited with it are being treated by 
the depositing person as belonging to leverage customers and are being 
held in accordance with the provisions of this section. The futures 
commission merchant, bank or trust company shall allow inspection of 
such segregated accounts, including all documents pertaining thereto, at 
any reasonable time by any representative of the Commission or 
designated self-regulatory organization, if any. Notwithstanding the 
foregoing, a leverage transaction merchant may exclude from its 
segregation requirements commissions and other charges lawfully accruing 
in connection with leverage contracts provided such charges have 
actually been made to leverage customers' accounts and are shown on the 
customers' statements.
    (b) No leverage customer funds deposited in accordance with 
paragraph (a) of this section shall be held, disposed of, used or 
treated as belonging to the depositing person or any person other

[[Page 561]]

than the leverage customers from whom the leverage customer funds were 
received: Provided, however, That leverage customer funds may be used to 
purchase obligations of the United States, general obligations of any 
state or of any political subdivision thereof, obligations fully 
guaranteed as to principal and interest by the United States, or 
unencumbered warehouse receipts for inventory held in approved contract 
market depositories or in commercial banks located in the United States 
which represent cover for leverage contracts purchased by such leverage 
customers, or may be deposited in a commodity account with a futures 
commission merchant to margin futures contracts or to purchase commodity 
options traded on or subject to the rules of a contract market which are 
permissible cover as described inSec. 31.8(a) (2) and (3) for leverage 
contracts entered into by such leverage customers. Any use of leverage 
customer funds as described in this paragraph (b) shall be made through 
an account or accounts used for the deposit of leverage customer funds, 
and proceeds from any sale, liquidation or other disposition of 
obligations or warehouse receipts obtained by such use shall be 
redeposited in these accounts. Each person that uses leverage customer 
funds to purchase obligations or warehouse receipts of the type 
described in this paragraph (b) shall separately account for and 
segregate the obligations or warehouse receipts as belonging to leverage 
customers. The obligations or warehouse receipts shall be deposited with 
a futures commission merchant, bank or trust company in the United 
States and shall be deposited under an account name which clearly 
indicates that it contains obligations or warehouse receipts treated as 
belonging to leverage customers, segregated as required by this section. 
Each person so depositing any obligations or warehouse receipts shall 
obtain and retain in its files for the period provided inSec. 1.31 of 
this chapter an acknowledgment from the futures commission merchant, 
bank or trust company wherein the obligations or warehouse receipts have 
been deposited that the futures commission merchant, bank or trust 
company has been informed that the obligations or warehouse receipts are 
being treated by the depositing person as belonging to leverage 
customers and are being held in accordance with the provisions of this 
section. The futures commission merchant, bank or trust company shall 
allow inspection of such obligations or warehouse receipts at any 
reasonable time by any representative of the Commission or designated 
self-regulatory organization, if any. Each person that uses leverage 
customer funds to margin futures contracts or to purchase commodity 
options traded on or subject to the rules of a contract market which 
represent permissible cover for leverage contracts entered into by such 
leverage customers shall use a commodity account separate from any other 
commodity account containing futures contracts which do not represent 
cover. The leverage customer funds deposited in a commodity account with 
a futures commission merchant to margin futures contracts or to purchase 
commodity options traded on or subject to the rules of a contract market 
which represent permissible cover for leverage contracts entered into by 
such leverage customers shall be deposited under an account name which 
clearly indicates that it contains obligations treated as belonging to 
leverage customers, segregated as required by this section. Each person 
so depositing any leverage customer funds shall obtain and retain in its 
files for the period provided inSec. 1.31 of this chapter an 
acknowledgment from the futures commission merchant wherein the leverage 
customer funds have been deposited that:
    (1) The futures commission merchant has been informed that the 
commodity account is being treated by the depositing person as belonging 
to leverage customers and is being held in accordance with the 
provisions of this section,
    (2) The customers on whose behalf the account is maintained by the 
leverage transaction merchant shall not be liable for any margin calls 
or other required deposits related to such account, and

[[Page 562]]

    (3) Upon liquidation of the open contracts in the account the 
futures commission merchant's claim in the account balance will be 
subordinate to that of leverage customers.
    (c) Each person that uses leverage customer funds to purchase 
obligations or unencumbered warehouse receipts as permitted by paragraph 
(b) of this section shall keep a written record which includes the 
following:
    (1) The date on which the purchase was made;
    (2) The name of the person through which the purchase was made;
    (3) The amount of funds so used;
    (4) A description of such obligations or warehouse receipts, 
including the receipt number and the issuer's name;
    (5) The identity of the futures commission merchant, bank or trust 
company wherein the obligations or warehouse receipts are segregated;
    (6) The date on which the obligation, warehouse receipt, or portion 
thereof, is liquidated or otherwise disposed of;
    (7) The amount of money, if any, received upon such liquidation or 
disposition; and
    (8) The name of the person to or through which the obligation or 
warehouse receipt was disposed.
    (d) Persons that use leverage customer funds to purchase obligations 
or unencumbered warehouse receipts described in paragraph (b) of this 
section shall include such obligations or unencumbered warehouse 
receipts in segregated accounts at values which do not exceed the lesser 
of current market value or a value calculated on the basis of a 
commercial or retail cash price series used to compute the market value 
of the physical commodities subject to leverage contracts in accordance 
withSec. 31.9(a)(1).
    (e) The provisions of paragraphs (a) and (b) of this section shall 
not operate to prevent any person that uses leverage customer funds to 
purchase government obligations as described therein from receiving and 
retaining as its own any increment or interest resulting from such 
government obligations: Provided, however, That the leverage transaction 
merchant fulfills its obligation to pay carrying charges on a short 
leverage contract, including any margin deposit made in connection with 
such a contract, in accordance withSec. 31.25(b).
    (f) The amount of leverage customer funds which are and which must 
be in a segregated account in order to comply with the requirements of 
this section shall be computed as of the close of each business day by 
each person required to segregate such leverage customer funds. A 
written record of this computation shall be made and kept, together with 
all supporting data, in accordance with the provsions ofSec. 1.31 of 
this chapter. This daily computation shall be made by noon on the next 
business day and shall be identical in format to the Schedule of 
Segregation Requirements and Funds in Segregation contained in Form 2-
FR.
    (g) Each leverage transaction merchant shall maintain, as provided 
inSec. 1.31, a record of all securities and property received from 
leverage customers in lieu of money to purchase, guarantee or secure the 
entry into a leverage contract. Such record shall show separately for 
each leverage customer a description of the securities or property 
received; the name and address of such leverage customer; the dates when 
the securities or property were received; the identity of the 
depositories or other places where such securities or property are 
segregated; the dates of deposits and withdrawals from such 
depositories; and the date of return of such securities or property to 
such leverage customer, or other disposition thereof, together with the 
facts and circumstances of such other disposition.
    (h) The requirements of paragraphs (a) through (g) of this section 
shall not be applicable if the leverage transaction merchant is a member 
of a designated self-regulatory organization and conforms to minimum 
segregation standards and related reporting requirements set by such 
designated self-regulatory organization in its bylaws, rules, 
regulations or resolutions approved by the Commission pursuant to

[[Page 563]]

section 19 of the Act andSec. 31.28 of this part.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5535, Feb. 13, 1984, as amended at 50 FR 31, Jan. 2, 1985, 50 FR 
34616, Sept. 6, 1985; 50 FR 40964, Oct. 8, 1985; 54 FR 41081, Oct. 5, 
1989; 54 FR 46503, Nov. 3, 1989]



Sec.  31.13  Financial reports of leverage transaction merchants.

    (a) Each leverage transaction merchant who files an application for 
registration with the National Futures Association underSec. 3.17 of 
this chapter shall submit concurrently with the filing of such 
application either:
    (1) A Form 2-FR certified by an independent public accountant as of 
a date not more than 45 days prior to the date on which such report is 
filed; or
    (2) A Form 2-FR as of a date not more than 45 days prior to the date 
on which such report is filed and an Form 2-FR certified by an 
independent public accountant as of a date not more than 1 year prior to 
the date on which such report is filed. Each such person must include 
with such financial report a statement describing the source of his 
current assets and representing that his capital has been contributed 
for the purpose of operating his business and will continue to be used 
for such purpose.
    (b)(1) Each leverage transaction merchant must file, in accordance 
with the requirements of paragraph (e) of this section, a Form 2-FR for 
each fiscal quarter of each fiscal year. The Form 2-FR filed as of the 
close of the leverage transaction merchant's fiscal year must be 
certified by an independent public accountant. Each Form 2-FR must be 
filed no later than 45 days after the date for which the report is made: 
Provided, however, That any Form 2-FR which must be certified by an 
independent public accountant must be filed no later than 90 days after 
the close of the leverage transaction merchant's fiscal year.
    (2) The provisions of paragraph (b)(1) of this section may be met by 
any person registered as a leverage transaction merchant who is a member 
of a designated self-regulatory organization and conforms to minimum 
financial standards and related reporting requirements set by such 
designated self-regulatory organization in its bylaws, rules, 
regulations, or resolutions and approved after April 13, 1984, by the 
Commission pursuant to section 19 of the Act andSec. 31.28 of this 
part: Provided, however, That each such registrant shall promptly file 
with the Commission a true and exact copy of each financial report which 
it files with such designated self-regulatory organization.
    (c) Each Form 2-FR which must be certified by an independent public 
accountant in accordance with the provisions of paragraphs (a)(1), 
(a)(2) and (b)(1) of this section, must be certified in accordance with 
Sec.  1.16 of this chapter, and must be accompanied by the accountant's 
report on material inadequacies in accordance with the provisions of 
Sec.  1.16(c)(5) of this chapter. In all other respects, the independent 
public accountant shall act in accordance with the provisions ofSec. 
1.16 (except paragraph (f)) of this chapter: Provided, however, That the 
term ``Form 2-FR'' shall be substituted for ``Form 1-FR'' inSec. 
1.16(c)(5) of this chapter, the term ``Sec.  31.9'' shall be substituted 
for the term ``Sec.  1.17,'' the term ``leverage transaction merchant'' 
shall be substituted for the term ``futures commission merchant,'' and 
``the segregation requirements ofSec. 31.12'' shall be substituted for 
``the segregation requirements of section 4d(a)(2) of the Act and these 
regulations and the secured amount requirement of the Act and these 
regulations.''
    (d) Upon receiving written notice from any representative of the 
Commission or any self-regulatory organization of which it is a member, 
a leverage transaction merchant shall, on a monthly basis or at such 
other times as specified, furnish the Commission and the self-regulatory 
organization, if any, with a Form 2-FR or such other financial 
information as requested by the representative of the Commission or the 
self-regulatory organization. Each such Form 2-FR or such other 
information must be furnished within the time specified in the written 
notice.
    (e) The reports provided for in this section will be considered 
filed when received by the regional office of the

[[Page 564]]

Commission with jurisdiction over the state wherein the principal place 
of business of the leverage transaction merchant is located, in 
accordance withSec. 140.2 of this chapter, and by the designated self-
regulatory organization, if any.
    (f) Each Form 2-FR filed pursuant to this section which is not 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (1) A statement of financial condition as of the date for which the 
report is made;
    (2) A statement of changes in ownership equity for the period 
between the date of the most recent statement of financial condition 
filed with the Commission and the date for which the report is made;
    (3) A statement of changes in liabilities subordinated to claims of 
general creditors for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
    (4) A statement of the computation of the minimum capital 
requirements pursuant toSec. 31.9, a schedule of coverage requirements 
and coverage provided, and a schedule of segregation requirements and 
funds on deposit in segregation, as of the date for which the report is 
made; and
    (5) In addition to the information expressly required, such further 
information as may be necessary to make the required statements and 
schedules not misleading.
    (g) Each Form 2-FR filed pursuant to thisSec. 31.13 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (1) A statement of financial condition as of the date for which the 
report is made;
    (2) Statements of: income (loss); cash flows; changes in ownership 
equity; and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent statement 
of financial condition filed with the Commission and the date for which 
the report is made: Provided, however, That for an applicant filing 
pursuant to paragraph (a) of this section, the period must be the year 
ending as of the date of the statement of financial condition;
    (3) A statement of the computation of the minimum capital 
requirements pursuant toSec. 31.9, a schedule of coverage requirements 
and coverage provided, and a schedule of segregation requirements and 
funds on deposit in segregation, as of the date for which the report is 
made;
    (4) Appropriate footnote disclosures; and
    (5) In addition to the information expressly required, such further 
information as may be necessary to make the required statements and 
schedules not misleading.
    (h) The statements required by paragraphs (g) (1) and (2) of this 
section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraph (b) of this section, 
or accompanying the application for registration pursuant to paragraph 
(a) of this section, rather than in the format specifically prescribed 
by these regulations: Provided, however, That the statement of financial 
condition is presented in a format as consistent as possible with the 
Form 2-FR and a reconciliation is provided reconciling such statement of 
financial condition to the statement of the computation of the minimum 
capital requirements pursuant toSec. 31.9. Such reconciliation must be 
certified by an independent public accountant in accordance withSec. 
1.16 of this chapter.
    (i) Attached to each Form 2-FR filed pursuant to this section must 
be an oath or affirmation that to the best knowledge and belief of the 
individual making such oath or affirmation the information contained in 
the Form 2-FR is true and correct. If the leverage transaction merchant 
is a sole proprietorship, then the oath or affirmation must be made by 
the proprietor; if a partnership, by a general partner; or, if a 
corporation, by the chief executive officer or chief financial officer.
    (j) Any leverage transaction merchant wishing to establish a fiscal 
year other than the calendar year may do so

[[Page 565]]

by notifying the National Futures Association of its election of such 
fiscal year in writing, concurrently with the filing of Form 2-FR 
pursuant to paragraph (a) of this section, but in no event may such 
fiscal year end more than one year from the date of the Form 2-FR filed 
pursuant to paragraph (a) of this section. A leverage transaction 
merchant which does not so notify the National Futures Association will 
be deemed to have elected the calendar year as its fiscal year. A 
leverage transaction merchant must continue to use its elected fiscal 
year, calendar or otherwise, unless a change in such fiscal year is 
approved upon written application to the designated self-regulatory 
organization.
    (k) In the event any leverage transaction merchant finds that it 
cannot file its report for any period within the time specified in 
paragraphs (b) or (d) of this section without substantial undue 
hardship, it may file with the designated self-regulatory organization 
an application for an extension of time to a specified date which may 
not be more than 90 days after the date as of which the financial report 
was to have been filed. The application must state the reasons for the 
requested extension and must contain an agreement to file the report on 
or before the specified date. The application must be received by the 
designated self-regulatory organization before the time specified in 
paragraphs (b) or (d) of this section for filing the report. Within 10 
calendar days after receipt of the application for an extension of time, 
the designated self-regulatory organization shall: (1) Notify the 
leverage transaction merchant of the grant or denial of the requested 
extension; or (2) indicate that additional time is required to analyze 
the request, in which case the amount of time needed will be specified.
    (l)(1) In the event a leverage transaction merchant finds that it 
cannot file its certified financial report and schedules for any year 
within the time specified in paragraph (b) of this section without 
substantial undue hardship, it may file with the designated self-
regulatory organization an application for an extension of time to a 
specified date not more than 90 days after the date as of which the 
certified financial report and schedules were to have been filed. The 
application must be submitted by the leverage transaction merchant and 
must:
    (i) State the reasons for the requested extension;
    (ii) Indicate that the inability to make a timely filing is due to 
circumstances beyond the control of the leverage transaction merchant, 
if such is the case, and describe briefly the nature of such 
circumstances;
    (iii) Be accompanied by the latest available formal computation of 
its adjusted net capital and minimum financial requirements computed in 
accordance withSec. 31.9;
    (iv) Be accompanied by the latest available computation of required 
segregation and by a computation of the amount of leverage customer 
funds segregated pursuant toSec. 31.12 as of the date of the latest 
available computation;
    (v) Be accompanied by the latest available computation of required 
cover and by a computation of cover provided pursuant toSec. 31.8 as 
of the date of the latest available computation;
    (vi) Contain an agreement to file the report on or before the date 
specified by the leverage transaction merchant in the application;
    (vii) Be received by the designated self-regulatory organization 
prior to the date on which the report is due; and
    (viii) Be accompanied by a letter from the independent public 
accountant answering the following questions:
    (A) What specifically are the reasons for the extension request?
    (B) On the basis of that part of your audit to date, do you have any 
indication that may cause you to consider commenting on any material 
inadequacies in the accounting system, internal accounting controls or 
procedures for safeguarding customer or firm assets?
    (C) Do you have any indication from the part of your audit completed 
to date that would lead you to believe that the firm was or is not 
meeting the minimum capital requirements specified inSec. 31.9 or the 
cover or segregation requirements of these regulations, or has any 
significant financial or recordkeeping problems?

[[Page 566]]

    (2) Within 10 calendar days after receipt of an application for 
extension of time, the designated self-regulatory organization shall:
    (i) Notify the leverage transaction merchant of the grant or denial 
of the requested extension; or
    (ii) Indicate that additional time is required to analyze the 
request, in which case the amount of time needed will be specified.
    (3) On the written request of a leverage transaction merchant, or on 
its own motion, the designated self-regulatory organization may grant an 
extension of time or an exemption from any of the certified financial 
reporting requirements of this section either unconditionally or on 
specified terms and conditions.
    (m) The following portions of Form 2-FR filed pursuant to this 
section will be public: The statement of financial condition, the 
computation of the minimum capital requirements pursuant toSec. 31.9, 
the schedule of coverage requirements and cover provided, and the 
schedule of segregation requirements and funds on deposit in 
segregation. The other financial statements (including the statement of 
income (loss)), footnote disclosures and schedules of Form 2-FR, trade 
secrets and certain other commercial or financial information on such 
other statements and schedules, will be treated as nonpublic for 
purposes of the Freedom of Information Act and the Government in the 
Sunshine Act and parts 145 and 147 of this chapter. All information on 
such other statements, footnote disclosures and schedules will, however, 
be available for official use by any official or employee of the United 
States or any State, by any self-regulatory organization of which the 
person filing such report is a member, by the National Futures 
Association in the case of an applicant, and by any other person to whom 
the Commission believes disclosure of such information is in the public 
interest. The independent public accountant's opinion filed pursuant to 
this section will be deemed to be public information.
    (n)(1) Until such time as the Commission orders, otherwise, the 
Commission hereby delegates to the Director of the Division of Clearing 
and Intermediary Oversight or his designee the authority to perform all 
functions reserved to the Commission in this section.

The Director of the Division of Clearing and Intermediary Oversight may 
submit to the Commission for its consideration any matter which has been 
delegated to him pursuant to paragraph (n)(1) of this section.

[49 FR 5536, Feb. 13, 1984, as amended at 54 FR 41081, Oct. 5, 1989; 62 
FR 10445, Mar. 7, 1997; 67 FR 62352, Oct. 7, 2002; 69 FR 41426, July 9, 
2004]



Sec.  31.14  Recordkeeping.

    (a) All books, records and other documents required to be kept by 
this part shall be kept in accordance with the provisions ofSec. 1.31 
of this chapter. In addition, information concerning leverage 
transactions shall be made available upon request of the Executive 
Director, the Director of the Division of Clearing and Intermediary 
Oversight, the Director of the Division of Market Oversight or the 
Director of the Division of Enforcement, or other designees, at a time 
and place and in such form and manner as may be specified in the 
request.
    (b) Each leverage transaction merchant shall:
    (1) Keep full, complete, and systematic records, together with all 
pertinent data and memoranda, of all transactions relating to leverage 
contracts, commodity futures, commodity options and cash commodities and 
furnish true and correct information and reports as to the contents or 
the meaning thereof when and as requested by any authorized 
representative of the Commission, designated self-regulatory 
organization, if any, or the U.S. Department of Justice. Included among 
such records shall be: All leverage contract orders; signature cards; 
journals; ledgers; canceled checks; bank statements; loan agreements; 
invoices; copies of confirmations; copies of statements of purchase, 
sale, repurchase, resale, liquidation, rescission and delivery; copies 
of month-end statements; monthly trial balances, and a monthly listing 
as described in paragraph (d) of this section; reports, letters and 
copies of disclosure statements signed by leverage customers as 
described inSec. 31.11; promotional material, circulars,

[[Page 567]]

memoranda, publications, writings, and all other literature or written 
advice distributed to leverage customers or prospective leverage 
customers; and all other records, data and memoranda which have been 
prepared in the course of the business of the leverage transaction 
merchant concerning leverage contracts, commodity futures, commodity 
options, and cash commodities;
    (2) Keep a record in permanent form which shall show for each 
leverage customer's account carried by such leverage transaction 
merchant:
    (i) The true name and address of the person for whom such account is 
carried;
    (ii) The principal occupation and/or type of business of the person 
for whom such account is carried;
    (iii) The name and address of any other person who assumes or 
purports to assume any financial responsibility for or operational 
control of such account; and
    (iv) The names of the persons who have solicited and are responsible 
for each leverage customer's account.
    (c) Each leverage transaction merchant shall, as a minimum 
requirement, prepare regularly and promptly, and keep systematically and 
in permanent form, the following:
    (1) A financial ledger which will show separately for each leverage 
customer's account all charges against and credits to such leverage 
customer's account, including but not limited to all charges and credits 
for purchases, repurchases, sales, resales, liquidations, rescissions 
and settlements by delivery of leverage contracts (including the 
corresponding transaction identification numbers) and all funds 
transferred, desposited into, or withdrawn from the leverage customer's 
account.
    (2) A record of transactions which will show separately for each 
leverage customer's account in chronological sequence all leverage 
contracts entered into with such customer. This record will show for 
each transaction: The date of the transaction; the commodity involved; a 
transaction identification number; the maturity date; the number of 
contracts; whether the transaction represents an initial purchase, 
initial sale, closing repurchase, closing resale, a liquidating 
transaction, a rescission or a delivery; and, if a closing or 
liquidating transaction or a rescission, the total amount realized.
    (3) A daily record or journal which will show separately by leverage 
commodity complete details of all leverage transactions executed on that 
day, including the person for whom such transaction was made, the 
leverage commodity and contract involved, the number of leverage 
contracts, the transaction identification number for each leverage 
contract, whether the transaction was an initial purchase, repurchase, 
initial sale, resale, liquidating transaction, rescission or delivery, 
and the total value of the transaction.
    (4) The acknowledgement specified inSec. 31.11(a).
    (5) A record of all notifications underSec. 31.11(h).
    (6) Where reproductions on microfilm of the records required by this 
paragraph (c) are substituted for hard copy in accordance with the 
provisions of paragraph (a) of this section, the requirement of 
paragraphs (c)(1) and (c)(2) of this section will be considered met if 
the person required to keep such records is ready at all times to 
provide, and immediately provides at such time and place as required by 
the Commission and at the expense of such person, reproduced copies 
which show the records as specified in paragraphs (c)(1) and (c)(2) of 
this section, on request by any representative of the Commission, 
designated self-regulatory organization or the U.S. Department of 
Justice.
    (d) Each leverage transaction merchant shall prepare, as of the 
close of the last business day of each calendar month, a listing of all 
open leverage contracts carried for leverage customs. Such listing shall 
be by leverage commodity and contract and separately by long leverage 
contracts and short leverage contracts, and shall include the following 
details with respect to each leverage contract:
    (1) The customer account identification number;
    (2) The name of the leverage commodity and contract;
    (3) The date of execution and the maturity date;
    (4) The transaction identification number;

[[Page 568]]

    (5) The value of the leverage contract when initiated; and
    (6) The unrealized profit or loss on each open leverage contract 
marked to the market on the basis of the leverage transaction merchant's 
bid price for a long leverage contract and ask price for a short 
leverage contract.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[50 FR 32, Jan. 2, 1985; 50 FR 2283, Jan. 16, 1985, as amended at 67 FR 
62352, Oct. 7, 2002]



Sec.  31.15  Reporting to leverage customers.

    Each leverage transaction merchant shall furnish in writing directly 
to each leverage customer:
    (a) Promptly upon the repurchase, resale, liquidation, rescission or 
delivery of a leverage contract, a statement showing the financial 
result of the transactions involved, including the gain or loss on the 
leverage contract as well as the commission and other charges;
    (b) As of the close of the last business day of each calendar month 
or as of any regular monthly date selected a statement which clearly 
shows:
    (1) All leverage contracts which were terminated for or by the 
leverage customer during the monthly reporting period by leverage 
commodity and contract, the number of contracts involved, the 
transaction identification number for each leverage contract, whether 
the terminating transaction involved repurchase, resale, liquidation, 
rescission, or delivery, the date the contract was initially entered 
into, the value of the contract when initiated, the date the contract 
was terminated, the value of the contract when terminated, and the 
realized profit or loss on the contract;
    (2) The open leverage contract positions carried for the leverage 
customer by leverage commodity and contract, whether the position is a 
long or short leverage contract, the dates on which such contracts were 
executed and their maturity dates, the number of contracts, the total 
value of the contracts when initiated, and the unrealized profit or loss 
on each such contract marked to the market on the basis of the leverage 
transaction merchant's bid price for a long leverage contract and ask 
price for a short leverage contract.
    (3) The net ledger balance carried in the leverage customer's 
account as of the monthly closing date and a complete accounting of any 
leverage customer funds held for the leverage customer;
    (4) A detailed accounting of all financial charges and credits to 
the previous ledger balance during the monthly reporting period, 
including all leverage customer funds received from or disbursed to the 
leverage customer, and all commissions and fees incidental to the 
contract which have been charged and received, as well as all realized 
profits and losses; and
    (5) Any securities or other property which the leverage customer has 
deposited with the leverage transaction merchant that represent leverage 
customer funds.

The monthly statement must also contain the following bold-faced legend 
in at least ten-point type: IF YOU BELIEVE YOUR MONTHLY STATEMENT IS 
INACCURATE YOU SHOULD PROMPTLY CONTACT (name of LTM) AT (telephone 
number).
    (c) With respect to any leverage account controlled by any person 
other than the leverage customer for whom the account is carried, except 
such leverage customer's spouse, parent or child, a copy of the 
statements required by paragraphs (a) and (b) of this section shall be 
sent to the controller of the account as well as to the leverage 
customer for whom such account is carried.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5539, Feb. 13, 1984, as amended at 50 FR 33, Jan. 2, 1985; 50 FR 
2283, Jan. 16, 1985]



Sec.  31.16  Monthly reporting requirements.

    (a) Monthly activity. Each leverage transaction merchant shall file 
written monthly reports with the National Futures Association in the 
format specified by the National Futures Association, by the tenth 
business day of the month following the month covered by the report and 
shall include the following information separately for each

[[Page 569]]

leverage commodity and each long and short leverage contract:
    (1) The total number of leverage contracts that are open as of the 
close of business on the last business day of the month for:
    (i) All customer accounts, and
    (ii) Separately for commercial leverage accounts.
    (2) The total number of leverage contracts entered into by leverage 
customers during the month for:
    (i) All customer accounts, and
    (ii) Separately for commercial leverage accounts.
    (3) The total number of leverage contracts which were repurchased or 
resold by the leverage transaction merchant during the month.
    (4) The total number of leverage contracts which were liquidated by 
the leverage transaction merchant during the month (i.e., as a result of 
overdue or unanswered margin calls).
    (5) The total number of deliveries on leverage contracts during the 
month.
    (6) The total number of leverage contracts which were rescinded 
during the month.
    (b) Prices. The monthly report shall also show the following 
information separately for each leverage commodity and each long and 
short leverage contract: the leverage transaction merchant's last bid 
price offered and last ask price offered as of the close of business on 
each business day.

[54 FR 41082, Oct. 5, 1989]



Sec.  31.17  Records of leverage transactions.

    (a) Each leverage transaction merchant receiving a leverage 
customer's order shall immediately upon receipt thereof prepare a 
written record of such order, including the account identification and 
order number, and shall record thereon, by time-stamp or other timing 
device, the date and time, to the nearest minute, such order is 
received.
    (b) Each leverage transaction merchant executing the order of a 
leverage customer shall record on a written record of such order, 
including the account identification and order number, by time-stamp or 
other timing device, the date and time, to the nearest minute, such 
order is executed.
    (c) For the purposes of this section, the term ``order'' shall 
include, but not be limited to, any order for the purchase, sale, 
repurchase, resale, rescission, settlement by delivery, or liquidation 
of a leverage contract.
    (d) Each leverage transaction merchant shall establish and maintain 
a record of the bid and ask prices of each leverage contract on each 
leverage commodity that the leverage transaction merchant offers to sell 
or sells, or offers to purchase or purchases. The record shall include 
the times these prices were in effect to the nearest ten seconds.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985]



Sec.  31.18  Margin calls.

    (a) No leverage transaction merchant shall liquidate a leverage 
contract because of a margin deficiency without effecting personal 
contact with the leverage customer. If a leverage transaction merchant 
is unable to effect personal contact with a leverage customer, a 
telegram sent to the leverage customer at the address furnished by the 
customer to the leverage transaction merchant shall be sufficient 
contact.
    (b) A leverage transaction merchant shall allow a leverage customer 
a reasonable time after contact is effected in which to respond to a 
margin call. Twenty-four hours, excluding Saturdays, Sundays, and 
holidays, will be a reasonable time: Provided, however, That in the 
event the leverage customer's leverage account equity falls below 50 
percent of aggregate minimum margin with respect to the leverage 
contracts therein, the leverage transaction merchant may liquidate 
sufficient contracts to restore minimum margin without prior notice: 
Provided, further, That the leverage customer must be notified of such 
liquidation within no more than 24 hours thereafter and must be 
permitted to re-establish his contract for a period of 5 business days 
at the then prevailing bid price in the case of a long leverage contract 
and at the then prevailing ask price in the case of a short leverage

[[Page 570]]

contract, without commissions, fees or other mark-ups or charges. If a 
termination charge was assessed by the leverage transaction merchant 
upon liquidation of a contract in accordance with the first proviso of 
this paragraph, such a charge must be rescinded upon re-establishment of 
the contract in accordance with the second proviso of this paragraph.
    (c) A record of all margin calls, including all contacts with 
leverage customers and attempts to contact leverage customers with 
respect to such calls, shall be kept by the leverage transaction 
merchant in accordance with the provisions ofSec. 31.14.
    (d) Leverage contracts liquidated by a leverage transaction merchant 
because of a margin deficiency must be liquidated in declining order of 
loss, commencing with the leverage contract with the greatest loss.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985; 50 FR 
36416, Sept. 6, 1985]



Sec.  31.19  Unlawful representations.

    It shall be unlawful for any person:
    (a) Required to be registered with the Commission in accordance with 
Sec.Sec. 3.17 and 3.18 of this chapter expressly or impliedly to 
represent that the commission, by registering that person or by 
registering the leverage commodity which underlies contracts offered for 
sale or purchase, or sold or purchased by that person, or otherwise, has 
directly or indirectly approved that person, the person's method of 
operation, or any leverage commodity or leverage contract solicited or 
accepted by that person;
    (b) To represent in writing that it is registered with the 
Commission or that it is offering any leverage commodity registered with 
the Commission without also stating in writing in connection with that 
representation that the Commission, by registering that person or the 
leverage commodity which underlies contracts offered for sale or 
purchase or sold or purchased by that person, has not directly or 
indirectly approved the person, the person's method of operation, or any 
leverage commodity or contract solicited or accepted by that person; or
    (c) In or in connection with an offer to enter into, the entry into, 
the confirmation of the execution of, or the maintenance of any leverage 
contract, expressly or impliedly to represent that compliance with the 
provisions of the Act and these regulations constitutes a guarantee of 
the fulfillment of the leverage contract.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985]



Sec.  31.20  Prohibition of guarantees against loss.

    (a) No leverage transaction merchant shall in any way represent that 
it will, with respect to any leverage contract in any account carried by 
the leverage transaction merchant for or on behalf of any person:
    (1) Guarantee such person against loss;
    (2) Limit the loss of such person; or
    (3) Not call for or attempt to collect initial, minimum or 
maintenance leverage margin established for customers.
    (b) No person shall in any way represent that a leverage transaction 
merchant will engage in any of the acts or practices described in 
paragraphs (a)(1), (a)(2) or (a)(3) of this section.
    (c) This section shall not be construed to prevent a leverage 
transaction merchant from assuming or sharing in the losses resulting 
from an error or mishandling of an order.
    (d) This section shall not affect any guarantee entered into prior 
to the effective date of this section, but this section shall apply to 
any extension, modification or renewal thereof entered into after such 
date.

[49 FR 5540, Feb. 13, 1984]



Sec.  31.21  Leverage contracts entered into prior to April 13, 1984;
subsequent transactions.

    Nothing contained in these regulations shall be construed to affect 
any lawful activities that occurred prior to April 13, 1984. All 
leverage contracts offered or entered into on or after April

[[Page 571]]

13, 1984 shall be subject to the terms and conditions of these 
regulations.

[54 FR 41082, Oct. 5, 1989]



Sec.  31.22  Prohibited trading in leverage contracts.

    No futures commission merchant or introducing broker shall offer to 
enter into, enter into, confirm the execution of, or solicit or accept 
orders for any leverage contract.

[54 FR 41082, Oct. 5, 1989]



Sec.  31.23  Limited right to rescind first leverage contract.

    (a) A leverage customer who is entering a leverage contract or 
contracts for the first time with a particular leverage transaction 
merchant may rescind such contract or contracts during a period of not 
less than three business days from and including the day on which the 
leverage customer receives the Confirmation Statement pursuant to the 
following provisions:
    (1) Such customer may be assessed actual price losses accruing to 
the customer's position from the time at which the customer entered into 
a leverage contract to the time that the leverage contract was 
rescinded. Such losses do not extend to any other charges or fees, such 
as account initiation, carrying, margin or account termination;
    (2) In the case of a leverage customer whose initial leverage 
transaction was a purchase of a leverage contract from a leverage 
transaction merchant (long leverage contract), actual losses accruing to 
the position may be calculated only by subtracting the ask price of the 
leverage contract offered by the leverage transaction merchant at the 
time when the leverage contract was rescinded from the ask price at 
which the leverage contract was purchased by the leverage customer and 
which appears on the Confirmation Statement. In the case of a leverage 
customer whose initial leverage transaction was a sale of a leverage 
contract to a leverage transaction merchant (short leverage contract), 
actual losses are calculated by subtracting the bid price at which the 
leverage contract was sold by the leverage customer and which appears on 
the Confirmation Statement from the bid price of the leverage contract 
offered by the leverage transaction merchant at the time when the 
leverage contract was rescinded.
    (3) Such customer may rescind the contract by telegram sent to the 
leverage transaction merchant at the address provided on the 
confirmation statement, or by telephone to a telephone number provided 
by the leverage transaction merchant on the Confirmation Statement with 
immediate written affirmation of rescission by telegram, certified 
letter or at least equivalent means.
    (b) A leverage transaction merchant must make complete refund of all 
monies received except for actual price losses as calculated in 
paragraph (a)(2) of this section, to the leverage customer who has 
rescinded a contract pursuant to paragraph (a) of this section within 24 
hours of notification of rescission.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985]



Sec.  31.24  [Reserved]



Sec.  31.25  Bid and ask prices; carrying charges.

    (a) A leverage transaction merchant must use the same bid price at 
any particular point in time to purchase a leverage contract from a 
leverage customer (initiation of a short transaction) and to repurchase 
a leverage contract from a leverage customer (close-out of a long 
transaction), and a leverage transaction merchant must use the same ask 
price at any particular point in time to sell a leverage contract to a 
leverage customer (initiation of a long transaction) and to resell a 
leverage contract to a leverage customer (close-out of a short 
transaction), with respect to contracts involving the same leverage 
commodity.
    (b) A leverage transaction merchant must apply a carrying charge 
rate on a short leverage contract that is within one percent per annum 
of the carrying charge rate that it applies to a long leverage contract. 
In the case of a short leverage contract, the leverage customer must be 
credited with carrying

[[Page 572]]

charges computed on the total initial value of the contract, using the 
bid price when the contract was executed, plus any margin deposits made 
by the leverage customer in connection with the contract, and the same 
carrying charge rate must be applied to the total initial value of the 
contract and to the margin deposits. In the case of a long leverage 
contract, the leverage customer must be assessed carrying charges only 
on the unpaid balance of the contract, which is the total initial value 
of the contract, using the ask price when the contract was executed, 
minus any margin deposits made in connection with the contract: 
Provided, however, That in the case of a long leverage contract, 
interest on unpaid carrying charges may be assessed at the same rate as 
the interest rate component of the carrying charges and, if such an 
assessment were made and if the leverage transaction merchant offers 
short leverage contracts, payment of interest on carrying charges that 
have been credited to the leverage customer's account and not withdrawn 
must be made at the same rate as the interest rate component of the 
carrying charges.

[50 FR 36416, Sept. 6, 1985, as amended at 54 FR 41082, Oct. 5, 1989]



Sec.  31.26  Quarterly reporting requirement.

    Each leverage transaction merchant must file, in accordance with the 
instructions of, and in the format specified by, the National Furtures 
Association a quarterly report with the National Futures Association by 
the fifteenth business day of the month following the quarter covered by 
the report. The report must list all leverage contracts which were 
either repurchased, resold, liquidated or settled by delivery by or to 
the leverage transaction merchant during the quarter and, with respect 
to each leverage contract, must include the following information:
    (a) The leverage commodity and contract involved;
    (b) Whether a long or short leverage contract was involved;
    (c) The date the leverage contract was entered into;
    (d) The maturity date of the leverage contract at initiation;
    (e) The price at which the leverage contract was entered into;
    (f) Whether the leverage contract was repurchased, resold, 
liquidated or settled by delivery;
    (g) The date the leverage contract was repurchased, resold, 
liquidated or settled by delivery;
    (h) The price at which the leverage contract was repurchased, resold 
or liquidated;
    (i) The leverage customer account identification number;
    (j) Whether the leverage customer had a commercial or noncommercial 
leverage account;
    (k) Whether the leverage customer was the owner or holder of a 
proprietary leverage account as defined inSec. 31.4(e); and
    (l) The profit or loss incurred by the leverage customer on the 
contract. In the case of a long leverage contract, profit or loss shall 
be determined by subtracting, from the total value of the contract based 
on the leverage transaction merchant's bid price at the time of 
repurchase or liquidation, the total value of the contract based on the 
ask price at which the contract was entered into, minus any amounts paid 
or owed by the leverage customer to the leverage transaction merchant, 
including initial, carrying and termination charges, plus any amounts 
paid or credited by the leverage transaction merchant to the leverage 
customer, in connection with the leverage contract. In the case of a 
short leverage contract, profit or loss shall be determined by 
subtracting, from the total value of the contract based on the bid price 
at which the contract was entered into, the total value of the contract 
based on the leverage transaction merchant's ask price at the time of 
resale or liquidation, minus any amounts paid or owed by the leverage 
customer to the leverage transaction merchant, including initial and 
termination charges, plus any amounts paid or credited by the leverage 
transaction merchant to

[[Page 573]]

the leverage customer, including carrying charges, in connection with 
the leverage contract.

[50 FR 36416, Sept. 6, 1985; 50 FR 37519, Sept. 16, 1985, as amended at 
54 FR 41083, Oct. 5, 1989]



Sec.  31.27  Registered futures association membership.

    Each person registered or required to register as a leverage 
transaction merchant must become and remain a member of at least one 
futures association which is registered under section 17 of the Act and 
which provides for the membership therein of such leverage transaction 
merchant, unless no such futures association is so registered.

[54 FR 41083, Oct. 5, 1989]



Sec.  31.28  Self-regulatory organization adoption and surveillance
of minimum financial, cover, segregation and sales practice 
requirements.

    (a) Each self-regulatory organization must adopt, and submit for 
Commission approval, rules prescribing minimum financial, cover, 
segregation and sales practice, and related reporting requirements for 
all its members who are registered leverage transaction merchants. Each 
self-regulatory organization shall submit for Commission approval any 
modification or other amendments to such rules. Such requirements must 
be the same as, or more stringent than, those contained in this part 31 
and the definition of adjusted net capital must be the same as that 
prescribed inSec. 31.9(b)(4) of this part.
    (b) Each self-regulatory organization which has members who are 
registered leverage transaction merchants shall have in effect and 
enforce rules submitted to the Commission pursuant to paragraph (a) of 
this section and approved by the Commission.
    (c) Any two or more self-regulatory organizations may file with the 
Commission a plan for delegating to a designated self-regulatory 
organization, for any registered leverage transaction merchant which is 
a member of more than one such self-regulatory organization, the 
responsibility of:
    (1) Monitoring and auditing for compliance with the minimum 
financial, cover, segregation and sales practice, and related reporting 
requirements adopted by such self-regulatory organizations in accordance 
with paragraph (a) of this section; and
    (2) Receiving the reports necessitated by such minimum financial, 
cover, segregation and sales practice, and related reporting 
requirements.
    (d) Any plan filed under this section may contain provisions for the 
allocation of expenses reasonably incurred by the designated self-
regulatory organization among the self-regulatory organizations 
participating in such a plan.
    (e) A plan's designated self-regulatory organization must report to 
that plan's other self-regulatory organizations any violation of such 
other self-regulatory organizations' rules and regulations for which the 
responsibility to monitor, audit or examine has been delegated to such 
designated self-regulatory organization under this section.
    (f) The self-regulatory organizations may, among themselves, 
establish programs to provide access to any necessary information.
    (g) After appropriate notice and opportunity for comment, the 
Commission may, by written notice, approve such a plan, or any part of 
the plan, if it finds that the plan, or any part of it:
    (1) Is necessary or appropriate to serve the public interest;
    (2) Is for the protection and in the interest of leverage customers;
    (3) Reduces multiple monitoring and auditing for compliance with the 
minimum financial, cover, segregation and sales practice, and related 
reporting requirements of the self-regulatory organizations submitting 
the plan for any leverage transaction merchant which is a member of more 
than one self-regulatory organization;
    (4) Reduces multiple reporting of the information necessitated by 
such minimum financial, cover, segregation and sales practice, and 
related reporting requirements by any leverage transaction merchant 
which is a member of more than one self-regulatory organization;
    (5) Fosters cooperation and coordination among the self-regulatory 
organizations; and

[[Page 574]]

    (6) Does not hinder the development of a registered futures 
association under section 17 of the Act.
    (h) After the Commission has approved a plan or part of one under 
paragraph (g) of this section, a self-regulatory organization relieved 
of responsibility must notify each of its members which is subject to 
such a plan:
    (1) Of the limited nature of its responsibility for such a member's 
compliance with its minimum financial, cover, segregation and sales 
practice, and related reporting requirements; and
    (2) Of the identity of the designated self-regulatory organization 
which has been delegated responsibility for such a member.
    (i) The Commission may at any time, after appropriate notice and 
opportunity for hearing, withdraw its approval of any plan or part of 
one established under this section, if such plan or part of one ceases 
to effectuate adequately the purposes of section 19 of the Act or of 
this section.
    (j) Whenever a registered leverage transaction merchant holding 
membership in a self-regulatory organization ceases to be a member in 
good standing of that self-regulatory organization, such self-regulatory 
organization must, on the same day that event takes place, give 
telegraphic notice of that event to the principal office of the 
Commission in Washington, DC and send a copy of that notification to 
such leverage transaction merchant.
    (k) Nothing in this section shall preclude the Commission from 
examining any leverage transaction merchant for compliance with the 
minimum financial, cover, segregation and sales practice, and related 
reporting requirements to which such leverage transaction merchant is 
subject.
    (l) In the event a plan is not filed and/or approved for each 
registered leverage transaction merchant which is a member of more than 
one self-regulatory organization, the Commission may design and, after 
notice and opportunity for comment, approve a plan for those leverage 
transaction merchants which are not the subject of an approved plan 
(under paragraph (g) of this section), delegating to a designated self-
regulatory organization the responsibilities described in paragraph (c) 
of this section.

[54 FR 41083, Oct. 5, 1989]



Sec.  31.29  Arbitration or other dispute settlement procedures.

    Each self-regulatory organization which has members who are 
registered as leverage transaction merchants must be able to demonstrate 
its capability to promulgate rules and to conduct proceedings which 
provide a fair, equitable and expeditious procedure, through arbitration 
or otherwise, for the voluntary settlement of a leverage customer's 
claim or grievance brought against any member leverage transaction 
merchant or any employee of a member leverage transaction merchant. Such 
rules shall be consistent with the rules set forth in part 180 of this 
chapter governing contract market arbitration and dispute settlement 
procedures.

[54 FR 41084, Oct. 5, 1989; 54 FR 46503, Nov. 3, 1989]



    Sec. Appendix A to Part 31--Schedule of Fees for Registration of 
                          Leverage Commodities

    (a) Each application for registration of a leverage commodity must 
be accompanied by a check or money order made payable to the Commodity 
Futures Trading Commission in an amount to be determined annually by the 
Commission and published in the Federal Register.
    (b) Checks or money orders should be sent to the attention of the 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. No checks 
or money orders may be accepted by personnel other than those in the 
Office of the Secretariat.
    (c) Failure to submit the fee with an application for registration 
of a leverage commodity will result in the return of the application. 
Fees will not be returned after receipt.
    (d) Any firm with an application for registration of a leverage 
commodity pending on the date that this fee schedule becomes effective 
must submit its application fee within 10 days of that date. Otherwise, 
the

[[Page 575]]

application shall be deemed withdrawn without prejudice and shall be 
returned to the applicant.

(Secs. 5, 5a, 8a(5) and 19 of the Commodity Exchange Act (7 U.S.C. 7, 
7a, 12, 12a(5), and 23), sec. 26 of the Futures Trading Act of 1982 (7 
U.S.C. 16a), Independent Offices Appropriation Act of 1952, as amended 
by Pub. L. 97-258, 96 Stat. 1051 (Sept. 13, 1982))

[49 FR 25835, June 25, 1984, as amended at 52 FR 22635, June 15, 1987; 
60 FR 49335, Sept. 25, 1995]



PART 32_REGULATION OF COMMODITY OPTION TRANSACTIONS--Table of Contents



Sec.
32.1 Scope.
32.2 Commodity option transactions; general authorization.
32.3 Trade options.
32.4 Fraud in connection with commodity option transactions.
32.5 Option transactions entered into prior to the effective date of 
          this part.

Appendix A to 17 CFR Part 32

    Authority: 7 U.S.C. 1a, 2, 6c, and 12a, unless otherwise noted.

    Source: 77 FR 25338, Apr. 27, 2012, unless otherwise noted.



Sec.  32.1  Scope.

    The provisions of this part shall apply to all commodity option 
transactions, except for commodity option transactions on a contract of 
sale of a commodity for future delivery conducted or executed on or 
subject to the rules of either a designated contract market or a foreign 
board of trade.



Sec.  32.2  Commodity option transactions; general authorization.

    Subject to Sec.Sec. 32.1, 32.4, and 32.5, which shall in any event 
apply to all commodity option transactions, it shall be unlawful for any 
person or group of persons to offer to enter into, enter into, confirm 
the execution of, maintain a position in, or otherwise conduct activity 
related to any transaction in interstate commerce that is a commodity 
option transaction, unless:
    (a) Such transaction is conducted in compliance with and subject to 
the provisions of the Act, including any Commission rule, regulation, or 
order thereunder, otherwise applicable to any other swap, or
    (b) Such transaction is conducted pursuant toSec. 32.3.



Sec.  32.3  Trade options.

    (a) Subject to paragraphs (b), (c), and (d) of this section, the 
provisions of the Act, including any Commission rule, regulation, or 
order thereunder, otherwise applicable to any other swap shall not apply 
to, and any person or group of persons may offer to enter into, enter 
into, confirm the execution of, maintain a position in, or otherwise 
conduct activity related to, any transaction in interstate commerce that 
is a commodity option transaction, Provided that:
    (1) Such commodity option transaction must be offered by a person 
that has a reasonable basis to believe that the transaction is offered 
to an offeree as described in paragraph (a)(2) of this section. In 
addition, the offeror must be either:
    (i) An eligible contract participant, as defined in section 1a(18) 
of the Act, as further jointly defined or interpreted by the Commission 
and the Securities and Exchange Commission or expanded by the Commission 
pursuant to section 1a(18)(C) of the Act; or
    (ii) A producer, processor, or commercial user of, or a merchant 
handling the commodity that is the subject of the commodity option 
transaction, or the products or by-products thereof, and such offeror is 
offering or entering into the commodity option transaction solely for 
purposes related to its business as such;
    (2) The offeree must be a producer, processor, or commercial user 
of, or a merchant handling the commodity that is the subject of the 
commodity option transaction, or the products or by-products thereof, 
and such offeree is offered or entering into the commodity option 
transaction solely for purposes related to its business as such; and
    (3) The commodity option must be intended to be physically settled, 
so that, if exercised, the option would result in the sale of an exempt 
or agricultural commodity for immediate or deferred shipment or 
delivery.
    (b) In connection with any commodity option transaction entered into 
pursuant to paragraph (a) of this section, every counterparty shall 
comply

[[Page 576]]

with the swap data recordkeeping requirements of part 45 of this 
chapter, as otherwise applicable to any swap transaction, and shall:
    (1) Comply with the swap data reporting requirements of part 45 of 
this chapter to the extent that the commodity option involves at least 
one counterparty (whether as offeror or offeree) that has--
    (i) Become obligated to comply with the reporting requirements of 
part 45,
    (ii) As a reporting party,
    (iii) During the twelve month period preceding the date on which the 
trade option is entered into,
    (iv) In connection with any non-trade option swap trading activity; 
or
    (2) For any counterparty that enters into one or more commodity 
options pursuant toSec. 32.3(a) in a calendar year that do not involve 
a counterparty described in paragraph (b)(1) of this section, file with 
the Commission by March 1 of the following year an ``Annual Notice 
Filing for Counterparties to Unreported Trade Options'' on Form TO, as 
set forth in appendix A to this part, to be completed and submitted in 
accordance with the instructions thereto and as further directed by the 
Commission.
    (c) In connection with any commodity option transaction entered into 
pursuant to paragraph (a) of this section, the following provisions 
shall apply to every trade option counterparty to the same extent that 
such provisions would apply to such person in connection with any other 
swap:
    (1) Part 20 (Swaps Large Trader Reporting) of this chapter;
    (2) Part 151 (Position Limits) of this chapter;
    (3) Subpart J of part 23 (Duties of Swap Dealers and Major Swap 
Participants) of this chapter;
    (4) Sections 23.200, 23.201, 23.203, and 23.204 of subpart F of part 
23 (Reporting and Recordkeeping Requirements for Swap Dealers and Major 
Swap Participants) of this chapter; and
    (5) Section 4s(e) of the Act (Capital and Margin Requirements for 
Swap Dealers and Major Swap Participants).
    (d) In addition, any person or group of persons offering to enter 
into, entering into, confirming the execution of, maintaining a position 
in, or otherwise conducting activity related to a commodity option 
transaction in interstate commerce pursuant to paragraph (a) of this 
section shall remain subject to part 180 (Prohibition Against 
Manipulation) andSec. 23.410 (Prohibition on Fraud, Manipulation, and 
other Abusive Practices) of this chapter and the antifraud, anti-
manipulation, and enforcement provisions of CEA sections 2, 4b, 4c, 4o, 
4s(h)(1)(A, 4s(h)(4)(A), 6, 6c, 6d, 9, and 13.
    (e) The Commission may, by order, upon written request or upon its 
own motion, exempt any person, either unconditionally or on a temporary 
or other conditional basis, from any provisions of this part, and the 
provisions of the Act, including any Commission rule, regulation, or 
order thereunder, otherwise applicable to any other swap, other than 
Sec.  32.4, part 180 (Prohibition Against Manipulation), andSec. 
23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) 
of this chapter, and the antifraud, anti-manipulation, and enforcement 
provisions of CEA sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 
6c, 6d, 9, 13, if it finds, in its discretion, that it would not be 
contrary to the public interest to grant such exemption.



Sec.  32.4  Fraud in connection with commodity option transactions.

    In or in connection with an offer to enter into, the entry into, or 
the confirmation of the execution of, any commodity option transaction, 
it shall be unlawful for any person directly or indirectly:
    (a) To cheat or defraud or attempt to cheat or defraud any other 
person;
    (b) To make or cause to be made to any other person any false report 
or statement thereof or cause to be entered for any person any false 
record thereof; or
    (c) To deceive or attempt to deceive any other person by any means 
whatsoever.

[[Page 577]]



Sec.  32.5  Option transactions entered into prior to the effective 
date of this part.

    Nothing contained in this part shall be construed to affect any 
lawful activities that occurred prior to the effective date of this 
part.

[[Page 578]]



                    Sec. Appendix A to 17 CFR Part 32
[GRAPHIC] [TIFF OMITTED] TR27AP12.004


[[Page 579]]


[GRAPHIC] [TIFF OMITTED] TR27AP12.005


[[Page 580]]


[GRAPHIC] [TIFF OMITTED] TR27AP12.006


[[Page 581]]


[GRAPHIC] [TIFF OMITTED] TR27AP12.007



PART 33_REGULATION OF COMMODITY OPTION TRANSACTIONS THAT ARE OPTIONS
ON CONTRACTS OF SALE OF A COMMODITY FOR FUTURE DELIVERY--
Table of Contents



Sec.
33.1 Definitions.
33.2 Applicability of Act and rules; scope of part 33.
33.3 Unlawful commodity option transactions.
33.4 Designation as a contract market for the trading of commodity 
          options.
33.5 Application for designation as a contract market for the trading of 
          commodity options.
33.6 Suspension or revocation of designation as a contract market for 
          the trading of commodity options.
33.7 Disclosure.
33.8 Promotional material.
33.9 Unlawful activities.
33.10 Fraud in connection with commodity option transactions.
33.11 Exemptions.

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 
6j, 6k, 6l, 6m, 6n, 6o, 7, 7a, 7b, 8, 9, 11, 12a, 12c, 13a, 13a-1, 13b, 
19, and 21, otherwise noted.

    Source: 46 FR 54529, Nov. 3, 1981, unless otherwise noted.



Sec.  33.1  Definitions.

    As used in this part:
    (a) Purchase price means the total amount paid or to be paid, 
directly or indirectly, by a person to acquire a commodity option.

[[Page 582]]

    (b) Promotional material includes: (1) Any text of a standardized 
oral presentation, or any communication for publication in any 
newspaper, magazine or similar medium, or for broadcast over television, 
radio, or other electronic medium, which is disseminated or directed to 
an option customer or prospective option customer concerning a commodity 
option transaction; (2) any standardized form of report, letter, 
circular, memorandum, or publication which is disseminated or directed 
to an option customer or prospective option customer; and (3) any other 
written material disseminated or directed to an option customer or 
prospective option customer for the purpose of soliciting an option 
transaction, including any disclosure statement required bySec. 33.7.



Sec.  33.2  Applicability of Act and rules; scope of part 33.

    (a) Except as otherwise specified in this part and unless the 
context otherwise requires:
    (1) Each board of trade designated, or applying for designation, by 
the Commission as a contract market for the purpose of trading commodity 
options pursuant to this part shall be deemed for such purpose to be a 
``board of trade,'' ``exchange,'' and a ``contract market'' and, with 
respect to commodity option transactions conducted pursuant to such 
designation, shall comply with and be subject to all of the provisions 
of the Act relating to boards of trade, exchanges, or contract markets 
as though such provisions were set forth herein; and
    (2) The provisions of sections 1a, 2(a)(1), 2(a)(8)(B), 4, 4a, 
4c(a), 4d, 4e, 4f, 4g, 4h, 4i, 4j, 4k, 4m, 4n, 5, 5a(a), 5b, 6, 6a, 6b, 
6c, 7, 8(a)-(e), 8a, 8b, 8c, and 16 of the Act shall apply to commodity 
option transactions that are subject to the requirements of this part as 
though such provisions were set forth herein and included specific 
references to commodity option transactions. Nothing contained in this 
section shall be construed to confer designation as a contract market 
absent issuance of an order of the Commission so designating an 
applicant board of trade.
    (b) The provisions of this part apply to commodity option 
transactions that are options on contracts of sale of a commodity for 
future delivery except for commodity option transactions that are 
options on contracts of sale of a commodity for future delivery 
conducted or executed on or subject to the rules of a foreign board of 
trade.

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

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57016, Dec. 22, 1982; 59 FR 5526, Feb. 7, 1994; 77 FR 25343, Apr. 27, 
2012]



Sec.  33.3  Unlawful commodity option transactions.

    (a) It shall be unlawful for any person to offer to enter into, 
enter into, confirm the execution of, or maintain a position in, any 
commodity option transaction subject to the provisions of this part 
unless the commodity option involved is traded (1) on or subject to the 
rules of a contract market which has been designated to trade commodity 
options pursuant to this part and (2) by or through a member thereof in 
accordance with the provisions of this part.
    (b) It shall be unlawful for:
    (1) Any person to solicit or accept orders from an option customer 
(other than in a clerical capacity) for any commodity option 
transaction, or to supervise any person or persons so engaged, unless 
such person is:
    (i) Registered as a futures commission merchant under the Act, and 
either:
    (A) Is a member of the contract market on which the option is 
traded, or
    (B) Is a member of a futures association registered under section 17 
of the Act which has adopted rules which the Commission has approved 
under section 17(j) of the Act and, in addition to the requirements of 
that section, has determined to provide for the regulation of the 
commodity option related activity of its member futures commission 
merchants in a manner equivalent to that required of contract markets 
under these regulations; or
    (ii) Registered as an introducing broker under the Act, and either:
    (A) Is a member of a futures association registered under section 17 
of the Act which has adopted rules which the

[[Page 583]]

Commission has approved under section 17(j) of the Act, or is a member 
of a contract market which has adopted rules which the Commission has 
approved under section 5a(a)(12) of the Act, and which, in addition to 
the requirements of those sections, has determined to provide for the 
regulation of the commodity option related activity of its member 
introducing brokers in a manner equivalent to that required of contract 
markets with respect to their member futures commission merchants under 
these regulations; or
    (B) Is operating pursuant to a guarantee agreement, and the futures 
commission merchant which has signed such agreement is a member of a 
self-regulatory organization that has adopted rules which the Commission 
has approved that provide for the regulation of the commodity option 
related activity of the introducing broker in a manner equivalent to 
that required of contract markets with respect to their member futures 
commission merchants under these regulations; or
    (iii) An individual registered as an associated person of a 
specified person registered as a futures commission merchant or as an 
introducing broker under the Act who meets the requirements of 
paragraphs (b)(1)(i) or (b)(1)(ii), respectively, of this section, and 
such registration shall not have expired, been suspended (and the period 
of suspension has not expired) or been revoked.
    (2) Any person registered or required to be registered as a futures 
commission merchant or as an introducing broker under the Act to permit 
another person to become or remain associated with such person as a 
partner, officer, employee, agent or representative (or in any status or 
position involving similar functions) in any capacity involving the 
solicitation or acceptance of an order from an option customer (other 
than in a clerical capacity) for any commodity option transaction, or 
the supervision of any person or persons so engaged, if such person 
knows or should have known that such other person is or was not 
registered as required by this part or that such registration has 
expired, been suspended (and the period of suspension has not expired) 
or been revoked.

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

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57016, Dec. 22, 1982; 48 FR 35301, Aug. 3, 1983; 59 FR 5526, Feb. 7, 
1994]



Sec.  33.4  Designation as a contract market for the trading of
commodity options.

    The Commission may designate any board of trade located in the 
United States as a contract market for the trading of options on 
contracts of sale for future delivery when the applicant complies with 
and carries out the requirements of the Act (as provided inSec. 33.2), 
the regulations in this part, and the following conditions and 
requirements with respect to the commodity option for which the 
designation is sought:
    (a) Such board of trade--
    (1) Applies for designation as a contract market for the purpose of 
trading ``put'' and/or ``call'' options which:
    (i) Are not capable of being transferred, assigned or otherwise 
disposed of other than on or subject to the rules of the board of trade; 
and
    (ii) With respect to options on futures contracts, may be exercised 
only by the establishment, by book entry, in the clearing organization 
of positions in the underlying futures contract.
    (2) [Reserved]
    (3) If designation for the trading of options on futures contracts 
is sought, is designated as a contract market for the underlying 
contract of sale for future delivery which is the subject of the option 
for which designation is sought, and submits, if so requested by the 
Commission, the information called for bySec. 1.50 of this chapter 
(relating to continued compliance with the conditions and requirements 
for designation as a contract market) for the specified futures contract 
underlying the option for which the designation is sought, and the 
applicant complies with the conditions and requirements for designation 
as a contract market for such contract for future delivery as set forth 
in sections 5 and 5a(a) of the Act and as set forth in these 
regulations.

[[Page 584]]

    (4) [Reserved]
    (5) Demonstrates that:
    (i) The commodity option for which it is requesting designation is 
likely to serve a legitimate economic purpose;
    (ii)-(iv) [Reserved]
    (b) Such board of trade adopts rules which:
    (1) Prescribe in regard to strike prices:
    (i) The dollar amount of the intervals between strike prices;
    (ii) The strike prices at which trading in a new option expiration 
will be introduced;
    (iii) The point, in terms of the price of the underlying futures 
contract, at which a new strike price will be introduced in any option 
which is already trading;
    (iv) [Reserved]
    (2) Prescribe an expiration date of the option that is not less than 
one business day before the earlier of the last trading day or the first 
notice day of any futures contract on the same or a related commodity; 
Provided, however, That where the underlying futures contract is cash-
settled, the option may expire simultaneously with the expiration of the 
futures contract.
    (3) Require that upon exercise of each option, notification thereof 
be given to the option grantor.
    (4) Require, with respect to all written option customer complaints, 
that each member futures commission merchant which engages in the offer 
or sale of commodity options regulated under this part:
    (i) Retain all such complaints;
    (ii) Make and retain a record of the date the complaint was 
received, the associated person who serviced, or the introducing broker 
who introduced, the account, a general description of the matter 
complained of, and what, if any, action was taken by the futures 
commission merchant in regard to the complaint; and
    (5) Require each member futures commission merchant which engages in 
the offer or sale of option contracts regulated under this part to adopt 
and enforce written procedures pursuant to which it will be able to 
supervise adequately each option customer's account, including but not 
limited to, the solicitation of any such account: Provided, That as used 
in this paragraph (b)(5), the term ``option customer'' does not include 
another futures commission merchant.
    (6) [Reserved]
    (7) Require each member futures commission merchant which engages in 
the offer or sale of option contracts regulated under this part to 
enforce the disclosure requirements set forth inSec. 33.7.
    (8)-(9) [Reserved]
    (10) Prohibit fraudulent or high-pressure sales communications by 
member futures commission merchants relating to the offer or sale of 
option contracts regulated under this part.
    (11) Establish appropriate criteria which are reasonably designed to 
secure performance, upon exercise, of the option contracts.
    (c) Such board of trade establishes procedures and conducts sales 
practice audits of member futures commission merchants which engage in 
the offer or sale of option contracts regulated under this part. These 
sales practice audits must be of sufficient scope to enforce the 
contract market's rules, including imvestigation for the improper 
handling of discretionary accounts, inadequate internal supervision, 
fraudulent or high-pressure sales communications, compliance with 
disclosure requirements, improper handling and disposition of option 
customer complaints, and, where applicable, the futures commission 
merchant's offer or sale of deep-out-of-the-money options.
    (d) A board of trade must submit an analysis and justification of 
the individual terms and conditions of the option contract. In 
determining whether to approve option contract terms and conditions, the 
Commission may consider the analysis and justification submitted for 
such terms and conditions, including, without limitation:
    (1) [Reserved]
    (2) The conditions precedent to the exercise of the commodity option 
and the method by which the option may be exercised;
    (3) The nature of the clearing mechanism to be utilized for the 
commodity option, and the differences, if any, among the clearing 
mechanisms for options on futures contracts and futures contracts;

[[Page 585]]

    (4) Specific notice periods, including the periods from the date 
notice of intent to exercise an option is given until exercise is 
accomplished;
    (5) The default provisions and procedures of the commodity option, 
if any; and
    (6) Permitted deviations from or substitutes for compliance with the 
terms and conditions set forth in paragraphs (d) (1) through (5) of this 
section.
    (e) Such board of trade provides for the general quotation and 
dissemination of volume and last sale price information on a timely 
basis with respect to the commodity option for which designation is 
sought and with respect to the underlying futures contract.
    (f) Such board of trade demonstrates that clearance and processing 
of option transactions on or subject to the rules of the board of trade 
will not adversely affect the clearance and processing of any 
transactions for future delivery on or subject to the rules of the board 
of trade.

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

(Secs. 2(a)(1)(A), 4c(b), 4c(c), and 8a of the Commodity Exchange Act, 7 
U.S.C. 2, 6c(b), 6c(c) and 12a; secs. 2(a)(1)(A), 4c, 4d, 4f, and 8a(5) 
(7 U.S.C. 2(a)(1)(A), 6c, 6d, 6f and 12a(5) (1982)))

[46 FR 54529, Nov. 3, 1981]

    Editorial Note: For Federal Register citations affectingSec. 33.4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec.  33.5  Application for designation as a contract market for the 
trading of commodity options.

    (a) Any board of trade desiring to be designated as a contract 
market for a particular commodity option contract shall make application 
to the Commission and accompany the same with a written showing that it 
meets the conditions set forth in, and provides all the information and 
materials required by, these regulations.
    (b) Subject to the provisions of the Act and these regulations, in 
the event of a refusal to designate any board of trade as a contract 
market for a particular commodity option, such board of trade shall be 
afforded notice and an opportunity for a hearing on the record: 
Provided, That pending the conclusion of any such hearing, such 
designation shall not be granted.

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

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 52 
FR 779, Jan. 9, 1987]



Sec.  33.6  Suspension or revocation of designation as a contract
market for the trading of commodity options.

    The Commission may, after notice and opportunity for a hearing on 
the record, suspend or revoke the designation of any board of trade as a 
contract market in a commodity option for which it is designated if the 
Commission determines that:
    (a) The board of trade, or any director, officer, agent, or employee 
thereof, is violating or has violated any of the provisions of this 
part.
    (b) Cause exists which, underSec. 33.2 orSec. 33.4, would 
warrant the denial of a designation;
    (c) The option market is not used on more than an occasional basis 
for other than speculative purposes by producers, processors, merchants 
or commercial users engaged in handling or utilizing the commodity 
(including the products, by-products or source commodity thereof) 
underlying an option, in interstate commerce; or
    (d) Option trading on the contract market in that contract is 
contrary to the protection of option customers or the underlying futures 
or cash markets, or is otherwise contrary to the public interest: 
Provided, That pending completion of any proceeding under this section, 
the Commission may suspend such designation for the duration of the 
proceedings, if in the Commission's judgment, the continuation of such 
trading presents a substantial risk to the public interest.

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

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57018, Dec. 22, 1982]



Sec.  33.7  Disclosure.

    (a)(1) Except as provided inSec. 1.65 of this chapter, no futures 
commission merchant, or in the case of an introduced account no 
introducing broker,

[[Page 586]]

may open or cause the opening of a commodity option account for an 
option customer, other than for a customer specified inSec. 1.55(f) of 
this chapter, unless the futures commission merchant or introducing 
broker first:
    (i) Furnishes the option customer with a separate written disclosure 
statement as set forth in this section or another statement approved 
underSec. 1.55(c) of this chapter and set forth in appendix A toSec. 
1.55 which the Commission finds satisfies this requirement, or includes 
either such statement in a booklet containing the customer account 
agreement and other disclosure statements required by Commission rules; 
provided, however, that if the statement contained inSec. 33.7 is used 
it must follow the statement required bySec. 1.55; and
    (ii) Subject to the provisions ofSec. 1.55(d) of this chapter, 
receives from the option customer an acknowledgment signed and dated by 
the option customer that he received and understood the disclosure 
statement.
    (2) The disclosure statement and the acknowledgment shall be 
retained by the futures commission merchant or the introducing broker in 
accordance withSec. 1.31 of this chapter. The disclosure statement 
must be as set forth in paragraph (b) of this section, typed or printed 
in type of not less than 10-point size, and, where indicated, in all 
capital letters.
    (b) The disclosure statement must read as follows:

                      Options Disclosure Statement

    BECAUSE OF THE VOLATILE NATURE OF THE COMMODITIES MARKETS, THE 
PURCHASE AND GRANTING OF COMMODITY OPTIONS INVOLVE A HIGH DEGREE OF 
RISK. COMMODITY OPTION TRANSACTIONS ARE NOT SUITABLE FOR MANY MEMBERS OF 
THE PUBLIC. SUCH TRANSACTIONS SHOULD BE ENTERED INTO ONLY BY PERSONS WHO 
HAVE READ AND UNDERSTOOD THIS DISCLOSURE STATEMENT AND WHO UNDERSTAND 
THE NATURE AND EXTENT OF THEIR RIGHTS AND OBLIGATIONS AND OF THE RISKS 
INVOLVED IN THE OPTION TRANSACTIONS COVERED BY THIS DISCLOSURE 
STATEMENT.
    BOTH THE PURCHASER AND THE GRANTOR SHOULD KNOW THAT THE OPTION IF 
EXERCISED, RESULTS IN THE ESTABLISHMENT OF A FUTURES CONTRACT (AN 
``OPTION ON A FUTURES CONTRACT'').
    BOTH THE PURCHASER AND THE GRANTOR SHOULD KNOW WHETHER THE 
PARTICULAR OPTION IN WHICH THEY CONTEMPLATE TRADING IS SUBJECT TO A 
``STOCK-STYLE'' OR ``FUTURES-STYLE'' SYSTEM OF MARGINING. UNDER A STOCK-
STYLE MARGINING SYSTEM, A PURCHASER IS REQUIRED TO PAY THE FULL PURCHASE 
PRICE OF THE OPTION AT THE INITIATION OF THE TRANSACTION. THE PURCHASER 
HAS NO FURTHER OBLIGATION ON THE OPTION POSITION. UNDER A FUTURES-STYLE 
MARGINING SYSTEM, THE PURCHASER DEPOSITS INITIAL MARGIN AND MAY BE 
REQUIRED TO DEPOSIT ADDITIONAL MARGIN IF THE MARKET MOVES AGAINST THE 
OPTION POSITION. THE PURCHASER'S TOTAL SETTLEMENT VARIATION MARGIN 
OBLIGATION OVER THE LIFE OF THE OPTION, HOWEVER, WILL NOT EXCEED THE 
ORIGINAL OPTION PREMIUM, ALTHOUGH SOME INDIVIDUAL PAYMENT OBLIGATIONS 
AND/OR RISK MARGIN REQUIREMENTS MAY AT TIMES EXCEED THE ORIGINAL OPTION 
PREMIUM. IF THE PURCHASER OR GRANTOR DOES NOT UNDERSTAND HOW OPTIONS ARE 
MARGINED UNDER A STOCK-STYLE OR FUTURES-STYLE MARGINING SYSTEM, HE OR 
SHE SHOULD REQUEST AN EXPLANATION FROM THE FUTURES COMMISSION MERCHANT 
(``FCM'') OR INTRODUCING BROKER (``IB'').
    A PERSON SHOULD NOT PURCHASE ANY COMMODITY OPTION UNLESS HE OR SHE 
IS ABLE TO SUSTAIN A TOTAL LOSS OF THE PREMIUM AND TRANSACTION COSTS OF 
PURCHASING THE OPTION. A PERSON SHOULD NOT GRANT ANY COMMODITY OPTION 
UNLESS HE OR SHE IS ABLE TO MEET ADDITIONAL CALLS FOR MARGIN WHEN THE 
MARKET MOVES AGAINST HIS OR HER POSITION AND, IN SUCH CIRCUMSTANCES, TO 
SUSTAIN A VERY LARGE FINANCIAL LOSS.
    A PERSON WHO PURCHASES AN OPTION SUBJECT TO STOCK-STYLE MARGINING 
SHOULD BE AWARE THAT, IN ORDER TO REALIZE ANY VALUE FROM THE OPTION, IT 
WILL BE NECESSARY EITHER TO OFFSET THE OPTION POSITION OR TO EXERCISE 
THE OPTION. OPTIONS SUBJECT TO FUTURES-STYLE MARGINING ARE MARKED TO 
MARKET, AND GAINS AND LOSSES ARE PAID AND COLLECTED DAILY. IF AN OPTION 
PURCHASER DOES NOT UNDERSTAND HOW TO OFFSET OR EXERCISE AN OPTION, THE 
PURCHASER SHOULD REQUEST AN EXPLANATION FROM THE FCM OR IB. CUSTOMERS 
SHOULD BE AWARE THAT IN A NUMBER OF CIRCUMSTANCES, SOME OF WHICH

[[Page 587]]

WILL BE DESCRIBED IN THIS DISCLOSURE STATEMENT, IT MAY BE DIFFICULT OR 
IMPOSSIBLE TO OFFSET AN EXISTING OPTION POSITION ON AN EXCHANGE.
    THE GRANTOR OF AN OPTION SHOULD BE AWARE THAT, IN MOST CASES, A 
COMMODITY OPTION MAY BE EXERCISED AT ANY TIME FROM THE TIME IT IS 
GRANTED UNTIL IT EXPIRES. THE PURCHASER OF AN OPTION SHOULD BE AWARE 
THAT SOME OPTION CONTRACTS MAY PROVIDE ONLY A LIMITED PERIOD OF TIME FOR 
EXERCISE OF THE OPTION.
    THE PURCHASER OF A PUT OR CALL SUBJECT TO STOCK-STYLE OR FUTURES-
STYLE MARGINING IS SUBJECT TO THE RISK OF LOSING THE ENTIRE PURCHASE 
PRICE OF THE OPTION--THAT IS, THE PREMIUM CHARGED FOR THE OPTION PLUS 
ALL TRANSACTION COSTS.
    THE COMMODITY FUTURES TRADING COMMISSION REQUIRES THAT ALL CUSTOMERS 
RECEIVE AND ACKNOWLEDGE RECEIPT OF A COPY OF THIS DISCLOSURE STATEMENT 
BUT DOES NOT INTEND THIS STATEMENT AS A RECOMMENDATION OR ENDORSEMENT OF 
EXCHANGE-TRADED COMMODITY OPTIONS.

    (1) Some of the risks of option trading.
    Specific market movements of the underlying future cannot be 
predicted accurately.
    The grantor of a call option who does not have a long position in 
the underlying futures contract is subject to risk of loss should the 
price of the underlying futures contract be higher than the strike price 
upon exercise or expiration of the option by an amount greater than the 
premium received for granting the call option.
    The grantor of a call option who has a long position in the 
underlying futures contract is subject to the full risk of a decline in 
price of the underlying position reduced by the premium received for 
granting the call. In exchange for the premium received for granting a 
call option, the option grantor gives up all of the potential gain 
resulting from an increase in the price of the underlying futures 
contract above the option strike price upon exercise or expiration of 
the option.
    The grantor of a put option who does not have a short position in 
the underlying futures contract is subject to risk of loss should the 
price of the underlying futures contract decrease below the strike price 
upon exercise or expiration of the option by an amount in excess of the 
premium received for granting the put option.
    The grantor of a put option on a futures contract who has a short 
position in the underlying futures contract is subject to the full risk 
of a rise in the price in the underlying position reduced by the premium 
received for granting the put. In exchange for the premium received for 
granting a put option on a futures contract, the option grantor gives up 
all of the potential gain resulting from a decrease in the price of the 
underlying futures contract below the option strike price upon exercise 
or expiration of the option.
    (2) Description of commodity options. Prior to entering into any 
transaction involving a commodity option, an individual should 
thoroughly understand the nature and type of option involved and the 
underlying futures contract. The futures commission merchant or 
introducing broker is required to provide, and the individual 
contemplating an option transaction should obtain:
    (i) An identification of the futures contract underlying the option 
and which may be purchased or sold upon exercise of the option or, if 
applicable, whether exercise of the option will be settled in cash;
    (ii) The procedure for exercise of the option contract, including 
the expiration date and latest time on that date for exercise. (The 
latest time on an expiration date when an option may be exercised may 
vary; therefore, option market participants should ascertain from their 
futures commission merchant or their introducing broker the latest time 
the firm accepts exercise instructions with respect to a particular 
option.);
    (iii) A description of the purchase price of the option including 
the premium, commissions, costs, fees and other charges. (Since 
commissions and other charges may vary widely among futures commission 
merchants and among introducing brokers, option customers may find it 
advisable to consult more than one firm when opening an option 
account.);

[[Page 588]]

    (iv) A description of all costs in addition to the purchase price 
which may be incurred if the commodity option is exercised, including 
the amount of commissions (whether termed sales commissions or 
otherwise), storage, interest, and all similar fees and charges which 
may be incurred;
    (v) An explanation and understanding of the option margining system;
    (vi) A clear explanation and understanding of any clauses in the 
option contract and of any items included in the option contract 
explicitly or by reference which might affect the customer's obligations 
under the contract. This would include any policy of the futures 
commission merchant or the introducing broker or rule of the exchange on 
which the option is traded that might affect the customer's ability to 
fulfill the option contract or to offset the option position in a 
closing purchase or closing sale transaction (for example, due to 
unforeseen circumstances that require suspension or termination of 
trading); and
    (vii) If applicable, a description of the effect upon the value of 
the option position that could result from limit moves in the underlying 
futures contract.
    (3) The mechanics of option trading. Before entering into any 
exchange-traded option transaction, an individual should obtain a 
description of how commodity options are traded.
    Option customers should clearly understand that there is no 
guarantee that option positions may be offset by either a closing 
purchase or closing sale transaction on an exchange. In this 
circumstance, option grantors could be subject to the full risk of their 
positions until the option position expires, and the purchaser of a 
profitable option might have to exercise the option to realize a profit.
    For an option on a futures contract, an individual should clearly 
understand the relationship between exchange rules governing option 
transactions and exchange rules governing the underlying futures 
contract. For example, an individual should understand what action, if 
any, the exchange will take in the option market if trading in the 
underlying futures market is restricted or the futures prices have made 
a ``limit move.''
    The individual should understand that the option may not be subject 
to daily price fluctuation limits while the underlying futures may have 
such limits, and, as a result, normal pricing relationships between 
options and the underlying future may not exist when the future is 
trading at its price limit. Also, underlying futures positions resulting 
from exercise of options may not be capable of being offset if the 
underlying future is at a price limit.
    (4) Margin requirements. An individual should know and understand 
whether the option he or she is contemplating trading is subject to a 
stock-style or futures-style system of margining. Stock-style margining 
requires the purchaser to pay the full option premium at the time of 
purchase. The purchaser has no further financial obligations, and the 
risk of loss is limited to the purchase price and transaction costs. 
Futures-style margining requires the purchaser to pay initial margin 
only at the time of purchase. The option position is marked to market, 
and gains and losses are collected and paid daily. The purchaser's risk 
of loss is limited to the initial option premium and transaction costs.
    An individual granting options under either a stock-style or 
futures-style system of margining should understand that he or she may 
be required to pay additional margin in the case of adverse market 
movements.
    (5) Profit potential of an option position. An option customer 
should carefully calculate the price which the underlying futures 
contract would have to reach for the option position to become 
profitable. Under a stock-style margining system, this price would 
include the amount by which the underlying futures contract would have 
to rise above or fall below the strike price to cover the sum of the 
premium and all other costs incurred in entering into and exercising or 
closing (offsetting) the commodity option position. Under a future-style 
margining system, option positions would be marked to market, and gains 
and losses would be paid and collected daily, and an option position 
would become profitable once

[[Page 589]]

the variation margin collected exceeded the cost of entering the 
contract position.
    Also, an option customer should be aware of the risk that the 
futures price prevailing at the opening of the next trading day may be 
substantially different from the futures price which prevailed when the 
option was exercised.
    (6) Deep-out-of-the-money options. A person contemplating purchasing 
a deep-out-of-the-money option (that is, an option with a strike price 
significantly above, in the case of a call, or significantly below, in 
the case of a put, the current price of the underlying futures contract) 
should be aware that the chance of such an option becoming profitable is 
ordinarily remote.
    On the other hand, a potential grantor of a deep-out-of-the-money 
option should be aware that such options normally provide small premiums 
while exposing the grantor to all of the potential losses described in 
section (1) of this disclosure statement.
    (7) Glossary of terms--(i) Contract market. Any board of trade 
(exchange) located in the United States which has been designated by the 
Commodity Futures Trading Commission to list a futures contract or 
commodity option for trading.
    (ii) Exchange-traded option; put option; call option. The options 
discussed in this disclosure statement are limited to those which may be 
traded on a contract market. These options (subject to certain 
exceptions) give an option purchaser the right to buy in the case of a 
call option, or to sell in the case of a put option, a futures contract 
underlying the option at the stated strike price prior to the expiration 
date of the option. Each exchange-traded option is distinguished by the 
underlying futures contract, strike price, expiration date, and whether 
the option is a put or a call.
    (iii) Underlying futures contract. The futures contract which may be 
purchased or sold upon the exercise of an option on a futures contract.
    (iv) [Reserved]
    (v) Class of options. A put or a call covering the same underlying 
futures contract.
    (vi) Series of options. Options of the same class having the same 
strike price and expiration date.
    (vii) Exercise price. See strike price.
    (viii) Expiration date. The last day when an option may be 
exercised.
    (ix) Premium. The amount agreed upon between the purchaser and 
seller for the purchase or sale of a commodity option.
    (x) Strike price. The price at which a person may purchase or sell 
the underlying futures contract upon exercise of a commodity option. 
This term has the same meaning as the term ``exercise price.''
    (xi) Short option position. See opening sale transaction.
    (xii) Long option position. See opening purchase transaction.
    (xiii) Types of options transactions--(A) Opening purchase 
transaction. A transaction in which an individual purchases an option 
and thereby obtains a long option position.
    (B) Opening sale transaction. A transaction in which an individual 
grants an option and thereby obtains a short option position.
    (C) Closing purchase transaction. A transaction in which an 
individual with a short option position liquidates the position. This is 
accomplished by a closing purchase transaction for an option of the same 
series as the option previously granted. Such a transaction may be 
referred to as an offset transaction.
    (D) Closing sale transaction. A transaction in which an individual 
with a long option position liquidates the position. This is 
accomplished by a closing sale transaction for an option of the same 
series as the option previously purchased. Such a transaction may be 
referred to as an offset transaction.
    (xiv) Purchase price. The total actual cost paid or to be paid, 
directly or indirectly, by a person to acquire a commodity option. This 
price includes all commissions and other fees, in addition to the option 
premium.
    (xv) Grantor, writer, seller. An individual who sells an option. 
Such a person is said to have a short position.
    (xvi) Purchaser. An individual who buys an option. Such a person is 
said to have a long position.


[[Page 590]]


    (c) Prior to the entry of the first commodity option transaction for 
the account of an option customer, a futures commission merchant or an 
introducing broker, or the person soliciting or accepting the order 
therefor, must provide an option customer with all of the information 
required under the disclosure statement, including the commissions, 
costs, fees and other charges to be incurred in connection with the 
commodity option transaction and all costs to be incurred by the option 
customer if the commodity option is exercised: Provided, That the 
futures commission merchant or the introducing broker, or the person 
soliciting or accepting the order therefor, must provide current 
information to an option customer if information provided previously has 
become inaccurate.
    (d) Prior to the entry into a commodity option transaction on or 
subject to the rules of a contract market, each option customer or 
prospective option customer shall, to the extent the following amounts 
are known or can reasonably be approximated, be informed by the person 
soliciting or accepting the order therefor of the amount of the strike 
price and the premium (and any mark-ups thereon, if applicable).
    (e) A futures commission merchant and an introducing broker must 
establish the necessary procedures and supervision to ensure compliance 
with the requirements of this section.
    (f) This section does not relieve a futures commission merchant or 
an introducing broker from any obligation under the Act or the 
regulations thereunder, including the obligation to disclose all 
material information to existing or prospective option customers even if 
the information is not specifically required by this section.
    (g) For purposes of this section, neither a futures commission 
merchant nor an introducing broker shall be deemed to be an option 
customer.

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

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 48 
FR 35302, Aug. 3, 1983; 49 FR 44893, Nov. 13, 1984; 51 FR 17475, May 13, 
1986; 58 FR 17505, Apr. 5, 1993; 59 FR 34381, July 5, 1994; 63 FR 8571, 
Feb. 20, 1998; 63 FR 32732, June 16, 1998; 77 FR 25343, Apr. 27, 2012]



Sec.  33.8  Promotional material.

    Each futures commission merchant and each introducing broker shall 
retain, in accordance withSec. 1.31 of this chapter, all promotional 
material it provides, directly or indirectly, to option customers as 
well as the true source of authority for the information contained 
therein.

[48 FR 35303, Aug. 3, 1983]



Sec.  33.9  Unlawful activities.

    It shall be unlawful for any person:
    (a) Required to be registered with the Commission in accordance with 
the Act or these regulations expressly or impliedly to represent that 
the Commission, by declaring effective the registration of such person 
or otherwise, has directly or indirectly approved such person, or any 
commodity option transaction solicited or accepted by such person;
    (b) In or in connection with an offer to enter into, the entry into, 
the confirmation of the execution of, or the maintenance of any 
commodity option transaction, expressly or impliedly to represent that 
compliance with the provisions of the Act or these regulations 
constitutes a guarantee of the fulfillment of the commodity option 
transaction;
    (c) Upon acceptance of an order for a commodity option transaction, 
to fail unreasonably to secure prompt execution of such order or upon 
rejection of an order to fail to notify the person whose order has been 
rejected of such rejection;
    (d) To manipulate or attempt to manipulate the market price of any 
commodity option on or subject to the rules of any contract market: 
Provided,

[[Page 591]]

however, That for purposes of this paragraph (d), any action taken by a 
contract market pursuant to a rule approved by the Commission or any 
emergency action which a contract market is permitted to take pursuant 
to the Act or these regulations shall not be deemed to be a 
manipulation; and
    (e) Upon acceptance of an order for a commodity option transaction 
to bucket such order.

[46 FR 54529, Nov. 3, 1981; 46 FR 55925, Nov. 13, 1981]



Sec.  33.10  Fraud in connection with commodity option transactions.

    It shall be unlawful for any person directly or indirectly:
    (a) To cheat or defraud or attempt to cheat or defraud any other 
person;
    (b) To make or cause to be made to any other person any false report 
or statement thereof or cause to be entered for any person any false 
record thereof;
    (c) To deceive or attempt to deceive any other person by any means 
whatsoever

in or in connection with an offer to enter into, the entry into, the 
confirmation of the execution of, or the maintenance of, any commodity 
option transaction.



Sec.  33.11  Exemptions.

    The Commission may, by order, upon written request or upon its own 
motion, exempt any person, either unconditionally or on a temporary or 
other conditional basis, from any provisions of this part, other than 
Sec.Sec. 33.9 and 33.10, if it finds, in its discretion, that it would 
not be contrary to the public interest to grant such exemption.

[52 FR 29508, Aug. 10, 1987]



PART 34_REGULATION OF HYBRID INSTRUMENTS--Table of Contents



Sec.
34.1 Scope.
34.2 Definitions.
34.3 Hybrid instrument exemption.

    Authority: 7 U.S.C. 2, 6, 6c and 12a.

    Source: 58 FR 5586, Jan. 22, 1993, unless otherwise noted.



Sec.  34.1  Scope.

    The provisions of this part shall apply to any hybrid instrument 
which may be subject to the Act, and which has been entered into on or 
after October 23, 1974.



Sec.  34.2  Definitions.

    (a) Hybrid instruments. Hybrid instrument means an equity or debt 
security or depository instrument as defined inSec. 34.3(a)(1) with 
one or more commodity-dependent components that have payment features 
similar to commodity futures or commodity option contracts or 
combinations thereof.
    (b) Commodity-independent component. Commodity-independent component 
means the component of a hybrid instrument, the payments of which do not 
result from indexing to, or calculation by reference to, the price of a 
commodity.
    (c) Commodity-independent value. Commodity-independent value means 
the present value of the payments attributable to the commodity-
independent component calculated as of the time of issuance of the 
hybrid instrument.
    (d) Commodity-dependent component. A commodity-dependent component 
means a component of a hybrid instrument, the payment of which results 
from indexing to, or calculation by reference to, the price of a 
commodity.
    (e) Commodity-dependent value. For purposes of application of Rule 
34.3(a)(2), a commodity-dependent value means the value of a commodity 
dependent-component, which when decomposed into an option payout or 
payouts, is measured by the absolute net value of the put option premia 
with strike prices less than or equal to the reference price plus the 
absolute net value of the call option premia with strike prices greater 
than or equal to the reference price, calculated as of the time of 
issuance of the hybrid instrument.
    (f) Option premium. Option premium means the value of an option on 
the referenced commodity of the hybrid instrument, and calculated using 
the same method as that used to determine the issue price of the 
instrument, or where such premia are not explicitly calculated in 
determining the issue

[[Page 592]]

price of the instrument, the value of such options calculated using a 
commercially reasonable method appropriate to the instrument being 
priced.
    (g) Reference price. A reference price means a price nearest the 
current spot or forward price, whichever is used to price instrument, at 
which a commodity-dependent payment becomes non-zero, or, in the case 
where two potential reference prices exist, the price that results in 
the greatest commodity-dependent value.



Sec.  34.3  Hybrid instrument exemption.

    (a) A hybrid instrument is exempt from all provisions of the Act and 
any person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to such exempt hybrid 
instrument is exempt for such activity from all provisions of the Act 
(except in each case section 2(a)(1)(B)), provided the following terms 
and conditions are met:
    (1) The instrument is:
    (i) An equity or debt security within the meaning of section 2(1) of 
the Securities Act of 1933; or
    (ii) A demand deposit, time deposit or transaction account within 
the meaning of 12 CFR 204.2 (b)(1), (c)(1) and (e), respectively, 
offered by an insured depository institution as defined in section 3 of 
the Federal Deposit Insurance Act; an insured credit union as defined in 
section 101 of the Federal Credit Union Act; or a Federal or State 
branch or agency of a foreign bank as defined in section 1 of the 
International Banking Act;
    (2) The sum of the commodity-dependent values of the commodity-
dependent components is less than the commodity-independent value of the 
commodity-independent component;
    (3) Provided that:
    (i) An issuer must receive full payment of the hybrid instrument's 
purchase price, and a purchaser or holder of a hybrid instrument may not 
be required to make additional out-of-pocket payments to the issuer 
during the life of the instrument or at maturity; and
    (ii) The instrument is not marketed as a futures contract or a 
commodity option, or, except to the extent necessary to describe the 
functioning of the instrument or to comply with applicable disclosure 
requirements, as having the characteristics of a futures contract or a 
commodity option; and
    (iii) The instrument does not provide for settlement in the form of 
a delivery instrument that is specified as such in the rules of a 
designed contract market;
    (4) The instrument is initially issued or sold subject to applicable 
federal or state securities or banking laws to persons permitted 
thereunder to purchase or enter into the hybrid instrument.



PART 35_SWAPS IN AN AGRICULTURAL COMMODITY (AGRICULTURAL SWAPS)--
Table of Contents



    Authority: 7 U.S.C. 2, 6(c), and 6c(b); and title VII, sec. 
723(c)(3), Pub. L. 111-203, 124 Stat. 1376, unless otherwise noted.

    Source: 76 FR 49299, Aug. 10, 2011, unless otherwise noted.



Sec.  35.1  Agricultural swaps, generally.

    (a) Any person or group of persons may offer to enter into, enter 
into, confirm the execution of, maintain a position in, or otherwise 
conduct activity related to, any transaction in interstate commerce that 
is a swap in an agricultural commodity subject to all provisions of the 
Act, including any Commission rule, regulation, or order thereunder, 
otherwise applicable to any other swap; and
    (b) In addition to paragraph (a) of this section, any transaction in 
interstate commerce that is a swap in an agricultural commodity may be 
transacted on a swap execution facility, designated contract market, or 
otherwise in accordance with all provisions of the Act, including any 
Commission rule, regulation, or order thereunder, applicable to any 
other swap eligible to be transacted on a swap execution facility, 
designated contract market, or otherwise.



PART 36_EXEMPT MARKETS--Table of Contents



Sec.
36.1 Scope.
36.2 Exempt boards of trade.
36.3 Exempt commercial markets.

[[Page 593]]


Appendix A to Part 36--Guidance on Significant Price Discovery Contracts
Appendix B to Part 36--Guidance on, and Acceptable Practices in, 
          Compliance With Core Principles

    Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by Title 
XIII of the Food, Conservation and Energy Act of 2008, Public Law 110-
246, 122 Stat. 1624 (June 18, 2008).

    Source: 66 FR 42270, Aug. 10, 2001, unless otherwise noted.



Sec.  36.1  Scope.

    The provisions of this part apply to any board of trade or 
electronic trading facility that operates as:
    (a) An exempt commercial market operating under:
    (1) Until July 16, 2012, a grandfather relief order issued by the 
Commission pursuant to Section 723(c)(2)(B) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat. 
1376 (2010)), or
    (2) Any other applicable relief granted by the Commission; or
    (b) An exempt board of trade operating under:
    (1) Until July 16, 2012, a grandfather relief order issued by the 
Commission pursuant to Section 734(c)(2) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat. 1376 
(2010)), or
    (2) Any other applicable relief granted by the Commission.

[77 FR 66336, Nov. 2, 2012]



Sec.  36.2  Exempt boards of trade.

    (a) Eligible commodities. Commodities eligible to be traded by an 
exempt board of trade are:
    (1) Commodities having--
    (i) A nearly inexhaustible deliverable supply;
    (ii) A deliverable supply that is sufficiently large, and a cash 
market sufficiently liquid, to render any contract traded on the 
commodity highly unlikely to be susceptible to the threat of 
manipulation; or
    (iii)No cash market.
    (2) The commodities that meet the criteria of paragraph (a)(1) of 
this section are:
    (i) The commodities defined in section 1a(19) of the Act as 
``excluded commodities'' (other than a security, including any group or 
index thereof or any interest in, or based on the value of, any security 
or group or index of securities); and
    (ii) Such other commodity or commodities as the Commission may 
determine by rule, regulation or order.
    (3) Such contracts must be entered into only between persons that 
are eligible contract participants, as defined in section 1a(18) of the 
Act and as further defined by the Commission, at the time at which the 
persons entered into the contract.
    (b) Notification. Boards of trade operating as exempt boards of 
trade shall maintain on file with the Secretary of the Commission at the 
Commission's Washington, DC headquarters, in electronic form, a 
``Notification of Operation as an Exempt Board of Trade,'' and it 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 that meets the criteria set forth in this section and operates 
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 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.
    (ii) Notification. An exempt board of trade operating a market in 
reliance on the criteria set forth in this section 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

[[Page 594]]

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 notice 
under paragraph (c)(2)(ii) of this section, or on its own initiative, 
the Commission may notify an exempt board of trade that the facility 
appears to meet the criteria for performing a significant price 
discovery function under paragraph (c)(2)(i)(A) or (B) of this section. 
Before making a final price discovery determination under this 
paragraph, the Commission shall provide the exempt board of trade with 
an opportunity for a hearing through the submission of written data, 
views and arguments. Any such written data, views and arguments shall be 
filed with the Secretary of the Commission in the form and manner and 
within the time specified by the Commission. After consideration of all 
relevant matters, the Commission shall issue an order containing its 
determination whether the facility performs a significant price 
discovery function under the criteria of paragraph (c)(2)(i)(A) or (B) 
of this section.
    (iv) Price dissemination. (A) An exempt board of trade that the 
Commission has determined performs a significant price discovery 
function under paragraph (c)(2)(iii) of this section shall disseminate 
publicly, and on a daily basis, all of the following information with 
respect to transactions executed in reliance on the criteria set forth 
in this section:
    (1) Contract terms and conditions, or a product description, and 
trading conventions, mechanisms and practices;
    (2) Trading volume by commodity and, if available, open interest; 
and
    (3) The opening and closing prices or price ranges, the daily high 
and low prices, a volume-weighted average price that is representative 
of trading on the board of trade, or such other daily price information 
as proposed by the board of trade and approved by the Commission.
    (B) The exempt board of trade shall make such information readily 
available to the news media and the general public without charge no 
later than the business day following the day to which the information 
pertains.
    (v) Modification of price discovery determination. An exempt board 
of trade that the Commission has determined performs a significant price 
discovery function under paragraph (c)(2)(iii) of this section may 
petition the Commission at any time to modify or vacate that 
determination. The petition shall contain an appropriate justification 
for the request. The Commission, after notice and opportunity for a 
hearing through the submission of written data, views and arguments, 
shall by order grant, grant subject to conditions, or deny such request.
    (3) Annual certification. A board of trade operating as an exempt 
board of trade shall file with the Commission annually, no later than 
the end of each calendar year, a notice that includes:
    (i) A statement that it continues to operate under the exemption; 
and
    (ii) A certification that the information contained in the previous 
Notification of Operation as an Exempt Board of Trade is still correct.

[66 FR 42270, Aug. 10, 2001, as amended at 71 FR 1961, Jan. 12, 2006; 77 
FR 66336, Nov. 2, 2012]



Sec.  36.3  Exempt commercial markets.

    (a) Eligible transactions. Agreements, contracts or transactions in 
an exempt commodity eligible to be entered into on an exempt commercial 
market must be:
    (1) Entered into on a principal-to-principal basis solely between 
persons that are eligible commercial entities, as that term is defined 
in section 1a(17) of the Act, at the time the persons enter into the 
agreement, contract or transaction; and
    (2) Executed or traded on an electronic trading facility.
    (b) Notification. An electronic trading facility relying upon the 
exemption set forth in this section shall maintain on file with the 
Secretary of the Commission at the Commission's Washington, DC 
headquarters, in electronic form, a

[[Page 595]]

``Notification of Operation as an Exempt Commercial Market,'' and it 
shall include the information and certifications specified in this 
section.
    (c) Required information--(1) All electronic trading facilities. A 
facility operating in reliance on the exemption set forth in this 
section on an on-going basis, must:
    (i) Provide the Commission with the terms and conditions, as defined 
inSec. 40.1(i) of this chapter and product descriptions for each 
agreement, contract or transaction listed by the facility in reliance on 
the exemption set forth in this section, as well as trading conventions, 
mechanisms and practices;
    (ii) Provide the Commission with information explaining how the 
facility meets the definition of ``trading facility'' contained in 
section 1a(51) of the Act and provide the Commission with access to the 
electronic trading facility's trading protocols, in a format specified 
by the Commission;
    (iii) Demonstrate to the Commission that the facility requires, and 
will require, with respect to all current and future agreements, 
contracts and transactions, that each participant agrees to comply with 
all applicable laws; that the authorized participants are ``eligible 
commercial entities'' as defined in section 1a(17) of the Act; that all 
agreements, contracts and transactions are and will be entered into 
solely on a principal-to-principal basis; and that the facility has in 
place a program to routinely monitor participants' compliance with these 
requirements;
    (iv) At the request of the Commission, provide any other information 
that the Commission, in its discretion, deems relevant to its 
determination whether an agreement, contract, or transaction performs a 
significant price discovery function; and
    (v) File with the Commission annually, no later than the end of each 
calendar year, a completed copy of CFTC Form 205--Exempt Commercial 
Market Annual Certification. The information submitted in Form 205 shall 
include:
    (A) A statement indicating whether the electronic trading facility 
continues to operate under the exemption; and
    (B) A certification that affirms the accuracy of and/or updates the 
information contained in the previous Notification of Operation as an 
Exempt Commercial Market.
    (2) Electronic trading facilities trading or executing agreements, 
contracts or transactions other than significant price discovery 
contracts. In addition to the requirements of paragraph (c)(1) of this 
section, a facility operating in reliance on the exemption set forth in 
this section, with respect to agreements, contracts or transactions that 
have not been determined to perform significant price discovery 
function, on an on-going basis must:
    (i) Identify to the Commission those agreements, contracts and 
transactions conducted on the electronic trading facility with respect 
to which it intends, in good faith, to rely on the exemption set forth 
in this section, and which averaged five trades per day or more over the 
most recent calendar quarter; and, with respect to such agreements, 
contracts and transactions, either:
    (A) Submit to the Commission, in a form and manner acceptable to the 
Commission, a report for each business day. Each such report shall be 
electronically transmitted weekly, within such time period as is 
acceptable to the Commission after the end of the week to which the data 
applies, and shall show for each agreement, contract or transaction 
executed the following information:
    (1) The underlying commodity, the delivery or price-basing location 
specified in the agreement, contract or transaction maturity date, 
whether it is a financially settled or physically delivered instrument, 
and the date of execution, time of execution, price, and quantity;
    (2) Total daily volume and, if cleared, open interest;
    (3) For an option instrument, in addition to the foregoing 
information, the type of option (i.e., call or put) and strike prices; 
and
    (4) Such other information as the Commission may determine; or
    (B) Provide to the Commission, in a form and manner acceptable to 
the Commission, electronic access to those transactions conducted on the 
electronic trading facility in reliance on

[[Page 596]]

the exemption set forth in this section, and meeting the average five 
trades per day or more threshold test of this section, which would allow 
the Commission to compile the information set forth in paragraph 
(c)(2)(i)(A) of this section and create a permanent record thereof.
    (ii) Maintain a record of allegations or complaints received by the 
electronic trading facility concerning instances of suspected fraud or 
manipulation in trading activity conducted in reliance on the exemption 
set forth in this section. The record shall contain the name of the 
complainant, if provided, date of the complaint, market instrument, 
substance of the allegations, and name of the person at the electronic 
trading facility who received the complaint;
    (iii) Provide to the Commission, in the form and manner prescribed 
by the Commission, a copy of the record of each complaint received 
pursuant to paragraph (c)(2)(ii) of this section that alleges, or 
relates to, facts that would constitute a violation of the Act or 
Commission regulations. Such copy shall be provided to the Commission no 
later than 30 calendar days after the complaint is received; Provided, 
however, that in the case of a complaint alleging, or relating to, facts 
that would constitute an ongoing fraud or market manipulation under the 
Act or Commission rules, such copy shall be provided to the Commission 
within three business days after the complaint is received; and
    (iv) Provide to the Commission on a quarterly basis, within 15 
calendar days of the close of each quarter, a list of each agreement, 
contract or transaction executed on the electronic trading facility in 
reliance on the exemption set forth in this section and indicate for 
each such agreement, contract or transaction the contract terms and 
conditions, the contract's average daily trading volume, and the most 
recent open interest figures.
    (3) Electronic trading facilities trading or executing significant 
price discovery contracts. In addition to the requirements of paragraph 
(c)(1) of this section, if the Commission determines that a facility 
operating in reliance on the exemption set forth in this section trades 
or executes an agreement, contract or transaction that performs a 
significant price discovery function, the facility must, with respect to 
any significant price discovery contract, publish and provide to the 
Commission the information required bySec. 16.01 of this chapter.
    (4) Delegation of authority. The Commission hereby delegates, until 
the Commission orders otherwise, the authority to determine the form and 
manner of submitting the required information under paragraphs (c)(1) 
through (3) of this section, to the Director of the Division of Market 
Oversight and such members of the Commission's staff as the Director may 
designate. The Director may submit to the Commission for its 
consideration any matter that has been delegated by this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph (c)(4).
    (5) Special calls. (i) All information required upon special call of 
the Commission shall be transmitted at the same time and to the office 
of the Commission as may be specified in the call.
    (ii) Such information shall include information related to the 
facility's business as an exempt electronic trading facility in reliance 
on the exemption set forth in this section, including information 
relating to data entry and transaction details in respect of 
transactions entered into in reliance on the exemption, as the 
Commission may determine appropriate--
    (A) To enforce the antifraud and anti-manipulation provisions in the 
Act and Commission regulations, and
    (B) To evaluate a systemic market event; or
    (C) To obtain information requested by a Federal financial 
regulatory authority in order to enable the regulator to fulfill its 
regulatory or supervisory responsibilities.
    (iii) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls to the Directors of the 
Division of Market Oversight, the Division of Clearing and Risk, the 
Division of Swap Dealer and Intermediary Oversight, and the Division of 
Enforcement to be exercised by each such Director

[[Page 597]]

or by such other employee or employees as the Director may designate. 
The Directors may submit to the Commission for its consideration any 
matter that has been delegated in this paragraph. Nothing in this 
paragraph prohibits the Commission, at its election, from exercising the 
authority delegated in this paragraph (c)(5).
    (6) Subpoenas to foreign persons. A foreign person whose access to 
an electronic trading facility is limited or denied at the direction of 
the Commission based on the Commission's belief that the foreign person 
has failed timely to comply with a subpoena shall have an opportunity 
for a prompt hearing under the procedures provided inSec. 21.03(b) and 
(h) of this chapter.
    (7) Prohibited representation. An electronic trading facility 
relying upon the exemption set forth in this section, with respect to 
agreements, contracts or transactions that are not significant price 
discovery contracts, shall not represent to any person that it is 
registered with, designated, recognized, licensed or approved by the 
Commission.
    (d) Significant price discovery contracts--(1) Criteria for 
significant price discovery determination. The Commission may determine, 
in its discretion, that an electronic trading facility operating a 
market in reliance on the exemption set forth in this section 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. In making such a determination, the 
Commission shall consider, as appropriate:
    (i) Price linkage. The extent to which the agreement, contract or 
transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts listed 
for trading on or subject to the rules of a designated contract market, 
or a significant price discovery contract traded on an electronic 
trading facility, to value a position, transfer or convert a position, 
cash or financially settle a position, or close out a position;
    (ii) Arbitrage. The extent to which the price for the agreement, 
contract or transaction is sufficiently related to the price of a 
contract or contracts listed for trading on or subject to the rules of a 
designated contract market, or a significant price discovery contract or 
contracts trading on or subject to the rules of an electronic trading 
facility, so as to permit market participants to effectively arbitrage 
between the markets by simultaneously maintaining positions or executing 
trades in the contracts on a frequent and recurring basis;
    (iii) Material price reference. The extent to which, on a frequent 
and recurring basis, bids, offers, or transactions in a commodity are 
directly based on, or are determined by referencing, the prices 
generated by agreements, contracts or transactions being traded or 
executed on the electronic trading facility;
    (iv) Material liquidity. The extent to which the volume of 
agreements, contracts or transactions in the commodity being traded on 
the electronic trading facility is sufficient to have a material effect 
on other agreements, contracts or transactions listed for trading on or 
subject to the rules of a designated contract market or an electronic 
trading facility operating in reliance on the exemption set forth in 
this section;
    (v) Other material factors. [Reserved]
    (2) Notification of possible significant price discovery contract 
conditions. An electronic trading facility operating in reliance on the 
exemption set forth in this section shall promptly notify the 
Commission, and such notification shall be accompanied by supporting 
information or data concerning any contract that:
    (i) Averaged five trades per day or more over the most recent 
calendar quarter; and
    (ii)(A) For which the exchange sells its price information regarding 
the contract to market participants or industry publications; or
    (B) Whose daily closing or settlement prices on 95 percent or more 
of the days in the most recent quarter were within 2.5 percent of the 
contemporaneously determined closing, settlement or other daily price of 
another agreement, contract or transaction.
    (3) Procedure for significant price discovery determination. Before 
making a

[[Page 598]]

final price discovery determination under this paragraph, the Commission 
shall publish notice in the Federal Register that it intends to 
undertake a determination with respect to whether a particular 
agreement, contract or transaction performs a significant price 
discovery function and to receive written data, views and arguments 
relevant to its determination from the electronic trading facility and 
other interested persons. Any such written data, views and arguments 
shall be filed with the Secretary of the Commission, in the form and 
manner specified by the Commission, within 30 calendar days of 
publication of notice in the Federal Register or within such other time 
specified by the Commission. After prompt consideration of all relevant 
information, the Commission shall, within a reasonable period of time 
after the close of the comment period, issue an order explaining its 
determination whether the agreement, contract or transaction executed or 
traded by the electronic trading facility performs a significant price 
discovery function under the criteria specified in paragraph (d)(1)(i) 
through (v) of this section.
    (4) Compliance with core principles. (i) Following the issuance of 
an order by the Commission that the electronic trading facility executes 
or trades an agreement, contract or transaction that performs a 
significant price discovery function, the electronic trading facility 
must demonstrate, with respect to that agreement, contract or 
transaction, compliance with the Core Principles set forth in this 
section and the applicable provisions of this part. If the Commission's 
order represents the first time it has determined that one of the 
electronic trading facility's agreements, contracts or transactions 
performs a significant price discovery function, the facility must 
submit a written demonstration of compliance with the Core Principles 
within 90 calendar days of the date of the Commission's order. For each 
subsequent determination by the Commission that the electronic trading 
facility has an additional agreement, contract or transaction that 
performs a significant price discovery function, the facility must 
submit a written demonstration of compliance with the Core Principles 
within 30 calendar days of the date of the Commission's order. Attention 
is directed to appendix B of this part for guidance on and acceptable 
practices for complying with the Core Principles. Submissions 
demonstrating how the electronic trading facility complies with the Core 
Principles with respect to its significant price discovery contract must 
be filed with the Secretary of the Commission at its Washington, DC 
headquarters. Submissions must include the following:
    (A) A written certification that the significant price discovery 
contract(s) complies with the Act and regulations thereunder;
    (B) A copy of the electronic trading facility's rules (as defined in 
Sec.  40.1 of this chapter) and any technical manuals, other guides or 
instructions for users of, or participants in, the market, including 
minimum financial standards for members or market participants. 
Subsequent rule changes must be certified by the electronic trading 
facility pursuant to section 5c(c) of the Act andSec. 40.6 of this 
chapter. The electronic trading facility also may request Commission 
approval of any rule changes pursuant to section 5c(c) of the Act and 
Sec.  40.5 of this chapter;
    (C) 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;
    (D) A copy of any documents pertaining to or describing the 
electronic trading system's legal status and governance structure, 
including governance fitness information;
    (E) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the electronic trading facility, 
including partnership or limited liability company, third-party 
regulatory service, or member or user agreements, that enable or empower 
the electronic trading facility to comply with a Core Principle;
    (F) A copy of any manual or other document describing, with 
specificity,

[[Page 599]]

the manner in which the trading facility will conduct trade practice, 
market and financial surveillance;
    (G) To the extent that any of the items in paragraphs (d)(4)(i)(A) 
through (F) of this section raise issues that are novel, or for which 
compliance with a Core Principle is not self-evident, an explanation of 
how that item satisfies the applicable Core Principle or Principles.
    (ii) The electronic trading facility must identify with 
particularity information in the submission that will be subject to a 
request for confidential treatment pursuant toSec. 145.09 of this 
chapter. The electronic trading facility must follow the procedures 
specified inSec. 40.8 of this chapter with respect to any information 
in its submission for which confidential treatment is requested.
    (5) Determination of compliance with core principles. The Commission 
shall take into consideration differences between cleared and uncleared 
significant price discovery contracts when reviewing the implementation 
of the Core Principles by an electronic trading facility. The electronic 
facility has reasonable discretion in accounting for differences between 
cleared and uncleared significant price discovery contracts when 
establishing the manner in which it complies with the Core Principles.
    (6) Information relating to compliance with core principles. Upon 
request by the Commission, an electronic trading facility trading a 
significant price discovery contract shall file with the Commission a 
written demonstration, containing such supporting data, information and 
documents, in the form and manner and within such time as the Commission 
may specify, that the electronic trading facility is in compliance with 
one or more Core Principles as specified in the request, or that is 
otherwise requested by the Commission to enable the Commission to 
satisfy its obligations under the Act.
    (7) Enforceability. An agreement, contract or transaction entered 
into on or pursuant to the rules of an electronic trading facility 
trading or executing a significant price discovery contract shall not be 
void, voidable, subject to rescission or otherwise invalidated or 
rendered unenforceable as a result of:
    (i) A violation by the electronic trading facility of the provisions 
set forth in this section; or
    (ii) Any Commission proceeding to alter or supplement a rule, term 
or condition under section 8a(7) of the Act, to declare an emergency 
under section 8a(9) of the Act, or any other proceeding the effect of 
which is to alter, supplement or require an electronic trading facility 
to adopt a specific term or condition, trading rule or procedure, or to 
take or refrain from taking a specific action.
    (8) Procedures for vacating a determination of a significant price 
discovery function--(i) By the electronic trading facility. An 
electronic trading facility that executes or trades an agreement, 
contract or transaction that the Commission has determined performs a 
significant price discovery function under paragraph (d)(3) of this 
section may petition the Commission to vacate that determination. The 
petition shall demonstrate that the agreement, contract or transaction 
no longer performs a significant price discovery function under the 
criteria specified in paragraph (d)(1), and has not done so for at least 
the prior 12 months. An electronic trading facility shall not petition 
for a vacation of a significant price discovery determination more 
frequently than once every 12 months for any individual contract.
    (ii) By the Commission. The Commission may, on its own initiative, 
begin vacation proceedings if it believes that an agreement, contract or 
transaction has not performed a significant price discovery function for 
at least the prior 12 months.
    (iii) Procedure. Before making a final determination whether an 
agreement, contract or transaction has ceased to perform a significant 
price discovery function, the Commission shall publish notice in the 
Federal Register that it intends to undertake such a determination and 
to receive written data, views and arguments relevant to its 
determination from the electronic trading facility and other interested 
persons. Written submissions shall be filed with the Secretary of the 
Commission in the

[[Page 600]]

form and manner specified by the Commission, within 30 calendar days of 
publication of notice in the Federal Register, or within such other time 
specified by the Commission. After consideration of all relevant 
information, the Commission shall issue an order explaining its 
determination whether the agreement, contract or transaction has ceased 
to perform a significant price discovery function and, if so, vacating 
its prior order. If such an order issues, and the Commission 
subsequently determines, on its own initiative or after notification by 
the electronic trading facility, that the agreement, contract or 
transaction that was subject to the vacation order again performs a 
significant price discovery function, the electronic trading facility 
must comply with the Core Principles within 30 calendar days of the date 
of the Commission's order.
    (iv) Automatic vacation of significant price discovery 
determination. Regardless of whether a proceeding to vacate has been 
initiated, any significant price discovery contract that has no open 
interest and in which no trading has occurred for a period of 12 
complete and consecutive calendar months shall, without further 
proceedings, no longer be considered to be a significant price discovery 
contract.
    (e) Commission review. The Commission shall, at least annually, 
evaluate as appropriate agreements, contracts or transactions conducted 
on an electronic trading facility in reliance on the exemption set forth 
in this section to determine whether they serve a significant price 
discovery function as set forth in paragraph (d)(1) of this section.

[77 FR 66336, Nov. 2, 2012]



  Sec. Appendix A to Part 36--Guidance on Significant Price Discovery 
                                Contracts

    1. There are four factors that the Commission must consider, as 
appropriate, in making a determination that a contract is performing a 
significant price discovery function. The four factors prescribed by the 
statute are: Price Linkage; Arbitrage; Material Price Reference; and 
Material Liquidity.
    2. Not all listed factors must be present to support a determination 
that a contract performs a significant price discovery function. 
Moreover, the statutory language neither prioritizes the factors nor 
specifies the degree to which a significant price discovery contract 
must conform to the various factors. Congress has indicated that it 
intends that the Commission should not make a determination that an 
agreement, contract or transaction performs a significant price 
discovery function on the basis of the Price Linkage factor unless the 
agreement, contract or transaction also has sufficient volume to impact 
other regulated contracts or to become an independent price reference or 
benchmark that is regularly utilized by the public. The Commission 
believes that the Arbitrage and Material Price Reference factors can be 
considered separately from each other. That is, the Commission could 
make a determination that a contract serves a significant price 
discovery function based on the presence of one of these factors and the 
absence of the other. The presence of any of these factors, however, 
would not necessarily be sufficient to establish the contract as a 
significant price discovery contract. The fourth factor, Liquidity, 
would be considered in conjunction with the arbitrage and linkage 
factors as a significant amount of liquidity presumably would be 
necessary for a contract to perform a significant price discovery 
function in conjunction with these factors.
    3. These factors do not lend themselves to a mechanical checklist or 
formulaic analysis. Accordingly, this guidance is intended to illustrate 
which factors, or combinations of factors, the Commission will look to 
when determining that a contract is performing a significant price 
discovery function, and under what circumstances the presence of a 
particular factor or factors would be sufficient to support such a 
determination.
    (A) MATERIAL LIQUIDITY--The extent to which the volume of 
agreements, contracts or transactions in the commodity being traded on 
the electronic trading facility is sufficient to have a material effect 
on other agreements, contracts or transactions listed for trading on or 
subject to the rules of a designated contract market, or an electronic 
trading facility operating in reliance on the exemption set forth in 
this section.
    1. Liquidity is a broad concept that captures the ability to 
transact immediately with little or no price concession. Traditionally, 
objective measures of trading such as volume or open interest have been 
used as measures of liquidity. So, for example, a market in which trades 
occur multiple times per minute at prices that differ by only fractions 
of a cent normally would be considered highly liquid, since presumably a 
trader could quickly execute a trade at a price that was approximately 
the same as the price for other recently executed trades. Other factors 
also will affect the characterization of liquidity, such as whether a 
large trade--e.g., 100 contracts versus 1 contract--could be executed 
without a significant price concession. For example, having to wait a 
day to

[[Page 601]]

sell 1000 bushels of corn may be considered an illiquid market while 
waiting a day to sell a home may be considered quite liquid. Thus, 
quantifying the levels of immediacy and price concession that would 
define material liquidity may differ from one market or commodity to 
another.
    2. The Commission believes that material liquidity alternatively can 
be identified by the impact liquidity exhibits through observed prices. 
In markets where material liquidity exists, a more or less continuous 
stream of prices can be observed and the prices should be similar. For 
example, if the trading of a contract occurs on average five times a 
day, there will be on average five observed prices for the contract per 
day. If the market is liquid in terms of traders having to make little 
in the way of price concessions to execute these trades, the prices of 
this contract should be similar to those observed for similar or related 
contracts traded in liquid markets elsewhere. Thus, in making 
determinations that contracts have material liquidity, the Commission 
will look to transaction prices, both in terms of how often prices are 
observed and the extent to which observed prices tend to correlate with 
other contemporaneous prices.
    3. The Commission anticipates that material liquidity will 
frequently be a consideration in evaluating whether a contract is a 
significant price discovery contract; however, there may be 
circumstances in which other factors so dominate the conclusion that a 
contract is serving a significant price discovery function that a 
finding of material liquidity in the contract would not be necessary. 
Circumstances in which this might arise are discussed with respect to 
the assessment of other factors below.
    4. Finally, material liquidity itself would not be sufficient to 
make a determination that a contract is a significant price discovery 
contract, but combined with other factors it can serve as a guidepost 
indicating which contracts are functioning as significant price 
discovery contracts. As further discussed below, material liquidity, as 
reflected through the prices of linked or arbitraged contracts, will be 
a primary consideration in determining whether such contracts are 
significant price discovery contracts.
    (B) PRICE LINKAGE--The extent to which the agreement, contract or 
transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts listed 
for trading on or subject to the rules of a designated contract market, 
or a significant price discovery contract traded on an electronic 
trading facility, to value a position, transfer or convert a position, 
cash or financially settle a position, or close out a position.
    1. A price-linked contract is a contract that relies on a contract 
traded on another trading facility to settle, value or otherwise offset 
the price-linked contract. The link may involve a one-to-one linkage, in 
that the value of the linked contract is based on a single contract's 
price, or it may involve multiple contracts. An example of a multiple 
contract linkage might be where the settlement price is calculated as an 
index of prices obtained from a basket of contracts traded on other 
exchanges.
    2. For a linked contract, the mere fact that a contract is linked to 
another contract will not be sufficient to support a determination that 
a contract performs a significant price discovery function. To assess 
whether such a determination is warranted, the Commission will examine 
the relationship between transaction prices of the linked contract and 
the prices of the referenced contract(s). The Commission believes that 
where material liquidity exists, prices for the linked contract would be 
observed to be substantially the same as or move substantially in 
conjunction with the prices of the referenced contract(s). Where such 
price characteristics are observed on an ongoing basis, the Commission 
would expect to determine that the linked contract is a significant 
price discovery contract.
    3. As an example, where the Commission has observed price linkage, 
it will next consider whether transactions were occurring on a daily 
basis for the linked contract in material volumes. (Conversely, where 
volume has increased noticeably in a particular contract, the Commission 
would look for linkage) The ultimate level of volume that would be 
considered material for purposes of deeming a contract a significant 
price discovery contract will likely differ from one contract to another 
depending on the characteristics of the underlying commodity and the 
overall size of the physical market in which it is traded. At a minimum, 
however, the Commission will consider a linked contract which has volume 
equal to 5% of the volume of trading in the contract to which it is 
linked to have sufficient volume potentially to be deemed a significant 
price discovery contract.
    4. In combination with this volume level, the Commission will also 
examine the relationship between prices of the linked contract and the 
contract to which it is linked to determine whether a contract is 
serving a significant price discovery function. As a threshold, the 
Commission will consider a 2.5 percent price range for 95 percent of 
contemporaneously determined closing, settlement, or other daily prices 
over the most recent quarter to be sufficiently close for a linked 
contract potentially to be deemed a significant price discovery 
contract. For example, if, over the most recent quarter, it was found 
that 95 percent of the closing, settlement, or other daily prices of the 
contract, which have been calculated using transaction

[[Page 602]]

prices, were within 2.5 percent of the contemporaneously determined 
closing, settlement, or other daily prices of a contract to which it was 
linked, the Commission potentially would consider the contract to 
perform a significant price discovery function.
    (C) ARBITRAGE CONTRACTS--The extent to which the price for the 
agreement, contract or transaction is sufficiently related to the price 
of a contract or contracts listed for trading on or subject to the rules 
of a designated contract market or a significant price discovery 
contract or contracts trading on or subject to the rules of an 
electronic trading facility, so as to permit market participants to 
effectively arbitrage between the markets by simultaneously maintaining 
positions or executing trades in the contracts on a frequent and 
recurring basis.
    1. Arbitrage contracts are those contracts that can be combined with 
other contracts to exploit expected economic relationships in 
anticipation of a profit. In assessing whether a contract can be 
incorporated into an arbitrage strategy, the Commission will weigh the 
terms and conditions of a contract in comparison to contracts that 
potentially could be used in an arbitrage strategy; will consult with 
industry or other sources regarding a contract's viability in an 
arbitrage strategy; and will rely on direct observation confirming the 
use of a contract in arbitrage strategies.
    2. As with linked contracts, the mere fact that a contract could be 
employed in an arbitrage strategy will not be sufficient to make a 
determination that a contract is a significant price discovery contract. 
In addition, the level of liquidity will be considered. To assess 
whether designation as a significant price discovery contract is 
warranted, the Commission will examine the relationship between 
transaction prices of an arbitrage contract and the prices of the 
contract(s) to which it is related. The Commission believes that where 
material liquidity exists, prices for the arbitrage contract would be 
observed to move substantially in conjunction with the prices of the 
related contract(s) to which it is economically linked. Where such price 
characteristics are observed on an ongoing basis, it is likely that the 
linked contract performs a significant price discovery function.
    3. The Commission will apply the same threshold liquidity and price 
relationship standards for arbitrage contracts as it does for linked 
contracts. That is, the Commission will view the average of five trades 
per day or more threshold as the level of activity that would 
potentially meet the material volume criterion. With respect to prices, 
the Commission will consider an arbitrage contract potentially to be a 
significant price discovery contract if, over the most recent quarter, 
greater than 95 percent of the closing or settlement prices of the 
contract, which have been calculated using transaction prices, fall 
within 2.5 percent of the closing or settlement price of the contract or 
contracts to which it could be arbitraged.
    (D) MATERIAL PRICE REFERENCE--The extent to which, on a frequent and 
recurring basis, bids, offers or transactions in a commodity are 
directly based on, or are determined by referencing, the prices 
generated by agreements, contracts or transactions being traded or 
executed on the electronic trading facility.
    1. The Commission will rely on one of two sources of evidence--
direct or indirect--to determine that the price of a contract was being 
used as a material price reference and, therefore, serving a significant 
price discovery function. The primary source of direct evidence is 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 
frequent and recurring basis. The Commission expects that normally only 
contracts with material liquidity will be referenced by the cash market; 
however, the Commission notes that it may be possible for a contract to 
have very low liquidity and yet still be used as a price reference. In 
such cases, the simple fact that participants in the underlying cash 
market broadly have elected to use the contract price as a price 
reference would be a strong indicator that the contract is a significant 
price discovery contract.
    2. In evaluating a contract's price discovery role as a directly 
referenced price source, the Commission will perform an analysis to 
determine whether cash market participants are quoting bid or offer 
prices or entering into transactions at prices that are set either 
explicitly or implicitly at a differential to prices established for the 
contract. Cash market prices are set explicitly at a differential to the 
contract being traded on the electronic trading facility when, for 
instance, they are quoted in dollars and cents above or below the 
reference contract's price. Cash market prices are set implicitly at a 
differential to a contract being traded on the electronic trading 
facility when, for instance, they are arrived at after adding to, or 
subtracting from the contract being traded on the electronic trading 
facility, but then quoted or reported at a flat price. The Commission 
will also consider whether cash market entities are quoting cash prices 
based on a contract being traded on the electronic trading facility on a 
frequent and recurring basis.
    3. The second source of evidence is that the price of the contract 
is being routinely disseminated in widely distributed industry 
publications--or offered by the ECM itself for some form of 
remuneration--and consulted on a frequent and recurring basis by 
industry participants in pricing cash market transactions. As with 
contract prices that are directly incorporated into cash market

[[Page 603]]

prices, the Commission assumes that industry publications choose to 
publish prices because of the value they transfer to industry 
participants for the purpose of formulating prices in the cash market.
    4. In applying this criterion, consideration will be given to 
whether prices established by a contract being traded on the electronic 
trading facility are reported in a widely distributed industry 
publication. In making this determination, the Commission will consider 
the reputation of the publication within the industry, how frequently it 
is published, and whether the information contained in the publication 
is routinely consulted by industry participants in pricing cash market 
transactions.
    5. Under a Material Price Reference analysis, the Commission expects 
that material liquidity in the contract likely will be the primary 
motivation for a publisher to publish particular prices. In other words, 
the fact that the price of a contract is being used as a reference by 
industry participants suggests, prima facie, that the contract performs 
a significant price discovery function. But the Commission recognizes 
that trading levels could nonetheless be low for the contract while 
still serving a significant price discovery function and that evidence 
of routine publication and consultation by industry participants may be 
sufficient to establish the contract as a significant price discovery 
contract. On the other hand, while cash market participants may 
regularly refer to published prices of a particular contract when 
establishing cash market prices, it may be the case that the contract 
itself is a niche market for a specialized grade of the commodity or for 
delivery at a minor geographic location. In such cases, the Commission 
will look to such measures as trading volume, open interest, and the 
significance of the underlying cash market to make a determination that 
a contract is functioning as a significant price discovery contract. If 
an examination of trading in the contract were to reveal that true price 
discovery was occurring in other more broadly defined contracts and that 
this contract was itself simply reflective of those broader contracts, 
it is less likely the Commission will deem the contract a significant 
price discovery contract.
    6. Because price referencing normally occurs out of the view of the 
electronic trading facility, the Commission may have difficulty 
ascertaining the extent to which cash market participants actually 
reference or consult a contract's price when transacting. The Commission 
expects, however, that as a contract begins to be relied upon to set a 
reference price, market participants will be increasingly willing to 
purchase price information. To the extent, then, that an electronic 
trading facility begins to sell its price information regarding a 
contract to market participants or industry publications, the contract 
will meet a threshold standard to indicate that the contract potentially 
is a significant price discovery contract.

[74 FR 12197, Mar. 23, 2009, as amended at 77 FR 66339, Nov. 2, 2012]



 Sec. Appendix B to Part 36--Guidance on, and Acceptable Practices in, 
                     Compliance With Core Principles

    1. This appendix provides guidance on complying with the core 
principles set forth in this part, both initially and on an ongoing 
basis. The guidance is provided in paragraph (a) following each core 
principle and can be used to demonstrate to the Commission core 
principle compliance underSec. 36.3(d)(4). The guidance for each core 
principle is illustrative only of the types of matters an electronic 
trading facility may address, as applicable, and is not intended to be 
used as a mandatory checklist. Addressing the issues and questions set 
forth in this guidance will help the Commission in its consideration of 
whether the electronic trading facility is in compliance with the core 
principles. A submission pursuant toSec. 36.3(d)(4) should include an 
explanation or other form of documentation demonstrating that the 
electronic trading facility complies with the core principles.
    2. Acceptable practices meeting selected requirements of the core 
principles are set forth in paragraph (b) following each core principle. 
Electronic trading facilities on which significant price discovery 
contracts are traded or executed that follow the specific practices 
outlined under paragraph (b) for any core principle in this appendix 
will meet the selected requirements of the applicable core principle. 
Paragraph (b) is for illustrative purposes only, and does not state the 
exclusive means for satisfying a core principle.
    CORE PRINCIPLE I--CONTRACTS NOT READILY SUSCEPTIBLE TO MANIPULATION. 
The electronic trading facility shall list only significant price 
discovery contracts that are not readily susceptible to manipulation.
    (a) Guidance. Upon determination by the Commission that a contract 
listed for trading on an electronic trading facility is a significant 
price discovery contract, the electronic trading facility must self-
certify the terms and conditions of the significant price discovery 
contract underSec. 36.3(d)(4) within 90 calendar days of the date of 
the Commission's order if the contract is the electronic trading 
facility's first significant price discovery contract; or 30 days from 
the date of the Commission's order if the contract is not the electronic 
trading facility's first significant price discovery contract. Once the 
Commission determines that a contract performs a significant price 
discovery function, subsequent rule changes must be self-certified to

[[Page 604]]

the Commission by the electronic trading facility pursuant toSec. 40.6 
of this chapter or submitted to the Commission for review and approval 
pursuant toSec. 40.5 of this chapter.
    (b) Acceptable practices. Guideline No. 1, 17 CFR part 40, appendix 
A may be used as guidance in meeting this core principle for significant 
price discovery contracts.
    CORE PRINCIPLE II--MONITORING OF TRADING. The electronic trading 
facility shall monitor trading in significant price discovery contracts 
to prevent market manipulation, price distortion, and disruptions of the 
delivery of cash-settlement process through market surveillance, 
compliance and disciplinary practices and procedures, including methods 
for conducting real-time monitoring of trading and comprehensive and 
accurate trade reconstructions.
    (a) Guidance. An electronic trading facility on which significant 
price discovery contracts are traded or executed should, with respect to 
those contracts, demonstrate a capacity to prevent market manipulation 
and have trading and participation rules to detect and deter abuses. The 
facility should seek to prevent market manipulation and other trading 
abuses through a dedicated regulatory department or by delegation of 
that function to an appropriate third party. An electronic trading 
facility also should have the authority to intervene as necessary to 
maintain an orderly market.
    (b) Acceptable practices--(1) An acceptable trade monitoring 
program. An acceptable trade monitoring program should facilitate, on 
both a routine and non-routine basis, arrangements and resources to 
detect and deter abuses through direct surveillance of each significant 
price discovery contract. Direct surveillance of each significant price 
discovery contract will generally involve the collection of various 
market data, including information on participants' market activity. 
Those data should be evaluated on an ongoing basis in order to make an 
appropriate regulatory response to potential market disruptions or 
abusive practices. For contracts with a substantial number of 
participants, an effective surveillance program should employ a much 
more comprehensive large trader reporting system.
    (2) Authority to collect information and documents. The electronic 
trading facility should have the authority to collect information and 
documents in order to reconstruct trading for appropriate market 
analysis. Appropriate market analysis should enable the electronic 
trading facility to assess whether each significant price discovery 
contract is responding to the forces of supply and demand. Appropriate 
data usually include various fundamental data about the underlying 
commodity, its supply, its demand, and its movement through market 
channels. Especially important are data related to the size and 
ownership of deliverable supplies--the existing supply and the future or 
potential supply--and to the pricing of the deliverable commodity 
relative to the futures price and relative to the similar, but non-
deliverable, kinds of the commodity. For cash-settled contracts, it is 
more appropriate to pay attention to the availability and pricing of the 
commodity making up the index to which the contract will be settled, as 
well as monitoring the continued suitability of the methodology for 
deriving the index.
    (3) Ability to assess participants' market activity and power. To 
assess participants' activity and potential power in a market, 
electronic trading facilities, with respect to significant price 
discovery contracts, at a minimum should have routine access to the 
positions and trading of its participants and, if applicable, should 
provide for such access through its agreements with its third-party 
provider of clearing services.
    CORE PRINCIPLE III--ABILITY TO OBTAIN INFORMATION. The electronic 
trading facility shall establish and enforce rules that allow the 
electronic trading facility to obtain any necessary information to 
perform any of the functions set forth in this subparagraph, provide the 
information to the Commission upon request, and have the capacity to 
carry out such international information-sharing agreements as the 
Commission may require.
    (a) Guidance. An electronic trading facility on which significant 
price discovery contracts are traded or executed should, with respect to 
those contracts, have the ability and authority to collect information 
and documents on both a routine and non-routine basis, including the 
examination of books and records kept by participants. This includes 
having arrangements and resources for recording full data entry and 
trade details and safely storing audit trail data. An electronic trading 
facility should have systems sufficient to enable it to use the 
information for purposes of assisting in the prevention of participant 
and market abuses through reconstruction of trading and providing 
evidence of any violations of the electronic trading facility's rules.
    (b) Acceptable practices--(1) The goal of an audit trail is to 
detect and deter market abuse. An effective contract audit trail should 
capture and retain sufficient trade-related information to permit 
electronic trading facility staff to detect trading abuses and to 
reconstruct all transactions within a reasonable period of time. An 
audit trail should include specialized electronic surveillance programs 
that identify potentially abusive trades and trade patterns. An 
acceptable audit trail must be able to track an order from time of entry 
into the trading system through its fill. The electronic trading 
facility must create and maintain an electronic transaction history 
database that contains

[[Page 605]]

information with respect to transactions executed on each significant 
price discovery contract.
    (2) An acceptable audit trail should include the following: original 
source documents, transaction history, electronic analysis capability, 
and safe storage capability. An acceptable audit trail system would 
satisfy the following practices.
    (i) Original source documents. Original source documents include 
unalterable, sequentially identified records on which trade execution 
information is originally recorded. For each order (whether filled, 
unfilled or cancelled, each of which should be retained or 
electronically captured), such records reflect the terms of the order, 
an account identifier that relates back to the account(s) owner(s), and 
the time of order entry.
    (ii) Transaction history. A transaction history consists of an 
electronic history of each transaction, including:
    (A) All the data that are input into the trade entry or matching 
system for the transaction to match and clear;
    (B) Timing and sequencing data adequate to reconstruct trading; and
    (C) The identification of each account to which fills are allocated.
    (iii) Electronic analysis capability. An electronic analysis 
capability permits sorting and presenting data included in the 
transaction history so as to reconstruct trading and to identify 
possible trading violations with respect to market abuse.
    (iv) Safe storage capability. Safe storage capability provides for a 
method of storing the data included in the transaction history in a 
manner that protects the data from unauthorized alteration, as well as 
from accidental erasure or other loss. Data should be retained in the 
form and manner specified by the Commission or, where no acceptable 
manner of retention is specified, in accordance with the recordkeeping 
standards ofSec. 1.31 of this chapter.
    (3) Arrangements and resources for the disclosure of the obtained 
information and documents to the Commission upon request. The electronic 
trading facility should maintain records of all information and 
documents related to each significant price discovery contract in a form 
and manner acceptable to the Commission. Where no acceptable manner of 
maintenance is specified, records should be maintained in accordance 
with the recordkeeping standards ofSec. 1.31 of this chapter.
    (4) The capacity to carry out appropriate information-sharing 
agreements as the Commission may require. Appropriate information-
sharing agreements could be established with other markets or the 
Commission can act in conjunction with the electronic trading facility 
to carry out such information sharing.
    CORE PRINCIPLE IV--POSITION LIMITATIONS OR ACCOUNTABILITY. The 
electronic trading facility shall adopt, where necessary and 
appropriate, position limitations or position accountability for 
speculators in significant price discovery contracts, taking into 
account positions in other agreements, contracts and transactions that 
are treated by a derivatives clearing organization, whether registered 
or not registered, as fungible with such significant price discovery 
contracts to reduce the potential threat of market manipulation or 
congestion, especially during trading in the delivery month.
    (a) Guidance. [Reserved]
    (b) Acceptable practices for uncleared trades. [Reserved]
    (c) Acceptable practices for cleared trades--(1) Introduction. In 
order to diminish potential problems arising from excessively large 
speculative positions, and to facilitate orderly liquidation of expiring 
contracts, an electronic trading facility relying on the exemption set 
forth in this section should adopt rules that set position limits or 
accountability levels on traders' cleared positions in significant price 
discovery contracts. These position limit rules specifically may exempt 
bona fide hedging; permit other exemptions; or set limits differently by 
market, delivery month or time period. For the purpose of evaluating a 
significant price discovery contract's speculative-limit program for 
cleared positions, the Commission will consider the specified position 
limits or accountability levels, aggregation policies, types of 
exemptions allowed, methods for monitoring compliance with the specified 
limits or levels, and procedures for dealing with violations.
    (2) Accounting for cleared trades--(i) Speculative-limit levels 
typically should be set in terms of a trader's combined position 
involving cleared trades in a significant price discovery contract, plus 
positions in agreements, contracts and transactions that are treated by 
a derivatives clearing organization, whether registered or not 
registered, as fungible with such significant price discovery contract. 
(This circumstance typically exists where an exempt commercial market 
lists a particular contract for trading but also allows for positions in 
that contract to be cleared together with positions established through 
bilateral or off-exchange transactions, such as block trades, in the 
same contract. Essentially, both the on-facility and off-facility 
transactions are considered fungible with each other.) In this 
connection, the electronic trading facility should make arrangements to 
ensure that it is able to ascertain accurate position data for the 
market.
    (ii) For significant price discovery contracts that are traded on a 
cleared basis, the electronic trading facility should apply position 
limits to cleared transactions in the contract.
    (3) Limitations on spot-month positions. Spot-month limits should be 
adopted for significant price discovery contracts to minimize

[[Page 606]]

the susceptibility of the market to manipulation or price distortions, 
including squeezes and corners or other abusive trading practices.
    (i) Contracts economically equivalent to an existing contract. An 
electronic trading facility that lists a significant price discovery 
contract that is economically-equivalent to another significant price 
discovery contract or to a contract traded on a designated contract 
market should set the spot-month limit for its significant price 
discovery contract at the same level as that specified for the 
economically-equivalent contract.
    (ii) Contracts that are not economically equivalent to an existing 
contract. There may not be an economically-equivalent significant price 
discovery contract or economically-equivalent contract traded on a 
designated contract market. In this case, the spot-month speculative 
position limit should be established in the following manner. The spot-
month limit for a physical delivery market should be based upon an 
analysis of deliverable supplies and the history of spot-month 
liquidations. The spot-month limit for a physical-delivery market is 
appropriately set at no more than 25 percent of the estimated 
deliverable supply. In the case where a significant price discovery 
contract has a cash settlement provision, the spot-month limit should be 
set at a level that minimizes the potential for price manipulation or 
distortion in the significant price discovery contract itself; in 
related futures and options contracts traded on a designated contract 
market; in other significant price discovery contracts; in other 
fungible agreements, contracts and transactions; and in the underlying 
commodity.
    (4) Position accountability for non-spot-month positions. The 
electronic trading facility should establish for its significant price 
discovery contracts non-spot individual month position accountability 
levels and all-months-combined position accountability levels. An 
electronic trading facility may establish non-spot individual month 
position limits and all-months-combined position limits for its 
significant price discovery contracts in lieu of position accountability 
levels.
    (i) Definition. Position accountability provisions provide a means 
for an exchange to monitor traders' positions that may threaten orderly 
trading. An acceptable accountability provision sets target 
accountability threshold levels that may be exceeded, but once a trader 
breaches such accountability levels, the electronic trading facility 
should initiate an inquiry to determine whether the individual's trading 
activity is justified and is not intended to manipulate the market. As 
part of its investigation, the electronic trading facility may inquire 
about the trader's rationale for holding a position in excess of the 
accountability levels. An acceptable accountability provision should 
provide the electronic trading facility with the authority to order the 
trader not to further increase positions. If a trader fails to comply 
with a request for information about positions held, provides 
information that does not sufficiently justify the position, or 
continues to increase contract positions after a request not to do so is 
issued by the facility, then the accountability provision should enable 
the electronic trading facility to require the trader to reduce 
positions.
    (ii) Contracts economically equivalent to an existing contract. When 
an electronic trading facility lists a significant price discovery 
contract that is economically equivalent to another significant price 
discovery contract or to a contract traded on a designated contract 
market, the electronic trading facility should set the non-spot 
individual month position accountability level and all-months-combined 
position accountability level for its significant price discovery 
contract at the same levels, or lower, as those specified for the 
economically-equivalent contract.
    (iii) Contracts that are not economically equivalent to an existing 
contract. For significant price discovery contracts that are not 
economically equivalent to an existing contract, the trading facility 
shall adopt non-spot individual month and all-months-combined position 
accountability levels that are no greater than 10 percent of the average 
combined futures and delta-adjusted option month-end open interest for 
the most recent calendar year. For electronic trading facilities that 
choose to adopt non-spot individual month and all-months-combined 
position limits in lieu of position accountability levels for their 
significant price discovery contracts, the limits should be set in the 
same manner as the accountability levels.
    (iv) Contracts economically equivalent to an existing contract with 
position limits. If a significant price discovery contract is 
economically equivalent to another significant price discovery contract 
or to a contract traded on a designated contract market that has adopted 
non-spot or all-months-combined position limits, the electronic trading 
facility should set non-spot month position limits and all-months-
combined position limits for its significant price discovery contract at 
the same (or lower) levels as those specified for the economically-
equivalent contract.
    (5) Account aggregation. An electronic trading facility should have 
aggregation rules for significant price discovery contracts that apply 
to accounts under common control, those with common ownership, i.e., 
where there is a ten percent or greater financial interest, and those 
traded according to an express or implied agreement. Such aggregation 
rules should apply to cleared transactions with respect to applicable 
speculative position limits. An electronic trading

[[Page 607]]

facility will be permitted to set more stringent aggregation policies. 
An electronic trading facility may grant exemptions to its price 
discovery contracts' position limits for bona fide hedging (as defined 
inSec. 1.3(z) of this chapter) and may grant exemptions for reduced 
risk positions, such as spreads, straddles and arbitrage positions.
    (6) Implementation deadlines. An electronic trading facility with a 
significant price discovery contract is required to comply with Core 
Principle IV within 90 calendar days of the date of the Commission's 
order determining that the contract performs a significant price 
discovery function if such contract is the electronic trading facility's 
first significant price discovery contract, or within 30 days of the 
date of the Commission's order if such contract is not the electronic 
trading facility's first significant price discovery contract. For the 
purpose of applying limits on speculative positions in newly-determined 
significant price discovery contracts, the Commission will permit a 
grace period following issuance of its order for traders with cleared 
positions in such contracts to become compliant with applicable position 
limit rules. Traders who hold cleared positions on a net basis in the 
electronic trading facility's significant price discovery contract must 
be at or below the specified position limit level no later than 90 
calendar days from the date of the electronic trading facility's 
implementation of position limit rules, unless a hedge exemption is 
granted by the electronic trading facility. This grace period applies to 
both initial and subsequent price discovery contracts. Electronic 
trading facilities should notify traders of this requirement promptly 
upon implementation of such rules.
    (7) Enforcement provisions. The electronic trading facility should 
have appropriate procedures in place to monitor its position limit and 
accountability provisions and to address violations.
    (i) An electronic trading facility with significant price discovery 
contracts should use an automated means of detecting traders' violations 
of speculative limits or exemptions, particularly if the significant 
price discovery contracts have large numbers of traders. An electronic 
trading facility should monitor the continuing appropriateness of 
approved exemptions by periodically reviewing each trader's basis for 
exemption or requiring a reapplication. An automated system also should 
be used to determine whether a trader has exceeded applicable non-spot 
individual month position accountability levels and all-months-combined 
position accountability levels.
    (ii) An electronic trading facility should establish a program for 
effective enforcement of position limits for significant price discovery 
contracts. Electronic trading facilities should use a large trader 
reporting system to monitor and enforce daily compliance with position 
limit rules. The Commission notes that an electronic trading facility 
may allow traders to periodically apply to the electronic trading 
facility for an exemption and, if appropriate, be granted a position 
level higher than the applicable speculative limit. The electronic 
trading facility should establish a program to monitor approved 
exemptions from the limits. The position levels granted under such hedge 
exemptions generally should be based upon the trader's commercial 
activity in related markets including, but not limited to, positions 
held in related futures and options contracts listed for trading on 
designated contract markets, fungible agreements, contracts and 
transactions, as determined by a derivatives clearing organization. 
Electronic trading facilities may allow a brief grace period where a 
qualifying trader may exceed speculative limits or an existing exemption 
level pending the submission and approval of appropriate justification. 
An electronic trading facility should consider whether it wants to 
restrict exemptions during the last several days of trading in a 
delivery month. Acceptable procedures for obtaining and granting 
exemptions include a requirement that the electronic trading facility 
approve a specific maximum higher level.
    (iii) An acceptable speculative limit program should have specific 
policies for taking regulatory action once a violation of a position 
limit or exemption is detected. The electronic trading facility policies 
should consider appropriate actions.
    (8) Violation of Commission rules. A violation of position limits 
for significant price discovery contracts that have been self-certified 
by an electronic trading facility is also a violation of section 4a(e) 
of the Act.
    CORE PRINCIPLE V--EMERGENCY AUTHORITY. The electronic trading 
facility shall adopt rules to provide for the exercise of emergency 
authority, in consultation or cooperation with the Commission, where 
necessary and appropriate, including the authority to liquidate open 
positions in significant price discovery contracts and to suspend or 
curtail trading in a significant price discovery contract.
    (a) Guidance. An electronic trading facility on which significant 
price discovery contracts are traded should have clear procedures and 
guidelines for decision-making regarding emergency intervention in the 
market, including procedures and guidelines to avoid conflicts of 
interest while carrying out such decision-making. An electronic trading 
facility on which significant price discovery contracts are executed or 
traded should also have the authority to intervene as necessary to 
maintain markets with fair and orderly trading as well as procedures for 
carrying out the intervention. Procedures and guidelines should include 
notifying the Commission of the exercise of the electronic trading

[[Page 608]]

facility's regulatory emergency authority, explaining how conflicts of 
interest are minimized, and documenting the electronic trading 
facility's decision-making process and the reasons for using its 
emergency action authority. Information on steps taken under such 
procedures should be included in a submission of a certified rule and 
any related submissions for rule approval pursuant to part 40 of this 
chapter, when carried out pursuant to an electronic trading facility's 
emergency authority. To address perceived market threats, the electronic 
trading facility on which significant price discovery contracts are 
executed or traded should, among other things, be able to impose 
position limits in the delivery month, impose or modify price limits, 
modify circuit breakers, call for additional margin either from market 
participants or clearing members (for contracts that are cleared through 
a clearinghouse), order the liquidation or transfer of open positions, 
order the fixing of a settlement price, order a reduction in positions, 
extend or shorten the expiration date or the trading hours, suspend or 
curtail trading on the electronic trading facility, order the transfer 
of contracts and the margin for such contracts from one market 
participant to another, or alter the delivery terms or conditions or, if 
applicable, should provide for such actions through its agreements with 
its third-party provider of clearing services.
    (b) Acceptable practices. [Reserved]
    CORE PRINCIPLE VI--DAILY PUBLICATION OF TRADING INFORMATION. The 
electronic trading facility shall make public daily information on 
price, trading volume, and other trading data to the extent appropriate 
for significant price discovery contracts.
    (a) Guidance. An electronic trading facility, with respect to 
significant price discovery contracts, should provide to the public 
information regarding settlement prices, price range, volume, open 
interest, and other related market information for all applicable 
contracts as determined by the Commission on a fair, equitable and 
timely basis. Provision of information for any applicable contract can 
be through such means as provision of the information to a financial 
information service or by timely placement of the information on the 
electronic trading facility's public Web site.
    (b) Acceptable practices. Compliance withSec. 16.01 of this 
chapter, which is mandatory, is an acceptable practice that satisfies 
the requirements of Core Principle VI.
    CORE PRINCIPLE VII--COMPLIANCE WITH RULES. The electronic trading 
facility shall monitor and enforce compliance with the rules of the 
electronic trading facility, including the terms and conditions of any 
contracts to be traded and any limitations on access to the electronic 
trading facility.
    (a) Guidance--(1) An electronic trading facility on which 
significant price discovery contracts are executed or traded should have 
appropriate arrangements and resources for effective trade practice 
surveillance programs, with the authority to collect information and 
documents on both a routine and non-routine basis, including the 
examination of books and records kept by its market participants. The 
arrangements and resources should facilitate the direct supervision of 
the market and the analysis of data collected. Trade practice 
surveillance programs may be carried out by the electronic trading 
facility itself or through delegation or contracting-out to a third 
party. If the electronic trading facility on which significant price 
discovery contracts are executed or traded delegates or contracts-out 
the trade practice surveillance responsibility to a third party, such 
third party should have the capacity and authority to carry out such 
programs, and the electronic trading facility should retain appropriate 
supervisory authority over the third party.
    (2) An electronic trading facility on which significant price 
discovery contracts are executed or traded should have arrangements, 
resources and authority for effective rule enforcement. The Commission 
believes that this should include the authority and ability to 
discipline and limit or suspend the activities of a market participant 
as well as the authority and ability to terminate the activities of a 
market participant pursuant to clear and fair standards. The electronic 
trading facility can satisfy this criterion for market participants by 
expelling or denying such person's future access upon a determination 
that such a person has violated the electronic trading facility's rules.
    (b) Acceptable practices. An acceptable trade practice surveillance 
program generally would include:
    (1) Maintenance of data reflecting the details of each transaction 
executed on the electronic trading facility;
    (2) Electronic analysis of this data routinely to detect potential 
trading violations;
    (3) Appropriate and thorough investigative analysis of these and 
other potential trading violations brought to the electronic trading 
facility's attention; and
    (4) Prompt and effective disciplinary action for any violation that 
is found to have been committed. The Commission believes that the latter 
element should include the authority and ability to discipline and limit 
or suspend the activities of a market participant pursuant to clear and 
fair standards that are available to market participants. See, e.g., 17 
CFR part 8.
    CORE PRINCIPLE VIII--CONFLICTS OF INTEREST. The electronic trading 
facility on which significant price discovery contracts are executed or 
traded shall establish and enforce

[[Page 609]]

rules to minimize conflicts of interest in the decision-making process 
of the electronic trading facility and establish a process for resolving 
such conflicts of interest.
    (a) Guidance. (1) The means to address conflicts of interest in the 
decision-making of an electronic trading facility on which significant 
price discovery contracts are executed or traded should include methods 
to ascertain the presence of conflicts of interest and to make decisions 
in the event of such a conflict. In addition, the Commission believes 
that the electronic trading facility on which significant price 
discovery contracts are executed or traded should provide for 
appropriate limitations on the use or disclosure of material non-public 
information gained through the performance of official duties by board 
members, committee members and electronic trading facility employees or 
gained through an ownership interest in the electronic trading facility 
or its parent organization(s).
    (2) All electronic trading facilities on which significant price 
discovery contracts are traded bear special responsibility to regulate 
effectively, impartially, and with due consideration of the public 
interest, as provided in section 3 of the Act. Under Core Principle 
VIII, they are also required to minimize conflicts of interest in their 
decision-making processes. To comply with this core principle, 
electronic trading facilities on which significant price discovery 
contracts are traded should be particularly vigilant for such conflicts 
between and among any of their self-regulatory responsibilities, their 
commercial interests, and the several interests of their management, 
members, owners, market participants, other industry participants and 
other constituencies.
    (b) Acceptable practices. [Reserved]
    CORE PRINCIPLE IX--ANTITRUST CONSIDERATIONS. Unless necessary or 
appropriate to achieve the purposes of this Act, the electronic trading 
facility, with respect to any significant price discovery contracts, 
shall endeavor to avoid adopting any rules or taking any actions that 
result in any unreasonable restraints of trade or imposing any material 
anticompetitive burden on trading on the electronic trading facility.
    (a) Guidance. An electronic trading facility, with respect to a 
significant price discovery contract, may at any time request that the 
Commission consider under the provisions of section 15(b) of the Act any 
of the electronic trading facility's rules, which may be trading 
protocols or policies, operational rules, or terms or conditions of any 
significant price discovery contract. The Commission intends to apply 
section 15(b) of the Act to its consideration of issues under this core 
principle in a manner consistent with that previously applied to 
contract markets.
    (b) Acceptable practices. [Reserved]

[77 FR 66340, Nov. 2, 2012]



PART 37_SWAP EXECUTION FACILITIES--Table of Contents



Subparts A-G [Reserved]

              Subpart H_Financial Integrity of Transactions

Sec.
37.700-37.701 [Reserved]
37.702 General financial integrity.
37.703 [Reserved]

Subparts I-K [Reserved]

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3 and 12a, as 
amended by the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Pub. L. 111-203, 124 Stat. 1376.

    Source: 77 FR 21309, Apr. 9, 2012, unless otherwise noted.

Subparts A-G [Reserved]



              Subpart H_Financial Integrity of Transactions



Sec.Sec. 37.700-37.701  [Reserved]



Sec.  37.702  General financial integrity.

    (a) [Reserved]
    (b) For transactions cleared by a derivatives clearing organization:
    (1) By ensuring that the swap execution facility has the capacity to 
route transactions to the derivatives clearing organization in a manner 
acceptable to the derivatives clearing organization for purposes of 
clearing; and
    (2) By coordinating with each derivatives clearing organization to 
which it submits transactions for clearing, in the development of rules 
and procedures to facilitate prompt and efficient transaction processing 
in accordance with the requirements ofSec. 39.12(b)(7) of this 
chapter.



Sec.  37.703  [Reserved]

Subparts I-K [Reserved]

[[Page 610]]



PART 38_DESIGNATED CONTRACT MARKETS--Table of Contents



                      Subpart A_General Provisions

Sec.
38.1 Scope.
38.2 Exemption.
38.3 Procedures for designation.
38.4 Procedures for listing products and implementing contract market 
          rules.
38.5 Information relating to contract market compliance.
38.6 Enforceability.
38.7 Prohibited use of data collected for regulatory purposes.
38.8 Listing of swaps on a designated contract market.
38.9 Boards of trade operating both a designated contract market and a 
          swap execution facility.
38.10 Reporting of swaps traded on a designated contract market.

                Subpart B_Designation as Contract Market

38.100 Core Principle 1.

                     Subpart C_Compliance With Rules

38.150 Core Principle 2.
38.151 Access requirements.
38.152 Abusive trading practices prohibited.
38.153 Capacity to detect and investigate rule violations.
38.154 Regulatory services provided by a third party.
38.155 Compliance staff and resources.
38.156 Automated trade surveillance system.
38.157 Real-time market monitoring.
38.158 Investigations and investigation reports.
38.159 Ability to obtain information.
38.160 Additional sources for compliance.

         Subpart D_Contracts Not Readily Subject to Manipulation

38.200 Core Principle 3.
38.201 Additional sources for compliance.

                Subpart E_Prevention of Market Disruption

38.250 Core Principle 4.
38.251 General requirements.
38.252 Additional requirements for physical-delivery contracts.
38.253 Additional requirements for cash-settled contracts.
38.254 Ability to obtain information.
38.255 Risk controls for trading.
38.256 Trade reconstruction.
38.257 Regulatory service provider.
38.258 Additional sources for compliance.

            Subpart F_Position Limitations or Accountability

38.300 Core Principle 5.
38.301 Position limitations and accountability.

                      Subpart G_Emergency Authority

38.350 Core Principle 6.
38.351 Additional sources for compliance.

              Subpart H_Availability of General Information

38.400 Core Principle 7.
38.401 General requirements.

           Subpart I_Daily Publication of Trading Information

38.450 Core Principle 8.
38.451 Reporting of trade information.

                   Subpart J_Execution of Transactions

38.500 Core Principle 9.

                       Subpart K_Trade Information

38.550 Core Principle 10.
38.551 Audit trail required.
38.552 Elements of an acceptable audit trail program.
38.553 Enforcement of audit trail requirements.

              Subpart L_Financial Integrity of Transactions

38.600 Core Principle 11.
38.601 Mandatory clearing.
38.602 General financial integrity.
38.603 Protection of customer funds.
38.604 Financial surveillance.
38.605 Requirements for financial surveillance program.
38.606 Financial regulatory services provided by a third party.
38.607 Direct access.

         Subpart M_Protection of Markets and Market Participants

38.650 Core Principle 12.
38.651 Protection of markets and market participants.

                    Subpart N_Disciplinary Procedures

38.700 Core Principle 13.
38.701 Enforcement staff.
38.702 Disciplinary panels.
38.703 Notice of charges.
38.704 Right to representation.
38.705 Answer to charges.
38.706 Denial of charges and right to hearing.

[[Page 611]]

38.707 Hearings.
38.708 Decisions.
38.709 Final decisions.
38.710 Disciplinary sanctions.
38.711 Warning letters.
38.712 Additional sources for compliance.

                      Subpart O_Dispute Resolution

38.750 Core Principle 14.
38.751 Additional sources for compliance.

                 Subpart P_Governance Fitness Standards

38.800 Core Principle 15.
38.801 Additional sources for compliance.

                     Subpart Q_Conflicts of Interest

38.850 Core Principle 16.
38.851 Additional sources for compliance.

      Subpart R_Composition of Governing Boards of Contract Markets

38.900 Core Principle 17.

                         Subpart S_Recordkeeping

38.950 Core Principle 18.
38.951 Additional sources for compliance.

                   Subpart T_Antitrust Considerations

38.1000 Core Principle 19.
38.1001 Additional sources for compliance.

                       Subpart U_System Safeguards

38.1050 Core Principle 20.
38.1051 General requirements.

                      Subpart V_Financial Resources

38.1100 Core Principle 21.
38.1101 General requirements.

               Subpart W_Diversity of Boards of Directors

38.1150 Core Principle 22.

              Subpart X_Securities and Exchange Commission

38.1200 Core Principle 23.
38.1201 Additional sources for compliance.

Appendix A to Part 38--Form DCM
Appendix B to Part 38--Guidance on, and Acceptable Practices in, 
          Compliance with Core Principles

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j, 6k, 
6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as amended by the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-
203, 124 Stat. 1376.

    Source: 66 FR 42277, Aug. 10, 2001, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  38.1  Scope.

    The provisions of this part 38 shall apply to every board of trade 
that has been designated or is applying to become designated as a 
contract market under Sections 5 and 6 of the Act. Provided, however, 
nothing in this provision affects the eligibility of designated contract 
markets to operate under the provisions of parts 37 or 49 of this 
chapter.

[71 FR 1964, Jan. 12, 2006, as amended at 77 FR 36697, June 19, 2012]



Sec.  38.2  Exempt provisions.

    A designated contract market, the designated contract market's 
operator and transactions traded on or through a designated contract 
market under section 5 of the Act shall comply with all applicable 
regulations under Title 17 of the Code of Federal Regulations, except 
for the requirements of Sec.Sec. 1.39(b), 1.44, 1.53, 1.54, 1.59(b) 
and (c), 1.62, 1.63(a) and (b) and (d) through (f), 1.64, 1.69, part 8, 
Sec.Sec. 100.1, 155.2, and part 156.

[77 FR 66343, Nov. 2, 2012]



Sec.  38.3  Procedures for designation.

    (a) Application procedures. (1) A board of trade seeking designation 
as a contract market must file electronically, in a format and manner 
specified by the Secretary of the Commission, the Form DCM provided in 
appendix A of this part, with the Secretary of the Commission at its 
Washington, DC headquarters at [email protected] and the Division of 
Market Oversight at [email protected]. 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.
    (2) The application must include information sufficient to 
demonstrate compliance with the core principles specified in section 
5(d) of the Act. Form DCM consists of instructions, general questions 
and a list of exhibits (documents, information and evidence)

[[Page 612]]

required by the Commission in order to determine whether an applicant is 
able to comply with the core principles. An application will not be 
considered to be materially complete unless the applicant has submitted, 
at a minimum, the exhibits required in Form DCM. If the application is 
not materially complete, the Commission shall notify the applicant that 
the application will not be deemed to have been submitted for purposes 
of starting the 180-day review period set forth in paragraph (a)(1) of 
this section.
    (3) The applicant must identify with particularity any information 
in the application that will be subject to a request for confidential 
treatment pursuant toSec. 145.9 of this chapter.
    (4) Section 40.8 of this chapter sets forth those sections of the 
application that will be made publicly available, notwithstanding a 
request for confidential treatment pursuant toSec. 145.9 of this 
chapter.
    (5) If any information contained in the application or in any 
exhibit is or becomes inaccurate for any reason, an amendment to the 
application or a submission filed under part 40 of this chapter must be 
filed promptly correcting such information.
    (b) Reinstatement of dormant designation. Before listing or 
relisting products for trading, a dormant designated contract market as 
defined inSec. 40.1 of this chapter must reinstate its designation 
under the procedures of paragraphs (a)(1) and (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.
    (c) 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, upon consultation with the General Counsel 
or the General Counsel's designee, 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.
    (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 (c)(1) of 
this section.
    (d) Request for transfer of designation--(1) Request for transfer of 
designation, listed contracts and open interest. A designated contract 
market that wants to request the transfer of its designation from its 
current legal entity to a new legal entity, as a result of a corporate 
reorganization or otherwise, must file a request with the Commission for 
approval to transfer the designation, listed contracts and positions 
comprising all associated open interest. Such request must be filed 
electronically, in a format and manner specified by the Secretary of the 
Commission, with the Secretary of the Commission at its Washington, DC 
headquarters at [email protected] and the Division of Market 
Oversight at [email protected].
    (2) Timing of submission. The request must be filed no later than 
three months prior to the anticipated corporate change; provided that 
the designated contract market may file a request with the Commission 
later than three months prior to the anticipated corporate change if the 
designated contract market does not know and reasonably could not have 
known of the anticipated change three months prior to the anticipated 
corporate change. In such event, the designated contract market shall be 
required to immediately file the request with the Commission as soon as 
it knows of such change, with an explanation as to the timing of the 
request.
    (3) Required information. The request shall include the following:
    (i) The underlying agreement that governs the corporate change;
    (ii) A narrative description of the corporate change, including the 
reason for the change and its impact on the designated contract market, 
including its governance and operations, and its impact on the rights 
and obligations of market participants holding the open interest 
positions;

[[Page 613]]

    (iii) A discussion of the transferee's ability to comply with the 
Act, including the core principles applicable to designated contract 
markets, and the Commission's regulations thereunder;
    (iv) The governing documents of the transferee including, but not 
limited to, articles of incorporation and bylaws;
    (v) The transferee's rules marked to show changes from the current 
rules of the designated contract market;
    (vi) A list of contracts, agreements, transactions or swaps for 
which the designated contract market requests transfer of open interest;
    (vii) A representation by the transferee that it:
    (A) Will be the surviving legal entity and successor-in-interest to 
the transferor designated contract market and will retain and assume, 
without limitation, all the assets and liabilities of the transferor;
    (B) Will assume responsibility for complying with all applicable 
provisions of the Act and the Commission's regulations thereunder, 
including part 38 and Appendices thereto;
    (C) Will assume, maintain and enforce all rules implementing and 
complying with these core principles, including the adoption of the 
transferor's rulebook, as amended in the request, and that any such 
amendments will be submitted to the Commission pursuant to section 5c(c) 
of the Act and part 40 of the Commission's regulations; and
    (D) Will comply with all self-regulatory responsibilities except if 
otherwise indicated in the request, and will maintain and enforce all 
self-regulatory programs.
    (viii) A representation by the transferee that upon the transfer:
    (A) All open interest in all contracts listed on the transferor will 
be transferred to and represent equivalent open interest in all such 
contracts listed on the transferee;
    (B) It will assume responsibility for and maintain compliance with 
the core principles for all contracts previously listed for trading 
through the transferor, whether by certification or approval; and
    (C) That none of the proposed rule changes will affect the rights 
and obligations of any market participant with open positions 
transferred to it and that the proposed rule changes do not modify the 
manner in which such contracts are settled or cleared.
    (ix) A representation by the transferee that market participants 
will be notified of all changes to the transferor's rulebook prior to 
the transfer and will be further notified of the concurrent transfer of 
the contract market designation, and the related transfer of all listed 
contracts and all associated open interest, to the transferee upon 
Commission approval and issuance of an order permitting this transfer.
    (4) Commission determination. The Commission will review a request 
as soon as practicable and such request will be approved or denied 
pursuant to a Commission order and based on the Commission's 
determination as to the transferee's ability to continue to operate the 
designated contract market in compliance with the Act and the 
Commission's regulations thereunder.
    (e) Request for withdrawal of application for designation. An 
applicant for designation may withdraw its application submitted 
pursuant to paragraphs (a)(1) and (2) of this section by filing such a 
request with the Commission. Such request must be filed electronically, 
in a format and manner specified by the Secretary of the Commission, 
with the Secretary of the Commission at its Washington, DC headquarters, 
at [email protected], and the Division of Market Oversight, at 
[email protected]. 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 a 
request electronically, in a format and manner specified by the 
Secretary of the Commission, with the Secretary of the Commission at its 
Washington, DC headquarters at [email protected] and the Division of 
Market Oversight at [email protected]. Vacation of designation 
shall not affect any action

[[Page 614]]

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.

[77 FR 36697, June 19, 2012]



Sec.  38.4  Procedures for listing products and implementing contract
market rules.

    (a) Request for Commission approval of rules and products. (1) An 
applicant for designation, or a designated contract market, may request 
that the Commission approve under section 5c(c) of the Act, any or all 
of its rules and contract terms and conditions, and subsequent 
amendments thereto, prior to their implementation or, notwithstanding 
the provisions of section 5c(c)(4) of the Act, at any time thereafter, 
under the procedures ofSec. 40.3 orSec. 40.5 of this chapter, as 
applicable. A designated contract market may label a future, swap or 
options product in its rules as ``Listed for trading pursuant to 
Commission approval,'' if the future, swap or options product and its 
terms or conditions have been approved by the Commission, and it may 
label as ``Approved by the Commission'' only those rules that have been 
so approved.
    (2) Notwithstanding the timeline under Sec.Sec. 40.3(c) and 
40.5(c) of this chapter, the operating rules, and terms and conditions 
of futures, swaps and option products that have been submitted for 
Commission approval at the same time as an application for contract 
market designation or an application underSec. 38.3(b) of this part to 
reinstate the designation of a dormant designated contract market, as 
defined inSec. 40.1 of this chapter, or while one of the foregoing is 
pending, will be deemed approved by the Commission no earlier than when 
the facility is deemed to be designated or reinstated.
    (b) Self-certification of rules and products. Rules of a designated 
contract market and subsequent amendments thereto, including both 
operational rules and the terms or conditions of futures, swaps and 
option products listed for trading on the facility, not voluntarily 
submitted for prior Commission approval pursuant to paragraph (a) of 
this section, must be submitted to the Commission with a certification 
that the rule, rule amendment or futures, swap or options product 
complies with the Act or rules thereunder pursuant to the procedures of 
Sec.  40.6 of this chapter, as applicable. Provided, however, any rule 
or rule amendment that would, for a delivery month having open interest, 
materially change a term or condition of a swap or a contract for future 
delivery in an agricultural commodity enumerated in section 1a(9) of the 
Act, or of an option on such contract or commodity, must be submitted to 
the Commission prior to its implementation for review and approval under 
Sec.  40.4 of this chapter.
    (c) An applicant for designation, or a designated contract market, 
may request that the Commission consider under the provisions of section 
15(b) of the Act any of the contract market's rules or policies, 
including both operational rules and the terms or conditions of products 
listed for trading.

[66 FR 42277, Aug. 10, 2001, as amended at 67 FR 62878, Oct. 9, 2002; 77 
FR 36698, June 19, 2012]



Sec.  38.5  Information relating to contract market compliance.

    (a) Requests for information. Upon request by the Commission, a 
designated contract market must file with the Commission information 
related to its business as a designated contract market, including 
information relating to data entry and trade details, in the form and 
manner and within the time specified by the Commission in its request.
    (b) Demonstration of compliance. Upon request by the Commission, a 
designated contract market must file with the Commission a written 
demonstration, containing supporting data, information and documents, in 
the form and manner and within the time specified by the Commission, 
that the designated contract market is in compliance with one or more 
core principles as specified in the request, or that is requested by the 
Commission to show that the designated contract market satisfies its 
obligations under the Act.
    (c) Equity interest transfers--(1) Equity interest transfer 
notification. A designated contract market shall file with the 
Commission a notification of each

[[Page 615]]

transaction that the designated contract market enters into involving 
the transfer of ten percent or more of the equity interest in the 
designated contract market.
    (2) Timing of notification. The equity transfer notice described in 
paragraph (1) shall be filed electronically with the Secretary of the 
Commission at its Washington, DC headquarters at [email protected] 
and the Division of Market Oversight at [email protected], at the 
earliest possible time but in no event later than the open of business 
ten business days following the date upon which the designated contract 
market enters into a firm obligation to transfer the equity interest.
    (3) Rule filing. Notwithstanding the foregoing, any aspect of an 
equity interest transfer described in paragraph (c)(1) of this section 
that necessitates the filing of a rule as defined in part 40 of this 
chapter shall comply with the requirements of 5c(c) of the Act and part 
40 of this chapter, and all other applicable Commission regulations.
    (d) Delegation of authority. The Commission hereby delegates, until 
it orders otherwise, the authority set forth in paragraph (b) of this 
section to the Director of the Division of Market Oversight or such 
other employee or employees as the Director may designate from time to 
time. The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph. Nothing in this 
paragraph prohibits the Commission, at its election, from exercising the 
authority delegated in this paragraph.

[77 FR 36699, June 19, 2012]



Sec.  38.6  Enforceability.

    An agreement, contract or transaction entered into on or pursuant to 
the rules of a designated contract market shall not be void, voidable, 
subject to rescission or otherwise invalidated or rendered unenforceable 
as a result of:
    (a) A violation by the designated contract market of the provisions 
of section 5 of the Act or this part 38; or
    (b) Any Commission proceeding to alter or supplement a rule, term or 
condition under section 8a(7) of the Act, to declare an emergency under 
section 8a(9) of the Act, or any other proceeding the effect of which is 
to alter, supplement, or require a designated contract market to adopt a 
specific term or condition, trading rule or procedure, or to take or 
refrain from taking a specific action.



Sec.  38.7  Prohibited use of data collected for regulatory purposes.

    A designated contract market may not use for business or marketing 
purposes any proprietary data or personal information it collects or 
receives, from or on behalf of any person, for the purpose of fulfilling 
its regulatory obligations; provided however, that a designated contract 
market may use such data or information for business or marketing 
purposes if the person from whom it collects or receives such data or 
information clearly consents to the designated contract market's use of 
such data or information in such manner. A designated contract market, 
where necessary, for regulatory purposes, may share such data or 
information with one or more designated contract markets or swap 
execution facilities registered with the Commission. A designated 
contract market may not condition access to its trading facility on a 
market participant's consent to the use of proprietary data or personal 
information for business or marketing purposes.

[77 FR 36699, June 19, 2012]



Sec.  38.8  Listing of swaps on a designated contract market.

    (a) A designated contract market that lists for the first time a 
swap contract for trading on its contract market must, either prior to 
or at the time of such listing, file with the Commission a written 
demonstration detailing how the designated contract market is addressing 
its self-regulatory obligations and is fulfilling its statutory and 
regulatory obligations with respect to swap transactions.
    (b)(1) Prior to listing swaps for trading on or through a designated 
contract market, each designated contract market must obtain from the 
Commission a unique, alphanumeric code assigned to the designated 
contract market by the Commission for the purpose

[[Page 616]]

of identifying the designated contract market with respect to unique 
swap identifier creation.
    (2) Each designated contract market must generate and assign a 
unique swap identifier at, or as soon as technologically practicable 
following, the time of execution of the swap, in a manner consistent 
with the requirements of part 45.

[77 FR 36699, June 19, 2012]



Sec.  38.9  Boards of trade operating both a designated contract 
market and a swap execution facility.

    (a) A board of trade that operates a designated contract market and 
that intends to also operate a swap execution facility must separately 
register, pursuant to the swap execution facility registration 
requirements set forth in part 37 of this chapter, and on an ongoing 
basis, comply with the core principles under section 5h of the Act, and 
the swap execution facility rules under part 37 of this chapter.
    (b) A board of trade that operates both a designated contract market 
and a swap execution facility, and that uses the same electronic trade 
execution system for executing and trading swaps that it uses in its 
capacity as a designated contract market, must clearly identify to 
market participants for each swap whether the execution or trading of 
such swap is taking place on the designated contract market or on the 
swap execution facility.

[77 FR 36699, June 19, 2012]



Sec.  38.10  Reporting of swaps traded on a designated contract market.

    With respect to swaps traded on and/or pursuant to the rules of a 
designated contract market, each designated contract market must 
maintain and report specified swap data as provided under parts 43 and 
45 of this chapter.

[77 FR 36700, June 19, 2012]



                Subpart B_Designation as Contract Market

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.100  Core Principle 1.

    (a) In general. To be designated, and maintain a designation, as a 
contract market, a board of trade shall comply with:
    (1) Any core principle described in section 5(d) of the Act, and
    (2) Any requirement that the Commission may impose by rule or 
regulation pursuant to section 8a(5) of the Act.
    (b) Reasonable discretion of the contract market. Unless otherwise 
determined by the Commission by rule or regulation, a board of trade 
described in paragraph (a) of this section shall have reasonable 
discretion in establishing the manner in which the board of trade 
complies with the core principles described in this subsection.



                     Subpart C_Compliance With Rules

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.150  Core Principle 2.

    (a) In general. The board of trade shall establish, monitor, and 
enforce compliance with the rules of the contract market, including:
    (1) Access requirements;
    (2) The terms and conditions of any contracts to be traded on the 
contract market; and
    (3) Rules prohibiting abusive trade practices on the contract 
market.
    (b) Capacity of contract market. The board of trade shall have the 
capacity to detect, investigate, and apply appropriate sanctions to any 
person that violates any rule of the contract market.
    (c) Requirement of rules. The rules of the contract market shall 
provide the board of trade with the ability and authority to obtain any 
necessary information to perform any function described in this section, 
including the capacity to carry out such international information-
sharing agreements, as the Commission may require.



Sec.  38.151  Access requirements.

    (a) Jurisdiction. Prior to granting any member or market participant 
access to its markets, a designated contract

[[Page 617]]

market must require that the member or market participant consent to its 
jurisdiction.
    (b) Impartial access by members, persons with trading privileges and 
independent software vendors. A designated contract market must provide 
its members, persons with trading privileges, and independent software 
vendors with impartial access to its markets and services, including:
    (1) Access criteria that are impartial, transparent, and applied in 
a non-discriminatory manner; and
    (2) Comparable fee structures for members, persons with trading 
privileges and independent software vendors receiving equal access to, 
or services from, the designated contract market.
    (c) Limitations on access. A designated contract market must 
establish and impartially enforce rules governing denials, suspensions, 
and revocations of a member's and a person with trading privileges' 
access privileges to the designated contract market, including when such 
actions are part of a disciplinary or emergency action by the designated 
contract market.



Sec.  38.152  Abusive trading practices prohibited.

    A designated contract market must prohibit abusive trading practices 
on its markets by members and market participants. Designated contract 
markets that permit intermediation must prohibit customer-related abuses 
including, but not limited to, trading ahead of customer orders, trading 
against customer orders, accommodation trading, and improper cross 
trading. Specific trading practices that must be prohibited by all 
designated contract markets include front-running, wash trading, pre-
arranged trading (except for certain transactions specifically permitted 
under part 38 of this chapter), fraudulent trading, money passes, and 
any other trading practices that a designated contract market deems to 
be abusive. In addition, a designated contract market also must prohibit 
any other manipulative or disruptive trading practices prohibited by the 
Act or by the Commission pursuant to Commission regulation.



Sec.  38.153  Capacity to detect and investigate rule violations.

    A designated contract market must have arrangements and resources 
for effective enforcement of its rules. Such arrangements must include 
the authority to collect information and documents on both a routine and 
non-routine basis, including the authority to examine books and records 
kept by the designated contract market's members and by persons under 
investigation. A designated contract market's arrangements and resources 
must also facilitate the direct supervision of the market and the 
analysis of data collected to determine whether a rule violation 
occurred.



Sec.  38.154  Regulatory services provided by a third party.

    (a) Use of third-party provider permitted. A designated contract 
market may choose to utilize a registered futures association or another 
registered entity, as such terms are defined under the Act, 
(collectively, ``regulatory service provider''), for the provision of 
services to assist in complying with the core principles, as approved by 
the Commission. Any designated contract market that chooses to utilize a 
regulatory service provider must ensure that its regulatory service 
provider has the capacity and resources necessary to provide timely and 
effective regulatory services, including adequate staff and automated 
surveillance systems. A designated contract market will at all times 
remain responsible for the performance of any regulatory services 
received, for compliance with the designated contract market's 
obligations under the Act and Commission regulations, and for the 
regulatory service provider's performance on its behalf.
    (b) Duty to supervise third party. A designated contract market that 
elects to utilize a regulatory service provider must retain sufficient 
compliance staff to supervise the quality and effectiveness of the 
services provided on its behalf. Compliance staff of the designated 
contract market must hold regular meetings with the regulatory service 
provider to discuss ongoing investigations, trading patterns, market 
participants, and any other matters of

[[Page 618]]

regulatory concern. A designated contract market also must conduct 
periodic reviews of the adequacy and effectiveness of services provided 
on its behalf. Such reviews must be documented carefully and made 
available to the Commission upon request.
    (c) Regulatory decisions required from the designated contract 
market. A designated contract market that elects to utilize a regulatory 
service provider must retain exclusive authority in decisions involving 
the cancellation of trades, the issuance of disciplinary charges against 
members or market participants, and the denials of access to the trading 
platform for disciplinary reasons. A designated contract market may also 
retain exclusive authority in other areas of its choosing. A designated 
contract market must document any instances where its actions differ 
from those recommended by its regulatory service provider, including the 
reasons for the course of action recommended by the regulatory service 
provider and the reasons why the designated contract market chose a 
different course of action.



Sec.  38.155  Compliance staff and resources.

    (a) Sufficient compliance staff. A designated contract market must 
establish and maintain sufficient compliance department resources and 
staff to ensure that it can conduct effective audit trail reviews, trade 
practice surveillance, market surveillance, and real-time market 
monitoring. The designated contract market's compliance staff also must 
be sufficient to address unusual market or trading events as they arise, 
and to conduct and complete investigations in a timely manner, as set 
forth inSec. 38.158(b) of this part.
    (b) Ongoing monitoring of compliance staff resources. A designated 
contract market must monitor the size and workload of its compliance 
staff annually, and ensure that its compliance resources and staff are 
at appropriate levels. In determining the appropriate level of 
compliance resources and staff, the designated contract market should 
consider trading volume increases, the number of new products or 
contracts to be listed for trading, any new responsibilities to be 
assigned to compliance staff, the results of any internal review 
demonstrating that work is not completed in an effective or timely 
manner, and any other factors suggesting the need for increased 
resources and staff.



Sec.  38.156  Automated trade surveillance system.

    A designated contract market must maintain an automated trade 
surveillance system capable of detecting and investigating potential 
trade practice violations. The automated system must load and process 
daily orders and trades no later than 24 hours after the completion of 
the trading day. In addition, the automated trade surveillance system 
must have the capability to detect and flag specific trade execution 
patterns and trade anomalies; compute, retain, and compare trading 
statistics; compute trade gains, losses, and futures-equivalent 
positions; reconstruct the sequence of market activity; perform market 
analyses; and support system users to perform in-depth analyses and ad 
hoc queries of trade-related data.



Sec.  38.157  Real-time market monitoring.

    A designated contract market must conduct real-time market 
monitoring of all trading activity on its electronic trading platform(s) 
to identify disorderly trading and any market or system anomalies. A 
designated contract market must have the authority to adjust trade 
prices or cancel trades when necessary to mitigate market disrupting 
events caused by malfunctions in its electronic trading platform(s) or 
errors in orders submitted by members and market participants. Any trade 
price adjustments or trade cancellations must be transparent to the 
market and subject to standards that are clear, fair, and publicly 
available.



Sec.  38.158  Investigations and investigation reports.

    (a) Procedures. A designated contract market must establish and 
maintain procedures that require its compliance staff to conduct 
investigations of possible rule violations. An investigation must be 
commenced upon the receipt of a request from Commission staff or

[[Page 619]]

upon the discovery or receipt of information by the designated contract 
market that indicates a reasonable basis for finding that a violation 
may have occurred or will occur.
    (b) Timeliness. Each compliance staff investigation must be 
completed in a timely manner. Absent mitigating factors, a timely manner 
is no later than 12 months after the date that an investigation is 
opened. Mitigating factors that may reasonably justify an investigation 
taking longer than 12 months to complete include the complexity of the 
investigation, the number of firms or individuals involved as potential 
wrongdoers, the number of potential violations to be investigated, and 
the volume of documents and data to be examined and analyzed by 
compliance staff.
    (c) Investigation reports when a reasonable basis exists for finding 
a violation. Compliance staff must submit a written investigation report 
for disciplinary action in every instance in which compliance staff 
determines from surveillance or from an investigation that a reasonable 
basis exists for finding a rule violation. The investigation report must 
include the reason the investigation was initiated; a summary of the 
complaint, if any; the relevant facts; compliance staff's analysis and 
conclusions; and a recommendation as to whether disciplinary action 
should be pursued.
    (d) Investigation reports when no reasonable basis exists for 
finding a violation. If after conducting an investigation, compliance 
staff determines that no reasonable basis exists for finding a 
violation, it must prepare a written report including the reason(s) the 
investigation was initiated; a summary of the complaint, if any; the 
relevant facts; and compliance staff's analysis and conclusions.
    (e) Warning letters. No more than one warning letter may be issued 
to the same person or entity found to have committed the same rule 
violation within a rolling twelve month period.



Sec.  38.159  Ability to obtain information.

    A designated contract market must have the ability and authority to 
obtain any necessary information to perform any function required under 
this subpart C of the Commission's regulations, including the capacity 
to carry out international information-sharing agreements as the 
Commission may require. Appropriate information-sharing agreements can 
be established with other designated contract markets and swap execution 
facilities, or the Commission can act in conjunction with the designated 
contract market to carry out such information sharing.



Sec.  38.160  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
in appendix B of this part to demonstrate to the Commission compliance 
with the requirements ofSec. 38.150 of this part.



         Subpart D_Contracts Not Readily Subject to Manipulation

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.200  Core Principle 3.

    The board of trade shall list on the contract market only contracts 
that are not readily susceptible to manipulation.



Sec.  38.201  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
in appendix C of this part to demonstrate to the Commission compliance 
with the requirements ofSec. 38.200 of this part.



                Subpart E_Prevention of Market Disruption

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.250  Core Principle 4.

    The board of trade shall have the capacity and responsibility to 
prevent manipulation, price distortion, and disruptions of the delivery 
or cash-settlement process through market surveillance, compliance, and 
enforcement practices and procedures, including:
    (a) Methods for conducting real-time monitoring of trading; and
    (b) Comprehensive and accurate trade reconstructions.

[[Page 620]]



Sec.  38.251  General requirements.

    A designated contract market must:
    (a) Collect and evaluate data on individual traders' market activity 
on an ongoing basis in order to detect and prevent manipulation, price 
distortions and, where possible, disruptions of the physical-delivery or 
cash-settlement process;
    (b) Monitor and evaluate general market data in order to detect and 
prevent manipulative activity that would result in the failure of the 
market price to reflect the normal forces of supply and demand;
    (c) Demonstrate an effective program for conducting real-time 
monitoring of market conditions, price movements and volumes, in order 
to detect abnormalities and, when necessary, make a good-faith effort to 
resolve conditions that are, or threaten to be, disruptive to the 
market; and
    (d) Demonstrate the ability to comprehensively and accurately 
reconstruct daily trading activity for the purposes of detecting trading 
abuses and violations of exchange-set position limits, including those 
that may have occurred intraday.



Sec.  38.252  Additional requirements for physical-delivery contracts.

    For physical-delivery contracts, the designated contract market must 
demonstrate that it:
    (a) Monitors a contract's terms and conditions as they relate to the 
underlying commodity market and to the convergence between the contract 
price and the price of the underlying commodity and show a good-faith 
effort to resolve conditions that are interfering with convergence; and
    (b) Monitors the supply of the commodity and its adequacy to satisfy 
the delivery requirements and make a good-faith effort to resolve 
conditions that threaten the adequacy of supplies or the delivery 
process.



Sec.  38.253  Additional requirements for cash-settled contracts.

    (a) For cash-settled contracts, the designated contract market must 
demonstrate that it:
    (1) Monitors the pricing of the index to which the contract will be 
settled; and
    (2) Monitors the continued appropriateness of the methodology for 
deriving the index and makes a good-faith effort to resolve conditions, 
including amending contract terms where necessary, where there is a 
threat of market manipulation, disruptions, or distortions.
    (b) If a contract listed on a designated contract market is settled 
by reference to the price of a contract or commodity traded in another 
venue, including a price or index derived from prices on another 
designated contract market, the designated contract market must have 
rules or agreements that allow the designated contract market access to 
information on the activities of its traders in the reference market.



Sec.  38.254  Ability to obtain information.

    (a) The designated contract market must have rules that require 
traders in its contracts to keep records of their trading, including 
records of their activity in the underlying commodity and related 
derivatives markets, and make such records available, upon request, to 
the designated contract market.
    (b) A designated contract market with participants trading through 
intermediaries must either use a comprehensive large-trader reporting 
system (LTRS) or be able to demonstrate that it can obtain position data 
from other sources in order to conduct an effective surveillance 
program.



Sec.  38.255  Risk controls for trading.

    The designated contract market must establish and maintain risk 
control mechanisms to prevent and reduce the potential risk of price 
distortions and market disruptions, including, but not limited to, 
market restrictions that pause or halt trading in market conditions 
prescribed by the designated contract market.



Sec.  38.256  Trade reconstruction.

    The designated contract market must have the ability to 
comprehensively and accurately reconstruct all trading on its trading 
facility. All audit-trail data and reconstructions

[[Page 621]]

must be made available to the Commission in a form, manner, and time 
that is acceptable to the Commission.



Sec.  38.257  Regulatory service provider.

    A designated contract market must comply with the regulations in 
this subpart through a dedicated regulatory department, or by delegation 
of that function to a registered futures association or a registered 
entity (collectively, ``regulatory service provider''), as such terms 
are defined in the Act and over which the designated contract market has 
supervisory authority.



Sec.  38.258  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
and acceptable practices in appendix B of this part to demonstrate to 
the Commission compliance with the requirements ofSec. 38.250 of this 
part.



            Subpart F_Position Limitations or Accountability

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.300  Core Principle 5.

    To reduce the potential threat of market manipulation or congestion 
(especially during trading in the delivery month), the board of trade 
shall adopt for each contract of the board of trade, as is necessary and 
appropriate, position limitations or position accountability for 
speculators. For any contract that is subject to a position limitation 
established by the Commission, pursuant to section 4a(a), the board of 
trade shall set the position limitation of the board of trade at a level 
not higher than the position limitation established by the Commission.



Sec.  38.301  Position limitations and accountability.

    A designated contract market must meet the requirements of parts 150 
and 151 of this chapter, as applicable.



                      Subpart G_Emergency Authority

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.350  Core Principle 6.

    The board of trade, in consultation or cooperation with the 
Commission, shall adopt rules to provide for the exercise of emergency 
authority, as is necessary and appropriate, including the authority:
    (a) To liquidate or transfer open positions in any contract;
    (b) To suspend or curtail trading in any contract; and
    (c) To require market participants in any contract to meet special 
margin requirements.



Sec.  38.351  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
and/or acceptable practices in appendix B of this part to demonstrate to 
the Commission compliance with the requirements ofSec. 38.350.



              Subpart H_Availability of General Information

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.400  Core Principle 7.

    The board of trade shall make available to market authorities, 
market participants, and the public accurate information concerning:
    (a) The terms and conditions of the contracts of the contract 
market; and
    (b)(1) The rules, regulations and mechanisms for executing 
transactions on or through the facilities of the contract market, and
    (2) The rules and specifications describing the operation of the 
contract market's:
    (i) Electronic matching platform, or
    (ii) Trade execution facility.



Sec.  38.401  General requirements.

    (a) General. (1) A designated contract market must have procedures, 
arrangements and resources for disclosing to the Commission, market 
participants and the public accurate information pertaining to:
    (i) Contract terms and conditions;
    (ii) Rules and regulations pertaining to the trading mechanisms; and

[[Page 622]]

    (iii) Rules and specifications pertaining to operation of the 
electronic matching platform or trade execution facility.
    (2) Through the procedures, arrangements and resources required in 
paragraph (a) of this section, the designated contract market must 
ensure public dissemination of information pertaining to new product 
listings, new rules, rule amendments or other changes to previously-
disclosed information, in accordance with the timeline provided in 
paragraph (c) of this section.
    (3) A designated contract market shall meet the requirements of this 
paragraph (a), by placing the information described in this paragraph 
(a) on the designated contract market's Web site within the time 
prescribed in paragraph (c) of this section.
    (b) Accuracy requirement. With respect to any communication with the 
Commission, and any information required to be transmitted or made 
available to market participants and the public, including on its Web 
site or otherwise, a designated contract market must provide information 
that it believes, to the best of its knowledge, is accurate and 
complete, and must not omit material information.
    (c) Notice of regulatory submissions. (1) A designated contract 
market, in making available on its Web site information pertaining to 
new product listings, new rules, rule amendments or other changes to 
previously-disclosed information, must place such information and 
submissions on its Web site concurrent with the filing of such 
information or submissions with the Secretary of the Commission.
    (2) To the extent that a designated contract market requests 
confidential treatment of any information filed with the Secretary of 
the Commission, the designated contract market must post on its Web site 
the public version of such filing or submission.
    (d) Rulebook. A designated contract market must ensure that the 
rulebook posted on its Web site is accurate, complete, current and 
readily accessible to the public. A designated contract market must 
publish or post in its rulebook all new or amended rules, both 
substantive and non-substantive, on the date of implementation of such 
new or amended rule, on the date a new product is listed, or on the date 
any changes to previously-disclosed information take effect.



           Subpart I_Daily Publication of Trading Information

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.450  Core Principle 8.

    The board of trade shall make public daily information on settlement 
prices, volume, open interest, and opening and closing ranges for 
actively traded contracts on the contract market.



Sec.  38.451  Reporting of trade information.

    A designated contract market must meet the reporting requirements 
set forth in part 16 of this chapter.



                   Subpart J_Execution of Transactions

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.500  Core Principle 9.

    The board of trade shall provide a competitive, open, and efficient 
market and mechanism for executing transactions that protects the price 
discovery process of trading in the centralized market of the board of 
trade. The rules of the board of trade may authorize, for bona fide 
business purposes:
    (a) Transfer trades or office trades;
    (b) An exchange of:
    (1) Futures in connection with a cash commodity transaction;
    (2) Futures for cash commodities; or
    (3) Futures for swaps; or
    (c) A futures commission merchant, acting as principal or agent, to 
enter into or confirm the execution of a contract for the purchase or 
sale of a commodity for future delivery if the contract is reported, 
recorded, or cleared in accordance with the rules of the contract market 
or a derivatives clearing organization.

[[Page 623]]



                       Subpart K_Trade Information

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.550  Core Principle 10.

    The board of trade shall maintain rules and procedures to provide 
for the recording and safe storage of all identifying trade information 
in a manner that enables the contract market to use the information:
    (a) To assist in the prevention of customer and market abuses; and
    (b) To provide evidence of any violations of the rules of the 
contract market.



Sec.  38.551  Audit trail required.

    A designated contract market must capture and retain all audit trail 
data necessary to detect, investigate, and prevent customer and market 
abuses. Such data must be sufficient to reconstruct all transactions 
within a reasonable period of time and to provide evidence of any 
violations of the rules of the designated contract market. An acceptable 
audit trail must also permit the designated contract market to track a 
customer order from the time of receipt through fill, allocation, or 
other disposition, and must include both order and trade data.



Sec.  38.552  Elements of an acceptable audit trail program.

    (a) Original source documents. A designated contract market's audit 
trail must include original source documents. Original source documents 
include unalterable, sequentially identified records on which trade 
execution information is originally recorded, whether recorded manually 
or electronically. Records for customer orders (whether filled, 
unfilled, or cancelled, each of which shall be retained or 
electronically captured) must reflect the terms of the order, an account 
identifier that relates back to the account(s) owner(s), and the time of 
order entry. For open-outcry trades, the time of report of execution of 
the order shall also be captured.
    (b) Transaction history database. A designated contract market's 
audit trail program must include an electronic transaction history 
database. An adequate transaction history database includes a history of 
all trades executed via open outcry or via entry into an electronic 
trading system, and all orders entered into an electronic trading 
system, including all order modifications and cancellations. An adequate 
transaction history database also includes:
    (1) All data that are input into the trade entry or matching system 
for the transaction to match and clear;
    (2) The customer type indicator code;
    (3) Timing and sequencing data adequate to reconstruct trading; and
    (4) Identification of each account to which fills are allocated.
    (c) Electronic analysis capability. A designated contract market's 
audit trail program must include electronic analysis capability with 
respect to all audit trail data in the transaction history database. 
Such electronic analysis capability must ensure that the designated 
contract market has the ability to reconstruct trading and identify 
possible trading violations with respect to both customer and market 
abuse.
    (d) Safe storage capability. A designated contract market's audit 
trail program must include the capability to safely store all audit 
trail data retained in its transaction history database. Such safe 
storage capability must include the capability to store all data in the 
database in a manner that protects it from unauthorized alteration, as 
well as from accidental erasure or other loss. Data must be retained in 
accordance with the recordkeeping requirements of Core Principle 18 and 
the associated regulations in subpart S of this part.



Sec.  38.553  Enforcement of audit trail requirements.

    (a) Annual audit trail and recordkeeping reviews. A designated 
contract market must enforce its audit trail and recordkeeping 
requirements through at least annual reviews of all members and persons 
and firms subject to designated contract market recordkeeping rules to 
verify their compliance with the contract market's audit trail and 
recordkeeping requirements. Such reviews must include, but are not 
limited to, the following:

[[Page 624]]

    (1) For electronic trading, audit trail and recordkeeping reviews 
must include reviews of randomly selected samples of front-end audit 
trail data for order routing systems; a review of the process by which 
user identifications are assigned and user identification records are 
maintained; a review of usage patterns associated with user 
identifications to monitor for violations of user identification rules; 
and reviews of account numbers and customer type indicator codes in 
trade records to test for accuracy and improper use.
    (2) For open outcry trading, audit trail and recordkeeping reviews 
must include reviews of members' and market participants' compliance 
with the designated contract market's trade timing, order ticket, and 
trading card requirements.
    (b) Enforcement program required. A designated contract market must 
establish a program for effective enforcement of its audit trail and 
recordkeeping requirements for both electronic and open-outcry trading, 
as applicable. An effective program must identify members and persons 
and firms subject to designated contract market recordkeeping rules that 
have failed to maintain high levels of compliance with such 
requirements, and levy meaningful sanctions when deficiencies are found. 
Sanctions must be sufficient to deter recidivist behavior. No more than 
one warning letter may be issued to the same person or entity found to 
have committed the same rule violation within a rolling twelve month 
period.



              Subpart L_Financial Integrity of Transactions

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.600  Core Principle 11.

    The board of trade shall establish and enforce:
    (a) Rules and procedures for ensuring the financial integrity of 
transactions entered into on or through the facilities of the contract 
market (including the clearance and settlement of the transactions with 
a derivatives clearing organization); and
    (b) Rules to ensure:
    (1) The financial integrity of any:
    (i) Futures commission merchant, and
    (ii) Introducing broker; and
    (2) The protection of customer funds.



Sec.  38.601  Mandatory clearing.

    (a) Transactions executed on or through the designated contract 
market must be cleared through a Commission-registered derivatives 
clearing organization, in accordance with the provisions of part 39 of 
this chapter. Notwithstanding the foregoing, transactions in security 
futures products executed on or through the designated contract market 
may alternatively be cleared through a clearing agency, registered 
pursuant to section 17A of the Securities Exchange Act of 1934.
    (b) A designated contract market must coordinate with each 
derivatives clearing organization to which it submits transactions for 
clearing, in the development of rules and procedures to facilitate 
prompt and efficient transaction processing in accordance with the 
requirements ofSec. 39.12(b)(7) of this chapter.

[77 FR 36700, June 19, 2012, as amended at 77 FR 37803, June 25, 2012]



Sec.  38.602  General financial integrity.

    A designated contract market must provide for the financial 
integrity of its transactions by establishing and maintaining 
appropriate minimum financial standards for its members and non-
intermediated market participants.



Sec.  38.603  Protection of customer funds.

    A designated contract market must have rules concerning the 
protection of customer funds. These rules shall address appropriate 
minimum financial standards for intermediaries, the segregation of 
customer and proprietary funds, the custody of customer funds, the 
investment standards for customer funds, intermediary default procedures 
and related recordkeeping. A designated contract market must review the 
default rules and procedures of the derivatives clearing organization 
that clears for such designated contract market to wind down operations,

[[Page 625]]

transfer customers, or otherwise protect customers in the event of a 
default of a clearing member or the derivatives clearing organization.



Sec.  38.604  Financial surveillance.

    A designated contract market must monitor members' compliance with 
the designated contract market's minimum financial standards and, 
therefore, must routinely receive and promptly review financial and 
related information from its members, as well as continuously monitor 
the positions of members and their customers. A designated contract 
market must have rules that prescribe minimum capital requirements for 
member futures commission merchants and introducing brokers. A 
designated contract market must:
    (a) Continually survey the obligations of each futures commission 
merchant created by the positions of its customers;
    (b) As appropriate, compare those obligations to the financial 
resources of the futures commission merchant; and
    (c) Take appropriate steps to use this information to protect 
customer funds.



Sec.  38.605  Requirements for financial surveillance program.

    A designated contract market's financial surveillance program for 
futures commission merchants, retail foreign exchange dealers, and 
introducing brokers must comply with the requirements ofSec. 1.52 of 
this chapter to assess the compliance of such entities with applicable 
contract market rules and Commission regulations.



Sec.  38.606  Financial regulatory services provided by a third party.

    A designated contract market may comply with the requirements of 
Sec.  38.604 (Financial Surveillance) andSec. 38.605 (Requirements for 
Financial Surveillance Program) of this part through the regulatory 
services of a registered futures association or a registered entity 
(collectively, ``regulatory service provider''), as such terms are 
defined under the Act. A designated contract market must ensure that its 
regulatory service provider has the capacity and resources necessary to 
provide timely and effective regulatory services, including adequate 
staff and appropriate surveillance systems. A designated contract market 
will at all times remain responsible for compliance with its obligations 
under the Act and Commission regulations, and for the regulatory service 
provider's performance on its behalf. Regulatory services must be 
provided under a written agreement with a regulatory services provider 
that shall specifically document the services to be performed as well as 
the capacity and resources of the regulatory service provider with 
respect to the services to be performed.



Sec.  38.607  Direct access.

    A designated contract market that permits direct electronic access 
by customers (i.e., allowing customers of futures commission merchants 
to enter orders directly into a designated contract market's trade 
matching system for execution) must have in place effective systems and 
controls reasonably designed to facilitate the FCM's management of 
financial risk, such as automated pre-trade controls that enable member 
futures commission merchants to implement appropriate financial risk 
limits. A designated contract market must implement and enforce rules 
requiring the member futures commission merchants to use the provided 
systems and controls.



         Subpart M_Protection of Markets and Market Participants

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.650  Core Principle 12.

    The board of trade shall establish and enforce rules:
    (a) To protect markets and market participants from abusive 
practices committed by any party, including abusive practices committed 
by a party acting as an agent for a participant; and
    (b) To promote fair and equitable trading on the contract market.

[[Page 626]]



Sec.  38.651  Protection of markets and market participants.

    A designated contract market must have and enforce rules that are 
designed to promote fair and equitable trading and to protect the market 
and market participants from abusive practices including fraudulent, 
noncompetitive or unfair actions, committed by any party. The designated 
contract market must have methods and resources appropriate to the 
nature of the trading system and the structure of the market to detect 
trade practice and market abuses and to discipline such behavior, in 
accordance with Core Principles 2 and 4, and the associated regulations 
in subparts C and E of this part, respectively. The designated contract 
market also must provide a competitive, open and efficient market and 
mechanism for executing transactions in accordance with Core Principle 9 
and the associated regulations under subpart J of this part.



                    Subpart N_Disciplinary Procedures

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.700  Core Principle 13.

    The board of trade shall establish and enforce disciplinary 
procedures that authorize the board of trade to discipline, suspend, or 
expel members or market participants that violate the rules of the board 
of trade, or similar methods for performing the same functions, 
including delegation of the functions to third parties.



Sec.  38.701  Enforcement staff.

    A designated contract market must establish and maintain sufficient 
enforcement staff and resources to effectively and promptly prosecute 
possible rule violations within the disciplinary jurisdiction of the 
contract market. A designated contract market must also monitor the size 
and workload of its enforcement staff annually, and ensure that its 
enforcement resources and staff are at appropriate levels. The 
enforcement staff may not include either members of the designated 
contract market or persons whose interests conflict with their 
enforcement duties. A member of the enforcement staff may not operate 
under the direction or control of any person or persons with trading 
privileges at the contract market. A designated contract market's 
enforcement staff may operate as part of the designated contract 
market's compliance department.



Sec.  38.702  Disciplinary panels.

    A designated contract market must establish one or more disciplinary 
panels that are authorized to fulfill their obligations under the rules 
of this subpart. Disciplinary panels must meet the composition 
requirements of part 40 of this chapter, and must not include any 
members of the designated contract market's compliance staff or any 
person involved in adjudicating any other stage of the same proceeding.



Sec.  38.703  Notice of charges.

    If compliance staff authorized by a designated contract market or a 
designated contract market disciplinary panel determines that a 
reasonable basis exists for finding a violation and that adjudication is 
warranted, it must direct that the person or entity alleged to have 
committed the violation be served with a notice of charges and must 
proceed in accordance with the rules of this section. A notice of 
charges must adequately state the acts, conduct, or practices in which 
the respondent is alleged to have engaged; state the rule, or rules, 
alleged to have been violated (or about to be violated); and prescribe 
the period within which a hearing on the charges may be requested. The 
notice must also advise that the charged respondent is entitled, upon 
request, to a hearing on the charges.



Sec.  38.704  Right to representation.

    Upon being served with a notice of charges, a respondent must have 
the right to be represented by legal counsel or any other representative 
of its choosing in all succeeding stages of the disciplinary process, 
except any member of the designated contract market's board of directors 
or disciplinary panel,

[[Page 627]]

any employee of the designated contract market, or any person 
substantially related to the underlying investigations, such as material 
witness or respondent.



Sec.  38.705  Answer to charges.

    A respondent must be given a reasonable period of time to file an 
answer to a notice of charges. The rules of a designated contract market 
governing the requirements and timeliness of a respondent's answer to 
charges must be fair, equitable, and publicly available.



Sec.  38.706  Denial of charges and right to hearing.

    In every instance where a respondent has requested a hearing on a 
charge that is denied, or on a sanction set by the disciplinary panel, 
the respondent must be given an opportunity for a hearing in accordance 
with the requirements ofSec. 38.707 of this part.



Sec.  38.707  Hearings.

    (a) A designated contract market must adopt rules that provide for 
the following minimum requirements for any hearing conducted pursuant to 
a notice of charges:
    (1) The hearing must be fair, must be conducted before members of 
the disciplinary panel, and must be promptly convened after reasonable 
notice to the respondent. The formal rules of evidence need not apply; 
nevertheless, the procedures for the hearing may not be so informal as 
to deny a fair hearing. No member of the disciplinary panel for the 
matter may have a financial, personal, or other direct interest in the 
matter under consideration.
    (2) In advance of the hearing, the respondent must be entitled to 
examine all books, documents, or other evidence in the possession or 
under the control of the designated contract market. The designated 
contract market may withhold documents that are privileged or constitute 
attorney work product, documents that were prepared by an employee of 
the designated contract market but will not be offered in evidence in 
the disciplinary proceedings, documents that may disclose a technique or 
guideline used in examinations, investigations, or enforcements 
proceedings, and documents that disclose the identity of a confidential 
source.
    (3) The designated contract market's enforcement and compliance 
staffs must be parties to the hearing, and the enforcement staff must 
present their case on those charges and sanctions that are the subject 
of the hearing.
    (4) The respondent must be entitled to appear personally at the 
hearing, must be entitled to cross-examine any persons appearing as 
witnesses at the hearing, and must be entitled to call witnesses and to 
present such evidence as may be relevant to the charges.
    (5) The designated contract market must require persons within its 
jurisdiction who are called as witnesses to participate in the hearing 
and to produce evidence. It must make reasonable efforts to secure the 
presence of all other persons called as witnesses whose testimony would 
be relevant.
    (6) If the respondent has requested a hearing, a copy of the hearing 
must be made and must become a part of the record of the proceeding. The 
record must be one that is capable of being accurately transcribed; 
however, it need not be transcribed unless the transcript is requested 
by Commission staff or the respondent, the decision is appealed pursuant 
to the rules of the designated contract market, or is reviewed by the 
Commission pursuant to section 8c of the Act or part 9 of this chapter. 
In all other instances a summary record of a hearing is permitted.
    (b) [Reserved]



Sec.  38.708  Decisions.

    Promptly following a hearing conducted in accordance withSec. 
38.707 of this part, the disciplinary panel must render a written 
decision based upon the weight of the evidence contained in the record 
of the proceeding and must provide a copy to the respondent. The 
decision must include:
    (a) The notice of charges or a summary of the charges;
    (b) The answer, if any, or a summary of the answer;
    (c) A summary of the evidence produced at the hearing or, where 
appropriate, incorporation by reference of the investigation report;
    (d) A statement of findings and conclusions with respect to each 
charge,

[[Page 628]]

and a complete explanation of the evidentiary and other basis for such 
findings and conclusions with respect to each charge;
    (e) An indication of each specific rule that the respondent was 
found to have violated; and
    (f) A declaration of all sanctions imposed against the respondent, 
including the basis for such sanctions and the effective date of such 
sanctions.



Sec.  38.709  Final decisions.

    Each designated contract market must establish rules setting forth 
when a decision rendered pursuant to this section will become the final 
decision of such designated contract market.



Sec.  38.710  Disciplinary sanctions.

    All disciplinary sanctions imposed by a designated contract market 
or its disciplinary panels must be commensurate with the violations 
committed and must be clearly sufficient to deter recidivism or similar 
violations by other market participants. All disciplinary sanctions, 
including sanctions imposed pursuant to an accepted settlement offer, 
must take into account the respondent's disciplinary history. In the 
event of demonstrated customer harm, any disciplinary sanction must also 
include full customer restitution, except where the amount of 
restitution, or to whom it should be provided, cannot be reasonably 
determined.



Sec.  38.711  Warning letters.

    Where a rule violation is found to have occurred, no more than one 
warning letter may be issued per rolling 12-month period for the same 
violation.



Sec.  38.712  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
in appendix B of this part to demonstrate to the Commission compliance 
with the requirements ofSec. 38.700 of this part.



                      Subpart O_Dispute Resolution

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.750  Core Principle 14.

    The board of trade shall establish and enforce rules regarding, and 
provide facilities for alternative dispute resolution as appropriate 
for, market participants and any market intermediaries.



Sec.  38.751  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
and acceptable practices in appendix B of this part to demonstrate to 
the Commission compliance with the requirements ofSec. 38.750 of this 
part.



                 Subpart P_Governance Fitness Standards

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.800  Core Principle 15.

    The board of trade shall establish and enforce appropriate fitness 
standards for directors, members of any disciplinary committee, members 
of the contract market, and any other person with direct access to the 
facility (including any party affiliated with any person described in 
this paragraph).



Sec.  38.801  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
in appendix B of this part to demonstrate to the Commission compliance 
with the requirements ofSec. 38.800 of this part.



                     Subpart Q_Conflicts of Interest

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.850  Core Principle 16.

    The board of trade shall establish and enforce rules:
    (a) To minimize conflicts of interest in the decision-making process 
of the contract market; and
    (b) To establish a process for resolving conflicts of interest 
described in paragraph (a) of this section.

[[Page 629]]



Sec.  38.851  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
and/or acceptable practices in appendix B of this part to demonstrate to 
the Commission compliance with the requirements ofSec. 38.850 of this 
part.



      Subpart R_Composition of Governing Boards of Contract Markets

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.900  Core Principle 17.

    The governance arrangements of the board of trade shall be designed 
to permit consideration of the views of market participants.



                         Subpart S_Recordkeeping

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.950  Core Principle 18.

    The board of trade shall maintain records of all activities relating 
to the business of the contract market:
    (a) In a form and manner that is acceptable to the Commission; and
    (b) For a period of at least 5 years.



Sec.  38.951  Additional sources for compliance.

    A designated contract market must maintain such records, including 
trade records and investigatory and disciplinary files, in accordance 
with the requirements ofSec. 1.31 of this chapter, and in accordance 
with part 45 of this chapter, if applicable.



                   Subpart T_Antitrust Considerations

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.1000  Core Principle 19.

    Unless necessary or appropriate to achieve the purposes of this Act, 
the board of trade shall not:
    (a) Adopt any rule or taking any action that results in any 
unreasonable restraint of trade; or
    (b) Impose any material anticompetitive burden on trading on the 
contract market.



Sec.  38.1001  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
and acceptable practices in appendix B of this part to demonstrate to 
the Commission compliance with the requirements ofSec. 38.1000 of this 
part.



                       Subpart U_System Safeguards

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.1050  Core Principle 20.

    Each designated contract market shall:
    (a) Establish and maintain a program of risk analysis and oversight 
to identify and minimize sources of operational risk, through the 
development of appropriate controls and procedures, and the development 
of automated systems, that are reliable, secure, and have adequate 
scalable capacity;
    (b) Establish and maintain emergency procedures, backup facilities, 
and a plan for disaster recovery that allow for the timely recovery and 
resumption of operations and the fulfillment of the responsibilities and 
obligations of the board of trade; and
    (c) Periodically conduct tests to verify that backup resources are 
sufficient to ensure continued order processing and trade matching, 
transmission of matched orders to a designated clearing organization for 
clearing, price reporting, market surveillance, and maintenance of a 
comprehensive and accurate audit trail.



Sec.  38.1051  General requirements.

    (a) A designated contract market's program of risk analysis and 
oversight with respect to its operations and automated systems must 
address each of the following categories of risk analysis and oversight:
    (1) Information security;
    (2) Business continuity-disaster recovery planning and resources;

[[Page 630]]

    (3) Capacity and performance planning;
    (4) Systems operations;
    (5) Systems development and quality assurance; and
    (6) Physical security and environmental controls.
    (b) In addressing the categories of risk analysis and oversight 
required under paragraph (a) of this section, a designated contract 
market should follow generally accepted standards and best practices 
with respect to the development, operation, reliability, security, and 
capacity of automated systems.
    (c) A designated contract market must maintain a business 
continuity-disaster recovery plan and business continuity-disaster 
recovery resources, emergency procedures, and backup facilities 
sufficient to enable timely recovery and resumption of its operations 
and resumption of its ongoing fulfillment of its responsibilities and 
obligations as a designated contract market following any disruption of 
its operations. Such responsibilities and obligations include, without 
limitation, order processing and trade matching; transmission of matched 
orders to a designated clearing organization for clearing; price 
reporting; market surveillance; and maintenance of a comprehensive audit 
trail. The designated contract market's business continuity-disaster 
recovery plan and resources generally should enable resumption of 
trading and clearing of the designated contract market's products during 
the next business day following the disruption. Designated contract 
markets determined by the Commission to be critical financial markets 
are subject to more stringent requirements in this regard, set forth in 
Sec.  40.9 of this chapter. Electronic trading is an acceptable backup 
for open outcry trading in the event of a disruption.
    (d) A designated contract market that is not determined by the 
Commission to be a critical financial market satisfies the requirement 
to be able to resume trading and clearing during the next business day 
following a disruption by maintaining either:
    (1) Infrastructure and personnel resources of its own that are 
sufficient to ensure timely recovery and resumption of its operations 
and resumption of its ongoing fulfillment of its responsibilities and 
obligations as a designated contract market following any disruption of 
its operations; or
    (2) Contractual arrangements with other designated contract markets 
or disaster recovery service providers, as appropriate, that are 
sufficient to ensure continued trading and clearing of the designated 
contract market's products, and ongoing fulfillment of all of the 
designated contract market's responsibilities and obligations with 
respect to those products, in the event that a disruption renders the 
designated contract market temporarily or permanently unable to satisfy 
this requirement on its own behalf.
    (e) A designated contract market must notify Commission staff 
promptly of all:
    (1) Electronic trading halts and significant systems malfunctions;
    (2) Cyber security incidents or targeted threats that actually or 
potentially jeopardize automated system operation, reliability, 
security, or capacity; and
    (3) Activation of the designated contract market's business 
continuity-disaster recovery plan.
    (f) A designated contract market must give Commission staff timely 
advance notice of all material:
    (1) Planned changes to automated systems that may impact the 
reliability, security, or adequate scalable capacity of such systems; 
and
    (2) Planned changes to the designated contract market's program of 
risk analysis and oversight.
    (g) A designated contract market must provide to the Commission upon 
request current copies of its business continuity-disaster recovery plan 
and other emergency procedures, its assessments of its operational 
risks, and other documents requested by Commission staff for the purpose 
of maintaining a current profile of the designated contract market's 
automated systems.
    (h) A designated contract market must conduct regular, periodic, 
objective testing and review of its automated systems to ensure that 
they are reliable, secure, and have adequate scalable capacity. It must 
also conduct regular, periodic testing and review of

[[Page 631]]

its business continuity-disaster recovery capabilities. Both types of 
testing should be conducted by qualified, independent professionals. 
Such qualified independent professionals may be independent contractors 
or employees of the designated contract market, but should not be 
persons responsible for development or operation of the systems or 
capabilities being tested. Pursuant to Core Principle 18 (Recordkeeping) 
and Sec.Sec. 38.950 and 38.951 of this part, the designated contract 
market must keep records of all such tests, and make all test results 
available to the Commission upon request.
    (i) To the extent practicable, a designated contract market should:
    (1) Coordinate its business continuity-disaster recovery plan with 
those of the members and other market participants upon whom it depends 
to provide liquidity, in a manner adequate to enable effective 
resumption of activity in its markets following a disruption causing 
activation of the designated contract market's business continuity-
disaster recovery plan;
    (2) Initiate and coordinate periodic, synchronized testing of its 
business continuity-disaster recovery plan and the business continuity-
disaster recovery plans of the members and other market participants 
upon whom it depends to provide liquidity; and
    (3) Ensure that its business continuity-disaster recovery plan takes 
into account the business continuity-disaster recovery plans of its 
telecommunications, power, water, and other essential service providers.
    (j) Part 46 of this chapter governs the obligations of those 
registered entities that the Commission has determined to be critical 
financial markets, with respect to maintenance and geographic dispersal 
of disaster recovery resources sufficient to meet a same-day recovery 
time objective in the event of a wide-scale disruption. Section 40.9 of 
this chapter establishes the requirements for core principle compliance 
in that respect.



                      Subpart V_Financial Resources

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.1100  Core Principle 21.

    (a) In General. The board of trade shall have adequate financial, 
operational, and managerial resources to discharge each responsibility 
of the board of trade.
    (b) Determination of adequacy. The financial resources of the board 
of trade shall be considered to be adequate if the value of the 
financial resources exceeds the total amount that would enable the 
contract market to cover the operating costs of the contract market for 
a 1-year period, as calculated on a rolling basis.



Sec.  38.1101  General requirements.

    (a) General rule. (1) A designated contract market must maintain 
financial resources sufficient to enable it to perform its functions in 
compliance with the core principles set forth in section 5 of the Act 
and regulations thereunder.
    (2) Financial resources shall be considered sufficient if their 
value is at least equal to a total amount that would enable the 
designated contract market, or applicant for designation as such, to 
cover its operating costs for a period of at least one year, calculated 
on a rolling basis.
    (3) An entity that is registered with the Commission as both a 
designated contract market and a derivatives clearing organization also 
shall comply with the financial resource requirements ofSec. 39.11 of 
this chapter, demonstrating that it has sufficient financial resources 
to operate the single, combined entity as both a designated contract 
market and a derivatives clearing organization. In lieu of filing 
separate quarterly reports under paragraph (a)(2) of this section and 
Sec.  39.11(f) of this chapter, such entity shall file single quarterly 
reports in accordance withSec. 39.11.
    (b) Types of financial resources. Financial resources available to 
satisfy the requirements of paragraph (a) of this section may include:
    (1) The designated contract market's own capital, calculated in 
accordance with U.S. generally accepted accounting principles; and
    (2) Any other financial resource deemed acceptable by the 
Commission.

[[Page 632]]

    (c) Computation of financial resource requirement. A designated 
contract market must, on a quarterly basis, based upon its fiscal year, 
make a reasonable calculation of its projected operating costs over a 
12-month period in order to determine the amount needed to meet the 
requirements of paragraph (a) of this section. The designated contract 
market shall have reasonable discretion in determining the methodology 
used to compute such projected operating costs. The Commission may 
review the methodology and require changes as appropriate.
    (d) Valuation of financial resources. At appropriate intervals, but 
not less than quarterly, a designated contract market must compute the 
current market value of each financial resource used to meet its 
obligations under paragraph (a) of this section. Reductions in value to 
reflect market and credit risk (``haircuts'') must be applied as 
appropriate.
    (e) Liquidity of financial resources. The financial resources 
allocated by the designated contract market to meet the requirements of 
paragraph (a) of this section must include unencumbered, liquid 
financial assets (i.e., cash and/or highly liquid securities) equal to 
at least six months' operating costs. If any portion of such financial 
resources is not sufficiently liquid, the designated contract market may 
take into account a committed line of credit or similar facility for the 
purpose of meeting this requirement.
    (f) Reporting requirements. (1) Each fiscal quarter, or at any time 
upon Commission request, a designated contract market must:
    (i) Report to the Commission:
    (A) The amount of financial resources necessary to meet the 
requirements of paragraph (a) of this section; and
    (B) The value of each financial resource available, computed in 
accordance with the requirements of paragraph (d) of this section; and
    (ii) Provide the Commission with a financial statement, including 
the balance sheet, income statement, and statement of cash flows of the 
designated contract market or of its parent company.
    (2) The calculations required by this paragraph shall be made as of 
the last business day of the designated contract market's fiscal 
quarter.
    (3) The designated contract market must provide the Commission with:
    (i) Sufficient documentation explaining the methodology used to 
compute its financial requirements under paragraph (a) of this section;
    (ii) Sufficient documentation explaining the basis for its 
determinations regarding the valuation and liquidity requirements set 
forth in paragraphs (d) and (e) of this section; and
    (iii) Copies of any agreements establishing or amending a credit 
facility, insurance coverage, or other arrangement evidencing or 
otherwise supporting the designated contract market's conclusions.
    (4) The reports shall be filed not later than 40 calendar days after 
the end of the designated contract market's first three fiscal quarters, 
and not later than 60 calendar days after the end of the designated 
contract market's fourth fiscal quarter, or at such later time as the 
Commission may permit, in its discretion, upon request by the designated 
contract market.
    (g) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, the authority to the Director of the Division 
of Market Oversight or such other employee or employees as the Director 
may designate from time to time, to:
    (i) Determine whether a particular financial resource under 
paragraph (b)(2) may be used to satisfy the requirements of paragraph 
(a)(1) and (2) of this section;
    (ii) Review and make changes to the methodology used to compute the 
requirements of paragraph (c) of this section;
    (iii) Request financial reporting from a designated contract market 
(in addition to quarterly reports) under paragraph (f)(1) of this 
section; and
    (iv) Grant an extension of time for a designated contract market to 
file its quarterly financial report under paragraph (f)(4) of this 
section.
    (2) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph. Nothing in this 
paragraph

[[Page 633]]

prohibits the Commission, at its election, from exercising the authority 
delegated in this paragraph.



                Subpart W_Diversity of Board of Directors

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.1150  Core Principle 22.

    The board of trade, if a publicly traded company, shall endeavor to 
recruit individuals to serve on the board of directors and the other 
decision-making bodies (as determined by the Commission) of the board of 
trade from among, and to have the composition of the bodies reflect, a 
broad and culturally diverse pool of qualified candidates.



              Subpart X_Securities and Exchange Commission

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.



Sec.  38.1200  Core Principle 23.

    The board of trade shall keep any such records relating to swaps 
defined in section 1a(47)(A)(v) of the Act open to inspection and 
examination by the Securities and Exchange Commission.



Sec.  38.1201  Additional sources for compliance.

    Applicants and designated contract markets may refer to the guidance 
and/or acceptable practices in appendix B of this part to demonstrate to 
the Commission compliance with the requirements ofSec. 38.1200 of this 
part.



                  Sec. Appendix A to Part 38--Form DCM



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[77 FR 36709, June 19, 2012]



 Sec. Appendix B to Part 38--Guidance on, and Acceptable Practices in, 
                     Compliance With Core Principles

    1. This appendix provides guidance on complying with core 
principles, both initially and on an ongoing basis, to obtain and 
maintain designation under section 5(d) of the Act and this part 38. 
Where provided, guidance is set forth in paragraph (a) following the 
relevant heading and can be used to demonstrate to the Commission 
compliance with the selected requirements of a core principle, under 
Sec.Sec. 38.3 and 38.5 of this part. The guidance for the core 
principle is illustrative only of the types of matters a designated 
contract market may address, as applicable, and is not intended to be 
used as a mandatory checklist. Addressing the issues set forth in this 
appendix would help the Commission in its consideration of whether the 
designated contract market is in compliance with the selected 
requirements of a core principle; provided however, that the guidance is 
not intended to diminish or replace, in any event, the obligations and 
requirements of applicants and designated contract markets to comply 
with the regulations provided under this part.
    2. Where provided, acceptable practices meeting selected 
requirements of core principles are set forth in paragraph (b) following 
guidance. Designated contract markets that follow specific practices 
outlined in the acceptable practices for a core principle in this 
appendix will meet the selected requirements of the applicable core 
principle; provided however, that the acceptable practice is not 
intended to diminish or replace, in any event, the obligations and 
requirements of applicants and designated contract markets to comply 
with the regulations provided under this part 38. The acceptable 
practices are for illustrative purposes only and do not state the 
exclusive means for satisfying a core principle.
    Core Principle 1 of section 5(d) of the Act: DESIGNATION AS CONTRACT 
MARKET.--(A) IN GENERAL.--To be designated, and maintain a designation, 
as a contract market, a board of trade shall comply with--
    (i) Any core principle described in this subsection; and
    (ii) Any requirement that the Commission may impose by rule or 
regulation pursuant to section 8a(5).
    (B) REASONABLE DISCRETION OF CONTRACT MARKET.--Unless otherwise 
determined by the Commission by rule or regulation, a board of trade 
described in subparagraph (A) shall have reasonable discretion in 
establishing the manner in which the board of trade complies with the 
core principles described in this subsection.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 2 of section 5(d) of the Act: COMPLIANCE WITH RULES--
(A) IN GENERAL.--The board of trade shall establish, monitor, and 
enforce compliance with the rules of the contract market, including--
    (i) Access requirements;
    (ii) The terms and conditions of any contracts to be traded on the 
contract market; and
    (iii) Rules prohibiting abusive trade practices on the contract 
market.
    (B) CAPACITY OF CONTRACT MARKET.--The board of trade shall have the 
capacity to detect, investigate, and apply appropriate sanctions to any 
person that violates any rule of the contract market.
    (C) REQUIREMENT OF RULES.--The rules of the contract market shall 
provide the board of trade with the ability and authority to obtain any 
necessary information to perform any function described in this 
subsection, including the capacity to carry

[[Page 642]]

out such international information-sharing agreements as the Commission 
may require.
    (a) Guidance. (1) Investigations and investigation reports--Warning 
letters. The rules of a designated contract market may authorize 
compliance staff to issue a warning letter to a person or entity under 
investigation or to recommend that a disciplinary panel take such an 
action.
    (2) Additional rules required. A designated contract market should 
adopt and enforce any additional rules that it believes are necessary to 
comply with the requirements of subpart C of this chapter
    (b) Acceptable Practices. [Reserved.]
    Core Principle 3 of section 5(d) of the Act: CONTRACTS NOT READILY 
SUBJECT TO MANIPULATION.--The board of trade shall list on the contract 
market only contracts that are not readily susceptible to manipulation.
    (a) Guidance. (1) Designated contract markets may list new products 
for trading by self-certification underSec. 40.2 of this chapter or 
may submit products for Commission approval underSec. 40.3 of this 
chapter.
    (2) Guidance in appendix C to this part may be used as guidance in 
meeting this core principle for both new products listings and existing 
listed contracts.
    (b) Acceptable Practices. [Reserved.]
    Core Principle 4 of section 5(d) of the Act: PREVENTION OF MARKET 
DISRUPTION.--The board of trade shall have the capacity and 
responsibility to prevent manipulation, price distortion, and 
disruptions of the delivery or cash-settlement process through market 
surveillance, compliance, and enforcement practices and procedures, 
including--
    (A) Methods for conducting real-time monitoring of trading; and
    (B) Comprehensive and accurate trade reconstructions.
    (a) Guidance. The detection and prevention of market manipulation, 
disruptions, and distortions should be incorporated into the design of 
programs for monitoring trading activity. Monitoring of intraday trading 
should include the capacity to detect developing market anomalies, 
including abnormal price movements and unusual trading volumes, and 
position-limit violations. The designated contract market should have 
rules in place that allow it broad powers to intervene to prevent or 
reduce market disruptions. Once a threatened or actual disruption is 
detected, the designated contract market should take steps to prevent 
the disruption or reduce its severity.
    (2) Additional rules required. A designated contract market should 
adopt and enforce any additional rules that it believes are necessary to 
comply with the requirements of subpart E of this part.
    (b) Acceptable Practices. (1) General Requirements. Real-time 
monitoring for market anomalies and position-limit violations are the 
most effective, but the designated contract market may also demonstrate 
that it has an acceptable program if some of the monitoring is 
accomplished on a T+1 basis. An acceptable program must include 
automated trading alerts to detect market anomalies and position-limit 
violations as they develop and before market disruptions occur or become 
more serious. In some cases, a designated contract market may 
demonstrate that its manual processes are effective.
    (2) Physical-delivery contracts. For physical-delivery contracts, 
the designated contract market must demonstrate that it is monitoring 
the adequacy and availability of the deliverable supply, which, if such 
information is available, includes the size and ownership of those 
supplies and whether such supplies are likely to be available to short 
traders and saleable by long traders at the market value of those 
supplies under normal cash marketing conditions. Further, for physical-
delivery contracts, the designated contract market must continually 
monitor the appropriateness of a contract's terms and conditions, 
including the delivery instrument, the delivery locations and location 
differentials, and the commodity characteristics and related 
differentials. The designated contract market must demonstrate that it 
is making a good-faith effort to resolve conditions that are interfering 
with convergence of its physical-delivery contract to the price of the 
underlying commodity or causing price distortions or market disruptions, 
including, when appropriate, changes to contract terms.
    (3) Cash-settled contracts. At a minimum, an acceptable program for 
monitoring cash-settled contracts must include access, either directly 
or through an information-sharing agreement, to traders' positions and 
transactions in the reference market for traders of a significant size 
in the designated contract market near the settlement of the contract.
    (4) Ability to obtain information. With respect to the designated 
contract market's ability to obtain information, a designated contract 
market may limit the application of the requirement to keep and provide 
such records only to those that are reportable under its large-trader 
reporting system or otherwise hold substantial positions.
    (5) Risk controls for trading. An acceptable program for preventing 
market disruptions must demonstrate appropriate trade risk controls, in 
addition to pauses and halts. Such controls must be adapted to the 
unique characteristics of the markets to which they apply and must be 
designed to avoid market disruptions without unduly interfering with 
that market's price discovery function. The designated contract market 
may choose from among controls that include: pre-trade limits on order 
size, price collars or bands around the current price, message 
throttles,

[[Page 643]]

and daily price limits, or design other types of controls. Within the 
specific array of controls that are selected, the designated contract 
market also must set the parameters for those controls, so long as the 
types of controls and their specific parameters are reasonably likely to 
serve the purpose of preventing market disruptions and price 
distortions. If a contract is linked to, or is a substitute for, other 
contracts, either listed on its market or on other trading venues, the 
designated contract market must, to the extent practicable, coordinate 
its risk controls with any similar controls placed on those other 
contracts. If a contract is based on the price of an equity security or 
the level of an equity index, such risk controls must, to the extent 
practicable, be coordinated with any similar controls placed on national 
security exchanges.
    Core Principle 5 of section 5(d) of the Act: POSITION LIMITATIONS OR 
ACCOUNTABILITY--(A) IN GENERAL.--To reduce the potential threat of 
market manipulation or congestion (especially during trading in the 
delivery month), the board of trade shall adopt for each contract of the 
board of trade, as is necessary and appropriate, position limitations or 
position accountability for speculators.
    (B) MAXIMUM ALLOWABLE POSITION LIMITATION.--For any contract that is 
subject to a position limitation established by the Commission pursuant 
to section 4a(a), the board of trade shall set the position limitation 
of the board of trade at a level not higher than the position limitation 
established by the Commission.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 6 of section 5(d) of the Act: EMERGENCY AUTHORITY--
The board of trade, in consultation or cooperation with the Commission, 
shall adopt rules to provide for the exercise of emergency authority, as 
is necessary and appropriate, including the authority--
    (A) To liquidate or transfer open positions in any contract;
    (B) To suspend or curtail trading in any contract; and
    (C) To require market participants in any contract to meet special 
margin requirements.
    (a) Guidance. In consultation and cooperation with the Commission, a 
designated contract market should have the authority to intervene as 
necessary to maintain markets with fair and orderly trading and to 
prevent or address manipulation or disruptive trading practices, whether 
the need for intervention arises exclusively from the DCM's market or as 
part of a coordinated, cross-market intervention. DCM rules should 
include procedures and guidelines to avoid conflicts of interest in 
accordance with the provisions ofSec. 40.9 of this chapter, and 
include alternate lines of communication and approval procedures to 
address emergencies associated with real-time events. To address 
perceived market threats, the designated contract market should have 
rules that allow it to take certain actions in the event of an 
emergency, as defined inSec. 40.1(h) of this chapter, including: 
imposing or modifying position limits, price limits, and intraday market 
restrictions; imposing special margin requirements; ordering the 
liquidation or transfer of open positions in any contract; ordering the 
fixing of a settlement price; extending or shortening the expiration 
date or the trading hours; suspending or curtailing trading in any 
contract; transferring customer contracts and the margin or altering any 
contract's settlement terms or conditions; and, where applicable, 
providing for the carrying out of such actions through its agreements 
with its third-party provider of clearing or regulatory services. In 
situations where a contract is fungible with a contract on another 
platform, emergency action to liquidate or transfer open interest must 
be as directed, or agreed to, by the Commission or the Commission's 
staff. The DCM has the authority to independently respond to emergencies 
in an effective and timely manner consistent with the nature of the 
emergency, as long as all such actions taken by the DCM are made in good 
faith to protect the integrity of the markets. The Commission should be 
notified promptly of the DCM's exercise of emergency action, explaining 
how conflicts of interest were minimized, including the extent to which 
the DCM considered the effect of its emergency action on the underlying 
markets and on markets that are linked or referenced to the contract 
market and similar markets on other trading venues. Information on all 
regulatory actions carried out pursuant to a DCM's emergency authority 
should be included in a timely submission of a certified rule pursuant 
to part 40 of this chapter.
    (b) Acceptable Practices. A designated contract market must have 
procedures and guidelines for decision-making and implementation of 
emergency intervention in the market. At a minimum, the DCM must have 
the authority to liquidate or transfer open positions in the market, 
suspend or curtail trading in any contract, and require market 
participants in any contract to meet special margin requirements. In 
situations where a contract is fungible with a contract on another 
platform, emergency action to liquidate or transfer open interest must 
be directed, or agreed to, by the Commission or the Commission's staff. 
The DCM must promptly notify the Commission of the exercise of its 
emergency authority, documenting its decision-making process, including 
how conflicts of interest were minimized, and the reasons for using its 
emergency authority. The DCM must also have rules that

[[Page 644]]

allow it to take such market actions as may be directed by the 
Commission.
    Core Principle 7 of section 5(d) of the Act: AVAILABILITY OF GENERAL 
INFORMATION.--The board of trade shall make available to market 
authorities, market participants, and the public accurate information 
concerning--
    (A) The terms and conditions of the contracts of the contract 
market; and
    (B)(i) The rules, regulations, and mechanisms for executing 
transactions on or through the facilities of the contract market; and
    (ii) The rules and specifications describing the operation of the 
contract market's--
    (I) Electronic matching platform; or
    (II) Trade execution facility.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 8 of section 5(d) of the Act: DAILY PUBLICATION OF 
TRADING INFORMATION.--The board of trade shall make public daily 
information on settlement prices, volume, open interest, and opening and 
closing ranges for actively traded contracts on the contract market.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 9 of section 5(d) of the Act: EXECUTION OF 
TRANSACTIONS.--``(A) IN GENERAL.--The board of trade shall provide a 
competitive, open, and efficient market and mechanism for executing 
transactions that protects the price discovery process of trading in the 
centralized market of the board of trade.
    (B) RULES.--The rules of the board of trade may authorize, for bona 
fide business purposes--
    (i) Transfer trades or office trades;
    (ii) An exchange of--
    (I) Futures in connection with a cash commodity transaction;
    (II) Futures for cash commodities; or
    (III) Futures for swaps; or
    (iii) A futures commission merchant, acting as principal or agent, 
to enter into or confirm the execution of a contract for the purchase or 
sale of a commodity for future delivery if the contract is reported, 
recorded, or cleared in accordance with the rules of the contract market 
or a derivatives clearing organization.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 10 of section 5(d) of the Act: TRADE INFORMATION.--
The board of trade shall maintain rules and procedures to provide for 
the recording and safe storage of all identifying trade information in a 
manner that enables the contract market to use the information--
    (A) To assist in the prevention of customer and market abuses; and
    (B) To provide evidence of any violations of the rules of the 
contract market.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 11 of section 5(d) of the Act: FINANCIAL INTEGRITY OF 
TRANSACTIONS.--The board of trade shall establish and enforce--
    (A) Rules and procedures for ensuring the financial integrity of 
transactions entered into on or through the facilities of the contract 
market (including the clearance and settlement of the transactions with 
a derivatives clearing organization); and
    (B) Rules to ensure--
    (i) The financial integrity of any--
    (I) Futures commission merchant; and
    (II) Introducing broker; and
    (ii) The protection of customer funds.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 12 of section 5(d) of the Act: PROTECTION OF MARKETS 
AND MARKET PARTICIPANTS--The board of trade shall establish and enforce 
rules--
    (A) To protect markets and market participants from abusive 
practices committed by any party, including abusive practices committed 
by a party acting as an agent for a participant; and
    (B) To promote fair and equitable trading on the contract market.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 13 of section 5(d) of the Act: DISCIPLINARY 
PROCEDURES.--The board of trade shall establish and enforce disciplinary 
procedures that authorize the board of trade to discipline, suspend, or 
expel members or market participants that violate the rules of the board 
of trade, or similar methods for performing the same functions, 
including delegation of the functions to third parties.
    (a) Guidance. (1) Notice of charges. If the rules of the designated 
contract market so provide, a notice may also advise: (i) That failure 
to request a hearing within the period prescribed in the notice, except 
for good cause, may be deemed a waiver of the right to a hearing; and 
(ii) That failure to answer or to deny expressly a charge may be deemed 
to be an admission of such charge.
    (2) Admission or failure to deny charges. The rules of a designated 
contract market may provide that if a respondent admits or fails to deny 
any of the charges, a disciplinary panel may find that the violations 
alleged in the notice of charges for which the respondent admitted or 
failed to deny any of the charges have been committed. If the designated 
contract market's rules so provide, then:
    (i) The disciplinary panel should impose a sanction for each 
violation found to have been committed;
    (ii) The disciplinary panel should promptly notify the respondent in 
writing of any sanction to be imposed pursuant to paragraph

[[Page 645]]

(2)(i) of this section and shall advise the respondent that it may 
request a hearing on such sanction within the period of time, which 
shall be stated in the notice;
    (iii) The rules of a designated contract market may provide that if 
a respondent fails to request a hearing within the period of time stated 
in the notice, the respondent will be deemed to have accepted the 
sanction.
    (3) Settlement offers. (i) The rules of a designated contract market 
may permit a respondent to submit a written offer of settlement at any 
time after an investigation report is completed. The disciplinary panel 
presiding over the matter may accept the offer of settlement, but may 
not alter the terms of a settlement offer unless the respondent agrees.
    (ii) The rules of a designated contract market may provide that, in 
its discretion, a disciplinary panel may permit the respondent to accept 
a sanction without either admitting or denying the rule violations upon 
which the sanction is based.
    (iii) If an offer of settlement is accepted, the panel accepting the 
offer should issue a written decision specifying the rule violations it 
has reason to believe were committed, including the basis or reasons for 
the panel's conclusions, and any sanction to be imposed, which should 
include full customer restitution where customer harm is demonstrated, 
except where the amount of restitution and to whom it should be provided 
cannot be reasonably determined. If an offer of settlement is accepted 
without the agreement of the enforcement staff, the decision should 
adequately support the disciplinary panel's acceptance of the 
settlement. Where applicable, the decision should also include a 
statement that the respondent has accepted the sanctions imposed without 
either admitting or denying the rule violations.
    (iv) The respondent may withdraw his or her offer of settlement at 
any time before final acceptance by a disciplinary panel. If an offer is 
withdrawn after submission, or is rejected by a disciplinary panel, the 
respondent should not be deemed to have made any admissions by reason of 
the offer of settlement and should not be otherwise prejudiced by having 
submitted the offer of settlement.
    (4) Hearings. The rules of a designated contract market may provide 
that a sanction may be summarily imposed upon any person within its 
jurisdiction whose actions impede the progress of a hearing.
    (5) Right to appeal. The rules of a designated contract market may 
permit the parties to a proceeding to appeal promptly an adverse 
decision of a disciplinary panel in all or in certain classes of cases. 
Such rules may require a party's notice of appeal to be in writing and 
to specify the findings, conclusions, or sanctions to which objection 
are taken. If the rules of a designated contract market permit appeals, 
then both the respondent and the enforcement staff should have the 
opportunity to appeal and the designated contract market should provide 
for the following:
    (i) The designated contract market should establish an appellate 
panel that should be authorized to hear appeals of respondents. In 
addition, the rules of a designated contract market may provide that the 
appellate panel may, on its own initiative, order review of a decision 
by a disciplinary panel within a reasonable period of time after the 
decision has been rendered.
    (ii) The composition of the appellate panel should be consistent 
with the requirements set forth in part 40 of this chapter and paragraph 
(4) of the acceptable practices for Core Principle 16, and should not 
include any members of the designated contract market's compliance 
staff, or any person involved in adjudicating any other stage of the 
same proceeding. The rules of a designated contract market should 
provide for the appeal proceeding to be conducted before all of the 
members of the appellate panel or a panel thereof.
    (iii) Except for good cause shown, the appeal or review should be 
conducted solely on the record before the disciplinary panel, the 
written exceptions filed by the parties, and the oral or written 
arguments of the parties.
    (iv) Promptly following the appeal or review proceeding, the 
appellate panel should issue a written decision and should provide a 
copy to the respondent. The decision issued by the appellate panel 
should adhere to all the requirements ofSec. 38.708 of this part, to 
the extent that a different conclusion is reached from that issued by 
the disciplinary panel.
    (6) Summary fines for violations of rules regarding timely 
submission of records, decorum, or other similar activities. A 
designated contract market may adopt a summary fine schedule for 
violations of rules relating to the timely submission of accurate 
records required for clearing or verifying each day's transactions, 
decorum, attire, or other similar activities. A designated contract 
market may permit its compliance staff, or a designated panel of 
contract market officials, to summarily impose minor sanctions against 
persons within the designated contract market's jurisdiction for 
violating such rules. A designated contract market's summary fine 
schedule may allow for warning letters to be issued for first-time 
violations or violators. If adopted, a summary fine schedule should 
provide for progressively larger fines for recurring violations.
    (7) Emergency disciplinary actions. (i) A designated contract market 
may impose a sanction, including suspension, or take other summary 
action against a person or entity subject to its jurisdiction upon a 
reasonable

[[Page 646]]

belief that such immediate action is necessary to protect the best 
interest of the marketplace.
    (ii) Any emergency disciplinary action should be taken in accordance 
with a designated contract market's procedures that provide for the 
following:
    (A) If practicable, a respondent should be served with a notice 
before the action is taken, or otherwise at the earliest possible 
opportunity. The notice should state the action, briefly state the 
reasons for the action, and state the effective time and date, and the 
duration of the action.
    (B) The respondent should have the right to be represented by legal 
counsel or any other representative of its choosing in all proceedings 
subsequent to the emergency action taken. The respondent should be given 
the opportunity for a hearing as soon as reasonably practicable and the 
hearing should be conducted before the disciplinary panel pursuant to 
the requirements ofSec. 38.707 of this part.
    (C) Promptly following the hearing provided for in this rule, the 
designated contract market should render a written decision based upon 
the weight of the evidence contained in the record of the proceeding and 
should provide a copy to the respondent. The decision should include a 
description of the summary action taken; the reasons for the summary 
action; a summary of the evidence produced at the hearing; a statement 
of findings and conclusions; a determination that the summary action 
should be affirmed, modified, or reversed; and a declaration of any 
action to be taken pursuant to the determination, and the effective date 
and duration of such action.
    (b) Acceptable Practices. [Reserved.]
    Core Principle 14 of section 5(d) of the Act: DISPUTE RESOLUTION.--
The board of trade shall establish and enforce rules regarding, and 
provide facilities for alternative dispute resolution as appropriate 
for, market participants and any market intermediaries.
    (a) Guidance. A designated contract market should provide customer 
dispute resolution procedures that are: appropriate to the nature of the 
market; fair and equitable; and available on a voluntary basis, either 
directly or through another self-regulatory organization, to customers 
that are non-eligible contract participants.
    (b) Acceptable Practices.
    (1) Fair and equitable procedure. Every contract market shall 
provide customer dispute resolution procedures that are fair and 
equitable. An acceptable customer dispute resolution mechanism would:
    (i) Provide the customer with an opportunity to have his or her 
claim decided by an objective and impartial decisionmaker;
    (ii) Provide each party with the right to be represented by counsel 
at the commencement of the procedure, at the party's own expense;
    (iii) Provide each party with adequate notice of the claims 
presented against such party, an opportunity to be heard on all claims, 
defenses and permitted counterclaims, and an opportunity for a prompt 
hearing;
    (iv) Authorize prompt, written, final settlement awards that are not 
subject to appeal within the designated contract market; and
    (v) Notify the parties of the fees and costs that may be assessed.
    (2) Voluntary Procedures. The use of dispute settlement procedures 
shall be voluntary for customers other than eligible contract 
participants as defined in section 1a(18) of the Dodd-Frank Act, and may 
permit counterclaims as provided inSec. 166.5 of this chapter.
    (3) Member-to-Member Procedures. If the designated contract market 
also provides procedures for the resolution of disputes that do not 
involve customers (i.e., member-to-member disputes), the procedures for 
resolving such disputes must be independent of and shall not interfere 
with or delay the resolution of customers' claims or grievances.
    (4) Delegation. A designated contract market may delegate to another 
self-regulatory organization or to a registered futures association its 
responsibility to provide for customer dispute resolution mechanisms, 
provided, however, that in the event of such delegation, the designated 
contract market shall in all respects treat any decision issued by such 
other organization or association with respect to such dispute as if the 
decision were its own, including providing for the appropriate 
enforcement of any award issued against a delinquent member.
    Core Principle 15 of section 5(d) of the Act: GOVERNANCE FITNESS 
STANDARDS.--The board of trade shall establish and enforce appropriate 
fitness standards for directors, members of any disciplinary committee, 
members of the contract market, and any other person with direct access 
to the facility (including any party affiliated with any person 
described in this paragraph).
    (a) Guidance. (1) A designated contract market should have 
appropriate eligibility criteria for the categories of persons set forth 
in the Core Principle that should include standards for fitness and for 
the collection and verification of information supporting compliance 
with such standards. Minimum standards of fitness for persons who have 
member voting privileges, governing obligations or responsibilities, or 
who exercise disciplinary authority are those bases for refusal to 
register a person under section 8a(2) of the Act. In addition, persons 
who have governing obligations or responsibilities, or who exercise 
disciplinary authority, should not have a significant history of serious 
disciplinary offenses, such as

[[Page 647]]

those that would be disqualifying underSec. 1.63 of this chapter. 
Members with trading privileges but having no, or only nominal, equity, 
in the facility and non-member market participants who are not 
intermediated and do not have these privileges, obligations, 
responsibilities or disciplinary authority could satisfy minimum fitness 
standards by meeting the standards that they must meet to qualify as a 
``market participant.'' Natural persons who directly or indirectly have 
greater than a ten percent ownership interest in a designated contract 
market should meet the fitness standards applicable to members with 
voting rights.
    (2) The Commission believes that such standards should include 
providing the Commission with fitness information for such persons, 
whether registration information, certification to the fitness of such 
persons, an affidavit of such persons' fitness by the contract market's 
counsel or other information substantiating the fitness of such persons. 
If a contract market provides certification of the fitness of such a 
person, the Commission believes that such certification should be based 
on verified information that the person is fit to be in his or her 
position.
    (b) Applicable Practices. [Reserved.]
    Core Principle 16 of section 5(d) of the Act: CONFLICTS OF 
INTEREST.--The board of trade shall establish and enforce rules--
    (A) to minimize conflicts of interest in the decisionmaking process 
of the contract market; and
    (B) to establish a process for resolving conflicts of interest 
described in subparagraph (A).
    (a) Guidance. The means to address conflicts of interest in 
decisionmaking of a contract market should include methods to ascertain 
the presence of conflicts of interest and to make decisions in the event 
of such a conflict. In addition, the Commission believes that the 
contract market should provide for appropriate limitations on the use or 
disclosure of material non-public information gained through the 
performance of official duties by board members, committee members and 
contract market employees or gained through an ownership interest in the 
contract market.
    (b) Acceptable Practices. All designated contract markets (``DCMs'' 
or ``contract markets'') bear special responsibility to regulate 
effectively, impartially, and with due consideration of the public 
interest, as provided for in section 3 of the Act. Under Core Principle 
15, they are also required to minimize conflicts of interest in their 
decisionmaking processes. To comply with this Core Principle, contract 
markets should be particularly vigilant for such conflicts between and 
among any of their self-regulatory responsibilities, their commercial 
interests, and the several interests of their management, members, 
owners, customers and market participants, other industry participants, 
and other constituencies. Acceptable practices for minimizing conflicts 
of interest shall include the following elements:
    (1) Board composition for contract markets
    (i) At least thirty-five percent of the directors on a contract 
market's board of directors shall be public directors; and
    (ii) The executive committees (or similarly empowered bodies) shall 
be at least thirty-five percent public.
    (2) Public director
    (i) To qualify as a public director of a contract market, an 
individual must first be found, by the board of directors, on the 
record, to have no material relationship with the contract market. A 
``material relationship'' is one that reasonably could affect the 
independent judgment or decisionmaking of the director.
    (ii) In addition, a director shall be considered to have a 
``material relationship'' with the contract market if any of the 
following circumstances exist:
    (A) The director is an officer or employee of the contract market or 
an officer or employee of its affiliate. In this context, ``affiliate'' 
includes parents or subsidiaries of the contract market or entities that 
share a common parent with the contract market;
    (B) The director is a member of the contract market, or an officer 
or director of a member. ``Member'' is defined according to section 
1a(34) of the Commodity Exchange Act and Commission Regulation 1.3(q);
    (C) The director, or a firm with which the director is an officer, 
director, or partner, receives more than $100,000 in combined annual 
payments from the contract market, or any affiliate of the contract 
market (as defined in subsection (2)(ii)(A)), for legal, accounting, or 
consulting services. Compensation for services as a director of the 
contract market or as a director of an affiliate of the contract market 
does not count toward the $100,000 payment limit, nor does deferred 
compensation for services prior to becoming a director, so long as such 
compensation is in no way contingent, conditioned, or revocable;
    (D) Any of the relationships above apply to a member of the 
director's ``immediate family,'' i.e., spouse, parents, children and 
siblings.
    (iii) All of the disqualifying circumstances described in subsection 
(2)(ii) shall be subject to a one-year look back.
    (iv) A contract market's public directors may also serve as 
directors of the contract market's affiliate (as defined in subsection 
(2)(ii)(A)) if they otherwise meet the definition of public director in 
this section (2).
    (v) A contract market shall disclose to the Commission which members 
of its board are public directors, and the basis for those 
determinations.
    (3) Regulatory oversight committee

[[Page 648]]

    (i) A board of directors of any contract market shall establish a 
Regulatory Oversight Committee (``ROC'') as a standing committee, 
consisting of only public directors as defined in section (2), to assist 
it in minimizing actual and potential conflicts of interest. The ROC 
shall oversee the contract market's regulatory program on behalf of the 
board. The board shall delegate sufficient authority, dedicate 
sufficient resources, and allow sufficient time for the ROC to fulfill 
its mandate.
    (ii) The ROC shall:
    (A) Monitor the contract market's regulatory program for 
sufficiency, effectiveness, and independence;
    (B) Oversee all facets of the program, including trade practice and 
market surveillance; audits, examinations, and other regulatory 
responsibilities with respect to member firms (including ensuring 
compliance with financial integrity, financial reporting, sales 
practice, recordkeeping, and other requirements); and the conduct of 
investigations;
    (C) Review the size and allocation of the regulatory budget and 
resources; and the number, hiring and termination, and compensation of 
regulatory personnel;
    (D) Supervise the contract market's chief regulatory officer, who 
will report directly to the ROC;
    (E) Prepare an annual report assessing the contract market's self-
regulatory program for the board of directors and the Commission, which 
sets forth the regulatory program's expenses, describes its staffing and 
structure, catalogues disciplinary actions taken during the year, and 
reviews the performance of disciplinary committees and panels;
    (F) Recommend changes that would ensure fair, vigorous, and 
effective regulation; and
    (G) Review regulatory proposals and advise the board as to whether 
and how such changes may impact regulation.
    (4) Disciplinary panels
    All contract markets shall minimize conflicts of interest in their 
disciplinary processes through disciplinary panel composition rules that 
preclude any group or class of industry participants from dominating or 
exercising disproportionate influence on such panels. Contract markets 
can further minimize conflicts of interest by including in all 
disciplinary panels at least one person who would qualify as a public 
director, as defined in subsections (2)(ii) and (2)(iii) above, except 
in cases limited to decorum, attire, or the timely submission of 
accurate records required for clearing or verifying each day's 
transactions. If contract market rules provide for appeal to the board 
of directors, or to a committee of the board, then that appellate body 
shall also include at least one person who would qualify as a public 
director as defined in subsections (2)(ii) and (2)(iii) above.
    Core Principle 17 of section 5(d) of the Act: COMPOSITION OF 
GOVERNING BOARDS OF CONTRACT MARKETS.--The governance arrangements of 
the board of trade shall be designed to permit consideration of the 
views of market participants.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 18 of section 5(d) of the Act: RECORDKEEPING.--The 
board of trade shall maintain records of all activities relating to the 
business of the contract market--
    (A) In a form and manner that is acceptable to the Commission; and
    (B) For a period of at least 5 years.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 19 of section 5(d) of the Act: ANTITRUST 
CONSIDERATIONS.--Unless necessary or appropriate to achieve the purposes 
of this Act, the board of trade shall not--
    (A) Adopt any rule or taking any action that results in any 
unreasonable restraint of trade; or
    (B) Impose any material anticompetitive burden on trading on the 
contract market.
    (a) Guidance. An entity seeking designation as a contract market may 
request that the Commission consider under the provisions of section 
15(b) of the Act, any of the entity's rules, including trading protocols 
or policies, and including both operational rules and the terms or 
conditions of products listed for trading, at the time of designation or 
thereafter. The Commission intends to apply section 15(b) of the Act to 
its consideration of issues under this core principle in a manner 
consistent with that previously applied to contract markets.
    (b) Acceptable Practices. [Reserved.]
    Core Principle 20 of section 5(d) of the Act: SYSTEM SAFEGUARDS.--
The board of trade shall--
    (A) Establish and maintain a program of risk analysis and oversight 
to identify and minimize sources of operational risk, through the 
development of appropriate controls and procedures, and the development 
of automated systems, that are reliable, secure, and have adequate 
scalable capacity;
    (B) Establish and maintain emergency procedures, backup facilities, 
and a plan for disaster recovery that allow for the timely recovery and 
resumption of operations and the fulfillment of the responsibilities and 
obligations of the board of trade; and
    (C) Periodically conduct tests to verify that backup resources are 
sufficient to ensure continued order processing and trade matching, 
price reporting, market surveillance, and maintenance of a comprehensive 
and accurate audit trail.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]

[[Page 649]]

    Core Principle 21 of section 5(d) of the Act: FINANCIAL RESOURCES.--
    (A) IN GENERAL.--The board of trade shall have adequate financial, 
operational, and managerial resources to discharge each responsibility 
of the board of trade.
    (B) DETERMINATION OF ADEQUACY.--The financial resources of the board 
of trade shall be considered to be adequate if the value of the 
financial resources exceeds the total amount that would enable the 
contract market to cover the operating costs of the contract market for 
a 1-year period, as calculated on a rolling basis.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 22 of section 5(d) of the Act: DIVERSITY OF BOARD OF 
DIRECTORS.--The board of trade, if a publicly traded company, shall 
endeavor to recruit individuals to serve on the board of directors and 
the other decision-making bodies (as determined by the Commission) of 
the board of trade from among, and to have the composition of the bodies 
reflect, a broad and culturally diverse pool of qualified candidates.
    (a) Guidance. [Reserved.]
    (b) Acceptable Practices. [Reserved.]
    Core Principle 23 of section 5(d) of the Act: SECURITIES AND 
EXCHANGE COMMISSION.--The board of trade shall keep any such records 
relating to swaps defined in section 1a(47)(A)(v) open to inspection and 
examination by the Securities and Exchange Commission.
    (a) Guidance. A designated contract market should have arrangements 
and resources for collecting and maintaining accurate records pertaining 
to any swaps agreements defined in section 1a(47)(A)(v) of the Act, and 
should leave them open to inspection and examination for a period of 
five years.
    (b) Acceptable Practices. [Reserved.]

[77 FR 36717, June 19, 2012]



PART 39_DERIVATIVES CLEARING ORGANIZATIONS--Table of Contents



    Subpart A_General Provisions Applicable to Derivatives Clearing 
                              Organizations

Sec.
39.1 Scope.
39.2 Definitions.
39.3 Procedures for registration.
39.4 Procedures for implementing derivatives clearing organization rules 
          and clearing new products.
39.5 Review of swaps for Commission determination on clearing 
          requirement.
39.6 [Reserved]
39.7 Enforceability.
39.8 Fraud in connection with the clearing of transactions on a 
          derivatives clearing organization.

                Subpart B_Compliance With Core Principles

39.9 Scope.
39.10 Compliance with core principles.
39.11 Financial resources.
39.12 Participant and product eligibility.
39.13 Risk management.
39.14 Settlement procedures.
39.15 Treatment of funds.
39.16 Default rules and procedures.
39.17 Rule enforcement.
39.18 System safeguards.
39.19 Reporting.
39.20 Recordkeeping.
39.21 Public information.
39.22 Information sharing.
39.23 Antitrust considerations.
39.24-39.26 [Reserved]
39.27 Legal risk considerations.

Appendix to Part 39--Form DCO Derivatives Clearing Organization 
          Application for Registrations

    Authority: 7 U.S.C. 2, and 7a-1 as amended by the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 
1376.

    Source: 76 FR 69430, Nov. 8, 2011, unless otherwise noted.



    Subpart A_General Provisions Applicable to Derivatives Clearing 
                              Organizations



Sec.  39.1  Scope.

    The provisions of this subpart A apply to any derivatives clearing 
organization as defined under section 1a(15) of the Act andSec. 1.3(d) 
of this chapter which is registered or deemed to be registered with the 
Commission as a derivatives clearing organization, is required to 
register as such with the Commission pursuant to section 5b(a) of the 
Act, or which voluntarily applies to register as such with the 
Commission pursuant to section 5b(b) or otherwise.



Sec.  39.2  Definitions.

    For the purposes of this part,
    Back test means a test that compares a derivatives clearing 
organization's initial margin requirements with historical price changes 
to determine the extent of actual margin coverage.
    Customer means a person trading in any commodity named in the 
definition of commodity in section 1a(9) of the Act or inSec. 1.3 of 
this chapter, or in any swap as defined in section 1a(47) of

[[Page 650]]

the Act or inSec. 1.3 of this chapter; Provided, however, an owner or 
holder of a house account as defined in this section shall not be deemed 
to be a customer within the meaning of section 4d of the Act, the 
regulations that implement sections 4d and 4f of the Act andSec. 1.35, 
and such an owner or holder of such a house account shall otherwise be 
deemed to be a customer within the meaning of the Act and Sec.Sec. 
1.37 and 1.46 of this chapter and all other sections of these rules, 
regulations, and orders which do not implement sections 4d and 4f of the 
Act.
    Customer account or customer origin means a clearing member account 
held on behalf of customers, as that term is defined in this section, 
and which is subject to section 4d(a) or section 4d(f) of the Act.
    House account or house origin means a clearing member account which 
is not subject to section 4d(a) or 4d(f) of the Act.
    Key personnel means derivatives clearing organization personnel who 
play a significant role in the operations of the derivatives clearing 
organization, the provision of clearing and settlement services, risk 
management, or oversight of compliance with the Act and Commission 
regulations and orders. Key personnel include, but are not limited to, 
those persons who are or perform the functions of any of the following: 
chief executive officer; president; chief compliance officer; chief 
operating officer; chief risk officer; chief financial officer; chief 
technology officer; and emergency contacts or persons who are 
responsible for business continuity or disaster recovery planning or 
program execution.
    Stress test means a test that compares the impact of potential 
extreme price moves, changes in option volatility, and/or changes in 
other inputs that affect the value of a position, to the financial 
resources of a derivatives clearing organization, clearing member, or 
large trader, to determine the adequacy of such financial resources.
    Systemically important derivatives clearing organization means a 
financial market utility that is a derivatives clearing organization 
registered under section 5b of the Act, which has been designated by the 
Financial Stability Oversight Council to be systemically important and 
for which the Commission acts as the Supervisory Agency pursuant to 
section 803(8) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.



Sec.  39.3  Procedures for registration.

    (a) Application procedures. (1) An organization desiring to be 
registered as a derivatives clearing organization shall file 
electronically an application for registration with the Secretary of the 
Commission in the format and manner specified by the Commission. The 
Commission will review the application for registration as a derivatives 
clearing organization pursuant to the 180-day timeframe and procedures 
specified in section 6(a) of the Act. The Commission may approve or deny 
the application or, if deemed appropriate, register the applicant as a 
derivatives clearing organization subject to conditions.
    (2) Application. Any person seeking to register as a derivatives 
clearing organization, any applicant amending its pending application, 
or any registered derivatives clearing organization seeking to amend its 
order of registration (applicant), shall submit to the Commission a 
completed Form DCO, which shall include a cover sheet, all applicable 
exhibits, and any supplemental materials, including amendments thereto, 
as provided in the appendix to this part 39 (application). An applicant, 
when filing a Form DCO for purposes of amending its pending application 
or requesting an amendment to an existing registration, is only required 
to submit exhibits and updated information that are relevant to the 
requested amendment and are necessary to demonstrate compliance with the 
core principles affected by the requested amendment. The Commission will 
not commence processing an application unless the applicant has filed 
the application as required by this section. Failure to file a completed 
application will preclude the Commission from determining that an 
application is materially complete, as provided in section 6(a) of the 
Act. Upon its own initiative, an applicant may file with its completed 
application additional information that may be necessary or helpful to 
the Commission in processing the application.

[[Page 651]]

    (3) Submission of supplemental information. The filing of a 
completed application is a minimum requirement and does not create a 
presumption that the application is materially complete or that 
supplemental information will not be required. At any time during the 
application review process, the Commission may request that the 
applicant submit supplemental information in order for the Commission to 
process the application. The applicant shall file electronically such 
supplemental information with the Secretary of the Commission in the 
format and manner specified by the Commission.
    (4) Application amendments. An applicant shall promptly amend its 
application if it discovers a material omission or error, or if there is 
a material change in the information provided to the Commission in the 
application or other information provided in connection with the 
application.
    (5) Public information. The following sections of all applications 
to become a registered derivatives clearing organization will be public: 
first page of the Form DCO cover sheet, proposed rules, regulatory 
compliance chart, narrative summary of proposed clearing activities, 
documents establishing the applicant's legal status, documents setting 
forth the applicant's corporate and governance structure, and any other 
part of the application not covered by a request for confidential 
treatment, subject toSec. 145.9 of this chapter.
    (b) Stay of application review. (1) The Commission may stay the 
running of the 180-day review period if an application is materially 
incomplete, in accordance with section 6(a) of the Act.
    (2) Delegation of authority. (i) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Clearing 
and Risk or the Director's designee, with the concurrence of the General 
Counsel or the General Counsel's designee, the authority to notify an 
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.
    (ii) The Director of the Division of Clearing and Risk may submit to 
the Commission for its consideration any matter which has been delegated 
in this paragraph.
    (iii) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (b)(2)(i) 
of this section.
    (c) Withdrawal of application for registration. An applicant for 
registration may withdraw its application submitted pursuant to 
paragraph (a) of this section by filing electronically such a request 
with the Secretary of the Commission in the format and manner specified 
by the Commission. 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.
    (d) Reinstatement of dormant registration. Before listing or 
relisting products for clearing, a dormant registered derivatives 
clearing organization as defined inSec. 40.1 of this chapter must 
reinstate its registration under the procedures of paragraph (a) 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) Request for vacation of registration. A registered derivatives 
clearing organization may vacate its registration under section 7 of the 
Act by filing electronically such a request with the Secretary of the 
Commission in the format and manner specified by the Commission. 
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 entity was registered by the 
Commission.
    (f) Request for transfer of registration and open interest. (1) In 
anticipation of a corporate change that will result in the transfer of 
all or substantially all of a derivatives clearing organization's assets 
to another legal entity, the derivatives clearing organization shall 
submit a request for approval to transfer the derivatives clearing 
organization's registration and positions comprising open interest for 
clearing and settlement.

[[Page 652]]

    (2) Timing of submission and other procedural requirements. (i) The 
request shall be submitted no later than three months prior to the 
anticipated corporate change, or as otherwise permitted underSec. 
39.19(c)(4)(viii)(C) of this part.
    (ii) The derivatives clearing organization shall submit a request 
for transfer by filing electronically such a request with the Secretary 
of the Commission in the format and manner specified by the Commission.
    (iii) The derivatives clearing organization shall submit a 
confirmation of change report pursuant toSec. 39.19(c)(4)(viii)(D) of 
this part.
    (3) Required information. The request shall include the following:
    (i) The underlying agreement that governs the corporate change;
    (ii) A narrative description of the corporate change, including the 
reason for the change and its impact on the derivatives clearing 
organization's financial resources, governance, and operations, and its 
impact on the rights and obligations of clearing members and market 
participants holding the positions that comprise the derivatives 
clearing organization's open interest;
    (iii) A discussion of the transferee's ability to comply with the 
Act, including the core principles applicable to derivatives clearing 
organizations, and the Commission's regulations thereunder;
    (iv) The governing documents of the transferee, including but not 
limited to articles of incorporation and bylaws;
    (v) The transferee's rules marked to show changes from the current 
rules of the derivatives clearing organization;
    (vi) A list of products for which the derivatives clearing 
organization requests transfer of open interest;
    (vii) A representation by the derivatives clearing organization that 
it is in compliance with the Act, including the core principles 
applicable to derivatives clearing organizations, and the Commission's 
regulations thereunder; and
    (viii) A representation by the transferee that it understands that 
the derivatives clearing organization is a regulated entity that must 
comply with the Act, including the core principles applicable to 
derivatives clearing organizations, and the Commission's regulations 
thereunder, in order to maintain its registration as a derivatives 
clearing organization; and further, that the transferee will continue to 
comply with all self-regulatory requirements applicable to a derivatives 
clearing organization under the Act and the Commission's regulations 
thereunder.
    (4) Commission determination. The Commission will review a request 
as soon as practicable, and based on the Commission's determination as 
to the transferee's ability to continue to operate the derivatives 
clearing organization in compliance with the Act and the Commission's 
regulations thereunder, such request will be approved or denied pursuant 
to a Commission order.



Sec.  39.4  Procedures for implementing derivatives clearing 
organization rules and clearing new products.

    (a) Request for approval of rules. An applicant for registration, or 
a registered derivatives clearing organization, may request, pursuant to 
the procedures ofSec. 40.5 of this chapter, that the Commission 
approve any or all of its rules and subsequent amendments thereto, 
including operational rules, prior to their implementation or, 
notwithstanding the provisions of section 5c(c)(2) of the Act, at any 
time thereafter, under the procedures ofSec. 40.5 of this chapter. A 
derivatives clearing organization may label as, ``Approved by the 
Commission,'' only those rules that have been so approved.
    (b) Self-certification of rules. Proposed new or amended rules of a 
derivatives clearing organization not voluntarily submitted for prior 
Commission approval pursuant to paragraph (a) of this section must be 
submitted to the Commission with a certification that the proposed new 
rule or rule amendment complies with the Act and rules thereunder 
pursuant to the procedures ofSec. 40.6 of this chapter.
    (c) Acceptance of new products for clearing. (1) A dormant 
derivatives clearing organization within the meaning ofSec. 40.1 of 
this chapter may not accept for clearing a new product until its 
registration as a derivatives clearing organization is reinstated under

[[Page 653]]

the procedures ofSec. 39.3 of this part; provided however, that an 
application for reinstatement may rely upon previously submitted 
materials that still pertain to, and accurately describe, current 
conditions.
    (2) A derivatives clearing organization that accepts for clearing a 
new product that is a swap shall comply with the requirements ofSec. 
39.5 of this part.
    (d) Orders regarding competition. An applicant for registration or a 
registered derivatives clearing organization may request that the 
Commission issue an order concerning whether a rule or practice of the 
organization is the least anticompetitive means of achieving the 
objectives, purposes, and policies of the Act.
    (e) Holding securities in a futures portfolio margining account. A 
derivatives clearing organization seeking to provide a portfolio 
margining program under which securities would be held in a futures 
account as defined inSec. 1.3(vv) of this chapter, shall submit rules 
to implement such portfolio margining program for Commission approval in 
accordance withSec. 40.5 of this chapter. Concurrent with the 
submission of such rules for Commission approval, the derivatives 
clearing organization shall petition the Commission for an order under 
section 4d of the Act.



Sec.  39.5  Review of swaps for Commission determination on clearing
requirement.

    (a) Eligibility to clear swaps. (1) A derivatives clearing 
organization shall be presumed eligible to accept for clearing any swap 
that is within a group, category, type, or class of swaps that the 
derivatives clearing organization already clears. Such presumption of 
eligibility, however, is subject to review by the Commission.
    (2) A derivatives clearing organization that wishes to accept for 
clearing any swap that is not within a group, category, type, or class 
of swaps that the derivatives clearing organization already clears shall 
request a determination by the Commission of the derivatives clearing 
organization's eligibility to clear such a swap before accepting the 
swap for clearing. The request, which shall be filed electronically with 
the Secretary of the Commission, shall address the derivatives clearing 
organization's ability, if it accepts the swap for clearing, to maintain 
compliance with section 5b(c)(2) of the Act, specifically:
    (i) The sufficiency of the derivatives clearing organization's 
financial resources; and
    (ii) The derivative clearing organization's ability to manage the 
risks associated with clearing the swap, especially if the Commission 
determines that the swap is required to be cleared.
    (b) Swap submissions. (1) A derivatives clearing organization shall 
submit to the Commission each swap, or any group, category, type, or 
class of swaps that it plans to accept for clearing. The derivatives 
clearing organization making the submission must be eligible under 
paragraph (a) of this section to accept for clearing the submitted swap, 
or group, category, type, or class of swaps.
    (2) A derivatives clearing organization shall submit swaps to the 
Commission, to the extent reasonable and practicable to do so, by group, 
category, type, or class of swaps. The Commission may in its reasonable 
discretion consolidate multiple submissions from one derivatives 
clearing organization or subdivide a derivatives clearing organization's 
submission as appropriate for review.
    (3) The submission shall be filed electronically with the Secretary 
of the Commission and shall include:
    (i) A statement that the derivatives clearing organization is 
eligible to accept the swap, or group, category, type, or class of swaps 
for clearing and describes the extent to which, if the Commission were 
to determine that the swap, or group, category, type, or class of swaps 
is required to be cleared, the derivatives clearing organization will be 
able to maintain compliance with section 5b(c)(2) of the Act;
    (ii) A statement that includes, but is not limited to, information 
that will assist the Commission in making a quantitative and qualitative 
assessment of the following factors:
    (A) The existence of significant outstanding notional exposures, 
trading liquidity, and adequate pricing data;

[[Page 654]]

    (B) The availability of rule framework, capacity, operational 
expertise and resources, and credit support infrastructure to clear the 
contract on terms that are consistent with the material terms and 
trading conventions on which the contract is then traded;
    (C) The effect on the mitigation of systemic risk, taking into 
account the size of the market for such contract and the resources of 
the derivatives clearing organization available to clear the contract;
    (D) The effect on competition, including appropriate fees and 
charges applied to clearing; and
    (E) The existence of reasonable legal certainty in the event of the 
insolvency of the relevant derivatives clearing organization or one or 
more of its clearing members with regard to the treatment of customer 
and swap counterparty positions, funds, and property;
    (iii) Product specifications, including copies of any standardized 
legal documentation, generally accepted contract terms, standard 
practices for managing any life cycle events associated with the swap, 
and the extent to which the swap is electronically confirmable;
    (iv) Participant eligibility standards, if different from the 
derivatives clearing organization's general participant eligibility 
standards;
    (v) Pricing sources, models, and procedures, demonstrating an 
ability to obtain sufficient price data to measure credit exposures in a 
timely and accurate manner, including any agreements with clearing 
members to provide price data and copies of executed agreements with 
third-party price vendors, and information about any price reference 
index used, such as the name of the index, the source that calculates 
it, the methodology used to calculate the price reference index and how 
often it is calculated, and when and where it is published publicly;
    (vi) Risk management procedures, including measurement and 
monitoring of credit exposures, initial and variation margin 
methodology, methodologies for stress testing and back testing, 
settlement procedures, and default management procedures;
    (vii) Applicable rules, manuals, policies, or procedures;
    (viii) A description of the manner in which the derivatives clearing 
organization has provided notice of the submission to its members and a 
summary of any views on the submission expressed by the members (a copy 
of the notice to members shall be included with the submission); and
    (ix) Any additional information specifically requested by the 
Commission.
    (4) The Commission must have received the submission by the open of 
business on the business day preceding the acceptance of the swap, or 
group, category, type, or class of swaps for clearing.
    (5) The submission will be made available to the public and posted 
on the Commission Web site for a 30-day public comment period. A 
derivatives clearing organization that wishes to request confidential 
treatment for portions of its submission may do so in accordance with 
the procedures set out inSec. 145.9(d) of this chapter.
    (6) The Commission will review the submission and determine whether 
the swap, or group, category, type, or class of swaps described in the 
submission is required to be cleared. The Commission will make its 
determination not later than 90 days after a complete submission has 
been received, unless the submitting derivatives clearing organization 
agrees to an extension. The determination of when such submission is 
complete shall be at the sole discretion of the Commission. In making a 
determination that a clearing requirement shall apply, the Commission 
may impose such terms and conditions to the clearing requirement as the 
Commission determines to be appropriate.
    (c) Commission-initiated reviews. (1) The Commission, on an ongoing 
basis, will review swaps that have not been accepted for clearing by a 
derivatives clearing organization to make a determination as to whether 
the swaps should be required to be cleared. In undertaking such reviews, 
the Commission will use information obtained pursuant to Commission 
regulations from swap data repositories, swap dealers, and major swap 
participants, and any other available information.
    (2) Notice regarding any determination made under paragraph (c)(1) 
of this section will be made available to

[[Page 655]]

the public and posted on the Commission Web site for a 30-day public 
comment period.
    (3) If no derivatives clearing organization has accepted for 
clearing a particular swap, group, category, type, or class of swaps 
that the Commission finds would otherwise be subject to a clearing 
requirement, the Commission will:
    (i) Investigate the relevant facts and circumstances;
    (ii) Within 30 days of the completion of its investigation, issue a 
public report containing the results of the investigation; and
    (iii) Take such actions as the Commission determines to be necessary 
and in the public interest, which may include requiring the retaining of 
adequate margin or capital by parties to the swap, group, category, 
type, or class of swaps.
    (d) Stay of clearing requirement. (1) After making a determination 
that a swap, or group, category, type, or class of swaps is required to 
be cleared, the Commission, on application of a counterparty to a swap 
or on its own initiative, may stay the clearing requirement until the 
Commission completes a review of the terms of the swap, or group, 
category, type, or class of swaps and the clearing arrangement.
    (2) A counterparty to a swap that wishes to apply for a stay of the 
clearing requirement for that swap shall submit a written request to the 
Secretary of the Commission that includes:
    (i) The identity and contact information of the counterparty to the 
swap;
    (ii) The terms of the swap subject to the clearing requirement;
    (iii) The name of the derivatives clearing organization clearing the 
swap;
    (iv) A description of the clearing arrangement; and
    (v) A statement explaining why the swap should not be subject to a 
clearing requirement.
    (3) A derivatives clearing organization that has accepted for 
clearing a swap, or group, category, type, or class of swaps that is 
subject to a stay of the clearing requirement shall provide any 
information requested by the Commission in the course of its review.
    (4) The Commission will complete its review not later than 90 days 
after issuance of the stay, unless the derivatives clearing organization 
that clears the swap, or group, category, type, or class of swaps agrees 
to an extension.
    (5) Upon completion of its review, the Commission may:
    (i) Determine, subject to any terms and conditions as the Commission 
determines to be appropriate, that the swap, or group, category, type, 
or class of swaps must be cleared; or
    (ii) Determine that the clearing requirement will not apply to the 
swap, or group, category, type, or class of swaps, but clearing may 
continue on a non-mandatory basis.



Sec.  39.6  [Reserved]



Sec.  39.7  Enforceability.

    An agreement, contract or transaction submitted to a derivatives 
clearing organization for clearing shall not be void, voidable, subject 
to rescission, or otherwise invalidated or rendered unenforceable as a 
result of:
    (a) A violation by the derivatives clearing organization of the 
provisions of the Act or of Commission regulations; or
    (b) Any Commission proceeding to alter or supplement a rule under 
section 8a(7) of the Act, to declare an emergency under section 8a(9) of 
the Act, or any other proceeding the effect of which is to alter, 
supplement, or require a derivatives clearing organization to adopt a 
specific rule or procedure, or to take or refrain from taking a specific 
action.



Sec.  39.8  Fraud in connection with the clearing of transactions on a 
derivatives clearing organization.

    It shall be unlawful for any person, directly or indirectly, in or 
in connection with the clearing of transactions by a derivatives 
clearing organization:
    (a) To cheat or defraud or attempt to cheat or defraud any person;
    (b) Willfully to make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (c) Willfully to deceive or attempt to deceive any person by any 
means whatsoever.

[[Page 656]]



                Subpart B_Compliance with Core Principles



Sec.  39.9  Scope.

    The provisions of this subpart B apply to any derivatives clearing 
organization, as defined under section 1a(15) of the Act andSec. 
1.3(d) of this chapter, which is registered or deemed to be registered 
with the Commission as a derivatives clearing organization, is required 
to register as such with the Commission pursuant to section 5b(a) of the 
Act, or which voluntarily registers as such with the Commission pursuant 
to section 5b(b) or otherwise.



Sec.  39.10  Compliance with core principles.

    (a) To be registered and to maintain registration as a derivatives 
clearing organization, a derivatives clearing organization shall comply 
with each core principle set forth in section 5b(c)(2) of the Act and 
any requirement that the Commission may impose by rule or regulation 
pursuant to section 8a(5) of the Act; and
    (b) Subject to any rule or regulation prescribed by the Commission, 
a registered derivatives clearing organization shall have reasonable 
discretion in establishing the manner by which it complies with each 
core principle.
    (c) Chief compliance officer--(1) Designation. Each derivatives 
clearing organization shall establish the position of chief compliance 
officer, designate an individual to serve as the chief compliance 
officer, and provide the chief compliance officer with the full 
responsibility and authority to develop and enforce, in consultation 
with the board of directors or the senior officer, appropriate 
compliance policies and procedures, to fulfill the duties set forth in 
the Act and Commission regulations.
    (i) The individual designated to serve as chief compliance officer 
shall have the background and skills appropriate for fulfilling the 
responsibilities of the position. No individual who would be 
disqualified from registration under sections 8a(2) or 8a(3) of the Act 
may serve as a chief compliance officer.
    (ii) The chief compliance officer shall report to the board of 
directors or the senior officer of the derivatives clearing 
organization. The board of directors or the senior officer shall approve 
the compensation of the chief compliance officer.
    (iii) The chief compliance officer shall meet with the board of 
directors or the senior officer at least once a year.
    (iv) A change in the designation of the individual serving as the 
chief compliance officer of the derivatives clearing organization shall 
be reported to the Commission in accordance with the requirements of 
Sec.  39.19(c)(4)(ix) of this part.
    (2) Chief compliance officer duties. The chief compliance officer's 
duties shall include, but are not limited to:
    (i) Reviewing the derivatives clearing organization's compliance 
with the core principles set forth in section 5b of the Act, and the 
Commission's regulations thereunder;
    (ii) In consultation with the board of directors or the senior 
officer, resolving any conflicts of interest that may arise;
    (iii) Establishing and administering written policies and procedures 
reasonably designed to prevent violation of the Act;
    (iv) Taking reasonable steps to ensure compliance with the Act and 
Commission regulations relating to agreements, contracts, or 
transactions, and with Commission regulations prescribed under section 
5b of the Act;
    (v) Establishing procedures for the remediation of noncompliance 
issues identified by the chief compliance officer through any compliance 
office review, look-back, internal or external audit finding, self-
reported error, or validated complaint; and
    (vi) Establishing and following appropriate procedures for the 
handling, management response, remediation, retesting, and closing of 
noncompliance issues.
    (3) Annual report. The chief compliance officer shall, not less than 
annually, prepare and sign a written report that covers the most 
recently completed fiscal year of the derivatives clearing organization, 
and provide the annual report to the board of directors or the senior 
officer. The annual report shall, at a minimum:

[[Page 657]]

    (i) Contain a description of the derivatives clearing organization's 
written policies and procedures, including the code of ethics and 
conflict of interest policies;
    (ii) Review each core principle and applicable Commission 
regulation, and with respect to each:
    (A) Identify the compliance policies and procedures that are 
designed to ensure compliance with the core principle;
    (B) Provide an assessment as to the effectiveness of these policies 
and procedures;
    (C) Discuss areas for improvement, and recommend potential or 
prospective changes or improvements to the derivatives clearing 
organization's compliance program and resources allocated to compliance;
    (iii) List any material changes to compliance policies and 
procedures since the last annual report;
    (iv) Describe the financial, managerial, and operational resources 
set aside for compliance with the Act and Commission regulations; and
    (v) Describe any material compliance matters, including incidents of 
noncompliance, since the date of the last annual report and describe the 
corresponding action taken.
    (4) Submission of annual report to the Commission. (i) Prior to 
submitting the annual report to the Commission, the chief compliance 
officer shall provide the annual report to the board of directors or the 
senior officer of the derivatives clearing organization for review. 
Submission of the report to the board of directors or the senior officer 
shall be recorded in the board minutes or otherwise, as evidence of 
compliance with this requirement.
    (ii) The annual report shall be submitted electronically to the 
Secretary of the Commission in the format and manner specified by the 
Commission not more than 90 days after the end of the derivatives 
clearing organization's fiscal year, concurrently with submission of the 
fiscal year-end audited financial statement that is required to be 
furnished to the Commission pursuant toSec. 39.19(c)(3)(ii) of this 
part. The report shall include a certification by the chief compliance 
officer that, to the best of his or her knowledge and reasonable belief, 
and under penalty of law, the annual report is accurate and complete.
    (iii) The derivatives clearing organization shall promptly submit an 
amended annual report if material errors or omissions in the report are 
identified after submission. An amendment must contain the certification 
required under paragraph (c)(4)(ii) of this section.
    (iv) A derivatives clearing organization may request from the 
Commission an extension of time to submit its annual report in 
accordance withSec. 39.19(c)(3) of this part.
    (5) Recordkeeping. (i) The derivatives clearing organization shall 
maintain:
    (A) A copy of all compliance policies and procedures and all other 
policies and procedures adopted in furtherance of compliance with the 
Act and Commission regulations;
    (B) Copies of materials, including written reports provided to the 
board of directors or the senior officer in connection with the review 
of the annual report under paragraph (c)(4)(i) of this section; and
    (C) Any records relevant to the annual report, including, but not 
limited to, work papers and other documents that form the basis of the 
report, and memoranda, correspondence, other documents, and records that 
are created, sent, or received in connection with the annual report and 
contain conclusions, opinions, analyses, or financial data related to 
the annual report.
    (ii) The derivatives clearing organization shall maintain records in 
accordance withSec. 1.31 of this chapter andSec. 39.20 of this part.



Sec.  39.11  Financial resources.

    (a) General. A derivatives clearing organization shall maintain 
financial resources sufficient to cover its exposures with a high degree 
of confidence and to enable it to perform its functions in compliance 
with the core principles set out in section 5b of the Act. A derivatives 
clearing organization shall identify and adequately manage its general 
business risks and hold sufficient liquid resources to cover potential 
business losses that are not related to clearing members' defaults, so 
that

[[Page 658]]

the derivatives clearing organization can continue to provide services 
as an ongoing concern. Financial resources shall be considered 
sufficient if their value, at a minimum, exceeds the total amount that 
would:
    (1) Enable the derivatives clearing organization to meet its 
financial obligations to its clearing members notwithstanding a default 
by the clearing member creating the largest financial exposure for the 
derivatives clearing organization in extreme but plausible market 
conditions; Provided that if a clearing member controls another clearing 
member or is under common control with another clearing member, the 
affiliated clearing members shall be deemed to be a single clearing 
member for purposes of this provision; and
    (2) Enable the derivatives clearing organization to cover its 
operating costs for a period of at least one year, calculated on a 
rolling basis.
    (b) Types of financial resources. (1) Financial resources available 
to satisfy the requirements of paragraph (a)(1) of this section may 
include:
    (i) Margin to the extent permitted under parts 1, 22, and 190 of 
this chapter and under the rules of the derivatives clearing 
organization;
    (ii) The derivatives clearing organization's own capital;
    (iii) Guaranty fund deposits;
    (iv) Default insurance;
    (v) Potential assessments for additional guaranty fund 
contributions, if permitted by the derivatives clearing organization's 
rules; and
    (vi) Any other financial resource deemed acceptable by the 
Commission.
    (2) Financial resources available to satisfy the requirements of 
paragraph (a)(2) of this section may include:
    (i) The derivatives clearing organization's own capital; and
    (ii) Any other financial resource deemed acceptable by the 
Commission.
    (3) A financial resource may be allocated, in whole or in part, to 
satisfy the requirements of either paragraph (a)(1) or paragraph (a)(2) 
of this section, but not both paragraphs, and only to the extent the use 
of such financial resource is not otherwise limited by the Act, 
Commission regulations, the derivatives clearing organization's rules, 
or any contractual arrangements to which the derivatives clearing 
organization is a party.
    (c) Computation of financial resources requirement. (1) A 
derivatives clearing organization shall, on a monthly basis, perform 
stress testing that will allow it to make a reasonable calculation of 
the financial resources needed to meet the requirements of paragraph 
(a)(1) of this section. The derivatives clearing organization shall have 
reasonable discretion in determining the methodology used to compute 
such requirements, provided that the methodology must take into account 
both historical data and hypothetical scenarios. The Commission may 
review the methodology and require changes as appropriate.
    (2) A derivatives clearing organization shall, on a monthly basis, 
make a reasonable calculation of its projected operating costs over a 
12-month period in order to determine the amount needed to meet the 
requirements of paragraph (a)(2) of this section. The derivatives 
clearing organization shall have reasonable discretion in determining 
the methodology used to compute such projected operating costs. The 
Commission may review the methodology and require changes as 
appropriate.
    (d) Valuation of financial resources. (1) At appropriate intervals, 
but not less than monthly, a derivatives clearing organization shall 
compute the current market value of each financial resource used to meet 
its obligations under paragraph (a) of this section. Reductions in value 
to reflect credit, market, and liquidity risks (haircuts) shall be 
applied as appropriate and evaluated on a monthly basis.
    (2) If assessments for additional guaranty fund contributions are 
permitted by the derivatives clearing organization's rules, in 
calculating the financial resources available to meet its obligations 
under paragraph (a)(1) of this section:
    (i) The derivatives clearing organization shall have rules requiring 
that its clearing members have the ability to meet an assessment within 
the time frame of a normal end-of-day variation settlement cycle;
    (ii) The derivatives clearing organization shall monitor the 
financial and operational capacity of its clearing

[[Page 659]]

members to meet potential assessments;
    (iii) The derivatives clearing organization shall apply a 30 percent 
haircut to the value of potential assessments, and
    (iv) The derivatives clearing organization shall only count the 
value of assessments, after the haircut, to meet up to 20 percent of 
those obligations.
    (e) Liquidity of financial resources. (1) (i) The derivatives 
clearing organization shall effectively measure, monitor, and manage its 
liquidity risks, maintaining sufficient liquid resources such that it 
can, at a minimum, fulfill its cash obligations when due. The 
derivatives clearing organization shall hold assets in a manner where 
the risk of loss or of delay in its access to them is minimized.
    (ii) The financial resources allocated by the derivatives clearing 
organization to meet the requirements of paragraph (a)(1) of this 
section shall be sufficiently liquid to enable the derivatives clearing 
organization to fulfill its obligations as a central counterparty during 
a one-day settlement cycle. The derivatives clearing organization shall 
maintain cash, U.S. Treasury obligations, or high quality, liquid, 
general obligations of a sovereign nation, in an amount greater than or 
equal to an amount calculated as follows:
    (A) Calculate the average daily settlement pay for each clearing 
member over the last fiscal quarter;
    (B) Calculate the sum of those average daily settlement pays; and
    (C) Using that sum, calculate the average of its clearing members' 
average pays.
    (iii) The derivatives clearing organization may take into account a 
committed line of credit or similar facility for the purpose of meeting 
the remainder of the requirement under paragraph (e)(1)(ii) of this 
section.
    (2) The financial resources allocated by the derivatives clearing 
organization to meet the requirements of paragraph (a)(2) of this 
section must include unencumbered, liquid financial assets (i.e., cash 
and/or highly liquid securities) equal to at least six months' operating 
costs. If any portion of such financial resources is not sufficiently 
liquid, the derivatives clearing organization may take into account a 
committed line of credit or similar facility for the purpose of meeting 
this requirement.
    (3)(i) Assets in a guaranty fund shall have minimal credit, market, 
and liquidity risks and shall be readily accessible on a same-day basis;
    (ii) Cash balances shall be invested or placed in safekeeping in a 
manner that bears little or no principal risk; and
    (iii) Letters of credit shall not be a permissible asset for a 
guaranty fund.
    (f) Reporting requirements. (1) Each fiscal quarter, or at any time 
upon Commission request, a derivatives clearing organization shall:
    (i) Report to the Commission;
    (A) The amount of financial resources necessary to meet the 
requirements of paragraph (a);
    (B) The value of each financial resource available, computed in 
accordance with the requirements of paragraph (d) of this section; and
    (C) The manner in which the derivatives clearing organization meets 
the liquidity requirements of paragraph (e) of this section;
    (ii) Provide the Commission with a financial statement, including 
the balance sheet, income statement, and statement of cash flows, of the 
derivatives clearing organization or of its parent company; and
    (iii) Report to the Commission the value of each individual clearing 
member's guaranty fund deposit, if the derivatives clearing organization 
reports having guaranty funds deposits as a financial resource available 
to satisfy the requirements of paragraph (a)(1) of this section.
    (2) The calculations required by this paragraph shall be made as of 
the last business day of the derivatives clearing organization's fiscal 
quarter.
    (3) The derivatives clearing organization shall provide the 
Commission with:
    (i) Sufficient documentation explaining the methodology used to 
compute its financial resources requirements under paragraph (a) of this 
section,
    (ii) Sufficient documentation explaining the basis for its 
determinations regarding the valuation and liquidity requirements set 
forth in paragraphs (d) and (e) of this section, and

[[Page 660]]

    (iii) Copies of any agreements establishing or amending a credit 
facility, insurance coverage, or other arrangement evidencing or 
otherwise supporting the derivatives clearing organization's 
conclusions.
    (4) The report shall be filed not later than 17 business days after 
the end of the derivatives clearing organization's fiscal quarter, or at 
such later time as the Commission may permit, in its discretion, upon 
request by the derivatives clearing organization.



Sec.  39.12  Participant and product eligibility.

    (a) Participant eligibility. A derivatives clearing organization 
shall establish appropriate admission and continuing participation 
requirements for clearing members of the derivatives clearing 
organization that are objective, publicly disclosed, and risk-based.
    (1) Fair and open access for participation. The participation 
requirements shall permit fair and open access;
    (i) A derivatives clearing organization shall not adopt restrictive 
clearing member standards if less restrictive requirements that achieve 
the same objective and that would not materially increase risk to the 
derivatives clearing organization or clearing members could be adopted;
    (ii) A derivatives clearing organization shall allow all market 
participants who satisfy participation requirements to become clearing 
members;
    (iii) A derivatives clearing organization shall not exclude or limit 
clearing membership of certain types of market participants unless the 
derivatives clearing organization can demonstrate that the restriction 
is necessary to address credit risk or deficiencies in the participants' 
operational capabilities that would prevent them from fulfilling their 
obligations as clearing members.
    (iv) A derivatives clearing organization shall not require that 
clearing members be swap dealers.
    (v) A derivatives clearing organization shall not require that 
clearing members maintain a swap portfolio of any particular size, or 
that clearing members meet a swap transaction volume threshold.
    (vi) No derivatives clearing organization shall require as a 
condition of accepting a swap for clearing that a futures commission 
merchant enter into an arrangement with a customer that:
    (A) Discloses to the futures commission merchant or any swap dealer 
or major swap participant the identity of a customer's original 
executing counterparty;
    (B) Limits the number of counterparties with whom a customer may 
enter into trades;
    (C) Restricts the size of the position a customer may take with any 
individual counterparty, apart from an overall limit for all positions 
held by the customer at the futures commission merchant;
    (D) Impairs a customer's access to execution of a trade on terms 
that have a reasonable relationship to the best terms available; or
    (E) Prevents compliance with the time frames set forth inSec. 
1.74(b),Sec. 23.610(b), orSec. 39.12(b)(7) of this chapter.
    (2) Financial resources. (i) The participation requirements shall 
require clearing members to have access to sufficient financial 
resources to meet obligations arising from participation in the 
derivatives clearing organization in extreme but plausible market 
conditions. A derivatives clearing organization may permit such 
financial resources to include, without limitation, a clearing member's 
capital, a guarantee from the clearing member's parent, or a credit 
facility funding arrangement. For purposes of this paragraph, 
``capital'' means adjusted net capital as defined inSec. 1.17 of this 
chapter, for futures commission merchants, and net capital as defined in 
Sec.  240.15c3-1of this title, for broker-dealers, or any similar risk 
adjusted capital calculation for all other clearing members.
    (ii) The participation requirements shall set forth capital 
requirements that are based on objective, transparent, and commonly 
accepted standards that appropriately match capital to risk. Capital 
requirements shall be scalable to the risks posed by clearing members.
    (iii) A derivatives clearing organization shall not set a minimum 
capital requirement of more than $50 million

[[Page 661]]

for any person that seeks to become a clearing member in order to clear 
swaps.
    (3) Operational requirements. The participation requirements shall 
require clearing members to have adequate operational capacity to meet 
obligations arising from participation in the derivatives clearing 
organization. The requirements shall include, but are not limited to: 
the ability to process expected volumes and values of transactions 
cleared by a clearing member within required time frames, including at 
peak times and on peak days; the ability to fulfill collateral, payment, 
and delivery obligations imposed by the derivatives clearing 
organization; and the ability to participate in default management 
activities under the rules of the derivatives clearing organization and 
in accordance withSec. 39.16 of this part.
    (4) Monitoring. A derivatives clearing organization shall establish 
and implement procedures to verify, on an ongoing basis, the compliance 
of each clearing member with each participation requirement of the 
derivatives clearing organization.
    (5) Reporting. (i) A derivatives clearing organization shall require 
all clearing members, including non-futures commission merchants, to 
provide to the derivatives clearing organization periodic financial 
reports that contain any financial information that the derivatives 
clearing organization determines is necessary to assess whether 
participation requirements are being met on an ongoing basis.
    (A) A derivatives clearing organization shall require clearing 
members that are futures commission merchants to provide the financial 
reports that are specified inSec. 1.10 of this chapter to the 
derivatives clearing organization.
    (B) A derivatives clearing organization shall require clearing 
members that are not futures commission merchants to make the periodic 
financial reports provided pursuant to paragraph (a)(5)(i) of this 
section available to the Commission upon the Commission's request or, in 
lieu of imposing this requirement, a derivatives clearing organization 
may provide such financial reports directly to the Commission upon the 
Commission's request.
    (ii) A derivatives clearing organization shall adopt rules that 
require clearing members to provide to the derivatives clearing 
organization, in a timely manner, information that concerns any 
financial or business developments that may materially affect the 
clearing members' ability to continue to comply with participation 
requirements.
    (6) Enforcement. A derivatives clearing organization shall have the 
ability to enforce compliance with its participation requirements and 
shall establish procedures for the suspension and orderly removal of 
clearing members that no longer meet the requirements.
    (b) Product eligibility. (1) A derivatives clearing organization 
shall establish appropriate requirements for determining the eligibility 
of agreements, contracts, or transactions submitted to the derivatives 
clearing organization for clearing, taking into account the derivatives 
clearing organization's ability to manage the risks associated with such 
agreements, contracts, or transactions. Factors to be considered in 
determining product eligibility include, but are not limited to:
    (i) Trading volume;
    (ii) Liquidity;
    (iii) Availability of reliable prices;
    (iv) Ability of market participants to use portfolio compression 
with respect to a particular swap product;
    (v) Ability of the derivatives clearing organization and clearing 
members to gain access to the relevant market for purposes of creating, 
liquidating, transferring, auctioning, and/or allocating positions;
    (vi) Ability of the derivatives clearing organization to measure 
risk for purposes of setting margin requirements; and
    (vii) Operational capacity of the derivatives clearing organization 
and clearing members to address any unusual risk characteristics of a 
product.
    (2) A derivatives clearing organization shall adopt rules providing 
that all swaps with the same terms and conditions, as defined by product 
specifications established under derivatives clearing organization 
rules, submitted to the derivatives clearing organization for clearing 
are economically equivalent within the derivatives

[[Page 662]]

clearing organization and may be offset with each other within the 
derivatives clearing organization.
    (3) A derivatives clearing organization shall provide for non-
discriminatory clearing of a swap executed bilaterally or on or subject 
to the rules of an unaffiliated swap execution facility or designated 
contract market.
    (4) A derivatives clearing organization shall not require that one 
of the original executing parties be a clearing member in order for a 
product to be eligible for clearing.
    (5) A derivatives clearing organization shall select product unit 
sizes and other terms and conditions that maximize liquidity, facilitate 
transparency in pricing, promote open access, and allow for effective 
risk management. To the extent appropriate to further these objectives, 
a derivatives clearing organization shall select product units for 
clearing purposes that are smaller than the product units in which 
trades submitted for clearing were executed.
    (6) A derivatives clearing organization that clears swaps shall have 
rules providing that, upon acceptance of a swap by the derivatives 
clearing organization for clearing:
    (i) The original swap is extinguished;
    (ii) The original swap is replaced by an equal and opposite swap 
between the derivatives clearing organization and each clearing member 
acting as principal for a house trade or acting as agent for a customer 
trade;
    (iii) All terms of a cleared swap must conform to product 
specifications established under derivatives clearing organization 
rules; and
    (iv) If a swap is cleared by a clearing member on behalf of a 
customer, all terms of the swap, as carried in the customer account on 
the books of the clearing member, must conform to the terms of the 
cleared swap established under the derivatives clearing organization's 
rules.
    (7) Time frame for clearing--(i) Coordination with markets and 
clearing members. (A) Each derivatives clearing organization shall 
coordinate with each designated contract market and swap execution 
facility that lists for trading a product that is cleared by the 
derivatives clearing organization in developing rules and procedures to 
facilitate prompt, efficient, and accurate processing of all 
transactions submitted to the derivatives clearing organization for 
clearing.
    (B) Each derivatives clearing organization shall coordinate with 
each clearing member that is a futures commission merchant, swap dealer, 
or major swap participant to establish systems that enable the clearing 
member, or the derivatives clearing organization acting on its behalf, 
to accept or reject each trade submitted to the derivatives clearing 
organization for clearing by or for the clearing member or a customer of 
the clearing member as quickly as would be technologically practicable 
if fully automated systems were used.
    (ii) Transactions executed competitively on or subject to the rules 
of a designated contract market or swap execution facility. A 
derivatives clearing organization shall have rules that provide that the 
derivatives clearing organization will accept or reject for clearing as 
quickly after execution as would be technologically practicable if fully 
automated systems were used, all contracts that are listed for clearing 
by the derivatives clearing organization and are executed competitively 
on or subject to the rules of a designated contract market or a swap 
execution facility. The derivatives clearing organization shall accept 
all trades:
    (A) For which the executing parties have clearing arrangements in 
place with clearing members of the derivatives clearing organization;
    (B) For which the executing parties identify the derivatives 
clearing organization as the intended clearinghouse; and
    (C) That satisfy the criteria of the derivatives clearing 
organization, including but not limited to applicable risk filters; 
provided that such criteria are non-discriminatory across trading venues 
and are applied as quickly as would be technologically practicable if 
fully automated systems were used.
    (iii) Swaps not executed on or subject to the rules of a designated 
contract market or a swap execution facility or executed non-
competitively on or subject to the rules of a designated contract market 
or a swap execution facility. A derivatives clearing organization shall 
have rules

[[Page 663]]

that provide that the derivatives clearing organization will accept or 
reject for clearing as quickly after submission to the derivatives 
clearing organization as would be technologically practicable if fully 
automated systems were used, all swaps that are listed for clearing by 
the derivatives clearing organization and are not executed on or subject 
to the rules of a designated contract market or a swap execution 
facility or executed non-competitively on or subject to the rules of a 
designated contract market or a swap execution facility. The derivatives 
clearing organization shall accept all trades:
    (A) That are submitted by the parties to the derivatives clearing 
organization, in accordance withSec. 23.506 of this chapter;
    (B) For which the executing parties have clearing arrangements in 
place with clearing members of the derivatives clearing organization;
    (C) For which the executing parties identify the derivatives 
clearing organization as the intended clearinghouse; and
    (D) That satisfy the criteria of the derivatives clearing 
organization, including but not limited to applicable risk filters; 
provided that such criteria are non-discriminatory across trading venues 
and are applied as quickly as would be technologically practicable if 
fully automated systems were used.
    (8) Confirmation. A derivatives clearing organization shall provide 
each clearing member carrying a cleared swap with a definitive written 
record of the terms of the transaction which shall legally supersede any 
previous agreement and serve as a confirmation of the swap. The 
confirmation of all terms of the transaction shall take place at the 
same time as the swap is accepted for clearing.

[76 FR 69430, Nov. 8, 2011, as amended at 77 FR 21309, Apr. 9, 2012]



Sec.  39.13  Risk management.

    (a) General. A derivatives clearing organization shall ensure that 
it possesses the ability to manage the risks associated with discharging 
the responsibilities of the derivatives clearing organization through 
the use of appropriate tools and procedures.
    (b) Documentation requirement. A derivatives clearing organization 
shall establish and maintain written policies, procedures, and controls, 
approved by its board of directors, which establish an appropriate risk 
management framework that, at a minimum, clearly identifies and 
documents the range of risks to which the derivatives clearing 
organization is exposed, addresses the monitoring and management of the 
entirety of those risks, and provides a mechanism for internal audit. 
The risk management framework shall be regularly reviewed and updated as 
necessary.
    (c) Chief risk officer. A derivatives clearing organization shall 
have a chief risk officer who shall be responsible for implementing the 
risk management framework, including the procedures, policies and 
controls described in paragraph (b) of this section, and for making 
appropriate recommendations to the derivatives clearing organization's 
risk management committee or board of directors, as applicable, 
regarding the derivatives clearing organization's risk management 
functions.
    (d) [Reserved]
    (e) Measurement of credit exposure. A derivatives clearing 
organization shall:
    (1) Measure its credit exposure to each clearing member and mark to 
market such clearing member's open house and customer positions at least 
once each business day; and
    (2) Monitor its credit exposure to each clearing member periodically 
during each business day.
    (f) Limitation of exposure to potential losses from defaults. A 
derivatives clearing organization, through margin requirements and other 
risk control mechanisms, shall limit its exposure to potential losses 
from defaults by its clearing members to ensure that:
    (1) The operations of the derivatives clearing organization would 
not be disrupted; and
    (2) Non-defaulting clearing members would not be exposed to losses 
that non-defaulting clearing members cannot anticipate or control.
    (g) Margin requirements--(1) General. Each model and parameter used 
in setting initial margin requirements shall be risk-based and reviewed 
on a regular basis.

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    (2) Methodology and coverage. (i) A derivatives clearing 
organization shall establish initial margin requirements that are 
commensurate with the risks of each product and portfolio, including any 
unusual characteristics of, or risks associated with, particular 
products or portfolios, including but not limited to jump-to-default 
risk or similar jump risk.
    (ii) A derivatives clearing organization shall use models that 
generate initial margin requirements sufficient to cover the derivatives 
clearing organization's potential future exposures to clearing members 
based on price movements in the interval between the last collection of 
variation margin and the time within which the derivatives clearing 
organization estimates that it would be able to liquidate a defaulting 
clearing member's positions (liquidation time); provided, however, that 
a derivatives clearing organization shall use:
    (A) A minimum liquidation time that is one day for futures and 
options;
    (B) A minimum liquidation time that is one day for swaps on 
agricultural commodities, energy commodities, and metals;
    (C) A minimum liquidation time that is five days for all other 
swaps; or
    (D) Such longer liquidation time as is appropriate based on the 
specific characteristics of a particular product or portfolio; provided 
further that the Commission, by order, may establish shorter or longer 
liquidation times for particular products or portfolios.
    (iii) The actual coverage of the initial margin requirements 
produced by such models, along with projected measures of the models' 
performance, shall meet an established confidence level of at least 99 
percent, based on data from an appropriate historic time period, for:
    (A) Each product for which the derivatives clearing organization 
uses a product-based margin methodology;
    (B) Each spread within or between products for which there is a 
defined spread margin rate;
    (C) Each account held by a clearing member at the derivatives 
clearing organization, by house origin and by each customer origin; and
    (D) Each swap portfolio, including any portfolio containing futures 
and/or options and held in a commingled account pursuant toSec. 
39.15(b)(2) of this part, by beneficial owner.
    (iv) A derivatives clearing organization shall determine the 
appropriate historic time period based on the characteristics, including 
volatility patterns, as applicable, of each product, spread, account, or 
portfolio.
    (3) Independent validation. A derivatives clearing organization's 
systems for generating initial margin requirements, including its 
theoretical models, must be reviewed and validated by a qualified and 
independent party, on a regular basis. Such qualified and independent 
parties may be independent contractors or employees of the derivatives 
clearing organization, but shall not be persons responsible for 
development or operation of the systems and models being tested.
    (4) Spread and portfolio margins. (i) A derivatives clearing 
organization may allow reductions in initial margin requirements for 
related positions if the price risks with respect to such positions are 
significantly and reliably correlated. The price risks of different 
positions will only be considered to be reliably correlated if there is 
a theoretical basis for the correlation in addition to an exhibited 
statistical correlation. That theoretical basis may include, but is not 
limited to, the following:
    (A) The products on which the positions are based are complements 
of, or substitutes for, each other;
    (B) One product is a significant input into the other product(s);
    (C) The products share a significant common input; or
    (D) The prices of the products are influenced by common external 
factors.
    (ii) A derivatives clearing organization shall regularly review its 
margin reductions and the correlations on which they are based.
    (5) Price data. A derivatives clearing organization shall have a 
reliable source of timely price data in order to measure the derivatives 
clearing organization's credit exposure accurately. A derivatives 
clearing organization shall also have written procedures and sound 
valuation models for addressing

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circumstances where pricing data is not readily available or reliable.
    (6) Daily review. On a daily basis, a derivatives clearing 
organization shall determine the adequacy of its initial margin 
requirements.
    (7) Back tests. A derivatives clearing organization shall conduct 
back tests, as defined inSec. 39.2 of this part, using an appropriate 
time period but not less than the previous 30 days, as follows:
    (i) On a daily basis, a derivatives clearing organization shall 
conduct back tests with respect to products or swap portfolios that are 
experiencing significant market volatility, to test the adequacy of its 
initial margin requirements, as follows:
    (A) For that product if the derivatives clearing organization uses a 
product-based margin methodology;
    (B) For each spread involving that product if there is a defined 
spread margin rate;
    (C) For each account held by a clearing member at the derivatives 
clearing organization that contains a significant position in that 
product, by house origin and by each customer origin; and
    (D) For each such swap portfolio, including any portfolio containing 
futures and/or options and held in a commingled account pursuant to 
Sec.  39.15(b)(2) of this part, by beneficial owner.
    (ii) On at least a monthly basis, a derivatives clearing 
organization shall conduct back tests to test the adequacy of its 
initial margin requirements, as follows:
    (A) For each product for which the derivatives clearing organization 
uses a product-based margin methodology;
    (B) For each spread for which there is a defined spread margin rate;
    (C) For each account held by a clearing member at the derivatives 
clearing organization, by house origin and by each customer origin; and
    (D) For each swap portfolio, including any portfolio containing 
futures and/or options and held in a commingled account pursuant to 
Sec.  39.15(b)(2) of this part, by beneficial owner.
    (8) Customer margin. (i) Gross margin. (A) A derivatives clearing 
organization shall collect initial margin on a gross basis for each 
clearing member's customer account(s) equal to the sum of the initial 
margin amounts that would be required by the derivatives clearing 
organization for each individual customer within that account if each 
individual customer were a clearing member.
    (B) For purposes of calculating the gross initial margin requirement 
for each clearing member's customer account(s), to the extent not 
inconsistent with other Commission regulations, a derivatives clearing 
organization may require its clearing members to report the gross 
positions of each individual customer to the derivatives clearing 
organization, or it may permit each clearing member to report the sum of 
the gross positions of its customers to the derivatives clearing 
organization.
    (C) For purposes of this paragraph (g)(8), a derivatives clearing 
organization may rely, and may permit its clearing members to rely, upon 
the sum of the gross positions reported to the clearing members by each 
domestic or foreign omnibus account that they carry, without obtaining 
information identifying the positions of each individual customer 
underlying such omnibus accounts.
    (D) A derivatives clearing organization may not, and may not permit 
its clearing members to, net positions of different customers against 
one another.
    (E) A derivatives clearing organization may collect initial margin 
for its clearing members' house accounts on a net basis.
    (ii) Customer initial margin requirements. A derivatives clearing 
organization shall require its clearing members to collect customer 
initial margin, as defined inSec. 1.3 of this chapter, from their 
customers, for non-hedge positions, at a level that is greater than 100 
percent of the derivatives clearing organization's initial margin 
requirements with respect to each product and swap portfolio. The 
derivatives clearing organization shall have reasonable discretion in 
determining the percentage by which customer initial margins must exceed 
the derivatives clearing organization's initial margin requirements with 
respect to particular products or swap portfolios. The Commission may 
review such percentage levels

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and require different percentage levels if the Commission deems the 
levels insufficient to protect the financial integrity of the clearing 
members or the derivatives clearing organization.
    (iii) Withdrawal of customer initial margin. A derivatives clearing 
organization shall require its clearing members to ensure that their 
customers do not withdraw funds from their accounts with such clearing 
members unless the net liquidating value plus the margin deposits 
remaining in a customer's account after such withdrawal are sufficient 
to meet the customer initial margin requirements with respect to all 
products and swap portfolios held in such customer's account which are 
cleared by the derivatives clearing organization.
    (9) Time deadlines. A derivatives clearing organization shall 
establish and enforce time deadlines for initial and variation margin 
payments to the derivatives clearing organization by its clearing 
members.
    (10) Types of assets. A derivatives clearing organization shall 
limit the assets it accepts as initial margin to those that have minimal 
credit, market, and liquidity risks. A derivatives clearing organization 
may take into account the specific risk-reducing properties that 
particular assets have in a particular portfolio. A derivatives clearing 
organization may accept letters of credit as initial margin for futures 
and options on futures but shall not accept letters of credit as initial 
margin for swaps.
    (11) Valuation. A derivatives clearing organization shall use 
prudent valuation practices to value assets posted as initial margin on 
a daily basis.
    (12) Haircuts. A derivatives clearing organization shall apply 
appropriate reductions in value to reflect credit, market, and liquidity 
risks (haircuts), to the assets that it accepts in satisfaction of 
initial margin obligations, taking into consideration stressed market 
conditions, and shall evaluate the appropriateness of such haircuts on 
at least a quarterly basis.
    (13) Concentration limits or charges. A derivatives clearing 
organization shall apply appropriate limitations or charges on the 
concentration of assets posted as initial margin, as necessary, in order 
to ensure its ability to liquidate such assets quickly with minimal 
adverse price effects, and shall evaluate the appropriateness of any 
such concentration limits or charges, on at least a monthly basis.
    (14) Pledged assets. If a derivatives clearing organization permits 
its clearing members to pledge assets for initial margin while retaining 
such assets in accounts in the names of such clearing members, the 
derivatives clearing organization shall ensure that such assets are 
unencumbered and that such a pledge has been validly created and validly 
perfected in the relevant jurisdiction.
    (h) Other risk control mechanisms-- (1) Risk limits. (i) A 
derivatives clearing organization shall impose risk limits on each 
clearing member, by house origin and by each customer origin, in order 
to prevent a clearing member from carrying positions for which the risk 
exposure exceeds a specified threshold relative to the clearing member's 
and/or the derivatives clearing organization's financial resources. The 
derivatives clearing organization shall have reasonable discretion in 
determining:
    (A) The method of computing risk exposure;
    (B) The applicable threshold(s); and
    (C) The applicable financial resources under this provision; 
provided however, that the ratio of exposure to capital must remain the 
same across all capital levels. The Commission may review such methods, 
thresholds, and financial resources and require the application of 
different methods, thresholds, or financial resources, as appropriate.
    (ii) A derivatives clearing organization may permit a clearing 
member to exceed the threshold(s) applied pursuant to paragraph 
(h)(1)(i) of this section provided that the derivatives clearing 
organization requires the clearing member to post additional initial 
margin that the derivatives clearing organization deems sufficient to 
appropriately eliminate excessive risk exposure at the clearing member. 
The Commission may review the amount of additional initial margin and 
require a different amount of additional initial margin, as appropriate.
    (2) Large trader reports. A derivatives clearing organization shall 
obtain from

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its clearing members or from a relevant designated contract market or 
swap execution facility, copies of all reports that are required to be 
filed with the Commission by, or on behalf of, such clearing members 
pursuant to parts 17 and 20 of this chapter. A derivatives clearing 
organization shall review such reports on a daily basis to ascertain the 
risk of the overall portfolio of each large trader, including futures, 
options, and swaps cleared by the derivatives clearing organization, 
which are held by all clearing members carrying accounts for each such 
large trader, and shall take additional actions with respect to such 
clearing members, when appropriate, as specified in paragraph (h)(6) of 
this section, in order to address any risks posed by any such large 
trader.
    (3) Stress tests. A derivatives clearing organization shall conduct 
stress tests, as defined inSec. 39.2 of this part, as follows:
    (i) On a daily basis, a derivatives clearing organization shall 
conduct stress tests with respect to each large trader who poses 
significant risk to a clearing member or the derivatives clearing 
organization, including futures, options, and swaps cleared by the 
derivatives clearing organization, which are held by all clearing 
members carrying accounts for each such large trader. The derivatives 
clearing organization shall have reasonable discretion in determining 
which traders to test and the methodology used to conduct such stress 
tests. The Commission may review the selection of accounts and the 
methodology and require changes, as appropriate.
    (ii) On at least a weekly basis, a derivatives clearing organization 
shall conduct stress tests with respect to each clearing member account, 
by house origin and by each customer origin, and each swap portfolio, 
including any portfolio containing futures and/or options and held in a 
commingled account pursuant toSec. 39.15(b)(2) of this part, by 
beneficial owner, under extreme but plausible market conditions. The 
derivatives clearing organization shall have reasonable discretion in 
determining the methodology used to conduct such stress tests. The 
Commission may review the methodology and require changes, as 
appropriate.
    (4) Portfolio compression. A derivatives clearing organization shall 
make portfolio compression exercises available, on a regular and 
voluntary basis, for its clearing members that clear swaps, to the 
extent that such exercises are appropriate for those swaps that it 
clears; provided, however, a derivatives clearing organization is not 
required to develop its own portfolio compression services, and is only 
required to make such portfolio compression exercises available, if 
applicable portfolio compression services have been developed by a third 
party.
    (5) Clearing members' risk management policies and procedures. (i) A 
derivatives clearing organization shall adopt rules that:
    (A) Require its clearing members to maintain current written risk 
management policies and procedures, which address the risks that such 
clearing members may pose to the derivatives clearing organization;
    (B) Ensure that it has the authority to request and obtain 
information and documents from its clearing members regarding their risk 
management policies, procedures, and practices, including, but not 
limited to, information and documents relating to the liquidity of their 
financial resources and their settlement procedures; and
    (C) Require its clearing members to make information and documents 
regarding their risk management policies, procedures, and practices 
available to the Commission upon the Commission's request.
    (ii) A derivatives clearing organization shall review the risk 
management policies, procedures, and practices of each of its clearing 
members, which address the risks that such clearing members may pose to 
the derivatives clearing organization, on a periodic basis and document 
such reviews.
    (6) Additional authority. A derivatives clearing organization shall 
take additional actions with respect to particular clearing members, 
when appropriate, based on the application of objective and prudent risk 
management standards including, but not limited to:
    (i) Imposing enhanced capital requirements;

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    (ii) Imposing enhanced margin requirements;
    (iii) Imposing position limits;
    (iv) Prohibiting an increase in positions;
    (v) Requiring a reduction of positions;
    (vi) Liquidating or transferring positions; and
    (vii) Suspending or revoking clearing membership.



Sec.  39.14  Settlement procedures.

    (a) Definitions--(1) Settlement. For purposes of this section, 
``settlement'' means:
    (i) Payment and receipt of variation margin for futures, options, 
and swaps;
    (ii) Payment and receipt of option premiums;
    (iii) Deposit and withdrawal of initial margin for futures, options, 
and swaps;
    (iv) All payments due in final settlement of futures, options, and 
swaps on the final settlement date with respect to such positions; and
    (v) All other cash flows collected from or paid to each clearing 
member, including but not limited to, payments related to swaps such as 
coupon amounts.
    (2) Settlement bank. For purposes of this section, ``settlement 
bank'' means a bank that maintains an account either for the derivatives 
clearing organization or for any of its clearing members, which is used 
for the purpose of any settlement described in paragraph (a)(1) above.
    (b) Daily settlements. Except as otherwise provided by Commission 
order, a derivatives clearing organization shall effect a settlement 
with each clearing member at least once each business day, and shall 
have the authority and operational capacity to effect a settlement with 
each clearing member, on an intraday basis, either routinely, when 
thresholds specified by the derivatives clearing organization are 
breached, or in times of extreme market volatility.
    (c) Settlement banks. A derivatives clearing organization shall 
employ settlement arrangements that eliminate or strictly limit its 
exposure to settlement bank risks, including the credit and liquidity 
risks arising from the use of such bank(s) to effect settlements with 
its clearing members, as follows:
    (1) A derivatives clearing organization shall have documented 
criteria that must be met by any settlement bank used by the derivatives 
clearing organization or its clearing members, including criteria 
addressing the capitalization, creditworthiness, access to liquidity, 
operational reliability, and regulation or supervision of such bank(s).
    (2) A derivatives clearing organization shall monitor each approved 
settlement bank on an ongoing basis to ensure that such bank continues 
to meet the criteria established pursuant to paragraph (c)(1) of this 
section.
    (3) A derivatives clearing organization shall monitor the full range 
and concentration of its exposures to its own and its clearing members' 
settlement bank(s) and assess its own and its clearing members' 
potential losses and liquidity pressures in the event that the 
settlement bank with the largest share of settlement activity were to 
fail. A derivatives clearing organization shall take any one or more of 
the following actions, to the extent that any such action or actions are 
reasonably necessary in order to eliminate or strictly limit such 
exposures:
    (i) Maintain settlement accounts at one or more additional 
settlement banks; and/or
    (ii) Approve one or more additional settlement banks that its 
clearing members could choose to use; and/or
    (iii) Impose concentration limits with respect to one or more of its 
own or its clearing members' settlement banks; and/or
    (iv) Take any other appropriate actions.
    (d) Settlement finality. A derivatives clearing organization shall 
ensure that settlements are final when effected by ensuring that it has 
entered into legal agreements that state that settlement fund transfers 
are irrevocable and unconditional no later than when the derivatives 
clearing organization's accounts are debited or credited; provided, 
however, a derivatives clearing organization's legal agreements with its 
settlement banks may provide for the correction of errors. A derivatives 
clearing organization's legal agreements with its settlement banks shall 
state clearly when settlement fund

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transfers will occur and a derivatives clearing organization shall 
routinely confirm that its settlement banks are effecting fund transfers 
as and when required by such legal agreements.
    (e) Recordkeeping. A derivatives clearing organization shall 
maintain an accurate record of the flow of funds associated with each 
settlement.
    (f) Netting arrangements. A derivatives clearing organization shall 
possess the ability to comply with each term and condition of any 
permitted netting or offset arrangement with any other clearing 
organization.
    (g) Physical delivery. With respect to products that are settled by 
physical transfers of the underlying instruments or commodities, a 
derivatives clearing organization shall:
    (1) Establish rules that clearly state each obligation that the 
derivatives clearing organization has assumed with respect to physical 
deliveries, including whether it has an obligation to make or receive 
delivery of a physical instrument or commodity, or whether it 
indemnifies clearing members for losses incurred in the delivery 
process; and
    (2) Ensure that the risks of each such obligation are identified and 
managed.



Sec.  39.15  Treatment of funds.

    (a) Required standards and procedures. A derivatives clearing 
organization shall establish standards and procedures that are designed 
to protect and ensure the safety of funds and assets belonging to 
clearing members and their customers.
    (b) Segregation of funds and assets--(1) Segregation. A derivatives 
clearing organization shall comply with the applicable segregation 
requirements of section 4d of the Act and Commission regulations 
thereunder, or any other applicable Commission regulation or order 
requiring that customer funds and assets be segregated, set aside, or 
held in a separate account.
    (2) Commingling of futures, options, and swaps--(i) Cleared swaps 
account. In order for a derivatives clearing organization and its 
clearing members to commingle customer positions in futures, options, 
and swaps, and any money, securities, or property received to margin, 
guarantee or secure such positions, in an account subject to the 
requirements of section 4d(f) of the Act, the derivatives clearing 
organization shall file rules for Commission approval pursuant toSec. 
40.5 of this chapter. Such rule submission shall include, at a minimum, 
the following:
    (A) Identification of the futures, options, and swaps that would be 
commingled, including product specifications or the criteria that would 
be used to define eligible futures, options, and swaps;
    (B) Analysis of the risk characteristics of the eligible products;
    (C) Identification of whether the swaps would be executed 
bilaterally and/or executed on a designated contract market and/or a 
swap execution facility;
    (D) Analysis of the liquidity of the respective markets for the 
futures, options, and swaps that would be commingled, the ability of 
clearing members and the derivatives clearing organization to offset or 
mitigate the risk of such futures, options, and swaps in a timely 
manner, without compromising the financial integrity of the account, 
and, as appropriate, proposed means for addressing insufficient 
liquidity;
    (E) Analysis of the availability of reliable prices for each of the 
eligible products;
    (F) A description of the financial, operational, and managerial 
standards or requirements for clearing members that would be permitted 
to commingle such futures, options, and swaps;
    (G) A description of the systems and procedures that would be used 
by the derivatives clearing organization to oversee such clearing 
members' risk management of any such commingled positions;
    (H) A description of the financial resources of the derivatives 
clearing organization, including the composition and availability of a 
guaranty fund with respect to the futures, options, and swaps that would 
be commingled;
    (I) A description and analysis of the margin methodology that would 
be applied to the commingled futures, options, and swaps, including any 
margin reduction applied to correlated positions, and any applicable 
margin rules with respect to both clearing members and customers;

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    (J) An analysis of the ability of the derivatives clearing 
organization to manage a potential default with respect to any of the 
futures, options, or swaps that would be commingled;
    (K) A discussion of the procedures that the derivatives clearing 
organization would follow if a clearing member defaulted, and the 
procedures that a clearing member would follow if a customer defaulted, 
with respect to any of the commingled futures, options, or swaps in the 
account; and
    (L) A description of the arrangements for obtaining daily position 
data with respect to futures, options, and swaps in the account.
    (ii) Futures account. In order for a derivatives clearing 
organization and its clearing members to commingle customer positions in 
futures, options, and swaps, and any money, securities, or property 
received to margin, guarantee or secure such positions, in an account 
subject to the requirements of section 4d(a) of the Act, the derivatives 
clearing organization shall file with the Commission a petition for an 
order pursuant to section 4d(a) of the Act. Such petition shall include, 
at a minimum, the information required under paragraph (b)(2)(i) of this 
section.
    (iii) Commission action. (A) The Commission may request additional 
information in support of a rule submission filed under paragraph 
(b)(2)(i) of this section, and may grant approval of such rules in 
accordance withSec. 40.5 of this chapter.
    (B) The Commission may request additional information in support of 
a petition filed under paragraph (b)(2)(ii) of this section, and may 
issue an order under section 4d of the Act in its discretion.
    (c) Holding of funds and assets. A derivatives clearing organization 
shall hold funds and assets belonging to clearing members and their 
customers in a manner which minimizes the risk of loss or of delay in 
the access by the derivatives clearing organization to such funds and 
assets.
    (d) Transfer of customer positions. A derivatives clearing 
organization shall have rules providing that the derivatives clearing 
organization will promptly transfer all or a portion of a customer's 
portfolio of positions and related funds at the same time from the 
carrying clearing member of the derivatives clearing organization to 
another clearing member of the derivatives clearing organization, 
without requiring the close-out and re-booking of the positions prior to 
the requested transfer, subject to the following conditions:
    (1) The customer has instructed the carrying clearing member to make 
the transfer;
    (2) The customer is not currently in default to the carrying 
clearing member;
    (3) The transferred positions will have appropriate margin at the 
receiving clearing member;
    (4) Any remaining positions will have appropriate margin at the 
carrying clearing member; and
    (5) The receiving clearing member has consented to the transfer.
    (e) Permitted investments. Funds and assets belonging to clearing 
members and their customers that are invested by a derivatives clearing 
organization shall be held in instruments with minimal credit, market, 
and liquidity risks. Any investment of customer funds or assets by a 
derivatives clearing organization shall comply withSec. 1.25 of this 
chapter, as if all such funds and assets comprise customer funds subject 
to segregation pursuant to section 4d(a) of the Act and Commission 
regulations thereunder.



Sec.  39.16  Default rules and procedures.

    (a) General. A derivatives clearing organization shall adopt rules 
and procedures designed to allow for the efficient, fair, and safe 
management of events during which clearing members become insolvent or 
default on the obligations of such clearing members to the derivatives 
clearing organization.
    (b) Default management plan. A derivatives clearing organization 
shall maintain a current written default management plan that delineates 
the roles and responsibilities of its board of directors, its risk 
management committee, any other committee that a derivatives clearing 
organization may have that has responsibilities for default management, 
and the derivatives clearing organization's management, in addressing a 
default, including any

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necessary coordination with, or notification of, other entities and 
regulators. Such plan shall address any differences in procedures with 
respect to highly liquid products and less liquid products. A 
derivatives clearing organization shall conduct and document a test of 
its default management plan at least on an annual basis.
    (c) Default procedures. (1) A derivatives clearing organization 
shall adopt procedures that would permit the derivatives clearing 
organization to take timely action to contain losses and liquidity 
pressures and to continue meeting its obligations in the event of a 
default on the obligations of a clearing member to the derivatives 
clearing organization.
    (2) A derivatives clearing organization shall adopt rules that set 
forth its default procedures, including:
    (i) The derivatives clearing organization's definition of a default;
    (ii) The actions that the derivatives clearing organization may take 
upon a default, which shall include the prompt transfer, liquidation, or 
hedging of the customer or house positions of the defaulting clearing 
member, as applicable, and which may include, in the discretion of the 
derivatives clearing organization, the auctioning or allocation of such 
positions to other clearing members;
    (iii) Any obligations that the derivatives clearing organization 
imposes on its clearing members to participate in auctions, or to accept 
allocations, of the customer or house positions of the defaulting 
clearing member, provided that:
    (A) The derivatives clearing organization shall permit a clearing 
member to outsource to a qualified third party, authority to act in the 
clearing member's place in any auction, subject to appropriate 
safeguards imposed by the derivatives clearing organization;
    (B) The derivatives clearing organization shall permit a clearing 
member to outsource to a qualified third party, authority to act in the 
clearing member's place in any allocations, subject to appropriate 
safeguards imposed by the derivatives clearing organization; and
    (C) Any allocation shall be proportional to the size of the 
participating or accepting clearing member's positions in the same 
product class at the derivatives clearing organization;
    (iv) The sequence in which the funds and assets of the defaulting 
clearing member and its customers and the financial resources maintained 
by the derivatives clearing organization would be applied in the event 
of a default;
    (v) A provision that the funds and assets of a defaulting clearing 
member's customers shall not be applied to cover losses with respect to 
a house default;
    (vi) A provision that the excess house funds and assets of a 
defaulting clearing member shall be applied to cover losses with respect 
to a customer default, if the relevant customer funds and assets are 
insufficient to cover the shortfall; and
    (3) A derivatives clearing organization shall make its default rules 
publicly available as provided inSec. 39.21 of this part.
    (d) Insolvency of a clearing member.(1) A derivatives clearing 
organization shall adopt rules that require a clearing member to provide 
prompt notice to the derivatives clearing organization if it becomes the 
subject of a bankruptcy petition, receivership proceeding, or the 
equivalent;
    (2) No later than upon receipt of such notice, a derivatives 
clearing organization shall review the continuing eligibility of the 
clearing member for clearing membership; and
    (3) No later than upon receipt of such notice, a derivatives 
clearing organization shall take any appropriate action, in its 
discretion, with respect to such clearing member or its house or 
customer positions, including but not limited to liquidation or transfer 
of positions, suspension, or revocation of clearing membership.



Sec.  39.17  Rule enforcement.

    (a) General. Each derivatives clearing organization shall:
    (1) Maintain adequate arrangements and resources for the effective 
monitoring and enforcement of compliance with the rules of the 
derivatives clearing organization and the resolution of disputes;
    (2) Have the authority and ability to discipline, limit, suspend, or 
terminate

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the activities of a clearing member due to a violation by the clearing 
member of any rule of the derivatives clearing organization; and
    (3) Report to the Commission regarding rule enforcement activities 
and sanctions imposed against clearing members as provided in paragraph 
(a) (2) of this section, in accordance withSec. 39.19(c)(4)(xi) of 
this part.
    (b) Authority to enforce rules. The board of directors of the 
derivatives clearing organization may delegate responsibility for 
compliance with the requirements of paragraph (a) of this section to the 
risk management committee, unless the responsibilities are otherwise 
required to be carried out by the chief compliance officer pursuant to 
the Act or this part.



Sec.  39.18  System safeguards.

    (a) Definitions. For purposes of this section:
    Recovery time objective means the time period within which an entity 
should be able to achieve recovery and resumption of clearing and 
settlement of existing and new products, after those capabilities become 
temporarily inoperable for any reason up to or including a wide-scale 
disruption.
    Relevant area means the metropolitan or other geographic area within 
which a derivatives clearing organization has physical infrastructure or 
personnel necessary for it to conduct activities necessary to the 
clearing and settlement of existing and new products. The term 
``relevant area'' also includes communities economically integrated 
with, adjacent to, or within normal commuting distance of that 
metropolitan or other geographic area.
    Wide-scale disruption means an event that causes a severe disruption 
or destruction of transportation, telecommunications, power, water, or 
other critical infrastructure components in a relevant area, or an event 
that results in an evacuation or unavailability of the population in a 
relevant area.
    (b) General--(1) Program of risk analysis. Each derivatives clearing 
organization shall establish and maintain a program of risk analysis and 
oversight with respect to its operations and automated systems to 
identify and minimize sources of operational risk through:
    (i) The development of appropriate controls and procedures; and
    (ii) The development of automated systems that are reliable, secure, 
and have adequate scalable capacity.
    (2) Resources. Each derivatives clearing organization shall 
establish and maintain resources that allow for the fulfillment of each 
obligation and responsibility of the derivatives clearing organization 
in light of the risks identified pursuant to paragraph (b)(1) of this 
section.
    (3) Verification of adequacy. Each derivatives clearing organization 
shall periodically verify that resources described in paragraph (b)(2) 
of this section are adequate to ensure daily processing, clearing, and 
settlement.
    (c) Elements of program. A derivatives clearing organization's 
program of risk analysis and oversight with respect to its operations 
and automated systems, as described in paragraph (b) of this section, 
shall address each of the following categories of risk analysis and 
oversight:
    (1) Information security;
    (2) Business continuity and disaster recovery planning and 
resources;
    (3) Capacity and performance planning;
    (4) Systems operations;
    (5) Systems development and quality assurance; and
    (6) Physical security and environmental controls.
    (d) Standards for program. In addressing the categories of risk 
analysis and oversight required under paragraph (c) of this section, a 
derivatives clearing organization shall follow generally accepted 
standards and industry best practices with respect to the development, 
operation, reliability, security, and capacity of automated systems.
    (e) Business continuity and disaster recovery--(1) Plan and 
resources. A derivatives clearing organization shall maintain a business 
continuity and disaster recovery plan, emergency procedures, and 
physical, technological, and personnel resources sufficient to enable 
the timely recovery and resumption of operations and the fulfillment of 
each

[[Page 673]]

obligation and responsibility of the derivatives clearing organization 
following any disruption of its operations.
    (2) Responsibilities and obligations. The responsibilities and 
obligations described in paragraph (e)(1) of this section shall include, 
without limitation, daily processing, clearing, and settlement of 
transactions cleared.
    (3) Recovery time objective. The derivatives clearing organization's 
business continuity and disaster recovery plan described in paragraph 
(e)(1) of this section, shall have the objective of, and the physical, 
technological, and personnel resources described therein shall be 
sufficient to, enable the derivatives clearing organization to resume 
daily processing, clearing, and settlement no later than the next 
business day following the disruption.
    (f) Location of resources; outsourcing. A derivatives clearing 
organization may maintain the resources required under paragraph (e)(1) 
of this section either:
    (1) Using its own employees as personnel, and property that it owns, 
licenses, or leases (own resources); or
    (2) Through written contractual arrangements with another 
derivatives clearing organization or other service provider 
(outsourcing).
    (i) Retention of responsibility. A derivatives clearing organization 
that enters into such a contractual arrangement shall retain complete 
liability for any failure to meet the responsibilities specified in 
paragraph (e) of this section, although it is free to seek 
indemnification from the service provider. The outsourcing derivatives 
clearing organization must employ personnel with the expertise necessary 
to enable it to supervise the service provider's delivery of the 
services.
    (ii) Testing. The testing referred to in paragraph (j) of this 
section shall include all of the derivatives clearing organization's own 
and outsourced resources, and shall verify that all such resources will 
work effectively together.
    (g) Notice of exceptional events. A derivatives clearing 
organization shall notify staff of the Division of Clearing and Risk 
promptly of:
    (1) Any hardware or software malfunction, cyber security incident, 
or targeted threat that materially impairs, or creates a significant 
likelihood of material impairment, of automated system operation, 
reliability, security, or capacity; or
    (2) Any activation of the derivatives clearing organization's 
business continuity and disaster recovery plan.
    (h) Notice of planned changes. A derivatives clearing organization 
shall give staff of the Division of Clearing and Risk timely advance 
notice of all:
    (1) Planned changes to automated systems that are likely to have a 
significant impact on the reliability, security, or adequate scalable 
capacity of such systems; and
    (2) Planned changes to the derivatives clearing organization's 
program of risk analysis and oversight.
    (i) Recordkeeping. A derivatives clearing organization shall 
maintain, and provide to Commission staff promptly upon request, 
pursuant toSec. 1.31 of this chapter, current copies of its business 
continuity plan and other emergency procedures, its assessments of its 
operational risks, and records of testing protocols and results, and 
shall provide any other documents requested by Commission staff for the 
purpose of maintaining a current profile of the derivatives clearing 
organization's automated systems.
    (j) Testing--(1) Purpose of testing. A derivatives clearing 
organization shall conduct regular, periodic, and objective testing and 
review of:
    (i) Its automated systems to ensure that they are reliable, secure, 
and have adequate scalable capacity; and
    (ii) Its business continuity and disaster recovery capabilities, 
using testing protocols adequate to ensure that the derivatives clearing 
organization's backup resources are sufficient to meet the requirements 
of paragraph (e) of this section.
    (2) Conduct of testing. Testing shall be conducted by qualified, 
independent professionals. Such qualified, independent professionals may 
be independent contractors or employees of the derivatives clearing 
organization, but shall not be persons responsible for development or 
operation of the systems or capabilities being tested.
    (3) Reporting and review. Reports setting forth the protocols for, 
and results of, such tests shall be communicated

[[Page 674]]

to, and reviewed by, senior management of the derivatives clearing 
organization. Protocols of tests which result in few or no exceptions 
shall be subject to more searching review.
    (k) Coordination of business continuity and disaster recovery plans. 
A derivatives clearing organization shall, to the extent practicable:
    (1) Coordinate its business continuity and disaster recovery plan 
with those of its clearing members, in a manner adequate to enable 
effective resumption of daily processing, clearing, and settlement 
following a disruption;
    (2) Initiate and coordinate periodic, synchronized testing of its 
business continuity and disaster recovery plan and the plans of its 
clearing members; and
    (3) Ensure that its business continuity and disaster recovery plan 
takes into account the plans of its providers of essential services, 
including telecommunications, power, and water.



Sec.  39.19  Reporting.

    (a) General. Each derivatives clearing organization shall provide to 
the Commission the information specified in this section and any other 
information that the Commission deems necessary to conduct its oversight 
of a derivatives clearing organization.
    (b) Submission of reports. (1) Unless otherwise specified by the 
Commission or its designee, each derivatives clearing organization shall 
submit the information required by this section to the Commission 
electronically and in a format and manner specified by the Commission.
    (2) Time zones. Unless otherwise specified by the Commission or its 
designee, any stated time in this section is Central time for 
information concerning derivatives clearing organizations located in 
that time zone, and Eastern time for information concerning all other 
derivatives clearing organizations.
    (3) Unless otherwise specified by the Commission or its designee, 
business day means the intraday period of time starting at the business 
hour of 8:15 a.m. and ending at the business hour of 4:45 p.m., on all 
days except Saturdays, Sundays, and Federal holidays.
    (c) Reporting requirements. Each registered derivatives clearing 
organization shall provide to the Commission or other person as may be 
required or permitted by this paragraph the information specified below:
    (1) Daily reporting. (i) A report containing the information 
specified by this paragraph (c)(1), which shall be compiled as of the 
end of each trading day and shall be submitted to the Commission by 10 
a.m. on the following business day:
    (A) Initial margin requirements and initial margin on deposit for 
each clearing member, by house origin and by each customer origin;
    (B) Daily variation margin, separately listing the mark-to-market 
amount collected from or paid to each clearing member, by house origin 
and by each customer origin;
    (C) All other daily cash flows relating to clearing and settlement 
including, but not limited to, option premiums and payments related to 
swaps such as coupon amounts, collected from or paid to each clearing 
member, by house origin and by each customer origin; and
    (D) End-of-day positions for each clearing member, by house origin 
and by each customer origin.
    (ii) The report shall contain the information required by paragraph 
(c)(1)(i) of this section for:
    (A) All futures positions, and options positions, as applicable;
    (B) All swaps positions; and
    (C) All securities positions that are held in a customer account 
subject to section 4d of the Act or are subject to a cross-margining 
agreement.
    (2) Quarterly reporting. A report of the derivatives clearing 
organization's financial resources as required bySec. 39.11(f) of this 
part; provided that, additional reports may be required by paragraph 
(c)(4)(i) of this section orSec. 39.11(f) of this part.
    (3) Annual reporting--(i) Annual report of chief compliance officer. 
The annual report of the chief compliance officer required bySec. 
39.10 of this part.
    (ii) Audited financial statements. Audited year-end financial 
statements of the derivatives clearing organization or, if there are no 
financial statements available for the derivatives clearing organization 
itself, the consolidated

[[Page 675]]

audited year-end financial statements of the derivatives clearing 
organization's parent company.
    (iii) [Reserved]
    (iv) Time of report. The reports required by this paragraph (c)(3) 
shall be submitted concurrently to the Commission not more than 90 days 
after the end of the derivatives clearing organization's fiscal year; 
provided that, a derivatives clearing organization may request from the 
Commission an extension of time to submit a report, provided the 
derivatives clearing organization's failure to submit the report in a 
timely manner could not be avoided without unreasonable effort or 
expense. Extensions of the deadline will be granted at the discretion of 
the Commission.
    (4) Event-specific reporting--(i) Decrease in financial resources. 
If there is a decrease of 25 percent in the total value of the financial 
resources available to satisfy the requirements underSec. 39.11(a)(1) 
of this part, either from the last quarterly report submitted under 
Sec.  39.11(f) of this part or from the value as of the close of the 
previous business day, the derivatives clearing organization shall 
report such decrease to the Commission no later than one business day 
following the day the 25 percent threshold was reached. The report shall 
include:
    (A) The total value of the financial resources:
    (1) As of the close of business the day the 25 percent threshold was 
reached, and
    (2) If reporting a decrease in value from the previous business day, 
the total value of the financial resources immediately prior to the 25 
percent decline;
    (B) A breakdown of the value of each financial resource reported in 
each of paragraphs (c)(4)(i)(A)(1) and (2) of this section, calculated 
in accordance with the requirements ofSec. 39.11(d) of this part, 
including the value of each individual clearing member's guaranty fund 
deposit if the derivatives clearing organization reports guaranty fund 
deposits as a financial resource; and
    (C) A detailed explanation for the decrease.
    (ii) Decrease in ownership equity. No later than two business days 
prior to an event which the derivatives clearing organization knows or 
reasonably should know will cause a decrease of 20 percent or more in 
ownership equity from the last reported ownership equity balance as 
reported on a quarterly or audited financial statement required to be 
submitted by paragraph (c)(2) or (c)(3)(ii), respectively, of this 
section; but in any event no later than two business days after such 
decrease in ownership equity for events that caused the decrease about 
which the derivatives clearing organization did not know and reasonably 
could not have known prior to the event. The report shall include:
    (A) Pro forma financial statements reflecting the derivatives 
clearing organization's estimated future financial condition following 
the anticipated decrease for reports submitted prior to the anticipated 
decrease and current financial statements for reports submitted after 
such a decrease; and
    (B) Details describing the reason for the anticipated decrease or 
decrease in the balance.
    (iii) Six-month liquid asset requirement. Immediate notice when a 
derivatives clearing organization knows or reasonably should know of a 
deficit in the six-month liquid asset requirement ofSec. 39.11(e)(2).
    (iv) Change in current assets. No later than two business days after 
current liabilities exceed current assets; the notice shall include a 
balance sheet that reflects the derivatives clearing organization's 
current assets and current liabilities and an explanation as to the 
reason for the negative balance.
    (v) Request to clearing member to reduce its positions. Immediate 
notice, of a derivatives clearing organization's request to a clearing 
member to reduce its positions because the derivatives clearing 
organization has determined that the clearing member has exceeded its 
exposure limit, has failed to meet an initial or variation margin call, 
or has failed to fulfill any other financial obligation to the 
derivatives clearing organization. The notice shall include:
    (A) The name of the clearing member;
    (B) The time the clearing member was contacted;

[[Page 676]]

    (C) The number of positions by which the derivatives clearing 
organization requested the reduction;
    (D) All products that are the subject of the request; and
    (E) The reason for the request.
    (vi) Determination to transfer or liquidate positions. Immediate 
notice, of a determination that any position a derivatives clearing 
organization carries for one of its clearing members must be liquidated 
immediately or transferred immediately, or that the trading of any 
account of a clearing member shall be only for the purpose of 
liquidation because that clearing member has failed to meet an initial 
or variation margin call or has failed to fulfill any other financial 
obligation to the derivatives clearing organization. The notice shall 
include:
    (A) The name of the clearing member;
    (B) The time the clearing member was contacted;
    (C) The products that are subject to the determination;
    (D) The number of positions that are subject to the determination; 
and
    (E) The reason for the determination.
    (vii) Default of a clearing member. Immediate notice, upon the 
default of a clearing member. An event of default shall be determined in 
accordance with the rules of the derivatives clearing organization. The 
notice of default shall include:
    (A) The name of the clearing member;
    (B) The products the clearing member defaulted upon;
    (C) The number of positions the clearing member defaulted upon; and
    (D) The amount of the financial obligation.
    (viii) Change in ownership or corporate or organizational 
structure.--(A) Reporting requirement. Any anticipated change in the 
ownership or corporate or organizational structure of the derivatives 
clearing organization or its parent(s) that would:
    (1) Result in at least a 10 percent change of ownership of the 
derivatives clearing organization,
    (2) Create a new subsidiary or eliminate a current subsidiary of the 
derivatives clearing organization, or
    (3) Result in the transfer of all or substantially all of the assets 
of the derivatives clearing organization, including its registration as 
a derivatives clearing organization to another legal entity.
    (B) Required information. The report shall include: a chart 
outlining the new ownership or corporate or organizational structure; a 
brief description of the purpose and impact of the change; and any 
relevant agreements effecting the change and corporate documents such as 
articles of incorporation and bylaws. With respect to a corporate change 
for which a derivatives clearing organization submits a request for 
approval to transfer its derivatives clearing organization registration 
and open interest underSec. 39.3(f) of this part, the informational 
requirements of this paragraph (c)(4)(viii)(B) shall be satisfied by the 
derivatives clearing organization's compliance withSec. 39.3(f)(3).
    (C) Time of report. The report shall be submitted to the Commission 
no later than three months prior to the anticipated change; provided 
that the derivatives clearing organization may report the anticipated 
change to the Commission later than three months prior to the 
anticipated change if the derivatives clearing organization does not 
know and reasonably could not have known of the anticipated change three 
months prior to the anticipated change. In such event, the derivatives 
clearing organization shall immediately report such change to the 
Commission as soon as it knows of such change.
    (D) Confirmation of change report. The derivatives clearing 
organization shall report to the Commission the consummation of the 
change no later than two business days following the effective date of 
the change.
    (ix) Change in key personnel. No later than two business days 
following the departure, or addition of persons who are key personnel as 
defined inSec. 39.1(b), a report that includes, as applicable, the 
name of the person who will assume the duties of the position on a 
temporary basis until a permanent replacement fills the position.
    (x) Change in credit facility funding arrangement. No later than one 
business

[[Page 677]]

day after a derivatives clearing organization changes an existing credit 
facility funding arrangement it may have in place, or is notified that 
such arrangement has changed, including but not limited to a change in 
lender, change in the size of the facility, change in expiration date, 
or any other material changes or conditions.
    (xi) Sanctions. Notice of action taken, no later than two business 
days after the derivatives clearing organization imposes sanctions 
against a clearing member.
    (xii) Financial condition and events. Immediate notice after the 
derivatives clearing organization knows or reasonably should have known 
of:
    (A) The institution of any legal proceedings which may have a 
material adverse financial impact on the derivatives clearing 
organization;
    (B) Any event, circumstance or situation that materially impedes the 
derivatives clearing organization's ability to comply with this part and 
is not otherwise required to be reported under this section; or
    (C) A material adverse change in the financial condition of any 
clearing member that is not otherwise required to be reported under this 
section.
    (xiii) Financial statements material inadequacies. If a derivatives 
clearing organization discovers or is notified by an independent public 
accountant of the existence of any material inadequacy in a financial 
statement, such derivatives clearing organization shall give notice of 
such material inadequacy within 24 hours, and within 48 hours after 
giving such notice file a written report stating what steps have been 
and are being taken to correct the material inadequacy.
    (xiv)-(xv) [Reserved]
    (xvi) System safeguards. A report of:
    (A) Exceptional events as required bySec. 39.18(g) of this part; 
or
    (B) Planned changes as required bySec. 39.18(h) of this part.
    (5) Requested reporting. (i) Upon request by the Commission, a 
derivatives clearing organization shall file with the Commission such 
information related to its business as a clearing organization, 
including information relating to trade and clearing details, in the 
format and manner specified, and within the time provided, by the 
Commission in the request.
    (ii) Upon request by the Commission, a derivatives clearing 
organization shall file with the Commission a written demonstration, 
containing such supporting data, information and documents, that the 
derivatives clearing organization is in compliance with one or more core 
principles and relevant provisions of this part, in the format and 
manner specified, and within the time provided, by the Commission in the 
request.
    (iii) Upon request by the Commission, a derivatives clearing 
organization shall file with the Commission, for each customer origin of 
each clearing member, the end-of-day gross positions of each beneficial 
owner, in the format and manner specified, and within the time provided, 
by the Commission in the request. Nothing in this paragraph shall affect 
the obligation of a derivatives clearing organization to comply with the 
daily reporting requirements of paragraph (c)(1) of this section.



Sec.  39.20  Recordkeeping.

    (a) Requirement to maintain information. Each derivatives clearing 
organization shall maintain records of all activities related to its 
business as a derivatives clearing organization. Such records shall 
include, but are not limited to, records of:
    (1) All cleared transactions, including swaps;
    (2) All information necessary to record allocation of bunched orders 
for cleared swaps;
    (3) All information required to be created, generated, or reported 
under this part 39, including but not limited to the results of and 
methodology used for all tests, reviews, and calculations in connection 
with setting and evaluating margin levels, determining the value and 
adequacy of financial resources, and establishing settlement prices;
    (4) All rules and procedures required to be submitted pursuant to 
this part 39 and part 40 of this chapter, including all proposed changes 
in rules, procedures or operations subject toSec. 40.10 of this 
chapter; and
    (5) Any data or documentation required by the Commission or by the 
derivatives clearing organization to be

[[Page 678]]

submitted to the derivatives clearing organization by its clearing 
members, or by any other person in connection with the derivatives 
clearing organization's clearing and settlement activities.
    (b) Form and manner of maintaining information--(1) General. The 
records required to be maintained by this chapter shall be maintained in 
accordance with the provisions ofSec. 1.31 of this chapter, for a 
period of not less than 5 years, except as provided in paragraph (b)(2) 
of this section.
    (2) Exception for swap data. Each derivatives clearing organization 
that clears swaps must maintain swap data in accordance with the 
requirements of part 45 of this chapter.



Sec.  39.21  Public information.

    (a) General. Each derivatives clearing organization shall provide to 
market participants sufficient information to enable the market 
participants to identify and evaluate accurately the risks and costs 
associated with using the services of the derivatives clearing 
organization. In furtherance of this objective, each derivatives 
clearing organization shall have clear and comprehensive rules and 
procedures.
    (b) Availability of information. Each derivatives clearing 
organization shall make information concerning the rules and the 
operating and default procedures governing the clearing and settlement 
systems of the derivatives clearing organization available to market 
participants.
    (c) Public disclosure. Each derivatives clearing organization shall 
disclose publicly and to the Commission information concerning:
    (1) The terms and conditions of each contract, agreement, and 
transaction cleared and settled by the derivatives clearing 
organization;
    (2) Each clearing and other fee that the derivatives clearing 
organization charges its clearing members;
    (3) The margin-setting methodology;
    (4) The size and composition of the financial resource package 
available in the event of a clearing member default;
    (5) Daily settlement prices, volume, and open interest for each 
contract, agreement, or transaction cleared or settled by the 
derivatives clearing organization;
    (6) The derivatives clearing organization's rules and procedures for 
defaults in accordance withSec. 39.16 of this part; and
    (7) Any other matter that is relevant to participation in the 
clearing and settlement activities of the derivatives clearing 
organization.
    (d) Publication of information. The derivatives clearing 
organization shall make its rulebook, a list of all current clearing 
members, and the information listed in paragraph (c) of this section 
readily available to the general public, in a timely manner, by posting 
such information on the derivatives clearing organization's Web site, 
unless otherwise permitted by the Commission. The information required 
in paragraph (c)(5) of this section shall be made available to the 
public no later than the business day following the day to which the 
information pertains.



Sec.  39.22  Information sharing.

    Each derivatives clearing organization shall enter into, and abide 
by the terms of, each appropriate and applicable domestic and 
international information-sharing agreement, and shall use relevant 
information obtained from each such agreement in carrying out the risk 
management program of the derivatives clearing organization.



Sec.  39.23  Antitrust considerations.

    Unless necessary or appropriate to achieve the purposes of the Act, 
a derivatives clearing organization shall not adopt any rule or take any 
action that results in any unreasonable restraint of trade, or impose 
any material anticompetitive burden.



Sec.  39.24-39.26  [Reserved]



Sec.  39.27  Legal risk considerations.

    (a) Legal authorization. A derivatives clearing organization shall 
be duly organized, legally authorized to conduct business, and remain in 
good standing at all times in the relevant jurisdictions. If the 
derivatives clearing organization provides clearing services outside the 
United States, it shall be duly organized to conduct business and remain 
in good standing at all times in

[[Page 679]]

the relevant jurisdictions, and be authorized by the appropriate foreign 
licensing authority.
    (b) Legal framework. A derivatives clearing organization shall 
operate pursuant to a well-founded, transparent, and enforceable legal 
framework that addresses each aspect of the activities of the 
derivatives clearing organization. As applicable, the framework shall 
provide for:
    (1) The derivatives clearing organization to act as a counterparty, 
including novation;
    (2) Netting arrangements;
    (3) The derivatives clearing organization's interest in collateral;
    (4) The steps that a derivatives clearing organization would take to 
address a default of a clearing member, including but not limited to, 
the unimpeded ability to liquidate collateral and close out or transfer 
positions in a timely manner;
    (5) Finality of settlement and funds transfers that are irrevocable 
and unconditional when effected (no later than when a derivatives 
clearing organization's accounts are debited and credited); and
    (6) Other significant aspects of the derivatives clearing 
organization's operations, risk management procedures, and related 
requirements.
    (c) Conflict of laws. If a derivatives clearing organization 
provides clearing services outside the United States:
    (1) The derivatives clearing organization shall identify and address 
any material conflict of law issues. The derivatives clearing 
organization's contractual agreements shall specify a choice of law.
    (2) The derivatives clearing organization shall be able to 
demonstrate the enforceability of its choice of law in relevant 
jurisdictions and that its rules, procedures, and contracts are 
enforceable in all relevant jurisdictions.

[[Page 680]]



  Sec. Appendix to Part 39--Form DCO Derivatives Clearing Organization 
                      Application for Registrations
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PART 40_PROVISIONS COMMON TO REGISTERED ENTITIES--Table of Contents



Sec.
40.1 Definitions.
40.2 Listing products for trading by certification.
40.3 Voluntary submission of new products for Commission review and 
          approval.
40.4 Amendments to terms or conditions of enumerated agricultural 
          products.
40.5 Voluntary submission of rules for Commission review and approval.
40.6 Self-certification of rules.
40.7 Delegations.
40.8 Availability of public information.
40.9 [Reserved]
40.10 Special certification procedures for submission of rules by 
          systemically important derivatives clearing organizations.
40.11 Review of event contracts based upon certain excluded commodities.
40.12 Staying of certification and tolling of review period pending 
          jurisdictional determination.

Appendix A to Part 40--Schedule of Fees
Appendixes B-C to Part 40 [Reserved]
Appendix D to Part 40--Submission Cover Sheet and Instructions

    Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 12, as amended by 
Titles VII and VIII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 76 FR 44790, July 27, 2011, unless otherwise noted.



Sec.  40.1  Definitions.

    As used in this part:
    (a) Business day means the intraday period of time starting at the 
business hour of 8:15 a.m. and ending at the business hour of 4:45 p.m.; 
business hour means any hour between 8:15 a.m. and 4:45 p.m. Business 
day and business

[[Page 705]]

hour are Eastern Standard Time or Eastern Daylight Savings Time, 
whichever is currently in effect in Washington, DC, on all days except 
Saturdays, Sundays, and Federal holidays in Washington, DC.
    (b) Dormant contract or dormant product means:
    (1) Any agreement, contract, transaction, instrument, swap or any 
such commodity futures or option contract with respect to all future or 
option expiries, listed on a designated contract market, a swap 
execution facility or cleared by a registered derivatives clearing 
organization, that has no open interest and in which no trading has 
occurred for a period of twelve complete calendar months following a 
certification to, or approval by, the Commission; provided, however, 
that no contract or instrument under this paragraph (b)(1) initially and 
originally certified to, or approved by, the Commission within the 
preceding 36 complete calendar months shall be considered to be dormant; 
or
    (2) Any commodity futures or option contract, swap or other 
agreement, contract, transaction or instrument of a dormant designated 
contract market, dormant swap execution facility or a dormant 
derivatives clearing organization; or
    (3) Any commodity futures or option contract or other agreement, 
contract, swap, transaction or instrument not otherwise dormant that a 
designated contract market, a swap execution facility or a derivatives 
clearing organization self-declares through certification to be dormant.
    (c) Dormant designated contract market means any designated contract 
market on which no trading has occurred during the period of twelve 
consecutive calendar months, preceding the first day of the most recent 
calendar month; provided, however, no designated contract market shall 
be considered to be dormant if its initial and original Commission order 
of designation was issued within the preceding 36 consecutive calendar 
months.
    (d) Dormant derivatives clearing organization means any derivatives 
clearing organization registered pursuant to Section 5b of the Act that 
has not accepted for clearing any agreement, contract or transaction 
that is required or permitted to be cleared by a derivatives clearing 
organization under Sections 5b(a) and 5b(b) of the Act, respectively, 
for a period of twelve complete calendar months; provided, however, no 
derivatives clearing organization shall be considered to be dormant if 
its initial and original Commission order of registration was issued 
within the preceding 36 complete calendar months.
    (e) Dormant swap data repository means any registered swap data 
repository on which no data has resided for a period of twelve 
consecutive calendar months, preceding the most recent calendar month.
    (f) Dormant swap execution facility means any swap execution 
facility on which no trading has occurred for a period of twelve 
consecutive calendar months, preceding the first day of the most recent 
calendar month; provided, however, no swap execution facility shall be 
considered to be dormant if its initial and original Commission order of 
registration was issued within the preceding 36 consecutive calendar 
months.
    (g) Dormant rule means:
    (1) Any registered entity rule which remains unimplemented for 
twelve consecutive calendar months following a certification with, or an 
approval by, the Commission; or
    (2) Any rule or rule amendment of a dormant designated contract 
market, dormant swap execution facility, dormant swap data repository or 
dormant derivatives clearing organization.
    (h) Emergency means any occurrence or circumstance that, in the 
opinion of the governing board of a registered entity, or a person or 
persons duly authorized to issue such an opinion on behalf of the 
governing board of a registered entity under circumstances and pursuant 
to procedures that are specified by rule, requires immediate action and 
threatens or may threaten such things as the fair and orderly trading 
in, or the liquidation of or delivery pursuant to, any agreements, 
contracts, swaps or transactions or the timely collection and payment of 
funds in connection with clearing and settlement by a derivatives 
clearing organization, including:

[[Page 706]]

    (1) Any manipulative or attempted manipulative activity;
    (2) Any actual, attempted, or threatened corner, squeeze, 
congestion, or undue concentration of positions;
    (3) Any circumstances which may materially affect the performance of 
agreements, contracts, swaps or transactions, including failure of the 
payment system or the bankruptcy or insolvency of any participant;
    (4) Any action taken by any governmental body, or any other 
registered entity, board of trade, market or facility which may have a 
direct impact on trading or clearing and settlement; and
    (5) Any other circumstance which may have a severe, adverse effect 
upon the functioning of a registered entity.
    (i) Rule means any constitutional provision, article of 
incorporation, bylaw, rule, regulation, resolution, interpretation, 
stated policy, advisory, terms and conditions, trading protocol, 
agreement or instrument corresponding thereto, including those that 
authorize a response or establish standards for responding to a specific 
emergency, and any amendment or addition thereto or repeal thereof, made 
or issued by a registered entity or by the governing board thereof or 
any committee thereof, in whatever form adopted.
    (j) Terms and conditions means any definition of the trading unit or 
the specific commodity underlying a contract for the future delivery of 
a commodity or commodity option contract, description of the payments to 
be exchanged under a swap, specification of cash settlement or delivery 
standards and procedures, and establishment of buyers' and sellers' 
rights and obligations under the swap or contract. Terms and conditions 
include provisions relating to the following:
    (1) For a contract for the purchase or sale of a commodity for 
future delivery or an option on such a contract or an option on a 
commodity (other than a swap):
    (i) Quality and other standards that define the commodity or 
instrument underlying the contract;
    (ii) Quantity standards or other provisions related to contract 
size;
    (iii) Any applicable premiums or discounts for delivery of nonpar 
products;
    (iv) Trading hours, trading months and the listing of contracts;
    (v) The pricing basis, minimum price fluctuations, and maximum price 
fluctuations;
    (vi) Any price limits, no cancellation ranges, trading halts, or 
circuit breaker provisions, and procedures for the establishment of 
daily settlement prices;
    (vii) Position limits, position accountability standards, and 
position reporting requirements;
    (viii) Delivery points and locational price differentials;
    (ix) Delivery standards and procedures, including fees related to 
delivery or the delivery process; alternatives to delivery and 
applicable penalties or sanctions for failure to perform;
    (x) If cash settled; the definition, composition, calculation and 
revision of the cash settlement price or index;
    (xi) Payment or collection of commodity option premiums or margins;
    (xii) Option exercise price, if it is constant, and method for 
calculating the exercise price, if it is variable;
    (xiii) Threshold prices for an option contract, the existence of 
which is contingent upon those prices; and
    (xiv) Any restrictions or requirements for exercising an option; and
    (2) For a swap:
    (i) Identification of the major group, category, type or class in 
which the swap falls (such as an interest rate, commodity, credit or 
equity swap) and of any further sub-group, category, type or class that 
further describes the swap;
    (ii) Notional amounts, quantity standards, or other unit size 
characteristics;
    (iii) Any applicable premiums or discounts for delivery of nonpar 
products;
    (iv) Trading hours and the listing of swaps;
    (v) Pricing basis for establishing the payment obligations under, 
and mark-to-market value of, the swap including, as applicable, the 
accrual start dates, termination or maturity dates, and, for each leg of 
the swap, the initial cash flow components, spreads, and points, and the 
relevant indexes, prices, rates, coupons, or other price reference 
measures;

[[Page 707]]

    (vi) Any price limits, trading halts, or circuit breaker provisions, 
and procedures for the establishment of daily settlement prices;
    (vii) Position limits, position accountability standards, and 
position reporting requirements;
    (viii) Payment and reset frequency, day count conventions, business 
calendars, and accrual features;
    (ix) If physical delivery applies, delivery standards and 
procedures, including fees related to delivery or the delivery process, 
alternatives to delivery and applicable penalties or sanctions for 
failure to perform;
    (x) If cash settled, the definition, composition, calculation and 
revision of the cash settlement price, and the settlement currency;
    (xi) Payment or collection of option premiums or margins;
    (xii) Option exercise price, if it is constant, and method for 
calculating the exercise price, if it is variable;
    (xiii) Threshold prices for an option, the existence of which is 
contingent upon those prices;
    (xiv) Any restrictions or requirements for exercising an option; and
    (xv) Life cycle events.



Sec.  40.2  Listing products for trading by certification.

    (a) A designated contract market or a swap execution facility must 
comply with the submission requirements of this section prior to listing 
a product for trading that has not been approved underSec. 40.3 of 
this part or that remains dormant subsequent to being submitted under 
this section or approved underSec. 40.3 of this part. A submission 
shall comply with the following conditions:
    (1) The designated contract market or the swap execution facility 
has filed its submission electronically in a format and manner specified 
by the Secretary of the Commission with the Secretary of the Commission;
    (2) The Commission has received the submission by the open of 
business on the business day preceding the product's listing; and
    (3) The submission includes:
    (i) A copy of the submission cover sheet in accordance with the 
instructions in appendix D to this part;
    (ii) A copy of the product's rules, including all rules related to 
its terms and conditions;
    (iii) The intended listing date;
    (iv) A certification by the designated contract market or the swap 
execution facility that the product to be listed complies with the Act 
and Commission regulations thereunder;
    (v) A concise explanation and analysis of the product and its 
compliance with applicable provisions of the Act, including core 
principles, and the Commission's regulations thereunder. This 
explanation and analysis shall either be accompanied by the 
documentation relied upon to establish the basis for compliance with 
applicable law, or incorporate information contained in such 
documentation, with appropriate citations to data sources;
    (vi) A certification that the registered entity posted a notice of 
pending product certification with the Commission and a copy of the 
submission, concurrent with the filing of a submission with the 
Commission, on the registered entity's Web site. Information that the 
registered entity seeks to keep confidential may be redacted from the 
documents published on the registered entity's Web site but must be 
republished consistent with any determination made pursuant toSec. 
40.8(c)(4);
    (vii) A request for confidential treatment, if appropriate, as 
permitted underSec. 40.8.
    (b) Additional information. If requested by Commission staff, a 
registered entity shall provide any additional evidence, information or 
data that demonstrates that the contract meets, initially or on a 
continuing basis, the requirements of the Act or the Commission's 
regulations or policies thereunder.
    (c) Stay. The Commission may stay the listing of a contract pursuant 
to paragraph (a) of this section during the pendency of Commission 
proceedings for filing a false certification or during the pendency of a 
petition to alter or amend the contract terms and conditions pursuant to 
Section 8a(7) of the Act. The decision to stay the listing of a contract 
in such circumstances shall not be delegable to any employee of the 
Commission.

[[Page 708]]

    (d) Class certification of swaps. (1) A designated contract market 
or swap execution facility may list or facilitate trading in any swap or 
number of swaps based upon an ``excluded commodity,'' as defined in 
Section 1a(19)(i) of the Act, not including any security, security 
index, and currency other than the United States Dollar and a ``major 
foreign currency,'' as defined inSec. 15.03(a), or an ``excluded 
commodity,'' as defined in Section 1a(19)(ii)-(iv) of the Act, provided 
the designated contract market or swap execution facility certifies, 
underSec. 40.2(a)(1)-(2),Sec. 40.2(a)(3)(i),Sec. 40.2(a)(3)(iv), 
andSec. 40.2(a)(3)(vi), each of the following:
    (i) That each particular swap within the certified class of swaps is 
based upon an excluded commodity specified inSec. 40.2(d)(1); and
    (ii) That each particular swap within the certified class of swaps 
is based upon an excluded commodity with an identical pricing source, 
formula, procedure, and methodology for calculating reference prices and 
payment obligations; and
    (iii) That the pricing source, formula, procedure, and methodology 
for calculating reference prices and payment obligations in each 
particular swap within the certified class of swaps is identical to a 
pricing source, formula, procedure, and methodology for calculating 
reference prices and payment obligations in a product previously 
submitted to the Commission and certified or approved pursuant toSec. 
40.2 orSec. 40.3;
    (iv) That each particular swap within the certified class of swaps 
is based upon an excluded commodity involving an identical currency or 
identical currencies.
    (2) The Commission may in its discretion require a registered entity 
to withdraw its certification underSec. 40.2(d)(1) and to submit each 
individual swap or certain individual swaps within the submission for 
Commission review pursuant toSec. 40.2 orSec. 40.3



Sec.  40.3  Voluntary submission of new products for Commission
review and approval.

    (a) Request for approval. Pursuant to Section 5c(c) of the Act, a 
designated contract market, a swap execution facility, or a derivatives 
clearing organization may request that the Commission approve a new or 
dormant product prior to listing the product for trading or accepting 
the product for clearing, or if a product was initially submitted under 
Sec.  40.2 of this part orSec. 39.5 of this chapter, subsequent to 
listing the product for trading or accepting the product for clearing. A 
submission requesting approval shall:
    (1) Be filed electronically in a format and manner specified by the 
Secretary of the Commission with the Secretary of the Commission;
    (2) Include a copy of the submission cover sheet in accordance with 
the instructions in appendix D to this part;
    (3) Include a copy of the rules that set forth the contract's terms 
and conditions;
    (4) Include an explanation and analysis of the product and its 
compliance with applicable provisions of the Act, including core 
principles, and the Commission's regulations thereunder. This 
explanation and analysis shall either be accompanied by the 
documentation relied upon to establish the basis for compliance with the 
applicable law, or incorporate information contained in such 
documentation, with appropriate citations to data sources;
    (5) Describe any agreements or contracts entered into with other 
parties that enable the registered entity to carry out its 
responsibilities;
    (6) Include the certifications required inSec. 41.22 for product 
approval of a commodity that is a security future or a security futures 
product as defined in Sections 1a(44) or 1a(45) of the Act, 
respectively;
    (7) Include, if appropriate, a request for confidential treatment as 
permitted underSec. 40.8;
    (8) Include the filing fee required under appendix A to this part;
    (9) Certify that the registered entity posted a notice of its 
request for Commission approval of the new product and a copy of the 
submission, concurrent with the filing of a submission with the 
Commission, on the registered entity's Web site. Information that the 
registered entity seeks to keep confidential may be redacted from the 
documents published on the registered entity's Web site but must be 
republished

[[Page 709]]

consistent with any determination made pursuant toSec. 40.8(c)(4);
    (10) Include, if requested by Commission staff, additional evidence, 
information or data demonstrating that the contract meets, initially or 
on a continuing basis, the requirements of the Act, or other requirement 
for designation or registration under the Act, or the Commission's 
regulations or policies thereunder. The registered entity shall submit 
the requested information by the open of business on the date that is 
two business days from the date of request by Commission staff, or at 
the conclusion of such extended period agreed to by Commission staff 
after timely receipt of a written request from the registered entity.
    (b) Standard for review and approval. The Commission shall approve a 
new product unless the terms and conditions of the product violate the 
Act or the Commission's regulations.
    (c) Forty-five day review. All products submitted for Commission 
approval under this paragraph shall be deemed approved by the Commission 
45 days after receipt by the Commission, or at the conclusion of an 
extended period as provided under paragraph (d) of this section, unless 
notified otherwise within the applicable period, if:
    (1) The submission complies with the requirements of paragraph (a) 
of this section; and
    (2) The submitting entity does not amend the terms or conditions of 
the product or supplement the request for approval, except as requested 
by the Commission or for correction of typographical errors, renumbering 
or other non-substantive revisions, during that period. Any voluntary, 
substantive amendment by the submitting entity will be treated as a new 
submission under this section.
    (d) Extension of time. The Commission may extend the 45 day review 
period in paragraph (c) of this section for:
    (1) An additional 45 days, if the product raises novel or complex 
issues that require additional time to analyze, in which case the 
Commission shall notify the registered entity within the initial 45 day 
review period and shall briefly describe the nature of the specific 
issues for which additional time for review is required; or
    (2) Any extended review period to which the registered entity agrees 
in writing.
    (e) Notice of non-approval. The Commission at any time during its 
review under this section may notify the registered entity that it will 
not, or is unable to, approve the product. This notification will 
briefly specify the nature of the issues raised and the specific 
provision of the Act or the Commission's regulations, including the form 
or content requirements of paragraph (a) of this section, that the 
product violates, appears to violate or potentially violates but which 
cannot be ascertained from the submission.
    (f) Effect of non-approval. (1) Notification to a registered entity 
under paragraph (e) of this section of the Commission's determination 
not to approve a product does not prejudice the entity from subsequently 
submitting a revised version of the product for Commission approval or 
from submitting the product as initially proposed pursuant to a 
supplemented submission.
    (2) Notification to a registered entity under paragraph (e) of this 
section of the Commission's refusal to approve a product shall be 
presumptive evidence that the entity may not truthfully certify under 
Sec.  40.2 that the same, or substantially the same, product does not 
violate the Act or the Commission's regulations thereunder.



Sec.  40.4  Amendments to terms or conditions of enumerated 
agricultural products.

    (a) Notwithstanding the provisions of this part, a designated 
contract market must submit for Commission approval under the procedures 
ofSec. 40.5, prior to its implementation, any rule or dormant rule 
that, for a delivery month having open interest, would materially change 
a term or condition, as defined inSec. 40.1(j), of a contract for 
future delivery in an agricultural commodity enumerated in Section 1a(9) 
of the Act, or of an option on such a contract or commodity.
    (b) The following rules or rule amendments are not material and 
should not be submitted under this section:

[[Page 710]]

    (1) Changes that are enumerated inSec. 40.6(d)(2) may be 
implemented without prior approval or certification if implemented 
pursuant to the notification procedures ofSec. 40.6(d);
    (2) Changes that are enumerated inSec. 40.6(d)(3)(ii) may be 
implemented without prior approval or certification or notification as 
permitted pursuant toSec. 40.6(d)(3);
    (3) Changes in no cancellation ranges and trading hours may be 
implemented without prior approval if implemented pursuant to the 
procedures ofSec. 40.6(a);
    (4) Changes required to comply with a binding order of a court of 
competent jurisdiction, or a rule, regulation or order of the Commission 
or of another Federal regulatory authority, may be implemented without 
prior approval if implemented pursuant to the procedures ofSec. 
40.6(a);or
    (5) Any other rule:
    (i) The text of which has been submitted for review at least ten 
business days prior to its implementation and that has been labeled 
``Non-Material Agricultural Rule Change;''
    (ii) For which the designated contract market has provided an 
explanation as to why it considers the rule ``non-material,'' and any 
other information that may be beneficial to the Commission in analyzing 
the merits of the entity's claim of non-materiality; and
    (iii) With respect to which the Commission has not notified the 
contract market during the review period that the rule appears to 
require or does require prior approval under this section, may be 
implemented without prior approval if implemented under the procedures 
ofSec. 40.6(a).



Sec.  40.5  Voluntary submission of rules for Commission review
and approval.

    (a) Request for approval of rules. Pursuant to Section 5c(c) of the 
Act, a registered entity may request that the Commission approve a new 
rule, rule amendment or dormant rule prior to implementation of the 
rule, or if the request was initially submitted under Sec.Sec. 40.2 or 
40.6 of this part, subsequent to implementation of the rule. A request 
for approval shall:
    (1) Be filed electronically in a format and manner specified by the 
Secretary of the Commission with the Secretary of the Commission;
    (2) Include a copy of the submission cover sheet in accordance with 
the instructions in appendix D to this part;
    (3) Set forth the text of the rule or rule amendment (in the case of 
a rule amendment, deletions and additions must be indicated);
    (4) Describe the proposed effective date of the rule or rule 
amendment and any action taken or anticipated to be taken to adopt the 
proposed rule by the registered entity or by its governing board or by 
any committee thereof, and cite the rules of the entity that authorize 
the adoption of the proposed rule;
    (5) Provide an explanation and analysis of the operation, purpose, 
and effect of the proposed rule or rule amendment and its compliance 
with applicable provisions of the Act, including core principles, and 
the Commission's regulations thereunder, including, as applicable, a 
description of the anticipated benefits to market participants or 
others, any potential anticompetitive effects on market participants or 
others, and how the rule fits into the registered entity's framework of 
self-regulation;
    (6) Certify that the registered entity posted a notice of pending 
rule with the Commission and a copy of the submission, concurrent with 
the filing of a submission with the Commission, on the registered 
entity's Web site. Information which the registered entity seeks to keep 
confidential may be redacted from the documents published on the 
registered entity's Web site but must be republished consistent with any 
determination made pursuant toSec. 40.8(c)(4);
    (7) Provide additional information which may be beneficial to the 
Commission in analyzing the new rule or rule amendment. If a proposed 
rule affects, directly or indirectly, the application of any other rule 
of the registered entity, the pertinent text of any such rule must be 
set forth and the anticipated effect described;
    (8) Provide a brief explanation of any substantive opposing views 
expressed to the registered entity by governing

[[Page 711]]

board or committee members, members of the entity or market participants 
that were not incorporated into the rule, or a statement that no such 
opposing views were expressed;
    (9) Identify any Commission regulation that the Commission may need 
to amend, or sections of the Act or the Commission's regulations that 
the Commission may need to interpret, in order to approve the new rule 
or rule amendment. To the extent that such an amendment or 
interpretation is necessary to accommodate a new rule or rule amendment, 
the submission should include a reasoned analysis supporting the 
amendment to the Commission's regulation or the interpretation;
    (10) As appropriate, include a request for confidential treatment as 
permitted under the procedures ofSec. 40.8.
    (b) Standard for review and approval. The Commission shall approve a 
new rule or rule amendment unless the rule or rule amendment is 
inconsistent with the Act or the Commission's regulations.
    (c) Forty-five day review. (1) All rules submitted for Commission 
approval under paragraph (a) of this section shall be deemed approved by 
the Commission under section 5c(c) of the Act 45 days after receipt by 
the Commission, or at the conclusion of such extended period as provided 
under paragraph (d) of this section, unless the registered entity is 
notified otherwise within the applicable period, if:
    (i) The submission complies with the requirements of paragraph (a) 
of this section;
    (ii) The registered entity does not amend the proposed rule or 
supplement the submission, except as requested by the Commission, during 
the pendency of the review period other than for correction of 
typographical errors, renumbering or other non-substantive revisions. 
Any amendment or supplementation not requested by the Commission will be 
treated as the submission of a new filing under this section.
    (2) The Commission shall commence the review period in paragraph (c) 
of this section for a compliant submission underSec. 40.4(b)(5) ten 
business days after its receipt.
    (d) Commencement and extension of time for review. The Commission 
may further extend the review period in paragraph (c) of this section 
for any approval request for:
    (1) An additional 45 days, if the proposed rule raises novel or 
complex issues that require additional time for review or is of major 
economic significance, the submission is incomplete or the requestor 
does not respond completely to Commission questions in a timely manner, 
in which case the Commission shall notify the submitting registered 
entity within the initial forty-five day review period and shall briefly 
describe the nature of the specific issues for which additional time for 
review shall be required; or
    (2) Any period, beyond the additional 45 days provided inSec. 
40.5(d)(1), to which the registered entity agrees in writing.
    (e) Notice of non-approval. Any time during its review under this 
section, the Commission may notify the registered entity that it will 
not, or is unable to, approve the new rule or rule amendment. This 
notification will briefly specify the nature of the issues raised and 
the specific provision of the Act or the Commission's regulations, 
including the form or content requirements of this section, with which 
the new rule or rule amendment is inconsistent or appears to be 
inconsistent with the Act or the Commission's regulations.
    (f) Effect of non-approval. (1) Notification to a registered entity 
under paragraph (e) of this section does not prevent the registered 
entity from subsequently submitting a revised version of the proposed 
rule or rule amendment for Commission review and approval or from 
submitting the new rule or rule amendment as initially proposed in a 
supplemented submission; the revised submission will be reviewed without 
prejudice.
    (2) Notification to a registered entity under paragraph (e) of this 
section of the Commission's determination not to approve a proposed rule 
or rule amendment of a registered entity shall be presumptive evidence 
that the entity may not truthfully certify that the same, or 
substantially the same, proposed rule or rule amendment underSec. 
40.6(a) of this section.
    (g) Expedited approval. Notwithstanding the provisions of paragraph

[[Page 712]]

(c) of this section, changes to a proposed rule or a rule amendment, 
including changes to terms and conditions of a product that are 
consistent with the Act and Commission regulations and with standards 
approved or established by the Commission may be approved by the 
Commission at such time and under such conditions as the Commission 
shall specify in the written notification, provided, however, that the 
Commission may, at any time, alter or revoke the applicability of such a 
notice to any particular product or rule amendment.



Sec.  40.6  Self-certification of rules.

    (a) Required certification. A registered entity shall comply with 
the following conditions prior to implementing any rule, other than a 
rule delisting or withdrawing the certification of a product with no 
open interest and submitted in compliance with Sec.Sec. 40.6(a)(1)-(2) 
andSec. 40.6(a)(7), that has not obtained Commission approval under 
Sec.  40.5 of this part, that remains dormant subsequent to being 
submitted under this section or approved underSec. 40.5 of this part, 
or that is submitted underSec. 40.10 of this part, except as otherwise 
provided bySec. 40.10(a):
    (1) The registered entity has filed its submission electronically in 
a format and manner specified by the Secretary of the Commission with 
the Secretary of the Commission.
    (2) The registered entity has provided a certification that the 
registered entity posted a notice of pending certification with the 
Commission and a copy of the submission, concurrent with the filing of a 
submission with the Commission, on the registered entity's Web site. 
Information that the registered entity seeks to keep confidential may be 
redacted from the documents published on the registered entity's Web 
site but it must be republished consistent with any determination made 
pursuant toSec. 40.8(c)(4).
    (3) The Commission has received the submission not later than the 
open of business on the business day that is 10 business days prior to 
the registered entity's implementation of the rule or rule amendment.
    (4) The Commission has not stayed the submission pursuant toSec. 
40.6(c).
    (5) The rule or rule amendment is not a rule or rule amendment of a 
designated contract market that materially changes a term or condition 
of a contract for future delivery of an agricultural commodity 
enumerated in section 1a(4) of the Act or an option on such a contract 
or commodity in a delivery month having open interest.
    (6) Emergency rule certifications. (i) New rules or rule amendments 
that establish standards for responding to an emergency must be 
submitted pursuant toSec. 40.6(a);
    (ii) Rules or rule amendments implemented under procedures of the 
governing board to respond to an emergency as defined inSec. 40.1, 
shall, if practicable, be filed with the Commission prior to the 
implementation or, if not practicable, be filed with the Commission at 
the earliest possible time after implementation, but in no event more 
than twenty-four hours after implementation. Such rules shall be subject 
to the certification and stay provisions of paragraphs (b) and (c) of 
this section.
    (7). The rule submission shall include:
    (i) A copy of the submission cover sheet in accordance with the 
instructions in appendix D to this part (in the case of a rule or rule 
amendment that responds to an emergency, ``Emergency Rule 
Certification'' should be noted in the Description section of the 
submission coversheet);
    (ii) The text of the rule (in the case of a rule amendment, 
deletions and additions must be indicated);
    (iii) The date of intended implementation;
    (iv) A certification by the registered entity that the rule complies 
with the Act and the Commission's regulations thereunder;
    (v) A concise explanation and analysis of the operation, purpose, 
and effect of the proposed rule or rule amendment and its compliance 
with applicable provisions of the Act, including core principles, and 
the Commission's regulations thereunder;
    (vi) A brief explanation of any substantive opposing views expressed 
to the registered entity by governing board or committee members, 
members of the entity or market participants,

[[Page 713]]

that were not incorporated into the rule, or a statement that no such 
opposing views were expressed;
    (vii) As appropriate, a request for confidential treatment pursuant 
to the procedures provided inSec. 40.8; and
    (8) The registered entity shall provide, if requested by Commission 
staff, additional evidence, information or data that may be beneficial 
to the Commission in conducting a due diligence assessment of the filing 
and the registered entity's compliance with any of the requirements of 
the Act or the Commission's regulations or policies thereunder.
    (b) Review by the Commission. The Commission shall have 10 business 
days to review the new rule or rule amendment before the new rule or 
rule amendment is deemed certified and can be made effective, unless the 
Commission notifies the registered entity during the 10-business day 
review period that it intends to issue a stay of the certification under 
paragraph (c) of this section.
    (c) Stay (1) Stay of certification of new rule or rule amendment. 
The Commission may stay the certification of a new rule or rule 
amendment submitted pursuant to paragraph (a) of this section by issuing 
a notification informing the registered entity that the Commission is 
staying the certification of the rule or rule amendment on the grounds 
that the rule or rule amendment presents novel or complex issues that 
require additional time to analyze, the rule or rule amendment is 
accompanied by an inadequate explanation or the rule or rule amendment 
is potentially inconsistent with the Act or the Commission's regulations 
thereunder. The Commission will have an additional 90 days from the date 
of the notification to conduct the review. The decision to stay the 
certification of a rule in such circumstances shall be delegable 
pursuant toSec. 40.7 of this part.
    (2) Public comment. The Commission shall provide a 30-day comment 
period within the 90-day period in which the stay is in effect as 
described in paragraph (c)(1) of this section. The Commission shall 
publish a notice of the 30-day comment period on the Commission Web 
site. Comments from the public shall be submitted as specified in that 
notice.
    (3) Expiration of a stay of certification of new rule or rule 
amendment. A new rule or rule amendment subject to a stay pursuant to 
this paragraph shall become effective, pursuant to the certification, at 
the expiration of the 90-day review period described in paragraph (c)(1) 
of this section unless the Commission withdraws the stay prior to that 
time, or the Commission notifies the registered entity during the 90-day 
time period that it objects to the proposed certification on the grounds 
that the proposed rule or rule amendment is inconsistent with the Act or 
the Commission's regulations.
    (4) Stay of effectiveness of rules or rule amendments already 
implemented. The Commission may stay the effectiveness of an implemented 
rule during the pendency of Commission proceedings for filing a false 
certification or during the pendency of a petition to alter or amend the 
rule pursuant to section 8a(7) of the Act. The decision to stay the 
effectiveness of a rule in such circumstances shall not be delegable to 
any employee of the Commission.
    (d) Notification of rule amendments. Notwithstanding the rule 
certification requirement of Section 5c(c)(1) of the Act and paragraph 
(a) of this section, a registered entity may place the following rules 
or rule amendments into effect without certification to the Commission 
if the following conditions are met:
    (1) The registered entity provides to the Commission at least weekly 
a summary notice of all rule amendments made effective pursuant to this 
paragraph during the preceding week. Such notice must be labeled 
``Weekly Notification of Rule Amendments'' and need not be filed for 
weeks during which no such actions have been taken. One copy of each 
such submission shall be furnished electronically in a format and manner 
specified by the Secretary of the Commission; and
    (2) The rule governs:
    (i) Non-substantive revisions. Corrections of typographical errors, 
renumbering, periodic routine updates to identifying information about 
registered entities and other such non-substantive revisions of a 
product's

[[Page 714]]

terms and conditions that have no effect on the economic characteristics 
of the product;
    (ii) Delivery standards set by third parties. Changes to grades or 
standards of commodities deliverable on a product that are established 
by an independent third party and that are incorporated by reference as 
product terms, provided that the grade or standard is not established, 
selected or calculated solely for use in connection with futures or 
option trading and such changes do not affect deliverable supplies or 
the pricing basis for the product;
    (iii) Index products. Routine changes in the composition, 
computation, or method of selection of component entities of an index 
(other than routine changes to securities indexes to the extent that 
such changes are not described in paragraph (d)(3)(ii)(F) of this 
section) referenced and defined in the product's terms, that do not 
affect the pricing basis of the index, which are made by an independent 
third party whose business relates to the collection or dissemination of 
price information and which was not formed solely for the purpose of 
compiling an index for use in connection with a futures or option 
product;
    (iv) Option contract terms. Changes to option contract rules, which 
may qualify for implementation without notice pursuant to paragraph 
(d)(3)(ii)(G) of this section, relating to the strike price listing 
procedures, strike price intervals, and the listing of strike prices on 
a discretionary basis;
    (v) Fees. Fees or fee changes, other than fees or fee changes 
associated with market making or trading incentive programs, that:
    (A) Total $1.00 or more per contract, and
    (B) Are established by an independent third party or are unrelated 
to delivery, trading, clearing or dispute resolution.
    (vi) Survey lists. Changes to lists of banks, brokers, dealers, or 
other entities that provide price or cash market information to an 
independent third party and that are incorporated by reference as 
product terms;
    (vii) Approved brands. Changes in lists of approved brands or 
markings pursuant to previously certified or Commission approved 
standards or criteria;
    (viii) Delivery facilities and delivery service providers. Changes 
in lists of approved delivery facilities and delivery service providers 
(including weigh masters, assayers, and inspectors) at a delivery 
location, pursuant to previously certified or Commission approved 
standards or criteria;
    (ix) Trading months. The initial listing of trading months, which 
may qualify for implementation without notice pursuant to (d)(3)(ii)(H) 
of this section, within the currently established cycle of trading 
months; or
    (x) Minimum tick. Reductions in the minimum price fluctuation (or 
``tick'').
    (3) Notification of rule amendments not required. Notwithstanding 
the rule certification requirements of section 5c(c)(1) of the Act and 
paragraph (a) of this section, a registered entity may place the 
following rules or rule amendments into effect without certification or 
notice to the Commission if the following conditions are met:
    (i) The registered entity maintains documentation regarding all 
changes to rules; and
    (ii) The rule governs:
    (A) Transfer of membership or ownership. Procedures and forms for 
the purchase, sale or transfer of membership or ownership, but not 
including qualifications for membership or ownership, any right or 
obligation of membership or ownership or dues or assessments;
    (B) Administrative procedures. The organization and administrative 
procedures of a registered entity governing bodies such as a Board of 
Directors, Officers and Committees, but not voting requirements, Board 
of Directors or Committee composition requirements or procedures, 
decision making procedures, use or disclosure of material non-public 
information gained through the performance of official duties, or 
requirements relating to conflicts of interest;
    (C) Administration. The routine, daily administration, direction and 
control of employees, requirements relating to gratuity and similar 
funds, but not guaranty, reserves, or similar funds; declaration of 
holidays, and changes to facilities housing the market, trading floor or 
trading area;

[[Page 715]]

    (D) Standards of decorum. Standards of decorum or attire or similar 
provisions relating to admission to the floor, badges, or visitors, but 
not the establishment of penalties for violations of such rules; and
    (E) Fees. Fees or fee changes, other than fees or fee changes 
associated with market making or trading incentive programs, that:
    (1) Are less than $1.00; or
    (2) Relate to matters such as dues, badges, telecommunication 
services, booth space, real time quotations, historical information, 
publications, software licenses or other matters that are administrative 
in nature.
    (F) Securities indexes. Routine changes to the composition, 
computation or method of security selection of an index that is 
referenced and defined in the product's rules, and which is made by an 
independent third party.
    (G) Option contract terms. For registered entities that are in 
compliance with the daily reporting requirements ofSec. 16.01 of this 
chapter, changes to option contract rules relating to the strike price 
listing procedures, strike price intervals, and the listing of strike 
prices on a discretionary basis.
    (H) Trading months. For registered entities that are in compliance 
with the daily reporting requirements ofSec. 16.01 of this chapter, 
the initial listing of trading months which are within the currently 
established cycle of trading months.

[76 FR 44790, July 27, 2011, as amended at 76 FR 45666, Aug. 1, 2011]



Sec.  40.7  Delegations.

    (a) Procedural matters. (1) The Commission hereby delegates, until 
it orders otherwise, to the Director of the Division of Clearing and 
Intermediary Oversight and, separately, to the Director of the Division 
of Market Oversight, to be exercised by either Director, as appropriate, 
or by such employees of the Commission that either Director may 
designate from time to time, the following authorities, with the 
concurrence of the General Counsel or the General Counsel's delegate:
    (i) To request, pursuant toSec. 40.3(c)(2) orSec. 40.5(c)(1)(ii) 
of this part, that the registered entity requesting approval amend the 
proposed product, rule or rule amendment, or supplement the submission 
to the Commission;
    (ii) To notify the registered entity, pursuant toSec. 40.3(e) or 
Sec.  40.5(e) of this part, that the Commission is not approving, or is 
unable to approve, the proposed product, rule or rule amendment;
    (iii) To make all determinations reserved to the Commission inSec. 
40.10.
    (2) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Clearing and Intermediary Oversight and, 
separately, to the Director of the Division of Market Oversight, to be 
exercised by either Director, as appropriate, or by such employees of 
the Commission that either Director may designate from time to time, the 
following authorities, after consultation with the Office of General 
Counsel or the General Counsel's delegate to notify a registered entity:
    (i) Pursuant toSec. 40.3(d) of this part, that the time for review 
of the submission has been extended because the product raises novel or 
complex issues that require additional time for review;
    (ii) Pursuant toSec. 40.5(d) of this part, that the time for 
review of the submission has been extended because the proposed rule or 
rule amendment raises novel or complex issues that require additional 
time for review or is of major economic significance;
    (iii) Pursuant toSec. 40.6(c) of this part, that the proposed rule 
or rule amendment has been stayed because there exist novel or complex 
issues that require additional time to analyze, or there is potential 
inconsistency with the Act or the Commission's regulations.
    (3) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Clearing and Intermediary Oversight and, 
separately, to the Director of the Division of Market Oversight, to be 
exercised by either Director, as appropriate, or by such employees of 
the Commission that either Director may designate from time to time, the 
authority to notify a registered entity, pursuant toSec. 40.3(d) or 
Sec.  40.5(d) of this part, that the time for review of the submission 
has been extended, or that a rule certified pursuant toSec. 40.6(c) 
has been stayed, because

[[Page 716]]

the submission is incomplete or provides an inadequate explanation.
    (4) Emergency rules. The Commission hereby delegates to the Director 
of the Division of Market Oversight and, separately, to the Director of 
the Division of Clearing and Intermediary Oversight, to be exercised by 
either Director, as appropriate, or by such other employee or employees 
of the Commission that either Director may designate from time to time, 
authority to receive notification of emergency rules underSec. 
40.6(a)(6)(ii) of this part.
    (5) The Commission hereby delegates to the Director of the Division 
of Market Oversight, to be exercised by the Director or by such 
employees of the Commission that the Director may designate from time to 
time, with the concurrence of the General Counsel or the General 
Counsel's delegate, the authority to determine whether a rule change 
submitted by a designated contract market for a materiality 
determination underSec. 40.4(b)(5) of this part is not material (in 
which case it may be reported pursuant to the provisions ofSec. 
40.6(d) of this part), or is material, in which case he or she shall 
notify the registered entity that the rule change must be submitted for 
the Commission's prior approval.
    (b) Approval authority. The Commission hereby delegates, until it 
orders otherwise, to the Director of the Division of Clearing and 
Intermediary Oversight and, separately, to the Director of the Division 
of Market Oversight, to be exercised by either Director, as appropriate, 
or by such employees of the Commission that either Director may 
designate from time to time, with the concurrence of the General Counsel 
or the General Counsel's delegate, the authority to approve, pursuant to 
section 5c(c)(3) of the Act andSec. 40.5 of this part, rules or rule 
amendments of a registered entity that:
    (1) Relate to, but do not substantially change, the quantity, 
quality, or other delivery specifications, procedures, or obligations 
for delivery, cash settlement, or exercise under an agreement, contract 
or transaction approved for trading by the Commission; daily settlement 
prices; clearing position limits; requirements or procedures for 
governance of a registered entity; procedures for transfer trades; 
trading hours; minimum price fluctuations; and maximum price limit and 
trading suspension provisions;
    (2) Reflect routine modifications that are required or anticipated 
by the terms of the rule of a registered entity;
    (3) Establish or amend speculative limits or position accountability 
provisions that are in compliance with the requirements of the Act and 
the Commission's regulations;
    (4) Are in substance the same as a rule of the same or another 
registered entity which has been approved previously by the Commission 
pursuant to section 5c(c)(3) of the Act;
    (5) Are consistent with a specific, stated policy or interpretation 
of the Commission; or
    (6) Relate to the listing of additional trading months of approved 
contracts.
    (c) Notwithstanding the provisions of this section, the Director of 
the Division of Clearing and Intermediary Oversight and, separately, the 
Director of the Division of Market Oversight may submit to the 
Commission for its consideration any matter that has been delegated 
pursuant to this section.
    (d) Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising any of the authority 
delegated pursuant to this section.



Sec.  40.8  Availability of public information.

    (a) The following sections of all applications to become a 
designated contract market, swap execution facility, derivatives 
clearing organization, or swap data repository shall be made publicly 
available: Transmittal letter and first page of the application cover 
sheet, proposed rules, narrative summary of the applicant's proposed 
activities and regulatory compliance chart, documents establishing the 
applicant's legal status, documents setting forth the applicant's 
corporate and governance structure and any other part of the application 
not covered by a request for confidential treatment.
    (b) The following submissions provided by an electronic trading 
facility on which significant price discovery

[[Page 717]]

contracts are traded or executed will be public: rulebook, the 
facility's regulatory compliance chart, documents establishing the 
facility's legal status, documents setting forth the facility's 
governance structure, and any other parts of the submissions not covered 
by a request for confidential treatment (Sec.  40.8(b) will be removed 
on July 20, 2012).
    (c) A registered entity's filing of new products pursuant to the 
self-certification procedures ofSec. 40.2 of this part, new products 
for Commission review and approval pursuant toSec. 40.3 of this part, 
new rules and rule amendments for Commission review and approval 
pursuant toSec. 40.4 orSec. 40.5 of this part, and new rules and 
rule amendments pursuant to the self-certification procedures ofSec. 
40.6 andSec. 40.10 of this part shall be treated as public information 
unless accompanied by a request for confidential treatment. If a 
registered entity files a request for confidential treatment, the 
following procedures shall apply:
    (1) A detailed written justification of the confidential treatment 
request must be filed simultaneously with the request for confidential 
treatment. The form and content of the detailed written justification 
shall be governed bySec. 145.9 of this chapter;
    (2) All material for which confidential treatment is requested must 
be segregated in an appendix to the submission;
    (3) The submission itself must indicate that material has been 
segregated and, as appropriate, an additional redacted version provided;
    (4) Commission staff may make an initial determination with respect 
to the request for confidential treatment without regard to whether a 
request for the information has been sought under the Freedom of 
Information Act;
    (5) All requests for confidential treatment shall be subject to the 
process provided bySec. 145.9 of this chapter.
    (6) A submitter of information under this part may appeal an adverse 
decision by staff to the Commission's Office of General Counsel. The 
form and content of such appeal shall be governed bySec. 145.9(g) of 
this chapter.
    (7) The grant of any part of a request for confidential treatment 
under this section may be reconsidered if a subsequent request under the 
Freedom of Information Act is made for the information.
    (d) Commission staff will not consider confidential treatment 
requests for information that is required to be made public under the 
Act. The terms and conditions of a product submitted to the Commission 
pursuant toSec. 40.2,Sec. 40.3,Sec. 40.5 andSec. 40.6 of this 
part shall be made publicly available at the time of submission.



Sec.  40.9  [Reserved]



Sec.  40.10  Special certification procedures for submission of rules
by systemically important derivatives clearing organizations.

    (a) Advance notice. A registered derivatives clearing organization 
that has been designated by the Financial Stability Oversight Council as 
a systemically important derivatives clearing organization shall provide 
notice to the Commission not less than 60 days in advance of any 
proposed change to its rules, procedures, or operations that could 
materially affect the nature or level of risks presented by the 
systemically important derivatives clearing organization. A notice 
submitted under this section shall be subject to the filing requirements 
ofSec. 40.6(a)(1) and the Web site publication requirements ofSec. 
40.6(a)(2).
    (1) The notice of a proposed change shall provide the information 
required to be submitted underSec. 40.6(a)(7) and shall specifically 
describe:
    (i) The nature of the change and expected effects on risks to the 
systemically important derivatives clearing organization, its clearing 
members, or the market; and
    (ii) How the systemically important derivatives clearing 
organization plans to manage any identified risks.
    (2) Concurrent with providing the Commission with the advance notice 
or any request or other information related to the advance notice, the 
systemically important derivatives clearing organization shall provide 
the Board of Governors of the Federal Reserve System with a copy of such 
notice, request or other information in the same format and manner as 
required by the Board of Governors for

[[Page 718]]

those designated financial market utilities for which it is the 
Supervisory Agency pursuant to section 803(8) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.
    (3) The systemically important derivatives clearing organization may 
request that the Commission expedite the review on the grounds that the 
change would materially decrease risk. The Commission, in its 
discretion, may expedite the review and, pursuant to paragraph (g) of 
this section, notify the systemically important derivatives clearing 
organization in less than 60 days from the date the Commission receives 
the notice of proposed change in writing that it does not object to the 
proposed change and authorizes implementation of the change on an 
earlier date.
    (b) Materiality. The term ``materially affect the nature or level of 
risks presented,'' when used to qualify determinations on a change to 
rules, procedures, or operations of a systemically important derivatives 
clearing organization, means matters as to which there is a reasonable 
possibility that the change could affect the performance of essential 
clearing and settlement functions or the overall nature or level of risk 
presented by the systemically important derivatives clearing 
organization. Such changes may include, but are not limited to, changes 
that materially affect financial resources, participant and product 
eligibility, risk management (including matters relating to margin and 
stress testing), daily or intraday settlement procedures, default 
procedures, system safeguards (business continuity and disaster 
recovery), and governance. If a systemically important derivatives 
clearing organization determines that a proposed change is not material 
and therefore does not file an advance notice under thisSec. 40.10, 
but the Commission determines that the change is material, the 
Commission may require the systemically important derivatives clearing 
organization to withdraw the proposed change and provide notice pursuant 
to this section.
    (c) Further information. The Commission may require the systemically 
important derivatives clearing organization to provide any further 
information necessary to assess the effect the proposed change would 
have on the nature or level of risks associated with the systemically 
important derivatives clearing organization's payment, clearing, or 
settlement activities and the sufficiency of any proposed risk 
management techniques.
    (d) Notice of objection. A systemically important derivatives 
clearing organization shall not implement a change to which the 
Commission has an objection on the grounds that the proposed change is 
not consistent with the Act or the Commission's regulations, or the 
purposes of the Dodd-Frank Act or any applicable rules, orders, or 
standards prescribed under Section 805(a) of the Dodd-Frank Act. The 
Commission will notify the systemically important derivatives clearing 
organization in writing of any objection regarding the proposed change 
within 60 days from the later of:
    (1) The date that the notice of the proposed change was received; or
    (2) The date the Commission received any further information it had 
requested for consideration of the notice.
    (e) Implementation of change absent Commission objection. A 
systemically important derivatives clearing organization may implement a 
change if it has not received an objection to the proposed change within 
60 days from the later of:
    (1) The date that the Commission received the notice of proposed 
change; or
    (2) The date the Commission received any further information it had 
requested for consideration of the notice.
    (f) Extended review. The Commission may, during the 60-day review 
period, extend the review period if the proposed change raises novel or 
complex issues. A notification by the Commission pursuant to this 
paragraph will extend the review for an additional 60 days. Any 
extension under this paragraph will extend the time periods under 
paragraphs (d) and (e) of this section for an additional 60 days.
    (g) Change allowed earlier if notified of no objection. A 
systemically important derivatives clearing organization may implement a 
change in less than 60 days from the date the Commission receives the 
notice of proposed change or

[[Page 719]]

the date the Commission receives any further information it has 
requested, if the Commission notifies the systemically important 
derivatives clearing organization in writing that it does not object to 
the proposed change and authorizes implementation of the change on an 
earlier date, subject to any conditions imposed by the Commission.
    (h) Emergency changes. A systemically important derivatives clearing 
organization may implement a change that would otherwise require advance 
notice under this section if it determines that an emergency exists and 
immediate implementation of the change is necessary for the systemically 
important derivatives clearing organization to continue to provide its 
services in a safe and sound manner.
    (1) The systemically important derivatives clearing organization 
shall provide notice of any such emergency change to the Commission as 
soon as practicable, which shall be no later than 24 hours after 
implementation of the change.
    (2) The notice of an emergency change shall:
    (i) Provide the information required for advance notice as set forth 
in paragraph (a) of this section;
    (ii) Describe the nature of the emergency; and
    (iii) Describe the reason the change was necessary for the 
systemically important derivatives clearing organization to continue to 
provide its services in a safe and sound manner.
    (3) The Commission may require modification or rescission of the 
emergency change if it finds that the change is not consistent with the 
Act or the Commission's regulations, or the purposes of the Dodd-Frank 
Act or any applicable rules, orders, or standards prescribed under 
Section 805(a) of the Dodd-Frank Act.



Sec.  40.11  Review of event contracts based upon certain excluded 
commodities.

    (a) Prohibition. A registered entity shall not list for trading or 
accept for clearing on or through the registered entity any of the 
following:
    (1) An agreement, contract, transaction, or swap based upon an 
excluded commodity, as defined in Section 1a(19)(iv) of the Act, that 
involves, relates to, or references terrorism, assassination, war, 
gaming, or an activity that is unlawful under any State or Federal law; 
or
    (2) An agreement, contract, transaction, or swap based upon an 
excluded commodity, as defined in Section 1a(19)(iv) of the Act, which 
involves, relates to, or references an activity that is similar to an 
activity enumerated inSec. 40.11(a)(1) of this part, and that the 
Commission determines, by rule or regulation, to be contrary to the 
public interest.
    (b) [Reserved]
    (c) 90-day review and approval of certain event contracts. The 
Commission may determine, based upon a review of the terms or conditions 
of a submission underSec. 40.2 orSec. 40.3, that an agreement, 
contract, transaction, or swap based on an excluded commodity, as 
defined in Section 1a(19)(iv) of the Act, which may involve, relate to, 
or reference an activity enumerated inSec. 40.11(a)(1) orSec. 
40.11(a)(2), be subject to a 90-day review. The 90-day review shall 
commence from the date the Commission notifies the registered entity of 
a potential violation ofSec. 40.11(a).
    (1) The Commission shall request that a registered entity suspend 
the listing or trading of any agreement, contract, transaction, or swap 
based on an excluded commodity, as defined in Section 1a(19)(iv) of the 
Act, which may involve, relate to, or reference an activity enumerated 
inSec. 40.11(a)(1) orSec. 40.11(a)(2), during the Commission's 90-
day review period. The Commission shall post on the Web site a 
notification of the intent to carry out a 90-day review.
    (2) Final determination. The Commission shall issue an order 
approving or disapproving an agreement, contract, transaction, or swap 
that is subject to a 90-day review underSec. 40.11(c) not later than 
90 days subsequent to the date that the Commission commences review, or 
if applicable, at the conclusion of such extended period agreed to or 
requested by the registered entity.

[[Page 720]]



Sec.  40.12  Staying of certification and tolling of review period 
pending jurisdictional determination.

    (a) Notice of novel derivative products. (1) A registered entity 
certifying, submitting for approval, or otherwise filing a proposal to 
list, trade, or clear a novel derivative product (other than a product 
subject to the provisions ofSec. 1.8 of this chapter) having elements 
of both a security and a contract for the sale of a commodity for future 
delivery (or an option on such contract or an option on a commodity) may 
provide notice of its proposal to the Commission and the Securities and 
Exchange Commission with a statement that written notice has been 
provided to both agencies through an appropriate means provided in each 
Commission's regulations.
    (2) If concurrent notice is not provided pursuant toSec. 
40.12(a)(1), the Commission shall notify the Securities and Exchange 
Commission of the registered entity's submission of a novel derivative 
product described inSec. 40.12(a)(1) and accompany such notice with a 
copy of the submission. The Commission shall determine whether a 
particular submission is a novel derivative product requiring notice to 
the Securities and Exchange Commission not later than five business days 
subsequent to the date that the registered entity submits the product 
for Commission review.
    (b) Tolling of review period. Upon receipt of a request for a 
jurisdictional determination, pursuant to Section 718(a)(2) of the Dodd-
Frank Act, by the Commission or the Securities and Exchange Commission, 
the product certification shall be stayed or the approval review period 
shall be tolled until a final determination order is issued.
    (1) The Commission will provide the registered entity with a written 
notice of stay pending issuance of a final determination order by the 
Commission or the Securities and Exchange Commission.
    (2) The stay shall be withdrawn or the approval review period shall 
resume upon the Commission's or the Securities and Exchange Commission's 
issuance of a final determination order finding that the Commission has 
jurisdiction over the submission.
    (3) Determination order. A final determination, for purposes of 
Sec.  40.12(b) of this part, shall be a determination order issued by 
the Commission or the Securities and Exchange Commission pursuant to 
Section 718(a)(3) of the Dodd-Frank Act.
    (c) Judicial review of determination order. The filing of a petition 
by a complaining Commission, pursuant to Section 718(b) of the Dodd-
Frank Act, shall operate as a stay of the agency order.
    (1) The stay shall remain in effect until the date on which the 
United States Court of Appeals for the District of Columbia Circuit 
issues a final determination pursuant to Section 718(b)(4) of the Dodd-
Frank Act, or until such date that there is a final disposition of an 
appeal of that determination.
    (2) The submission review period shall resume upon issuance of a 
final determination, as described inSec. 40.12(c)(1), that the 
Commission has jurisdiction over the submission.



              Sec. Appendix A to Part 40--Schedule of Fees

    (a) Applications for product approval. Each application for product 
approval underSec. 40.3 must be accompanied by a check or money order 
made payable to the Commodity Futures Trading Commission in an amount to 
be determined annually by the Commission and published in the Federal 
Register.
    (b) Checks and applications should be sent to the attention of the 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581. No 
checks or money orders may be accepted by personnel other than those in 
the Office of the Secretariat.
    (c) Failure to submit the fee with an application for product 
approval will result in return of the application. Fees will not be 
returned after receipt.



                Sec. Appendixes B-C to Part 40 [Reserved]



   Sec. Appendix D to Part 40--Submission Cover Sheet and Instructions

    (a) A properly completed submission cover sheet shall accompany all 
rule and product submissions submitted electronically by a registered 
entity in a format and manner specified by the Secretary of the 
Commission

[[Page 721]]

to the Secretary of the Commission. A properly completed submission 
cover sheet shall include all of the following:
    1. Identifier Code (optional)--A registered entity Identifier Code 
at the top of the cover sheet, if applicable. Such codes are commonly 
generated by registered entities to provide an identifier that is unique 
to each filing (e.g., NYMEX Submission 03-116).
    2. Date--The date of the filing.
    3. Organization--The name of the organization filing the submission 
(e.g., CBOT).
    4. Filing as a--Check in the appropriate box indicating that the 
rule or product is being submitted by a designated contract market 
(DCM), derivatives clearing organization (DCO), swap execution facility 
(SEF), or swap data repository (SDR), electronic trading facility with a 
significant price discovery contract (the term will be removed on July 
20, 2012).\1\
---------------------------------------------------------------------------

    \1\ Even though ECM-SPDC was eliminated by the Dodd-Frank Act, the 
Commission will retain references to this entity in the cover sheet 
since ECMs may be allowed to operate until July 20, 2012, pursuant to 
grandfather relief issued by the Commission. See 75 FR 56513 (Sept. 16, 
2010).
---------------------------------------------------------------------------

    5. Type of Filing--An indication as to whether the filing is a new 
rule, rule amendment or new product. The registered entity should check 
the appropriate box to indicate the applicable category under that 
heading.
    6. Rule Numbers--For rule filings, the rule number(s) being adopted 
or modified in the case of rule amendment filings.
    7. Description--For rule or rule amendment filings, a description of 
the new rule or rule amendment, including a discussion of its expected 
impact on the registered entity, market participants, and the overall 
market. The narrative should describe the substance of the submission 
with enough specificity to characterize all material aspects of the 
filing.
    (b) Other Requirements--A submission shall comply with all 
applicable filing requirements for proposed rules, rule amendments, or 
products. The filing of the submission cover sheet does not obviate the 
registered entity's responsibility to comply with applicable filing 
requirements (e.g., rules submitted for Commission approval underSec. 
40.5 must be accompanied by an explanation of the purpose and effect of 
the proposed rule along with a description of any substantive opposing 
views).
    (c) Checking the box marked ``confidential treatment requested'' on 
the Submission Cover Sheet does not obviate the submitter's 
responsibility to comply with all applicable requirements for requesting 
confidential treatment inSec. 40.8 and, where appropriate,Sec. 145.9 
of this chapter, and will not substitute for notice or full compliance 
with such requirements.



PART 41_SECURITY FUTURES PRODUCTS--Table of Contents



                      Subpart A_General Provisions

Sec.
41.1 Definitions.
41.2 Required records.
41.3 Application for an exemptive order pursuant to section 4f(a)(4)(B) 
          of the Act.
41.4-41.9 [Reserved]

                 Subpart B_Narrow-Based Security Indexes

41.11 Method for determining market capitalization and dollar value of 
          average daily trading volume; application of the definition of 
          narrow-based security index.
41.12 Indexes underlying futures contracts trading for fewer than 30 
          days.
41.13 Futures contracts on security indexes trading on or subject to the 
          rules of a foreign board of trade.
41.14 Transition period for indexes that cease being narrow-based 
          security indexes.
41.15 Exclusion from definition of narrow-based security index for 
          indexes composed of debt securities.

   Subpart C_Requirements and Standards for Listing Security Futures 
                                Products

41.21 Requirements for underlying securities.
41.22 Required certifications.
41.23 Listing of security futures products for trading.
41.24 Rule amendments to security futures products.
41.25 Additional conditions for trading for security futures products.
41.27 Prohibition of dual trading in security futures products by floor 
          brokers.

    Subpart D_Notice_Designated Contract Markets in Security Futures 
                                Products

41.31 Notice-designation requirements.
41.32 Continuing obligations.
41.33 Applications for exemptive orders.
41.34 Exempt provisions.

           Subpart E_Customer Accounts and Margin Requirements

41.41 Security futures products accounts.
41.42 Customer margin requirements for security futures--authority, 
          purpose, interpretation, and scope.
41.43 Definitions.
41.44 General provisions.
41.45 Required margin.

[[Page 722]]

41.46 Type, form and use of margin.
41.47 Withdrawal of margin.
41.48 Undermargined accounts.
41.49 Filing proposed margin rule changes with the Commission.

    Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 
2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

    Source: 66 FR 44511, Aug. 23, 2001, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  41.1  Definitions.

    For purposes of this part:
    (a) Alternative trading system shall have the meaning set forth in 
section 1a(1) of the Act.
    (b) Board of trade shall have the meaning set forth in section 1a(2) 
of the Act.
    (c) Broad-based security index means a group or index of securities 
that does not constitute a narrow-based security index.
    (d) Foreign board of trade means a board of trade located outside of 
the United States, its territories or possessions, whether incorporated 
or unincorporated, where foreign futures or foreign options are entered 
into.
    (e) Narrow-based security index has the same meaning as in section 
1a(35) of the Commodity Exchange Act.
    (f) National securities association means a board of trade 
registered with the Securities and Exchange Commission pursuant to 
section 15A(a) of the Securities Exchange Act of 1934.
    (g) National securities exchange means a board of trade registered 
with the Securities and Exchange Commission pursuant to section 6(a) of 
the Securities Exchange Act of 1934.
    (h) Rule shall have the meaning set forth in Commission regulation 
40.1.
    (i) Security futures product shall have the meaning set forth in 
section 1a(32) of the Act.
    (j) Opening price means the price at which a security opened for 
trading, or a price that fairly reflects the price at which a security 
opened for trading, during the regular trading session of the national 
securities exchange or national securities association that lists the 
security. If the security is not listed on a national securities 
exchange or a national securities association, then opening price shall 
mean the price at which a security opened for trading, or a price that 
fairly reflects the price at which a security opened for trading, on the 
primary market for the security.
    (k) Regular trading session of a security means the normal hours for 
business of a national securities exchange or national securities 
association that lists the security.
    (l) Regulatory halt means a delay, halt, or suspension in the 
trading of a security, that is instituted by the national securities 
exchange or national securities association that lists the security, as 
a result of:
    (1) A determination that there are matters relating to the security 
or issuer that have not been adequately disclosed to the public, or that 
there are regulatory problems relating to the security which should be 
clarified before trading is permitted to continue; or
    (2) The operation of circuit breaker procedures to halt or suspend 
trading in all equity securities trading on that national securities 
exchange or national securities association.

[66 FR 44511, Aug. 23, 2001, as amended at 66 FR 44965, Aug. 27, 2001; 
67 FR 36761, May 24, 2002; 77 FR 66344, Nov. 2, 2012]



Sec.  41.2  Required records.

    A designated contract market that trades a security index or 
security futures product shall maintain in accordance with the 
requirements ofSec. 1.31 of this chapter books and records of all 
activities related to the trading of such products, including: Records 
related to any determination under subpart B of this part whether or not 
a futures contract on a security index is a narrow-based security index 
or a broad-based security index.

[77 FR 66344, Nov. 2, 2012]



Sec.  41.3  Application for an exemptive order pursuant to section 4f
(a)(4)(B) of the Act.

    (a) Any futures commission merchant or introducing broker registered 
in accordance with the notice registration provisions ofSec. 3.10 of 
this chapter, or any broker or dealer exempt from floor broker or floor 
trader registration pursuant to section 4f(a)(3) of the Act, may apply 
to the Commission for an

[[Page 723]]

order pursuant to section 4f(a)(4)(B) of the Act granting exemption to 
such person from any provision of the Act or the Commission's 
regulations other than sections 4c(b), 4c(d), 4c(e), 4c(g), 4d, 4e, 4h, 
4f(b), 4f(c), 4j, 4k(1), 4p, 6d, 8(d), 8(g), and 16 of the Act and the 
rules thereunder.
    (b) An application pursuant to this section must set forth in 
writing or in an electronic mail message the following information:
    (1) The name, main business address and main business telephone 
number of the person applying for an order;
    (2) The capacity in which the person is registered with the 
Securities and Exchange Commission and the person's CRD number (if a 
member of the National Association of Securities Dealers, Inc.) or 
equivalent self-regulatory organization identification, together with a 
certification, if true, that the person's registration is not suspended 
pursuant to an order of the Securities and Exchange Commission;
    (3) The particular section(s) of the Act and/or provision(s) of the 
Commission's regulations with respect to which the person seeks 
exemption;
    (4) Any provision(s) of the securities laws or rules, or of the 
rules of a securities self-regulatory organization analogous to the 
provision(s);
    (5) A clear explanation of the facts and circumstances under which 
the person believes that the requested exemptive relief is necessary or 
appropriate in the public interest; and
    (6) A clear explanation of the extent to which the requested 
exemptive relief is consistent with the protection of investors.
    (c) A national securities exchange or other securities industry 
self-regulatory organization may submit an application for an order 
pursuant to this section on behalf of its members.
    (d) An application for an order must be submitted to the Director of 
the Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, 1155 21st Street, NW., Washington, DC 20581, if in 
paper form, or to [email protected] if submitted via electronic mail.
    (e) The Commission may, in its sole discretion, grant the 
application, deny the application, decline to entertain the application, 
or grant the application subject to one or more conditions.

[66 FR 43086, Aug. 17, 2001. Redesignated at 67 FR 53171, Aug. 14, 2002, 
as amended at 67 FR 62352, Oct. 7, 2002]



Sec.Sec. 41.4-41.9  [Reserved]



                 Subpart B_Narrow-Based Security Indexes



Sec.  41.11  Method for determining market capitalization and dollar
value of average daily trading volume; application of the definition 
of narrow-based security index.

    (a) Market capitalization. For purposes of section 1a(35)(B) of the 
Act (7 U.S.C. 1a(35)(B)):
    (1) On a particular day, a security shall be 1 of 750 securities 
with the largest market capitalization as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the SEC as applicable for that day.
    (2) In the event that the Commission and the SEC have not designated 
a list under paragraph (a)(1) of this section:
    (i) The method to be used to determine market capitalization of a 
security as of the preceding 6 full calendar months is to sum the values 
of the market capitalization of such security for each U.S. trading day 
of the preceding 6 full calendar months, and to divide this sum by the 
total number of such trading days.
    (ii) The 750 securities with the largest market capitalization shall 
be identified from the universe of all NMS securities as defined in 
Sec.  242.600 that are common stock or depositary shares.
    (b) Dollar value of ADTV. (1) For purposes of section 1a(35)(A) and 
(B) of the Act (7 U.S.C. 1a(35)(A) and (B)):
    (i)(A) The method to be used to determine the dollar value of ADTV 
of a security is to sum the dollar value of ADTV of all reported 
transactions in such security in each jurisdiction as calculated 
pursuant to paragraphs (b)(1)(ii) and (iii) of this section.
    (B) The dollar value of ADTV of a security shall include the value 
of all reported transactions for such security and for any depositary 
share that represents such security.

[[Page 724]]

    (C) The dollar value of ADTV of a depositary share shall include the 
value of all reported transactions for such depositary share and for the 
security that is represented by such depositary share.
    (ii) For trading in a security in the United States, the method to 
be used to determine the dollar value of ADTV as of the preceding 6 full 
calendar months is to sum the value of all reported transactions in such 
security for each U.S. trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of such trading days.
    (iii)(A) For trading in a security in a jurisdiction other than the 
United States, the method to be used to determine the dollar value of 
ADTV as of the preceding 6 full calendar months is to sum the value in 
U.S. dollars of all reported transactions in such security in such 
jurisdiction for each trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of trading days in 
such jurisdiction during the preceding 6 full calendar months.
    (B) If the value of reported transactions used in calculating the 
ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a 
currency other than U.S. dollars, the total value of each day's 
transactions in such currency shall be converted into U.S. dollars on 
the basis of a spot rate of exchange for that day obtained from at least 
one independent entity that provides or disseminates foreign exchange 
quotations in the ordinary course of its business.
    (iv) The dollar value of ADTV of the lowest weighted 25% of an index 
is the sum of the dollar value of ADTV of each of the component 
securities comprising the lowest weighted 25% of such index.
    (2) For purposes of section 1a(35)(B)(III)(cc) of the Act (7 U.S.C. 
1a(35)(B)(III)(cc)):
    (i) On a particular day, a security shall be 1 of 675 securities 
with the largest dollar value of ADTV as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the SEC as applicable for that day.
    (ii) In the event that the Commission and the SEC have not 
designated a list under paragraph (b)(2)(i) of this section:
    (A) The method to be used to determine the dollar value of ADTV of a 
security as of the preceding 6 full calendar months is to sum the value 
of all reported transactions in such security in the United States for 
each U.S. trading day during the preceding 6 full calendar months, and 
to divide this sum by the total number of such trading days.
    (B) The 675 securities with the largest dollar value of ADTV shall 
be identified from the universe of all NMS securities as defined in 
Sec.  242.600 that are common stock or depositary shares.
    (c) Depositary Shares and Section 12 Registration. For purposes of 
section 1a(35)(B)(III)(aa) of the Act (7 U.S.C. 1a(35)(B)(III)(aa)), the 
requirement that each component security of an index be registered 
pursuant to section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 
78l) shall be satisfied with respect to any security that is a 
depositary share if the deposited securities underlying the depositary 
share are registered pursuant to section 12 of the Securities Exchange 
Act of 1934 and the depositary share is registered under the Securities 
Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36).
    (d) Definitions. For purposes of this section:
    (1) SEC means the Securities and Exchange Commission.
    (2) Closing price of a security means:
    (i) If reported transactions in the security have taken place in the 
United States, the price at which the last transaction in such security 
took place in the regular trading session of the principal market for 
the security in the United States.
    (ii) If no reported transactions in a security have taken place in 
the United States, the closing price of such security shall be the 
closing price of any depositary share representing such security divided 
by the number of shares represented by such depositary share.
    (iii) If no reported transactions in a security or in a depositary 
share representing such security have taken place in the United States, 
the closing price of such security shall be the price

[[Page 725]]

at which the last transaction in such security took place in the regular 
trading session of the principal market for the security. If such price 
is reported in a currency other than U.S. dollars, such price shall be 
converted into U.S. dollars on the basis of a spot rate of exchange 
relevant for the time of the transaction obtained from at least one 
independent entity that provides or disseminates foreign exchange 
quotations in the ordinary course of its business.
    (3) Depositary share has the same meaning as inSec. 240.12b-2.
    (4) Foreign financial regulatory authority has the same meaning as 
in Section 3(a)(52) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(52)).
    (5) Lowest weighted 25% of an index. With respect to any particular 
day, the lowest weighted component securities comprising, in the 
aggregate, 25% of an index's weighting for purposes of section 
1a(35)(A)(iv) of the Act (7 U.S.C. 1a(35)(A)(iv)) (``lowest weighted 25% 
of an index'') means those securities:
    (i) That are the lowest weighted securities when all the securities 
in such index are ranked from lowest to highest based on the index's 
weighting methodology; and
    (ii) For which the sum of the weight of such securities is equal to, 
or less than, 25% of the index's total weighting.
    (6) Market capitalization of a security on a particular day:
    (i) If the security is not a depositary share, is the product of:
    (A) The closing price of such security on that same day; and
    (B) The number of outstanding shares of such security on that same 
day.
    (ii) If the security is a depositary share, is the product of:
    (A) The closing price of the depositary share on that same day 
divided by the number of deposited securities represented by such 
depositary share; and
    (B) The number of outstanding shares of the security represented by 
the depositary share on that same day.
    (7) Outstanding shares of a security means the number of outstanding 
shares of such security as reported on the most recent Form 10-K, Form 
10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a, 
249.310b, 249.308b, or 249.220f) filed with the Securities and Exchange 
Commission by the issuer of such security, including any change to such 
number of outstanding shares subsequently reported by the issuer on a 
Form 8-K (17 CFR 249.308).
    (8) Preceding 6 full calendar months means, with respect to a 
particular day, the period of time beginning on the same day of the 
month 6 months before and ending on the day prior to such day.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the preceding 6 full calendar months.
    (10) Reported transaction means:
    (i) With respect to securities transactions in the United States, 
any transaction for which a transaction report is collected, processed, 
and made available pursuant to an effective transaction reporting plan, 
or for which a transaction report, last sale data, or quotation 
information is disseminated through an automated quotation system as 
described in Section 3(a)(51)(A)(ii) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c(a)(51)(A)(ii)); and
    (ii) With respect to securities transactions outside the United 
States, any transaction that has been reported to a foreign financial 
regulatory authority in the jurisdiction where such transaction has 
taken place.
    (11) U.S. trading day means any day on which a national securities 
exchange is open for trading.
    (12) Weighting of a component security of an index means the 
percentage of such index's value represented, or accounted for, by such 
component security.

[66 FR 44511, Aug. 23, 2001, as amended at 70 FR 43750, July 29, 2005; 
77 FR 66344, Nov. 2, 2012]



Sec.  41.12  Indexes underlying futures contracts trading for fewer 
than 30 days.

    (a) An index on which a contract of sale for future delivery is 
trading on a designated contract market or foreign board of trade is not 
a narrow-based security index under section 1a(35) of the Act (7 U.S.C. 
1a(35)) for the first 30 days of trading, if:

[[Page 726]]

    (1) Such index would not have been a narrow-based security index on 
each trading day of the preceding 6 full calendar months with respect to 
a date no earlier than 30 days prior to the commencement of trading of 
such contract;
    (2) On each trading day of the preceding 6 full calendar months with 
respect to a date no earlier than 30 days prior to the commencement of 
trading such contract:
    (i) Such index had more than 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting;
    (iii) The 5 highest weighted component securities in such index did 
not comprise, in the aggregate, more than 60 percent of the index's 
weighting; and
    (iv) The dollar value of the trading volume of the lowest weighted 
25% of such index was not less than $50 million (or in the case of an 
index with 15 or more component securities, $30 million); or
    (3) On each trading day of the 6 full calendar months preceding a 
date no earlier than 30 days prior to the commencement of trading such 
contract:
    (i) Such index had at least 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting; and
    (iii) Each component security in such index was:
    (A) Registered pursuant to Section 12 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78) or was a depositary share representing a security 
registered pursuant to Section 12 of the Securities Exchange Act of 
1934;
    (B) 1 of 750 securities with the largest market capitalization that 
day; and
    (C) 1 of 675 securities with the largest dollar value of trading 
volume that day.
    (b) An index that is not a narrow-based security index for the first 
30 days of trading pursuant to paragraph (a) of this section, shall 
become a narrow-based security index if such index has been a narrow-
based security index for more than 45 business days over 3 consecutive 
calendar months.
    (c) An index that becomes a narrow-based security index solely 
because it was a narrow-based security index for more than 45 business 
days over 3 consecutive calendar months pursuant to paragraph (b) of 
this section shall not be a narrow-based security index for the 
following 3 calendar months.
    (d) Definitions. For purposes of this section:
    (1) Market capitalization has the same meaning as inSec. 
41.11(d)(6) of this chapter.
    (2) Dollar value of trading volume of a security on a particular day 
is the value in U.S. dollars of all reported transactions in such 
security on that day. If the value of reported transactions used in 
calculating dollar value of trading volume is reported in a currency 
other than U.S. dollars, the total value of each day's transactions 
shall be converted into U.S. dollars on the basis of a spot rate of 
exchange for that day obtained from at least one independent entity that 
provides or disseminates foreign exchange quotations in the ordinary 
course of its business.
    (3) Lowest weighted 25% of an index has the same meaning as inSec. 
41.11(d)(5) of this chapter.
    (4) Preceding 6 full calendar months has the same meaning as in 
Sec.  41.11(d)(8) of this chapter.
    (5) Reported transaction has the same meaning as inSec. 
41.11(d)(10) of this chapter.

[66 FR 44511, Aug. 23, 2001, as amended at 77 FR 66344, Nov. 2, 2012]



Sec.  41.13  Futures contracts on security indexes trading on or
subject to the rules of a foreign board of trade.

    When a contract of sale for future delivery on a security index is 
traded on or subject to the rules of a foreign board of trade, such 
index shall not be a narrow-based security index if it would not be a 
narrow-based security index if a futures contract on such index were 
traded on a designated contract market.

[77 FR 66344, Nov. 2, 2012]



Sec.  41.14  Transition period for indexes that cease being narrow-
based security indexes.

    (a) Forty-five day tolerance provision. An index that is a narrow-
based security index that becomes a broad-based security index for no 
more than

[[Page 727]]

45 business days over 3 consecutive calendar months shall be a narrow-
based security index.
    (b) Transition period for indexes that cease being narrow-based 
security indexes for more than forty-five days. An index that is a 
narrow-based security index that becomes a broad-based security index 
for more than 45 business days over 3 consecutive calendar months shall 
continue to be a narrow-based security index for the following 3 
calendar months.
    (c) Trading in months with open interest following transition 
period. After the transition period provided for in paragraph (b) of 
this section ends, a national securities exchange may continue to trade 
only in those months in the security futures product that had open 
interest on the date the transition period ended.
    (d) Definition of calendar month. Calendar month means, with respect 
to a particular day, the period of time beginning on a calendar date and 
ending during another month on a day prior to such date.



Sec.  41.15  Exclusion from definition of narrow-based security index
for indexes composed of debt securities.

    (a) An index is not a narrow-based security index if:
    (1)(i) Each of the securities of an issuer included in the index is 
a security, as defined in section 2(a)(1) of the Securities Act of 1933 
and section 3 (a)(10) of the Securities Exchange Act of 1934 and the 
respective rules promulgated thereunder, that is a note, bond, 
debenture, or evidence of indebtedness;
    (ii) None of the securities of an issuer included in the index is an 
equity security, as defined in section 3(a)(11) of the Securities 
Exchange Act of 1934 and the rules promulgated thereunder;
    (iii) The index is comprised of more than nine securities that are 
issued by more than nine non-affiliated issuers;
    (iv) The securities of any issuer included in the index do not 
comprise more than 30 percent of the index's weighting;
    (v) The securities of any five non-affiliated issuers included in 
the index do not comprise more than 60 percent of the index's weighting;
    (vi) Except as provided in paragraph (a)(1)(viii) of this section, 
for each security of an issuer included in the index one of the 
following criteria is satisfied:
    (A) The issuer of the security is required to file reports pursuant 
to section 13 or section 15(d) of the Securities Exchange Act of 1934;
    (B) The issuer of the security has a worldwide market value of its 
outstanding common equity held by non-affiliates of $700 million or 
more;
    (C) The issuer of the security has outstanding securities that are 
notes, bonds, debentures, or evidences of indebtedness having a total 
remaining principal amount of at least $1 billion;
    (D) The security is an exempted security as defined in section 
3(a)(12) of the Securities Exchange Act of 1934 and the rules 
promulgated thereunder; or
    (E) The issuer of the security is a government of a foreign country 
or a political subdivision of a foreign country; and
    (vii) Except as provided in paragraph (a)(1)(viii) of this section, 
for each security of an issuer included in the index one of the 
following criteria is satisfied:
    (A) The security has a total remaining principal amount of at least 
$250,000,000; or
    (B) The security is a municipal security (as defined in section 
3(a)(29) of the Securities Exchange Act of 1934 and the rules 
promulgated thereunder) that has a total remaining principal amount of 
at least $200,000,000 and the issuer of such municipal security has 
outstanding securities that are notes, bonds, debentures, or evidences 
of indebtedness having a total remaining principal amount of at least $1 
billion; and
    (viii) Paragraphs (a)(1)(vi) and (a)(1)(vii) of this section will 
not apply to securities of an issuer included in the index if:
    (A) All securities of such issuer included in the index represent 
less than five percent of the index's weighting; and
    (B) Securities comprising at least 80 percent of the index's 
weighting satisfy the provisions of paragraphs (a)(1)(vi) and 
(a)(1)(vii) of this section.

[[Page 728]]

    (2)(i) The index includes exempted securities, other than municipal 
securities as defined in section 3(a)(29) of the Securities Exchange Act 
of 1934 and the rules promulgated thereunder, that are:
    (A) Notes, bonds, debentures, or evidences of indebtedness; and
    (B) Not equity securities, as defined in section 3(a)(11) of the 
Securities Exchange Act of 1934 and the rules promulgated thereunder; 
and
    (ii) Without taking into account any portion of the index composed 
of such exempted securities, other than municipal securities, the 
remaining portion of the index would not be a narrow-based security 
index meeting all the conditions under paragraph (a)(1) of this section.
    (b) For purposes of this section:
    (1) An issuer is affiliated with another issuer if it controls, is 
controlled by, or is under common control with, that issuer.
    (2) For purposes of this section, ``control'' means ownership of 20 
percent or more of an issuer's equity, or the ability to direct the 
voting of 20 percent or more of the issuer's voting equity.
    (3) The term ``issuer'' includes a single issuer or group of 
affiliated issuers.

[71 FR 39541, July 13, 2006]



   Subpart C_Requirements and Standards for Listing Security Futures 
                                Products

    Source: 66 FR 55083, Nov. 1, 2001, unless otherwise noted.



Sec.  41.21  Requirements for underlying securities.

    (a) Security futures products based on a single security. A futures 
contract on a single security is eligible to be traded as a security 
futures product only if:
    (1) The underlying security is registered pursuant to section 12 of 
the Securities Exchange Act of 1934;
    (2) The underlying security is:
    (i) Common stock,
    (ii) Such other equity security as the Commission and the SEC 
jointly deem appropriate, or
    (iii) A note, bond, debenture, or evidence of indebtedness; and
    (3) The underlying security conforms with the listing standards for 
the security futures product that the designated contract market has 
filed with the SEC under section 19(b) of the Securities Exchange Act of 
1934.
    (b) Security futures product based on two or more securities. A 
futures contract on an index of two or more securities is eligible to be 
traded as a security futures product only if:
    (1) The index is a narrow-based security index as defined in section 
1a(35) of the Act;
    (2) The securities in the index are registered pursuant to section 
12 of the Securities Exchange Act of 1934;
    (3) The securities in the index are:
    (i) Common stock,
    (ii) Such other equity securities as the Commission and the SEC 
jointly deem appropriate, or
    (iii) A note, bond, debenture, or evidence of indebtedness; and
    (4) The index conforms with the listing standards for the security 
futures product that the designated contract market has filed with the 
SEC under section 19(b) of the Securities Exchange Act of 1934.

[66 FR 55083, Nov. 1, 2001, as amended at 71 FR 39542, July 13, 2006; 77 
FR 66344, Nov. 2, 2012]



Sec.  41.22  Required certifications.

    It shall be unlawful for a designated contract market to list for 
trading or execution a security futures product unless the designated 
contract market has provided the Commission with a certification that 
the specific security futures product or products and the designated 
contract market meet, as applicable, the following criteria:
    (a) The underlying security or securities satisfy the requirements 
ofSec. 41.21;
    (b) If the security futures product is not cash settled, 
arrangements are in place with a clearing agency registered pursuant to 
section 17A of the Securities Exchange Act of 1934 for the payment and 
delivery of the securities underlying the security futures product;
    (c) Common clearing. [Reserved]
    (d) Only futures commission merchants, introducing brokers, 
commodity trading advisors, commodity pool operators or associated 
persons subject to suitability rules comparable

[[Page 729]]

to those of a national securities association registered pursuant to 
section 15A(a) of the Securities Exchange Act of 1934 and the rules and 
regulations thereunder, except to the extent otherwise permitted under 
the Securities Exchange Act of 1934 and the rules and regulations 
thereunder, may solicit, accept any order for, or otherwise deal in any 
transaction in or in connection with security futures products;
    (e) If the board of trade is a designated contract market pursuant 
to section 5 of the Act, dual trading in these security futures products 
is restricted in accordance withSec. 41.27;
    (f) Trading in the security futures products is not readily 
susceptible to manipulation of the price of such security futures 
product, nor to causing or being used in the manipulation of the price 
of any underlying security, option on such security, or option on a 
group or index including such securities, consistent with the conditions 
for trading ofSec. 41.25;
    (g) Procedures are in place for coordinated surveillance among the 
board of trade, any market on which any security underlying a security 
futures product is traded, and other markets on which any related 
security is traded to detect manipulation and insider trading. A board 
of trade that is an alternative trading system does not need to make 
this certification, provided that:
    (1) The alternative trading system is a member of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 or national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934; and
    (2) The national securities association or national securities 
exchange of which the alternative trading system is a member has in 
place such procedures;
    (h) An audit trail is in place to facilitate coordinated 
surveillance among the board of trade, any market on which any security 
underlying a security futures product is traded, and any market on which 
any related security is traded. A board of trade that is an alternative 
trading system does not need to make this certification, provided that:
    (1) The alternative trading system is a member of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 or national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934; and
    (2) The national securities association or national securities 
exchange of which the alternative trading system is a member has in 
place such procedures;
    (i) Procedures are in place to coordinate regulatory trading halts 
between the board of trade and markets on which any security underlying 
the security futures product is traded and other markets on which any 
related security is traded. A board of trade that is an alternative 
trading system does not need to make this certification, provided that:
    (1) The alternative trading system is a member of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 or national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934; and
    (2) The national securities association or national securities 
exchange of which the alternative trading system is a member has in 
place such procedures; and
    (j) The margin requirements for the security futures product will 
comply with the provisions specified inSec. 41.43 throughSec. 41.48.

[66 FR 44511, Aug. 23, 2001, as amended at 77 FR 66344, Nov. 2, 2012]



Sec.  41.23  Listing of security futures products for trading.

    (a) Initial listing of products for trading. To list new security 
futures products for trading, a designated contract market shall submit 
to the Commission at its Washington, DC headquarters, either in 
electronic or hard-copy form, to be received by the Commission no later 
than the day prior to the initiation of trading, a filing that:
    (1) Is labeled ``Listing of Security Futures Product;''
    (2) Includes a copy of the product's rules, including its terms and 
conditions;

[[Page 730]]

    (3) Includes the certifications required bySec. 41.22;
    (4) Includes a certification that the terms and conditions of the 
contract comply with the additional conditions for trading ofSec. 
41.25;
    (5) If the board of trade is a designated contract market pursuant 
to section 5 of the Act, it includes a certification that the security 
futures product complies with the Act and rules thereunder; and
    (6) Includes a copy of the submission cover sheet in accordance with 
the instructions in appendix D of part 40.
    (7) Includes a request for confidential treatment as permitted under 
the procedures ofSec. 40.8.
    (b) Voluntary submission of security futures products for Commission 
approval. A designated contract market may request that the Commission 
approve any security futures product under the procedures ofSec. 40.5 
of this chapter, provided however, that the registered entity shall 
include the certification required bySec. 41.22 with its submission 
underSec. 40.5 of this chapter. Notice designated contract markets may 
not request Commission approval of security futures products.

[66 FR 55083, Nov. 1, 2001, as amended at 69 FR 67507, Nov. 18, 2004; 74 
FR 17394, Apr. 15, 2009; 77 FR 66344, Nov. 2, 2012]



Sec.  41.24  Rule amendments to security futures products.

    (a) Self-certification of rules and rule amendments by designated 
contract markets and registered derivatives clearing organizations. A 
designated contract market or registered derivatives clearing 
organization may implement any new rule or rule amendment relating to a 
security futures product by submitting to the Commission at its 
Washington, DC headquarters, either in electronic or hard-copy form, to 
be received by the Commission no later than the day prior to the 
implementation of the rule or rule amendment, a filing that:
    (1) Is labeled ``Security Futures Product Rule Submission;'
    (2) Includes a copy of the new rule or rule amendment;
    (3) Includes a certification that the designated contract market or 
registered derivatives clearing organization has filed the rule or rule 
amendment with the Securities and Exchange Commission, if such a filing 
is required;
    (4) If the board of trade is a designated contract market pursuant 
to section 5 of the Act or is a registered derivatives clearing 
organization pursuant to section 5b of the Act, it includes the 
documents and certifications required to be filed with the Commission 
pursuant toSec. 40.6 of this chapter, including a certification that 
the security futures product complies with the Act and rules thereunder; 
and
    (5) Includes a copy of the submission cover sheet in accordance with 
the instructions in appendix D of part 40.
    (6) Includes a request for confidential treatment as permitted under 
the procedures ofSec. 40.8.
    (b) Voluntary submission of rules for Commission review and 
approval. A designated contract market or a registered derivatives 
clearing organization clearing security futures products may request 
that the Commission approve any rule or proposed rule or rule amendment 
relating to a security futures product under the procedures ofSec. 
40.5 of this chapter, provided however, that the registered entity shall 
include the certifications required bySec. 41.22 with its submission 
underSec. 40.5 of this chapter. Notice designated contract markets may 
not request Commission approval of rules.

[66 FR 55083, Nov. 1, 2001, as amended at 69 FR 67507, Nov. 18, 2004; 74 
FR 17394, Apr. 15, 2009; 77 FR 66344, Nov. 2, 2012]



Sec.  41.25  Additional conditions for trading for security futures
products.

    (a) Common provisions--(1) Reporting of data. The designated 
contract market shall comply with part 16 of this chapter requiring the 
daily reporting of market data.
    (2) Regulatory trading halts. The rules of a designated contract 
market that lists or trades one or more security futures products must 
include the following provisions:
    (i) Trading of a security futures product based on a single security 
shall be halted at all times that a regulatory halt has been instituted 
for the underlying security; and

[[Page 731]]

    (ii) Trading of a security futures product based on a narrow-based 
security index shall be halted at all times that a regulatory halt has 
been instituted for one or more underlying securities that constitute 50 
percent or more of the market capitalization of the narrow-based 
security index.
    (3) Speculative position limits. The designated contract market 
shall have rules in place establishing position limits or position 
accountability procedures for the expiring futures contract month. The 
designated contract market shall:
    (i) Adopt a net position limit no greater than 13,500 (100-share) 
contracts applicable to positions held during the last five trading days 
of an expiring contract month; except where,
    (A) For security futures products where the average daily trading 
volume in the underlying security exceeds 20 million shares, or exceeds 
15 million shares and there are more than 40 million shares of the 
underlying security outstanding, the designated contract market may 
adopt a net position limit no greater than 22,500 (100-share) contracts 
applicable to positions held during the last five trading days of an 
expiring contract month; or
    (B) For security futures products where the average daily trading 
volume in the underlying security exceeds 20 million shares and there 
are more than 40 million shares of the underlying security outstanding, 
the designated contract market may adopt a position accountability rule. 
Upon request by the designated contract market, traders who hold net 
positions greater than 22,500 (100-share) contracts, or such lower level 
specified by exchange rules, must provide information to the exchange 
and consent to halt increasing their positions when so ordered by the 
exchange.
    (ii) For a security futures product comprised of more than one 
security, the criteria in paragraphs (a)(3)(i)(A) and (a)(3)(i)(B) of 
this section must apply to the security in the index with the lowest 
average daily trading volume.
    (iii) Exchanges may approve exemptions from these position limits 
pursuant to rules that are consistent withSec. 150.3 of this chapter.
    (iv) For purposes of this section, average daily trading volume 
shall be calculated monthly, using data for the most recent six-month 
period. If the data justify a higher or lower speculative limit for a 
security future, the designated contract market may raise or lower the 
position limit for that security future effective no earlier than the 
day after it has provided notification to the Commission and to the 
public under the submission requirements ofSec. 41.24. If the data 
require imposition of a reduced position limit for a security future, 
the designated contract market may permit any trader holding a position 
in compliance with the previous position limit, but in excess of the 
reduced limit, to maintain such position through the expiration of the 
security futures contract; provided, that the designated contract market 
does not find that the position poses a threat to the orderly expiration 
of such contract.
    (b) Final settlement prices for security futures products. (1) The 
final settlement price of a cash-settled security futures product must 
fairly reflect the opening price of the underlying security or 
securities;
    (2) Notwithstanding paragraph (b)(1) of this section, if an opening 
price for one or more securities underlying a security futures product 
is not readily available, the final settlement price of the security 
futures product shall fairly reflect:
    (i) The price of the underlying security or securities during the 
most recent regular trading session for such security or securities; or
    (ii) The next available opening price of the underlying security or 
securities.
    (3) Notwithstanding paragraphs (b)(1) or (b)(2) of this section, if 
a derivatives clearing organization registered under Section 5b of the 
Act or a clearing agency exempt from registration pursuant to Section 
5b(a)(2) of the Act, to which the final settlement price of a security 
futures product is or would be reported determines, pursuant to its 
rules, that such final settlement price is not consistent with the 
protection of customers and the public interest, taking into account 
such factors as fairness to buyers and sellers of the affected security 
futures product, the

[[Page 732]]

maintenance of a fair and orderly market in such security futures 
product, and consistency of interpretation and practice, the clearing 
organization shall have the authority to determine, under its rules, a 
final settlement price for such security futures product.
    (c) Special requirements for physical delivery contracts. For 
security futures products settled by actual delivery of the underlying 
security or securities, payment and delivery of the underlying security 
or securities must be effected through a clearing agency that is 
registered pursuant to section 17A of the Securities Exchange Act of 
1934.
    (d) The Commission may exempt a designated contract market from the 
provisions of paragraphs (a)(2) and (b) of this section, either 
unconditionally or on specified terms and conditions, if the Commission 
determines that such exemption is consistent with the public interest 
and the protection of customers. An exemption granted pursuant to this 
paragraph shall not operate as an exemption from any Securities and 
Exchange Commission rules. Any exemption that may be required from such 
rules must be obtained separately from the Securities and Exchange 
Commission.

[66 FR 55083, Nov. 1, 2001, as amended at 67 FR 36761, May 24, 2002; 77 
FR 66345, Nov. 2, 2012]



Sec.  41.27  Prohibition of dual trading in security futures products
by floor brokers.

    (a) Definitions. For purposes of this section:
    (1) Trading session means hours during which a designated contract 
market is scheduled to trade continuously during a trading day, as set 
forth in its rules, including any related post settlement trading 
session. A designated contract market may have more than one trading 
session during a trading day.
    (2) Member shall have the meaning set forth in section 1a(24) of the 
Act.
    (3) Broker association includes two or more designated contract 
market members with floor trading privileges of whom at least one is 
acting as a floor broker who:
    (i) Engage in floor brokerage activity on behalf of the same 
employer;
    (ii) Have an employer and employee relationship which relates to 
floor brokerage activity;
    (iii) Share profits and losses associated with their brokerage or 
trading activity; or
    (iv) Regularly share a deck of orders.
    (4) Customer means an account owner for which a trade is executed 
other than:
    (i) An account in which such floor broker has any interest;
    (ii) An account for which a floor broker has discretion;
    (iii) An account controlled by a person with whom a floor broker has 
a relationship through membership in a broker association;
    (iv) A house account of the floor broker's clearing member; or
    (v) An account for another member present on the floor of a 
designated contract market or an account controlled by such other 
member.
    (5) Dual trading means the execution of customer orders by a floor 
broker through open outcry during the same trading session in which the 
floor broker executes directly or by initiating and passing to another 
member, either through open outcry or through a trading system that 
electronically matches bids and offers pursuant to a predetermined 
algorithm, a transaction for the same security futures product on the 
same designated contract market for an account described in paragraphs 
(a)(4)(i) through (v) of this section.
    (b) Dual Trading Prohibition. (1) No floor broker shall engage in 
dual trading in a security futures product on a designated contract 
market, except as otherwise provided under paragraphs (d), (e), and (f) 
of this section.
    (2) A designated contract market operating an electronic market or 
electronic trading system that provides market participants with a time 
or place advantage or the ability to override a predetermined algorithm 
must submit an appropriate rule proposal to the Commission consistent 
with the procedures set forth inSec. 40.5. The proposed rule must 
prohibit electronic market participants with a time or place advantage 
or the ability to override a predetermined algorithm from trading a 
security futures product for

[[Page 733]]

accounts in which these same participants have any interest during the 
same trading session that they also trade the same security futures 
product for other accounts. This paragraph, however, is not applicable 
with respect to execution priorities or quantity guarantees granted to 
market makers who perform that function, or to market participants who 
receive execution priorities based on price improvement activity, in 
accordance with the rules governing the designated contract market.
    (c) Rules Prohibiting Dual Trading--(1) Designated contract markets. 
Prior to listing a security futures product for trading on a trading 
floor where bids and offers are executed through open outcry, a 
designated contract market:
    (i) Must submit to the Commission in accordance withSec. 40.6, a 
rule prohibiting dual trading, together with a written certification 
that the rule complies with the Act and the regulations thereunder, 
including this section; or
    (ii) Must obtain Commission approval of such rule pursuant toSec. 
40.5.
    (2) [Reserved]
    (d) Specific Permitted Exceptions. Notwithstanding the applicability 
of a dual trading prohibition under paragraph (b) of this section, dual 
trading may be permitted on a designated contract market pursuant to one 
or more of the following specific exceptions:
    (1) Correction of errors. To offset trading errors resulting from 
the execution of customer orders, provided, that the floor broker must 
liquidate the position in his or her personal error account resulting 
from that error through open outcry or through a trading system that 
electronically matches bids and offers as soon as practicable, but, 
except as provided herein, not later than the close of business on the 
business day following the discovery of error. In the event that a floor 
broker is unable to offset the error trade because the daily price 
fluctuation limit is reached, a trading halt is imposed by the 
designated contract market, or an emergency is declared pursuant to the 
rules of the designated contract market, the floor broker must liquidate 
the position in his or her personal error account resulting from that 
error as soon as practicable thereafter.
    (2) Customer consent. To permit a customer to designate in writing 
not less than once annually a specifically identified floor broker to 
dual trade while executing orders for such customer's account. An 
account controller acting pursuant to a power of attorney may designate 
a dual trading broker on behalf of its customer, provided, that the 
customer explicitly grants in writing to the individual account 
controller the authority to select a dual trading broker.
    (3) Spread transactions. To permit a broker who unsuccessfully 
attempts to leg into a spread transaction for a customer to take the 
executed leg into his or her personal account and to offset such 
position, provided, that a record is prepared and maintained to 
demonstrate that the customer order was for a spread.
    (4) Market emergencies. To address emergency market conditions 
resulting in a temporary emergency action as determined by a designated 
contract market.
    (e) Rules Permitting Specific Exceptions--(1) Designated contract 
markets. Prior to permitting dual trading under any of the exceptions 
provided in paragraphs (d)(1)-(4) of this section, a designated contract 
market:
    (i) Must submit to the Commission in accordance withSec. 40.6, a 
rule permitting the exception(s), together with a written certification 
that the rule complies with the Act and the regulations thereunder, 
including this section; or
    (ii) Must obtain Commission approval of such rule pursuant toSec. 
40.5.
    (2) [Reserved]
    (f) Unique or Special Characteristics of Agreements, Contracts or 
Transactions, or of Designated Contract Markets. Notwithstanding the 
applicability of a dual trading prohibition under paragraph (b) of this 
section, dual trading may be permitted on a designated contract market 
to address unique or special characteristics of agreements, contracts, 
or transactions, or of the designated contract market as provided 
herein. Any rule of a designated contract market that would permit dual 
trading when it would otherwise be prohibited, based on a unique or 
special

[[Page 734]]

characteristic of agreements, contracts, or transactions, or of the 
designated contract market must be submitted to the Commission for prior 
approval under the procedures set forth inSec. 40.5. The rule 
submission must include a detailed demonstration of why an exception is 
warranted.

[67 FR 11227, Mar. 13, 2002, as amended at 77 FR 66345, Nov. 2, 2012]



    Subpart D_Notice-Designated Contract Markets in Security Futures 
                                Products

    Source: 66 FR 44965, Aug. 27, 2001, unless otherwise noted.



Sec.  41.31  Notice-designation requirements.

    (a) Any board of trade that is a national securities exchange, a 
national securities association, or an alternative trading system, and 
that seeks to operate as a designated contract market in security 
futures products under section 5f of the Act, shall so notify the 
Commission. Such notification shall be filed with the Secretary of the 
Commission at its Washington, D.C. headquarters, in either electronic or 
hard copy form, shall be labeled as ``Notice of Designation as a 
Contract Market in Security Futures Products,'' and shall include:
    (1) The name and address of the board of trade;
    (2) The name and telephone number of a contact person designated to 
receive communications from the Commission on behalf of the board of 
trade;
    (3) A description of the security futures products that the board of 
trade intends to make available for trading, including an identification 
of all facilities that would clear transactions in security futures 
products on behalf of the board of trade;
    (4) A copy of the current rules of the board of trade; and
    (5) A certification that the board of trade--
    (i) Will not list or trade any contracts of sale for future 
delivery, except for security futures products;
    (ii) Is registered with the Securities and Exchange Commission as a 
national securities exchange, national securities association, or 
alternative trading system, and such registration is not suspended 
pursuant to an order by the Securities and Exchange Commission;
    (iii) Will meet the criteria specified in subclauses (I) through 
(XI) of section 2(a)(1)(D)(i) of the Act, except as otherwise provided 
in section 2(a)(1)(D)(vi) of the Act, for each specific security futures 
product that the board of trade intends to make available for trading;
    (iv) Will comply with the conditions for designation under this 
section and section 5f of the Act, including a specific representation 
by any alternative trading system that it is a member of a futures 
association registered under section 17 of the Act; and
    (v) Will comply with the continuing obligations of regulation 41.32.
    (b) A board of trade which files notice with the Commission under 
this section shall be deemed a designated contract market in security 
futures products upon the Commission's receipt of such notice. 
Accordingly, the Commission shall send prompt acknowledgment of receipt 
to the filer.
    (c) Designation as a contract market in security futures products 
pursuant to this section shall be deemed suspended if the board of 
trade:
    (1) Lists or trades any contracts of sale for future delivery, 
except for security futures products; or
    (2) Has its registration as a national securities exchange, national 
securities association, or alternative trading system suspended pursuant 
to an order by the Securities and Exchange Commission.



Sec.  41.32  Continuing obligations.

    (a)(1) A board of trade designated as a contract market in security 
futures products pursuant toSec. 41.31 of this chapter shall:
    (i) Notify the Commission of any change in its regulatory status 
with the Securities and Exchange Commission or with a futures 
association registered under section 17 of the Act;
    (ii) Comply with the filing requirements of section 2(a)(1)(D)(vii) 
of the Act each time the board of trade lists a security futures product 
for trading;
    (iii) Provide the Commission with any new rules or rule amendments 
that

[[Page 735]]

relate to the trading of security futures products, including both 
operational rules and the terms and conditions of products listed for 
trading on the facility, promptly after final implementation of such 
rules or rule amendments; and
    (iv) Upon request, file promptly with the Commission--
    (A) Such information related to its business as a designated 
contract market in security futures products as the Commission may 
request; and
    (B) A written demonstration, containing such supporting data and 
other information and documents as the Commission may specify, that the 
board of trade is in compliance with one or more applicable provisions 
of the Act or regulations thereunder as specified in the request.
    (2) Any information filed pursuant to paragraph (a) of this section 
shall be addressed to the Secretary of the Commission at its Washington, 
D.C. headquarters, shall be labeled ``SFPCM Continuing Obligations,'' 
and may be transmitted in either electronic or hard copy form.
    (b) Except as exempted under section 5f(b) of the Act or under 
Sec.Sec. 41.33 and 41.34 of this chapter, any board of trade 
designated as a contract market in security futures products pursuant to 
Sec.  41.31 of this chapter shall be subject to all applicable 
requirements of the Act and regulations thereunder. Failure to comply 
shall subject the board of trade to Commission action under, among other 
provisions, sections 5e and 6(b) of the Act.



Sec.  41.33  Applications for exemptive orders.

    (a) Any board of trade designated as a contract market in security 
futures products pursuant toSec. 41.31 of this chapter may apply to 
the Commission for an exemption from any provision of the Act or 
regulations thereunder. Except as provided in sections 5f(b)(1) and 
5f(b)(2) of the Act, the Commission shall have sole discretion to exempt 
a board of trade, conditionally or unconditionally, from any provision 
of the Act or regulations thereunder pursuant to this section. The 
Commission may issue such an exemptive order in response to an 
application only to the extent it finds, after review, that the issuance 
of an exemptive order is necessary or appropriate in the public interest 
and is consistent with the protection of investors.
    (b) Each application for exemptive relief must comply with the 
requirements of this section. The Commission may, in its sole 
discretion, decline to entertain any application for an exemptive order 
under this section without explanation; provided, however, that the 
Commission shall notify the board of trade of such a decision in 
writing.
    (c) Application requirements. (1) Each application for an exemptive 
order made pursuant to this section must include:
    (i) The name and address of the board of trade requesting relief, 
and the name and telephone number of a person whom Commission staff may 
contact to obtain additional information regarding the request;
    (ii) A certification that the registration of the board of trade is 
not suspended pursuant to an order of the Securities and Exchange 
Commission;
    (iii) The provision(s) of the Act or regulations thereunder from 
which the board of trade seeks relief and, if applicable, whether the 
board of trade is otherwise subject to similar provisions as a result of 
Securities and Exchange Commission jurisdiction; and
    (iv) The type of relief requested and the order sought; an 
explanation of the need for relief, including all material facts and 
circumstances giving rise to the request; and the extent to which such 
relief is necessary or appropriate in the public interest and consistent 
with the protection of investors.
    (2) Each application must be filed with the Secretary of the 
Commission at its Washington, D.C. headquarters, in either electronic or 
hard copy form, signed by an authorized representative of the board of 
trade, and labeled ``Application for an Exemptive Order pursuant to 
Commission regulation 41.33.''
    (d) Review Period. (1) The Commission shall have 90 days upon 
receipt of an application for an exemptive order in which to make a 
determination as to whether such relief should be granted or denied.

[[Page 736]]

    (2) The Commission may request additional information from the 
applicant at any time prior to the end of the review period.
    (3) The Commission may stay the review period if it determines that 
an application is materially incomplete; provided, however, that this 
paragraph (d) does not limit the Commission's authority, under paragraph 
(b) of this section, to decline to entertain an application.
    (e) Upon conclusion of the review period, the Commission shall issue 
an order granting or denying relief, or granting relief subject to 
conditions; provided, however, that the Commission's obligations under 
this paragraph shall not limit its authority, under paragraph (b) of 
this section, to decline to entertain an application. The Commission 
shall notify the board of trade in writing of its decision to grant or 
deny relief under this paragraph.
    (f) An application for an exemptive order may be withdrawn by the 
applicant at any time, without explanation, by filing with the Secretary 
of the Commission a written request for withdrawal, signed by an 
authorized representative of the board of trade.
    (g) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Division of Market Oversight, with the 
concurrence of the General Counsel, authority to make determinations on 
applications for exemptive orders pursuant to this section; provided, 
however, that:
    (1) The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which has been delegated 
pursuant to paragraph (g) of this section; and
    (2) Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated to 
the Director of the Division of Market Oversight under paragraph (g) of 
this section.

[66 FR 44511, Aug. 23, 2001, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.  41.34  Exempt Provisions.

    Any board of trade notice-designated as a contract market in 
security futures products pursuant toSec. 41.31 also shall be exempt 
from:
    (a) The following provisions of the Act, pursuant to section 
5f(b)(1) of the Act:
    (1) Section 4(c)(c);
    (2) Section 4(c)(e);
    (3) Section 4(c)(g);
    (4) Section 4j;
    (5) Section 5;
    (6) Section 5c;
    (7) Section 6a;
    (8) Section 8(d);
    (9) Section 9(f);
    (10) Section 16 and;
    (b) The following provisions, pursuant to section 5f(b)(4) of the 
Act:
    (1) Section 6(a);
    (2) Part 38 of this chapter;
    (3) Part 40 of this chapter; and
    (4) Section 41.27.

[67 FR 11229, Mar. 13, 2002]



           Subpart E_Customer Accounts and Margin Requirements

    Source: 67 FR 53171, Aug. 14, 2002, unless otherwise noted.



Sec.  41.41  Security futures products accounts.

    (a) Where security futures products may be held. (1) A person 
registered with the Commission as a futures commission merchant pursuant 
to section 4f(a)(1) of the Commodity Exchange Act (``CEA'') and 
registered with the Securities and Exchange Commission (``SEC'') as a 
broker or dealer pursuant to section 15(b)(1) of the Securities Exchange 
Act of 1934 (``Securities Exchange Act'') (``Full FCM/Full BD'') may 
hold all of a customer's security futures products in a futures account, 
all of a customer's security futures products in a securities account, 
or some of a customer's security futures products in a futures account 
and other security futures products of the same customer in a securities 
account. A person registered with the Commission as a futures commission 
merchant pursuant to section 4f(a)(2) of the CEA (a notice-registered 
FCM) may hold a customer's security futures products only in a 
securities account. A person registered with the SEC as a broker or 
dealer pursuant to section 15(b)(11) of the Securities Exchange Act (a 
notice-registered broker-dealer) may hold a customer's security

[[Page 737]]

futures products only in a futures account.
    (2) A Full FCM/Full BD shall establish written policies or 
procedures for determining whether customer security futures products 
will be placed in a futures account and/or a securities account and, if 
applicable, the process by which a customer may elect the type or types 
of account in which security futures products will be held (including 
the procedure to be followed if a customer fails to make an election of 
account type).
    (b) Disclosure requirements. (1) Except as provided in paragraph 
(b)(2), before a futures commission merchant accepts the first order for 
a security futures product from or on behalf of a customer, the firm 
shall furnish the customer with a disclosure document containing the 
following information:
    (i) A description of the protections provided by the requirements 
set forth under section 4d of the CEA applicable to a futures account;
    (ii) A description of the protections provided by the requirements 
set forth under Securities Exchange Act Rule 15c3-3 and the Securities 
Investor Protection Act of 1970 applicable to a securities account;
    (iii) A statement indicating whether the customer's security futures 
products will be held in a futures account and/or a securities account, 
or whether the firm permits customers to make or change an election of 
account type; and
    (iv) A statement that, with respect to holding the customer's 
security futures products in a securities account or a futures account, 
the alternative regulatory scheme is not available to the customer in 
connection with that account.
    (2) Where a customer account containing an open security futures 
product position is transferred to a futures commission merchant, that 
futures commission merchant may instead provide the statements described 
in paragraphs (b)(1)(iii) and (b)(1)(iv) above no later than ten 
business days after the date the account is transferred.
    (c) Changes in account type. A Full FCM/Full BD may change the type 
of account in which a customer's security futures products will be held; 
provided, that:
    (1) The firm creates a record of each change in account type, 
including the name of the customer, the account number, the date the 
firm received the customer's request to change the account type, if 
applicable, and the date the change in account type became effective; 
and
    (2) The firm, at least ten business days before the customer's 
account type is changed:
    (i) Notifies the customer in writing of the date that the change 
will become effective; and
    (ii) Provides the customer with the disclosures described in 
paragraph (b)(1) above.
    (d) Recordkeeping requirements. The Commission's recordkeeping rules 
set forth in Sec.Sec. 1.31, 1.32, 1.35, 1.36, 1.37, 4.23, 4.33, 18.05 
and 190.06 of this chapter shall apply to security futures product 
transactions and positions in a futures account (as that term is defined 
inSec. 1.3(vv) of this chapter). These rules shall not apply to 
security futures product transactions and positions in a securities 
account (as that term is defined inSec. 1.3(ww) of this chapter); 
provided, that the SEC's recordkeeping rules apply to those transactions 
and positions.
    (e) Reports to customers. The Commission's reporting requirements 
set forth in Sec.Sec. 1.33 and 1.46 of this chapter shall apply to 
security futures product transactions and positions in a futures account 
(as that term is defined inSec. 1.3(vv) of this chapter). These rules 
shall not apply to security futures product transactions and positions 
in a securities account (as that term is defined inSec. 1.3(ww) of 
this chapter); provided, that the SEC's rules set forth in Sec.Sec. 
240.10b-10 and 240.15c3-2 of this chapter regarding delivery of 
confirmations and account statements apply to those transactions and 
positions.
    (f) Segregation of customer funds. All money, securities, or 
property held to margin, guarantee or secure security futures products 
held in a futures account, or accruing to customers as a result of such 
products, are subject to the segregation requirements of section 4d of 
the CEA and the rules thereunder.

[67 FR 58297, Sept. 13, 2002]

[[Page 738]]



Sec.  41.42  Customer margin requirements for security futures-
-authority, purpose, interpretation, and scope.

    (a) Authority and purpose. Subpart E, Sec.Sec. 41.42 through 
41.49, and 17 CFR 242.400 through 242.406 (``this Regulation'') are 
issued by the Commodity Futures Trading Commission (``Commission'') 
jointly with the Securities and Exchange Commission (``SEC''), pursuant 
to authority delegated by the Board of Governors of the Federal Reserve 
System under section 7(c)(2)(A) of the Securities Exchange Act of 1934 
(``Exchange Act''). The principal purpose of this Regulation (Subpart E, 
Sec.Sec. 41.42 through 41.49) is to regulate customer margin collected 
by brokers, dealers, and members of national securities exchanges, 
including futures commission merchants required to register as brokers 
or dealers under section 15(b)(11) of the Exchange Act, relating to 
security futures.
    (b) Interpretation. This Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49) shall be jointly interpreted by the SEC and the 
Commission, consistent with the criteria set forth in clauses (i) 
through (iv) of section 7(c)(2)(B) of the Exchange Act and the 
provisions of Regulation T (12 CFR part 220).
    (c) Scope. (1) This Regulation (Subpart E, Sec.Sec. 41.42 through 
41.49) does not preclude a self-regulatory authority, under rules that 
are effective in accordance with section 19(b)(2) of the Exchange Act or 
section 19(b)(7) of the Exchange Act and, as applicable, section 5c(c) 
of the Commodity Exchange Act (``Act''), or a security futures 
intermediary from imposing additional margin requirements on security 
futures, including higher initial or maintenance margin levels, 
consistent with this Regulation (Subpart E, Sec.Sec. 41.42 through 
41.49), or from taking appropriate action to preserve its financial 
integrity.
    (2) This Regulation (Subpart E, Sec.Sec. 41.42 through 41.49) does 
not apply to:
    (i) Financial relations between a customer and a security futures 
intermediary to the extent that they comply with a portfolio margining 
system under rules that meet the criteria set forth in section 
7(c)(2)(B) of the Exchange Act and that are effective in accordance with 
section 19(b)(2) of the Exchange Act and, as applicable, section 5c(c) 
of the Act;
    (ii) Financial relations between a security futures intermediary and 
a foreign person involving security futures traded on or subject to the 
rules of a foreign board of trade;
    (iii) Margin requirements that clearing agencies registered under 
section 17A of the Exchange Act or derivatives clearing organizations 
registered under section 5b of the Act impose on their members;
    (iv) Financial relations between a security futures intermediary and 
a person based on a good faith determination by the security futures 
intermediary that such person is an exempted person; and
    (v) Financial relations between a security futures intermediary and, 
or arranged by a security futures intermediary for, a person relating to 
trading in security futures by such person for its own account, if such 
person:
    (A) Is a member of a national securities exchange or national 
securities association registered pursuant to section 15A(a) of the 
Exchange Act; and
    (B) Is registered with such exchange or such association as a 
security futures dealer pursuant to rules that are effective in 
accordance with section 19(b)(2) of the Exchange Act and, as applicable, 
section 5c(c) of the Act, that:
    (1) Require such member to be registered as a floor trader or a 
floor broker with the Commission under section 4f(a)(1) of the Act, or 
as a dealer with the SEC under section 15(b) of the Exchange Act;
    (2) Require such member to maintain records sufficient to prove 
compliance with this paragraph (c)(2)(v) and the rules of the exchange 
or association of which it is a member;
    (3) Require such member to hold itself out as being willing to buy 
and sell security futures for its own account on a regular or continuous 
basis; and
    (4) Provide for disciplinary action, including revocation of such 
member's registration as a security futures dealer, for such member's 
failure to comply with this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49) or the rules of the exchange or association.

[[Page 739]]

    (d) Exemption. The Commission may exempt, either unconditionally or 
on specified terms and conditions, financial relations involving any 
security futures intermediary, customer, position, or transaction, or 
any class of security futures intermediaries, customers, positions, or 
transactions, from one or more requirements of this Regulation (Subpart 
E, Sec.Sec. 41.42 through 41.49), if the Commission determines that 
such exemption is necessary or appropriate in the public interest and 
consistent with the protection of customers. An exemption granted 
pursuant to this paragraph shall not operate as an exemption from any 
SEC rules. Any exemption that may be required from such rules must be 
obtained separately from the SEC.



Sec.  41.43  Definitions.

    (a) For purposes of this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49) only, the following terms shall have the meanings set 
forth in this section.
    (1) Applicable margin rules and margin rules applicable to an 
account mean the rules and regulations applicable to financial relations 
between a security futures intermediary and a customer with respect to 
security futures and related positions carried in a securities account 
or futures account as provided inSec. 41.44(a) of this subpart.
    (2) Broker shall have the meaning provided in section 3(a)(4) of the 
Exchange Act.
    (3) Contract multiplier means the number of units of a narrow-based 
security index expressed as a dollar amount, in accordance with the 
terms of the security future contract.
    (4) Current market value means, on any day:
    (i) With respect to a security future:
    (A) If the instrument underlying such security future is a stock, 
the product of the daily settlement price of such security future as 
shown by any regularly published reporting or quotation service, and the 
applicable number of shares per contract; or
    (B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 1a(35)(A) of the Act, the 
product of the daily settlement price of such security future as shown 
by any regularly published reporting or quotation service, and the 
applicable contract multiplier.
    (ii) With respect to a security other than a security future, the 
most recent closing sale price of the security, as shown by any 
regularly published reporting or quotation service. If there is no 
recent closing sale price, the security futures intermediary may use any 
reasonable estimate of the market value of the security as of the most 
recent close of business.
    (5) Customer excludes an exempted person and includes:
    (i) Any person or persons acting jointly:
    (A) On whose behalf a security futures intermediary effects a 
security futures transaction or carries a security futures position; or
    (B) Who would be considered a customer of the security futures 
intermediary according to the ordinary usage of the trade;
    (ii) Any partner in a security futures intermediary that is 
organized as a partnership who would be considered a customer of the 
security futures intermediary absent the partnership relationship; and
    (iii) Any joint venture in which a security futures intermediary 
participates and which would be considered a customer of the security 
futures intermediary if the security futures intermediary were not a 
participant.
    (6) Daily settlement price means, with respect to a security future, 
the settlement price of such security future determined at the close of 
trading each day, under the rules of the applicable exchange, clearing 
agency, or derivatives clearing organization.
    (7) Dealer shall have the meaning provided in section 3(a)(5) of the 
Exchange Act.
    (8) Equity means the equity or margin equity in a securities or 
futures account, as computed in accordance with the margin rules 
applicable to the account and subject to adjustment underSec. 
41.46(c), (d) and (e) of this subpart.
    (9) Exempted person means:
    (i) A member of a national securities exchange, a registered broker 
or dealer, or a registered futures commission merchant, a substantial 
portion of whose business consists of transactions in securities, 
commodity futures, or

[[Page 740]]

commodity options with persons other than brokers, dealers, futures 
commission merchants, floor brokers, or floor traders, and includes a 
person who:
    (A) Maintains at least 1000 active accounts on an annual basis for 
persons other than brokers, dealers, persons associated with a broker or 
dealer, futures commission merchants, floor brokers, floor traders, and 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader that are effecting transactions in securities, commodity 
futures, or commodity options;
    (B) Earns at least $10 million in gross revenues on an annual basis 
from transactions in securities, commodity futures, or commodity options 
with persons other than brokers, dealers, persons associated with a 
broker or dealer, futures commission merchants, floor brokers, floor 
traders, and persons affiliated with a futures commission merchant, 
floor broker, or floor trader; or
    (C) Earns at least 10 percent of its gross revenues on an annual 
basis from transactions in securities, commodity futures, or commodity 
options with persons other than brokers, dealers, persons associated 
with a broker or dealer, futures commission merchants, floor brokers, 
floor traders, and persons affiliated with a futures commission 
merchant, floor broker, or floor trader.
    (ii) For purposes of paragraph (a)(9)(i) of this section only, 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader means any partner, officer, director, or branch manager of 
such futures commission merchant, floor broker, or floor trader (or any 
person occupying a similar status or performing similar functions), any 
person directly or indirectly controlling, controlled by, or under 
common control with such futures commission merchant, floor broker, or 
floor trader, or any employee of such a futures commission merchant, 
floor broker, or floor trader.
    (iii) A member of a national securities exchange, a registered 
broker or dealer, or a registered futures commission merchant that has 
been in existence for less than one year may meet the definition of 
exempted person based on a six-month period.
    (10) Exempted security shall have the meaning provided in section 
3(a)(12) of the Exchange Act.
    (11) Floor broker shall have the meaning provided in section 1a(16) 
of the Act.
    (12) Floor trader shall have the meaning provided in section 1a(17) 
of the Act.
    (13) Futures account shall have the meaning provided inSec. 
1.3(vv) of this chapter.
    (14) Futures commission merchant shall have the meaning provided in 
section 1a(20) of the Act.
    (15) Good faith, with respect to making a determination or accepting 
a statement concerning financial relations with a person, means that the 
security futures intermediary is alert to the circumstances surrounding 
such financial relations, and if in possession of information that would 
cause a prudent person not to make the determination or accept the 
notice or certification without inquiry, investigates and is satisfied 
that it is correct.
    (16) Listed option means a put or call option that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Exchange Act or cleared and guaranteed by a derivatives clearing 
organization that is registered under section 5b of the Act; and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (17) Margin call means a demand by a security futures intermediary 
to a customer for a deposit of cash, securities or other assets to 
satisfy the required margin for security futures or related positions or 
a special margin requirement.
    (18) Margin deficiency means the amount by which the required margin 
in an account is not satisfied by the equity in the account, as computed 
in accordance withSec. 41.46 of this subpart.
    (19) Margin equity security shall have the meaning provided in 
Regulation T.
    (20) Margin security shall have the meaning provided in Regulation 
T.
    (21) Member shall have the meaning provided in section 3(a)(3) of 
the Exchange Act, and shall include persons registered under section 
15(b)(11) of the

[[Page 741]]

Exchange Act that are permitted to effect transactions on a national 
securities exchange without the services of another person acting as 
executing broker.
    (22) Money market mutual fund means any security issued by an 
investment company registered under section 8 of the Investment Company 
Act of 1940 that is considered a money market fund underSec. 270.2a-7 
of this title.
    (23) Persons associated with a broker or dealer shall have the 
meaning provided in section 3(a)(18) of the Exchange Act.
    (24) Regulation T means Regulation T promulgated by the Board of 
Governors of the Federal Reserve System, 12 CFR part 220, as amended 
from time to time.
    (25) Regulation T collateral value, with respect to a security, 
means the current market value of the security reduced by the percentage 
of required margin for a position in the security held in a margin 
account under Regulation T.
    (26) Related position, with respect to a security future, means any 
position in an account that is combined with the security future to 
create an offsetting position as provided inSec. 41.45(b)(2) of this 
subpart.
    (27) Related transaction, with respect to a position or transaction 
in a security future, means:
    (i) Any transaction that creates, eliminates, increases or reduces 
an offsetting position involving a security future and a related 
position, as provided inSec. 41.45(b)(2) of this subpart; or
    (ii) Any deposit or withdrawal of margin for the security future or 
a related position, except as provided inSec. 41.47(b) of this 
subpart.
    (28) Securities account shall have the meaning provided inSec. 
1.3(ww) of this chapter.
    (29) Security futures intermediary means any creditor as defined in 
Regulation T with respect to its financial relations with any person 
involving security futures, including:
    (i) Any futures commission merchant;
    (ii) Any partner, officer, director, or branch manager (or person 
occupying a similar status or performing similar functions) of a futures 
commission merchant;
    (iii) Any person directly or indirectly controlling, controlled by, 
or under common control with (except for business entities controlling 
or under common control with) a futures commission merchant; and
    (iv) Any employee of a futures commission merchant (except an 
employee whose functions are solely clerical or ministerial).
    (30) Self-regulatory authority means a national securities exchange 
registered under section 6 of the Exchange Act, a national securities 
association registered under section 15A of the Exchange Act, or a 
contract market registered under section 5 of the Act or section 5f of 
the Act.
    (31) Special margin requirement shall have the meaning provided in 
Sec.  41.46(e)(1)(ii) of this subpart.
    (32) Variation settlement means any credit or debit to a customer 
account, made on a daily or intraday basis, for the purpose of marking 
to market a security future or any other contract that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Exchange Act or cleared and guaranteed by a derivatives clearing 
organization that is registered under section 5b of the Act; and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (b) Terms used in this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49) and not otherwise defined in this section shall have the 
meaning set forth in the margin rules applicable to the account.
    (c) Terms used in this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49) and not otherwise defined in this section or in the 
margin rules applicable to the account shall have the meaning set forth 
in the Exchange Act and the Act; if the definitions of a term in the 
Exchange Act and the Act are inconsistent as applied in particular 
circumstances, such term shall have the meaning set forth in rules, 
regulations, or interpretations jointly promulgated by the SEC and the 
Commission.

[67 FR 53171, Aug. 14, 2002, as amended at 77 FR 66346, Nov. 2, 2012]

[[Page 742]]



Sec.  41.44  General provisions.

    (a) Applicable margin rules. Except to the extent inconsistent with 
this Regulation (Subpart E, Sec.Sec. 41.42 through 41.49):
    (1) A security futures intermediary that carries a security future 
on behalf of a customer in a securities account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with Regulation T and the margin rules of the 
self-regulatory authorities of which the security futures intermediary 
is a member.
    (2) A security futures intermediary that carries a security future 
on behalf of a customer in a futures account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with the margin rules of the self-regulatory 
authorities of which the security futures intermediary is a member.
    (b) Separation and consolidation of accounts. (1) The requirements 
for security futures and related positions in one account may not be met 
by considering items in any other account, except as permitted or 
required under paragraph (b)(2) of this section or applicable margin 
rules. If withdrawals of cash, securities or other assets deposited as 
margin are permitted under this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49), bookkeeping entries shall be made when such cash, 
securities, or assets are used for purposes of meeting requirements in 
another account.
    (2) Notwithstanding paragraph (b)(1) of this section, the security 
futures intermediary shall consider all futures accounts in which 
security futures and related positions are held that are within the same 
regulatory classification or account type and are owned by the same 
customer to be a single account for purposes of this Regulation (Subpart 
E, Sec.Sec. 41.42 through 41.49). The security futures intermediary 
may combine such accounts with other futures accounts that are within 
the same regulatory classification or account type and are owned by the 
same customer for purposes of computing a customer's overall margin 
requirement, as permitted or required by applicable margin rules.
    (c) Accounts of partners. If a partner of the security futures 
intermediary has an account with the security futures intermediary in 
which security futures or related positions are held, the security 
futures intermediary shall disregard the partner's financial relations 
with the firm (as shown in the partner's capital and ordinary drawing 
accounts) in calculating the margin or equity of any such account.
    (d) Contribution to joint venture. If an account in which security 
futures or related positions are held is the account of a joint venture 
in which the security futures intermediary participates, any interest of 
the security futures intermediary in the joint account in excess of the 
interest which the security futures intermediary would have on the basis 
of its right to share in the profits shall be margined in accordance 
with this Regulation (Subpart E, Sec.Sec. 41.42 through 41.49).
    (e) Extensions of credit. (1) No security futures intermediary may 
extend or maintain credit to or for any customer for the purpose of 
evading or circumventing any requirement under this Regulation (Subpart 
E, Sec.Sec. 41.42 through 41.49).
    (2) A security futures intermediary may arrange for the extension or 
maintenance of credit to or for any customer by any person, provided 
that the security futures intermediary does not willfully arrange credit 
that would constitute a violation of Regulation T, U or X of the Board 
of Governors of the Federal Reserve System (12 CFR parts 220, 221, and 
224) by such person.
    (f) Change in exempted person status. Once a person ceases to 
qualify as an exempted person, it shall notify the security futures 
intermediary of this fact before entering into any new security futures 
transaction or related transaction that would require additional margin 
to be deposited under this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49). Financial relations with respect to any such 
transactions shall be subject to the provisions of this Regulation 
(Subpart E, Sec.Sec. 41.42 through 41.49).



Sec.  41.45  Required margin.

    (a) Applicability. Each security futures intermediary shall 
determine the

[[Page 743]]

required margin for the security futures and related positions held on 
behalf of a customer in a securities account or futures account as set 
forth in this section.
    (b) Required margin--(1) General rule. The required margin for each 
long or short position in a security future shall be twenty (20) percent 
of the current market value of such security future.
    (2) Offsetting positions. Notwithstanding the margin levels 
specified in paragraph (b)(1) of this section, a self-regulatory 
authority may set the required initial or maintenance margin level for 
an offsetting position involving security futures and related positions 
at a level lower than the level that would be required under paragraph 
(b)(1) of this section if such positions were margined separately, 
pursuant to rules that meet the criteria set forth in section 7(c)(2)(B) 
of the Exchange Act and are effective in accordance with section 
19(b)(2) of the Exchange Act and, as applicable, section 5c(c) of the 
Act.
    (c) Procedures for certain margin level adjustments. An exchange 
registered under section 6(g) of the Exchange Act, or a national 
securities association registered under section 15A(k) of the Exchange 
Act, may raise or lower the required margin level for a security future 
to a level not lower than that specified in this section, in accordance 
with section 19(b)(7) of the Exchange Act.



Sec.  41.46  Type, form and use of margin.

    (a) When margin is required. Margin is required to be deposited 
whenever the required margin for security futures and related positions 
in an account is not satisfied by the equity in the account, subject to 
adjustment under paragraph (c) of this section.
    (b) Acceptable margin deposits. (1) The required margin may be 
satisfied by a deposit of cash, margin securities (subject to paragraph 
(b)(2) of this section), exempted securities, any other asset permitted 
under Regulation T to satisfy a margin deficiency in a securities margin 
account, or any combination thereof, each as valued in accordance with 
paragraph (c) of this section.
    (2) Shares of a money market mutual fund may be accepted as a margin 
deposit for purposes of this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49), Provided that:
    (i) The customer waives any right to redeem the shares without the 
consent of the security futures intermediary and instructs the fund or 
its transfer agent accordingly;
    (ii) The security futures intermediary (or clearing agency or 
derivatives clearing organization with which the shares are deposited as 
margin) obtains the right to redeem the shares in cash, promptly upon 
request; and
    (iii) The fund agrees to satisfy any conditions necessary or 
appropriate to ensure that the shares may be redeemed in cash, promptly 
upon request.
    (c) Adjustments--(1) Futures accounts. For purposes of this section, 
the equity in a futures account shall be computed in accordance with the 
margin rules applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Each net long or short position in a listed option on a 
contract for future delivery shall be valued in accordance with the 
margin rules applicable to the account;
    (iii) Except as permitted in paragraph (e) of this section, each 
margin equity security shall be valued at an amount no greater than its 
Regulation T collateral value;
    (iv) Each other security shall be valued at an amount no greater 
than its current market value reduced by the percentage specified for 
such security inSec. 240.15c3-1(c)(2)(vi) of this title;
    (v) Freely convertible foreign currency may be valued at an amount 
no greater than its daily marked-to-market U.S. dollar equivalent;
    (vi) Variation settlement receivable (or payable) by an account at 
the close of trading on any day shall be treated as a credit (or debit) 
to the account on that day; and
    (vii) Each other acceptable margin deposit or component of equity 
shall be valued at an amount no greater than its value under Regulation 
T.
    (2) Securities accounts. For purposes of this section, the equity in 
a securities account shall be computed in accordance with the margin 
rules applicable

[[Page 744]]

to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Freely convertible foreign currency may be valued at an amount 
no greater than its daily mark-to-market U.S. dollar equivalent; and
    (iii) Variation settlement receivable (or payable) by an account at 
the close of trading on any day shall be treated as a credit (or debit) 
to the account on that day.
    (d) Satisfaction restriction. Any transaction, position or deposit 
that is used to satisfy the required margin for security futures or 
related positions under this Regulation (Subpart E, Sec.Sec. 41.42 
through 41.49), including a related position, shall be unavailable to 
satisfy the required margin for any other position or transaction or any 
other requirement.
    (e) Alternative collateral valuation for margin equity securities in 
a futures account. (1) Notwithstanding paragraph (c)(1)(iii) of this 
section, a security futures intermediary need not value a margin equity 
security at its Regulation T collateral value when determining whether 
the required margin for the security futures and related positions in a 
futures account is satisfied, provided that:
    (i) The margin equity security is valued at an amount no greater 
than the current market value of the security reduced by the lowest 
percentage level of margin required for a long position in the security 
held in a margin account under the rules of a national securities 
exchange registered pursuant to section 6(a) of the Exchange Act;
    (ii) Additional margin is required to be deposited on any day when 
the day's security futures transactions and related transactions would 
create or increase a margin deficiency in the account if the margin 
equity securities were valued at their Regulation T collateral value, 
and shall be for the amount of the margin deficiency so created or 
increased (a ``special margin requirement''); and
    (iii) Cash, securities, or other assets deposited as margin for the 
positions in an account are not permitted to be withdrawn from the 
account at any time that:
    (A) Additional cash, securities, or other assets are required to be 
deposited as margin under this section for a transaction in the account 
on the same or a previous day; or
    (B) The withdrawal, together with other transactions, deposits, and 
withdrawals on the same day, would create or increase a margin 
deficiency if the margin equity securities were valued at their 
Regulation T collateral value.
    (2) All security futures transactions and related transactions on 
any day shall be combined to determine the amount of a special margin 
requirement. Additional margin deposited to satisfy a special margin 
requirement shall be valued at an amount no greater than its Regulation 
T collateral value.
    (3) If the alternative collateral valuation method set forth in 
paragraph (e) of this section is used with respect to an account in 
which security futures or related positions are carried:
    (i) An account that is transferred from one security futures 
intermediary to another may be treated as if it had been maintained by 
the transferee from the date of its origin, if the transferee accepts, 
in good faith, a signed statement of the transferor (or, if that is not 
practicable, of the customer), that any margin call issued under this 
Regulation (Subpart E, Sec.Sec. 41.42 through 41.49) has been 
satisfied; and
    (ii) An account that is transferred from one customer to another as 
part of a transaction, not undertaken to avoid the requirements of this 
Regulation (Subpart E, Sec.Sec. 41.42 through 41.49), may be treated 
as if it had been maintained for the transferee from the date of its 
origin, if the security futures intermediary accepts in good faith and 
keeps with the transferee account a signed statement of the transferor 
describing the circumstances for the transfer.
    (f) Guarantee of accounts. No guarantee of a customer's account 
shall be given any effect for purposes of determining whether the 
required margin in an account is satisfied, except as permitted under 
applicable margin rules.



Sec.  41.47  Withdrawal of margin.

    (a) By the customer. Except as otherwise provided inSec. 
41.46(e)(1)(ii) of this

[[Page 745]]

subpart, cash, securities, or other assets deposited as margin for 
positions in an account may be withdrawn, provided that the equity in 
the account after such withdrawal is sufficient to satisfy the required 
margin for the security futures and related positions in the account 
under this Regulation (Subpart E, Sec.Sec. 41.42 through 41.49).
    (b) By the security futures intermediary. Notwithstanding paragraph 
(a) of this section, the security futures intermediary, in its usual 
practice, may deduct the following items from an account in which 
security futures or related positions are held if they are considered in 
computing the balance of such account:
    (1) Variation settlement payable, directly or indirectly, to a 
clearing agency that is registered under section 17A of the Exchange Act 
or a derivatives clearing organization that is registered under section 
5b of the Act;
    (2) Interest charged on credit maintained in the account;
    (3) Communication or shipping charges with respect to transactions 
in the account;
    (4) Payment of commissions, brokerage, taxes, storage and other 
charges lawfully accruing in connection with the positions and 
transactions in the account;
    (5) Any service charges that the security futures intermediary may 
impose; or
    (6) Any other withdrawals that are permitted from a securities 
margin account under Regulation T, to the extent permitted under 
applicable margin rules.



Sec.  41.48  Undermargined accounts.

    (a) Failure to satisfy margin call. If any margin call required by 
this Regulation (Subpart E, Sec.Sec. 41.42 through 41.49) is not met 
in full, the security futures intermediary shall take the deduction 
required with respect to an undermargined account in computing its net 
capital under SEC or Commission rules.
    (b) Accounts that liquidate to a deficit. If at any time there is a 
liquidating deficit in an account in which security futures are held, 
the security futures intermediary shall take steps to liquidate 
positions in the account promptly and in an orderly manner.
    (c) Liquidation of undermargined accounts not required. 
NotwithstandingSec. 41.44(a)(1) of this subpart,Sec. 220.4(d) of 
Regulation T (12 CFR 220.4(d)) respecting liquidation of positions in 
lieu of deposit shall not apply with respect to security futures carried 
in a securities account.



Sec.  41.49  Filing proposed margin rule changes with the Commission.

    (a) Notification requirement for notice-designated contract markets. 
Any self-regulatory authority that is registered with the Commission as 
a designated contract market under section 5f of the Act shall, when 
filing a proposed rule change regarding customer margin for security 
futures with the SEC for approval in accordance with section 19(b)(2) of 
the Exchange Act, concurrently provide to the Commission a copy of such 
proposed rule change and any accompanying documentation filed with the 
SEC.
    (b) Filing requirements under the Act. Any self-regulatory authority 
that is registered with the Commission as a designated contract market 
under section 5 of the Act shall, when filing a proposed rule change 
regarding customer margin for security futures with the SEC for approval 
in accordance with section 19(b)(2) of the Exchange Act, submit such 
proposed rule change to the Commission as follows:
    (1) If the self-regulatory authority elects to request the 
Commission's prior approval for the proposed rule change pursuant to 
section 5c(c)(2) of the Act, it shall concurrently file the proposed 
rule change with the Commission in accordance withSec. 40.5 of this 
chapter.
    (2) If the self-regulatory authority elects to implement a proposed 
rule change by written certification pursuant to section 5c(c)(1) of the 
Act, it shall concurrently provide to the Commission a copy of the 
proposed rule change and any accompanying documentation filed with the 
SEC. Promptly after obtaining SEC approval for the proposed rule change, 
such self-regulatory authority shall file its written

[[Page 746]]

certification with the Commission in accordance withSec. 40.6 of this 
chapter.

[67 FR 53171, Aug. 14, 2002, as amended at 77 FR 66346, Nov. 2, 2012]



PART 42_ANTI-MONEY LAUNDERING, TERRORIST FINANCING--Table of Contents



                      Subpart A_General Provisions

Sec.
42.1 [Reserved]
42.2 Compliance with Bank Secrecy Act

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6b, 6d, 6f, 6g, 7, 7a, 7a-1, 7a-2, 
7b, 7b-1, 7b-2, 9, 12, 12a, 12c, 13a, 13a-1, 13c, 16 and 21; 12 U.S.C. 
1786(q), 1818, 1829b and 1951-1959; 31 U.S.C. 5311-5314 and 5316-5332; 
title III, secs. 312-314, 319, 321, 326, 352, Pub. L. 107-56, 115 Stat. 
307.

    Source: 68 FR 25159, May 9, 2003, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  42.1  [Reserved]



Sec.  42.2  Compliance with Bank Secrecy Act.

    Every futures commission merchant and introducing broker shall 
comply with the applicable provisions of the Bank Secrecy Act and the 
regulations promulgated by the Department of the Treasury under that Act 
at 31 CFR part 103, and with the requirements of 31 U.S.C. 5318(l) and 
the implementing regulation jointly promulgated by the Commission and 
the Department of the Treasury at 31 CFR 103.123, which require that a 
customer identification program be adopted as part of the firm's Bank 
Secrecy Act compliance program.



PART 43_REAL-TIME PUBLIC REPORTING--Table of Contents



Sec.
43.1 Purpose, scope, and rules of construction.
43.2 Definitions.
43.3 Method and timing for real-time public reporting.
43.4 Swap transaction and pricing data to be publicly disseminated in 
          real-time.
43.5 Time delays for public dissemination of swap transaction and 
          pricing data.
43.6 [Reserved]

Appendix A to Part 43--Data Fields for Public Dissemination
Appendix B to Part 43--Enumerated Physical Commodity Contracts and Other 
          Contracts
Appendix C to Part 43--Time Delays for Public Dissemination

    Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Title VII of 
the Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 
Stat. 1376 (2010).

    Source: 76 FR 1243, Jan. 9, 2012, unless otherwise noted.



Sec.  43.1  Purpose, scope, and rules of construction.

    (a) Purpose. This part implements rules relating to the reporting 
and public dissemination of certain swap transaction and pricing data to 
enhance transparency and price discovery pursuant to the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010, Pub. L. 111-203, 124 
Stat. 1376 (2010).
    (b)(1) Scope. The provisions of this part shall apply to all swaps 
as defined in Section 1a(47) of the Act and any implementing regulations 
thereunder, including:
    (i) Swaps subject to the mandatory clearing requirement described in 
Section 2(h)(1) of the Act, including those swaps that are excepted from 
the requirement pursuant to Section 2(h)(7) of the Act;
    (ii) Swaps that are not subject to the mandatory clearing 
requirement described in Section 2(h)(1) of the Act, but are cleared at 
a registered derivatives clearing organization;
    (iii) Swaps that are not cleared at a registered derivatives 
clearing organization and are reported to a registered swap data 
repository that accepts and publicly disseminates swap transaction and 
pricing data in real-time; and
    (iv) Swaps that are required to be cleared under Section 2(h)(2) of 
the Act, but are not cleared.
    (2) This part also shall apply to registered entities as defined in 
the Act, as well as to parties to a swap including swap dealers, major 
swap participants and U.S.-based market participants in a manner as the 
Commission may determine.
    (c) Rules of construction. The examples in this part and in appendix 
A to this part are not exclusive. Compliance with a particular example 
or application of a sample clause, to the extent

[[Page 747]]

applicable, shall constitute compliance with the particular portion of 
the rule to which the example relates.
    (d) Severability. If any provision of this part, or the application 
thereof to any person or circumstance, is held invalid, such invalidity 
shall not affect other provisions or application of such provision to 
other persons or circumstances which can be given effect without the 
invalid provision or application.



Sec.  43.2  Definitions.

    As used in this part:
    Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1 et seq.
    Affirmation means the process by which parties to a swap verify 
(orally, in writing, electronically or otherwise) that they agree on the 
primary economic terms of a swap (but not necessarily all terms of the 
swap). Affirmation may constitute ``execution'' of the swap or may 
provide evidence of execution of the swap, but does not constitute 
confirmation (or confirmation by affirmation) of the swap.
    Appropriate minimum block size means the minimum notional or 
principal amount for a category of swaps that qualifies a swap within 
such category as a block trade or large notional off-facility swap.
    As soon as technologically practicable means as soon as possible, 
taking into consideration the prevalence, implementation and use of 
technology by comparable market participants.
    Asset class means a broad category of commodities including, without 
limitation, any ``excluded commodity'' as defined in Section 1a(19) of 
the Act, with common characteristics underlying a swap. The asset 
classes include interest rate, foreign exchange, credit, equity, other 
commodity and such other asset classes as may be determined by the 
Commission.
    Block trade means a publicly reportable swap transaction that:
    (1) Involves a swap that is listed on a registered swap execution 
facility or designated contract market;
    (2) Occurs away from the registered swap execution facility's or 
designated contract market's trading system or platform and is executed 
pursuant to the registered swap execution facility's or designated 
contract market's rules and procedures;
    (3) Has a notional or principal amount at or above the appropriate 
minimum block size applicable to such swap; and
    (4) Is reported subject to the rules and procedures of the 
registered swap execution facility or designated contract market and the 
rules described in this part, including the appropriate time delay 
requirements set forth inSec. 43.5 of this part.
    Business day means the twenty-four hour day, on all days except 
Saturdays, Sundays and legal holidays, in the location of the reporting 
party or registered entity reporting data for the swap.
    Business hours means the consecutive hours of one or more 
consecutive business days.
    Confirmation means the consummation (electronic or otherwise) of 
legally binding documentation (electronic or otherwise) that 
memorializes the agreement of the parties to all terms of a swap. A 
confirmation shall be in writing (electronic or otherwise) and shall 
legally supersede any previous agreement (electronic or otherwise) 
relating to the swap.
    Confirmation by affirmation means the process by which one party to 
a swap acknowledges its assent to the complete swap terms submitted by 
the other party to the swap. If the parties to a swap are using a 
confirmation service vendor, complete swap terms may be submitted 
electronically by a party to such vendor's platform and the other party 
may affirm such terms on such platform.
    Embedded option means any right, but not an obligation, provided to 
one party of a swap by the other party to the swap that provides the 
party holding the option with the ability to change any one or more of 
the economic terms of the swap as those terms previously were 
established at confirmation (or were in effect on the start date).
    Executed means the completion of the execution process.
    Execution means an agreement by the parties (whether orally, in 
writing, electronically, or otherwise) to the terms of a swap that 
legally binds the

[[Page 748]]

parties to such swap terms under applicable law. Execution occurs 
simultaneous with or immediately following the affirmation of the swap.
    Large notional off-facility swap means an off-facility swap that has 
a notional or principal amount at or above the appropriate minimum block 
size applicable to such publicly reportable swap transaction and is not 
a block trade as defined inSec. 43.2 of the Commission's regulations.
    Novation means the process by which a party to a swap transfers all 
of its rights, liabilities, duties and obligations under the swap to a 
new legal party other than the counterparty to the swap. The transferee 
accepts all of the transferor's rights, liabilities, duties and 
obligations under the swap. A novation is valid as long as the 
transferor and the remaining party to the swap are given notice, and the 
transferor, transferee and remaining party to the swap consent to the 
transfer.
    Off-facility swap means any publicly reportable swap transaction 
that is not executed on or pursuant to the rules of a registered swap 
execution facility or designated contract market.
    Other commodity means any commodity that is not categorized in the 
other asset classes as may be determined by the Commission.
    Public dissemination and publicly disseminate means to publish and 
make available swap transaction and pricing data in a non-discriminatory 
manner, through the Internet or other electronic data feed that is 
widely published and in machine-readable electronic format.
    Publicly reportable swap transaction means:
    (1) Unless otherwise provided in this part--
    (i) Any executed swap that is an arm's-length transaction between 
two parties that results in a corresponding change in the market risk 
position between the two parties; or
    (ii) Any termination, assignment, novation, exchange, transfer, 
amendment, conveyance, or extinguishing of rights or obligations of a 
swap that changes the pricing of the swap.
    (2) Examples of executed swaps that do not fall within the 
definition of publicly reportable swap may include:
    (i) Internal swaps between one-hundred percent owned subsidiaries of 
the same parent entity; and
    (ii) Portfolio compression exercises.
    (3) These examples represent swaps that are not at arm's length and 
thus are not publicly reportable swap transactions, notwithstanding that 
they do result in a corresponding change in the market risk position 
between two parties.
    Real-time public reporting means the reporting of data relating to a 
swap transaction, including price and volume, as soon as technologically 
practicable after the time at which the swap transaction has been 
executed.
    Remaining party means a party to a swap that consents to a 
transferor's transfer by novation of all of the transferor's rights, 
liabilities, duties and obligations under such swap to a transferee.
    Reporting party means the party to a swap with the duty to report a 
publicly reportable swap transaction in accordance with this part and 
section 2(a)(13)(F) of the Act.
    Transferee means a party to a swap that accepts, by way of novation, 
all of a transferor's rights, liabilities, duties and obligations under 
such swap with respect to a remaining party.
    Transferor means a party to a swap that transfers, by way of 
novation, all of its rights, liabilities, duties and obligations under 
such swap, with respect to a remaining party, to a transferee.
    Unique product identifier means a unique identification of a 
particular level of the taxonomy of the product in an asset class or 
sub-asset class in question, as further described inSec. 43.4(f) and 
appendix A to this part. Such unique product identifier may combine the 
information from one or more of the data fields described in appendix A.
    Widely published means to publish and make available through 
electronic means in a manner that is freely available and readily 
accessible to the public.



Sec.  43.3  Method and timing for real-time public reporting.

    (a) Responsibilities of parties to a swap to report swap transaction 
and pricing

[[Page 749]]

data in real-time--(1) In general. A reporting party shall report any 
publicly reportable swap transaction to a registered swap data 
repository as soon as technologically practicable after such publicly 
reportable swap transaction is executed. For purposes of this part, a 
registered swap data repository includes any swap data repository 
provisionally registered with the Commission pursuant to part 49 of this 
chapter.
    (2) Swaps executed on or pursuant to the rules of a registered swap 
execution facility or designated contract market. A party to a publicly 
reportable swap transaction shall satisfy its reporting requirement 
under this section by executing a publicly reportable swap transaction 
on or pursuant to the rules of a registered swap execution facility or 
designated contract market.
    (3) Off-facility swaps. All off-facility swaps shall be reported by 
the reporting party as soon as technologically practicable following 
execution, to a registered swap data repository for the appropriate 
asset class in accordance with the rules set forth in this part. Unless 
otherwise agreed to by the parties prior to the execution of the 
publicly reportable swap transaction, the following persons shall be 
reporting parties for off-facility swaps:
    (i) If only one party is a swap dealer or major swap participant, 
then the swap dealer or major swap participant shall be the reporting 
party;
    (ii) If one party is a swap dealer and the other party is a major 
swap participant, then the swap dealer shall be the reporting party;
    (iii) If both parties are swap dealers, then the swap dealers shall 
designate which party shall be the reporting party;
    (iv) If both parties are major swap participants, then the major 
swap participants shall designate which party shall be the reporting 
party;
    (v) If neither party is a swap dealer or a major swap participant, 
then the parties shall designate which party (or its agent) shall be the 
reporting party.
    (b) Public dissemination of swap transaction and pricing data--(1) 
Publicly reportable swap transactions executed on or pursuant to the 
rules of a registered swap execution facility or designated contract 
market. A registered swap execution facility or designated contract 
market shall satisfy the requirements of this subparagraph by 
transmitting swap transaction and pricing data to a registered swap data 
repository, as soon as technologically practicable after the publicly 
reportable swap transaction has been executed on or pursuant to the 
rules of such trading platform or facility.
    (2) Public dissemination of swap transaction and pricing data by 
registered swap data repositories. A registered swap data repository 
shall ensure that swap transaction and pricing data is publicly 
disseminated, as soon as technologically practicable after such data is 
received from a registered swap execution facility, designated contract 
market or reporting party, unless such publicly reportable swap 
transaction is subject to a time delay described inSec. 43.5 of this 
part, in which case the publicly reportable swap transaction shall be 
publicly disseminated in the manner described inSec. 43.5.
    (3) Prohibitions on disclosure of data. (i) If there is a registered 
swap data repository for an asset class, a registered swap execution 
facility or designated contract market shall not disclose swap 
transaction and pricing data relating to publicly reportable swap 
transactions in such asset class, prior to the public dissemination of 
such data by a registered swap data repository unless:
    (A) Such disclosure is made no earlier than the transmittal of such 
data to a registered swap data repository for public dissemination;
    (B) Such disclosure is only made to market participants on such 
registered swap execution facility or designated contract market;
    (C) Market participants are provided advance notice of such 
disclosure; and
    (D) Any such disclosure by the registered swap execution facility or 
designated contract market is non-discriminatory.
    (ii) If there is a registered swap data repository for an asset 
class, a swap dealer or major swap participant shall not disclose swap 
transaction and pricing data relating to publicly reportable swap 
transactions in such asset class, prior to the public dissemination of

[[Page 750]]

such data by a registered swap data repository unless:
    (A) Such disclosure is made no earlier than the transmittal of such 
data to a registered swap data repository for public dissemination;
    (B) Such disclosure is only made to the customer base of such swap 
dealer or major swap participant, including parties who maintain 
accounts with or have been swap counterparties with such swap dealer or 
major swap participant;
    (C) Swap counterparties are provided advance notice of such 
disclosure; and
    (D) Any such disclosure by the swap dealer or major swap participant 
is non-discriminatory.
    (c) Requirements for registered swap data repositories in providing 
the public dissemination of swap transaction and pricing data in real-
time--(1) Compliance with 17 CFR part 49. Any registered swap data 
repository that accepts and publicly disseminates swap transaction and 
pricing data in real-time shall comply with part 49 of this chapter and 
shall publicly disseminate swap transaction and pricing data in 
accordance with this part as soon as technologically practicable upon 
receipt of such data, except as otherwise provided in this part.
    (2) Acceptance and public dissemination of all swaps in an asset 
class. Any registered swap data repository that accepts and publicly 
disseminates swap transaction and pricing data in real-time for swaps in 
its selected asset class shall accept and publicly disseminate swap 
transaction and pricing data in real-time for all publicly reportable 
swap transactions within such asset class, unless otherwise prescribed 
by the Commission.
    (3) Annual independent review. Any registered swap data repository 
that accepts and publicly disseminates swap transaction and pricing data 
in real-time shall perform, on an annual basis, an independent review in 
accordance with established audit procedures and standards of the 
registered swap data repository's security and other system controls for 
the purposes of ensuring compliance with the requirements in this part.
    (d) Availability of swap transaction and pricing data to the public. 
(1) Registered swap data repositories shall publicly disseminate swap 
transaction and pricing data in a consistent, usable and machine-
readable electronic format that allows the data to be downloaded, saved 
and analyzed.
    (2) Data that is publicly disseminated pursuant to this part shall 
be available from an Internet Web site in a format that is freely 
available and readily accessible to the public.
    (3) Registered swap data repositories shall provide to the 
Commission a hyperlink to the Internet Web site where publicly 
disseminated swap transaction and pricing data can be accessed by the 
public.
    (e) Errors or omissions--(1) In general. Any errors or omissions in 
swap transaction and pricing data that were publicly disseminated in 
real-time shall be corrected or cancelled in the following manner:
    (i) If a party to the swap becomes aware of an error or omission in 
the swap transaction and pricing data reported with respect to such 
swap, such party shall promptly notify the other party of the error and/
or correction.
    (ii) If a reporting party to a swap becomes aware of an error or 
omission in the swap transaction or pricing data which it reported to a 
registered swap data repository or which was reported by a registered 
swap execution facility or designated contract market with respect to 
such swap, either through its own initiative or through notice by the 
other party to the swap, the reporting party shall promptly submit 
corrected data to the same registered swap execution facility, 
designated contract market or registered swap data repository.
    (iii) If the registered swap execution facility or designated 
contract market becomes aware of an error or omission in the swap 
transaction or pricing data reported with respect to such swap, or 
receives notification from the reporting party, the registered swap 
execution facility or designated contract market shall promptly submit 
corrected data to the same registered swap data repository.
    (iv) Any registered swap data repository that accepts and publicly 
disseminates swap transaction and pricing

[[Page 751]]

data in real-time shall publicly disseminate any cancellations or 
corrections to such data, as soon as technologically practicable after 
receipt or discovery of any such cancellation or correction.
    (2) Improper cancellation or correction. Reporting parties, 
registered swap execution facilities, designated contract markets and 
registered swap data repositories shall not submit or agree to submit a 
cancellation or correction for the purpose of re-reporting swap 
transaction and pricing data in order to gain or extend a delay in 
public dissemination of accurate swap transaction or pricing data or to 
otherwise evade the reporting requirements in this part.
    (3) Cancellation. A registered swap data repository shall cancel any 
incorrect data that had been publicly disseminated by publicly 
disseminating a cancellation of such data, as soon as technologically 
practicable, in the manner described in appendix A to this part.
    (4) Correction. A registered swap data repository shall correct any 
incorrect data that had been publicly disseminated by publicly 
disseminating a cancellation of the incorrect swap transaction and 
pricing data and then publicly disseminating the correct data, as soon 
as technologically practicable, in the manner described in appendix A to 
this part.
    (f) Hours of operation of registered swap data repositories. Unless 
otherwise provided in this subsection, a registered swap data repository 
shall have systems in place to continuously receive and publicly 
disseminate swap transaction and pricing data in real-time pursuant to 
this part.
    (1) A registered swap data repository may declare closing hours to 
perform system maintenance.
    (2) A registered swap data repository shall, to the extent 
reasonably possible, avoid scheduling closing hours when, in its 
estimation, the U.S. market and major foreign markets are most active.
    (3) A registered swap data repository shall comply with the 
requirements under part 40 of this chapter in setting closing hours and 
shall provide advance notice of its closing hours to market participants 
and the public.
    (g) Acceptance of data during closing hours. During closing hours, a 
registered swap data repository shall have the capability to receive and 
hold in queue any data regarding publicly reportable swap transactions 
pursuant to this part.
    (1) Upon any reopening after closing hours, a registered swap data 
repository shall promptly and publicly disseminate the swap transaction 
and pricing data of swaps held in queue, in accordance with the 
requirements of this part.
    (2) If at any time during closing hours a registered swap data 
repository is unable to receive and hold in queue swap transaction and 
pricing data pursuant to this part, then the registered swap data 
repository shall immediately upon reopening issue notice that it has 
resumed normal operations. Any registered swap execution facility, 
designated contract market or reporting party that is obligated under 
this section to report data to the registered swap data repository shall 
report the data to the registered swap data repository immediately after 
receiving such notice.
    (h) Timestamp requirements. In addition to the execution timestamp 
described in appendix A to this part, registered entities, swap dealers 
and major swap participants shall have the following timestamp 
requirements with respect to real-time public reporting of swap 
transaction and pricing data for all publicly reportable swap 
transactions:
    (1) A registered swap execution facility or designated contract 
market shall timestamp swap transaction and pricing data relating to a 
publicly reportable swap transaction with the date and time, to the 
nearest second of when such registered swap execution facility or 
designated contract market:
    (i) Receives data from a swap counterparty (if applicable); and
    (ii) Transmits such data to a registered swap data repository for 
public dissemination.
    (2) A registered swap data repository shall timestamp swap 
transaction and pricing data relating to a publicly reportable swap 
transaction with the date and time, to the nearest second

[[Page 752]]

when such registered swap data repository:
    (i) Receives data from a registered swap execution facility, 
designated contract market or reporting party; and
    (ii) Publicly disseminates such data.
    (3) A swap dealer or major swap participant shall timestamp swap 
transaction and pricing data relating to an off-facility swap with the 
date and time, to the nearest second when such swap dealer or major swap 
participant transmits such data to a registered swap data repository for 
public dissemination.
    (4) Records of all timestamps required by this subsection shall be 
maintained for a period of at least five years from the execution of the 
publicly reportable swap transaction.
    (i) Fees. Any fees or charges assessed on a reporting party, 
registered swap execution facility or designated contract market by a 
registered swap data repository that accepts and publicly disseminates 
swap transaction and pricing data in real-time for the collection of 
such data shall be equitable and non-discriminatory. If such registered 
swap data repository allows a fee discount based on the volume of data 
reported to it for public dissemination, then such discount shall be 
made available to all reporting parties, registered swap execution 
facilities and designated contract markets in an equitable and non-
discriminatory manner.



Sec.  43.4  Swap transaction and pricing data to be publicly 
disseminated in real-time.

    (a) In general. Swap transaction and pricing information shall be 
reported to a registered swap data repository so that the registered 
swap data repository can publicly disseminate swap transaction and 
pricing data in real-time in accordance with this part, including the 
manner described in this section and appendix A to this part.
    (b) Public dissemination of data fields. Any registered swap data 
repository that accepts and publicly disseminates swap transaction and 
pricing data in real-time shall publicly disseminate the information 
described in appendix A to this part, as applicable, for any publicly 
reportable swap transaction.
    (c) Additional swap information. A registered swap data repository 
that accepts and publicly disseminates swap transaction and pricing data 
in real-time may require reporting parties, registered swap execution 
facilities and designated contract markets to report to such registered 
swap data repository, such information that is necessary to compare the 
swap transaction and pricing data that was publicly disseminated in 
real-time to the data reported to a registered swap data repository 
pursuant to Section 2(a)(13)(G) of the Act or to confirm that parties to 
a swap have reported in a timely manner pursuant toSec. 43.3 of this 
part. Such additional information shall not be publicly disseminated by 
the registered swap data repository.
    (d) Anonymity of the parties to a publicly reportable swap 
transaction--(1) In general. Swap transaction and pricing data that is 
publicly disseminated in real-time shall not disclose the identities of 
the parties to the swap or otherwise facilitate the identification of a 
party to a swap. A registered swap data repository that accepts and 
publicly disseminates swap transaction and pricing data in real-time 
shall not publicly disseminate such data in a manner that discloses or 
otherwise facilitates the identification of a party to a swap.
    (2) Actual product description reported to registered swap data 
repository. Reporting parties, registered swap execution facilities and 
designated contract markets shall provide a registered swap data 
repository with swap transaction and pricing data that includes an 
actual description of the underlying asset(s). This requirement is 
separate from the requirement that a reporting party, registered swap 
execution facility or designated contract market shall report swap data 
to a registered swap data repository pursuant to Section 2(a)(13)(G) of 
the Act and the Commission's regulations.
    (3) Public dissemination of the actual description of underlying 
asset(s). Notwithstanding the anonymity protection for certain swaps in 
the other commodity asset class inSec. 43.4(d)(4)(ii), a registered 
swap data repository shall publicly disseminate the actual underlying 
asset(s) of all publicly reportable

[[Page 753]]

swap transactions in the interest rate, credit, equity and foreign 
exchange asset classes.
    (4) Public dissemination of the underlying asset(s) for certain 
swaps in the other commodity asset class. A registered swap data 
repository shall publicly disseminate swap transaction and pricing data 
in the other commodity asset class as described in this subsection.
    (i) A registered swap data repository shall publicly disseminate 
swap transaction and pricing data for publicly reportable swap 
transactions in the other commodity asset class in the manner described 
inSec. 43.4(d)(4)(ii).
    (ii) The actual underlying asset(s) shall be publicly disseminated 
for the following publicly reportable swap transactions in the other 
commodity asset class:
    (A) Any publicly reportable swap transaction that references one of 
the contracts described in appendix B to this part;
    (B) Any publicly reportable swap transaction that is economically 
related to one of the contracts described in appendix B to this part; 
and
    (C) Any publicly reportable swap transaction executed on or pursuant 
to the rules of a registered swap execution facility or designated 
contract market.
    (e) Unique product identifier. If a unique product identifier is 
developed that sufficiently describes one or more of the swap 
transaction and pricing data fields for real-time reporting described in 
appendix A to this part, then such unique product identifier may be 
publicly disseminated in lieu of the data fields that it describes.
    (f) Reporting of notional or principal amounts to a registered swap 
data repository--(1) Off-facility swaps. The reporting party shall 
report the actual notional or principal amount of any off-facility swap 
to a registered swap data repository that accepts and publicly 
disseminates such data pursuant to part 43.
    (2) Swaps executed on or pursuant to the rules of a registered swap 
execution facility or designated contract market. (i) A registered swap 
execution facility or designated contract market shall transmit the 
actual notional or principal amount for all swaps executed on or 
pursuant to the rules of such registered swap execution facility or 
designated contract market, to a registered swap data repository that 
accepts swaps in the asset class.
    (ii) The actual notional or principal amount for any block trade 
executed pursuant to the rules of a registered swap execution facility 
or designated contract market shall be reported to the registered swap 
execution facility or designated contract market pursuant to the rules 
of the registered swap execution facility or designated contract market.
    (g) Public dissemination of rounded notional or principal amounts. 
The notional or principal amount of a publicly reportable swap 
transaction, as described in appendix A to this part, shall be rounded 
and publicly disseminated by a registered swap data repository as 
follows:
    (1) If the notional or principal amount is less than one thousand, 
round to nearest five, but in no case shall a publicly disseminated 
notional or principal amount be less than five;
    (2) If the notional or principal amount is less than ten thousand 
but equal to or greater than one thousand, round to nearest one hundred;
    (3) If the notional or principal amount is less than 100 thousand 
but equal to or greater than ten thousand, round to nearest one 
thousand;
    (4) If the notional or principal amount is less than one million but 
equal to or greater than 100 thousand, round to nearest ten thousand;
    (5) If the notional or principal amount is less than 100 million but 
equal to or greater than one million, round to the nearest one million;
    (6) If the notional or principal amount is less than 500 million but 
equal to or greater than 100 million, round to the nearest ten million;
    (7) If the notional or principal amount is less than one billion but 
equal to or greater than 500 million, round to the nearest 50 million;
    (8) If the notional or principal amount is less than 100 billion but 
equal to or greater than one billion, round to the nearest one billion;
    (9) If the notional or principal amount is greater than 100 billion, 
round to the nearest 50 billion.

[[Page 754]]

    (h) Public dissemination caps on notional or principal amounts. The 
rounded notional or principal amount that is publicly disseminated for a 
publicly reportable swap transaction shall be capped in a manner that 
adjusts in accordance with the appropriate minimum block size that 
corresponds to such publicly reportable swap transaction. If there is no 
appropriate minimum block size applicable to a publicly reportable swap 
transaction, then the cap on the notional or principal amount that is 
publicly disseminated shall be applied in the following manner:
    (1) Interest rate swaps. (i) The publicly disseminated notional or 
principal amount for an interest rate swap subject to the rules in this 
part with a tenor greater than zero up to and including two years shall 
be capped at USD 250 million.
    (ii) The publicly disseminated notional or principal amount for an 
interest rate swap subject to the rules in this part with a tenor 
greater than two years up to and including ten years shall be capped at 
USD 100 million.
    (iii) The publicly disseminated notional or principal amount for an 
interest rate swap subject to the rules in this part with a tenor 
greater than ten years shall be capped at USD 75 million.
    (2) Credit swaps. The publicly disseminated notional or principal 
amount for a credit swap subject to the rules in this part shall be 
capped at USD 100 million.
    (3) Equity swaps. The publicly disseminated notional or principal 
amount for an equity swap subject to the rules in this part shall be 
capped at USD 250 million.
    (4) Foreign exchange swaps. The publicly disseminated notional or 
principal amount for a foreign exchange swap subject to the rules in 
this part shall be capped at USD 250 million.
    (5) Other commodity swaps. The publicly disseminated notional or 
principal amount for any other commodity swap subject to the rules in 
this part shall be capped at USD 25 million.



Sec.  43.5  Time delays for public dissemination of swap transaction
and pricing data.

    (a) In general. The time delay for the real-time public reporting of 
a block trade or large notional off-facility swap begins upon execution, 
as defined inSec. 43.2 of this part. It is the responsibility of the 
registered swap data repository that accepts and publicly disseminates 
swap transaction and pricing data in real-time to ensure that the block 
trade or large notional off-facility swap transaction and pricing data 
is publicly disseminated pursuant to this part upon the expiration of 
the appropriate time delay described inSec. 43.5(d) through (h).
    (b) Public dissemination of publicly reportable swap transactions 
subject to a time delay. A registered swap data repository shall 
publicly disseminate swap transaction and pricing data that is subject 
to a time delay pursuant to this paragraph, as follows:
    (1) No later than the prescribed time delay period described in this 
paragraph;
    (2) No sooner than the prescribed time delay period described in 
this paragraph; and
    (3) Precisely upon the expiration of the time delay period described 
in this paragraph.
    (c) Interim time delay--(1) In general. The public dissemination of 
swap transaction and pricing data relating to any publicly reportable 
swap transaction shall receive the same time delays for block trades and 
large notional off-facility swaps, as described in this subsection, 
until such time as an appropriate minimum block size is established with 
respect to such publicly reportable swap transaction.
    (2) Swaps executed on or pursuant to the rules of a registered swap 
execution facility or designated contract market. Any publicly 
reportable swap transaction that does not have an appropriate minimum 
block size and that is executed on or pursuant to the rules of a 
registered swap execution facility or designated contract market shall 
follow the time delays set forth inSec. 43.5(d) until such time that 
an appropriate minimum block size is established for such publicly 
reportable swap transaction.

[[Page 755]]

    (3) Off-facility swaps subject to the mandatory clearing 
requirement. Any off-facility swap that does not have an appropriate 
minimum block size and that is subject to the mandatory clearing 
requirement described in Section 2(h)(1) of the Act and Commission 
regulations, with the exception of those off-facility swaps that are 
either excepted from the mandatory clearing requirement pursuant to 
Section 2(h)(7) of the Act and Commission regulations or that are 
required to be cleared under Section 2(h)(2) of the Act and Commission 
regulations but are not cleared, shall follow the time delays set forth 
inSec. 43.5(e) until such time that an appropriate minimum block size 
is established for such off-facility swap.
    (4) Off-facility swaps in the interest rate, credit, foreign 
exchange and equity asset classes not subject to the mandatory clearing 
requirement with at least one swap dealer or major swap participant 
counterparty. Any off-facility swap in the interest rate, credit, 
foreign exchange or equity asset classes, where at least one party is a 
swap dealer or major swap participant, that is not subject to the 
mandatory clearing requirement or is excepted from such mandatory 
clearing requirement and that does not have an appropriate minimum block 
size shall follow the time delays set forth inSec. 43.5(f) until such 
time that an appropriate minimum block size is established for such off-
facility swap.
    (5) Off-facility swaps in the other commodity asset class not 
subject to the mandatory clearing requirement with at least one swap 
dealer or major swap participant counterparty. Any off-facility swap in 
the other commodity asset class, where at least one party is a swap 
dealer or major swap participant, that is not subject to the mandatory 
clearing requirement or is excepted from such mandatory clearing 
requirement and that does not have an appropriate minimum block size 
shall follow the time delays set forth inSec. 43.5(g) until such time 
that an appropriate minimum block size is established for such off-
facility swap.
    (6) Off-facility swaps in all asset classes not subject to the 
mandatory clearing requirement in which neither counterparty is a swap 
dealer or major swap participant. Any off-facility swap, in all asset 
classes, where neither party is a swap dealer or major swap participant, 
that is not subject to the mandatory clearing requirement or is excepted 
from such mandatory clearing requirement and that does not have an 
appropriate minimum block size shall follow the time delays set forth in 
Sec.  43.5(h) until such time that an appropriate minimum block size is 
established for such off-facility swap.
    (7) Time delays for public dissemination upon establishment of an 
appropriate minimum block size. After an appropriate minimum block size 
is established for a particular swap or category of swaps, all publicly 
reportable swap transactions that are below the appropriate minimum 
block size shall be publicly disseminated as soon as technologically 
practicable after execution pursuant toSec. 43.3 of this part.
    (d) Time delay for block trades executed pursuant to the rules of a 
registered swap execution facility or designated contract market. Any 
block trade that is executed pursuant to the rules of a registered swap 
execution facility or designated contract market shall receive a time 
delay in the public dissemination of swap transaction and pricing data 
as follows:
    (1) Time delay during Year 1. For one year beginning on the 
compliance date of this part, the time delay for public dissemination of 
swap transaction and pricing data for all publicly reportable swap 
transactions described inSec. 43.5(d) shall be 30 minutes immediately 
after execution of such publicly reportable swap transaction.
    (2) Time delay after Year 1. Beginning on the first anniversary of 
the compliance date of this part, the time delay for public 
dissemination of swap transaction and pricing data for all publicly 
reportable swap transactions described inSec. 43.5(d) shall be 15 
minutes immediately after execution of such publicly reportable swap 
transaction.
    (e) Time delay for large notional off-facility swaps subject to the 
mandatory clearing requirement--(1) In general. This subsection shall 
not apply to off-facility swaps that are excepted from the mandatory 
clearing requirement pursuant to Section 2(h)(7) of the Act and

[[Page 756]]

Commission regulations, and this subsection shall not apply to those 
swaps that are required to be cleared under Section 2(h)(2) of the Act 
and Commission regulations but are not cleared.
    (2) Swaps subject to the mandatory clearing requirement where at 
least one party is a swap dealer or major swap participant. Any large 
notional off-facility swap that is subject to the mandatory clearing 
requirement described in Section 2(h)(1) of the Act and Commission 
regulations, in which at least one party is a swap dealer or major swap 
participant, shall receive a time delay as follows:
    (i) Time delay during Year 1. For one year beginning on the 
compliance date of this part, the time delay for public dissemination of 
swap transaction and pricing data for all swaps described inSec. 
43.5(e)(2) shall be 30 minutes immediately after execution of such swap.
    (ii) Time delay after Year 1. Beginning on the first anniversary of 
the compliance date of this part, the time delay for public 
dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(e)(2) shall be 15 minutes immediately after 
execution of such swap.
    (3) Swaps subject to the mandatory clearing requirement where 
neither party is a swap dealer or major swap participant. Any large 
notional off-facility swap that is subject to the mandatory clearing 
requirement described in Section 2(h)(1) of the Act and Commission 
regulations, in which neither party is a swap dealer or major swap 
participant, shall receive a time delay as follows:
    (i) Time delay during Year 1. For one year beginning on the 
compliance date of this part, the time delay for public dissemination of 
swap transaction and pricing data for all swaps described inSec. 
43.5(e)(3) shall be four hours immediately after execution of such swap.
    (ii) Time delay during Year 2. For one year beginning on the first 
anniversary of the compliance date of this part, the time delay for 
public dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(e)(3) shall be two hours immediately after 
execution of such swap.
    (iii) Time delay after Year 2. Beginning on the second anniversary 
of the compliance date of this part, the time delay for public 
dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(e)(3) shall be one hour immediately after 
execution of such swap.
    (f) Time delay for large notional off-facility swaps in the interest 
rate, credit, foreign exchange or equity asset classes not subject to 
the mandatory clearing requirement with at least one swap dealer or 
major swap participant counterparty. Any large notional off-facility 
swap in the interest rate, credit, foreign exchange or equity asset 
classes where at least one party is a swap dealer or major swap 
participant, that is not subject to the mandatory clearing requirement 
or is excepted from such mandatory clearing requirement, shall receive a 
time delay in the public dissemination of swap transaction and pricing 
data as follows:
    (1) Time delay during Year 1. For one year beginning on the 
compliance date of this part, the time delay for public dissemination of 
swap transaction and pricing data for all swaps described inSec. 
43.5(f) shall be one hour immediately after execution of such swap; 
however, any large notional off-facility swap in the interest rate, 
credit, foreign exchange or equity asset classes in which one party is 
not a swap dealer or major swap participant and such party is not a 
financial entity as defined in Section 2(h)(7)(C) of the Act and 
Commission regulations, shall receive a time delay of one hour 
immediately after execution of such swap; or if such swap transaction or 
pricing data is received by the registered swap data repository later 
than one hour immediately after execution, the registered swap data 
repository shall publicly disseminate such data as soon as 
technologically practicable after the data is received.
    (2) Time delay during Year 2. For one year beginning on the first 
anniversary of the compliance date of this part, the time delay for 
public dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(f) shall be 30 minutes immediately after 
execution of such swap; however, any large notional off-facility swap in 
the interest rate, credit, foreign exchange or equity asset classes in 
which one party is not a swap dealer or major swap participant and such 
party is not a financial

[[Page 757]]

entity as defined in Section 2(h)(7)(C) of the Act and Commission 
regulations, shall receive a time delay of 30 minutes immediately after 
execution of such swap; or if such swap transaction or pricing data is 
received by the registered swap data repository later than 30 minutes 
immediately after execution, the registered swap data repository shall 
publicly disseminate such data as soon as technologically practicable 
after the data is received.
    (3) Time delay after Year 2. Beginning on the second anniversary of 
the compliance date of this part, the time delay for public 
dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(f) shall be 30 minutes immediately after 
execution of such swap.
    (g) Time delay for large notional off-facility swaps in the other 
commodity asset class not subject to the mandatory clearing requirement 
with at least one swap dealer or major swap participant counterparty. 
Any large notional off-facility swap in the other commodity asset class 
where at least one party is a swap dealer or major swap participant, 
that is not subject to the mandatory clearing requirement or is exempt 
from such mandatory clearing requirement, shall receive a time delay in 
the public dissemination of swap transaction and pricing data as 
follows:
    (1) Time delay during Year 1. For one year beginning on the 
compliance date of this part, the time delay for public dissemination of 
swap transaction and pricing data for all swaps described inSec. 
43.5(g) shall be four hours immediately after execution of such swap; 
however, any large notional off-facility swap in the other commodity 
asset class in which only one party is not a swap dealer or major swap 
participant and such party is not a financial entity as defined in 
Section 2(h)(7)(C) of the Act and Commission regulations, shall receive 
a time delay of four hours immediately after execution of such swap, or 
if such swap transaction or pricing data is received by the registered 
swap data repository later than four hours immediately after execution 
of such swap, the registered swap data repository shall publicly 
disseminate such data as soon as technologically practicable after the 
data is received.
    (2) Time delay during Year 2. For one year beginning on the first 
anniversary of the compliance date of this part, the time delay for 
public dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(g) shall be two hours immediately after 
execution of such swap; however, any large notional off-facility swap in 
the other commodity asset class in which only one party is not a swap 
dealer or major swap participant and such party is not a financial 
entity as defined in Section 2(h)(7)(C) of the Act and Commission 
regulations, shall receive a time delay of two hours immediately after 
execution of such swap, or if such swap transaction or pricing data is 
received by the registered swap data repository later than two hours 
immediately after execution, the registered swap data repository shall 
publicly disseminate such data as soon as technologically practicable 
after the data is received.
    (3) Time delay after Year 2. Beginning on the second anniversary of 
the compliance date of this part, the time delay for public 
dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(g) shall be two hours after the execution of 
such swap.
    (h) Time delay for large notional off-facility swaps in all asset 
classes not subject to the mandatory clearing requirement in which 
neither counterparty is a swap dealer or a major swap participant. Any 
large notional off-facility swap in which neither party is a swap dealer 
or a major swap participant, which is not subject to the mandatory 
clearing requirement or is exempt from such mandatory clearing 
requirement, shall receive a time delay in the public dissemination of 
swap transaction and pricing data as follows:
    (1) Time delay during Year 1. For one year beginning on the 
compliance date of this part, the time delay for public dissemination of 
swap transaction and pricing data for all swaps described inSec. 
43.5(h) shall be 48 business hours immediately after execution of such 
swap.
    (2) Time delay during Year 2. For one year beginning on the first 
anniversary of the compliance date of this part, the time delay for 
public dissemination of swap transaction and pricing data for all swaps 
described inSec. 43.5(h) shall be

[[Page 758]]

36 business hours immediately after the execution of such swap.
    (3) Time delay after Year 2. Beginning on the second anniversary of 
the compliance date of this part, the time delay for public 
dissemination transaction and pricing data for all swaps described in 
Sec.  43.5(h) shall be 24 business hours immediately after the execution 
of such swap.



Sec.  43.6  [Reserved]



    Sec. Appendix A to Part 43--Data Fields for Public Dissemination

    The data fields described in Table A1 and Table A2, to the extent 
applicable for a particular publicly reportable swap transaction, shall 
be publicly disseminated pursuant to part 43. Table A1 and Table A2 
provide guidance for compliance with the reporting and public 
dissemination of each data field. Reporting parties, registered swap 
execution facilities and designated contract markets shall report swap 
transaction and pricing data necessary to publicly disseminate such 
data, pursuant to part 43 and this appendix A to part 43, to a 
registered swap data repository as soon as technologically practicable 
after execution of the publicly reportable swap transaction. A 
registered swap data repository shall publicly disseminate the 
information in Table A1 and A2 in a consistent form and manner for swaps 
within the same asset class.

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Sec. Appendix B to Part 43--Enumerated Physical Commodity Contracts and 
                             Other Contracts

                 Enumerated Physical Commodity Contracts

                               Agriculture

ICE Futures U.S. Cocoa
ICE Futures U.S. Coffee C
Chicago Board of Trade Corn
ICE Futures U.S. Cotton No. 2
ICE Futures U.S. FCOJ-A
Chicago Mercantile Exchange Live Cattle
Chicago Board of Trade Oats
Chicago Board of Trade Rough Rice
Chicago Board of Trade Soybeans
Chicago Board of Trade Soybean Meal
Chicago Board of Trade Soybean Oil
ICE Futures U.S. Sugar No. 11
ICE Futures U.S. Sugar No. 16
Chicago Board of Trade Wheat
Minneapolis Grain Exchange Hard Red Spring Wheat
Kansas City Board of Trade Hard Winter Wheat
Chicago Mercantile Exchange Class III Milk
Chicago Mercantile Exchange Feeder Cattle
Chicago Mercantile Exchange Lean Hogs

[[Page 773]]

                                 Metals

Commodity Exchange, Inc. Copper
New York Mercantile Exchange Palladium
New York Mercantile Exchange Platinum
Commodity Exchange, Inc. Gold
Commodity Exchange, Inc. Silver

                                 Energy

New York Mercantile Exchange Light Sweet Crude Oil
New York Mercantile Exchange New York Harbor Gasoline Blendstock
New York Mercantile Exchange Henry Hub Natural Gas
New York Mercantile Exchange New York Harbor Heating Oil

                             Other Contracts

Brent Crude Oil (ICE)



    Sec. Appendix C to Part 43--Time Delays for Public Dissemination

    The tables below provide clarification of the time delays for public 
dissemination set forth inSec. 43.5. The first row of each table 
describes the asset classes to which each chart applies. The column 
entitled ``Yearly Phase-In'' indicates the periods beginning on the 
compliance date of this part and beginning on the anniversary of the 
compliance date thereafter. The column entitled ``Time Delay for Public 
Dissemination'' indicates the precise length of time delay, starting 
upon execution, for the public dissemination of such swap transaction 
and pricing data by a registered swap data repository.

    Table C1. Block Trades Executed on or Pursuant to the Rules of a 
    Registered Swap Execution Facility or Designated Contract Market 
             (Illustrating Sec.Sec. 43.5(d)(1) and (d)(2))

    Table C1 also designates the interim time delays for swaps described 
inSec. 43.5(c)(2).

                                                All Asset Classes
----------------------------------------------------------------------------------------------------------------
                         Yearly phase-in                                Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1...........................................................  30 minutes.
After Year 1.....................................................  15 minutes.
----------------------------------------------------------------------------------------------------------------

  Table C2. Large Notional Off-Facility Swaps Subject to the Mandatory 
    Clearing Requirement With at Least One Swap Dealer or Major Swap 
  Participant Counterparty (Illustrating Sec.Sec. 43.5(e)(2)(A) and 
                               (e)(2)(B))

    Table C2 excludes off-facility swaps that are excepted from the 
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act 
and Commission regulations and those off-facility swaps that are 
required to be cleared under Section 2(h)(2) of the Act and Commission 
regulations but are not cleared.
    Table C2 also designates the interim time delays for swaps described 
inSec. 43.5(c)(3).

                                                All Asset Classes
----------------------------------------------------------------------------------------------------------------
                         Yearly phase-in                                Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1...........................................................  30 minutes.
After Year 1.....................................................  15 minutes.
----------------------------------------------------------------------------------------------------------------

  Table C3. Large Notional Off-Facility Swaps Subject to the Mandatory 
 Clearing Requirement in Which Neither Counterparty Is a Swap Dealer or 
     Major Swap Participant (Illustrating Sec.Sec. 43.5(e)(3)(A), 
                        (e)(3)(B), and (e)(3)(C))

    Table C3 excludes off-facility swaps that are excepted from the 
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act 
and Commission regulations and those swaps that are required to be 
cleared under Section 2(h)(2) of the Act and Commission regulations but 
are not cleared.
    Table C3 also designates the interim time delays for swaps described 
inSec. 43.5(c)(3).

                                                All Asset Classes
----------------------------------------------------------------------------------------------------------------
                         Yearly phase-in                                Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1...........................................................  4 hours.
Year 2...........................................................  2 hours.
After Year 2.....................................................  1 hour.
----------------------------------------------------------------------------------------------------------------


[[Page 774]]

Table C4. Large Notional Off-Facility Swaps Not Subject to the Mandatory 
    Clearing Requirement With at Least One Swap Dealer or Major Swap 
Participant Counterparty (Illustrating Sec.Sec. 43.5(f)(1), (f)(2) and 
                                 (f)(3))

    Table C4 includes large notional off-facility swaps that are not 
subject to the mandatory clearing requirement or are exempt from such 
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act 
and Commission regulations.
    Table C4 also designates the interim time delays for swaps described 
inSec. 43.5(c)(4).

                         Interest Rates, Credit, Foreign Exchange, Equity Asset Classes
----------------------------------------------------------------------------------------------------------------
                         Yearly phase-in                                Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1...........................................................  1 hour.
                                                                   However, if such swap includes a non-swap
                                                                    dealer/non-major swap participant
                                                                    counterparty that is not a financial entity
                                                                    as defined in Section 2(h)(7)(C) of the Act
                                                                    and Commission regulations, then one hour
                                                                    immediately after execution; or if received
                                                                    later than one hour by the registered swap
                                                                    data repository, then public dissemination
                                                                    shall occur as soon as technologically
                                                                    practicable after the data is received.
Year 2...........................................................  30 minutes.
                                                                   However, if such swap includes a non-swap
                                                                    dealer/non-major swap participant
                                                                    counterparty that is not a financial entity
                                                                    as defined in Section 2(h)(7)(C) of the Act
                                                                    and Commission regulations, then 30 minutes
                                                                    immediately after execution; or if received
                                                                    later than 30 minutes by the registered swap
                                                                    data repository, then public dissemination
                                                                    shall occur as soon as technologically
                                                                    practicable after the data is received.
After Year 2.....................................................  30 minutes.
----------------------------------------------------------------------------------------------------------------

Table C5. Large Notional Off-Facility Swaps Not Subject to the Mandatory 
    Clearing Requirement With at Least One Swap Dealer or Major Swap 
 Participant Counterparty (Illustrating Sec.Sec. 43.5(g)(1), (g)(2), 
                               and (g)(3))

    Table C5 includes large notional off-facility swaps that are not 
subject to the mandatory clearing requirement or are excepted from such 
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act 
and Commission regulations.
    Table C5 also designates the interim time delays for swaps described 
inSec. 43.5(c)(5).

                                           Other Commodity Asset Class
----------------------------------------------------------------------------------------------------------------
                         Yearly phase-in                                Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1...........................................................  4 hours.
                                                                   However, if such swap includes a non-swap
                                                                    dealer/non-major swap participant
                                                                    counterparty that is not a financial entity
                                                                    as defined in Section 2(h)(7)(C) of the Act
                                                                    and Commission regulations, then four hours
                                                                    immediately after execution; or if received
                                                                    later than four hours by the registered swap
                                                                    data repository, then public dissemination
                                                                    shall occur as soon as technologically
                                                                    practicable after the data is received.
Year 2...........................................................  2 hours.
                                                                   However, if such swap includes a non-swap
                                                                    dealer/non-major swap participant
                                                                    counterparty that is not a financial entity
                                                                    as defined in Section 2(h)(7)(C) of the Act
                                                                    and Commission regulations, then two hours
                                                                    immediately after execution; or if received
                                                                    later than two hours by the registered swap
                                                                    data repository, then public dissemination
                                                                    shall occur as soon as technologically
                                                                    practicable after the data is received.
After Year 2.....................................................  2 hours.
----------------------------------------------------------------------------------------------------------------

Table C6. Large Notional Off-Facility Swaps Not Subject to the Mandatory 
 Clearing Requirement in Which Neither Counterparty Is a Swap Dealer or 
 Major Swap Participant (Illustrating Sec.Sec. 43.5(h)(1), (h)(2) and 
                                 (h)(3))

    Table C6 includes large notional off-facility swaps that are not 
subject to the mandatory clearing requirement or are exempt from such 
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act 
and Commission regulations.
    Table C6 also designates the interim time delays for swaps described 
inSec. 43.5(c)(6).

[[Page 775]]



                            All Asset Classes
------------------------------------------------------------------------
                                                       Time delay for
                  Yearly phase-in                   public dissemination
------------------------------------------------------------------------
Year 1............................................  48 business hours.
Year 2............................................  36 business hours.
After Year 2......................................  24 business hours.
------------------------------------------------------------------------



PART 44_INTERIM FINAL RULE FOR PRE-ENACTMENT SWAP TRANSACTIONS--
Table of Contents



Sec.
44.00 Definition of terms used in part 44 of this chapter.
44.01 Effective date.
44.02 Reporting pre-enactment swaps to a swap data repository or the 
          Commission.
44.03 Reporting transition swaps to a swap data repository or to the 
          Commission.

    Authority: 7 U.S.C. 2(h)(5), 4r, and 12a(5), as amended by Title VII 
of the Wall Street Reform and Consumer Protection Act (Dodd-Frank Act of 
2010), Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 75 FR 63084, Oct. 14, 2010, unless otherwise noted.



Sec.  44.00  Definition of terms used in part 44 of this chapter.

    (a) Major swap participant shall have the meaning provided in 
Section 1a(33) of the Commodity Exchange Act, as amended, and any rules 
or regulations thereunder.
    (b) Pre-enactment unexpired swap means any swap entered into prior 
to the enactment of the Dodd-Frank Act of 2010 (July 21, 2010) the terms 
of which had not expired as of the date of enactment of that Act;
    (c) Transition swap means any swap entered into after the enactment 
of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the effective 
date of the swap data reporting and recordkeeping rule implemented under 
Section 2(h)(5)(B) of the CEA.
    (d) Reporting entity, when used in this part, means any counterparty 
referenced or identified in Section 4r(a)(3)(A)-(C) of the Commodity 
Exchange Act, as amended;
    (e) Swap Data Repository shall have the meaning provided in Section 
1a(48) of the Commodity Exchange Act, as amended, and any rules or 
regulations thereunder;
    (f) Swap Dealer shall have the meaning provided in Section 1(a)(49) 
of the Commodity Exchange Act, as amended, and any rules or regulations 
thereunder;

[75 FR 63084, Oct. 14, 2010, as amended at 75 FR 78896, Dec. 17, 2010]



Sec.  44.01  Effective date.

    The provisions of this part are effective immediately on publication 
in the Federal Register.



Sec.  44.02  Reporting pre-enactment swaps to a swap data repository
or the Commission.

    (a) A counterparty to a pre-enactment unexpired swap transaction 
shall:
    (1) Report to a registered swap data repository or the Commission by 
the compliance date established in the reporting rules required under 
Section 2(h)(5) of the Commodity Exchange Act, or within 60 days after a 
swap data repository becomes registered with the Commission and 
commences operations to receive and maintain data related to such swap, 
whichever occurs first, the following information with respect to the 
swap transaction:
    (i) A copy of the transaction confirmation, in electronic form if 
available, or in written form if there is no electronic copy; and
    (ii) The time, if available, that the transaction was executed; and
    (2) Report to the Commission on request, in a form and manner 
prescribed by the Commission, any information relating to the swap 
transaction.

    Note to paragraphs (a)(1) and (a)(2). In order to comply with the 
reporting requirements contained in paragraph (a)(1) and (a)(2) of this 
section, each counterparty to a pre-enactment unexpired swap transaction 
that may be required to report such transaction should retain, in its 
existing format, all information and documents, to the extent and in 
such form as they presently exist, relating to the terms of a swap 
transaction, including but not limited to any information

[[Page 776]]

necessary to identify and value the transaction; the date and time of 
execution of the transaction; information relevant to the price of the 
transaction; whether the transaction was accepted for clearing and, if 
so, the identity of such clearing organization; any modification(s) to 
the terms of the transaction; and the final confirmation of the 
transaction.

    (b) Reporting party. The counterparties to a swap transaction shall 
report the information required under paragraph (a) of this section as 
follows:
    (1) Where only one counterparty to a swap transaction is a swap 
dealer or a major swap participant, the swap dealer or major swap 
participant shall report the transaction;
    (2) Where one counterparty to a swap transaction is a swap dealer 
and the other counterparty is a major swap participant, the swap dealer 
shall report the transaction; and
    (3) Where neither counterparty to a swap transaction is a swap 
dealer or a major swap participant, the counterparties to the 
transaction shall select the counterparty who will report the 
transaction.



Sec.  44.03  Reporting transition swaps to a swap data repository
or to the Commission.

    (a) A counterparty to a post-enactment pre-effective swap 
transaction shall:
    (1) As required by the reporting rules required to be adopted 
pursuant to Section 2(h)(5)(B) of the Commodity Exchange Act, report 
data related to a transition swap to a registered swap data repository 
or the Commission by the compliance date established in such reporting 
rules or within 60 days after an appropriate swap data repository 
becomes registered with the Commission and commences operations to 
receive and maintain data related to such swap, whichever occurs first, 
the following information with respect to the swap transaction:
    (i) A copy of the transaction confirmation, in electronic form if 
available, or in written form if there is no electronic copy;
    (ii) The time, if available, that the transaction was executed; and
    (2) Report to the Commission on request, in the form and manner 
prescribed by the Commission, any information relating to the swap 
transaction.
    Note to Paragraphs (a). In order to comply with the reporting 
requirements contained in paragraphs (a)(1) and (a)(2) of this section, 
each counterparty to a post-enactment pre-effective swap transaction 
that may be required to report such transaction should retain, in its 
existing format, all information and documents, to the extent and in 
such form as they exist on the effective date of this section, relating 
to: the terms of a swap transaction, including but not limited to any 
information necessary to identify and value the transaction (e.g., 
underlying asset and tenor); the date and time of execution of the 
transaction; volume (e.g., notional or principal amount); information 
relevant to the price and payment for the transaction until the swap is 
terminated, reaches maturity or is novated; whether the transaction was 
accepted for clearing and, if so, the identity of such clearing 
organization; any modification(s) to the terms of the transaction; and 
the final confirmation of the transaction.
    (b) Reporting party. The counterparties to a swap transaction shall 
report the information required under paragraph (a) of this section as 
follows:
    (1) Where only one counterparty to a swap transaction is a swap 
dealer or a major swap participant, the swap dealer or major swap 
participant shall report the transaction;
    (2) Where one counterparty to a swap transaction is a swap dealer 
and the other counterparty is a major swap participant, the swap dealer 
shall report the transaction; and
    (3) Where neither counterparty to a swap transaction is a swap 
dealer or a major swap participant, the counterparties to the 
transaction shall select the counterparty who will report the 
transaction.

[75 FR 78896, Dec. 17, 2010]



PART 45_SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS--
Table of Contents



Sec.
45.1 Definitions.
45.2 Swap recordkeeping.
45.3 Swap data reporting: Creation data.
45.4 Swap data reporting: Continuation data.
45.5 Unique swap identifiers.
45.6 Legal entity identifiers.
48.7 Unique product identifiers.

[[Page 777]]

45.8 Determination of which counterparty must report.
45.9 Third-party facilitation of data reporting.
45.10 Reporting to a single swap data repository.
45.11 Data reporting for swaps in a swap asset class not accepted by any 
          swap data repository.
45.12 Voluntary supplemental reporting.
45.13 Required data standards.
45.14 Reporting of errors and omissions in previously reported data.

Appendix 1 to Part 45--Tables of minimum primary economic terms data.

    Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a and 24, as amended by 
Title VII of the Wall Street Reform and Consumer Protection Act of 2010, 
Pub. L. 111-203, 124 Stat. 1376 (2010), unless otherwise noted.

    Source: 77 FR 2197, Jan. 13, 2012, unless otherwise noted.



Sec.  45.1  Definitions.

    As used in this part:
    Asset class means the broad category of goods, services or 
commodities, including any ``excluded commodity'' as defined in CEA 
section 1a(19), with common characteristics underlying a swap. The asset 
classes include credit, equity, foreign exchange (excluding cross-
currency), interest rate (including cross-currency), other commodity, 
and such other asset classes as may be determined by the Commission.
    Business day means the twenty-four hour day, on all days except 
Saturdays, Sundays, and legal holidays, in the location of the reporting 
counterparty or registered entity reporting data for the swap.
    Business hours means consecutive hours during one or more 
consecutive business days.
    Compliance date means the applicable date on which a registered 
entity or swap counterparty subject to the jurisdiction of the 
Commission is required to commence full compliance with all provisions 
of this part, as set forth in the preamble to this part.
    Confirmation (``confirming'') means the consummation (electronically 
or otherwise) of legally binding documentation (electronic or otherwise) 
that memorializes the agreement of the parties to all terms of a swap. A 
confirmation must be in writing (whether electronic or otherwise) and 
must legally supersede any previous agreement (electronically or 
otherwise).
    Confirmation data means all of the terms of a swap matched and 
agreed upon by the counterparties in confirming the swap. For cleared 
swaps, confirmation data also includes the internal identifiers assigned 
by the automated systems of the derivatives clearing organization to the 
two transactions resulting from novation to the clearing house.
    Credit swap means any swap that is primarily based on instruments of 
indebtedness, including, without limitation: Any swap primarily based on 
one or more broad-based indices related to instruments of indebtedness; 
and any swap that is an index credit swap or total return swap on one or 
more indices of debt instruments.
    Derivatives clearing organization has the meaning set forth in CEA 
section 1a(9), and any Commission regulation implementing that Section, 
including, without limitation,Sec. 39.5 of this chapter.
    Designated contract market has the meaning set forth in CEA section 
5, and any Commission regulation implementing that Section.
    Electronic confirmation (confirmation ``occurs electronically'') 
means confirmation that is done by means of automated electronic 
systems.
    Electronic reporting (``report electronically'') means the reporting 
of data normalized in data fields as required by the data standard or 
standards used by the swap data repository to which the data is 
reported. Except where specifically otherwise provided in this chapter, 
electronic reporting does not include submission of an image of a 
document or text file.
    Electronic verification (verification ``occurs electronically'') 
means verification that is done by means of automated electronic 
systems.
    Financial entity has the meaning set forth in CEA section 
2(h)(7)(C).
    Foreign exchange forward has the meaning set forth in CEA section 
1a(24).
    Foreign exchange instrument means an instrument that is both defined 
as a swap in part 1 of this chapter and included in the foreign exchange 
asset

[[Page 778]]

class. Instruments in the foreign exchange asset class include: Any 
currency option, foreign currency option, foreign exchange option, or 
foreign exchange rate option; any foreign exchange forward as defined in 
CEA section 1a(24); any foreign exchange swap as defined in CEA section 
1a(25); and any non-deliverable forward involving foreign exchange.
    Foreign exchange swap has the meaning set forth in CEA section 
1a(25). It does not include swaps primarily based on rates of exchange 
between different currencies, changes in such rates, or other aspects of 
such rates (sometimes known as ``cross-currency swaps'').
    Interest rate swap means any swap which is primarily based on one or 
more interest rates, such as swaps of payments determined by fixed and 
floating interest rates; or any swap which is primarily based on rates 
of exchange between different currencies, changes in such rates, or 
other aspects of such rates (sometimes known as ``cross-currency 
swaps'').
    International swap means a swap required by U.S. law and the law of 
another jurisdiction to be reported both to a swap data repository and 
to a different trade repository registered with the other jurisdiction.
    Life cycle event means any event that would result in either a 
change to a primary economic term of a swap or to any primary economic 
terms data previously reported to a swap data repository in connection 
with a swap. Examples of such events include, without limitation, a 
counterparty change resulting from an assignment or novation; a partial 
or full termination of the swap; a change to the end date for the swap; 
a change in the cash flows or rates originally reported; availability of 
a legal entity identifier for a swap counterparty previously identified 
by name or by some other identifier; or a corporate action affecting a 
security or securities on which the swap is based (e.g., a merger, 
dividend, stock split, or bankruptcy).
    Life cycle event data means all of the data elements necessary to 
fully report any life cycle event.
    Major swap participant has the meaning set forth in CEA section 
1a(33) and in part 1 of this chapter.
    Mixed swap has the meaning set forth in CEA section 1a(47)(D), and 
refers to an instrument that is in part a swap subject to the 
jurisdiction of the Commission, and in part a security-based swap 
subject to the jurisdiction of the SEC.
    Multi-asset swap means a swap that does not have one easily 
identifiable primary underlying notional item, but instead involves 
multiple underlying notional items within the Commission's jurisdiction 
that belong to different asset classes.
    Non-electronic confirmation (confirmation ``does not occur 
electronically'') means confirmation that is done manually rather than 
by means of automated electronic systems.
    Non-electronic verification (verification ``does not occur 
electronically'') means verification that is done manually rather than 
by means of automated electronic systems.
    Non-SD/MSP counterparty means a swap counterparty that is neither a 
swap dealer nor a major swap participant.
    Off-facility swap means a swap not executed on or pursuant to the 
rules of a swap execution facility or designated contract market.
    Other commodity swap means any swap not included in the credit, 
equity, foreign exchange, or interest rate asset classes, including, 
without limitation, any swap for which the primary underlying item is a 
physical commodity or the price or any other aspect of a physical 
commodity.
    Primary economic terms means all of the terms of a swap matched or 
affirmed by the counterparties in verifying the swap, including at a 
minimum each of the terms included in the most recent Federal Register 
release by the Commission listing minimum primary economic terms for 
swaps in the swap asset class in question. The Commission's current 
lists of minimum primary economic terms for swaps in each swap asset 
class are found in appendix 1 to part 45.
    Primary economic terms data means all of the data elements necessary 
to fully report all of the primary economic terms of a swap in the swap 
asset class of the swap in question.

[[Page 779]]

    Quarterly reporting (``reported quarterly'') means reporting four 
times each fiscal year, following the end of each fiscal year quarter, 
making each quarterly report within 30 calendar days of the end of the 
fiscal year quarter.
    Reporting counterparty means the counterparty required to report 
swap data pursuant to this part, selected as provided inSec. 45.8.
    Required swap continuation data means all of the data elements that 
must be reported during the existence of a swap to ensure that all data 
concerning the swap in the swap data repository remains current and 
accurate, and includes all changes to the primary economic terms of the 
swap occurring during the existence of the swap. For this purpose, 
required swap continuation data includes:
    (1) All life cycle event data for the swap if the swap is reported 
using the life cycle reporting method, or all state data for the swap if 
the swap is reported using the snapshot reporting method; and
    (2) All valuation data for the swap.
    Required swap creation data means all primary economic terms data 
for a swap in the swap asset class in question, and all confirmation 
data for the swap.
    State data means all of the data elements necessary to provide a 
snapshot view, on a daily basis, of all of the primary economic terms of 
a swap in the swap asset class of the swap in question, including any 
change to any primary economic term or to any previously-reported 
primary economic terms data since the last snapshot. At a minimum, state 
data must include each of the terms included in the most recent Federal 
Register release by the Commission listing minimum primary economic 
terms for swaps in the swap asset class in question. The Commission's 
current lists of minimum primary economic terms for swaps in each swap 
asset class are found in appendix 1 to part 45.
    Swap data repository has the meaning set forth in CEA section 
1a(48), and in part 49 of this chapter.
    Swap dealer has the meaning set forth in CEA section 1a(49), and in 
part 1 of this chapter.
    Swap execution facility has the meaning set forth in CEA section 
1a(50) and in part 37 of this chapter.
    Valuation data means all of the data elements necessary to fully 
describe the daily mark of the transaction, pursuant to CEA section 
4s(h)(3)(B)(iii), and toSec. 23.431 of this chapter if applicable.
    Verification (``verify,'' ``verified,'' or ``verifying'') means the 
matching by the counterparties to a swap of each of the primary economic 
terms of a swap, at or shortly after the time the swap is executed.



Sec.  45.2  Swap recordkeeping.

    (a) Recordkeeping by swap execution facilities, designated contract 
markets, derivatives clearing organizations, swap dealers, and major 
swap participants. Each swap execution facility, designated contract 
market, derivatives clearing organization, swap dealer, and major swap 
participant subject to the jurisdiction of the Commission shall keep 
full, complete, and systematic records, together with all pertinent data 
and memoranda, of all activities relating to the business of such entity 
or person with respect to swaps, as prescribed by the Commission. Such 
records shall include, without limitation, the following:
    (1) For swap execution facilities, all records required by part 37 
of this chapter.
    (2) For designated contract markets, all records required by part 38 
of this chapter.
    (3) For derivatives clearing organizations, all records required by 
part 39 of this chapter.
    (4) For swap dealers and major swap participants, all records 
required by part 23 of this chapter, and all records demonstrating that 
they are entitled, with respect to any swap, to elect the clearing 
requirement exception pursuant to CEA section 2(h)(7).
    (b) Recordkeeping by non-SD/MSP counterparties. All non-SD/MSP 
counterparties subject to the jurisdiction of the Commission shall keep 
full, complete, and systematic records, together with all pertinent data 
and memoranda, with respect to each swap in which they are a 
counterparty, including, without limitation, all records

[[Page 780]]

demonstrating that they are entitled, with respect to any swap, to elect 
the clearing requirement exception in CEA section 2(h)(7).
    (c) Record retention. All records required to be kept pursuant to 
this section shall be retained with respect to each swap throughout the 
life of the swap and for a period of at least five years following the 
final termination of the swap.
    (d) Retention form. Records required to be kept pursuant to this 
section must be kept as required by paragraph (d)(1) or (2) of this 
section, as applicable.
    (1) Records required to be kept by swap execution facilities, 
designated contract markets, derivatives clearing organizations, swap 
dealers, or major swap participants may be kept in electronic form, or 
kept in paper form if originally created and exclusively maintained in 
paper form, so long as they are retrievable, and information in them is 
reportable, as required by this section.
    (2) Records required to be kept by non-SD/MSP counterparties may be 
kept in either electronic or paper form, so long as they are 
retrievable, and information in them is reportable, as required by this 
section.
    (e) Record retrievability. Records required to be kept by swap 
execution facilities, designated contract markets, derivatives clearing 
organizations, or swap counterparties pursuant to this section shall be 
retrievable as provided in paragraphs (e)(1) and (2) of this section, as 
applicable.
    (1) Each record required by this section or any other section of the 
CEA to be kept by a swap execution facility, designated contract market, 
derivatives clearing organization, swap dealer, or major swap 
participant shall be readily accessible via real time electronic access 
by the registrant throughout the life of the swap and for two years 
following the final termination of the swap, and shall be retrievable by 
the registrant within three business days through the remainder of the 
period following final termination of the swap during which it is 
required to be kept.
    (2) Each record required by this section or any other section of the 
CEA to be kept by a non-SD/MSP counterparty shall be retrievable by that 
counterparty within five business days throughout the period during 
which it is required to be kept.
    (f) Recordkeeping by swap data repositories. Each swap data 
repository registered with the Commission shall keep full, complete, and 
systematic records, together with all pertinent data and memoranda, of 
all activities relating to the business of the swap data repository and 
all swap data reported to the swap data repository, as prescribed by the 
Commission. Such records shall include, without limitation, all records 
required by part 49 of this chapter.
    (g) Record retention and retrievability by swap data repositories. 
All records required to be kept by a swap data repository pursuant to 
this section must be kept by the swap data repository both:
    (1) Throughout the existence of the swap and for five years 
following final termination of the swap, during which time the records 
must be readily accessible by the swap data repository and available to 
the Commission via real time electronic access; and
    (2) Thereafter, for a period of at least ten additional years in 
archival storage from which they are retrievable by the swap data 
repository within three business days.
    (h) Record inspection. All records required to be kept pursuant to 
this section by any registrant or its affiliates or by any non-SD/MSP 
counterparty subject to the jurisdiction of the Commission shall be open 
to inspection upon request by any representative of the Commission, the 
United States Department of Justice, or the Securities and Exchange 
Commission, or by any representative of a prudential regulator as 
authorized by the Commission. Copies of all such records shall be 
provided, at the expense of the entity or person required to keep the 
record, to any representative of the Commission upon request. Copies of 
records required to be kept by any registrant shall be provided either 
by electronic means, in hard copy, or both, as requested by the 
Commission, with the sole exception that copies of records originally 
created and exclusively maintained in paper form may be provided in hard 
copy only. Copies of

[[Page 781]]

records required to be kept by any non-SD/MSP counterparty subject to 
the jurisdiction of the Commission that is not a Commission registrant 
shall be provided in the form, whether electronic or paper, in which the 
records are kept.



Sec.  45.3  Swap data reporting: creation data.

    Registered entities and swap counterparties must report required 
swap creation data electronically to a swap data repository as set forth 
in this Section. This obligation commences on the applicable compliance 
date set forth in the preamble to this part. The reporting obligations 
of swap counterparties with respect to swaps executed prior to the 
applicable compliance date and in existence on or after July 21, 2010, 
the date of enactment of the Dodd-Frank Act, are set forth in part 46 of 
this chapter. This section andSec. 45.4 establish the general swap 
data reporting obligations of swap dealers, major swap participants, 
non-SD/MSP counterparties, swap execution facilities, designated 
contract markets, and derivatives clearing organizations to report swap 
data to a swap data repository. In addition to the reporting obligations 
set forth in this section andSec. 45.4, registered entities and swap 
counterparties are subject to other reporting obligations set forth in 
this chapter, including, without limitation, the following: Swap 
dealers, major swap participants, and non-SD/MSP counterparties are also 
subject to the reporting obligations with respect to corporate 
affiliations reporting set forth inSec. 45.6; swap execution 
facilities, designated contract markets, swap dealers, major swap 
participants, and non-SD/MSP counterparties are subject to the reporting 
obligations with respect to real time reporting of swap data set forth 
in part 43 of this chapter; counterparties to a swap for which the 
clearing requirement exception in CEA section 2(h)(7) has been elected 
are subject to the reporting obligations set forth in part 39 of this 
chapter; and, where applicable, swap dealers, major swap participants, 
and non-SD/MSP counterparties are subject to the reporting obligations 
with respect to large traders set forth in parts 17 and 18 of this 
chapter.
    (a) Swaps executed on or pursuant to the rules of a swap execution 
facility or designated contract market. (1) For each swap executed on or 
pursuant to the rules of a swap execution facility or designated 
contract market, the swap execution facility or designated contract 
market must report all required swap creation data, as soon as 
technologically practicable after execution of the swap. This report 
must include all confirmation data for the swap, as defined in part 23 
and inSec. 45.1, and all primary economic terms data for the swap, as 
defined inSec. 45.1.
    (2) If such a swap is accepted for clearing by a derivatives 
clearing organization, the derivatives clearing organization must report 
all confirmation data for the swap, as defined in part 39 and inSec. 
45.1, as soon as technologically practicable after clearing. The 
derivatives clearing organization shall fulfill this requirement by 
reporting all confirmation data for the swap, as defined in part 39 and 
in thisSec. 45.1, which must include all primary economic terms data 
for the swap as defined inSec. 45.1, and must include the internal 
identifiers assigned by the automated systems of the derivatives 
clearing organization to the two transactions resulting from novation to 
the clearing house.
    (b) Off-facility swaps subject to mandatory clearing. For all off-
facility swaps subject to the mandatory clearing requirement, except for 
those off-facility swaps excepted from that requirement pursuant to CEA 
section 2(h)(7) and those off-facility swaps covered by CEA section 
2(a)(13)(C)(iv), required swap creation data must be reported as 
provided in paragraph (b) of this section.
    (1) The reporting counterparty, as determined pursuant toSec. 
45.8, must report all primary economic terms data for the swap, within 
the applicable reporting deadline set forth in paragraph (b)(1)(i) or 
(ii) of this section. However, if the swap is voluntarily submitted for 
clearing and accepted for clearing by a derivatives clearing 
organization before the applicable reporting deadline set forth in 
paragraphs (b)(1)(i) or (ii) of this section, and if the swap is 
accepted for clearing before the reporting

[[Page 782]]

counterparty reports any primary economic terms data to a swap data 
repository, then the reporting counterparty is excused from reporting 
required swap creation data for the swap.
    (i) If the reporting counterparty is a swap dealer or a major swap 
participant, the reporting counterparty must report all primary economic 
terms data for the swap as soon as technologically practicable after 
execution, but no later than: 30 minutes after execution during the 
first year following the compliance date; and 15 minutes after execution 
thereafter.
    (ii) If the reporting counterparty is a non-SD/MSP counterparty, the 
reporting counterparty must report all primary economic terms data for 
the swap as soon as technologically practicable after execution, but no 
later than: four business hours after execution during the first year 
following the compliance date; two business hours after execution during 
the second year following the compliance date; and one business hour 
after execution thereafter.
    (2) If the swap is accepted for clearing by a derivatives clearing 
organization, the derivatives clearing organization must report all 
confirmation data for the swap, as defined in part 39 and inSec. 45.1, 
as soon as technologically practicable after clearing. The derivatives 
clearing organization shall fulfill this requirement by reporting all 
confirmation data for the swap, as defined in part 39 and in thisSec. 
45.1, which must include all primary economic terms data for the swap as 
defined inSec. 45.1, and must include the internal identifiers 
assigned by the automated systems of the derivatives clearing 
organization to the two transactions resulting from novation to the 
clearing house.
    (3) If the swap is not accepted for clearing, the reporting 
counterparty must report all confirmation data for the swap, as defined 
inSec. 45.1, within the applicable reporting deadline set forth in 
paragraph (b)(3)(i) or (ii) of this section. During the first 180 
calendar days following the compliance date, if reporting confirmation 
data normalized in data fields is not yet technologically practicable 
for the reporting counterparty, the reporting counterparty may report 
confirmation data to the swap data repository by transmitting to the 
swap data repository an image of the document or documents constituting 
the confirmation, until such time as electronic reporting of 
confirmation data is technologically practicable for the reporting 
counterparty. Beginning 180 days after the compliance date, the 
reporting counterparty must report all confirmation data to the swap 
data repository electronically.
    (i) If the reporting counterparty is a swap dealer or major swap 
participant, the reporting counterparty must report all confirmation 
data as soon as technologically practicable following confirmation, but 
no later than: 30 minutes after confirmation if confirmation occurs 
electronically; or 24 business hours after confirmation if confirmation 
does not occur electronically.
    (ii) If the reporting counterparty is a non-SD/MSP counterparty, the 
reporting counterparty must report all confirmation data as soon as 
technologically practicable following confirmation, but no later than: 
the end of the second business day after the date of confirmation during 
the first year following the compliance date; and the end of the first 
business day after the date of confirmation thereafter.
    (c) Off-facility swaps not subject to mandatory clearing, with a 
swap dealer or major swap participant reporting counterparty. For all 
off-facility swaps not subject to the mandatory clearing requirement set 
forth in CEA section 2(h), all off-facility swaps for which the clearing 
requirement exception in CEA section 2(h)(7) has been elected, and all 
off-facility swaps covered by CEA section 2(a)(13)(C)(iv), for which a 
swap dealer or major swap participant is the reporting counterparty, 
required swap creation data must be reported as provided in paragraph 
(c) of this section.
    (1) Credit, equity, foreign exchange, and interest rate swaps. For 
each such credit swap, equity swap, foreign exchange instrument, or 
interest rate swap:
    (i) The reporting counterparty, as determined pursuant toSec. 
45.8, must report all primary economic terms data for the swap, within 
the applicable reporting deadline set forth in paragraph

[[Page 783]]

(c)(1)(i)(A) or (B) of this section. However, if the swap is voluntarily 
submitted for clearing and accepted for clearing by a derivatives 
clearing organization before the applicable reporting deadline set forth 
in paragraphs (c)(1)(i)(A) or (B) of this section, and if the swap is 
accepted for clearing before the reporting counterparty reports any 
primary economic terms data to a swap data repository, then the 
reporting counterparty is excused from reporting required swap creation 
data for the swap.
    (A) If the non-reporting counterparty is a swap dealer, a major swap 
participant, or a non-SD/MSP counterparty that is a financial entity as 
defined in CEA section 2(h)(7)(C), or if the non-reporting counterparty 
is a non-SD/MSP counterparty that is not a financial entity as defined 
in CEA section 2(h)(7)(C) and verification of primary economic terms 
occurs electronically, then the reporting counterparty must report all 
primary economic terms data for the swap as soon as technologically 
practicable after execution, but no later than: one hour after execution 
during the first year following the compliance date; and 30 minutes 
after execution thereafter.
    (B) If the non-reporting counterparty is a non-SD/MSP counterparty 
that is not a financial entity as defined in CEA section 2(h)(7)(C), and 
if verification of primary economic terms does not occur electronically, 
then the reporting counterparty must report all primary economic terms 
data for the swap as soon as technologically practicable after 
execution, but no later than: 24 business hours after execution during 
the first year following the compliance date; 12 business hours after 
execution during the second year following the compliance date; and 30 
minutes after execution thereafter.
    (ii) If the swap is accepted for clearing by a derivatives clearing 
organization, the derivatives clearing organization must report all 
confirmation data for the swap, as defined in part 39 and inSec. 45.1, 
as soon as technologically practicable after clearing. The derivatives 
clearing organization shall fulfill this requirement by reporting all 
confirmation data for the swap, as defined in part 39 and in thisSec. 
45.1, which must include all primary economic terms data for the swap as 
defined inSec. 45.1, and must include the internal identifiers 
assigned by the automated systems of the derivatives clearing 
organization to the two transactions resulting from novation to the 
clearing house.
    (iii) If the swap is not voluntarily submitted for clearing, the 
reporting counterparty must report all confirmation data for the swap, 
as defined inSec. 45.1, as soon as technologically practicable after 
confirmation, but no later than: 30 minutes after confirmation if 
confirmation occurs electronically; or 24 business hours after 
confirmation if confirmation does not occur electronically. During the 
first 180 calendar days following the compliance date, if reporting 
confirmation data normalized in data fields is not yet technologically 
practicable for the reporting counterparty, the reporting counterparty 
may report confirmation data to the swap data repository by transmitting 
to the swap data repository an image of the document or documents 
constituting the confirmation, until such time as electronic reporting 
of confirmation data is technologically practicable for the reporting 
counterparty. Beginning 180 days after the compliance date, the 
reporting counterparty must report all confirmation data to the swap 
data repository electronically.
    (2) Other commodity swaps. For each such other commodity swap:
    (i) The reporting counterparty, as determined pursuant toSec. 
45.8, must report all primary economic terms data for the swap, within 
the applicable reporting deadline set forth in paragraph (c)(2)(i)(A) or 
(B) of this section. However, if the swap is voluntarily submitted for 
clearing and accepted for clearing by a derivatives clearing 
organization before the applicable reporting deadline set forth in 
paragraphs (c)(2)(i)(A) or (B) of this section, and if the swap is 
accepted for clearing before the reporting counterparty reports any 
primary economic terms data to a swap data repository, then the 
reporting counterparty is excused from reporting required swap creation 
data for the swap.

[[Page 784]]

    (A) If the non-reporting counterparty is a swap dealer, a major swap 
participant, or a non-SD/MSP counterparty that is a financial entity as 
defined in CEA section 2(h)(7)(C), or if the non-reporting counterparty 
is a non-SD/MSP counterparty that is not a financial entity as defined 
in CEA section 2(h)(7)(C) and verification of primary economic terms 
occurs electronically, then the reporting counterparty must report all 
primary economic terms data for the swap as soon as technologically 
practicable after execution, but no later than: four hours after 
execution during the first year following the compliance date; and two 
hours after execution thereafter.
    (B) If the non-reporting counterparty is a non-SD/MSP counterparty 
that is not a financial entity as defined in CEA section 2(h)(7)(C), and 
if verification of primary economic terms does not occur electronically, 
then the reporting counterparty must report all primary economic terms 
data for the swap as soon as technologically practicable after 
execution, but no later than: 48 business hours after execution during 
the first year following the compliance date; 24 business hours after 
execution during the second year following the compliance date; and two 
hours after execution thereafter.
    (ii) If the swap is accepted for clearing by a derivatives clearing 
organization, the derivatives clearing organization must report all 
confirmation data for the swap, as defined in part 39 and inSec. 45.1, 
as soon as technologically practicable after clearing. The derivatives 
clearing organization shall fulfill this requirement by reporting all 
confirmation data for the swap, as defined in part 39 and in thisSec. 
45.1, which must include all primary economic terms data for the swap as 
defined inSec. 45.1, and must include the internal identifiers 
assigned by the automated systems of the derivatives clearing 
organization to the two transactions resulting from novation to the 
clearing house.
    (iii) If the swap is not voluntarily submitted for clearing, the 
reporting counterparty must report all confirmation data for the swap, 
as defined inSec. 45.1, as soon as technologically practicable after 
confirmation, but no later than: 30 minutes after confirmation if 
confirmation occurs electronically; or 24 business hours after 
confirmation if confirmation does not occur electronically. During the 
first 180 calendar days following the compliance date, if reporting 
confirmation data normalized in data fields is not yet technologically 
practicable for the reporting counterparty, the reporting counterparty 
may report confirmation data to the swap data repository by transmitting 
to the swap data repository an image of the document or documents 
constituting the confirmation, until such time as electronic reporting 
of confirmation data is technologically practicable for the reporting 
counterparty. Beginning 180 days after the compliance date, the 
reporting counterparty must report all confirmation data to the swap 
data repository electronically.
    (d) Off-facility swaps not subject to mandatory clearing, with a 
non-SD/MSP reporting counterparty. For all off-facility swaps not 
subject to the mandatory clearing requirement set forth in CEA section 
2(h), all off-facility swaps for which the clearing requirement 
exception in CEA section 2(h)(7) has been elected, and all off-facility 
swaps covered by CEA section 2(a)(13)(C)(iv), in all asset classes, for 
which a non-SD/MSP counterparty is the reporting counterparty, required 
swap creation data must be reported as provided in this paragraph (d).
    (1) The reporting counterparty, as determined pursuant toSec. 
45.8, must report all primary economic terms data for the swap, as soon 
as technologically practicable after execution, but no later than: 48 
business hours after execution during the first year following the 
compliance date; 36 business hours after execution during the second 
year following the compliance date; and 24 business hours after 
execution thereafter. However, if the swap is voluntarily submitted for 
clearing and accepted for clearing by a derivatives clearing 
organization before the applicable reporting deadline set forth in this 
paragraph (d)(1), and if the swap is accepted for clearing before the 
reporting counterparty reports any primary economic terms data to a swap 
data repository, then the reporting

[[Page 785]]

counterparty is excused from reporting required swap creation data for 
the swap.
    (2) If the swap is accepted for clearing by a derivatives clearing 
organization, the derivatives clearing organization must report all 
confirmation data for the swap, as defined in part 39 and inSec. 45.1, 
as soon as technologically practicable after clearing. The derivatives 
clearing organization shall fulfill this requirement by reporting all 
confirmation data for the swap, as defined in part 39 and in thisSec. 
45.1, which must include all primary economic terms data for the swap as 
defined inSec. 45.1, and must include the internal identifiers 
assigned by the automated systems of the derivatives clearing 
organization to the two transactions resulting from novation to the 
clearing house.
    (3) If the swap is not voluntarily submitted for clearing, the 
reporting counterparty must report all confirmation data for the swap, 
as defined inSec. 45.1, as soon as technologically practicable after 
confirmation, but no later than: 48 business hours after confirmation 
during the first year following the compliance date; 36 business hours 
after confirmation during the second year following the compliance date; 
and 24 business hours after confirmation thereafter. During the first 
180 calendar days following the compliance date, if reporting 
confirmation data normalized in data fields is not yet technologically 
practicable for the reporting counterparty, the reporting counterparty 
may report confirmation data to the swap data repository by transmitting 
to the swap data repository an image of the document or documents 
constituting the confirmation, until such time as electronic reporting 
of confirmation data is technologically practicable for the reporting 
counterparty. Beginning 180 days after the compliance date, the 
reporting counterparty must report all confirmation data to the swap 
data repository electronically.
    (e) Allocations. For swaps involving allocation, required swap 
creation data shall be reported to a single swap data repository as 
follows.
    (i) Initial swap between reporting counterparty and agent. The 
initial swap transaction between the reporting counterparty and the 
agent shall be reported as required bySec. 45.3(a) through (d) of this 
part. A unique swap identifier for the initial swap transaction must be 
created as provided inSec. 45.5 of this part.
    (ii) Post-allocation swaps. (A) Duties of the agent. In accordance 
with this section, the agent shall inform the reporting counterparty of 
the identities of the reporting counterparty's actual counterparties 
resulting from allocation, as soon as technologically practicable after 
execution, but not later than eight business hours after execution.
    (B) Duties of the reporting counterparty. The reporting counterparty 
must report all required swap creation data for each swap resulting from 
allocation, to the same swap data repository to which the initial swap 
transaction is reported, as soon as technologically practicable after it 
is informed by the agent of the identities of its actual counterparties. 
The reporting counterparty must create a unique swap identifier for each 
such swap as required inSec. 45.5 of this part.
    (C) Duties of the swap data repository. The swap data repository to 
which the initial swap transaction and the post-allocation swaps are 
reported must map together the unique swap identifiers of the original 
swap transaction and of each of the post-allocation swaps.
    (f) Multi-asset swaps. For each multi-asset swap, required swap 
creation data and required swap continuation data shall be reported to a 
single swap data repository that accepts swaps in the asset class 
treated as the primary asset class involved in the swap by the swap 
execution facility, designated contract market, or reporting 
counterparty making the first report of required swap creation data 
pursuant to this section. The registered entity or reporting 
counterparty making the first report of required swap creation data 
pursuant to this section shall report all primary economic terms for 
each asset class involved in the swap.
    (g) Mixed swaps. (1) For each mixed swap, required swap creation 
data and required swap continuation data shall

[[Page 786]]

be reported to a swap data repository registered with the Commission and 
to a security-based swap data repository registered with the Securities 
and Exchange Commission. This requirement may be satisfied by reporting 
the mixed swap to a swap data repository or security-based swap data 
repository registered with both Commissions.
    (2) The registered entity or reporting counterparty making the first 
report of required swap creation data pursuant to this section shall 
ensure that the same unique swap identifier is recorded for the swap in 
both the swap data repository and the security-based swap data 
repository.
    (h) International swaps. For each international swap, the reporting 
counterparty shall report as soon as practicable to the swap data 
repository the identity of the non-U.S. trade repository not registered 
with the Commission to which the swap is also reported and the swap 
identifier used by the non-U.S. trade repository to identify the swap. 
If necessary, the reporting counterparty shall obtain this information 
from the non-reporting counterparty.



Sec.  45.4  Swap data reporting: continuation data.

    Registered entities and swap counterparties must report required 
swap continuation data electronically to a swap data repository as set 
forth in this section. This obligation commences on the applicable 
compliance date set forth in the preamble to this part. The reporting 
obligations of registered entities and swap counterparties with respect 
to swaps executed prior to the applicable compliance date and in 
existence on or after July 21, 2010, the date of enactment of the Dodd-
Frank Act, are set forth in part 46 of this chapter. This section and 
Sec.  45.3 establish the general swap data reporting obligations of swap 
dealers, major swap participants, non-SD/MSP counterparties, swap 
execution facilities, designated contract markets, and derivatives 
clearing organizations to report swap data to a swap data repository. In 
addition to the reporting obligations set forth in this section and 
Sec.  45.3, registered entities and swap counterparties are subject to 
other reporting obligations set forth in this chapter, including, 
without limitation, the following: Swap dealers, major swap 
participants, and non-SD/MSP counterparties are also subject to the 
reporting obligations with respect to corporate affiliations reporting 
set forth inSec. 45.6; swap execution facilities, designated contract 
markets, swap dealers, major swap participants, and non-SD/MSP 
counterparties are subject to the reporting obligations with respect to 
real time reporting of swap data set forth in part 43 of this chapter; 
and, where applicable, swap dealers, major swap participants, and non-
SD/MSP counterparties are subject to the reporting obligations with 
respect to large traders set forth in parts 17 and 18 of this chapter.
    (a) Continuation data reporting method. For each swap, regardless of 
asset class, reporting counterparties and derivatives clearing 
organizations required to report swap continuation data must do so in a 
manner sufficient to ensure that all data in the swap data repository 
concerning the swap remains current and accurate, and includes all 
changes to the primary economic terms of the swap occurring during the 
existence of the swap. Reporting entities and counterparties fulfill 
this obligation by reporting either life cycle event data or state data 
for the swap within the applicable deadlines set forth in this section. 
Reporting counterparties and derivatives clearing organizations required 
to report swap continuation data for a swap may fulfill their obligation 
to report either life cycle event data or state data by reporting:
    (1) Life cycle event data to a swap data repository that accepts 
only life cycle event data reporting;
    (2) State data to a swap data repository that accepts only state 
data reporting; or
    (3) Either life cycle event data or state data to a swap data 
repository that accepts both life cycle event data and state data 
reporting.
    (b) Continuation data reporting for cleared swaps. For all swaps 
cleared by a derivatives clearing organization, required continuation 
data must be reported as provided in this section.

[[Page 787]]

    (1) Life cycle event data or state data reporting. The derivatives 
clearing organization must report to the swap data repository either:
    (i) All life cycle event data for the swap, reported on the same day 
that any life cycle event occurs with respect to the swap; or
    (ii) All state data for the swap, reported daily.
    (2) Valuation data reporting. Valuation data for the swap must be 
reported as follows:
    (i) By the derivatives clearing organization, daily; and
    (ii) If the reporting counterparty is a swap dealer or major swap 
participant, by the reporting counterparty, daily. Non-SD/MSP reporting 
counterparties are not required to report valuation data for cleared 
swaps.
    (c) Continuation data reporting for uncleared swaps. For all swaps 
that are not cleared by a derivatives clearing organization, the 
reporting counterparty must report all required swap continuation data 
as provided in this section.
    (1) Life cycle event data or state data reporting. The reporting 
counterparty for the swap must report to the swap data repository either 
all life cycle event data for the swap or all state data for the swap, 
within the applicable deadline set forth in paragraphs (c)(1)(i) or (ii) 
of this section.
    (i) If the reporting counterparty is a swap dealer or major swap 
participant:
    (A) Life cycle event data must be reported on the same day that any 
life cycle event occurs, with the sole exception that life cycle event 
data relating to a corporate event of the non-reporting counterparty 
must be reported no later than the second business day after the day on 
which such event occurs.
    (B) State data must be reported daily.
    (ii) If the reporting counterparty is a non-SD/MSP counterparty:
    (A) Life cycle event data must be reported no later than: the end of 
the second business day following the date of any life cycle event 
during the first year after the applicable compliance date; and the end 
of the first business day following the date of any life cycle event 
thereafter; with the sole exception that life cycle event data relating 
to a corporate event of the non-reporting counterparty must be reported 
no later than the end of the third business day following the date of 
such event during the first year after the compliance date, and no later 
than the end of the second business day following such event thereafter.
    (B) State data must be reported daily.
    (2) Valuation data reporting. Valuation data for the swap must be 
reported by the reporting counterparty for the swap as follows:
    (i) If the reporting counterparty is a swap dealer or major swap 
participant, the reporting counterparty must report all valuation data 
for the swap, daily.
    (ii) If the reporting counterparty is a non-SD/MSP counterparty, the 
reporting counterparty must report the current daily mark of the 
transaction as of the last day of each fiscal quarter. This report must 
be transmitted to the swap data repository within 30 calendar days of 
the end of each fiscal quarter. If a daily mark of the transaction is 
not available for the swap, the reporting counterparty satisfies this 
requirement by reporting the current valuation of the swap recorded on 
its books in accordance with applicable accounting standards.



Sec.  45.5  Unique swap identifiers.

    Each swap subject to the jurisdiction of the Commission shall be 
identified in all recordkeeping and all swap data reporting pursuant to 
this part by the use of a unique swap identifier, which shall be 
created, transmitted, and used for each swap as provided in paragraphs 
(a) through (c) of this section.
    (a) Swaps executed on a swap execution facility or designated 
contract market. For each swap executed on a swap execution facility or 
designated contract market, the swap execution facility or designated 
contract market shall create and transmit a unique swap identifier as 
provided in paragraphs (a)(1) and (2) of this section.
    (1) Creation. The swap execution facility or designated contract 
market shall generate and assign a unique swap identifier at, or as soon 
as technologically practicable following, the time of execution of the 
swap, and

[[Page 788]]

prior to the reporting of required swap creation data. The unique swap 
identifier shall consist of a single data field that contains two 
components:
    (i) The unique alphanumeric code assigned to the swap execution 
facility or designated contract market by the Commission for the purpose 
of identifying the swap execution facility or designated contract market 
with respect to unique swap identifier creation; and
    (ii) An alphanumeric code generated and assigned to that swap by the 
automated systems of the swap execution facility or designated contract 
market, which shall be unique with respect to all such codes generated 
and assigned by that swap execution facility or designated contract 
market.
    (2) Transmission. The swap execution facility or designated contract 
market shall transmit the unique swap identifier electronically as 
follows:
    (i) To the swap data repository to which the swap execution facility 
or designated contract market reports required swap creation data for 
the swap, as part of that report;
    (ii) To each counterparty to the swap, as soon as technologically 
practicable after execution of the swap;
    (iii) To the derivatives clearing organization, if any, to which the 
swap is submitted for clearing, as part of the required swap creation 
data transmitted to the derivatives clearing organization for clearing 
purposes.
    (b) Off-facility swaps with a swap dealer or major swap participant 
reporting counterparty. For each off-facility swap where the reporting 
counterparty is a swap dealer or major swap participant, the reporting 
counterparty shall create and transmit a unique swap identifier as 
provided in paragraphs (b)(1) and (2) of this section.
    (1) Creation. The reporting counterparty shall generate and assign a 
unique swap identifier as soon as technologically practicable after 
execution of the swap and prior to both the reporting of required swap 
creation data and the transmission of data to a derivatives clearing 
organization if the swap is to be cleared. The unique swap identifier 
shall consist of a single data field that contains two components:
    (i) The unique alphanumeric code assigned to the swap dealer or 
major swap participant by the Commission at the time of its registration 
as such, for the purpose of identifying the swap dealer or major swap 
participant with respect to unique swap identifier creation; and
    (ii) An alphanumeric code generated and assigned to that swap by the 
automated systems of the swap dealer or major swap participant, which 
shall be unique with respect to all such codes generated and assigned by 
that swap dealer or major swap participant.
    (2) Transmission. The reporting counterparty shall transmit the 
unique swap identifier electronically as follows:
    (i) To the swap data repository to which the reporting counterparty 
reports required swap creation data for the swap, as part of that 
report;
    (ii) To the non-reporting counterparty to the swap, as soon as 
technologically practicable after execution of the swap; and
    (iii) To the derivatives clearing organization, if any, to which the 
swap is submitted for clearing, as part of the required swap creation 
data transmitted to the derivatives clearing organization for clearing 
purposes.
    (c) Off-facility swaps with a non-SD/MSP reporting counterparty. For 
each off-facility swap for which the reporting counterparty is a non-SD/
MSP counterparty, the swap data repository to which primary economic 
terms data is reported shall create and transmit a unique swap 
identifier as provided in paragraphs (c)(1) and (2) of this section.
    (1) Creation. The swap data repository shall generate and assign a 
unique swap identifier as soon as technologically practicable following 
receipt of the first report of required swap creation data concerning 
the swap. The unique swap identifier shall consist of a single data 
field that contains two components:
    (i) The unique alphanumeric code assigned to the swap data 
repository by the Commission at the time of its registration as such, 
for the purpose of identifying the swap data repository with respect to 
unique swap identifier creation; and

[[Page 789]]

    (ii) An alphanumeric code generated and assigned to that swap by the 
automated systems of the swap data repository, which shall be unique 
with respect to all such codes generated and assigned by that swap data 
repository.
    (2) Transmission. The swap data repository shall transmit the unique 
swap identifier electronically as follows:
    (i) To the counterparties to the swap, as soon as technologically 
practicable following creation of the unique swap identifier; and
    (ii) To the derivatives clearing organization, if any, to which the 
swap is submitted for clearing, as soon as technologically practicable 
following creation of the unique swap identifier.
    (d) Allocations. For swaps involving allocation, unique swap 
identifiers shall be created and transmitted as follows.
    (1) Initial swap between reporting counterparty and agent. The 
unique swap identifier for the initial swap transaction between the 
reporting counterparty and the agent shall be created as required by 
paragraph (a) through (c) of this section, and shall be transmitted as 
follows:
    (i) If the unique swap identifier is created by a swap execution 
facility or designated contract market, the swap execution facility or 
designated contract market must include the unique swap identifier in 
its swap creation data report to the swap data repository, and must 
transmit the unique identifier to the reporting counterparty and to the 
agent.
    (ii) If the unique swap identifier is created by the reporting 
counterparty, the reporting counterparty must include the unique swap 
identifier in its swap creation data report to the swap data repository, 
and must transmit the unique identifier to the agent.
    (2) Post-allocation swaps. The reporting counterparty must create a 
unique swap identifier for each of the individual swaps resulting from 
allocation, as soon as technologically practicable after it is informed 
by the agent of the identities of its actual counterparties, and must 
transmit each such unique swap identifier to:
    (i) The non-reporting counterparty for the swap in question.
    (ii) The agent.
    (iii) The derivatives clearing organization, if any, to which the 
swap is submitted for clearing, as part of the required swap creation 
data transmitted to the derivatives clearing organization for clearing 
purposes.
    (iv) The same swap data repository to which the initial swap 
transaction is reported, as part of the report of required swap creation 
data to the swap data repository.
    (e) Use. Each registered entity or swap counterparty subject to the 
jurisdiction of the Commission shall include the unique swap identifier 
for a swap in all of its records and all of its swap data reporting 
concerning that swap, from the time it creates or receives the unique 
swap identifier as provided in this section, throughout the existence of 
the swap and for as long as any records are required by the CEA or 
Commission regulations to be kept by that registered entity or 
counterparty concerning the swap, regardless of any life cycle events or 
any changes to state data concerning the swap, including, without 
limitation, any changes with respect to the counterparties to or the 
ownership of the swap. This requirement shall not prohibit the use by a 
registered entity or swap counterparty in its own records of any 
additional identifier or identifiers internally generated by the 
automated systems of the registered entity or swap counterparty, or the 
reporting to a swap data repository, the Commission, or another 
regulator of such internally generated identifiers in addition to the 
reporting of the unique swap identifier.



Sec.  45.6  Legal entity identifiers

    Each counterparty to any swap subject to the jurisdiction of the 
Commission shall be identified in all recordkeeping and all swap data 
reporting pursuant to this part by means of a single legal entity 
identifier as specified in this section.
    (a) Definitions. As used in this section:
    Control (``controlling,'' ``controlled by,'' ``under common control 
with'') means, for the purposes ofSec. 45.6, the possession, direct or 
indirect, of the power to direct or cause the direction of the 
management and policies of a

[[Page 790]]

person, whether through the ownership of voting interest, by contract, 
or otherwise. A person is presumed to control another person if the 
person: is a director, general partner or officer exercising executive 
responsibility (or having similar status or functions); directly or 
indirectly has the right to vote 25 percent or more of a class of voting 
interest or has the power to sell or direct the sale of 25 percent or 
more of a class of voting interest; or, in the case of a partnership, 
has the right to receive upon dissolution, or has contributed, 25 
percent or more of the capital.
    Legal identifier system means an LEI utility conforming with the 
requirements of this section that issues or is capable of issuing an LEI 
conforming with the requirements of this section, and is capable of 
maintaining LEI reference data as required by this section.
    Level one reference data means the minimum information needed to 
identify, on a verifiable basis, the legal entity to which a legal 
entity identifier is assigned. Level one reference data shall include, 
without limitation, all of the data elements included in ISO Standard 
17442. Examples of level one reference data include, without limitation, 
a legal entity's official legal name, its place of incorporation, and 
the address and contact information of its corporate headquarters.
    Level two reference data means information concerning the corporate 
affiliations or company hierarchy relationships of the legal entity to 
which a legal entity identifier is assigned. Examples of level two 
reference data include, without limitation, the identity of the legal 
entity's ultimate parent.
    Parent means, for the purposes ofSec. 45.6, a legal person that 
controls a counterparty to a swap required to be reported pursuant to 
this section, or that controls a legal entity identified or to be 
identified by a legal entity identifier provided by the legal identifier 
system designated by the Commission pursuant to this section.
    Self-registration means submission by a legal entity of its own 
level one or level two reference data, as applicable.
    Third-party registration means submission of level one or level two 
reference data, as applicable, for a legal entity that is or may become 
a swap counterparty, made by an entity or organization other than the 
legal entity identified by the submitted reference data. Examples of 
third-party registration include, without limitation, submission by a 
swap dealer or major swap participant of level one or level two 
reference data for its swap counterparties, and submission by a national 
numbering agency, national registration agency, or data service provider 
of level one or level two reference data concerning legal entities with 
respect to which the agency or service provider maintains information.
    Ultimate parent means, for the purposes ofSec. 45.6, a legal 
person that controls a counterparty to a swap required to be reported 
pursuant to this section, or that controls a legal entity identified or 
to be identified by a legal entity identifier provided by the legal 
identifier system designated by the Commission pursuant to this section, 
and that itself has no parent.
    (b) International standard for the legal entity identifier. The 
legal entity identifier used in all recordkeeping and all swap data 
reporting required by this part, following designation of the legal 
entity identifier system as provided in paragraph (c)(2) of this 
section, shall be issued under, and shall conform to, ISO Standard 
17442, Legal Entity Identifier (LEI), issued by the International 
Organisation for Standardisation.
    (b) Technical principles for the legal entity identifier. The legal 
entity identifier used in all recordkeeping and all swap data reporting 
required by this part shall conform to the technical principles set 
forth in paragraphs (b)(1) through (6) of this section.
    (1) Uniqueness. Only one legal entity identifier shall be assigned 
to any legal entity, and no legal entity identifier shall ever be 
reused. Each entity within a corporate organization or group structure 
that acts as a counterparty in any swap shall have its own legal entity 
identifier.
    (2) Neutrality. To ensure the persistence of the legal entity 
identifier, it shall have a format consisting of a single data field, 
and shall contain either no embedded intelligence or as little embedded 
intelligence as practicable.

[[Page 791]]

Entity characteristics of swap counterparties identified by legal entity 
identifiers shall constitute separate elements within a reference data 
system as set forth in paragraphs (a), (c)(2), (d), and (e) of this 
section.
    (3) Reliability. The legal entity identifier shall be supported by a 
trusted and auditable method of verifying the identity of the legal 
entity to which it is assigned, both initially and at appropriate 
intervals thereafter. The issuer of legal entity identifiers shall 
maintain minimum reference or identification data sufficient to verify 
that a user has been correctly identified. Issuance and maintenance of 
the legal entity identifier, and storage and maintenance of all 
associated data, shall involve robust quality assurance practices and 
system safeguards. At a minimum, such system safeguards shall include 
the system safeguards applied to swap data repositories by part 49 of 
this chapter.
    (4) Open Source. The schema for the legal entity identifier shall 
have an open standard that ensures to the greatest extent practicable 
that the legal entity identifier is compatible with existing automated 
systems of financial market infrastructures, market participants, and 
regulators.
    (5) Extensibility. The legal entity identifier shall be capable of 
becoming the single international standard for unique identification of 
legal entities across the financial sector on a global basis. Therefore, 
it shall be sufficiently extensible to cover all existing and potential 
future legal entities of all types that may be counterparties to swap, 
OTC derivative, or other financial transactions; that may be involved in 
any aspect of the financial issuance and transactions process; or that 
may be subject to required due diligence by financial sector entities.
    (6) Persistence. The legal entity identifier assigned to an entity 
shall persist despite all corporate events. When a corporate event 
results in a new entity, the new entity shall receive a new legal entity 
identifier, while the previous legal entity identifier or identifiers 
continue to identify the predecessor entity or entities in the record.
    (c) Governance principles for the legal entity identifier. The legal 
entity identifier used in all recordkeeping and all swap data reporting 
required by this part shall conform to the governance principles set 
forth in paragraphs (c)(1) through (4) of this section.
    (1) International governance. The issuance of the legal entity 
identifier used pursuant to this section, and any legal entity 
identifier utility formed for the purpose of issuing legal entity 
identifiers that are used pursuant to this section, shall be subject to 
international supervision as follows:
    (i) With respect to operations, by a governance structure that 
includes the Commission and other financial regulators in any 
jurisdiction requiring use of the legal entity identifier pursuant to 
applicable law. The governance structure shall have authority sufficient 
to ensure, and shall ensure, that issuance and maintenance of the legal 
entity identifier system adheres on an ongoing basis to the principles 
set forth in this section.
    (ii) With respect to adherence to ISO Standard 17442, by the 
International Organisation for Standardisation.
    (2) Reference data access. Access to reference data associated with 
the legal entity identifier shall enable use of the legal entity 
identifier as a public good, while respecting applicable law regarding 
data confidentiality. Accordingly:
    (i) Reference data associated with the legal entity identifier that 
is public under applicable law shall be available publicly and free of 
charge. Such data shall include, without limitation, level one reference 
data (i.e., the minimum reference data needed to verify the identity of 
the legal entity receiving each legal entity identifier), and a current 
directory of all issued legal entity identifiers.
    (ii) Collection and maintenance of, and access to, reference data 
associated with the legal entity identifier shall comply with applicable 
laws on data protection and confidentiality.
    (3) Non-profit operation and funding. Funding of both start-up and 
ongoing operation of the legal entity identifier system, including, 
without limitation, any legal entity identifier utility formed for the 
purpose of issuing legal entity identifiers that are used pursuant to 
this section, shall be conducted

[[Page 792]]

on a non-profit, reasonable cost-recovery basis, and shall be subject to 
international governance as provided in paragraph (c)(1) of this 
section.
    (4) Unbundling and non-restricted use. Issuance of the legal entity 
identifier shall not be tied to other services, if any, offered by the 
issuer, and information concerning the issuance process for new legal 
entity identifiers must be available publicly and free of charge. 
Restrictions shall not be imposed on use of the legal entity identifier 
by any person in its own products and services, or on use of the legal 
entity identifier and associated reference data by any financial 
regulator. Any intellectual property created as part of the legal entity 
identifier system shall be treated in a manner consistent with open 
source principles.
    (5) Commercial advantage prohibition. The legal entity identifier 
utility providing legal entity identifiers for use in compliance with 
this part shall not make any commercial or business use (other than the 
operation of the utility) of any reference data associated with the 
legal entity identifier that is not available to the public free of 
charge. This restriction shall also apply to any entity or person that 
participates in the utility, that is legally or otherwise affiliated or 
associated with the utility, or that provides third-party services to 
the utility or to any component, partner, affiliate, or associate 
thereof.
    (e) Designation of the legal entity identifier system. (1) The 
Commission shall determine, as provided in paragraphs (e)(1)(i) through 
(iii) of this section, whether a legal entity identifier system that 
satisfies the requirements set forth in this section is available to 
provide legal entity identifiers for registered entities and swap 
counterparties required to comply with this part.
    (i) In making this determination, the Commission shall consider, 
without limitation, the following factors:
    (A) Whether the LEI provided by the LEI utility is issued under, and 
conforms to, ISO Standard 17442, Legal Entity Identifier (LEI).
    (B) Whether the LEI provided by the LEI utility complies with all of 
the technical principles set forth in this rule.
    (C) Whether the LEI utility complies with all of the governance 
principles set forth in this rule.
    (D) Whether the LEI utility has demonstrated that it in fact can 
provide LEIs complying with this section for identification of swap 
counterparties in swap data reporting commencing as of the compliance 
dates set forth inSec. 45.5.
    (E) The acceptability of the LEI utility to industry participants 
required to use the LEI in complying with this part.
    (ii) In making this determination, the Commission shall consider all 
candidates meeting the criteria set forth in paragraph (e)(1)(i) of this 
section, but shall not consider any candidate that does not demonstrate 
that it in fact can provide LEIs for identification of swap 
counterparties in swap data reporting commencing as of the compliance 
dates set forth in this part.
    (iii) The Commission shall make this determination at a time it 
believes is sufficiently prior to the compliance dates set forth this 
part to enable issuance of LEIs far enough in advance of those 
compliance dates to enable compliance with this part.
    (2) If the Commission determines pursuant to paragraph (e)(1) of 
this section that such a legal entity identifier system is available, 
the Commission shall designate the legal entity identifier system as the 
provider of legal entity identifiers to be used in recordkeeping and 
swap data reporting pursuant to this part, by means of a Commission 
order that is published in the Federal Register and on the Web site of 
the Commission, as soon as practicable after such determination is made. 
The order shall include notice of this designation, the contact 
information of the LEI utility, and information concerning the procedure 
and requirements for obtaining legal entity identifiers.
    (3) If the Commission determines pursuant to paragraph (e)(1) of 
this section that such a legal entity identifier system is not yet 
available, the Commission shall publish notice of the determination in 
the Federal Register and on the Web site of the Commission, as soon as 
practicable after the determination is made. If the Commission

[[Page 793]]

later determines, pursuant to paragraphs (e)(1)(i) and (ii) of this 
section, that such a legal entity identifier system has become 
available, the Commission shall designate the legal entity identifier 
system as the provider of legal entity identifiers to be used in 
recordkeeping and swap data reporting pursuant to this part, by means of 
a Commission order that is published in the Federal Register and on the 
Web site of the Commission, as soon as practicable after such 
determination is made. The order shall include notice of this 
designation, the contact information of the LEI utility, and information 
concerning the procedure and requirements for obtaining legal entity 
identifiers.
    (e) Reference data reporting--(1) Reporting of level one reference 
data. Level one reference data for each counterparty to any swap subject 
to the jurisdiction of the Commission shall be reported, by means of 
self-registration, third-party registration, or both, into a public 
level one reference database maintained by the issuer of the legal 
entity identifier designated by the Commission pursuant to paragraph (d) 
of this section. Such level one reference data shall be reported at a 
time sufficient to ensure that the counterparty's legal entity 
identifier is available for inclusion in recordkeeping and swap data 
reporting as required by this section. All subsequent changes and 
corrections to level one reference data previously reported shall be 
reported to the issuer, by means of self-registration, third-party 
registration, or both, as soon as technologically practicable following 
occurrence of any such change or discovery of the need for a correction.
    (2) Reporting of level two reference data. (i) Level two reference 
data for each counterparty to any swap subject to the jurisdiction of 
the Commission, consisting of the identity of the counterparty's 
ultimate parent, shall be reported, by means of self-registration, 
third-party registration, or both, into a level two reference database. 
Where applicable law forbids such reporting, that fact and the citation 
of the law in question shall be reported in place of the data to which 
such law applies.
    (ii) All non-public level two reference data reported to the level 
two reference database shall be confidential, non-public, and available 
only to financial regulators in any jurisdiction requiring use of the 
legal entity identifier pursuant to applicable law.
    (iii) The Commission shall determine the location of the level two 
reference database by means of a Commission order that is published in 
the Federal Register and on the Web site of the Commission, as soon as 
practicable after such determination is made. The order shall include 
notice of the location of the level two reference database, and 
information concerning the procedure and requirements for reporting 
level two reference data to the database.
    (iv) The obligation to report level two reference data does not 
apply until the Commission has determined the location of the level two 
reference database as provided in paragraph (e)(2)(iii) of this section.
    (v) After the Commission determines the location of the level two 
reference database pursuant to paragraph (e)(2)(iii) of this section, 
required level two reference data shall be reported at a time sufficient 
to ensure that it is included in the database when the counterparty's 
legal entity identifier is included in recordkeeping and swap data 
reporting as required by this section.
    (vi) All subsequent changes and corrections to required level two 
reference data previously reported shall be reported into the level two 
reference database, by means of self-registration, third-party 
registration, or both, as soon as technologically practicable following 
occurrence of any such change or discovery of the need for a correction.
    (f) Use of the legal entity identifier system by registered entities 
and swap counterparties. (1) When a legal entity identifier system has 
been designated by the Commission pursuant to paragraph (e) of this 
section, each registered entity and swap counterparty shall use the 
legal entity identifier provided by that system in all recordkeeping and 
swap data reporting pursuant to this part.

[[Page 794]]

    (2) Before a legal entity identifier system has been designated by 
the Commission, each registered entity and swap counterparty shall use a 
substitute counterparty identifier created and assigned by a swap data 
repository in all recordkeeping and swap data reporting pursuant to this 
part, as follows:
    (i) When a swap involving one or more counterparties for which no 
substitute counterparty identifier has yet been created and assigned is 
reported to a swap data repository, the swap data repository shall 
create a substitute counterparty identifier for each such counterparty 
as provided in paragraph (f)(2)(ii) of this section, and assign the 
substitute counterparty identifier to that counterparty, as soon as 
technologically practicable after that swap is first reported to the 
swap data repository. In lieu of creating a substitute identifier as 
provided in paragraph (f)(2)(ii), the swap data repository may assign a 
unique substitute identifier provided by a third party service provider, 
if such identifier complies with all of the principles for LEIs set 
forth in this part.
    (ii) Each such substitute counterparty identifier created by a swap 
data repository shall consist of a single data field that contains two 
components, including:
    (A) The unique alphanumeric code assigned to the swap data 
repository by the Commission for the purpose of identifying the swap 
data repository; and
    (B) An alphanumeric code generated and assigned to that counterparty 
by the automated systems of the swap data repository, which shall be 
unique with respect to all such substitute counterparty identifier codes 
generated and assigned by that swap data repository.
    (iii) The swap data repository shall transmit each substitute 
counterparty identifier thus created to each counterparty to the swap, 
to each other registered entity associated with the swap, to each 
registered entity or swap counterparty who has made any report of any 
swap data to the swap data repository, and to each swap data repository 
registered with the Commission, as soon as technologically practicable 
after creation and assignment of the substitute counterparty identifier.
    (iv) Once any swap data repository has created and assigned such a 
substitute counterparty identifier to a swap counterparty and has 
transmitted it as required by paragraph (f)(2)(iii) of this section, all 
registered entities and swap counterparties shall use that substitute 
counterparty identifier to identify that counterparty in all swap data 
recordkeeping and reporting, until such time as the Commission 
designates a legal entity identifier system pursuant to paragraph (e) of 
this section.
    (3) For swaps reported pursuant to this part prior to Commission 
designation of a legal entity identifier system, after such designation 
each swap data repository shall map the legal entity identifiers for the 
counterparties to the substitute counterparty identifiers in the record 
for each such swap.
    (4) Prior to October 15, 2012, if a legal entity identifier system 
has been designated by the Commission as provided in this section, but a 
reporting counterparty's automated systems are not yet prepared to 
include legal entity identifiers in recordkeeping and swap data 
reporting pursuant to this part, the counterparty shall be excused from 
complying with paragraph (f)(1) of this section, and shall instead 
comply with paragraph (f)(2) of this section, until its automated 
systems are prepared with respect to legal entity identifiers, at which 
time it must commence compliance with paragraph (f)(1) of this section. 
This paragraph shall have no effect on or after October 15, 2012.



Sec.  45.7  Unique product identifiers.

    Each swap subject to the jurisdiction of the Commission shall be 
identified in all recordkeeping and all swap data reporting pursuant to 
this part by means of a unique product identifier and product 
classification system as specified in this section. Each swap 
sufficiently standardized to receive a unique product identifier shall 
be identified by a unique product identifier. Each swap not sufficiently 
standardized for this purpose shall be identified by its description 
using the product classification system.

[[Page 795]]

    (a) Requirements for the unique product identifier and product 
classification system. The unique product identifier and product 
classification system shall identify and describe the swap asset class 
and the sub-type within that asset class to which the swap belongs, and 
the underlying product for the swap, with sufficient distinctiveness and 
specificity to enable the Commission and other financial regulators to 
fulfill their regulatory responsibilities and to assist in real time 
reporting of swaps as provided in the Act and part 43 of this chapter. 
The level of distinctiveness and specificity which the unique product 
identifier will provide shall be determined separately for each swap 
asset class.
    (b) Designation of the unique product identifier and product 
classification system. (1) The Commission shall determine when a unique 
product identifier and product classification system that is acceptable 
to the Commission and satisfies the requirements set forth in this 
section is available for use in compliance with this section.
    (2) When the Commission determines that such a unique product 
identifier and product classification system is available, the 
Commission shall designate the unique product identifier and product 
classification system to be used in recordkeeping and swap data 
reporting pursuant to this part, by means of a Commission order that is 
published in the Federal Register and on the Web site of the Commission, 
as soon as practicable after such determination is made. The order shall 
include notice of this designation, the contact information of the 
issuer of such unique product identifiers, and information concerning 
the procedure and requirements for obtaining unique product identifiers 
and using the product classification system.
    (c) Use of the unique product identifier and product classification 
system by registered entities and swap counterparties. (1) When a unique 
product identifier and product classification system has been designated 
by the Commission pursuant to paragraph (b) of this section, each 
registered entity and swap counterparty shall use the unique product 
identifier and product classification system in all recordkeeping and 
swap data reporting pursuant to this part.
    (2) Before a unique product identifier and product classification 
system has been designated by the Commission, each registered entity and 
swap counterparty shall use the internal product identifier or product 
description used by the swap data repository to which a swap is reported 
in all recordkeeping and swap data reporting pursuant to this part.



Sec.  45.8  Determination of which counterparty must report.

    The determination of which counterparty is the reporting 
counterparty for a swap shall be made as provided in this section.
    (a) If only one counterparty is a swap dealer, the swap dealer shall 
be the reporting counterparty.
    (b) If neither counterparty is a swap dealer, and only one 
counterparty is a major swap participant, the major swap participant 
shall be the reporting counterparty.
    (c) If both counterparties are non-SD/MSP counterparties, and only 
one counterparty is a financial entity as defined in CEA section 
2(h)(7)(C), the counterparty that is a financial entity shall be the 
reporting counterparty.
    (d) If both counterparties are swap dealers, or both counterparties 
are major swap participants, or both counterparties are non-SD/MSP 
counterparties that are financial entities as defined in CEA section 
2(h)(7)(C), or both counterparties are non-SD/MSP counterparties and 
neither counterparty is a financial entity as defined in CEA section 
2(h)(7)(C):
    (1) For a swap executed on or pursuant to the rules of a swap 
execution facility or designated contract market, the counterparties 
shall agree which counterparty shall be the reporting counterparty. The 
counterparties shall make this agreement after the swap execution 
facility or designated contract market notifies the counterparties, as 
provided in paragraph (h)(2) of this section, that paragraph (d) of this 
section applies to them, and not later than the end of the first 
business day following the date of execution of the swap. After this 
agreement is reached, the reporting counterparty shall report

[[Page 796]]

to the swap data repository that it is the reporting counterparty.
    (2) For an off-facility swap, the counterparties shall agree as one 
term of their swap which counterparty shall be the reporting 
counterparty.
    (e) Notwithstanding the provisions of paragraphs (a) through (d) of 
this section, if both counterparties to a swap are non-SD/MSP 
counterparties and only one counterparty is a U.S. person, that 
counterparty shall be the reporting counterparty.
    (f) Notwithstanding the provisions of paragraphs (a) through (e) of 
this section, if neither counterparty to a swap is a U.S. person, but 
the swap is executed on a swap execution facility or designated contract 
market or otherwise executed in the United States, or is cleared by a 
derivatives clearing organization:
    (1) For such a swap executed on or pursuant to the rules of a swap 
execution facility or designated contract market, the counterparties 
shall agree which counterparty shall be the reporting counterparty. The 
counterparties shall make this agreement after the swap execution 
facility or designated contract market notifies the counterparties, as 
provided in paragraph (h)(2) of this section, that neither counterparty 
is a U.S. person, and not later than the end of the first business day 
following the date of execution of the swap. After this agreement is 
reached, the reporting counterparty shall report to the swap data 
repository that it is the reporting counterparty.
    (2) For an off-facility swap, the counterparties shall agree as one 
term of their swap which counterparty shall be the reporting 
counterparty.
    (g) If a reporting counterparty selected pursuant to paragraphs (a) 
through (f) of this section ceases to be a counterparty to a swap due to 
an assignment or novation, the reporting counterparty for reporting of 
required swap continuation data following the assignment or novation 
shall be selected from the two current counterparties as provided in 
paragraphs (g)(1) through (4) of this section.
    (1) If only one counterparty is a swap dealer, the swap dealer shall 
be the reporting counterparty and shall fulfill all counterparty 
reporting obligations.
    (2) If neither counterparty is a swap dealer, and only one 
counterparty is a major swap participant, the major swap participant 
shall be the reporting counterparty and shall fulfill all counterparty 
reporting obligations.
    (3) If both counterparties are non-SD/MSP counterparties, and only 
one counterparty is a U.S. person, that counterparty shall be the 
reporting counterparty and shall fulfill all counterparty reporting 
obligations.
    (4) In all other cases, the counterparty that replaced the previous 
reporting counterparty by reason of the assignment or novation shall be 
the reporting counterparty, unless otherwise agreed by the 
counterparties.
    (h) For all swaps executed on or pursuant to the rules of a swap 
execution facility or designated contract market, the rules of the swap 
execution facility or designated contract market must require each swap 
counterparty to provide sufficient information to the swap execution 
facility or designated contract market to enable the swap execution 
facility or designated contract market to report all swap creation data 
as provided in this part.
    (1) To achieve this, the rules of the swap execution facility or 
designated contract market must require each market participant placing 
an order with respect to any swap traded on the swap execution facility 
or designated contract market to include in the order, without 
limitation:
    (i) The legal entity identifier of the market participant placing 
the order, if available.
    (ii) A yes/no indication of whether the market participant is a swap 
dealer with respect to the product with respect to which the order is 
placed.
    (iii) A yes/no indication of whether the market participant is a 
major swap participant with respect to the product with respect to which 
the order is placed.
    (iv) A yes/no indication of whether the market participant is a 
financial entity as defined in CEA section (2)(h)(7)(C).
    (v) A yes/no indication of whether the market participant is a U.S. 
person.

[[Page 797]]

    (vi) If applicable, an indication that the market participant will 
elect the clearing requirement exception in CEA section (2)(h)(7) for 
any swap resulting from the order.
    (vii) If the swap will be allocated:
    (A) An indication that the swap will be allocated.
    (B) The legal entity identifier of the agent.
    (C) An indication of whether the swap is a post-allocation swap.
    (D) If the swap is a post-allocation swap, the unique swap 
identifier of the original transaction between the reporting 
counterparty and the agent.
    (2) To achieve this, the swap execution facility or designated 
contract market must use the information obtained pursuant to paragraph 
(h)(1) of this section to identify the counterparty that is the 
reporting counterparty pursuant to the CEA and this section, wherever 
possible. If the swap execution facility or designated contract market 
cannot identify the reporting counterparty from the information 
available to it as specified in paragraph (h) of this section, the swap 
execution facility or designated contract market shall:
    (i) Notify each counterparty, as soon as technologically practicable 
after execution of the swap, that it cannot identify whether that 
counterparty is the reporting counterparty, and, if applicable, that 
neither counterparty is a U.S. person; and
    (ii) Transmit to each counterparty the LEI (or substitute identifier 
as provided in this section) of the other counterparty.



Sec.  45.9  Third-party facilitation of data reporting.

    Registered entities and swap counterparties required by this part to 
report required swap creation data or required swap continuation data, 
while remaining fully responsible for reporting as required by this 
part, may contract with third-party service providers to facilitate 
reporting.



Sec.  45.10  Reporting to a single swap data repository.

    All swap data for a given swap must be reported to a single swap 
data repository, which shall be the swap data repository to which the 
first report of required swap creation data is made pursuant to this 
part.
    (a) Swaps executed on a swap execution facility or designated 
contract market. To ensure that all swap data for a swap executed on or 
pursuant to the rules of a swap execution facility or designated 
contract market is reported to a single swap data repository:
    (1) The swap execution facility or designated contract market that 
reports required swap creation data as required bySec. 45.3 shall 
report all such data to a single swap data repository. As soon as 
technologically practicable after execution, the swap execution facility 
or designated contract market shall transmit to both counterparties to 
the swap, and to the derivatives clearing organization, if any, that 
will clear the swap, both:
    (i) The identity of the swap data repository to which required swap 
creation data is reported by the swap execution facility or designated 
contract market; and
    (ii) The unique swap identifier for the swap, created pursuant to 
Sec.  45.5.
    (2) Thereafter, all required swap creation data and all required 
swap continuation data reported for the swap reported by any registered 
entity or counterparty shall be reported to that same swap data 
repository (or to its successor in the event that it ceases to operate, 
as provided in part 49 of this chapter).
    (b) Off-facility swaps with a swap dealer or major swap participant 
reporting counterparty. To ensure that all swap data for such swaps is 
reported to a single swap data repository:
    (1) If the reporting counterparty reports primary economic terms 
data to a swap data repository as required bySec. 45.3:
    (i) The reporting counterparty shall report primary economic terms 
data to a single swap data repository.
    (ii) As soon as technologically practicable after execution, but no 
later than as required pursuant toSec. 45.3, the reporting 
counterparty shall transmit to the other counterparty to the swap both 
the identity of the swap data repository to which primary economic terms 
data is reported by the reporting counterparty, and the unique swap

[[Page 798]]

identifier for the swap created pursuant toSec. 45.5.
    (iii) If the swap will be cleared, the reporting counterparty shall 
transmit to the derivatives clearing organization at the time the swap 
is submitted for clearing both the identity of the swap data repository 
to which primary economic terms data is reported by the reporting 
counterparty, and the unique swap identifier for the swap created 
pursuant toSec. 45.5.
    (2) If the reporting counterparty is excused from reporting primary 
economic terms data as provided inSec. 45.3(b) or (c):
    (i) Paragraph (b)(1) of this section shall not apply.
    (ii) At the time the swap is submitted for clearing, the reporting 
counterparty shall transmit to the derivatives clearing organization the 
unique swap identifier for the swap created pursuant toSec. 45.5, and 
notify the derivatives clearing organization that the reporting 
counterparty has not reported any required swap creation data for the 
swap to a swap data repository.
    (iii) The derivatives clearing organization shall report all 
required swap creation data for the swap to a single swap data 
repository. As soon as technologically practicable after clearing, the 
derivatives clearing organization shall transmit to both counterparties 
to the swap the identity of the swap data repository to which required 
swap creation data is reported by the derivatives clearing organization, 
and shall transmit to the non-reporting counterparty the unique swap 
identifier for the swap.
    (3) Thereafter, all required swap creation data and all required 
swap continuation data reported for the swap, by any registered entity 
or counterparty, shall be reported to the swap data repository to which 
swap data has been reported pursuant to paragraph (b)(1) or (b)(2) of 
this section (or to its successor in the event that it ceases to 
operate, as provided in part 49 of this chapter).
    (c) Off-facility swaps with a non-SD/MSP reporting counterparty. To 
ensure that all swap data for such swaps is reported to a single swap 
data repository:
    (1) If the reporting counterparty reports primary economic terms 
data to a swap data repository as required bySec. 45.3:
    (i) The reporting counterparty shall report primary economic terms 
data to a single swap data repository.
    (ii) As soon as technologically practicable after execution, but no 
later than as required pursuant toSec. 45.3, the reporting 
counterparty shall transmit to the other counterparty to the swap the 
identity of the swap data repository to which primary economic terms 
data was reported by the reporting counterparty.
    (iii) If the swap will be cleared, the reporting counterparty shall 
transmit to the derivatives clearing organization at the time the swap 
is submitted for clearing the identity of the swap data repository to 
which primary economic terms data was reported by the reporting 
counterparty.
    (2) If the reporting counterparty will be excused from reporting 
primary economic terms data as provided inSec. 45.3(b) or (c):
    (i) Paragraph (c)(1) of this section shall not apply.
    (ii) At the time the swap is submitted for clearing, the reporting 
counterparty shall notify the derivatives clearing organization that the 
reporting counterparty has not reported any required swap creation data 
for the swap to a swap data repository.
    (iii) The derivatives clearing organization shall report all 
required swap creation data for the swap to a single swap data 
repository. As soon as technologically practicable after clearing, the 
derivatives clearing organization shall transmit to both counterparties 
to the swap the identity of the swap data repository to which required 
swap creation data is reported by the derivatives clearing organization.
    (3) The swap data repository to which the swap is reported as 
provided in paragraph (c) of this section shall transmit the unique swap 
identifier created pursuant toSec. 45.5 to both counterparties and to 
the derivatives clearing organization, if any, as soon as 
technologically practicable after creation of the unique swap 
identifier.
    (4) Thereafter, all required swap creation data and all required 
swap continuation data reported for the swap, by any registered entity 
or

[[Page 799]]

counterparty, shall be reported to the swap data repository to which 
swap data has been reported pursuant to paragraph (c)(1) or (2) of this 
section (or to its successor in the event that it ceases to operate, as 
provided in part 49 of this chapter).



Sec.  45.11  Data reporting for swaps in a swap asset class not 
accepted by any swap data repository.

    (a) Should there be a swap asset class for which no swap data 
repository registered with the Commission currently accepts swap data, 
each registered entity or counterparty required by this part to report 
any required swap creation data or required swap continuation data with 
respect to a swap in that asset class must report that same data to the 
Commission.
    (b) Data reported to the Commission pursuant to this section shall 
be reported at times announced by the Commission and in an electronic 
file in a format acceptable to the Commission.
    (c) Delegation of authority to the Chief Information Officer: The 
Commission hereby delegates to its Chief Information Officer, until the 
Commission orders otherwise, the authority set forth in paragraph (c) of 
this section, to be exercised by the Chief Information Officer or by 
such other employee or employees of the Commission as may be designated 
from time to time by the Chief Information Officer. The Chief 
Information Officer may submit to the Commission for its consideration 
any matter which has been delegated in this paragraph. Nothing in this 
paragraph prohibits the Commission, at its election, from exercising the 
authority delegated in this paragraph. The authority delegated to the 
Chief Information Officer by paragraph (c) of this section shall 
include:
    (1) The authority to determine the manner, format, coding structure, 
and electronic data transmission standards and procedures acceptable to 
the Commission for the purposes of paragraphs (a) and (b) of this 
section.
    (2) The authority to determine whether the Commission may permit or 
require use by reporting entities or counterparties in reporting 
pursuant to this section of one or more particular data standards (such 
as FIX, FpML, ISO 20022, or some other standard), in order to 
accommodate the needs of different communities of users.
    (3) The dates and times at which required swap creation data or 
required swap continuation data shall be reported pursuant to this 
section.
    (d) The Chief Information Officer shall publish from time to time in 
the Federal Register and on the Web site of the Commission the format, 
data schema, electronic data transmission methods and procedures, and 
dates and times for reporting acceptable to the Commission with respect 
to swap data reporting pursuant to this section.



Sec.  45.12  Voluntary supplemental reporting

    (a) For purposes of this section, the term voluntary, supplemental 
report means any report of swap data to a swap data repository that is 
not required to be made pursuant to this part or any other part in this 
chapter.
    (b) A voluntary, supplemental report may be made only by a 
counterparty to the swap in connection with which the voluntary, 
supplemental report is made, or by a third-party service provider acting 
on behalf of a counterparty to the swap.
    (c) A voluntary, supplemental report may be made either to the swap 
data repository to which all required swap creation data and all 
required swap continuation data is reported for the swap pursuant to 
Sec.Sec. 45.3 and 45.10, or to a different swap data repository.
    (d) A voluntary, supplemental report must contain:
    (1) An indication that the report is a voluntary, supplemental 
report.
    (2) The unique swap identifier created pursuant to Sec.Sec. 45.5 
and 45.9. Therefore, no voluntary, supplemental report may be made until 
after the unique swap identifier has been created pursuant to Sec.Sec. 
45.5 and 45.9 and has been transmitted to the counterparty making the 
voluntary, supplemental report.
    (3) The identity of the swap data repository to which all required 
swap creation data and all required swap continuation data is reported 
for the swap pursuant to Sec.Sec. 45.3 and 45.10, if the voluntary 
supplemental report is made to a different swap data repository.

[[Page 800]]

    (4) The legal entity identifier (or substitute identifier) required 
bySec. 45.6 for the counterparty making the voluntary, supplemental 
report.
    (5) If applicable, an indication that the voluntary, supplemental 
report is made pursuant to the laws or regulations of any jurisdiction 
outside the United States.
    (e) If a counterparty that has made a voluntary, supplemental report 
discovers any errors in the swap data included in the voluntary, 
supplemental report, the counterparty must report a correction of each 
such error to the swap data repository to which the voluntary, 
supplemental report was made, as soon as technologically practicable 
after discovery of any such error.



Sec.  45.13  Required data standards.

    (a) Data maintained and furnished to the commission by swap data 
repositories. A swap data repository shall maintain all swap data 
reported to it in a format acceptable to the Commission, and shall 
transmit all swap data requested by the Commission to the Commission in 
an electronic file in a format acceptable to the Commission.
    (b) Data reported to swap data repositories. In reporting swap data 
to a swap data repository as required by this part, each reporting 
entity or counterparty shall use the facilities, methods, or data 
standards provided or required by the swap data repository to which the 
entity or counterparty reports the data. A swap data repository may 
permit reporting entities and counterparties to use various facilities, 
methods, or data standards, provided that its requirements in this 
regard enable it to meet the requirements of paragraph (a) of this 
section with respect to maintenance and transmission of swap data.
    (c) Delegation of authority to the Chief Information Officer. The 
Commission hereby delegates to its Chief Information Officer, until the 
Commission orders otherwise, the authority set forth in this paragraph 
(c), to be exercised by the Chief Information Officer or by such other 
employee or employees of the Commission as may be designated from time 
to time by the Chief Information Officer. The Chief Information Officer 
may submit to the Commission for its consideration any matter which has 
been delegated in this paragraph (c). Nothing in this paragraph 
prohibits the Commission, at its election, from exercising the authority 
delegated in this paragraph. The authority delegated to the Chief 
Information Officer by this paragraph (c) shall include:
    (1) The authority to determine the manner, format, coding structure, 
and electronic data transmission standards and procedures acceptable to 
the Commission for the purposes of paragraph (a) of this section.
    (2) The authority to determine whether the Commission may permit or 
require use by reporting entities or counterparties, or by swap data 
repositories, of one or more particular data standards (such as FIX, 
FpML, ISO 20022, or some other standard), in order to accommodate the 
needs of different communities of users, or to enable swap data 
repositories to comply with paragraph (a) of this section.
    (d) The Chief Information Officer shall publish from time to time in 
the Federal Register and on the Web site of the Commission the format, 
data schema, and electronic data transmission methods and procedures 
acceptable to the Commission.



Sec.  45.14  Reporting of errors and omissions in previously reported 
data.

    (a) Each registered entity and swap counterparty required by this 
part to report swap data to a swap data repository, to any other 
registered entity or swap counterparty, or to the Commission shall 
report any errors and omissions in the data so reported. Corrections of 
errors or omissions shall be reported as soon as technologically 
practicable after discovery of any such error or omission. With respect 
to swaps for which required swap continuation data is reported using the 
snapshot reporting method, reporting counterparties fulfill the 
requirement to report errors or omissions in state data previously 
reported by making appropriate corrections in their next daily report of 
state data as required by this part.
    (b) Each counterparty to a swap that is not the reporting 
counterparty as determined pursuant toSec. 45.8, and that discovers 
any error or omission with

[[Page 801]]

respect to any swap data reported to a swap data repository for that 
swap, shall promptly notify the reporting counterparty of each such 
error or omission. Upon receiving such notice, the reporting 
counterparty shall report a correction of each such error or omission to 
the swap data repository as provided in paragraph (a) of this section.
    (c) Unless otherwise approved by the Commission, or by the Chief 
Information Officer pursuant toSec. 45.13, each registered entity or 
swap counterparty reporting corrections to errors or omissions in data 
previously reported as required by this section shall report such 
corrections in the same format as it reported the erroneous or omitted 
data. Unless otherwise approved by the Commission, or by the Chief 
Information Officer pursuant toSec. 45.13, a swap data repository 
shall transmit corrections to errors or omission in data previously 
transmitted to the Commission in the same format as it transmitted the 
erroneous or omitted data.

[[Page 802]]



  Sec. Appendix 1 to Part 45--Tables of Minimum Primary Economic Terms 
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PART 46_SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS: 
PRE	ENACTMENT AND TRANSITION SWAPS--Table of Contents



46.1 Definitions.
46.2 Recordkeeping for pre-enactment swaps and transition swaps.
46.3 Swap data reporting for pre-enactment swaps and transition swaps.
46.4 Unique identifiers.
46.5 Determination of which counterparty must report.
46.6 Third-party facilitation of data reporting.
46.7 Reporting to a single swap data repository.
46.8 Data reporting for swaps in a swap asset class not accepted by any 
          swap data repository.
46.9 Voluntary supplemental reporting.
46.10 Required data standards.
46.11 Reporting of errors and omissions in previously reported data.

Appendix 1 to Part 46--Tables of Minimum Primary Economic Terms Data for 
          Pre-Enactment and Transition Swaps

    Authority: Title VII, sections 723 and 729, Pub. L. 111-203, 124 
Stat. 1738.

    Source: 77 FR 35226, June 12, 2012, unless otherwise noted.



Sec.  46.1  Definitions.

    Terms used in this part are defined as follows:
    Asset class means the broad category of goods, services or 
commodities, including any ``excluded commodity'' as defined in CEA 
section 1a(19), with common characteristics underlying a swap. The asset 
classes include credit, equity, foreign exchange (excluding cross-
currency), interest rate (including cross-currency), other commodity, 
and such other asset classes as may be determined by the Commission.
    Compliance date means the applicable date, as specified in part 45 
of this chapter, on which a registered entity or swap counterparty 
subject to the jurisdiction of the Commission is required to commence 
full compliance with all provisions of this part and with all applicable 
provisions of part 45 of this chapter, as set forth in the preamble to 
this part.
    Confirmation (confirming) means the consummation (electronically or 
otherwise) of legally binding documentation (electronic or otherwise) 
that memorializes the agreement of the parties to all terms of a swap. A 
confirmation must be in writing (whether electronic or otherwise) and 
must legally supersede any previous agreement (electronically or 
otherwise).
    Confirmation data means all of the terms of a swap matched and 
agreed upon by the counterparties in confirming the swap.
    Credit swap means any swap that is primarily based on instruments of 
indebtedness, including, without limitation: any swap primarily based on 
one or more broad-based indices related to instruments of indebtedness; 
and any swap that is an index credit swap or total return swap on one or 
more indices of debt instruments.
    Electronic reporting (``report electronically'') means the reporting 
of data normalized in data fields as required by the data standard or 
standards used by the swap data repository to which the data is 
reported. Except where specifically otherwise provided in this chapter, 
electronic reporting does not include submission of an image of a 
document or text file.
    Equity swap means any swap that is primarily based on equity 
securities, including, without limitation: any swap primarily based on 
one or more broad-based indices of equity securities; and any total 
return swap on one or more equity indices.
    Financial entity has the meaning set forth in CEA section 
2(h)(7)(C).
    Foreign exchange forward has the meaning set forth in CEA section 
1a(24).
    Foreign exchange instrument means an instrument that is both defined 
as a swap in part 1 of this chapter and included in the foreign exchange 
asset class. Instruments in the foreign exchange asset class include: 
any currency option, foreign currency option, foreign exchange option, 
or foreign exchange rate option; any foreign exchange forward as defined 
in CEA section 1a(24); any foreign exchange swap as defined in CEA 
section 1a(25); and any non-deliverable forward involving foreign 
exchange.
    Foreign exchange swap has the meaning set forth in CEA section 
1a(25). It does not include swaps primarily based on rates of exchange 
between different

[[Page 816]]

currencies, changes in such rates, or other aspects of such rates 
(sometimes known as ``cross-currency swaps'').
    Interest rate swap means any swap which is primarily based on one or 
more interest rates, such as swaps of payments determined by fixed and 
floating interest rates; or any swap which is primarily based on rates 
of exchange between different currencies, changes in such rates, or 
other aspects of such rates (sometimes known as ``cross-currency 
swaps'').
    International swap means a swap required by U.S. law and the law of 
another jurisdiction to be reported both to a swap data repository and 
to a different trade repository registered with the other jurisdiction.
    Major swap participant has the meaning set forth in CEA section 
1a(33) and in part 1 of this chapter.
    Minimum primary economic terms means, with respect to a historical 
swap, the terms included in the list of minimum primary economic terms 
for swaps in each swap asset class found in appendix 1 to this part.
    Minimum primary economic terms data means all of the data elements 
necessary to fully report all of the minimum primary economic terms 
required by this part to be reported for a swap in the swap asset class 
of the swap in question.
    Mixed swap has the meaning set forth in CEA section 1a(47)(D), and 
refers to an instrument that is in part a swap subject to the 
jurisdiction of the Commission, and in part a security-based swap 
subject to the jurisdiction of the SEC.
    Multi-asset swap means a swap that does not have one easily 
identifiable primary underlying notional item, but instead involves 
multiple underlying notional items within the Commission's jurisdiction 
that belong to different asset classes.
    Non-SD/MSP counterparty means a swap counterparty that is neither a 
swap dealer nor a major swap participant.
    Other commodity swap means any swap not included in the credit, 
equity, foreign exchange, or interest rate asset classes, including, 
without limitation, any swap for which the primary underlying item is a 
physical commodity or the price or any other aspect of a physical 
commodity.
    Pre-enactment swap means any swap entered into prior to enactment of 
the Dodd-Frank Act of 2010 (July 21, 2010), the terms of which have not 
expired as of the date of enactment of that Act.
    Reporting counterparty means the counterparty required to report 
swap data pursuant to this part, selected as provided inSec. 46.5.
    Required swap continuation data means all of the data elements that 
must be reported during the existence of a swap as required by part 45 
of this chapter.
    Swap data repository has the meaning set forth in CEA section 
1a(48), and in part 49 of this chapter.
    Swap dealer has the meaning set forth in CEA section 1a(49), and in 
part 1 of this chapter.
    Transition swap means any swap entered into on or after the 
enactment of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the 
applicable compliance date on which a registered entity or swap 
counterparty subject to the jurisdiction of the Commission is required 
to commence full compliance with all provisions of this part, as set 
forth in the preamble to this part.



Sec.  46.2  Recordkeeping for pre-enactment swaps and transition swaps.

    (a) Recordkeeping for pre-enactment and transition swaps in 
existence on or after April 25, 2011. Each counterparty subject to the 
jurisdiction of the Commission that is a counterparty to any pre-
enactment swap or transition swap that is in existence on or after April 
25, 2011 shall keep the following records concerning each such swap:
    (1) Minimum records required. Each counterparty shall keep records 
of all of the minimum primary economic terms data specified in appendix 
1 to this part.
    (2) Additional records required to be kept if possessed by a 
counterparty. In addition to the minimum records required pursuant to 
paragraph (a)(1) of this part, a counterparty that is in possession at 
any time on or after April 25, 2011 of any of the following 
documentation shall keep copies thereof:
    (i) Any confirmation of the swap executed by the counterparties.

[[Page 817]]

    (ii) Any master agreement governing the swap, and any modification 
or amendment thereof.
    (iii) Any credit support agreement, or other agreement between the 
counterparties having the same function as a credit support agreement, 
relating to the swap, and any modification or amendment thereof.
    (3) Records created or available after the compliance date. In 
addition to the records required to be kept pursuant to paragraphs 
(a)(1) and (2) of this section, each counterparty to any pre-enactment 
swap or transition swap that remains in existence on the compliance date 
shall keep for each such swap, from the compliance date forward, all of 
the records required to be kept by section 45.2 of this chapter, to the 
extent that any such records are created by or become available to the 
counterparty on or after the compliance date.
    (4) Retention form. Records required to be kept pursuant to this 
section with respect to historical swaps in existence on or after April 
25, 2011, must be kept as required by paragraph (a)(4)(i) or (ii) of 
this section, as applicable.
    (i) Records required to be kept by swap dealers or major swap 
participants may be kept in electronic form, or kept in paper form if 
originally created and exclusively maintained in paper form, so long as 
they are retrievable, and information in them is reportable as required 
by this part.
    (ii) Records required to be kept by non-SD/MSP counterparties may be 
kept in either electronic or paper form, so long as they are 
retrievable, and information in them is reportable, as required by this 
part.
    (b) Recordkeeping for pre-enactment and transition swaps expired or 
terminated prior to April 25, 2011. Each counterparty subject to the 
jurisdiction of the Commission that is a counterparty to any pre-
enactment swap or transition swap that is expired or terminated prior to 
April 25, 2011 shall keep the following records concerning each such 
swap:
    (1) Pre-enactment swaps expired prior to April 25, 2011. Each 
counterparty to any pre-enactment swap that expired or was terminated 
prior to April 25, 2011 shall retain the information and documents 
relating to the terms of the transaction that were possessed by the 
counterparty on or after October 14, 2010 (17 CFR 44.00 through 44.02). 
Such information may be retained in the format in which it existed on or 
after October 14, 2010, or in such other format as the counterparty 
chooses to retain it. This paragraph (b)(1) does not require the 
counterparty to create or retain records of information not in its 
possession on or after October 14, 2010, or to alter the format, i.e., 
the method by which the information is organized and stored.
    (2) Transition swaps expired prior to April 25, 2011. Each 
counterparty to any transition swap that expired or was terminated prior 
to April 25, 2011 shall retain the information and documents relating to 
the terms of the transaction that were possessed by the counterparty on 
or after December 17, 2010 (17 CFR 44.03). Such information may be 
retained in the format in which it existed on or after December 17, 
2010, or in such other format as the counterparty chooses to retain it. 
This paragraph (b)(2) does not require the counterparty to create or 
retain records of information not in its possession on or after December 
17, 2010, or to alter the format, i.e., the method by which the 
information is organized and stored.
    (c) Retention period. All records required to be kept by this 
section shall be kept from the applicable dates specified in paragraphs 
(a) or (b) of this section through the life of the swap, and for a 
period of at least five years from the final termination of the swap.
    (d) Retrieval. Records required to be kept pursuant to this section 
shall be retrievable as follows.
    (1) Retrieval for pre-enactment and transition swaps in existence on 
or after April 25, 2011. Records concerning pre-enactment and transition 
swaps in existence on or after April 25, 2011, shall be retrievable as 
follows:
    (i) Each record required to be kept by a counterparty that is a swap 
dealer or major swap participant shall be readily accessible via real 
time electronic access by the counterparty throughout the life of the 
swap and for two years following the final termination of the

[[Page 818]]

swap, and shall be retrievable by the registrant or its affiliates 
within three business days through the remainder of the period following 
final termination of the swap during which it is required to be kept.
    (ii) Each record required to be kept by a non-SD/MSP counterparty 
shall be retrievable by the counterparty within five business days 
throughout the period during which it is required to be kept.
    (2) Retrieval for pre-enactment and transition swaps expired or 
terminated prior to April 25, 2011. Records concerning pre-enactment and 
transition swaps expired or terminated prior to April 25, 2011, shall be 
retrievable by the counterparty within five business days throughout the 
period during which they are required to be kept.
    (e) Inspection. All records required to be kept pursuant to this 
section by any registrant or its affiliates or by any counterparty 
subject to the jurisdiction of the Commission shall be open to 
inspection upon request by any representative of the Commission, the 
United States Department of Justice, or the Securities and Exchange 
Commission, or by any representative of a prudential regulator as 
authorized by the Commission. Copies of all such records shall be 
provided, at the expense of the entity or person required to keep the 
record, to any representative of the Commission upon request. With 
respect to historical swaps in existence on or after April 25, 2011, 
copies of records required to be kept by any swap dealer or major swap 
participant shall be provided either by electronic means, in hard copy, 
or both, as requested by the Commission, with the sole exception that 
copies of records originally created and exclusively maintained in paper 
form may be provided in hard copy only; and copies of records required 
to be kept by any non-SD/MSP counterparty shall be provided in the form, 
whether electronic or paper, in which the records are kept. With respect 
to historical swaps expired or terminated prior to April 25, 2011, 
records shall be provided in the form, whether electronic or paper, in 
which the records are kept.



Sec.  46.3  Swap data reporting for pre-enactment swaps and transition
swaps.

    (a) Reporting for pre-enactment and transition swaps in existence on 
or after April 25, 2011--(1) Initial data report. For each pre-enactment 
swap or transition swap in existence on or after April 25, 2011, the 
reporting counterparty shall report electronically to a swap data 
repository (or to the Commission if no swap data repository for swaps in 
the asset class in question is available), on the compliance date, the 
following:
    (i) All of the minimum primary economic terms data specified in 
appendix 1 to this part that were in the possession of the reporting 
counterparty on or after April 25, 2011;
    (ii) The legal entity identifier of the reporting counterparty 
required pursuant toSec. 46.4; and
    (iii) The following additional identifiers:
    (A) The internal counterparty identifier or legal entity identifier 
used by the reporting counterparty to identify the non-reporting 
counterparty; and
    (B) The internal transaction identifier used by the reporting 
counterparty to identify the swap.
    (2) Reporting of required swap continuation data. (i) For each 
uncleared pre-enactment or transition swap in existence on or after 
April 25, 2011, throughout the existence of the swap following the 
compliance date, the reporting counterparty must report all required 
swap continuation data required to be reported pursuant to part 45 of 
this chapter, with the exception that when a reporting counterparty 
reports changes to minimum primary economic terms for a pre-enactment or 
transition swap, the reporting counterparty is required to report only 
changes to the minimum primary economic terms listed in appendix 1 to 
this part and reported in the initial data report made pursuant to 
paragraph (a)(1) of this section, rather than changes to all minimum 
primary economic terms listed in appendix 1 to part 45.
    (ii) Swap continuation data reporting is not required for a pre-
enactment or transition swap in existence on or after April 25, 2011, 
that has been cleared by a designated clearing organization.

[[Page 819]]

    (3) Data reporting for multi-asset swaps and mixed swaps. (i) For 
each pre-enactment or transition swap in existence on or after April 25, 
2011, that is a multi-asset swap, all data required to be reported by 
this part shall be reported to a single swap data repository that 
accepts swaps in the asset class treated as the primary asset class 
involved in the swap by the reporting counterparty making the first 
report of required swap creation data pursuant to this section.
    (ii) For each pre-enactment or transition swap in existence on or 
after April 25, 2011, that is a mixed swap, all data required to be 
reported pursuant to this part shall be reported to a swap data 
repository registered with the Commission and to a security-based swap 
data repository registered with the Securities and Exchange Commission. 
This requirement may be satisfied by reporting the mixed swap to a swap 
data repository or security-based swap data repository registered with 
both Commissions.
    (b) Reporting for pre-enactment and transition swaps expired or 
terminated prior to April 25, 2011--(1) Pre-enactment swaps expired or 
terminated prior to April 25, 2011. For each pre-enactment swap which 
expired or was terminated prior to April 25, 2011, the reporting 
counterparty shall report to a swap data repository (or to the 
Commission if no swap data repository for swaps in the asset class in 
question is available), on the compliance date, such information 
relating to the terms of the transaction as was in the reporting 
counterparty's possession on or after October 14, 2010 (17 CFR 44.00 
through 44.02). This information may be reported via any method selected 
by the reporting counterparty.
    (2) Transition swaps expired or terminated prior to April 25, 2011. 
For each transition swap which expired or was terminated prior to April 
25, 2011, the reporting counterparty shall report to a swap data 
repository (or to the Commission if no swap data repository for swaps in 
the asset class in question is available), on the compliance date, such 
information relating to the terms of the transaction as was in the 
reporting counterparty's possession on or after December 17, 2010 (17 
CFR 44.03). This information may be reported via any method selected by 
the reporting counterparty.
    (c) Voluntary early submission of initial data report. For all pre-
enactment and transition swaps required to be reported pursuant to this 
part, the reporting counterparty may make the initial data report 
required by paragraph (a)(1) of this section, or the data report 
required by paragraph (b) of this section, prior to the applicable 
compliance date, if a swap data repository accepting swaps in the asset 
class in question is prepared to accept the report. The obligation to 
report continuation data as required by paragraph (a)(2) of this section 
with respect to a swap for which a voluntary early submission is made 
commences on the applicable compliance date. However, the reporting 
counterparty may submit continuation data at any time after a voluntary 
early submission made pursuant to this paragraph, if the swap data 
repository is prepared to accept such continuation data, and if that 
repository has registered with the Commission as a swap data repository 
as of the applicable compliance date.
    (d) Non-duplication of previous reporting. If the reporting 
counterparty for a pre-enactment or transition swap has reported any of 
the information required as paragraphs (a) or (b) of this section to a 
trade repository prior to the compliance date, and if as of the 
compliance date that repository has registered with the Commission as a 
swap data repository, then:
    (1) The counterparty shall not be required to report such previously 
reported information to the swap data repository again;
    (2) The counterparty shall be required to report to the swap data 
repository on the compliance date any information required as part of 
the initial data report by paragraph (a) of this section that has not 
been reported prior to the compliance date: and
    (3) In the case of pre-enactment and transition swaps in existence 
on or after April 25, 2011, the initial data report required by 
paragraph (a) of this section and all subsequent data reporting 
concerning the swap shall be made to the same swap data repository to 
which data concerning the swap was

[[Page 820]]

first reported prior to the compliance date (or to its successor in the 
event that it ceases to operate, as provided in part 49 of this 
chapter).



Sec.  46.4  Unique identifiers.

    The unique identifier requirements for swap data reporting with 
respect to pre-enactment or transition swaps shall be as follows:
    (a) By the compliance date, the reporting counterparty (as defined 
by part 45 of this chapter) for each pre-enactment or transition swap in 
existence on or after April 25, 2011, for which an initial data report 
is required by this part 46, shall obtain for itself a legal entity 
identifier as provided inSec. 45.6 of this chapter (or if the 
Commission has not yet designated a legal entity identifier system, a 
substitute counterparty identifier as provided inSec. 45.6(f) of this 
chapter), and shall include its own legal entity identifier (or 
substitute counterparty identifier) in the initial data report 
concerning the swap. With respect to the legal entity identifier (or 
substitute counterparty identifier) of the reporting counterparty, the 
reporting counterparty and the swap data repository to which the swap is 
reported shall comply thereafter with all unique identifier requirements 
ofSec. 45.6 of this chapter.
    (b) Within 180 days after the compliance date, the non-reporting 
counterparty for each pre-enactment or transition swap in existence on 
or after April 25, 2011, for which an initial data report is required by 
this part 46, shall obtain a legal entity identifier as provided in 
Sec.  45.6 of this chapter (or if the Commission has not yet designated 
a legal entity identifier system, a substitute counterparty identifier 
as provided inSec. 45.6(f) of this chapter), and shall provide its 
legal entity identifier (or substitute counterparty identifier) to the 
reporting counterparty. Upon receipt of the non-reporting counterparty's 
legal entity identifier (or substitute counterparty identifier), the 
reporting counterparty shall provide it to the swap data repository to 
which swap data for the swap was reported. Thereafter, with respect to 
the legal entity identifier (or substitute counterparty identifier) of 
the non-reporting counterparty, the counterparties to the swap and the 
swap data repository to which it is reported shall comply with all 
requirements ofSec. 45.6 of this chapter.
    (c) The legal entity identifier requirements of parts 46 and 45 of 
this chapter shall not apply to pre-enactment or transition swaps 
expired or terminated prior to April 25, 2011.
    (d) The unique swap identifier and unique product identifier 
requirements of part 45 of this chapter shall not apply to pre-enactment 
or transition swaps.



Sec.  46.5  Determination of which counterparty must report.

    (a) Determination of which counterparty must report swap data 
concerning each pre-enactment or transition swap shall be made as 
follows:
    (1) If only one counterparty is a swap dealer, the swap dealer shall 
fulfill all counterparty reporting obligations.
    (2) If neither party is an swap dealer, and only one counterparty is 
an major swap participant, the major swap participant shall fulfill all 
counterparty reporting obligations.
    (3) If both counterparties are non-SD/MSP counterparties, and only 
one counterparty is a financial entity as defined in CEA section 
2(h)(7)(C), the counterparty that is a financial entity shall be the 
reporting counterparty.
    (4) For each pre-enactment swap or transition swap for which both 
counterparties are swap dealers, or both counterparties are major swap 
participants, or both counterparties are non-SD/MSP counterparties that 
are financial entities as defined in CEA section 2(h)(7)(C), or both 
counterparties are non-SD/MSP counterparties and neither counterparty is 
a financial entity as defined in CEA section 2(h)(7)(C), the 
counterparties shall agree which counterparty shall fulfill reporting 
obligations with respect to that swap; and the counterparty so selected 
shall fulfill all counterparty reporting obligations.
    (5) Notwithstanding the provisions of paragraphs (a)(1) through (3) 
of this section, for pre-enactment or transition swaps for which both 
counterparties are non-SD/MSP counterparties, if

[[Page 821]]

only one counterparty is a U.S. person, that counterparty shall be the 
reporting counterparty and shall fulfill all counterparty reporting 
obligations.
    (b) For pre-enactment and transition swaps in existence as of the 
compliance date, determination of the reporting counterparty shall be 
made by applying the provisions of paragraph (a) of this section with 
respect to the current counterparties to the swap as of the compliance 
date, regardless of whether either or both were original counterparties 
to the swap when it was first executed.
    (c) For pre-enactment and transition swaps for which reporting is 
required, but which have expired or been terminated prior to the 
compliance date, determination of the reporting counterparty shall be 
made by applying the provisions of paragraph (a) of this section to the 
counterparties to the swap as of the date of its expiration or 
termination (except for determination of a counterparty's status as an 
SD or MSP, which shall be made as of the compliance date), regardless of 
whether either or both were original counterparties to the swap when it 
was first executed.
    (d) After the initial report required bySec. 46.3 is made, if a 
reporting counterparty selected pursuant to this section ceases to be a 
counterparty to a swap due to an assignment or novation, the reporting 
counterparty for reporting of required swap continuation data following 
the assignment or novation shall be selected from the two current 
counterparties as provided in paragraphs (d)(1) through (4) of this 
section.
    (1) If only one counterparty is a swap dealer, the swap dealer shall 
be the reporting counterparty and shall fulfill all counterparty 
reporting obligations.
    (2) If neither counterparty is a swap dealer, and only one 
counterparty is a major swap participant, the major swap participant 
shall be the reporting counterparty and shall fulfill all counterparty 
reporting obligations.
    (3) If both counterparties are non-SD/MSP counterparties, and only 
one counterparty is a U.S. person, that counterparty shall be the 
reporting counterparty and shall fulfill all counterparty reporting 
obligations.
    (4) In all other cases, the counterparty that replaced the previous 
reporting counterparty by reason of the assignment or novation shall be 
the reporting counterparty, unless otherwise agreed by the 
counterparties.



Sec.  46.6  Third-party facilitation of data reporting.

    Counterparties required by this part 46 to report swap data for any 
pre-enactment or transition swap, while remaining fully responsible for 
reporting as required by this part 46, may contract with third-party 
service providers to facilitate reporting.



Sec.  46.7  Reporting to a single swap data repository.

    All data reported for each pre-enactment or transition swap pursuant 
to this part 46, and all corrections of errors and omissions in 
previously reported data for the swap, shall be reported to the same 
swap data repository to which the initial data report concerning the 
swap is made (or to its successor in the event that it ceases to 
operate, as provided in part 49 of this chapter).



Sec.  46.8  Data reporting for swaps in a swap asset class not
accepted by any swap data repository.

    (a) Should there be a swap asset class for which no swap data 
repository registered with the Commission currently accepts swap data, 
each registered entity or counterparty required by this part to report 
any required swap creation data or required swap continuation data with 
respect to a swap in that asset class must report that same data to the 
Commission.
    (b) Data reported to the Commission pursuant to this section shall 
be reported at times announced by the Commission. Data reported to the 
Commission pursuant to this section with respect to pre-enactment and 
transition swaps in existence on or after April 25, 2011 shall be 
reported in an electronic format acceptable to the Commission.
    (c) Delegation of authority to the Chief Information Officer: The 
Commission hereby delegates to its Chief Information Officer, until the 
Commission orders otherwise, the authority

[[Page 822]]

set forth in paragraph (c) of this section, to be exercised by the Chief 
Information Officer or by such other employee or employees of the 
Commission as may be designated from time to time by the Chief 
Information Officer. The Chief Information Officer may submit to the 
Commission for its consideration any matter which has been delegated in 
this paragraph. Nothing in this paragraph prohibits the Commission, at 
its election, from exercising the authority delegated in this paragraph. 
The authority delegated to the Chief Information Officer by paragraph 
(c) of this section shall include:
    (1) With respect to all pre-enactment and transition swaps required 
to be reported by this part, the authority to determine the dates and 
times at which data concerning such swaps shall be reported pursuant to 
this part.
    (2) With respect to all pre-enactment swaps or transition swaps in 
existence on or after April 25, 2011:
    (i) The authority to determine the manner, format, coding structure, 
and electronic data transmission standards and procedures acceptable to 
the Commission for the purposes of paragraphs (a) and (b) of this 
section; and
    (ii) The authority to determine whether the Commission may permit or 
require use by reporting entities or counterparties in reporting pre-
enactment or transition swaps in existence on or after April 25, 2011, 
of one or more particular data standards (such as FIX, FpML, ISO 20022, 
or some other standard), in order to accommodate the needs of different 
communities of users.
    (d) The Chief Information Officer shall publish from time to time in 
the Federal Register and on the Web site of the Commission the dates and 
times, format, data schema, and electronic data transmission methods and 
procedures for reporting acceptable to the Commission with respect to 
swap data reporting pursuant to this section.



Sec.  46.9  Voluntary supplemental reporting.

    (a) For purposes of this section, the term voluntary, supplemental 
report means any report of swap data for a pre-enactment or transition 
swap to a swap data repository that is not required to be made pursuant 
to this part or any other part in this chapter.
    (b) A voluntary, supplemental report for a pre-enactment or 
transition swap may be made only by a counterparty to the swap in 
connection with which the voluntary, supplemental report is made, or by 
a third-party service provider acting on behalf of a counterparty to the 
swap.
    (c) A voluntary, supplemental report for a pre-enactment or 
transition swap may be made only after the initial data report for the 
swap required by section 46.3(a) or the report required by section 
46.3(b), as applicable, has been made.
    (d) A voluntary, supplemental report for a pre-enactment or 
transition swap may be made either to the swap data repository to which 
the initial data report for the swap required by section 46.3(a) or the 
report required by section 46.3(b), as applicable, has been made, or to 
a different swap data repository.
    (e) A voluntary, supplemental report for a pre-enactment or 
transition swap must contain:
    (1) An indication that the report is a voluntary, supplemental 
report.
    (2) The swap data repository identifier created for the swap by the 
automated systems of the swap data repository to which the initial data 
report required by section 46.3(a) or the report required by section 
46.3(b), as applicable, has been made.
    (3) An indication of the identity of the swap data repository to 
which the initial data report required by section 46.3(a) or the report 
required by section 46.3(b), as applicable, has been made, if the 
voluntary supplemental report is made to a different swap data 
repository.
    (4) If the pre-enactment or transition swap was in existence on or 
after April 25, 2011, the legal entity identifier (or substitute 
identifier) of the counterparty making the voluntary, supplemental 
report.
    (5) If applicable, an indication that the voluntary, supplemental 
report is made pursuant to the laws or regulations of any jurisdiction 
outside the United States.
    (f) If a counterparty that has made a voluntary, supplemental report 
discovers any errors in the swap data included in the voluntary, 
supplemental

[[Page 823]]

report, the counterparty must report a correction of each such error to 
the swap data repository to which the voluntary, supplemental report was 
made, as soon as technologically practicable after discovery of any such 
error.



Sec.  46.10  Required data standards.

    In reporting swap data to a swap data repository as required by this 
part 46, each reporting counterparty shall use the facilities, methods, 
or data standards provided or required by the swap data repository to 
which counterparty reports the data.



Sec.  46.11  Reporting of errors and omissions in previously 
reported data.

    (a) Each swap counterparty required by this part 46 to report swap 
data shall report any errors and omissions in the data so reported. 
Corrections of errors or omissions shall be reported as soon as 
technologically practicable after discovery of any such error or 
omission.
    (b) For pre-enactment or transition swaps for which this part 
requires reporting of continuation data, reporting counterparties 
reporting state data as provided in part 45 of this chapter may fulfill 
the requirement to report errors or omissions by making appropriate 
corrections in their next daily report of state data pursuant to part 45 
of this chapter.
    (c) Each counterparty to a pre-enactment or transition swap that is 
not the reporting counterparty as determined pursuant toSec. 46.5, and 
that discovers any error or omission with respect to any swap data 
reported to a swap data repository for that swap, shall promptly notify 
the reporting counterparty of each such error or omission. As soon as 
technologically practicable after receiving such notice, the reporting 
counterparty shall report a correction of each such error or omission to 
the swap data repository.
    (d) Each swap counterparty reporting corrections to errors or 
omissions in data previously reported as required by this part shall 
report such corrections in the same format as it reported the erroneous 
or omitted data.

[[Page 824]]



  Sec. Appendix 1 to Part 46--Tables of Minimum Primary Economic Terms 
               Data For Pre-Enactment and Transition Swaps
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PART 48_REGISTRATION OF FOREIGN BOARDS OF TRADE--Table of Contents



Sec.
48.1 Scope.
48.2 Definitions.
48.3 Registration required.
48.4 Registration eligibility and scope.
48.5 Registration procedures.
48.6 Foreign boards of trade providing direct access pursuant to 
          existing no-action relief.
48.7 Requirements for registration.
48.8 Conditions of registration.
48.9 Revocation of registration.
48.10 Additional contracts.

Appendix to Part 48--Form FBOT

    Authority: 7 U.S.C. 5, 6 and 12a, unless otherwise noted.

    Source: 76 FR 80698, Dec. 23, 2011, unless otherwise noted.



Sec.  48.1  Scope.

    The provisions of this part apply to any foreign board of trade that 
is registered, required to be registered, or applying to become 
registered with the Commission in order to provide its identified 
members or other participants located in the United States with direct 
access to its electronic trading and order matching system.



Sec.  48.2  Definitions.

    For purposes of this part:
    (a) Foreign board of trade. Foreign board of trade means any board 
of trade, exchange or market located outside the United States, its 
territories or possessions, whether incorporated or unincorporated.
    (b) Foreign board of trade eligible to be registered. A foreign 
board of trade eligible to be registered means a foreign board of trade 
that satisfies the requirements for registration specified inSec. 48.7 
and:
    (1) Possesses the attributes of an established, organized exchange,

[[Page 833]]

    (2) Adheres to appropriate rules prohibiting abusive trading 
practices,
    (3) Enforces appropriate rules to maintain market and financial 
integrity,
    (4) Has been authorized by a regulatory process that examines 
customer and market protections, and
    (5) Is subject to continued oversight by a regulator that has power 
to intervene in the market and the authority to share information with 
the Commission.
    (c) Direct access. Direct access means an explicit grant of 
authority by a foreign board of trade to an identified member or other 
participant located in the United States to enter trades directly into 
the trade matching system of the foreign board of trade.
    (d) Linked contract. Linked contract means a futures, option or swap 
contract that is made available for trading by direct access by a 
registered foreign board of trade that settles against any price 
(including the daily or final settlement price) of one or more contracts 
listed for trading on a registered entity as defined in section 1a(40) 
of the Act.
    (e) Communications. Communications means any written or electronic 
documentation or correspondence issued by or on behalf of the 
Commission, the United States Department of Justice, or the National 
Futures Association.
    (f) Material change. Material change means a material change in the 
information provided to the Commission in support of an application for 
registration under this part. Subsequent to registration, material 
change also includes a material change in the operations of the foreign 
board of trade or its clearing organization and, without limitation, a 
change in any of the following: The membership or participant criteria 
of the foreign board of trade or its clearing organization; the location 
of the management, personnel or operations of the foreign board of trade 
or its clearing organization; the structure, nature, or operation of the 
trading or clearing systems; the regulatory or self-regulatory regime 
applicable to the foreign board of trade, its clearing organization, or 
their respective members and other participants; the authorization, 
licensure, registration or recognition of the foreign board of trade or 
clearing organization; and the ability of the clearing organization to 
observe the Recommendations for Central Counterparties.
    (g) Clearing organization. Clearing organization means the foreign 
board of trade, affiliate of the foreign board of trade or any third 
party clearing house, clearing association, clearing corporation or 
similar entity, facility or organization that, with respect to any 
agreement, contract or transaction executed on or through the foreign 
board of trade, would be:
    (1) Defined as a derivatives clearing organization under section 
1a(15) of the Act; or
    (2) Defined as a central counterparty by the Recommendations for 
Central Counterparties.
    (h) Existing no-action relief. Existing no-action relief means a no-
action letter issued by a division of the Commission to the foreign 
board of trade in which the division informs the foreign board of trade 
that it will not recommend that the Commission institute enforcement 
action against the foreign board of trade if the foreign board of trade 
does not seek designation as either a designated contract market 
pursuant to section 5 of the Act or a derivatives transaction execution 
facility pursuant to section 5a of the Act in connection with the 
granting of direct access.
    (i) Swap. Swap means a swap as defined in section 1a(47) of the Act 
and any Commission regulation further defining the term adopted 
thereunder.
    (j) Recommendations for Central Counterparties. Recommendations for 
Central Counterparties means:
    (1) The current Recommendations for Central Counterparties issued 
jointly by the Committee on Payment and Settlement Systems and the 
Technical Committee of the International Organization of Securities 
Commissions as updated, revised or otherwise amended; or
    (2) Successor standards, principles and guidance for central 
counterparties or financial market infrastructures adopted jointly by 
the Technical Committee of the International Organization of Securities 
Commissions and the Committee on Payment and Settlement Systems.

[[Page 834]]

    (k) Affiliate. An affiliate of a registered foreign board of trade 
member or other participant means any person, as that term is defined in 
section 1a(38) of the Act, that:
    (1) Owns 50% or more of the member or other participant;
    (2) Is owned 50% or more by the member or other participant; or
    (3) Is owned 50% or more by a third person that also owns 50% or 
more of the member or other participant.
    (l) Member or other participant. Member or other participant means a 
member or other participant of a foreign board of trade that is 
registered under this part and any affiliate thereof that has been 
granted direct access by the foreign board of trade.



Sec.  48.3  Registration required.

    (a) Except as specified in this part, it shall be unlawful for a 
foreign board of trade to permit direct access to its electronic trading 
and order matching system unless and until the Commission has issued a 
valid and current Order of Registration to the foreign board of trade 
pursuant to the provisions of this part.
    (b) It shall be unlawful for a foreign board of trade or the 
clearing organization to make false or misleading statements in or in 
connection with any application for registration under this part.



Sec.  48.4  Registration eligibility and scope.

    (a) Only foreign boards of trade eligible to be registered, as 
defined inSec. 48.2(b) of this part, are eligible for registration 
with the Commission pursuant to this part.
    (b) A foreign board of trade may apply for registration under this 
part in order to permit the members and other participants of the 
foreign board of trade that are located in the United States to enter 
trades directly into the trading and order matching system of the 
foreign board of trade, to the extent that such members or other 
participants are:
    (1) Entering orders for the member's or other participant's 
proprietary accounts;
    (2) Registered with the Commission as futures commission merchants 
and are submitting customer orders to the trading system for execution; 
or
    (3) Registered with the Commission as a commodity pool operator or 
commodity trading advisor, or are exempt from such registration pursuant 
toSec. 4.13 orSec. 4.14 of this chapter, and are submitting orders 
for execution on behalf of a United States pool that the member or other 
participant operates or an account of a United States customer for which 
the member or other participant has discretionary authority, 
respectively, provided that a futures commission merchant or a firm 
exempt from such registration pursuant toSec. 30.10 of this chapter 
acts as clearing firm and guarantees, without limitation, all such 
trades of the commodity pool operator or commodity trading advisor 
effected through submission of orders to the trading system.



Sec.  48.5  Registration procedures.

    (a) A foreign board of trade seeking registration with the 
Commission pursuant to this part must electronically file an application 
for registration with the Secretary of the Commission at its Washington 
DC headquarters at [email protected].
    (b) A complete application for registration must include:
    (1) A completed Form FBOT and Form Supplement S-1, as set forth in 
the appendix to this part, or any successor forms, and all information 
and documentation described in such forms; and
    (2) Any additional information and documentation necessary, in the 
discretion of the Commission, to supplement the application including, 
but not limited to, documentation and information provided during the 
course of an on-site visit, as applicable, to the foreign board of 
trade, the clearing organization and the regulatory authority or 
authorities, to effectively demonstrate that the foreign board of trade 
and its clearing organization satisfy the registration requirements set 
forth inSec. 48.7.
    (c) An applicant for registration must identify with particularity 
any information in the application that will be subject to a request for 
confidential treatment and must provide

[[Page 835]]

support for any request for confidential treatment pursuant to the 
procedures set forth inSec. 145.9 of this chapter.
    (d) If, upon review, the Commission finds the application for 
registration to be complete, the Commission may approve or deny the 
application. In reviewing the application, the Commission will consider, 
among other things:
    (1) Whether the foreign board of trade is eligible to be registered 
as defined inSec. 48.2(b) and;
    (2) Whether the foreign board of trade and its clearing organization 
are subject to comprehensive supervision and regulation by the 
appropriate governmental authorities in their home country or countries 
that is comparable to the comprehensive supervision and regulation to 
which designated contract markets and derivatives clearing organizations 
are respectively subject under the Act, Commission regulations, and 
other applicable United States laws and regulations, if any, and;
    (3) Any previous Commission findings that the foreign board of trade 
and its clearing organization are subject to comprehensive supervision 
and regulation by the appropriate government authorities in their home 
country or countries that is comparable to the comprehensive supervision 
and regulation to which designated contract markets and derivatives 
clearing organizations are subject under the Act, Commission 
regulations, and other applicable United States laws and regulations, if 
any; and
    (4) Whether the foreign board of trade and its clearing organization 
have adequately demonstrated that they meet the requirements for 
registration specified inSec. 48.7.
    (5) The Commission's determination that the foreign board of trade 
and its clearing organization are subject to comprehensive supervision 
and regulation by the appropriate government authorities in their home 
country or countries that is comparable to the comprehensive supervision 
and regulation to which designated contract markets and derivatives 
clearing organizations are subject will be based upon a principles-based 
review conducted in a manner consistent with this part 48 pursuant to 
which the Commission will look to determine if the government 
authorities support and enforce regulatory objectives in the oversight 
of the foreign board of trade and the clearing organization that are 
substantially equivalent to the regulatory objectives supported and 
enforced by the Commission in its oversight of designated contract 
markets and derivatives clearing organizations.
    (e) If the Commission approves the application, the Commission will 
issue an Order of Registration. If the Commission does not approve the 
application, the Commission will, after appropriate notice and an 
opportunity to respond, issue a Notice of Action specifying that the 
application was not approved and setting forth the reasons therefor. The 
Commission, in its discretion, may impose conditions in the Order of 
Registration and may, after appropriate notice and an opportunity to 
respond, amend, suspend, or otherwise restrict the terms of an issued 
Order of Registration or issue an Order revoking registration.
    (f) A foreign board of trade whose application is not approved may 
reapply for registration 360 days after the issuance of the Notice of 
Action if the foreign board of trade has addressed any deficiencies in 
its original application or facts and circumstances relevant to the 
Commission's review of the application have changed.



Sec.  48.6  Foreign boards of trade providing direct access pursuant
to existing no-action relief.

    (a) A foreign board of trade operating pursuant to existing no-
action relief as of the effective date of this part 48 must register 
with the Commission pursuant to this part in order to continue to 
provide direct access to its electronic trading and order matching 
system from the United States.
    (b)(1) The application of a foreign board of trade operating 
pursuant to existing no-action relief must include a complete Form FBOT 
and Supplement S-1, as set forth in the appendix to this part. If the 
foreign board of trade, as part of its application for registration, 
wishes to rely on information and documentation previously submitted 
electronically in connection with its request for no-action relief in 
order to

[[Page 836]]

demonstrate that it satisfies the registration requirements set forth in 
Sec.  48.7, (limited application) the foreign board of trade must:
    (i) Specifically identify the information or documentation 
previously submitted;
    (ii) Identify the specific registration requirements set forth in 
Sec.  48.7 that are satisfied by such information or documentation; and
    (iii) Certify that the information remains accurate and current.
    (2) If the foreign board of trade wishes to rely on information and 
documentation previously submitted in hard copy in connection with its 
application for no-action relief, the foreign board of trade must also 
resubmit the identified information or documentation. A foreign board of 
trade that has submitted a complete application for no-action relief 
that is pending as of February 21, 2012 may also apply for registration 
pursuant to these limited application procedures.
    (c) A foreign board of trade operating pursuant to existing no-
action relief must submit a limited application for registration, 
determined in good faith by the applicant to be complete, within 180 
days of February 21, 2012. If, at any time after August 20, 2012 but 
before a limited application is approved or disapproved, the Commission 
determines that the application is materially incomplete, the Commission 
may, after providing the foreign board of trade with notice and an 
opportunity to respond to the determination of incompleteness, withdraw 
the existing no-action relief if the Commission determines that the 
application cannot be made complete in a timely manner. The foreign 
board of trade may continue to operate pursuant to the existing no-
action relief, subject to the terms and conditions contained therein, 
August 20, 2012, while the Commission is reviewing its application, and 
until the Commission approves or disapproves the application or 
otherwise withdraws the existing no-action relief. The no-action relief 
is automatically withdrawn upon issuance of an Order of Registration or 
upon disapproval.



Sec.  48.7  Requirements for registration.

    An applicant for registration must demonstrate that it and, where 
applicable, its clearing organization meet the following requirements. 
The registration requirements applicable to clearing organizations may 
alternatively be met by demonstrating that the clearing organization is 
registered and in good standing with the Commission as a derivatives 
clearing organization. The Commission, in its discretion, may request 
additional information and documentation in connection with an 
application for registration and an applicant for registration must 
provide promptly any such additional information or documentation. The 
Commission, in its discretion, also may impose additional registration 
requirements that the Commission deems necessary after appropriate 
notice and opportunity to respond.
    (a) Foreign Board of Trade and Clearing Membership:
    (1) The members and other participants of the foreign board of trade 
and its clearing organization are fit and proper and meet appropriate 
financial and professional standards;
    (2) The foreign board of trade and its clearing organization have 
and enforce provisions to minimize and resolve conflicts of interest; 
and
    (3) The foreign board of trade and its clearing organization have 
and enforce rules prohibiting the disclosure, both during and subsequent 
to service on a board or committee, of material non-public information 
obtained as a result of a member's or other participant's performance of 
duties as a member of their respective governing boards and significant 
committees.
    (b) The Automated Trading System:
    (1) The trading system complies with Principles for the Oversight of 
Screen-Based Trading Systems for Derivative Products developed by the 
Technical Committee of the International Organization of Securities 
Commissions,
    (2) The trade matching algorithm matches trades fairly and timely,
    (3) The audit trail captures all relevant data, including changes to 
orders, and audit trail data is securely maintained and available for an 
adequate time period,

[[Page 837]]

    (4) Adequate and appropriate trade data is made available to users 
and the public,
    (5) The trading system has demonstrated reliability,
    (6) Access to the trading system is secure and protected,
    (7) There are adequate provisions for emergency operations and 
disaster recovery,
    (8) Trading data is backed up to prevent loss of data, and
    (9) Only those futures, option or swap contracts that have been 
identified to the Commission in the foreign board of trade's application 
for registration or permitted to be made available for trading by direct 
access pursuant to the procedures set forth inSec. 48.10 of this part 
are made available for trading by direct access.
    (c) Terms and Conditions of Contracts to Be Made Available in the 
United States.
    (1) Contracts must meet the following standards:
    (i) Contracts must be futures, option or swap contracts that would 
be eligible to be traded on a designated contract market;
    (ii) Contracts must be cleared;
    (iii) Contracts must not be prohibited from being traded by United 
States persons; and
    (iv) Contracts must not be readily susceptible to manipulation.
    (2) Foreign futures and option contracts on non-narrow-based 
security indexes must have been certified by the Commission pursuant to 
the procedures set forth inSec. 30.13 of this chapter.
    (3) Contracts that have the following characteristics must be 
specifically identified as having such characteristics:
    (i) Contracts that are linked to a contract listed for trading on a 
registered entity as defined in section 1a(40) of the Act, and
    (ii) Contracts that have any other relationship with a contract 
listed for trading on a registered entity (for example, if both the 
foreign board of trade's and the registered entity's contract settle to 
the price of the same third party-constructed index).
    (d) Settlement and Clearing:
    (1) The clearing organization observes the Recommendations for 
Central Counterparties or is registered with the Commission as a 
derivatives clearing organization, and
    (2) The clearing organization is in good regulatory standing in its 
home country jurisdiction.
    (e) The Regulatory Regimes Governing the Foreign Board of Trade and 
the Clearing Organization:
    (1) The regulatory authorities provide comprehensive supervision and 
regulation of the foreign board of trade, the clearing organization, and 
the type of contracts to be made available through direct access that is 
comparable to the comprehensive supervision and regulation provided by 
the Commission to designated contract markets, derivatives clearing 
organizations and such contracts. That is, the regulatory authorities 
support and enforce regulatory objectives in the oversight of the 
foreign board of trade, clearing organization and the type of contracts 
that the foreign board of trade wishes to make available through direct 
access that are substantially equivalent to the regulatory objectives 
supported and enforced by the Commission in its oversight of designated 
contract markets, derivatives clearing organizations, and such products.
    (2) The regulatory authorities engage in ongoing regulatory 
supervision and oversight of the foreign board of trade and its trading 
system, the clearing organization and its clearing system, and the 
members, intermediaries and other participants of the foreign board of 
trade and clearing organization, with respect to, among other things, 
market integrity, customer protection, clearing and settlement and the 
enforcement of the rules of the foreign board of trade and the clearing 
organization.
    (3) The regulatory authorities have the power to share information 
directly with the Commission, upon request, including information 
necessary to evaluate the continued eligibility of the foreign board of 
trade for registration and to audit for compliance with the terms and 
conditions of the registration.
    (4) The regulatory authorities have the power to intervene in the 
market.
    (f) The Rules of the Foreign Board of Trade and the Clearing 
Organization and Enforcement Thereof:

[[Page 838]]

    (1) The foreign board of trade and its clearing organization have 
implemented and enforce rules to ensure compliance with the requirements 
of registration contained in this part;
    (2) The foreign board of trade and its clearing organization have 
the capacity to detect, investigate, and sanction persons who violate 
their respective rules;
    (3) The foreign board of trade and the clearing organization (or 
their respective regulatory authorities) have implemented and enforce 
disciplinary procedures that empower them to recommend and prosecute 
disciplinary actions for suspected rule violations, impose adequate 
sanctions for such violations, and provide adequate protections to 
charged parties pursuant to fair and clear standards;
    (4) The foreign board of trade and its clearing organization are 
authorized by rule or by contractual agreement to obtain, from members 
and other participants, any information and cooperation necessary to 
conduct investigations, to effectively enforce their respective rules, 
and to ensure compliance with the conditions of registration;
    (5) The foreign board of trade and its clearing organization have 
sufficient compliance staff and resources, including by delegation and/
or outsourcing to a third party, to fulfill their respective regulatory 
responsibilities, including appropriate trade practice surveillance, 
real time market monitoring, market surveillance, financial 
surveillance, protection of customer funds, enforcement of clearing and 
settlement provisions and other compliance and regulatory 
responsibilities;
    (6) The foreign board of trade has implemented and enforces rules 
with respect to access to the trading system and the means by which the 
connection thereto is accomplished;
    (7) The foreign board of trade's audit trail captures and retains 
sufficient order and trade-related data to allow its compliance staff to 
detect trading and market abuses and to reconstruct all transactions 
within a reasonable period of time;
    (8) The foreign board of trade has implemented and enforces rules 
prohibiting fraud and abusive trading practices including, but not 
limited to, wash sales and trading ahead;
    (9) The foreign board of trade has the capacity to detect and deter, 
and has implemented and enforces rules relating to, market manipulation, 
attempted manipulation, price distortion, and other disruptions of the 
market; and
    (10) The foreign board of trade has and enforces rules and 
procedures that ensure a competitive, open and efficient market and 
mechanism for executing transactions.
    (g) Information Sharing:
    (1) The regulatory authorities governing the activities of the 
foreign board of trade and the clearing organization are signatories to 
the International Organization of Securities Commissions Multilateral 
Memorandum of Understanding, or otherwise ensure that substitute 
information sharing arrangements that are satisfactory to the Commission 
are in place;
    (2) The regulatory authorities governing the activities of the 
foreign board of trade and the clearing organization are signatories to 
the Declaration on Cooperation and Supervision of International Futures 
Exchanges and Clearing Organizations or otherwise commit, in writing, to 
share the types of information contemplated by the International 
Information Sharing Memorandum of Understanding and Agreement with the 
Commission;
    (3) The foreign board of trade has executed the International 
Information Sharing Memorandum of Understanding and Agreement; and
    (4) Pursuant to the conditions described inSec. 48.8(a)(6), the 
foreign board of trade and clearing organization agree to provide 
directly to the Commission, upon request, any information necessary, in 
the discretion of the Commission, to evaluate the continued eligibility 
and appropriateness of the foreign board of trade and the clearing 
organization, or their respective members or other participants for 
registration, to audit for and enforce compliance with the requirements 
and conditions of the registration, or to enable the Commission to carry 
out its duties under the Act and Commission regulations.

[[Page 839]]



Sec.  48.8  Conditions of registration.

    Upon registration under this part, and on an ongoing basis 
thereafter, the foreign board of trade and the clearing organization 
shall comply with the applicable conditions of registration set forth in 
this section and any additional conditions that the Commission deems 
necessary and may impose, in its discretion, and after appropriate 
notice and opportunity to respond. Such conditions could include, but 
are not limited to, additional conditions applicable to the listing of 
swap contracts. Continued registration is expressly conditioned upon 
satisfaction of these conditions.
    (a) Specified Conditions for Maintaining Registration
    (1) Registration Requirements: The foreign board of trade and its 
clearing organization shall continue to satisfy all of the requirements 
for registration set forth inSec. 48.7.
    (2) Regulatory Regime:
    (i) The foreign board of trade will continue to satisfy the criteria 
for a regulated market or licensed exchange pursuant to the regulatory 
regime described in its application and will continue to be subject to 
oversight by the regulatory authorities described in its application.
    (ii) The clearing organization will continue to satisfy the criteria 
for a regulated clearing organization pursuant to the regulatory regime 
described in the application for registration and will continue to be in 
good standing with the relevant regulatory authority.
    (iii) The laws, systems, rules, and compliance mechanisms of the 
regulatory regime applicable to the foreign board of trade will continue 
to require the foreign board of trade to maintain fair and orderly 
markets; prohibit fraud, abuse, and market manipulation and other 
disruptions of the market; and provide that such requirements are 
subject to the oversight of appropriate regulatory authorities.
    (3) Satisfaction of International Standards:
    (i) The foreign board of trade will continue to comply with the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions, as updated, 
revised, or otherwise amended, to the extent such principles do not 
contravene United States law.
    (ii) The clearing organization will continue to:
    (A) Be registered with the Commission as a derivatives clearing 
organization and be in compliance with the laws and regulations related 
thereto; or
    (B) Observe the Recommendations for Central Counterparties.
    (4) Restrictions on Direct Access:
    (i) Only the foreign board of trade's identified members or other 
participants will have direct access to the foreign board of trade's 
trading system from the United States and the foreign board of trade 
will not provide, and will take reasonable steps to prevent, third 
parties from providing direct access to persons other than the 
identified members or other participants.
    (ii) All orders that are transmitted to the foreign board of trade's 
trading system by a foreign board of trade's identified member or other 
participant that is operating pursuant to the foreign board of trade's 
registration will be solely for the member's or trading participant's 
own account unless such member or other participant is registered with 
the Commission as a futures commission merchant or such member or other 
participant is registered with the Commission as a commodity pool 
operator or commodity trading advisor, or is exempt from such 
registration pursuant toSec. 4.13 orSec. 4.14 of this chapter, 
provided that a futures commission merchant or a firm exempt from such 
registration pursuant toSec. 30.10 of this chapter acts as clearing 
firm and guarantees, without limitation, all such trades of the 
commodity pool operator or commodity trading advisor effected through 
submission of orders on the trading system.
    (5) Submission to Commission Jurisdiction:
    (i) Prior to operating pursuant to registration under this part and 
on a continuing basis thereafter, a registered foreign board of trade 
will require that each current and prospective member or other 
participant that is granted direct access to the foreign board of 
trade's trading system and

[[Page 840]]

that is not registered with the Commission as a futures commission 
merchant, a commodity trading advisor or a commodity pool operator, file 
with the foreign board of trade a written representation, executed by a 
person with the authority to bind the member or other participant, 
stating that as long as the member or other participant is authorized to 
enter orders directly into the trade matching system of the foreign 
board of trade, the member or other participant agrees to and submits to 
the jurisdiction of the Commission with respect to activities conducted 
pursuant to the registration.
    (ii) The foreign board of trade and its clearing organization will 
file with the Commission a valid and binding appointment of an agent for 
service of process in the United States pursuant to which the agent is 
authorized to accept delivery and service of communications, as defined 
inSec. 48.2(e) issued by or on behalf of the Commission, the United 
States Department of Justice, or the National Futures Association.
    (iii) The foreign board of trade, clearing organization, and each 
current and prospective member or other participant that is granted 
direct access to the foreign board of trade's trading system and that is 
not registered with the Commission as a futures commission merchant, a 
commodity trading advisor, or a commodity pool operator will maintain 
with the foreign board of trade written representations, executed by 
persons with the authority to bind the entity making them, stating that 
as long as the foreign board of trade is registered under this 
regulation, the foreign board of trade, the clearing organization or 
member of either or other participant granted direct access pursuant to 
this regulation will provide, upon the request of the Commission, the 
United States Department of Justice and, if appropriate, the National 
Futures Association, prompt access to the entity's, member's, or other 
participant's original books and records or, at the election of the 
requesting agency, a copy of specified information containing such books 
and records, as well as access to the premises where the trading system 
is available in the United States.
    (iv) The foreign board of trade will maintain all representations 
required pursuant toSec. 48.8(a)(5) as part of its books and records 
and make them available to the Commission upon request.
    (6) Information Sharing:
    (i) Information-sharing arrangements satisfactory to the Commission, 
including but not limited to those set forth inSec. 48.7(g), are in 
effect between the Commission and the regulatory authorities that govern 
the activities of both the foreign board of trade and the clearing 
organization.
    (ii) The Commission is, in fact, able to obtain sufficient 
information regarding the foreign board of trade, the clearing 
organization, their respective members and participants and the 
activities related to the foreign board of trade's registration.
    (iii) The foreign board of trade and its clearing organization, as 
applicable, will provide directly to the Commission any information 
necessary to evaluate the continued eligibility and appropriateness of 
the foreign board of trade for registration, the capability and 
determination to enforce compliance with the requirements and conditions 
of the registration, or to enable the Commission to carry out its duties 
under the Act and Commission regulations and to provide adequate 
protection to the public or United States registered entities.
    (iv) In the event that the foreign board of trade and the clearing 
organization are separate entities, the foreign board of trade will 
require the clearing organization to enter into a written agreement in 
which the clearing organization is contractually obligated to promptly 
provide any and all information and documentation that may be required 
of the clearing organization under this regulation and such agreement 
shall be made available to the Commission, upon request.
    (7) Monitoring for Compliance: The foreign board of trade and the 
clearing organization will employ reasonable procedures for monitoring 
and enforcing compliance with the specified conditions of its 
registration.
    (8) On-Site Visits: The foreign board of trade and the clearing 
organization will permit and will cooperate with

[[Page 841]]

Commission staff with respect to on-site visits for the purpose of 
overseeing ongoing compliance of the foreign board of trade and the 
clearing organization with registration requirements and conditions of 
registration.
    (9) Conditions Applicable to Swap Trading:
    (i) The foreign board of trade will ensure that all transaction data 
relating to each swap transaction, including price and volume, are 
reported as soon as technologically practicable after execution of the 
swap transaction to a swap data repository that is either registered 
with the Commission or has an information sharing arrangement with the 
Commission.
    (ii) The foreign board of trade will agree to coordinate with the 
Commission with respect to arrangements established to address cross 
market oversight issues involving swap trading, including surveillance, 
emergency actions and the monitoring of trading.
    (b) Other Continuing Obligations.
    (1) Registered foreign boards of trade and their clearing 
organizations will continue to comply with the following obligations on 
an ongoing basis:
    (i) The foreign board of trade will maintain the following updated 
information and submit such information to the Commission on at least a 
quarterly basis, not later than 30 days following the end of the 
quarter, and at any time promptly upon the request of a Commission 
representative, computed based upon separating buy sides and sell sides, 
in a format as determined by the Commission:
    (A) For each contract available to be traded through the foreign 
board of trade's trading system;
    (1) The total trade volume originating from electronic trading 
devices providing direct access;
    (2) The total trade volume for such contracts traded through the 
trading system worldwide;
    (3) The total trade volume for such contracts traded on the foreign 
board of trade generally; and
    (B) A listing of the names, National Futures Association 
identification numbers (if applicable), and main business addresses in 
the United States of all members and other participants that have direct 
access.
    (ii) The foreign board of trade will promptly provide to the 
Commission written notice of the following:
    (A) Any material change to the information provided in the foreign 
board of trade's registration application.
    (B) Any material change in the rules of the foreign board of trade 
or clearing organization or the laws, rules, or regulations in the home 
country jurisdictions of the foreign board of trade or clearing 
organization relevant to futures, option or swap contracts made 
available by direct access.
    (C) Any matter known to the foreign board of trade, the clearing 
organization or its representatives that, in the judgment of the foreign 
board of trade or clearing organization, may affect the financial or 
operational viability of the foreign board of trade or its clearing 
organization with respect to contracts traded by direct access, 
including, but not limited to, any significant system failure or 
interruption.
    (D) Any default, insolvency, or bankruptcy of any foreign board of 
trade member or other participant that is or should be known to the 
foreign board of trade or its representatives or the clearing 
organization or its representatives that may have a material, adverse 
impact upon the condition of the foreign board of trade as it relates to 
trading by direct access, its clearing organization or upon any United 
States customer or firm or any default, insolvency or bankruptcy of any 
member of the foreign board of trade's clearing organization.
    (E) Any violation of any specified conditions of the foreign board 
of trade's registration or failure to satisfy the requirements for 
registration under this part that is known or should be known by the 
foreign board of trade, the clearing organization or any of their 
respective members or participants.
    (F) Any disciplinary action by the foreign board of trade or its 
clearing organization, or any regulatory authority that governs their 
respective activities, taken against any of their respective members or 
participants with respect to any contract available to be traded by 
direct access that involves any market manipulation,

[[Page 842]]

abuse, fraud, deceit, or conversion or that results in suspension or 
expulsion.
    (iii) The foreign board of trade and the clearing organization, or 
their respective regulatory authorities, as applicable, will provide the 
following to the Commission annually as of June 30 and not later than 
July 31.
    (A) A certification from the foreign board of trade's regulatory 
authority confirming that the foreign board of trade retains its 
authorization, licensure or registration, as applicable, as a regulated 
market and/or exchange under the authorization, licensing, recognition 
or other registration methodology used by the foreign board of trade's 
regulatory authority and that the foreign board of trade is in continued 
good standing.
    (B) If the clearing organization is not a derivatives clearing 
organization registered with the Commission, a certification from the 
clearing organization's regulatory authority confirming that the 
clearing organization retains its authorization, licensure or 
registration, as applicable, as a clearing organization under the 
authorization, licensing or other registration methodology used by the 
clearing organization's regulatory authority and is in continued good 
standing.
    (C) If the clearing organization is not a derivatives clearing 
organization registered with the Commission, a recertification of the 
clearing organization's observance of the Recommendations for Central 
Counterparties.
    (D) A certification that affiliates, as defined inSec. 48.2(k), 
continue to be required to comply with the rules of the foreign board of 
trade and clearing organization and that the members or other 
participants to which they are affiliated remain responsible to the 
foreign board of trade for ensuring their affiliates' compliance.
    (E) A description of any material changes regarding the foreign 
board of trade or clearing organization that have not been previously 
disclosed, in writing, to the Commission, or a certification that no 
such material changes have occurred.
    (F) A description of any significant disciplinary or enforcement 
actions that have been instituted by or against the foreign board of 
trade or the clearing organization or the senior officers of either 
during the prior year.
    (G) A written description of any material changes to the regulatory 
regime to which the foreign board of trade or the clearing organization 
are subject that have not been previously disclosed, in writing, to the 
Commission, or a certification that no material changes have occurred.
    (2) The above-referenced annual reports must be signed by an officer 
of the foreign board of trade or the clearing organization who maintains 
the authority to bind the foreign board of trade or clearing 
organization, as applicable, and must be based on the officer's personal 
knowledge.
    (c) Additional Specified Conditions for Foreign Boards of Trade with 
Linked Contacts. If a registered foreign board of trade grants members 
or other participants direct access and makes available for trading a 
linked contract, the following additional conditions apply:
    (1) Statutory Conditions.
    (i) The foreign board of trade will make public daily trading 
information regarding the linked contract that is comparable to the 
daily trading information published by the registered entity for the 
contract to which the foreign board of trade's contract is linked, and
    (ii) The foreign board of trade (or its regulatory authority) will:
    (A) Adopt position limits (including related hedge exemption 
provisions) applicable to all market participants for the linked 
contract that are comparable to the position limits (including related 
hedge exemption provisions) adopted by the registered entity for the 
contract to which it is linked;
    (B) Have the authority to require or direct any market participant 
to limit, reduce, or liquidate any position the foreign board of trade 
(or its regulatory authority) determines to be necessary to prevent or 
reduce the threat of price manipulation, excessive speculation as 
described in section 4a of the Act, price distortion, or disruption of 
delivery on the cash settlement process;
    (C) Agree to promptly notify the Commission, with regard to the 
linked contract, of any change regarding--

[[Page 843]]

    (1) The information that the foreign board of trade will make 
publicly available,
    (2) The position limits that foreign board of trade or its 
regulatory authority will adopt and enforce,
    (3) The position reductions required to prevent manipulation, 
excessive speculation as described in section 4a of the Act, price 
distortion, or disruption of delivery or the cash settlement process, 
and
    (4) Any other area of interest expressed by the Commission to the 
foreign board of trade or its regulatory authority;
    (D) Provide information to the Commission regarding large trader 
positions in the linked contract that is comparable to the large trader 
position information collected by the Commission for the contract to 
which it is linked; and
    (E) Provide the Commission such information as is necessary to 
publish reports on aggregate trader positions for the linked contract 
that are comparable to such reports on aggregate trader positions for 
the contract to which it is linked.
    (2) Other Conditions on Linked Contracts.
    (i) The foreign board of trade will inform the Commission in a 
quarterly report of any member that had positions in a linked contract 
above the applicable foreign board of trade position limit, whether a 
hedge exemption was granted, and if not, whether a disciplinary action 
was taken.
    (ii) The foreign board of trade will provide the Commission, either 
directly or through its agent, with trade execution and audit trail data 
for the Commission's Trade Surveillance System on a trade-date plus one 
basis and in a form, content and manner acceptable to the Commission for 
all linked contracts.
    (iii) The foreign board of trade will provide to the Commission, at 
least one day prior to the effective date thereof, except in the event 
of an emergency market situation, copies of, or hyperlinks to, all 
rules, rule amendments, circulars and other notices published by the 
foreign board of trade with respect to all linked contracts.
    (iv) The foreign board of trade will provide to the Commission 
copies of all reports of disciplinary action involving the foreign board 
of trade's linked contracts upon closure of the action. Such reports 
should include the reason the action was undertaken, the results of the 
investigation that led to the disciplinary action, and any sanctions 
imposed.
    (v) In the event that the Commission, pursuant to its emergency 
powers authority, directs that the registered entity which lists the 
contract to which the foreign board of trade's contract is linked to 
take emergency action with respect to a linked contract (for example, to 
cease trading in the contract), the foreign board of trade, subject to 
information-sharing arrangements between the Commission and its 
regulatory authority, will promptly take similar action with respect to 
the its linked contract.



Sec.  48.9  Revocation of registration.

    (a) Failure to Satisfy Registration Requirements or Conditions:
    (1) If the Commission determines that a registered foreign board of 
trade or the clearing organization has failed to satisfy any 
registration requirements or conditions for registration, the Commission 
shall notify the foreign board of trade of such determination, including 
the particular requirements or conditions that are not being satisfied, 
and shall afford the foreign board of trade or clearing organization an 
opportunity to make appropriate changes to bring it into compliance.
    (2) If, not later than 30 days after receiving a notification under 
paragraph (a)(1) of this section, the foreign board of trade or clearing 
organization fails to make changes that, in the opinion of the 
Commission, are necessary to comply with the registration requirements 
or conditions of registration, the Commission may revoke the foreign 
board of trade's registration, after appropriate notice and an 
opportunity to respond, by issuing an Order Revoking Registration which 
sets forth the reasons therefor.
    (3) A foreign board of trade whose registration has been revoked for 
failure to satisfy a registration requirement or condition of 
registration may

[[Page 844]]

apply for re-registration 360 days after the issuance of the Order 
Revoking Registration if the deficiency causing the revocation has been 
cured or relevant facts and circumstances have changed.
    (b) Other Events that Could Result in Revocation. Notwithstanding 
Sec.  48.9(a), revocation under these circumstances will be handled by 
the Commission as relevant facts or circumstances warrant.
    (1) The Commission may revoke a foreign board of trade's 
registration, after appropriate notice and an opportunity to respond, if 
the Commission determines that a representation made in the foreign 
board of trade's application for registration is found to be untrue or 
materially misleading or if the foreign board of trade failed to include 
information in the application that would have been material to the 
Commission's determination as to whether to issue an Order of 
Registration.
    (2) The Commission may revoke a foreign board of trade's 
registration, after appropriate notice and an opportunity to respond, if 
there is a material change in the regulatory regime applicable to the 
foreign board of trade or clearing organization such that the regulatory 
regime no longer satisfies any registration requirement or condition for 
registration applicable to the regulatory regime.
    (3) The Commission may revoke a foreign board of trade's 
registration in the event of an emergency or in a circumstance where the 
Commission determines that revocation would be necessary or appropriate 
in the public interest. Following revocation, the Commission will 
provide notice and an opportunity to respond.
    (4) The Commission may revoke a foreign board of trade's 
registration in the event the foreign board of trade or the clearing 
organization is no longer authorized, licensed or registered, as 
applicable, as a regulated market and/or exchange or clearing 
organization or ceases to operate as a foreign board of trade or 
clearing organization, subject to notice and an opportunity to respond.
    (c) Upon request by the Commission, a registered foreign board of 
trade must file with the Commission a written demonstration, containing 
such supporting data, information, and documents, in such form and 
manner and within such timeframe as the Commission may specify, that the 
foreign board of trade or clearing organization is in compliance with 
the registration requirements and/or conditions for registration.



Sec.  48.10  Additional contracts.

    (a) Generally. A registered foreign board of trade that wishes to 
make an additional futures, option or swap contract available for 
trading by identified members or other participants located in the 
United States with direct access to its electronic trading and order 
matching system must submit a written request prior to offering the 
contracts from within the United States. Such a written request must 
include the terms and conditions of the additional futures, option or 
swap contracts and a certification that the additional contracts meet 
the requirements ofSec. 48.8(c), if applicable, and that the foreign 
board of trade and the clearing organization continue to satisfy the 
requirements and conditions of registration. The foreign board of trade 
can make available for trading by direct access the additional contracts 
ten business days after the date of receipt by the Commission of the 
written request, unless the Commission notifies the foreign board of 
trade that additional time is needed to complete its review of policy or 
other issues pertinent to the additional contracts. A registered foreign 
board of trade may list for trading by direct access an additional 
futures or option contract on a non-narrow-based security index pursuant 
to the Commission certification procedures set forth inSec. 30.13(d) 
and appendix D to part 30 of this chapter.
    (b) Option contracts on previously approved futures contracts. (1) 
If the option is on a futures contract that is not a linked contract, 
the option contract may be made available for trading by direct access 
by filing with the Commission no later than the business day preceding 
the initial listing of the contract:
    (i) A copy of the terms and conditions of the additional contract 
and

[[Page 845]]

    (ii) A certification that the foreign board of trade and the 
clearing organization continue to satisfy the conditions of its 
registration.
    (2) If the option is on a futures contract that is a linked 
contract, the option contract may be made available for trading by 
direct access by filing with the Commission no later than the business 
day preceding the initial listing of the contract:
    (i) A copy of the terms and conditions of the additional contract; 
and
    (ii) A certification that the foreign board of trade and the 
clearing organization continue to satisfy the conditions of its 
registration, including the conditions specifically applicable to linked 
contracts set forth inSec. 48.8(c).
    (3) If the option is on a non-narrow-based security index futures 
contract which may be offered or sold in the United States pursuant to a 
Commission certification issued pursuant toSec. 30.13 of this chapter, 
the option contract may be listed for trading by direct access without 
further action by either the registered foreign board of trade or the 
Commission.



                   Sec. Appendix to Part 48--Form FBOT

                  COMMODITY FUTURES TRADING COMMISSION

                                FORM FBOT

FOREIGN BOARD OF TRADE APPLICATION FOR REGISTRATION (IN ORDER TO PERMIT 
            DIRECT ACCESS TO MEMBERS AND OTHER PARTICIPANTS)

                        APPLICATION INSTRUCTIONS

                               DEFINITIONS

    1. Unless the context requires otherwise, all terms used in this 
application have the same meaning as in the Commodity Exchange Act, as 
amended (CEA or Act),\1\ and in the regulations of the Commodity Futures 
Trading Commission (Commission or CFTC).\2\
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 1 et seq.
    \2\ 17 CFR chapter I.
---------------------------------------------------------------------------

    2. For the purposes of this Form FBOT, the term ``applicant'' refers 
to the foreign board of trade applying for registration pursuant to CEA 
section 4(b) and part 48 of the Commission's regulations. The term 
``clearing organization'' refers to the clearing organization that will 
be clearing trades executed on the trading system of such foreign board 
of trade.

                          GENERAL INSTRUCTIONS

    1. A Form FBOT (including exhibits) shall be completed by any 
foreign board of trade applying for registration with the Commission 
pursuant to CEA section 4(b) and part 48 of the Commission's 
regulations.
    2. Form FBOT (including exhibits and any supplement thereto) 
(collectively, the ``application'' or ``application for registration'') 
must be filed electronically with the Secretary of the Commission at 
[email protected]. Applicants may prepare their own Form FBOT, 
but must follow the format prescribed herein.
    3. The name of any individual listed in Form FBOT shall be provided 
in full (Last Name, First Name and Middle Name or Initial).
    4. Form FBOT must be signed by the Chief Executive Officer (or the 
functional equivalent) of the foreign board of trade who must possess 
the authority to bind the foreign board of trade.
    5. If this Form FBOT is being filed as a new application for 
registration, all applicable items on the Form FBOT must be answered in 
full. Non-applicable items should be indicated by marking ``none'' or 
``N/A.''
    6. Submission of a complete Form FBOT (including all information, 
documentation and exhibits requested therein, and any required 
supplement) is mandatory and must be received by the Commission before 
it will begin to process a foreign board of trade's application for 
registration. The information provided with a Form FBOT (including 
exhibits and any supplement thereto) will be used to determine whether 
the Commission should approve or deny registration to an applicant. 
Pursuant to its regulations, the Commission may determine that 
information and/or documentation in addition to that requested in the 
Form FBOT is required from the applicant in order to process the 
application for registration or to determine whether registration is 
appropriate.
    7. Pursuant to Commission regulations, an applicant or its clearing 
organization must identify with particularity any information in the 
application (including, but not limited to, any information contained in 
this Form FBOT) that will be the subject of a request for confidential 
treatment and must provide support for any request for confidential 
treatment pursuant to the procedures set forth in Commission regulation 
145.9.\3\ Except in cases where confidential treatment is granted by the 
Commission pursuant to the Freedom of Information Act and Commission 
regulations, information supplied in the Form FBOT (including exhibits 
and any supplement thereto) will be included routinely in the public 
files of the Commission and

[[Page 846]]

will be available for inspection and comment by any interested person.
---------------------------------------------------------------------------

    \3\ 17 CFR 145.9.
---------------------------------------------------------------------------

    8. A Form FBOT that is not prepared and executed in compliance with 
applicable requirements and instructions may be returned as not 
acceptable for filing.\4\ Acceptance of a Form FBOT by the Commission, 
however, shall not constitute a finding that the Form FBOT has been 
filed as required or that the information submitted is verified to be 
true, current, or complete. The Commission may revoke a foreign board of 
trade's registration, after appropriate notice and an opportunity to 
respond, if the Commission determines that a representation made in this 
Form FBOT is found to be untrue or materially misleading or if the 
foreign board of trade failed to include information in this Form FBOT 
that would have been material to the Commission's determination as to 
whether to issue an Order of Registration.
---------------------------------------------------------------------------

    \4\ Applicants and their clearing organizations are encouraged to 
correspond with the Commission's Division of Market Oversight regarding 
any content, procedural, or formatting questions encountered in 
connection with the preparation of a Form FBOT, or any exhibits or 
supplements thereto, prior to formally submitting those documents to the 
Commission. When appropriate, potential applicants and clearing 
organizations, as applicable, may provide a complete draft Form FBOT 
(including exhibits and any required supplement) to the Division of 
Market Oversight for early review to minimize the risk of having a 
submission returned or otherwise denied as not acceptable for filing. 
Review of draft submissions by any division of the Commission and any 
comments provided by a division of the Commission are for consultation 
purposes only and do not bind the Commission. To obtain instructions for 
submitting drafts, please contact the Division of Market Oversight.
---------------------------------------------------------------------------

    9. In addition to this Form FBOT, the clearing organization 
associated with the foreign board of trade must complete and submit 
Supplement S-1 to this Form FBOT in accordance with the instructions 
thereto. To the extent a single document or description is responsive to 
more than one request for the same information in either the Form FBOT 
or the Supplement S-1, the document or description need only be provided 
once and may be cross-referenced elsewhere.
    10. All documents submitted as part of this Form FBOT (or exhibits 
thereto) must be written in English or accompanied by a certified 
English translation.

                  UPDATING INFORMATION ON THE FORM FBOT

    Pursuant to the Commission's regulations, if any information or 
documentation contained in this Form FBOT (including exhibits or any 
supplement or amendment thereto) is or becomes inaccurate for any reason 
prior to the issuance of an Order of Registration, an amendment 
correcting such information must be filed promptly with the Commission. 
A registered foreign board of trade also may submit an amendment to this 
Form FBOT to correct information that has become inaccurate subsequent 
to the receipt of an Order of Registration.

[[Page 847]]

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[[Page 848]]


[GRAPHIC] [TIFF OMITTED] TR23DE11.052


[[Page 849]]


[GRAPHIC] [TIFF OMITTED] TR23DE11.053


[[Page 850]]


[GRAPHIC] [TIFF OMITTED] TR23DE11.054

                 INSTRUCTIONS FOR EXHIBITS TO FORM FBOT

    1. The following exhibits must be filed with the Commission by any 
foreign board of trade (1) seeking registration for purposes of granting 
direct access to its members and other participants or (2) amending a 
previously submitted application, pursuant to

[[Page 851]]

CEA section 4(b) and part 48 of the Commission's regulations. The 
information and documentation requested relates to the activities of the 
foreign board of trade, unless otherwise stated.
    2. The exhibits should be filed in accordance with the General 
Instructions to this Form FBOT and labeled as specified herein. If any 
exhibit is not applicable, please specify the exhibit letter and number 
and indicate by marking ``none'' or ``N/A.'' If any exhibit may be 
satisfied by documentation or information submitted in a different 
exhibit, the documentation or information need not be submitted more 
than once--please use internal cross-references where appropriate.

                          GENERAL REQUIREMENTS

    A foreign board of trade applying for registration must submit 
sufficient information and documentation to successfully demonstrate to 
Commission staff that the foreign board of trade and its clearing 
organization satisfy all of the requirements of Commission regulation 
48.7. With respect to its review of the foreign board of trade, the 
Commission anticipates that such information and documentation would 
necessarily include, but not be limited to, the following:

            EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION

    Attach, as Exhibit A-1, a description of the following for the 
foreign board of trade: Location, history, size, ownership and corporate 
structure, governance and committee structure, current or anticipated 
presence of offices or staff in the United States, and anticipated 
volume of business emanating from members and other participants that 
will be provided direct access to the foreign board of trade's trading 
system.
    Attach, as Exhibit A-2, the following:
    Articles of association, constitution, or other similar 
organizational documents.
    Attach, as Exhibit A-3, the following:
    (1) Membership and trading participant agreements.
    (2) Clearing agreements.
    Attach, as Exhibit A-4, the following:
    Terms and conditions of contracts to be available through direct 
access (as specified in Exhibit E).
    Attach, as Exhibit A-5, the following:
    The national statutes, laws and regulations governing the activities 
of the foreign board of trade and its respective participants.
    Attach, as Exhibit A-6, the following:
    The current rules, regulations, guidelines and bylaws of the foreign 
board of trade.
    Attach, as Exhibit A-7, the following:
    Evidence of the authorization, licensure or registration of the 
foreign board of trade pursuant to the regulatory regime in its home 
country jurisdiction and a representation by its regulator(s) that it is 
in good regulatory standing in the capacity in which it is authorized, 
licensed or registered.
    Attach, as Exhibit A-8, the following document:
    A summary of any disciplinary or enforcement actions or proceedings 
that have been brought against the foreign board of trade, or any of the 
senior officers thereof, in the past five years and the resolution of 
those actions or proceedings.
    Attach, as Exhibit A-9, the following document:
    An undertaking by the chief executive officer(s) (or functional 
equivalent[s]) of the foreign board of trade to notify Commission staff 
promptly if any of the representations made in connection with or 
related to the foreign board of trade's application for registration 
cease to be true or correct, or become incomplete or misleading.

                     EXHIBIT B--MEMBERSHIP CRITERIA

    Attach, as Exhibit B, the following, separately labeling each 
description:
    (1) A description of the categories of membership and participation 
in the foreign board of trade and the access and trading privileges 
provided by the foreign board of trade. The description should include 
any restrictions applicable to members and other participants to which 
the foreign board of trade intends to grant direct access to its trading 
system.
    (2) A description of all requirements for each category of 
membership and participation on the trading system and the manner in 
which members and other participants are required to demonstrate their 
compliance with these requirements. The description should include, but 
not be limited to, the following:
    (i) Professional Qualification. A description of the specific 
professional requirements, qualifications, and/or competencies required 
of members or other participants and/or their staff and a description of 
the process by which the foreign board of trade confirms compliance with 
such requirements.
    (ii) Authorization, Licensure and Registration. A description of any 
regulatory and self-regulatory authorization, licensure or registration 
requirements that the foreign board of trade imposes upon, or enforces 
against, its members and other participants including, but not limited 
to any authorization, licensure or registration requirements imposed by 
the regulatory regime/authority in the home country jurisdiction(s) of 
the foreign board of trade. Please also include a description of the 
process by which the foreign board of trade confirms compliance with 
such requirements.
    (iii) Financial Integrity. A description of the following:

[[Page 852]]

    (A) The financial resource requirements, standards, guides or 
thresholds required of members and other participants.
    (B) The manner in which the foreign board of trade evaluates the 
financial resources/holdings of its members or participants.
    (C) The process by which applicants demonstrate compliance with 
financial requirements for membership or participation including, as 
applicable:
    (i) Working capital and collateral requirements, and
    (ii) Risk management mechanisms for members allowing customers to 
place orders.
    (iv) Fit and Proper Standards. A description of how the foreign 
board of trade ensures that potential members/other participants meet 
fit and proper standards.

              EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP

    Attach, as Exhibit C, the following:
    (1) A description of the requirements applicable to membership on 
the governing board and significant committees of the foreign board of 
trade.
    (2) A description of the process by which the foreign board of trade 
ensures that potential governing board and committee members/other 
participants meet these standards.
    (3) A description of the provisions to minimize and resolve 
conflicts of interest with respect to membership on the governing board 
and significant committees of the foreign board of trade.
    (4) A description of the rules with respect to the disclosure of 
material non-public information obtained as a result of a member's or 
other participant's performance on the governing board or significant 
committee.

                 EXHIBIT D--THE AUTOMATED TRADING SYSTEM

    Attach, as Exhibit D-1, a description of (or where appropriate, 
documentation addressing) the following, separately labeling each 
description:
    (1) The order matching/trade execution system, including a complete 
description of all permitted ways in which members or other participants 
(or their customers) may connect to the trade matching/execution system 
and the related requirements (for example, authorization agreements).
    (2) The architecture of the systems, including hardware and 
distribution network, as well as any pre- and post-trade risk-management 
controls that are made available to system users.
    (3) The security features of the systems.
    (4) The length of time such systems have been operating.
    (5) Any significant system failures or interruptions.
    (6) The nature of any technical review of the order matching/trade 
execution system performed by the foreign board of trade, the home 
country regulator, or a third party.
    (7) Trading hours.
    (8) Types and duration of orders accepted.
    (9) Information that must be included on orders.
    (10) Trade confirmation and error trade procedures.
    (11) Anonymity of participants.
    (12) Trading system connectivity with clearing system.
    (13) Response time.
    (14) Ability to determine depth of market.
    (15) Market continuity provisions.
    (16) Reporting and recordkeeping requirements.
    Attach, as Exhibit D-2, a description of the manner in which the 
foreign board of trade assures the following with respect to the trading 
system, separately labeling each description:
    (1) Algorithm. The trade matching algorithm matches trades fairly 
and timely.
    (2) IOSCO Principles. The trading system complies with the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions (IOSCO Principles). 
Provide a copy of any independent certification received or self-
certification performed and identify any system deficiencies with 
respect to the IOSCO Principles.
    (3) Audit Trail.
    (i) The audit trail timely captures all relevant data, including 
changes to orders.
    (ii) Audit trail data is securely maintained and available for an 
adequate time period.
    (4) Public Data. Adequate and appropriate trade data is available to 
users and the public.
    (5) Reliability. The trading system has demonstrated reliability.
    (6) Secure Access. Access to the trading system is secure and 
protected.
    (7) Emergency Provisions. There are adequate provisions for 
emergency operations and disaster recovery.
    (8) Data Loss Prevention. Trading data is backed up to prevent loss 
of data.
    (9) Contracts Available. Mechanisms are available to ensure that 
only those futures, option or swap contracts that have been identified 
to the Commission as part of the application or permitted to be made 
available for trading by direct access pursuant to the procedures set 
forth inSec. 48.10 are made available for trading by direct access.
    (10) Predominance of the Centralized Market. Mechanisms are 
available that ensure a competitive, open, and efficient market and 
mechanism for executing transactions.

[[Page 853]]

  EXHIBIT E--THE TERMS AND CONDITIONS OF CONTRACTS PROPOSED TO BE MADE 
                     AVAILABLE IN THE UNITED STATES

    Attach, as Exhibit E-1, a description of the terms and conditions of 
futures, option or swap contracts intended to be made available for 
direct access. With respect to each contract, indicate whether the 
contract is regulated or otherwise treated as a futures, option or swap 
contract in the regulatory regime(s) of the foreign board of trade's 
home country.
    As Exhibit E-2, demonstrate that the contracts are not prohibited 
from being traded by United States persons, i.e., the contracts are not 
prohibited security futures or single stock contracts or narrow-based 
index contracts. For non-narrow based stock index futures contracts, 
demonstrate that the contracts have received Commission certification 
pursuant to the procedures set forth inSec. 30.13 and appendix D to 
part 30 of this chapter.
    As Exhibit E-3, demonstrate that the contracts are required to be 
cleared.
    As Exhibit E-4, identify any contracts that are linked to a contract 
listed for trading on a United States-registered entity, as defined in 
section 1a(40) of the Act. A linked contract is a contract that settles 
against any price (including the daily or final settlement price) of one 
or more contracts listed for trading on such registered entity.
    As Exhibit E-5, identify any contracts that have any other 
relationship with a contract listed for trading on a registered entity, 
i.e., both the foreign board of trade's and the registered entity's 
contract settle to the price of the same third party-constructed index.
    As Exhibit E-6, demonstrate that the contracts are not readily 
susceptible to manipulation. In addition, for each contract to be 
listed, describe each investigation, action, proceeding or case 
involving manipulation and involving such contract in the three years 
preceding the application date, whether initiated by the foreign board 
of trade, a regulatory or self-regulatory authority or agency or other 
government or prosecutorial agency. For each such action, proceeding or 
case, describe the alleged manipulative activity and the current status 
or resolution thereof.

EXHIBIT F--THE REGULATORY REGIME GOVERNING THE FOREIGN BOARD OF TRADE IN 
                    ITS HOME COUNTRY \5\ OR COUNTRIES

    With respect to each relevant regulatory regime or authority 
governing the foreign board of trade, attach, as Exhibit F, the 
following (including, where appropriate, an indication as to whether the 
applicable regulatory regime is dependent on the home country's 
classification of the product being traded on the foreign board of trade 
as a future, option, swap, or otherwise, and a description of any 
difference between the applicable regulatory regime for each product 
classification type):
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    \5\ Where multiple foreign boards of trade subject to the same 
regulatory regime/authority and are similarly regulated are applying for 
registration at the same time, a single Exhibit E-1 may be submitted as 
part of the application for all such foreign boards of trade either by 
one of the applicant foreign boards of trade or by the regulatory 
regime/authority with responsibility to oversee each of the multiple 
foreign boards of trade applying for registration. Where an FBOT 
applying for registration is located in the same jurisdiction and 
subject to the same regulatory regime as a registered FBOT, the FBOT 
applying for registration may include by reference, as part of its 
application, information about the regulatory regime that is posted on 
the Commission's Web site. The FBOT applying for registration must 
certify that the information thus included in the application is 
directly applicable to it and remains current and valid.
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    (1) A description of the regulatory regime/authority's structure, 
resources, staff, and scope of authority; the regulatory regime/
authority's authorizing statutes, including the source of its authority 
to supervise the foreign board of trade; the rules and policy statements 
issued by the regulator with respect to the authorization and continuing 
oversight of markets, electronic trading systems, and clearing 
organizations; and the financial protections afforded customer funds.
    (2) A description of and, where applicable, copies of the laws, 
rules, regulations and policies applicable to: \6\
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    \6\ To the extent that any such laws, rules, regulations or policies 
were provided as part of Exhibit A-5, they need not be duplicated. They 
may be cross-referenced.
---------------------------------------------------------------------------

    (i) The authorization, licensure or registration of the foreign 
board of trade.
    (ii) The regulatory regime/authority's program for the ongoing 
supervision and oversight of the foreign board of trade and the 
enforcement of its trading rules.
    (iii) The financial resource requirements applicable to the 
authorization, licensure or registration of the foreign board of trade 
and the continued operations thereof.
    (iv) The extent to which the IOSCO Principles are used or applied by 
the regulatory regime/authority in its supervision and oversight of the 
foreign board of trade or are incorporated into its rules and 
regulations and the extent to which the regulatory regime/authority 
reviews the applicable trading systems for compliance therewith.

[[Page 854]]

    (v) The extent to which the regulatory regime/authority reviews and/
or approves the trading rules of the foreign board of trade prior to 
their implementation.
    (vi) The extent to which the regulatory regime/authority reviews 
and/or approves futures, option or swap contracts prior to their being 
listed for trading.
    (vii) The regulatory regime/authority's approach to the detection 
and deterrence of abusive trading practices, market manipulation, and 
other unfair trading practices or disruptions of the market.
    (3) A description of the laws, rules, regulations and policies that 
govern the authorization and ongoing supervision and oversight of market 
intermediaries who may deal with members and other participants located 
in the United States participants, including:
    (i) Recordkeeping requirements.
    (ii) The protection of customer funds.
    (iii) Procedures for dealing with the failure of a market 
intermediary in order to minimize damage and loss to investors and to 
contain systemic risk.
    (4) A description of the regulatory regime/authority's inspection, 
investigation and surveillance powers; and the program pursuant to which 
the regulatory regime/authority uses those powers to inspect, 
investigate, and enforce rules applicable to the foreign board of trade.
    (5) For both the foreign board of trade and the clearing 
organization (unless addressed in Supplement S-1), a report confirming 
that the foreign board of trade and clearing organization are in 
regulatory good standing, which report should be prepared subsequent to 
consulting with the regulatory regime/authority governing the activities 
of the foreign board of trade and any associated clearing organization. 
The report should include:
    (i) Confirmation of regulatory status (including proper 
authorization, licensure and registration) of the foreign board of trade 
and clearing organization.
    (ii) Any recent oversight reports generated by the regulatory 
regime/authority that are, in the judgment of the regulatory regime/
authority, relevant to the foreign board of trade's status as a 
registered foreign board of trade.
    (iii) Disclosure of any significant regulatory concerns, inquiries 
or investigations by the regulatory regime/authority, including any 
concerns, inquiries or investigations with regard to the foreign board 
of trade's arrangements to monitor trading by members or other 
participants located in the United States or the adequacy of the risk 
management controls of the trading or of the clearing system.
    (iv) A description of any investigations (formal or informal) or 
disciplinary actions initiated by the regulatory regime/authority or any 
other self-regulatory, regulatory or governmental entity against the 
foreign board of trade, the clearing organization or any of their 
respective senior officers during the past year.
    (6) For both the foreign board of trade and the clearing 
organization (unless addressed in Supplement S-1), a confirmation that 
the regulatory regime/authority governing the activities of the foreign 
board of trade and the clearing organization agree to cooperate with a 
Commission staff visit subsequent to submission of the application on an 
``as needed basis,'' the objectives of which will be to, among other 
things, familiarize Commission staff with supervisory staff of the 
regulatory regime/authority; discuss the laws, rules and regulations 
that formed the basis of the application and any changes thereto; 
discuss the cooperation and coordination between the authorities, 
including, without limitation, information sharing arrangements; and 
discuss issues of concern as they may develop from time to time (for 
example, linked contracts or unusual trading that may be of concern to 
Commission surveillance staff).

   EXHIBIT G--THE RULES OF THE FOREIGN BOARD OF TRADE AND ENFORCEMENT 
                                 THEREOF

    Attach, as Exhibit G-1, the following:
    A description of the foreign board of trade's regulatory or 
compliance department, including its size, experience level, 
competencies, duties and responsibilities.
    Attach, as Exhibit G-2, the following:
    A description of the foreign board of trade's trade practice rules, 
including but not limited to rules that address the following--
    (1) Capacity of the foreign board of trade to detect, investigate, 
and sanction persons who violate foreign board of trade rules.
    (2) Prohibition of fraud and abuse, as well as abusive trading 
practices including, but not limited to, wash sales and trading ahead, 
and other market abuses.
    (3) A trade surveillance system appropriate to the foreign board of 
trade and capable of detecting and investigating potential trade 
practice violations.
    (4) An audit trail that captures and retains sufficient order and 
trade-related data to allow the compliance staff to detect trading and 
market abuses and to reconstruct all transactions within a reasonable 
period of time.
    (5) Appropriate resources to conduct real-time supervision of 
trading.
    (6) Sufficient compliance staff and resources, including those 
outsourced or delegated to third parties, to fulfill regulatory 
responsibilities.
    (7) Rules that authorize compliance staff to obtain, from market 
participants, information and cooperation necessary to conduct effective 
rule enforcement and investigations.

[[Page 855]]

    (8) Staff investigations and investigation reports demonstrating 
that the compliance staff investigates suspected rule violations and 
prepares reports of their finding and recommendations.
    (9) Rules determining access requirements with respect to the 
persons that may trade on the foreign board of trade, and the means by 
which they connect to it.
    (10) The requirement that market participants submit to the foreign 
board of trade's jurisdiction as a condition of access to the market.
    Attach, as Exhibit G-3, the following:
    A description of the foreign board of trade's disciplinary rules, 
including but not limited to rules that address the following--
    (1) Disciplinary authority and procedures that empower staff to 
recommend and prosecute disciplinary actions for suspected rule 
violations and that provide the authority to fine, suspend, or expel any 
market participant pursuant to fair and clear standards.
    (2) The issuance of warning letters and/or summary fines for 
specified rule violations.
    (3) The review of investigation reports by a disciplinary panel or 
other authority for issuance of charges or instructions to investigate 
further, or findings that an insufficient basis exists to issue charges.
    (4) Disciplinary committees of the foreign board of trade that take 
disciplinary action via formal disciplinary processes.
    (5) Whether and how the foreign board of trade articulates its 
rationale for disciplinary decisions.
    (6) The sanctions for particular violations and a discussion of the 
adequacy of sanctions with respect to the violations committed and their 
effectiveness as a deterrent to future violations.
    Attach, as Exhibit G-4, the following:
    A description of the market surveillance program (and any related 
rules), addressing the following--
    The dedicated market surveillance department or the delegation or 
outsourcing of that function, including a general description of the 
staff; the data collected on traders' market activity; data collected to 
determine whether prices are responding to supply and demand; data on 
the size and ownership of deliverable supplies; a description of the 
manner in which the foreign board of trade detects and deters market 
manipulation; for cash-settled contracts, methods of monitoring the 
settlement price or value; and any foreign board of trade position 
limit, position management, large trader or other position reporting 
system.

  EXHIBIT H--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE 
    FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT 
                         REGULATORY AUTHORITIES

    Attach, as Exhibit H, the following:
    (1) A description of the arrangements among the Commission, the 
foreign board of trade, the clearing organization, and the relevant 
foreign regulatory authorities that govern the sharing of information 
regarding the transactions that will be executed pursuant to the foreign 
board of trade's registration with the Commission and the clearing and 
settlement of those transactions. This description should address or 
identify whether and how the foreign board of trade, clearing 
organization, and the regulatory authorities governing the activities of 
the foreign board of trade and clearing organization agree to provide 
directly to the Commission information and documentation requested by 
Commission staff that Commission staff determines is needed:
    (i) To evaluate the continued eligibility of the foreign board of 
trade for registration.
    (ii) To enforce compliance with the specified conditions of the 
registration.
    (iii) To enable the CFTC to carry out its duties under the Act and 
Commission regulations and to provide adequate protection to the public 
or registered entities.
    (iv) To respond to potential market abuse associated with trading by 
direct access on the registered foreign board of trade.
    (v) To enable Commission staff to effectively accomplish its 
surveillance responsibilities with respect to a registered entity where 
Commission staff, in its discretion, determines that a contract traded 
on a registered foreign board of trade may affect such ability.
    (2) A statement as to whether and how the foreign board of trade has 
executed the International Information Sharing Memorandum of 
Understanding and Agreement.
    (3) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the International Organization of Securities 
Commissions Multilateral Memorandum of Understanding. If not, describe 
any substitute information-sharing arrangements that are in place.
    (4) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the Declaration on Cooperation and Supervision of 
International Futures Exchanges and Clearing Organizations. If not, a 
statement as to whether and how they have committed to share the types 
of information contemplated by the International Information Sharing

[[Page 856]]

Memorandum of Understanding and Agreement with the Commission, whether 
pursuant to an existing memorandum of understanding or some other 
arrangement.

           EXHIBIT I--ADDITIONAL INFORMATION AND DOCUMENTATION

    Attach, as Exhibit I, any additional information or documentation 
necessary to demonstrate that the requirements for registration 
applicable to the foreign board of trade set forth in Commission 
regulation 48.7 are satisfied.

    Continuation of Appendix to Part 48--Supplement S-1 to Form FBOT

                  COMMODITY FUTURES TRADING COMMISSION

                       SUPPLEMENT S-1 to FORM FBOT

 CLEARING ORGANIZATION SUPPLEMENT TO FOREIGN BOARD OF TRADE APPLICATION 
                            FOR REGISTRATION

                         SUPPLEMENT INSTRUCTIONS

                               DEFINITIONS

    1. Unless the context requires otherwise, all terms used in this 
supplement have the same meaning as in the Commodity Exchange Act, as 
amended (CEA or Act),\7\ and in the regulations of the Commodity Futures 
Trading Commission (Commission or CFTC).\8\
---------------------------------------------------------------------------

    \7\ 7 U.S.C. 1 et seq.
    \8\ 17 CFR chapter I.
---------------------------------------------------------------------------

    2. For the purposes of this Supplement S-1, the term ``applicant'' 
refers to the foreign board of trade applying for registration pursuant 
to CEA section 4(b) and part 48 of the Commission's regulations. The 
term ``clearing organization'' refers to the clearing organization that 
will be clearing trades executed on the trading system of such foreign 
board of trade.

                          GENERAL INSTRUCTIONS

    1. A Supplement S-1 (including exhibits) shall be completed by each 
clearing organization that will be clearing trades executed on the 
trading system of a foreign board of trade applying for registration 
with the Commission pursuant to CEA section 4(b) and part 48 of the 
Commission's regulations. Each clearing organization shall submit a 
separate Supplement S-1.
    2. In the event that the clearing functions of the foreign board of 
trade applying for registration will be performed by the foreign board 
of trade itself, the foreign board of trade shall complete this 
Supplement S-1, but need not duplicate information provided on its Form 
FBOT. Specific reference to or incorporation of information or 
documentation (including exhibits) on the associated Form FBOT, where 
appropriate, is acceptable. To the extent a singular document or 
description is responsive to more than one request for information in 
this Supplement S-1, the document or description need only be provided 
once and may be cross-referenced elsewhere.
    3. Supplement S-1, including exhibits, should accompany the foreign 
board of trade's Form FBOT and must be filed electronically with the 
Secretary of the Commission at [email protected]. Clearing 
organizations may prepare their own Supplement S-1, but must follow the 
format prescribed herein.
    4. The name of any individual listed in Supplement S-1 shall be 
provided in full (Last Name, First Name and Middle Name or Initial).
    5. Supplement S-1 must be signed by the Chief Executive Officer (or 
the functional equivalent) of the clearing organization who must possess 
the authority to bind the clearing organization.
    6. If this Supplement S-1 is being filed in connection with a new 
application for registration, all applicable items must be answered in 
full. If any item is not applicable, indicate by marking ``none'' or 
``N/A.''
    7. Submission of a complete Form FBOT and Supplement S-1 (including 
all information, documentation and exhibits requested therein) is 
mandatory and must be received by the Commission before it will begin to 
process a foreign board of trade's application for registration. The 
information provided with a Form FBOT and Supplement S-1 will be used to 
determine whether the Commission should approve or deny registration to 
an applicant. Pursuant to its regulations, the Commission may determine 
that information and/or documentation in addition to that requested in 
the Form FBOT and Supplement S-1 is required from the applicant and/or 
its clearing organization(s) in order to process the application for 
registration or to determine whether registration is appropriate.
    8. Pursuant to Commission regulations, an applicant or its clearing 
organization must identify with particularity any information in the 
application (including, but not limited to, any information contained in 
this Supplement S-1), that will be the subject of a request for 
confidential treatment and must provide support for any request for 
confidential treatment pursuant to the procedures set forth in 
Commission regulation 145.9.\9\ Except in cases where confidential 
treatment is granted by the Commission, pursuant to the Freedom of 
Information Act and Commission regulations, information supplied in the 
Supplement S-1 will be included

[[Page 857]]

routinely in the public files of the Commission and will be available 
for inspection by any interested person.
---------------------------------------------------------------------------

    \9\ 17 CFR 145.9.
---------------------------------------------------------------------------

    9. A Supplement S-1 that is not prepared and executed in compliance 
with applicable requirements and instructions may be returned as not 
acceptable for filing.\10\ Acceptance of either a Form FBOT or 
Supplement S-1 by the Commission, however, shall not constitute a 
finding that the either have been filed as required or that the 
information submitted is verified to be true, current, or complete. The 
Commission may revoke a foreign board of trade's registration, after 
appropriate notice and an opportunity to respond, if the Commission 
determines that a representation made in this Supplement S-1 is found to 
be untrue or materially misleading or if the foreign board of trade and/
or clearing organization failed to include information in this 
Supplement S-1 that would have been material to the Commission's 
determination as to whether to issue an Order of Registration.
---------------------------------------------------------------------------

    \10\ Applicants and their clearing organizations are encouraged to 
correspond with the Commission's Division of Market Oversight regarding 
any content, procedural, or formatting questions encountered in 
connection with the preparation of a Form FBOT, Supplement S-1, or 
exhibits thereto prior to formally submitting those documents to the 
Commission. When appropriate, potential applicants and clearing 
organizations, as applicable, may provide a complete draft Form FBOT and 
Supplement S-1 to the Division of Market Oversight for early review to 
minimize the risk of having a submission returned or otherwise denied as 
not acceptable for filing. Review of draft submissions by any division 
of the Commission and any comments provided by a division of the 
Commission are for consultation purposes only and do not bind the 
Commission. To obtain instructions for submitting drafts, please contact 
the Division of Market Oversight.
---------------------------------------------------------------------------

    10. All documents submitted as part of this Supplement S-1 (or 
exhibits thereto) must be written in English or accompanied by a 
certified English translation.

                          UPDATING INFORMATION

    Pursuant to the Commission's regulations, if any information or 
documentation contained in this Supplement S-1 (including exhibits) is 
or becomes inaccurate for any reason prior to the issuance of an Order 
of Registration, an amendment correcting such information must be filed 
promptly with the Commission. A clearing organization also may submit an 
amendment to this Supplement S-1 to correct information that has become 
inaccurate subsequent to the issuance of an Order of Registration.

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[GRAPHIC] [TIFF OMITTED] TR23DE11.059

               INSTRUCTIONS FOR EXHIBITS TO SUPPLEMENT S-1

    1. The following exhibits must be filed with the Commission by the 
clearing organization(s) that will be clearing trades executed on the 
trading system of a foreign board of trade applying for registration 
with the Commission pursuant to CEA section 4(b) and part 48 of 
Commission's regulations. The information and documentation requested 
relates to the activities of the clearing organization.

[[Page 863]]

    2. The exhibits should be filed in accordance with the General 
Instructions to this Supplement S-1 and labeled as specified herein. If 
any exhibit is not applicable, please specify the exhibit letter and 
number and indicate by marking ``none'' or ``N/A.'' If any exhibit may 
be satisfied by documentation or information submitted in a different 
exhibit, the documentation or information need not be submitted more 
than once--please use internal cross-references where appropriate.

                          GENERAL REQUIREMENTS

    A foreign board of trade applying for registration must submit 
sufficient information and documentation to successfully demonstrate to 
Commission staff that the foreign board of trade and its clearing 
organization satisfy all of the requirements of Commission regulation 
48.7. With respect to its review of the foreign board of trade's 
clearing organization, the Commission anticipates that such information 
and documentation would necessarily include, but not be limited to, the 
following:

            EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION

    Attach, as Exhibit A-1, a description of the following for the 
clearing organization:
    Location, history, size, ownership and corporate structure, 
governance and committee structure, and current or anticipated presence 
of staff in the United States.
    Attach, as Exhibit A-2, the following:
    Articles of association, constitution, or other similar 
organizational documents.
    Attach, as Exhibit A-3, the following:
    (1) Membership and participation agreements.
    (2) Clearing agreements.
    Attach, as Exhibit A-4, the following:
    The national statutes, laws and regulations governing the activities 
of the clearing organization and its members.
    Attach, as Exhibit A-5, the following:
    The current rules, regulations, guidelines and bylaws of the 
clearing organization.
    Attach, as Exhibit A-6, the following:
    Evidence of the authorization, licensure or registration of the 
clearing organization pursuant to the regulatory regime in its home 
country jurisdiction(s) and a representation by its regulator(s) that it 
is in good regulatory standing in the capacity in which it is 
authorized, licensed or registered.
    Attach, as Exhibit A-7, the following document:
    A summary of any disciplinary or enforcement actions or proceedings 
that have been brought against the clearing organization, or any of the 
senior officers thereof, in the past five years and the resolution of 
those actions or proceedings.
    Attach, as Exhibit A-8, the following document:
    An undertaking by the chief executive officer(s) (or functional 
equivalent[s]) of the clearing organization to notify Commission staff 
promptly if any of the representations made in connection with this 
supplement cease to be true or correct, or become incomplete or 
misleading.

                     EXHIBIT B--MEMBERSHIP CRITERIA

    Attach, as Exhibit B, the following, separately labeling each 
description:
    (1) A description of the categories of membership and participation 
in the clearing organization and the access and clearing privileges 
provided to each by the clearing organization.
    (2) A description of all requirements for each category of 
membership and participation and the manner in which members and other 
participants are required to demonstrate their compliance with these 
requirements. The description should include, but not be limited to, the 
following:
    (i) Professional Qualification. A description of the specific 
professional requirements, qualifications, and/or competencies required 
of members or other participants and/or their staff and a description of 
the process by which the clearing organization confirms compliance with 
such requirements.
    (ii) Authorization, Licensure and Registration. A description of any 
regulatory or self-regulatory authorization, licensure or registration 
requirements that the clearing organization imposes upon, or enforces 
against, its members and other participants including, but not limited 
to any authorization, licensure or registration requirements imposed by 
the regulatory regime/authority in the home country jurisdiction(s) of 
the clearing organization, and a description of the process by which the 
clearing organization confirms compliance with such requirements.
    (iii) Financial Integrity. A description of the following:
    (A) The financial resource requirements, standards, guides or 
thresholds required of members and other participants.
    (B) The manner in which the clearing organization evaluates the 
financial resources/holdings of its members or other participants.
    (C) The process by which applicants for clearing membership or 
participation demonstrate compliance with financial requirements 
including:
    (1) Working capital and collateral requirements, and
    (2) Risk management mechanisms.
    (iv) Fit and Proper Standards. A description of any other ways in 
which the clearing

[[Page 864]]

organization ensures that potential members/other participants meet fit 
and proper standards.

              EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP

    Attach, as Exhibit C, the following:
    (1) A description of the requirements applicable to membership on 
the governing board and significant committees of the clearing 
organization.
    (2) A description of how the clearing organization ensures that 
potential governing board and committee members meet these standards.
    (3) A description of the clearing organization's provisions to 
minimize and resolve conflicts of interest with respect to membership on 
the governing board and significant committees of the clearing 
organization.
    (4) A description of the clearing organization's rules with respect 
to the disclosure of material non-public information obtained as a 
result of a member's performance on the governing board or on a 
significant committee.

                   EXHIBIT D--SETTLEMENT AND CLEARING

    Attach, as Exhibit D-1, the following:
    A description of the clearing and settlement systems, including, but 
not limited to, the manner in which such systems interface with the 
foreign board of trade's trading system and its members and other 
participants.
    Attach, as Exhibit D-2, the following:
    A certification, signed by the chief executive offer (or functional 
equivalent) of the clearing organization, that the clearing system 
observes (1) the current Recommendations for Central Counterparties that 
have been issued jointly by the Committee on Payment and Settlement 
Systems and the Technical Committee of the International Organization of 
Securities Commissions, as updated, revised or otherwise amended, or (2) 
successor standards, principles and guidance for central counterparties 
or financial market infrastructures adopted jointly by the Committee on 
Payment and Settlement Systems or the International Organization of 
Securities Commissions (RCCPs).
    Attach, as Exhibit D-3, the following:
    A detailed description of the manner in which the clearing 
organization observes each of the RCCPs or successor standards and 
documentation supporting the representations made, including any 
relevant rules or written policies or procedures of the clearing 
organization. Each RCCP should be addressed separately within the 
exhibit.

EXHIBIT E--THE REGULATORY REGIME GOVERNING THE CLEARING ORGANIZATION IN 
                      ITS HOME COUNTRY OR COUNTRIES

    With respect to each relevant regulatory regime or authority 
governing the clearing organization, attach, as Exhibit E, the 
following:
    (1) A description of the regulatory regime/authority's structure, 
resources, staff and scope of authority.
    (2) The regulatory regime/authority's authorizing statutes, 
including the source of its authority to supervise the clearing 
organization.
    (3) A description of and, where applicable, copies of the laws, 
rules, regulations and policies applicable to: \11\
---------------------------------------------------------------------------

    \11\ To the extent that any such laws, rules, regulations or 
policies were provided as part of Exhibit A-4, they need not be 
duplicated. They may be cross-referenced.
---------------------------------------------------------------------------

    (i) The authorization, licensure or registration of the clearing 
organization.
    (ii) The financial resource requirements applicable to the 
authorization, licensure or registration of the clearing organization 
and the continued operations thereof.
    (iii) The regulatory regime/authority's program for the ongoing 
supervision and oversight of the clearing organization and the 
enforcement of its clearing rules.
    (iv) The extent to which the current RCCPs are used or applied by 
the regulatory regime/authority in its supervision and oversight of the 
clearing organization or are incorporated into its rules and regulations 
and the extent to which the regulatory regime/authority reviews the 
clearing systems for compliance therewith.
    (v) The extent to which the regulatory regime/authority reviews and/
or approves the rules of the clearing organization prior to their 
implementation.
    (vi) The regulatory regime/authority's inspection, investigation and 
surveillance powers; and the program pursuant to which the regulatory 
regime/authority uses those powers to inspect, investigate, sanction, 
and enforce rules applicable to the clearing organization.
    (vii) The financial protection afforded customer funds.

   EXHIBIT F--THE RULES OF THE CLEARING ORGANIZATION AND ENFORCEMENT 
                                 THEREOF

    Attach, as Exhibit F-1, the following:
    A description of the clearing organization's regulatory or 
compliance department, including its size, experience level, 
competencies, duties and responsibilities of staff.
    Attach, as Exhibit F-2, the following:

[[Page 865]]

    A description of the clearing organization's rules and how they are 
enforced, with reference to any rules provided as part of Exhibit A-5 
that require the clearing organization to comply with one or more of the 
RCCPs.
    Attach, as Exhibit F-3, the following, to the extent not included in 
Exhibit F-2:
    A description of the clearing organization's disciplinary rules, 
including but not limited to rules that address the following--
    (1) Disciplinary authority and procedures that empower staff to 
recommend and prosecute disciplinary actions for suspected rule 
violations and that provide the authority to fine, suspend, or expel any 
clearing participant pursuant to fair and clear standards.
    (2) The issuance of warning letters and/or summary fines for 
specified rule violations.
    (3) The review of investigation reports by a disciplinary panel or 
other authority for issuance of charges or instructions to investigate 
further, or findings that an insufficient basis exists to issue charges.
    (4) Disciplinary committees of the clearing organization that take 
disciplinary action via formal disciplinary processes.
    (5) Whether and how the clearing organization articulates its 
rationale for disciplinary decisions.
    (6) The sanctions for particular violations and a discussion of the 
adequacy of sanctions with respect to the violations committed and their 
effectiveness as deterrents to future violations.
    Attach, as Exhibit F-4, the following, to the extent not provided in 
Exhibit F-2:
    A demonstration that the clearing organization is authorized by rule 
or contractual agreement to obtain, from members and other participants, 
any information and cooperation necessary to conduct investigations, to 
effectively enforce its rules, and to ensure compliance with the 
conditions of registration.

  EXHIBIT G--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE 
    FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT 
                         REGULATORY AUTHORITIES

    Attach, as Exhibit G, the following:
    (1) A description of the arrangements among the Commission, the 
foreign board of trade, the clearing organization, and the relevant 
foreign regulatory authorities that govern the sharing of information 
regarding the transactions that will be executed pursuant to the foreign 
board of trade's registration with the Commission and the clearing and 
settlement of those transactions. This description should address or 
identify whether and how the foreign board of trade, clearing 
organization, and the regulatory authorities governing the activities of 
the foreign board of trade and clearing organization agree to provide 
directly to the Commission information and documentation requested by 
Commission staff that Commission staff determines is needed:
    (i) To evaluate the continued eligibility of the foreign board of 
trade for registration.
    (ii) To enforce compliance with the specified conditions of the 
registration.
    (iii) To enable the CFTC to carry out its duties under the Act and 
Commission regulations and to provide adequate protection to the public 
or registered entities.
    (iv) To respond to potential market abuse associated with trading by 
direct access on the registered foreign board of trade.
    (v) To enable Commission staff to effectively accomplish its 
surveillance responsibilities with respect to a registered entity where 
Commission staff, in its discretion, determines that a contract traded 
on a registered foreign board of trade may affect such ability.
    (2) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the International Organization of Securities 
Commissions Multilateral Memorandum of Understanding. If not, describe 
any substitute information-sharing arrangements that are in place.
    (3) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the Declaration on Cooperation and Supervision of 
International Futures Exchanges and Clearing Organizations. If not, a 
statement as to whether and how they have committed to share the types 
of information contemplated by the International Information Sharing 
Memorandum of Understanding and Agreement with the Commission, whether 
pursuant to an existing memorandum of understanding or some other 
arrangement.

           EXHIBIT H--ADDITIONAL INFORMATION AND DOCUMENTATION

    Attach, as EXHIBIT H, any additional information or documentation 
necessary to demonstrate that the requirements for registration 
applicable to the clearing organization or clearing system set forth in 
Commission regulation 48.7 are satisfied.



PART 49_SWAP DATA REPOSITORIES--Table of Contents



Sec.
49.1 Scope.
49.2 Definitions.
49.3 Procedures for registration.
49.4 Withdrawal from registration.
49.5 Equity interest transfers.
49.6 Registration of successor entities.
49.7 Swap data repositories located in foreign jurisdictions.

[[Page 866]]

49.8 Procedures for implementing registered swap data repository rules.
49.9 Duties of registered swap data repositories.
49.10 Acceptance of data.
49.11 Confirmation of data accuracy.
49.12 Swap data repository recordkeeping requirements.
49.13 Monitoring, screening and analyzing swap data.
49.14 Monitoring, screening and analyzing end-user clearing exemption 
          claims by individual and affiliated entities.
49.15 Real-time public reporting of swap data.
49.16 Privacy and confidentiality requirements of swap data 
          repositories.
49.17 Access to SDR data.
49.18 Confidentiality and indemnification agreement.
49.19 Core principles applicable to registered swap data repositories.
49.20 Governance arrangements (Core Principle 2).
49.21 Conflicts of interest (Core Principle 3).
49.22 Chief compliance officer.
49.23 Emergency policies and procedures.
49.24 System safeguards.
49.25 Financial resources.
49.26 Disclosure requirements of swap data repositories.
49.27 Access and fees.

Appendix A to Part 49--Form SDR

    Authority: 7 U.S.C. 12a and 24a, as amended by Title VII of the Wall 
Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 
Stat. 1376 (2010), unless otherwise noted.

    Source: 76 FR 54575, Sept. 1, 2011, unless otherwise noted.



Sec.  49.1  Scope.

    The provisions of this part apply to any swap data repository as 
defined under Section 1a(48) of the Act which is registered or is 
required to register as such with the Commission pursuant to Section 
21(a) of the Act.



Sec.  49.2  Definitions.

    (a) As used in this part:
    (1) Affiliate. The term ``affiliate'' means a person that directly, 
or indirectly, controls, is controlled by, or is under common control 
with, the swap data repository.
    (2) Asset Class. The term ``asset class'' means the particular broad 
category of goods, services or commodities underlying a swap. The asset 
classes include credit, equity, interest rates, foreign exchange, other 
commodities, and such other asset classes as may be determined by the 
Commission.
    (3) Commercial Use. The term ``commercial use'' means the use of 
swap data held and maintained by a registered swap data repository for a 
profit or business purposes. The use of swap data for regulatory 
purposes and/or responsibilities by a registered swap data repository 
would not be considered a commercial use regardless of whether the 
registered swap data repository charges a fee for reporting such swap 
data.
    (4) Control. The term ``control'' (including the terms ``controlled 
by'' and ``under common control with'') means the possession, direct or 
indirect, of the power to direct or cause the direction of the 
management and policies of a person, whether through the ownership of 
voting securities, by contract, or otherwise.
    (5) Foreign Regulator. The term ``foreign regulator'' means a 
foreign futures authority as defined in Section 1a(26) of the Act, 
foreign financial supervisors, foreign central banks and foreign 
ministries.
    (6) Independent Perspective. The term ``independent perspective'' 
means a viewpoint that is impartial regarding competitive, commercial, 
or industry concerns and contemplates the effect of a decision on all 
constituencies involved.
    (7) Market Participant. The term ``market participant'' means any 
person participating in the swap market, including, but not limited to, 
designated contract markets, derivatives clearing organizations, swaps 
execution facilities, swap dealers, major swap participants, and any 
other counterparties to a swap transaction.
    (8) Non-affiliated third party. The term ``non-affiliated third 
party'' means any person except:
    (i) The swap data repository;
    (ii) The swap data repository's affiliate; or
    (iii) A person employed by a swap data repository and any entity 
that is not the swap data repository's affiliate (and ``non-affiliated 
third party'' includes such entity that jointly employs the person).
    (9) Person Associated with a Swap Data Repository. The term ``person 
associated with a swap data repository'' means:

[[Page 867]]

    (i) Any partner, officer, or director of such swap data repository 
(or any person occupying a similar status or performing similar 
functions);
    (ii) Any person directly or indirectly controlling, controlled by, 
or under common control with such swap data repository; or
    (iii) Any person employed by such swap data repository.
    (10) Position. The term ``position'' means the gross and net 
notional amounts of open swap transactions aggregated by one or more 
attributes, including, but not limited to, the:
    (i) Underlying instrument;
    (ii) Index, or reference entity;
    (iii) Counterparty;
    (iv) Asset class;
    (v) Long risk of the underlying instrument, index, or reference 
entity; and
    (vi) Short risk of the underlying instrument, index, or reference 
entity.
    (11) Registered Swap Data Repository. The term ``registered swap 
data repository'' means a swap data repository that is registered under 
Section 21 of the Act.
    (12) Reporting Entity. The term ``reporting entity'' means those 
entities that are required to report swap data to a registered swap data 
repository. These reporting entities include designated contract 
markets, swaps execution facilities, derivatives clearing organizations, 
swap dealers, major swap participants and certain non-swap dealers/non-
major swap participant counterparties.
    (13) SDR Information. The term ``SDR Information'' means any 
information that the swap data repository receives or maintains.
    (14) Section 8 Material. The term ``Section 8 Material'' means the 
business transactions, trade data, or market positions of any person and 
trade secrets or names of customers.
    (15) Swap Data. The term ``swap data'' means the specific data 
elements and information set forth in part 45 of this chapter that is 
required to be reported by a reporting entity to a registered swap data 
repository.
    (b) Defined Terms. Capitalized terms not defined in this part shall 
have the meanings assigned to them inSec. 1.3 of this chapter.



Sec.  49.3  Procedures for registration.

    (a) Application procedures. (1) An applicant, person or entity 
desiring to be registered as a swap data repository shall file 
electronically an application for registration on Form SDR provided in 
appendix A to this part, with the Secretary of the Commission at its 
headquarters in Washington, DC in a format and in the manner specified 
by the Secretary of the Commission in accordance with the instructions 
contained therein.
    (2) The application shall include information sufficient to 
demonstrate compliance with core principles specified in Section 21 of 
the Act and the regulations thereunder. Form SDR consists of 
instructions, general questions and a list of Exhibits (documents, 
information and evidence) required by the Commission in order to 
determine whether an applicant is able to comply with the core 
principles. An application will not be considered to be materially 
complete unless the applicant has submitted, at a minimum, the exhibits 
as required in Form SDR. If the application is not materially complete, 
the Commission shall notify the applicant that the application will not 
be deemed to have been submitted for purposes of the 180-day review 
procedures.
    (3) 180-Day review procedures. The Commission will review the 
application for registration as a swap data repository within 180 days 
of the date of the filing of such application. In considering an 
application for registration as a swap data repository, the staff of the 
Commission shall include in its review, an applicant's past relevant 
submissions and compliance history. At or prior to the conclusion of the 
180-day period, the Commission will either by order grant registration; 
extend, by order, the 180-day review period for good cause; or deny the 
application for registration as a swap data repository. The 180-day 
review period shall commence once a completed submission on Form SDR is 
submitted to the Commission. The determination of when such submission 
on Form SDR is complete shall be at the sole discretion of the 
Commission. If deemed appropriate, the Commission may grant registration 
as a swap data repository subject to conditions. If the Commission

[[Page 868]]

denies an application for registration as a swap data repository, it 
shall specify the grounds for such denial. In the event of a denial of 
registration for a swap data repository, any person so denied shall be 
afforded an opportunity for a hearing before the Commission.
    (4) Standard for approval. The Commission shall grant the 
registration of a swap data repository if the Commission finds that such 
swap data repository is appropriately organized, and has the capacity: 
to ensure the prompt, accurate and reliable performance of its functions 
as a swap data repository; comply with any applicable provisions of the 
Act and regulations thereunder; carry out its functions in a manner 
consistent with the purposes of Section 21 of the Act and the 
regulations thereunder; and operate in a fair, equitable and consistent 
manner. The Commission shall deny registration of a swap data repository 
if it appears that the application is materially incomplete; fails in 
form or substance to meet the requirements of Section 21 of the Act and 
part 49; or is amended or supplemented in a manner that is inconsistent 
with thisSec. 49.3. The Commission shall notify the applicant seeking 
registration that the Commission is denying the application setting 
forth the deficiencies in the application, and/or the manner in which 
the application fails to meet the requirements of this part.
    (5) Amendments and annual filing. If any information reported on 
Form SDR or in any amendment thereto is or becomes inaccurate for any 
reason, whether before or after the application for registration has 
been granted, the swap data repository shall promptly file an amendment 
on Form SDR updating such information. In addition, the swap data 
repository shall annually file an amendment on Form SDR within 60 days 
after the end of each fiscal year.
    (6) Service of process. Each swap data repository shall designate 
and authorize on Form SDR an agent in the United States, other than a 
Commission official, who shall accept any notice or service of process, 
pleadings, or other documents in any action or proceedings brought 
against the swap data repository to enforce the Act and the regulations 
thereunder.
    (b) Provisional registration. The Commission, upon the request of an 
applicant, may grant provisional registration of a swap data repository 
if such applicant is in substantial compliance with the standards set 
forth in paragraph (a)(4) of this section and is able to demonstrate 
operational capability, real-time processing, multiple redundancy and 
robust security controls. Such provisional registration of a swap data 
repository shall expire on the earlier of: the date that the Commission 
grants or denies registration of the swap data repository; or the date 
that the Commission rescinds the temporary registration of the swap data 
repository. This paragraph (b) shall terminate within such time as 
determined by the Commission. A provisional registration granted by the 
Commission does not affect the right of the Commission to grant or deny 
permanent registration as provided under paragraph (a)(3) of this 
section.
    (c) Withdrawal of application for registration. An applicant for 
registration may withdraw its application submitted pursuant to 
paragraph (a) of this section by filing with the Commission such a 
request. 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, and shall not prejudice 
the filing of a new application by such applicant.
    (d) Reinstatement of dormant registration. Before accepting or re-
accepting swap transaction data, a dormant registered swap data 
repository as defined inSec. 40.1(e) of this chapter shall reinstate 
its registration under the procedures set forth in paragraph (a) 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

[[Page 869]]

Division of Market Oversight or the Director's delegates, with the 
consultation of the General Counsel or the General Counsel's delegates, 
the authority to notify an applicant seeking registration as a swap data 
repository pursuant to Section 21 of the Act that the application is 
materially incomplete and the 180-day period review period is extended.
    (2) The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which 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 confidential treatment. An applicant for 
registration may request confidential treatment for materials submitted 
in its application as set forth in Sec.Sec. 40.8 and 145.9 of this 
chapter. The applicant shall identify with particularity information in 
the application that will be subject to a request for confidential 
treatment.



Sec.  49.4  Withdrawal from registration.

    (a)(1) A registered swap data repository may withdraw its 
registration by giving notice in writing to the Commission requesting 
that its registration as a swap data repository be withdrawn, which 
notice shall be served at least sixty days prior to the date named 
therein as the date when the withdrawal of registration shall take 
effect. The request to withdraw shall be made by a person duly 
authorized by the registrant and shall specify:
    (i) The name of the registrant for which withdrawal of registration 
is being requested;
    (ii) The name, address and telephone number of the swap data 
repository that will have custody of data and records of the registrant;
    (iii) The address where such data and records will be located; and
    (iv) A statement that the custodial swap data repository is 
authorized to make such data and records available in accordance with 
Sec.  1.44.
    (2) Prior to filing a request to withdraw, a registered swap data 
repository shall file an amended Form SDR to update any inaccurate 
information. A withdrawal 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 designated by the 
Commission.
    (b) A notice of withdrawal from registration filed by a swap data 
repository shall become effective for all matters (except as provided in 
this paragraph (b)) on the 60th day after the filing thereof with the 
Commission, within such longer period of time as to which such swap data 
repository consents or which the Commission, by order, may determine as 
necessary or appropriate in the public interest.
    (c) Revocation of Registration for False Application. If, after 
notice and opportunity for hearing, the Commission finds that any 
registered swap data repository has obtained its registration by making 
any false or misleading statements with respect to any material fact or 
has violated or failed to comply with any provision of the Act and 
regulations thereunder, the Commission, by order, may revoke the 
registration. Pending final determination whether any registration shall 
be revoked, the Commission, by order, may suspend such registration, if 
such suspension appears to the Commission, after notice and opportunity 
for hearing, to be necessary or appropriate and in the public interest.



Sec.  49.5  Equity interest transfers.

    (a) Equity transfer notification. Upon entering into any 
agreement(s) that could result in an equity interest transfer of ten 
percent or more in the swap data repository, the swap data repository 
shall file a notification of the equity interest transfer with the 
Secretary of the Commission at its headquarters in Washington, DC in a 
format and in the manner specified by the Secretary of the Commission, 
no later than the business day, as defined inSec. 40.1 of this 
chapter, following the date on which the swap data repository enters 
into a firm obligation to transfer the equity interest. The swap data 
repository shall also amend any information that is no longer accurate 
on Form SDR consistent with the procedures set forth inSec. 49.3 of 
this part.

[[Page 870]]

    (b) Required information. The notification must include and be 
accompanied by: any relevant agreement(s), including any preliminary 
agreements; any associated changes to relevant corporate documents; a 
chart outlining any new ownership or corporate or organizational 
structure; a brief description of the purpose and any impact of the 
equity interest transfer; and a representation from the swap data 
repository that it meets all of the requirements of Section 21 of the 
Act and Commission regulations adopted thereunder. The swap data 
repository shall keep the Commission apprised of the projected date that 
the transaction resulting in the equity interest transfer will be 
consummated, and must provide to the Commission any new agreements or 
modifications to the original agreement(s) filed pursuant to this 
section. The swap data repository shall notify the Commission of the 
consummation of the transaction on the day in which it occurs.
    (c) Certification. (1) Upon a transfer of an equity interest of ten 
percent or more in a registered swap data repository, the registered 
swap data repository shall file with the Secretary of the Commission at 
its headquarters in Washington, DC in a format and in the manner 
specified by the Secretary of the Commission, a certification that the 
registered swap data repository meets all of the requirements of Section 
21 of the Act and Commission regulations adopted thereunder, no later 
than two business days, as defined inSec. 40.1 of this chapter, 
following the date on which the equity interest of ten percent or more 
was acquired. Such certification shall state whether changes to any 
aspects of the swap data repository's operations were made as a result 
of such change in ownership, and include a description of any such 
change(s).
    (2) The certification required under this paragraph may rely on and 
be supported by reference to an application for registration as a swap 
data repository or prior filings made pursuant to a rule submission 
requirement, along with any necessary new filings, including new filings 
that provide any and all material updates of prior submissions.



Sec.  49.6  Registration of successor entities.

    (a) In the event of a corporate transaction, such as a re-
organization, merger, acquisition, bankruptcy or other similar corporate 
event, that creates a new entity, in which the swap data repository 
continues to operate, the swap data repository shall request a transfer 
of the registration, rules, and other matters, no later than 30 days 
after the succession. The registration of the predecessor shall be 
deemed to remain effective as the registration of the successor if the 
successor, within 30 days after such succession, files an application 
for registration on Form SDR, and the predecessor files a request for 
vacation of registration on Form SDR provided, however, that the 
registration of the predecessor swap data repository shall cease to be 
effective 90 days after the application for registration on Form SDR is 
filed by the successor swap data repository.
    (b) If the succession is based solely on a change in the 
predecessor's date or state of incorporation, form of organization, or 
composition of a partnership, the successor may, within 30 days after 
the succession, amend the registration of the predecessor swap data 
repository on Form SDR to reflect these changes. This amendment shall be 
an application for registration filed by the predecessor and adopted by 
the successor.



Sec.  49.7  Swap data repositories located in foreign jurisdictions.

    Any swap data repository located outside of the United States 
applying for registration pursuant toSec. 49.3 of this part shall 
certify on Form SDR and provide an opinion of counsel that the swap data 
repository, as a matter of law, is able to provide the Commission with 
prompt access to the books and records of such swap data repository and 
that the swap data repository can submit to onsite inspection and 
examination by the Commission.



Sec.  49.8  Procedures for implementing registered swap data repository rules.

    (a) Request for Commission approval of rules. An applicant for 
registration as a swap data repository may request that

[[Page 871]]

the Commission approve under Section 5c(c) of the Act, any or all of its 
rules and subsequent amendments thereto, prior to their implementation 
or, notwithstanding the provisions of Section 5c(c)(2) of the Act, at 
anytime thereafter, under the procedures ofSec. 40.5 of this chapter.
    (b) Notwithstanding the timeline underSec. 40.5(c) of this 
chapter, the rules of a swap data repository that have been submitted 
for Commission approval at the same time as an application for 
registration underSec. 49.3 of this part or to reinstate the 
registration of a dormant registered swap data repository, as defined in 
Sec.  40.1 of this chapter, will be deemed approved by the Commission no 
earlier than when the swap data repository is deemed to be registered or 
reinstated.
    (c) Self-certification of rules. Rules of a registered swap data 
repository not voluntarily submitted for prior Commission approval 
pursuant to paragraph (a) of this section must be submitted to the 
Commission with a certification that the rule or rule amendment complies 
with the Act or rules thereunder pursuant to the procedures ofSec. 
40.6 of this chapter, as applicable.



Sec.  49.9  Duties of registered swap data repositories.

    (a) Duties. To be registered, and maintain registration, as a swap 
data repository, a registered swap data repository shall:
    (1) Accept swap data as prescribed inSec. 49.10 for each swap;
    (2) Confirm, as prescribed inSec. 49.11, with both counterparties 
to the swap the accuracy of the swap data that was submitted;
    (3) Maintain, as prescribed inSec. 49.12, the swap data described 
in part 45 of the Commission's Regulations in such form and manner as 
provided therein and in the Act and the rules and regulations 
thereunder;
    (4) Provide direct electronic access to the Commission (or any 
designee of the Commission, including another registered entity) as 
prescribed inSec. 49.17;
    (5) Provide the information set forth inSec. 49.15 to comply with 
the public reporting requirements set forth in Section 2(a)(13) of the 
Act;
    (6) Establish automated systems for monitoring, screening, and 
analyzing swap data as prescribed inSec. 49.13;
    (7) Establish automated systems for monitoring, screening and 
analyzing end-user clearing exemption claims as prescribed inSec. 
49.14;
    (8) Maintain the privacy of any and all swap data and any other 
related information that the swap data repository receives from a 
reporting entity as prescribed inSec. 49.16;
    (9) Upon request of certain appropriate domestic and foreign 
regulators, provide access to swap data and information held and 
maintained by the swap data repository as prescribed inSec. 49.17;
    (10) Adopt and establish appropriate emergency policies and 
procedures, including business continuity and disaster recovery plans, 
as prescribed in Sec.Sec. 49.23 and 49.24.
    (11) Designate an individual to serve as a chief compliance officer 
who shall comply withSec. 49.22; and
    (12) Subject itself to inspection and examination by the Commission.
    (b) This Regulation is not intended to limit, or restrict, the 
applicability of other provisions of the Act, including, but not limited 
to, Section 2(a)(13) of the Act and rules and regulations promulgated 
thereunder.



Sec.  49.10  Acceptance of data.

    (a) A registered swap data repository shall establish, maintain, and 
enforce policies and procedures for the reporting of swap data to the 
registered swap data repository and shall accept and promptly record all 
swap data in its selected asset class and other regulatory information 
that is required to be reported pursuant to part 45 and part 43 of this 
chapter by designated contract markets, derivatives clearing 
organizations, swap execution facilities, swap dealers, major swap 
participants and/or non-swap dealer/non-major swap participant 
counterparties.
    (1) Electronic connectivity. For the purpose of accepting all swap 
data as required by part 45 and part 43, the registered swap data 
repository shall adopt policies and procedures, including technological 
protocols, which provide for electronic connectivity between the swap 
data repository and

[[Page 872]]

designated contract markets, derivatives clearing organizations, swaps 
execution facilities, swap dealers, major swap participants and/or 
certain other non-swap dealer/non-major swap participant counterparties 
who report such data. The technological protocols established by a swap 
data repository shall provide for the receipt of swap creation data, 
swap continuation data, real-time public reporting data, and all other 
data and information required to be reported to such swap data 
repository. The swap data repository shall ensure that its mechanisms 
for swap data acceptance are reliable and secure.
    (b) A registered swap data repository shall set forth in its 
application for registration as described inSec. 49.3 the specific 
asset class or classes for which it will accept swaps data. If a swap 
data repository accepts swap data of a particular asset class, then it 
shall accept data from all swaps of that asset class, unless otherwise 
prescribed by the Commission.
    (c) A registered swap data repository shall establish policies and 
procedures reasonably designed to prevent any provision in a valid swap 
from being invalidated or modified through the confirmation or recording 
process of the swap data repository. The policies and procedures must 
ensure that the swap data repository's user agreements are designed to 
prevent any such invalidation or modification.
    (d) A registered swap data repository shall establish procedures and 
provide facilities for effectively resolving disputes over the accuracy 
of the swap data and positions that are recorded in the registered swap 
data repository.



Sec.  49.11  Confirmation of data accuracy.

    (a) A registered swap data repository shall establish policies and 
procedures to ensure the accuracy of swap data and other regulatory 
information required to be reported by part 45 that it receives from 
reporting entities or certain third-party service providers acting on 
their behalf, such as confirmation or matching service providers.
    (b) A registered swap data repository shall confirm the accuracy of 
all swap data that is submitted pursuant to part 45. (1) Confirmation of 
data accuracy for swap creation data as defined in part 45.
    (i) A registered swap data repository has confirmed the accuracy of 
swap creation data that was submitted directly by a counterparty if the 
swap data repository has notified both counterparties of the data that 
was submitted and received from both counterparties acknowledgement of 
the accuracy of the swap data and corrections for any errors.
    (ii) A registered swap data repository has confirmed the accuracy of 
swap creation data that was submitted by a swap execution facility, 
designated contract market, derivatives clearing organization, or third-
party service provider who is acting on behalf of a counterparty, if the 
swap data repository has complied with each of the following:
    (A) The swap data repository has formed a reasonable belief that the 
swap data is accurate;
    (B) The swap data that was submitted, or any accompanying 
information, evidences that both counterparties agreed to the data; and
    (C) The swap data repository has provided both counterparties with a 
48 hour correction period after which a counterparty is assumed to have 
acknowledged the accuracy of the swap data.
    (2) Confirmation of data accuracy for swap continuation data as 
defined in part 45. (i) A registered swap data repository has confirmed 
the accuracy of the swap continuation data that was submitted directly 
by a counterparty if the swap data repository has notified both 
counterparties of the data that was submitted and provided both 
counterparties with a 48 hour correction period after which a 
counterparty is assumed to have acknowledged the accuracy of the data.
    (ii) A registered swap data repository has confirmed the accuracy of 
swap continuation data that was submitted by a swap execution facility, 
designated contract market, derivatives clearing organization, or third-
party service provider who is acting on behalf of a counterparty, if the 
swap data repository has complied with each of the following:

[[Page 873]]

    (A) The swap data repository has formed a reasonable belief that the 
swap data is accurate; and
    (B) The swap data repository has provided both counterparties with a 
48 hour correction period after which a counterparty is assumed to have 
acknowledged the accuracy of the swap data.
    (c) A registered swap data repository shall keep a record of 
corrected errors that is available upon request to the Commission.



Sec.  49.12  Swap data repository recordkeeping requirements.

    (a) A registered swap data repository shall maintain its books and 
records in accordance with the requirements of part 45 of this chapter 
regarding the swap data required to be reported to the swap data 
repository.
    (b) A registered swap data repository shall maintain swap data 
(including all historical positions) throughout the existence of the 
swap and for five years following final termination of the swap, during 
which time the records must be readily accessible by the swap data 
repository and available to the Commission via real-time electronic 
access; and in archival storage for which such swap data is retrievable 
by the swap data repository within three business days.
    (c) All records required to be kept pursuant to this Regulation 
shall be open to inspection upon request by any representative of the 
Commission and the United States Department of Justice. Copies of all 
such records shall be provided, at the expense of the swap data 
repository or person required to keep the record, to any representative 
of the Commission upon request, either by electronic means, in hard 
copy, or both, as requested by the Commission.
    (d) A registered swap data repository shall comply with the real 
time public reporting and recordkeeping requirements prescribed inSec. 
49.15 and part 43 of this chapter.
    (e) A registered swap data repository shall establish policies and 
procedures to calculate positions for position limits and any other 
purpose as required by the Commission, for all persons with swaps that 
have not expired maintained by the registered swap data repository.



Sec.  49.13  Monitoring, screening and analyzing swap data.

    (a) Duty to monitor, screen and analyze data. A registered swap data 
repository shall monitor, screen, and analyze all swap data in its 
possession in such a manner as the Commission may require. A swap data 
repository shall routinely monitor, screen, and analyze swap data for 
the purpose of any standing swap surveillance objectives which the 
Commission may establish as well as perform specific monitoring, 
screening, and analysis tasks based on ad hoc requests by the 
Commission.
    (b) Capacity to monitor, screen and analyze data. A registered swap 
data repository shall establish and maintain sufficient information 
technology, staff, and other resources to fulfill the requirements in 
thisSec. 49.13 in a manner prescribed by the Commission. A swap data 
repository shall monitor the sufficiency of such resources at least 
annually, and adjust its resources as its responsibilities, or the 
volume of swap transactions subject to monitoring, screening, and 
analysis, increase.



Sec.  49.14  Monitoring, screening and analyzing end-user clearing
exemption claims by individual and affiliated entities.

    A registered swap data repository shall have automated systems 
capable of identifying, aggregating, sorting, and filtering all swap 
transactions that are reported to it which are exempt from clearing 
pursuant to Section 2(h)(7) of the Act. Such capabilities shall be 
applicable to any information provided to a swap data repository by or 
on behalf of an end user regarding how such end user meets the 
requirements of Sections 2(h)(7)(A)(i), 2(h)(7)(A)(ii), and 
2(h)(7)(A)(iii) of the Act and any Commission regulations thereunder.



Sec.  49.15  Real-time public reporting of swap data.

    (a) Scope. The provisions of thisSec. 49.15 apply to real-time 
public reporting of swap data, as defined in part 43 of this chapter.

[[Page 874]]

    (b) Systems to accept and disseminate swap data in connection with 
real-time public reporting. A registered swap data repository shall 
establish such electronic systems as are necessary to accept and 
publicly disseminate real-time swap data submitted to meet the real-time 
public reporting obligations of part 43 of this chapter. Any electronic 
systems established for this purpose must be capable of accepting and 
ensuring the public dissemination of all data fields required by part 43 
of this chapter.
    (c) Duty to notify the commission of untimely data. A registered 
swap data repository must notify the Commission of any swap transaction 
for which the real-time swap data was not received by the swap data 
repository in accordance with part 43 of this chapter.



Sec.  49.16  Privacy and confidentiality requirements of swap data
repositories.

    (a) Each swap data repository shall:
    (1) Establish, maintain, and enforce written policies and procedures 
reasonably designed to protect the privacy and confidentiality of any 
and all SDR Information that is not subject to real-time public 
reporting set forth in part 43 of this chapter. Such policies and 
procedures shall include, but are not limited to, policies and 
procedures to protect the privacy and confidentiality of any and all SDR 
Information (except for swap data disseminated under part 43) that the 
swap data repository shares with affiliates and non-affiliated third 
parties; and
    (2) Establish and maintain safeguards, policies, and procedures 
reasonably designed to prevent the misappropriation or misuse, directly 
or indirectly, of:
    (i) Section 8 Material;
    (ii) Other SDR Information; and/or
    (iii) Intellectual property, such as trading strategies or portfolio 
positions, by the swap data repository or any person associated with the 
swap data repository. Such safeguards, policies, and procedures shall 
include, but are not limited to,
    (A) limiting access to such Section 8 Material, other SDR 
Information, and intellectual property,
    (B) standards controlling persons associated with the swap data 
repository trading for their personal benefit or the benefit of others, 
and
    (C) adequate oversight to ensure compliance with this subparagraph.
    (b) Swap data repositories shall not, as a condition of accepting 
swap data from reporting entities, require the waiver of any privacy 
rights by such reporting entities.
    (c) Subject to Section 8 of the Act, swap data repositories may 
disclose aggregated swap data on a voluntary basis or as requested, in 
the form and manner, prescribed by the Commission.



Sec.  49.17  Access to SDR data.

    (a) Purpose. This Section provides a procedure by which the 
Commission, other domestic regulators and foreign regulators may obtain 
access to the swaps data held and maintained by registered swap data 
repositories. Except as specifically set forth in this Regulation, the 
Commission's duties and obligations regarding the confidentiality of 
business transactions or market positions of any person and trade 
secrets or names of customers identified in Section 8 of the Act are not 
affected.
    (b) Definitions. For purposes of thisSec. 49.17, the following 
terms shall be defined as follows:
    (1) Appropriate Domestic Regulator. The term ``Appropriate Domestic 
Regulator'' shall mean:
    (i) The Securities and Exchange Commission;
    (ii) Each prudential regulator identified in Section 1a(39) of the 
Act with respect to requests related to any of such regulator's 
statutory authorities, without limitation to the activities listed for 
each regulator in Section 1a(39);
    (iii) The Financial Stability Oversight Council;
    (iv) The Department of Justice;
    (v) Any Federal Reserve Bank;
    (vi) The Office of Financial Research; and
    (vii) Any other person the Commission deems appropriate.
    (2) Appropriate Foreign Regulator. The term ``Appropriate Foreign 
Regulator'' shall mean those Foreign Regulators

[[Page 875]]

with an existing memorandum of understanding or other similar type of 
information sharing arrangement executed with the Commission and/or 
Foreign Regulators without an MOU as determined on a case-by-case basis 
by the Commission.
    (i) Filing requirements. For those Foreign Regulators who do not 
currently have a memorandum of understanding with the Commission, the 
Commission has determined to provide the following filing process for 
those Foreign Regulators that may require swap data or information 
maintained by a registered swap data repository. The filing requirement 
set forth in thisSec. 49.17 will assist the Commission in its analysis 
of whether a specific Foreign Regulator should be considered 
``appropriate'' for purposes of Section 21(c)(7) of the Act.
    (A) The Foreign Regulator is required to file an application in the 
form and manner prescribed by the Commission.
    (B) The Foreign Regulator in its application is required to provide 
sufficient facts and procedures to permit the Commission to analyze 
whether the Foreign Regulator employs appropriate confidentiality 
procedures and to satisfy itself that the information will be disclosed 
only as permitted by Section 8(e) of the Act.
    (ii) The Commission in its analysis of Foreign Regulator 
applications shall be satisfied that any information potentially 
provided by a registered swap data repository will not be disclosed 
except in limited circumstances, such as an adjudicatory action or 
proceeding involving the Foreign Regulator, as identified in Section 8 
of the Act.
    (iii) The Commission reserves the right in connection with any 
determination of an ``Appropriate Foreign Regulator'' to revisit or 
reassess a prior determination consistent with the Act.
    (3) Direct electronic access. For the purposes of this regulation, 
the term ``direct electronic access'' shall mean an electronic system, 
platform or framework that provides Internet or Web-based access to 
real-time swap transaction data and also provides scheduled data 
transfers to Commission electronic systems.
    (c) Commission access.--(1) Direct electronic access. A registered 
swap data repository shall provide direct electronic access to the 
Commission or the Commission's designee, including another registered 
entity, in order for the Commission to carry out its legal and statutory 
responsibilities under the Act and related regulations.
    (2) Monitoring tools. A registered swap data repository is required 
to provide the Commission with proper tools for the monitoring, 
screening and analyzing of swap transaction data, including, but not 
limited to, Web-based services, services that provide automated transfer 
of data to Commission systems, various software and access to the staff 
of the swap data repository and/or third-party service providers or 
agents familiar with the operations of the registered swap data 
repository, which can provide assistance to the Commission regarding 
data structure and content. These monitoring tools shall be 
substantially similar in analytical capability as those provided to the 
compliance staff and the Chief Compliance Officer of the swap data 
repository.
    (3) Authorized users. The swap transaction data provided to the 
Commission by a registered swap data repository shall be accessible only 
by authorized users. The swap data repository shall maintain and provide 
a list of authorized users in the manner and frequency determined by the 
Commission.
    (d) Other regulators--(1) General Procedure for Gaining Access to 
Registered Swap Data Repository Data. Appropriate Domestic Regulators 
and Appropriate Foreign Regulators seeking to gain access to the swap 
data maintained by a swap data repository are required to apply for 
access by filing a request for access with the registered swap data 
repository and certifying that it is acting within the scope of its 
jurisdiction.
    (2) Appropriate domestic regulator with regulatory responsibility 
over a swap data repository. An Appropriate Domestic Regulator that has 
regulatory jurisdiction over a swap data repository registered with it 
pursuant to a separate statutory authority that is also registered with 
the Commission pursuant to this chapter is not subject to this

[[Page 876]]

paragraph (d) andSec. 49.18(b) as long as the following conditions are 
met:
    (i) The appropriate domestic regulator executes a memorandum of 
understanding or similar information sharing arrangement with the 
Commission; and
    (ii) The Commission, consistent with Section 21(c)(4)(A) of the Act, 
designates the Appropriate Domestic Regulator to receive direct 
electronic access.
    (3) Appropriate foreign regulator with regulatory responsibility 
over a swap data repository. An Appropriate Foreign Regulator that has 
supervisory authority over a swap data repository registered with it 
pursuant to foreign law and/or regulation that is also registered with 
the Commission pursuant to this chapter is not otherwise subject to this 
paragraph (d) andSec. 49.18(b).
    (4) Obligations of the registered swap data repository in connection 
with appropriate domestic regulator or appropriate foreign regulator 
requests for data access. (i) A registered swap data repository shall 
promptly notify the Commission regarding any request received by an 
Appropriate Domestic Regulator or Appropriate Foreign Regulator to gain 
access to the swaps transaction data maintained by such swap data 
repository.
    (ii) The registered swap data repository shall notify the Commission 
electronically in a format specified by the Secretary of the Commission.
    (5) Timing. Once the swap data repository provides the Commission 
with notification of a request for data access by an Appropriate 
Domestic Regulator or Appropriate Foreign Regulator as required by 
paragraph (d)(2) of this section, such swap data repository shall 
provide access to the requested swap data.
    (6) Confidentiality and indemnification agreement. Consistent with 
Sec.  49.18 of this part, the Appropriate Domestic Regulator or 
Appropriate Foreign Regulator prior to receipt of any requested data or 
information shall execute a ``Confidentiality and Indemnification 
Agreement'' with the registered swap data repository as set forth in 
Section 21(d) of the Act.
    (e) Third-party service providers to a registered swap data 
repository. Access to the data and information maintained by a 
registered swap data repository may be necessary for certain third 
parties that provide various technology and data-related services to a 
registered swap data repository. Third-party access to the swap data 
maintained by a swap data repository is permissible subject to the 
following conditions:
    (1) Both the registered swap data repository and the third party 
service provider shall have strict confidentiality procedures that 
protect data and information from improper disclosure.
    (2) Prior to swap data access, the third-party service provider and 
the registered swap data repository shall execute a ``Confidentiality 
Agreement'' setting forth minimum confidentiality procedures and 
permissible uses of the information maintained by the swap data 
repository that are equivalent to the privacy procedures for swap data 
repositories outlined inSec. 49.16.
    (f) Access by market participants--(1) General. Access of swap data 
maintained by the registered swap data repository to market participants 
is generally prohibited.
    (2) Exception. Data and information related to a particular swap 
that is maintained by the registered swap data repository may be 
accessed by either counterparty to that particular swap.
    (g) Commercial uses of data accepted and maintained by the 
registered swap data repository prohibited. Swap data accepted and 
maintained by the swap data repository generally may not be used for 
commercial or business purposes by the swap data repository or any of 
its affiliated entities.
    (1) The registered swap data repository is required to adopt and 
implement adequate ``firewalls'' or controls to protect the reported 
swap data required to be maintained underSec. 49.12 of this part and 
Section 21(b) of the Act from any improper commercial use.
    (2) Exception. (A) The swap dealer, counterparty or any other 
registered entity that submits the swap data maintained by the 
registered swap data repository may permit the commercial or business 
use of that data by express written consent.

[[Page 877]]

    (B) Swap data repositories shall not as a condition of the reporting 
of swap transaction data require a reporting party to consent to the use 
of any reported data for commercial or business purposes.
    (3) Swap data repositories responsible for the public dissemination 
of real-time swap data shall not make commercial use of such data prior 
to its public dissemination.



Sec.  49.18  Confidentiality and indemnification agreement.

    (a) Purpose. This section sets forth the obligations of registered 
swap data repositories to execute a ``Confidentiality and 
Indemnification Agreement'' in connection with providing access to swap 
data to certain domestic and foreign regulators.
    (b) Confidentiality and indemnification agreement. Prior to the 
registered swap data repository providing access to the swap data with 
any Appropriate Domestic Regulator or Appropriate Foreign Regulator as 
defined inSec. 49.17(b), the swap data repository shall receive a 
written agreement from each such entity stating that the entity shall 
abide by the confidentiality requirements described in Section 8 of the 
Act relating to the swap data that is provided; and each such entity 
shall agree to indemnify the swap data repository and the Commission for 
any expenses arising from litigation relating to the information 
provided under Section 8 of the Act.
    (c) Certain appropriate domestic and foreign regulators with 
regulatory responsibility over a swap data repository. The requirements 
set forth above in paragraph (b) shall not apply to certain Appropriate 
Domestic and Foreign Regulators with regulatory responsibility over a 
swap data repository as described inSec. 49.17(d)(2) and (3). The swap 
data repository and such Appropriate Domestic or Foreign Regulator in 
each case is required to comply with Section 8 of the Act and any other 
relevant statutory confidentiality provisions.



Sec.  49.19  Core principles applicable to registered swap data
repositories.

    (a) Compliance with core principles. To be registered, and maintain 
registration, a swap data repository shall comply with the core 
principles as described in this paragraph. Unless otherwise determined 
by the Commission by rule or regulation, a swap data repository shall 
have reasonable discretion in establishing the manner in which the swap 
data repository complies with the core principles described in this 
paragraph.
    (b) Antitrust considerations (Core Principle 1). Unless necessary or 
appropriate to achieve the purposes of the Act, a registered swap data 
repository shall avoid adopting any rule or taking any action that 
results in any unreasonable restraint of trade; or imposing any material 
anticompetitive burden on trading, clearing or reporting swaps.
    (c) Governance arrangements (Core Principle 2). Registered swap data 
repositories shall establish governance arrangements as set forth in 
Sec.  49.20.
    (d) Conflicts of interest (Core Principle 3). Registered swap data 
repositories shall manage and minimize conflicts of interest and 
establish processes for resolving such conflicts of interest as set 
forth inSec. 49.21.
    (e) Additional duties (Core Principle 4). Registered swap data 
repositories shall also comply with the following additional duties:
    (1) Financial resources. Registered swap data repositories shall 
maintain sufficient financial resources as set forth inSec. 49.25;
    (2) Disclosure requirements of registered swap data repositories. 
Registered swap data repositories shall furnish an appropriate 
disclosure document setting forth the risks and costs of swap data 
repository services as detailed inSec. 49.26; and
    (3) Access and Fees. Registered swap data repositories shall adhere 
to Commission requirements regarding fair and open access and the 
charging of any fees, dues or other similar type charges as detailed in 
Sec.  49.27.



Sec.  49.20  Governance arrangements (Core Principle 2).

    (a) General. (1) Each registered swap data repository shall 
establish governance arrangements that are transparent to fulfill public 
interest requirements, and to support the objectives of the Federal 
Government, owners, and participants.

[[Page 878]]

    (2) Each registered swap data repository shall establish governance 
arrangements that are well-defined and include a clear organizational 
structure with consistent lines of responsibility and effective internal 
controls, including with respect to administration, accounting, and the 
disclosure of confidential information.Sec. 49.22 of this part 
contains rules on internal controls applicable to administration and 
accounting.Sec. 49.16 of this part contains rules on internal controls 
applicable to the disclosure of confidential information.
    (b) Transparency of Governance Arrangements. (1) Each registered 
swap data repository shall state in its charter documents that its 
governance arrangements are transparent to support, among other things, 
the objectives of the Federal Government pursuant to Section 21(f)(2) of 
the Act.
    (2) Each registered swap data repository shall, at a minimum, make 
the following information available to the public and relevant 
authorities, including the Commission:
    (i) The mission statement of the registered swap data repository;
    (ii) The mission statement and/or charter of the board of directors, 
as well as of each committee of the registered swap data repository that 
has:
    (A) The authority to act on behalf of the board of directors or
    (B) The authority to amend or constrain actions of the board of 
directors;
    (iii) The board of directors nomination process for the registered 
swap data repository, as well as the process for assigning members of 
the board of directors or other persons to any committee referenced in 
paragraph (b)(2)(ii) of this section;
    (iv) For the board of directors and each committee referenced in 
paragraph (b)(2)(ii) of this section, the names of all members;
    (v) A description of the manner in which the board of directors, as 
well as any committee referenced in paragraph (b)(2)(ii) of this 
section, considers an Independent Perspective in its decision-making 
process, asSec. 49.2(a)(14) of this part defines such term;
    (vi) The lines of responsibility and accountability for each 
operational unit of the registered swap data repository to any committee 
thereof and/or the board of directors; and
    (vii) Summaries of significant decisions implicating the public 
interest, the rationale for such decisions, and the process for reaching 
such decisions. Such significant decisions shall include decisions 
relating to pricing of repository services, offering of ancillary 
services, access to swap data, and use of Section 8 Material, other SDR 
Information, and intellectual property (as referenced inSec. 49.16 of 
this part). Such summaries of significant decisions shall not require 
the registered swap data repository to disclose Section 8 Material or, 
where appropriate, information that the swap data repository received on 
a confidential basis from a reporting entity.
    (3) The registered swap data repository shall ensure that the 
information specified in paragraph (b)(2)(i) to (vii) of this section is 
current, accurate, clear, and readily accessible, for example, on its 
Web site. The swap data repository shall set forth such information in a 
language commonly used in the commodity futures and swap markets and at 
least one of the domestic language(s) of the jurisdiction in which the 
swap data repository is located.
    (4) Furthermore, the registered swap data repository shall disclose 
the information specified in paragraph (b)(2)(vii) of this section in a 
sufficiently comprehensive and detailed fashion so as to permit the 
public and relevant authorities, including the Commission, to understand 
the policies or procedures of the swap data repository implicated and 
the manner in which the decision implements or amends such policies or 
procedures. A swap data repository shall not disclose minutes from 
meetings of its board of directors or committees to the public, although 
it shall disclose such minutes to the Commission upon request.
    (c) The board of directors--(1) General. (i) Each registered swap 
data repository shall establish, maintain, and enforce (including, 
without limitation, pursuant to paragraph (c)(4) of this Regulation) 
written policies or procedures:
    (A) To ensure that its board of directors, as well as any committee 
that has:

[[Page 879]]

    (1) Authority to act on behalf of its board of directors or
    (2) Authority to amend or constrain actions of its board of 
directors, adequately considers an Independent Perspective in its 
decision-making process;
    (B) To ensure that the nominations process for such board of 
directors, as well as the process for assigning members of the board of 
directors or other persons to such committees, adequately incorporates 
an Independent Perspective; and
    (C) To clearly articulate the roles and responsibilities of such 
board of directors, as well as such committees, especially with respect 
to the manner in which they ensure that a registered swap data 
repository complies with all statutory and regulatory responsibilities 
under the Act and the regulations promulgated thereunder.
    (ii) Each registered swap data repository shall submit to the 
Commission, within thirty days after each election of its board of 
directors:
    (A) For the board of directors, as well as each committee referenced 
in paragraph (c)(1)(i)(A) of this section, a list of all members;
    (B) A description of the relationship, if any, between such members 
and the registered swap data repository or any reporting entity thereof 
(or, in each case, affiliates thereof, asSec. 49.2(a)(1) of this part 
defines such term); and
    (C) Any amendments to the written policies and procedures referenced 
in paragraph (c)(1)(i) of this section.
    (2) Compensation. The compensation of non-executive members of the 
board of directors of a registered swap data repository shall not be 
linked to the business performance of such swap data repository.
    (3) Annual self-review. The board of directors of a registered swap 
data repository shall review its performance and that of its individual 
members annually. It should consider periodically using external 
facilitators for such reviews.
    (4) Board member removal. A registered swap data repository shall 
have procedures to remove a member from the board of directors, where 
the conduct of such member is likely to be prejudicial to the sound and 
prudent management of the swap data repository.
    (5) Expertise. Each registered swap data repository shall ensure 
that members of its board of directors, members of any committee 
referenced in paragraph (c)(1)(i)(A) of this Regulation, and its senior 
management, in each case, are of sufficiently good repute and possess 
the requisite skills and expertise to fulfill their responsibilities in 
the management and governance of the swap data repository, to have a 
clear understanding of such responsibilities, and to exercise sound 
judgment about the affairs of the swap data repository.
    (d) Compliance with core principle. The chief compliance officer of 
the registered swap data repository shall review the compliance of the 
swap data repository with this core principle.



Sec.  49.21  Conflicts of interest (Core Principle 3).

    (a) General. (1) Each registered swap data repository shall 
establish and enforce rules to minimize conflicts of interest in the 
decision-making process of the swap data repository, and establish a 
process for resolving such conflicts of interest.
    (2) Nothing in this section shall supersede any requirement 
applicable to the swap data repository pursuant toSec. 49.20 of this 
part.
    (b) Policies and procedures. (1) Each registered swap data 
repository shall establish, maintain, and enforce written procedures to:
    (i) Identify, on an ongoing basis, existing and potential conflicts 
of interest; and
    (ii) Make decisions in the event of a conflict of interest. Such 
procedures shall include rules regarding the recusal, in applicable 
circumstances, of parties involved in the making of decisions.
    (2) As further described inSec. 49.20 of this part, the chief 
compliance officer of the registered swap data repository shall, in 
consultation with the board of directors or a senior officer of the swap 
data repository, as applicable, resolve any such conflicts of interest.

[[Page 880]]

    (c) Compliance with core principle. The chief compliance officer of 
the registered swap data repository shall review the compliance of the 
swap data repository with this core principle.



Sec.  49.22  Chief compliance officer.

    (a) Definition of Board of Directors. For purposes of this part 49, 
the term ``board of directors'' means the board of directors of a 
registered swap data repository, or for those swap data repositories 
whose organizational structure does not include a board of directors, a 
body performing a function similar to that of a board of directors.
    (b) Designation and qualifications of chief compliance officer --(1) 
Chief Compliance Officer required. Each registered swap data repository 
shall establish the position of chief compliance officer, and designate 
an individual to serve in that capacity.
    (i) The position of chief compliance officer shall carry with it the 
authority and resources to develop and enforce policies and procedures 
necessary to fulfill the duties set forth for chief compliance officers 
in the Act and Commission regulations.
    (ii) The chief compliance officer shall have supervisory authority 
over all staff acting at the direction of the chief compliance officer.
    (2) Qualifications of Chief Compliance Officer. The individual 
designated to serve as chief compliance officer shall have the 
background and skills appropriate for fulfilling the responsibilities of 
the position and shall be subject to the following requirements:
    (i) No individual disqualified from registration pursuant to 
Sections 8a(2) or 8a(3) of the Act may serve as a chief compliance 
officer.
    (ii) The chief compliance officer may not be a member of the swap 
data repository's legal department or serve as its general counsel.
    (c) Appointment, supervision, and removal of chief compliance 
officer--(1) Appointment and Compensation of Chief Compliance Officer 
Determined by Board of Directors. A registered swap data repository's 
chief compliance officer shall be appointed by its board of directors. 
The board of directors shall also approve the compensation of the chief 
compliance officer and shall meet with the chief compliance officer at 
least annually. The appointment of the chief compliance officer and 
approval of the chief compliance officer's compensation shall require 
the approval of the board of directors. The senior officer of the swap 
data repository may fulfill these responsibilities. A swap data 
repository shall notify the Commission of the appointment of a new chief 
compliance officer within two business days of such appointment.
    (2) Supervision of chief compliance officer. A registered swap data 
repository's chief compliance officer shall report directly to the board 
of directors or to the senior officer of the swap data repository, at 
the swap data repository's discretion.
    (3) Removal of chief compliance officer by board of directors. (i) 
Removal of a registered swap data repository's chief compliance officer 
shall require the approval of the swap data repository's board of 
directors. If the swap data repository does not have a board of 
directors, then the chief compliance officer may be removed by the 
senior officer of the swap data repository;
    (ii) The swap data repository shall notify the Commission of such 
removal within two business days; and
    (iii) The swap data repository shall notify the Commission within 
two business days of appointing any new chief compliance officer, 
whether interim or permanent.
    (d) Duties of chief compliance officer. The chief compliance 
officer's duties shall include, but are not limited to, the following:
    (1) Overseeing and reviewing the swap data repository's compliance 
with Section 21 of the Act and any related rules adopted by the 
Commission;
    (2) In consultation with the board of directors, a body performing a 
function similar to the board, or the senior officer of the swap data 
repository, resolving any conflicts of interest that may arise 
including:
    (i) Conflicts between business considerations and compliance 
requirements;
    (ii) Conflicts between business considerations and the requirement 
that the registered swap data repository provide fair and open access as 
set forth inSec. 49.27 of this part; and

[[Page 881]]

    (iii) Conflicts between a registered swap data repository's 
management and members of the board of directors;
    (3) Establishing and administering written policies and procedures 
reasonably designed to prevent violation of the Act and any rules 
adopted by the Commission;
    (4) Taking reasonable steps to ensure compliance with the Act and 
Commission regulations relating to agreements, contracts, or 
transactions, and with Commission regulations under Section 21 of the 
Act, including confidentiality and indemnification agreements entered 
into with foreign or domestic regulators pursuant to Section 21(d) of 
the Act;
    (5) Establishing procedures for the remediation of noncompliance 
issues identified by the chief compliance officer through a compliance 
office review, look-back, internal or external audit finding, self-
reported error, or validated complaint;
    (6) Establishing and following appropriate procedures for the 
handling, management response, remediation, retesting, and closing of 
noncompliance issues; and
    (7) Establishing and administering a written code of ethics designed 
to prevent ethical violations and to promote honesty and ethical 
conduct.
    (e) Annual compliance report prepared by chief compliance officer. 
The chief compliance officer shall, not less than annually, prepare and 
sign an annual compliance report, that at a minimum, contains the 
following information covering the time period since the date on which 
the swap data repository became registered with the Commission or since 
the end of the period covered by a previously filed annual compliance 
report, as applicable:
    (1) A description of the registered swap data repository's written 
policies and procedures, including the code of ethics and conflict of 
interest policies;
    (2) A review of applicable Commission regulations and each 
subsection and core principle of Section 21 of the Act, that, with 
respect to each:
    (i) Identifies the policies and procedures that are designed to 
ensure compliance with each subsection and core principle, including 
each duty specified in Section 21(c);
    (ii) Provides a self-assessment as to the effectiveness of these 
policies and procedures; and
    (iii) Discusses areas for improvement, and recommends potential or 
prospective changes or improvements to its compliance program and 
resources;
    (3) A list of any material changes to compliance policies and 
procedures since the last annual compliance report;
    (4) A description of the financial, managerial, and operational 
resources set aside for compliance with respect to the Act and 
Commission regulations;
    (5) A description of any material compliance matters, including 
noncompliance issues identified through a compliance office review, 
look-back, internal or external audit finding, self-reported error, or 
validated complaint, and explains how they were resolved; and
    (6) A certification by the chief compliance officer that, to the 
best of his or her knowledge and reasonable belief, and under penalty of 
law, the annual compliance report is accurate and complete.
    (f) Submission of annual compliance report by chief compliance 
officer to the commission. (1) Prior to submission of the annual 
compliance report to the Commission, the chief compliance officer shall 
provide the annual compliance report to the board of the registered swap 
data repository for its review. If the swap data repository does not 
have a board, then the annual compliance report shall be provided to the 
senior officer for their review. Members of the board and the senior 
officer may not require the chief compliance officer to make any changes 
to the report. Submission of the report to the board or senior officer, 
and any subsequent discussion of the report, shall be recorded in board 
minutes or similar written record, as evidence of compliance with this 
requirement.
    (2) The annual compliance report shall be provided electronically to 
the Commission not more than 60 days after the end of the registered 
swap data repository's fiscal year, concurrently with the filing of the 
annual amendment to Form SDR that must be

[[Page 882]]

submitted to the Commission pursuant toSec. 49.3(a)(5) of this part.
    (3) Promptly upon discovery of any material error or omission made 
in a previously filed compliance report, the chief compliance officer 
shall file an amendment with the Commission to correct any material 
error or omission. An amendment shall contain the oath or certification 
required under paragraph (e)(67) of this section.
    (4) A registered swap data repository may request the Commission for 
an extension of time to file its compliance report based on substantial, 
undue hardship. Extensions for the filing deadline may be granted at the 
discretion of the Commission.
    (g) Recordkeeping. (1) The registered swap data repository shall 
maintain:
    (i) A copy of the written policies and procedures, including the 
code of ethics and conflicts of interest policies adopted in furtherance 
of compliance with the Act and Commission regulations;
    (ii) Copies of all materials, including written reports provided to 
the board of directors or senior officer in connection with the review 
of the annual compliance report under paragraph (f)(1) of this section 
and the board minutes or similar written record of such review, that 
record the submission of the annual compliance report to the board of 
directors or senior officer; and
    (iii) Any records relevant to the registered swap data repository's 
annual compliance report, including, but not limited to, work papers and 
other documents that form the basis of the report, and memoranda, 
correspondence, other documents, and records that are:
    (A) Created, sent or received in connection with the annual 
compliance report and
    (B) Contain conclusions, opinions, analyses, or financial data 
related to the annual compliance report.
    (2) The registered swap data repository shall maintain records in 
accordance withSec. 1.31 of this chapter.



Sec.  49.23  Emergency authority policies and procedures.

    (a) Emergency policies and procedures required. A registered swap 
data repository shall establish policies and procedures for the exercise 
of emergency authority in the event of any emergency, including but not 
limited to natural, man-made, and information technology emergencies. 
Such policies and procedures shall also require a swap data repository 
to exercise its emergency authority upon request by the Commission. A 
swap data repository's policies and procedures for the exercise of 
emergency authority shall be transparent to the Commission and to market 
participants whose swap transaction data resides at the swap data 
repository.
    (b) Invocation of emergency authority. A registered swap data 
repository's policies and procedures for the exercise of emergency 
authority shall enumerate the circumstances under which the swap data 
repository is authorized to invoke its emergency authority and the 
procedures that it shall follow to declare an emergency. Such policies 
and procedures shall also address the range of measures that it is 
authorized to take when exercising such emergency authority.
    (c) Designation of persons authorized to act in an emergency. A 
registered swap data repository shall designate one or more officials of 
the swap data repository as persons authorized to exercise emergency 
authority on its behalf. A swap data repository shall also establish a 
chain of command to be used in the event that the designated person(s) 
is unavailable. A swap data repository shall notify the Commission of 
the person(s) designated to exercise emergency authority.
    (d) Conflicts of interest. A registered swap data repository's 
policies and procedures for the exercise of emergency authority shall 
include provisions to avoid conflicts of interest in any decisions made 
pursuant to emergency authority. Such policies and procedures shall also 
include provisions to consult the swap data repository's chief 
compliance officer in any emergency decision that may raise potential 
conflicts of interest.
    (e) Notification to the commission. A registered swap data 
repository's policies and procedures for the exercise of emergency 
authority shall include provisions to notify the Commission as

[[Page 883]]

soon as reasonably practicable regarding any invocation of emergency 
authority. When notifying the Commission of any exercise of emergency 
authority, a swap data repository shall explain the reasons for taking 
such emergency action, explain how conflicts of interest were minimized, 
and document the decision-making process. Underlying documentation shall 
be made available to the Commission upon request.



Sec.  49.24  System safeguards.

    (a) Each registered swap data repository shall, with respect to all 
swap data in its custody:
    (1) Establish and maintain a program of risk analysis and oversight 
to identify and minimize sources of operational risk through the 
development of appropriate controls and procedures and the development 
of automated systems that are reliable, secure, and have adequate 
scalable capacity;
    (2) Establish and maintain emergency procedures, backup facilities, 
and a business continuity-disaster recovery plan that allow for the 
timely recovery and resumption of operations and the fulfillment of the 
duties and obligations of the swap data repository; and
    (3) Periodically conduct tests to verify that backup resources are 
sufficient to ensure continued fulfillment of all duties of the swap 
data repository established by the Act or the Commission's regulations.
    (b) A registered swap data repository's program of risk analysis and 
oversight with respect to its operations and automated systems shall 
address each of the following categories of risk analysis and oversight:
    (1) Information security;
    (2) Business continuity--disaster recovery planning and resources;
    (3) Capacity and performance planning;
    (4) Systems operations;
    (5) Systems development and quality assurance; and
    (6) Physical security and environmental controls.
    (c) In addressing the categories of risk analysis and oversight 
required under paragraph (b) of this section, a registered swap data 
repository should follow generally accepted standards and best practices 
with respect to the development, operation, reliability, security, and 
capacity of automated systems.
    (d) A registered swap data repository shall maintain a business 
continuity--disaster recovery plan and business continuity--disaster 
recovery resources, emergency procedures, and backup facilities 
sufficient to enable timely recovery and resumption of its operations 
and resumption of its ongoing fulfillment of its duties and obligations 
as a swap data repository following any disruption of its operations. 
Such duties and obligations include, without limitation, the duties set 
forth inSec. 49.9 and the core principles set forth inSec. 49.19; 
and maintenance of a comprehensive audit trail. The swap data 
repository's business continuity--disaster recovery plan and resources 
generally should enable resumption of the swap data repository's 
operations and resumption of ongoing fulfillment of the swap data 
repository's duties and obligations during the next business day 
following the disruption.
    (e) Registered swap data repositories determined by the Commission 
to be critical swap data repositories are subject to more stringent 
requirements as set forth below.
    (1) Each swap data repository that the Commission determines is 
critical must maintain a disaster recovery plan and business continuity 
and disaster recovery resources, including infrastructure and personnel, 
sufficient to enable it to achieve a same-day recovery time objective in 
the event that its normal capabilities become temporarily inoperable for 
any reason up to and including a wide-scale disruption.
    (2) A same-day recovery time objective is a recovery time objective 
within the same business day on which normal capabilities become 
temporarily inoperable for any reason up to and including a wide-scale 
disruption.
    (3) To ensure its ability to achieve a same-day recovery time 
objective in the event of a wide-scale disruption, each swap data 
repository that the Commission determines is critical must maintain a 
degree of geographic dispersal of both infrastructure and personnel such 
that:

[[Page 884]]

    (i) Infrastructure sufficient to enable the swap data repository to 
meet a same-day recovery time objective after interruption is located 
outside the relevant area of the infrastructure the entity normally 
relies upon to conduct activities necessary to the reporting, 
recordkeeping and/or dissemination of swap data, and does not rely on 
the same critical transportation, telecommunications, power, water, or 
other critical infrastructure components the entity normally relies upon 
for such activities; and
    (ii) Personnel sufficient to enable the swap data repository to meet 
a same-day recovery time objective, after interruption of normal swap 
data reporting, recordkeeping and/or dissemination by a wide-scale 
disruption affecting the relevant area in which the personnel the entity 
normally relies upon to engage in such activities are located, live and 
work outside that relevant area.
    (4) Each swap data repository that the Commission determines is 
critical must conduct regular, periodic tests of its business continuity 
and disaster recovery plans and resources and its capacity to achieve a 
same-day recovery time objective in the event of a wide-scale 
disruption. The swap data repository shall keep records of the results 
of such tests, and make the results available to the Commission upon 
request.
    (f) A registered swap data repository that is not determined by the 
Commission to be a critical swap data repository satisfies the 
requirement to be able to resume operations and resume ongoing 
fulfillment of the swap data repository's duties and obligations during 
the next business day following a disruption by maintaining either:
    (1) Infrastructure and personnel resources of its own that are 
sufficient to ensure timely recovery and resumption of its operations, 
duties and obligations as a registered swap data repository following 
any disruption of its operations; or
    (2) Contractual arrangements with other registered swap data 
repositories or disaster recovery service providers, as appropriate, 
that are sufficient to ensure continued fulfillment of all of the swap 
data repository's duties and obligations following any disruption of its 
operations, both with respect to all swaps reported to the swap data 
repository and with respect to all swap data contained in the swap data 
repository.
    (g) A registered swap data repository shall notify Commission staff 
promptly of all:
    (1) Systems malfunctions;
    (2) Cyber security incidents or targeted threats that actually or 
potentially jeopardize automated system operation, reliability, 
security, or capacity; and
    (3) Any activation of the swap data repository's business 
continuity-disaster recovery plan.
    (h) A registered swap data repository shall give Commission staff 
timely advance notice of all:
    (1) Planned changes to automated systems that may impact the 
reliability, security, or adequate scalable capacity of such systems; 
and
    (2) Planned changes to the swap data repository's program of risk 
analysis and oversight.
    (i) A registered swap data repository shall provide to the 
Commission upon request current copies of its business continuity and 
disaster recovery plan and other emergency procedures, its assessments 
of its operational risks, and other documents requested by Commission 
staff for the purpose of maintaining a current profile of the swap data 
repository's automated systems.
    (j) A registered swap data repository shall conduct regular, 
periodic, objective testing and review of its automated systems to 
ensure that they are reliable, secure, and have adequate scalable 
capacity. It shall also conduct regular, periodic testing and review of 
its business continuity-disaster recovery capabilities. Both types of 
testing should be conducted by qualified, independent professionals. 
Such qualified independent professionals may be independent contractors 
or employees of the swap data repository, but should not be persons 
responsible for development or operation of the systems or capabilities 
being tested. Pursuant to Sec.Sec. 1.31, 49.12 and 45.2 of the 
Commission's Regulations, the swap data repository shall keep records of 
all such tests, and make all test results available to the Commission 
upon request.

[[Page 885]]

    (k) To the extent practicable, a registered swap data repository 
should:
    (1) Coordinate its business continuity-disaster recovery plan with 
those of swap execution facilities, designated contract markets, 
derivatives clearing organizations, swap dealers, and major swap 
participants who report swap data to the swap data repository, and with 
those regulators identified in Section 21(c)(7) of the Act, in a manner 
adequate to enable effective resumption of the registered swap data 
repository's fulfillment of its duties and obligations following a 
disruption causing activation of the swap data repository's business 
continuity and disaster recovery plan;
    (2) Participate in periodic, synchronized testing of its business 
continuity--disaster recovery plan and the business continuity--disaster 
recovery plans of swap execution facilities, designated contract 
markets, derivatives clearing organizations, swap dealers, and major 
swap participants who report swap data to the registered swap data 
repository, and the business continuity--disaster recovery plans 
required by the regulators identified in Section 21(c)(7) of the Act; 
and
    (3) Ensure that its business continuity--disaster recovery plan 
takes into account the business continuity--disaster recovery plans of 
its telecommunications, power, water, and other essential service 
providers.



Sec.  49.25  Financial resources.

    (a) General rule. (1) A registered swap data repository shall 
maintain sufficient financial resources to perform its statutory duties 
set forth inSec. 49.9 and the core principles set forth inSec. 
49.19.
    (2) An entity that operates as both a swap data repository and a 
derivatives clearing organization shall also comply with the financial 
resource requirements applicable to derivatives clearing organizations 
underSec. 39.11 of this chapter.
    (3) Financial resources shall be considered sufficient if their 
value is at least equal to a total amount that would enable the swap 
data repository, or applicant for registration, to cover its operating 
costs for a period of at least one year, calculated on a rolling basis.
    (4) The financial resources described in this paragraph (a) must be 
independent and separately dedicated to ensure that assets and capital 
are not used for multiple purposes.
    (b) Types of financial resources. Financial resources available to 
satisfy the requirements of paragraph (a) of this section may include:
    (1) The swap data repository's own capital; and
    (2) Any other financial resource deemed acceptable by the 
Commission.
    (c) Computation of financial resource requirement. A registered swap 
data repository shall, on a quarterly basis, based upon its fiscal year, 
make a reasonable calculation of its projected operating costs over a 
12-month period in order to determine the amount needed to meet the 
requirements of paragraph (a) of this section. The swap data repository 
shall have reasonable discretion in determining the methodology used to 
compute such projected operating costs. The Commission may review the 
methodology and require changes as appropriate.
    (d) Valuation of financial resources. At appropriate intervals, but 
not less than quarterly, a registered swap data repository shall compute 
the current market value of each financial resource used to meet its 
obligations under paragraph (a) of this section. Reductions in value to 
reflect market and credit risk (haircuts) shall be applied as 
appropriate.
    (e) Liquidity of financial resources. The financial resources 
allocated by the registered swap data repository to meet the 
requirements of paragraph (a) shall include unencumbered, liquid 
financial assets (i.e., cash and/or highly liquid securities) equal to 
at least six months' operating costs. If any portion of such financial 
resources is not sufficiently liquid, the swap data repository may take 
into account a committed line of credit or similar facility for the 
purpose of meeting this requirement.
    (f) Reporting requirements. (1) Each fiscal quarter, or at any time 
upon Commission request, a registered swap data repository shall report 
to the Commission the amount of financial resources necessary to meet 
the requirements of paragraph (a), the value of each financial resource 
available, computed in

[[Page 886]]

accordance with the requirements of paragraph (d); and provide the 
Commission with a financial statement, including the balance sheet, 
income statement, and statement of cash flows of the swap data 
repository or of its parent company. Financial statements shall be 
prepared in conformity with generally accepted accounting principles 
(GAAP) applied on a basis consistent with that of the preceding 
financial statement.
    (2) The calculations required by this paragraph shall be made as of 
the last business day of the swap data repository's fiscal quarter.
    (3) The report shall be filed not later than 17 business days after 
the end of the swap data repository's fiscal quarter, or at such later 
time as the Commission may permit, in its discretion, upon request by 
the swap data repository.



Sec.  49.26  Disclosure requirements of swap data repositories.

    Before accepting any swap data from a reporting entity or upon a 
reporting entity's request, a registered swap data repository shall 
furnish to the reporting entity a disclosure document that contains the 
following written information, which shall reasonably enable the 
reporting entity to identify and evaluate accurately the risks and costs 
associated with using the services of the swap data repository:
    (a) The registered swap data repository's criteria for providing 
others with access to services offered and swap data maintained by the 
swap data repository;
    (b) The registered swap data repository's criteria for those seeking 
to connect to or link with the swap data repository;
    (c) A description of the registered swap data repository's policies 
and procedures regarding its safeguarding of swap data and operational 
reliability to protect the confidentiality and security of such data, as 
described inSec. 49.24;
    (d) The registered swap data repository's policies and procedures 
reasonably designed to protect the privacy of any and all swap data that 
the swap data repository receives from a reporting entity, as described 
inSec. 49.16;
    (e) The registered swap data repository's policies and procedures 
regarding its non-commercial and/or commercial use of the swap data that 
it receives from a market participant, any registered entity, or any 
other person;
    (f) The registered swap data repository's dispute resolution 
procedures;
    (g) A description of all the registered swap data repository's 
services, including any ancillary services;
    (h) The registered swap data repository's updated schedule of any 
fees, rates, dues, unbundled prices, or other charges for all of its 
services, including any ancillary services; any discounts or rebates 
offered; and the criteria to benefit from such discounts or rebates; and
    (i) A description of the registered swap data repository's 
governance arrangements.



Sec.  49.27  Access and fees.

    (a) Fair, open and equal access. (1) A registered swap data 
repository, consistent with Section 21 of the Act, shall provide its 
services to market participants, including but not limited to designated 
contract markets, swap execution facilities, derivatives clearing 
organizations, swap dealers, major swap participants and any other 
counterparties, on a fair, open and equal basis. For this purpose, a 
swap data repository shall not provide access to its services on a 
discriminatory basis but is required to provide its services to all 
market participants for swaps it accepts in an asset class.
    (2) Consistent with the principles of open access set forth in 
paragraph (a)(1) of this Regulation, a registered swap data repository 
shall not tie or bundle the offering of mandated regulatory services 
with other ancillary services that a swap data repository may provide to 
market participants.
    (b) Fees. (1) Any fees or charges imposed by a registered swap data 
repository in connection with the reporting of swap data and any other 
supplemental or ancillary services provided by such swap data repository 
shall be equitable and established in a uniform and non-discriminatory 
manner. Fees or charges shall not be used as an artificial barrier to 
access to the swap data repository. Swap data repositories

[[Page 887]]

shall not offer preferential pricing arrangements to any market 
participant on any basis, including volume discounts or reductions 
unless such discounts or reductions apply to all market participants 
uniformly and are not otherwise established in a manner that would 
effectively limit the application of such discount or reduction to a 
select number of market participants.
    (2) All fees or charges are to be fully disclosed and transparent to 
market participants. At a minimum, the registered swap data repository 
shall provide a schedule of fees and charges that is accessible by all 
market participants on its Web site.
    (3) The Commission notes that it will not specifically approve the 
fees charged by registered swap data repositories. However, any and all 
fees charged by swap data repositories must be consistent with the 
principles set forth in paragraph (b)(1) of this section.



                  Sec. Appendix A to Part 49--Form SDR

                  COMMODITY FUTURES TRADING COMMISSION

                                FORM SDR

    SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR

                 REGISTRATION REGISTRATION INSTRUCTIONS

Intentional misstatements or omissions of material fact may constitute 
federal criminal violations (7 U.S.C.Sec. 13 and 18 U.S.C.Sec. 1001) 
or grounds for disqualification from registration.

                               DEFINITIONS

    Unless the context requires otherwise, all terms used in this Form 
SDR have the same meaning as in the Commodity Exchange Act, as amended, 
and in the Regulations of the Commission thereunder.
    For the purposes of this Form SDR, the term ``Applicant'' shall 
include any applicant for registration as a swap data repository or any 
registered swap data repository that is amending Form SDR.

                          GENERAL INSTRUCTIONS

    1. Form SDR and Exhibits thereto are to be filed with the Commodity 
Futures Trading Commission by Applicants for registration as a swap data 
repository, or by a registered swap data repository amending such 
registration, pursuant to Section 21 of the Commodity Exchange Act and 
the regulations thereunder. Upon the filing of an application for 
registration, the Commission will publish notice of the filing and 
afford interested persons an opportunity to submit written data, views 
and arguments concerning such application. No application for 
registration shall be effective unless the Commission, by order, grants 
such registration.
    2. Individuals' names shall be given in full (Last Name, First Name, 
Middle Name).
    3. Signatures must accompany each copy of the Form SDR filed with 
the Commission. If this Form SDR is filed by a corporation, it must be 
signed in the name of the corporation by a principal officer duly 
authorized; if filed by a limited liability company, this Form SDR must 
be signed in the name of the limited liability company by a member duly 
authorized to sign on the limited liability company's behalf; if filed 
by a partnership, this Form SDR must be signed in the name of the 
partnership by a general partner authorized; if filed by an 
unincorporated organization or association which is not a partnership, 
it must be signed in the name of the organization or association by the 
managing agent, i.e., a duly authorized person who directs, manages or 
who participates in the directing or managing of its affairs.
    4. If Form SDR is being filed as an initial application for 
registration, all applicable items must be answered in full. If any item 
is not applicable, indicate by ``none,'' ``not applicable,'' or ``N/A'' 
as appropriate.
    5. Under Section 21 of the Commodity Exchange Act and the 
regulations thereunder, the Commission is authorized to solicit the 
information required to be supplied by this form from Applicants for 
registration as a swap data repository and from registered swap data 
repositories amending their registration. Disclosure of the information 
specified on this form is mandatory prior to processing of an 
application for registration as a swap data repository. The information 
will be used for the principal purpose of determining whether the 
Commission should grant or deny registration to an Applicant. The 
Commission may determine that additional information is required from 
the Applicant in order to process its application. An Applicant is 
therefore encouraged to supplement this Form SDR with any additional 
information that may be significant to its operation as a swap data 
repository and to the Commission's review of its application. A Form SDR 
which is not prepared and executed in compliance with applicable 
requirements and instructions may be returned as not acceptable for 
filing. Acceptance of this Form SDR, however, shall not constitute any 
finding that the Form SDR has been filed as required or that the 
information submitted is true, current or complete.
    6. Except in cases where confidential treatment is requested by the 
Applicant and granted by the Commission pursuant to the Freedom of 
Information Act and Commission

[[Page 888]]

RegulationSec. 145.9, information supplied on this form will be 
included routinely in the public files of the Commission and will be 
available for inspection by any interested person. The Applicant must 
identify with particularity the information in these exhibits that will 
be subject to a request for confidential treatment and supporting 
documentation for such request pursuant to Commission RegulationsSec. 
40.8, andSec. 145.9.

                  UPDATING INFORMATION ON THE FORM SDR

    1. Section 21 requires that if any information contained in Items 1 
through 17, 23, 29, and Item 53 of this application, or any supplement 
or amendment thereto, is or becomes inaccurate for any reason, an 
amendment must be filed promptly, unless otherwise specified, on Form 
SDR correcting such information.
    2. Registrants filing Form SDR as an amendment (other than an annual 
amendment) need file only the first page of Form SDR, the signature page 
(Item 13), and any pages on which an answer is being amended, together 
with such exhibits as are being amended. The submission of an amendment 
represents that all unamended items and exhibits remain true, current 
and complete as previously filed.

                    ANNUAL AMENDMENT ON THE FORM SDR

    Annual amendments on the Form SDR shall be submitted within 60 days 
of the end of the Applicant's fiscal year. Applicants must complete the 
first page and provide updated information or exhibits.
    An Applicant may request an extension of time for submitting the 
annual amendment with the Secretary of the Commission based on 
substantial, undue hardship. Extensions for filing annual amendments may 
be granted at the discretion of the Commission.

                              WHERE TO FILE

    File registration application and appropriate exhibits 
electronically with the Commission at the Washington, D.C. headquarters 
in a format and in the manner specified by the Secretary of the 
Commission.

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PART 50_CLEARING REQUIREMENT--Table of Contents



             Subpart A_Definitions and Clearing Requirement

Sec.
50.1 Definitions.
50.2 Treatment of swaps subject to a clearing requirement.
50.3 Notice to the public.
50.4 Classes of swaps required to be cleared.
50.5 Swaps exempt from a clearing requirement.
50.6 Delegation of authority.
50.7-50.9 [Reserved]
50.10 Prevention of evasion of the clearing requirement and abuse of an 
          exception or exemption to the clearing requirement.
50.11-50.24 [Reserved]

                      Subpart B_Compliance Schedule

50.25 Clearing requirement compliance schedule.
50.26-50.49 [Reserved]

       Subpart C_Exceptions and Exemptions to Clearing Requirement

50.50 Exceptions to the clearing requirement.

    Authority: 7 U.S.C. 2(h) and 7a-1 as amended by Pub. L. 111-203, 124 
Stat. 1376.

    Source: 77 FR 44455, July 30, 2012, unless otherwise noted.



             Subpart A_Definitions and Clearing Requirement

    Source: 77 FR 74335, Dec. 13, 2012, unless otherwise noted.



Sec.  50.1  Definitions.

    For the purposes of this part,
    Business day means any day other than a Saturday, Sunday, or legal 
holiday.
    Day of execution means the calendar day of the party to the swap 
that ends latest, provided that if a swap is:
    (1) Entered into after 4:00 p.m. in the location of a party; or
    (2) Entered into on a day that is not a business day in the location 
of a party, then such swap shall be deemed to have been entered into by 
that party on the immediately succeeding business day of that party, and 
the day of execution shall be determined with reference to such business 
day.

[[Page 898]]



Sec.  50.2  Treatment of swaps subject to a clearing requirement.

    (a) All persons executing a swap that:
    (1) Is not subject to an exception under section 2(h)(7) of the Act 
orSec. 50.50 of this part; and
    (2) Is included in a class of swaps identified inSec. 50.4 of this 
part, shall submit such swap to any eligible derivatives clearing 
organization that accepts such swap for clearing as soon as 
technologically practicable after execution, but in any event by the end 
of the day of execution.
    (b) Each person subject to the requirements of paragraph (a) of this 
section shall undertake reasonable efforts to verify whether a swap is 
required to be cleared.
    (c) For purposes of paragraph (a) of this section, persons that are 
not clearing members of an eligible derivatives clearing organization 
shall be deemed to have complied with paragraph (a) of this section upon 
submission of such swap to a futures commission merchant or clearing 
member of a derivatives clearing organization, provided that submission 
occurs as soon as technologically practicable after execution, but in 
any event by the end of the day of execution.



Sec.  50.3  Notice to the public.

    (a) In addition to its obligations underSec. 39.21(c)(1), each 
derivatives clearing organization shall make publicly available on its 
Web site a list of all swaps that it will accept for clearing and 
identify which swaps on the list are required to be cleared under 
section 2(h)(1) of the Act and this part.
    (b) The Commission shall maintain a current list of all swaps that 
are required to be cleared and all derivatives clearing organizations 
that are eligible to clear such swaps on its Web site.



Sec.  50.4  Classes of swaps required to be cleared.

    (a) Interest rate swaps. Swaps that have the following 
specifications are required to be cleared under section 2(h)(1) of the 
Act, and shall be cleared pursuant to the rules of any derivatives 
clearing organization eligible to clear such swaps underSec. 39.5(a) 
of this chapter.

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
          Specification                                    Fixed-to-floating swap class
----------------------------------------------------------------------------------------------------------------
Currency........................  U.S. dollar (USD).  Euro (EUR)........  Sterling (GBP)....  Yen (JPY).
Floating Rate Indexes...........  LIBOR.............  EURIBOR...........  LIBOR.............  LIBOR.
Stated Termination Date Range...  28 days to 50       28 days to 50       28 days to 50       28 days to 30
                                   years.              years.              years.              years.
Optionality.....................  No................  No................  No................  No.
Dual Currencies.................  No................  No................  No................  No.
Conditional Notional Amounts....  No................  No................  No................  No.
----------------------------------------------------------------------------------------------------------------
          Specification                                          Basis swap class
----------------------------------------------------------------------------------------------------------------
Currency........................  U.S. dollar (USD).  Euro (EUR)........  Sterling (GBP)....  Yen (JPY).
Floating Rate Indexes...........  LIBOR.............  EURIBOR...........  LIBOR.............  LIBOR.
Stated Termination Date Range...  28 days to 50       28 days to 50       28 days to 50       28 days to 30
                                   years.              years.              years.              years.
Optionality.....................  No................  No................  No................  No.
Dual Currencies.................  No................  No................  No................  No.
Conditional Notional Amounts....  No................  No................  No................  No.
----------------------------------------------------------------------------------------------------------------
          Specification                                    Forward rate agreement class
----------------------------------------------------------------------------------------------------------------
Currency........................  U.S. dollar (USD).  Euro (EUR)........  Sterling (GBP)....  Yen (JPY).
Floating Rate Indexes...........  LIBOR.............  EURIBOR...........  LIBOR.............  LIBOR.

[[Page 899]]

 
Stated Termination Date Range...  3 days to 3 years.  3 days to 3 years.  3 days to 3 years.  3 days to 3 years.
Optionality.....................  No................  No................  No................  No.
Dual Currencies.................  No................  No................  No................  No.
6. Conditional Notional Amounts.  No................  No................  No................  No.
----------------------------------------------------------------------------------------------------------------
          Specification                           Overnight index swap class
----------------------------------------------------------------------------------------------------------------
Currency........................  U.S. dollar (USD).  Euro (EUR)........  Sterling (GBP).
Floating Rate Indexes...........  FedFunds..........  EONIA.............  SONIA.
Stated Termination Date Range...  7 days to 2 years.  7 days to 2 years.  7 days to 2 years.
Optionality.....................  No................  No................  No.
Dual Currencies.................  No................  No................  No.
Conditional Notional Amounts....  No................  No................  No.
----------------------------------------------------------------------------------------------------------------

    (b) Credit default swaps. Swaps that have the following 
specifications are required to be cleared under section 2(h)(1) of the 
Act, and shall be cleared pursuant to the rules of any derivatives 
clearing organization eligible to clear such swaps underSec. 39.5(a) 
of this chapter.

----------------------------------------------------------------------------------------------------------------
                          Specification                             North American untranched CDS indices class
----------------------------------------------------------------------------------------------------------------
Reference Entities...............................................  Corporate.
Region...........................................................  North America.
Indices..........................................................  CDX.NA.IG; CDX.NA.HY.
Tenor............................................................  CDX.NA.IG: 3Y, 5Y, 7Y, 10Y; CDX.NA.HY: 5Y.
Applicable Series................................................  CDX.NA.IG 3Y: Series 15 and all subsequent
                                                                    Series, up to and including the current
                                                                    Series.
                                                                   CDX.NA.IG 5Y: Series 11 and all subsequent
                                                                    Series, up to and including the current
                                                                    Series.
                                                                   CDX.NA.IG 7Y: Series 8 and all subsequent
                                                                    Series, up to and including the current
                                                                    Series.
                                                                   CDX.NA.IG 10Y: Series 8 and all subsequent
                                                                    Series, up to and including the current
                                                                    Series.
                                                                   CDX.NA.HY 5Y: Series 11 and all subsequent
                                                                    Series, up to and including the current
                                                                    Series.
Tranched.........................................................  No.
----------------------------------------------------------------------------------------------------------------


 
                          Specification                                European untranched CDS indices class
----------------------------------------------------------------------------------------------------------------
Reference Entities...............................................  Corporate.
Region...........................................................  Europe.
Indices..........................................................  iTraxx Europe.
                                                                   iTraxx Europe Crossover.
                                                                   iTraxx Europe HiVol.
Tenor............................................................  iTraxx Europe: 5Y, 10Y.
                                                                   iTraxx Europe Crossover: 5Y.
                                                                   iTraxx Europe HiVol: 5Y.
Applicable Series................................................  iTraxx Europe 5Y: Series 10 and all
                                                                    subsequent Series, up to and including the
                                                                    current Series.
                                                                   iTraxx Europe 10Y: Series 7 and all
                                                                    subsequent Series, up to and including the
                                                                    current Series.
                                                                   iTraxx Europe Crossover 5Y: Series 10 and all
                                                                    subsequent Series, up to and including the
                                                                    current Series.
                                                                   iTraxx Europe HiVol 5Y: Series 10 and all
                                                                    subsequent Series, up to and including the
                                                                    current Series.
Tranched.........................................................  No.
----------------------------------------------------------------------------------------------------------------


[[Page 900]]



Sec.  50.5  Swaps exempt from a clearing requirement.

    (a) Swaps entered into before July 21, 2010 shall be exempt from the 
clearing requirement underSec. 50.2 of this part if reported to a swap 
data repository pursuant to section 2(h)(5)(A) of the Act andSec. 
46.3(a) of this chapter.
    (b) Swaps entered into before the application of the clearing 
requirement for a particular class of swaps under Sec.Sec. 50.2 and 
50.4 of this part shall be exempt from the clearing requirement if 
reported to a swap data repository pursuant to section 2(h)(5)(B) of the 
Act and eitherSec. 46.3(a) or Sec.Sec. 45.3 and 45.4 of this 
chapter, as appropriate.



Sec.  50.6  Delegation of authority.

    (a) The Commission hereby delegates to the Director of the Division 
of Clearing and Risk or such other employee or employees as the Director 
may designate from time to time, with the consultation of the General 
Counsel or such other employee or employees as the General Counsel may 
designate from time to time, the authority:
    (1) After prior notice to the Commission, to determine whether one 
or more swaps submitted by a derivatives clearing organization under 
Sec.  39.5 falls within a class of swaps as described inSec. 50.4, 
provided that inclusion of such swaps is consistent with the 
Commission's clearing requirement determination for that class of swaps; 
and
    (2) To notify all relevant derivatives clearing organizations of 
that determination.
    (b) The Director of the Division of Clearing and Risk may submit to 
the Commission for its consideration any matter which has been delegated 
in this section. Nothing in this section prohibits the Commission, at 
its election, from exercising the authority delegated in this section.



Sec.  50.7-50.9  [Reserved]



Sec.  50.10  Prevention of evasion of the clearing requirement and
abuse of an exception or exemption to the clearing requirement.

    (a) It shall be unlawful for any person to knowingly or recklessly 
evade or participate in or facilitate an evasion of the requirements of 
section 2(h) of the Act or any Commission rule or regulation promulgated 
thereunder.
    (b) It shall be unlawful for any person to abuse the exception to 
the clearing requirement as provided under section 2(h)(7) of the Act or 
an exception or exemption under this chapter.
    (c) It shall be unlawful for any person to abuse any exemption or 
exception to the requirements of section 2(h) of the Act, including any 
exemption or exception as the Commission may provide by rule, 
regulation, or order.



Sec.  50.11-50.24  [Reserved]



                      Subpart B_Compliance Schedule



Sec.  50.25  Clearing requirement compliance schedule.

    (a) Definitions. For the purposes of this paragraph:
    Active fund means any private fund as defined in section 202(a) of 
the Investment Advisers Act of 1940, that is not a third-party 
subaccount and that executes 200 or more swaps per month based on a 
monthly average over the 12 months preceding the Commission issuing a 
clearing requirement determination under section 2(h)(2) of the Act.
    Category 1 Entity means a swap dealer, a security-based swap dealer; 
a major swap participant; a major security-based swap participant; or an 
active fund.
    Category 2 Entity means a commodity pool; a private fund as defined 
in section 202(a) of the Investment Advisers Act of 1940 other than an 
active fund; or a person predominantly engaged in activities that are in 
the business of banking, or in activities that are financial in nature 
as defined in section 4(k) of the Bank Holding Company Act of 1956, 
provided that, in each case, the entity is not a third-party subaccount.
    Third-party subaccount means an account that is managed by an 
investment manager that is independent of and unaffiliated with the 
account's beneficial owner or sponsor, and is responsible for the 
documentation necessary for the account's beneficial owner to clear 
swaps.
    (b) Upon issuing a clearing requirement determination under section

[[Page 901]]

2(h)(2) of the Act, the Commission may determine, based on the group, 
category, type, or class of swaps subject to such determination, that 
the following schedule for compliance with the requirements of section 
2(h)(1)(A) of the Act shall apply:
    (1) A swap between a Category 1 Entity and another Category 1 
Entity, or any other entity that desires to clear the transaction, must 
comply with the requirements of section 2(h)(1)(A) of the Act no later 
than ninety (90) days from the date of publication of such clearing 
requirement determination in the Federal Register.
    (2) A swap between a Category 2 Entity and a Category 1 Entity, 
another Category 2 Entity, or any other entity that desires to clear the 
transaction, must comply with the requirements of section 2(h)(1)(A) of 
the Act no later than one hundred and eighty (180) days from the date of 
publication of such clearing requirement determination in the Federal 
Register.
    (3) All other swaps for which neither of the parties to the swap is 
eligible to claim the exception from the clearing requirement set forth 
in section 2(h)(7) of the Act andSec. 39.6, must comply with the 
requirements of section 2(h)(1)(A) of the Act no later than two hundred 
and seventy (270) days from the date of publication of such clearing 
requirement determination in the Federal Register.
    (c) Nothing in this rule shall be construed to prohibit any person 
from voluntarily complying with the requirements of section 2(h)(1)(A) 
of the Act sooner than the implementation schedule provided under 
paragraph (b).

[77 FR 44455, July 30, 2012]



Sec.Sec. 50.26-50.49  [Reserved]



       Subpart C_Exceptions and Exemptions to Clearing Requirement

    Source: 77 FR 74337, Dec. 13, 2012, unless otherwise noted.



Sec.  50.50  Exceptions to the clearing requirement.

    (a) Non-financial entities. (1) A counterparty to a swap may elect 
the exception to the clearing requirement under section 2(h)(7)(A) of 
the Act if the counterparty:
    (i) Is not a ``financial entity'' as defined in section 
2(h)(7)(C)(i) of the Act;
    (ii) Is using the swap to hedge or mitigate commercial risk as 
provided in paragraph (c) of this section; and
    (iii) Provides, or causes to be provided, the information specified 
in paragraph (b) of this section to a registered swap data repository 
or, if no registered swap data repository is available to receive the 
information from the reporting counterparty, to the Commission. A 
counterparty that satisfies the criteria in this paragraph (a)(1) and 
elects the exception is an ``electing counterparty.''
    (2) If there is more than one electing counterparty to a swap, the 
information specified in paragraph (b) of this section shall be provided 
with respect to each of the electing counterparties.
    (b) Reporting. (1) When a counterparty elects the exception to the 
clearing requirement under section 2(h)(7)(A) of the Act, one of the 
counterparties to the swap (the ``reporting counterparty,'' as 
determined in accordance withSec. 45.8 of this part) shall provide, or 
cause to be provided, the following information to a registered swap 
data repository or, if no registered swap data repository is available 
to receive the information from the reporting counterparty, to the 
Commission, in the form and manner specified by the Commission:
    (i) Notice of the election of the exception;
    (ii) The identity of the electing counterparty to the swap; and
    (iii) The following information, unless such information has 
previously been provided by the electing counterparty in a current 
annual filing pursuant to paragraph (b)(2) of this section:
    (A) Whether the electing counterparty is a ``financial entity'' as 
defined in section 2(h)(7)(C)(i) of the Act, and if the electing 
counterparty is a financial entity, whether it is:
    (1) Electing the exception in accordance with section 
2(h)(7)(C)(iii) or section 2(h)(7)(D) of the Act; or

[[Page 902]]

    (2) Exempt from the definition of ``financial entity'' as described 
in paragraph (d) of this section;
    (B) Whether the swap or swaps for which the electing counterparty is 
electing the exception are used by the electing counterparty to hedge or 
mitigate commercial risk as provided in paragraph (c) of this section;
    (C) How the electing counterparty generally meets its financial 
obligations associated with entering into non-cleared swaps by 
identifying one or more of the following categories, as applicable:
    (1) A written credit support agreement;
    (2) Pledged or segregated assets (including posting or receiving 
margin pursuant to a credit support agreement or otherwise);
    (3) A written third-party guarantee;
    (4) The electing counterparty's available financial resources; or
    (5) Means other than those described in paragraphs 
(b)(1)(iii)(C)(1), (2), (3) or (4) of this section; and
    (D) Whether the electing counterparty is an entity that is an issuer 
of securities registered under section 12 of, or is required to file 
reports under section 15(d) of, the Securities Exchange Act of 1934, and 
if so:
    (1) The relevant SEC Central Index Key number for that counterparty; 
and
    (2) Whether an appropriate committee of that counterparty's board of 
directors (or equivalent body) has reviewed and approved the decision to 
enter into swaps that are exempt from the requirements of sections 
2(h)(1) and 2(h)(8) of the Act.
    (2) An entity that qualifies for an exception to the clearing 
requirement under this section may report the information listed in 
paragraph (b)(1)(iii) of this section annually in anticipation of 
electing the exception for one or more swaps. Any such reporting under 
this paragraph shall be effective for purposes of paragraph (b)(1)(iii) 
of this section for swaps entered into by the entity for 365 days 
following the date of such reporting. During such period, the entity 
shall amend such information as necessary to reflect any material 
changes to the information reported.
    (3) Each reporting counterparty shall have a reasonable basis to 
believe that the electing counterparty meets the requirements for an 
exception to the clearing requirement under this section.
    (c) Hedging or mitigating commercial risk. For purposes of section 
2(h)(7)(A)(ii) of the Act and paragraph (b)(1)(iii)(B) of this section, 
a swap is used to hedge or mitigate commercial risk if:
    (1) Such swap:
    (i) Is economically appropriate to the reduction of risks in the 
conduct and management of a commercial enterprise, where the risks arise 
from:
    (A) The potential change in the value of assets that a person owns, 
produces, manufactures, processes, or merchandises or reasonably 
anticipates owning, producing, manufacturing, processing, or 
merchandising in the ordinary course of business of the enterprise;
    (B) The potential change in the value of liabilities that a person 
has incurred or reasonably anticipates incurring in the ordinary course 
of business of the enterprise;
    (C) The potential change in the value of services that a person 
provides, purchases, or reasonably anticipates providing or purchasing 
in the ordinary course of business of the enterprise;
    (D) The potential change in the value of assets, services, inputs, 
products, or commodities that a person owns, produces, manufactures, 
processes, merchandises, leases, or sells, or reasonably anticipates 
owning, producing, manufacturing, processing, merchandising, leasing, or 
selling in the ordinary course of business of the enterprise;
    (E) Any potential change in value related to any of the foregoing 
arising from interest, currency, or foreign exchange rate movements 
associated with such assets, liabilities, services, inputs, products, or 
commodities; or
    (F) Any fluctuation in interest, currency, or foreign exchange rate 
exposures arising from a person's current or anticipated assets or 
liabilities; or
    (ii) Qualifies as bona fide hedging for purposes of an exemption 
from position limits under the Act; or
    (iii) Qualifies for hedging treatment under:

[[Page 903]]

    (A) Financial Accounting Standards Board Accounting Standards 
Codification Topic 815, Derivatives and Hedging (formerly known as 
Statement No. 133); or
    (B) Governmental Accounting Standards Board Statement 53, Accounting 
and Financial Reporting for Derivative Instruments; and
    (2) Such swap is:
    (i) Not used for a purpose that is in the nature of speculation, 
investing, or trading; and
    (ii) Not used to hedge or mitigate the risk of another swap or 
security-based swap position, unless that other position itself is used 
to hedge or mitigate commercial risk as defined by this rule orSec. 
240.3a67-4 of this title.
    (d) For purposes of section 2(h)(7)(A) of the Act, a person that is 
a ``financial entity'' solely because of section 2(h)(7)(C)(i)(VIII) 
shall be exempt from the definition of ``financial entity'' if such 
person:
    (1) Is organized as a bank, as defined in section 3(a) of the 
Federal Deposit Insurance Act, the deposits of which are insured by the 
Federal Deposit Insurance Corporation; a savings association, as defined 
in section 3(b) of the Federal Deposit Insurance Act, the deposits of 
which are insured by the Federal Deposit Insurance Corporation; a farm 
credit system institution chartered under the Farm Credit Act of 1971; 
or an insured Federal credit union or State-chartered credit union under 
the Federal Credit Union Act; and
    (2) Has total assets of $10,000,000,000 or less on the last day of 
such person's most recent fiscal year.



PART 100_DELIVERY PERIOD REQUIRED--Table of Contents



    Authority: 7 U.S.C. 7a(a)(4) and 12a.



Sec.  100.1  Delivery period required with respect to certain grains.

    A period of seven business days is required during which contracts 
for future delivery in the current delivery month of wheat, corn, oats, 
barley, rye, or flaxseed may be settled by delivery of the actual cash 
commodity after trading in such contracts has ceased, for each delivery 
month after May 1938, on all contract markets on which there is trading 
in futures in any of such commodities, and such contract markets, and 
each of them, are directed to provide therefor.

[41 FR 3211, Jan. 21, 1976]



PART 140_ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION--
Table of Contents



                         Subpart A_Organization

Sec.
140.1 Headquarters office.
140.2 Regional office--regional coordinators.

                           Subpart B_Functions

140.10 The Commission.
140.11 Emergency action by the senior Commissioner available.
140.12 Disposition of business by seriatim Commission consideration.
140.13 Vacancy in position of Chairman.
140.14 Delegation of authority to the Secretary of the Commission.
140.20 Designation of senior official to oversee Commission use of 
          national security information.
140.21 Definitions.
140.22 Procedures.
140.23 General access requirements.
140.24 Control and accountability procedures.
140.61 [Reserved]
140.72 Delegation of authority to disclose confidential information to a 
          contract market, swap execution facility, swap data 
          repository, registered futures association or self-regulatory 
          organization.
140.73 Delegation of authority to disclose information to United States, 
          States, and foreign government agencies and foreign futures 
          authorities.
140.74 Delegation of authority to issue special calls for Series 03 
          Reports and Form 40.
140.75 Delegation of authority to the Director of the Division of 
          Clearing and Intermediary Oversight.
140.76 Delegation of authority to disclose information in a receivership 
          or bankruptcy proceeding.
140.77 Delegation of authority to determine that applications for 
          contract market designation, swap execution facility 
          registration, or swap data repository registration are 
          materially incomplete.
140.80 Disclosure of information pursuant to a subpoena or summons.
140.81 [Reserved]

[[Page 904]]

140.91 Delegation of authority to the Director of the Division of 
          Trading and Markets.
140.92 Delegation of authority to grant registrations and renewals 
          thereof.
140.93 Delegation of authority to the Director of the Division of 
          Clearing and Intermediary Oversight.
140.94 Delegation of authority to the Director of the Division of 
          Clearing and Risk.
140.95 Delegation of authority with respect to withdrawals from 
          registration.
140.96 Delegation of authority to publish in the Federal Register.
140.97 Delegation of authority regarding requests for classification of 
          positions as bona fide hedging.
140.98 Publication of no-action, interpretative and exemption letters 
          and other written communications.
140.99 Requests for exemptive, no-action and interpretative letters.

  Subpart C_Regulation Concerning Conduct of Members and Employees and 
             Former Members and Employees of the Commission

140.735-1 Authority and purpose.
140.735-2 Prohibited transactions.
140.735-2a Prohibited interests.
140.735-3 Non-governmental employment and other outside activity.
140.735-4 Receipt and disposition of foreign gifts and decorations.
140.735-5 Disclosure of information.
140.735-6 Practice by former members and employees of the Commission.
140.735-7 Statutory violations applicable to conduct of Commission 
          members and employees.
140.735-8 Interpretative and advisory service.

    Authority: 7 U.S.C. 2 and 12a.



                         Subpart A_Organization



Sec.  140.1  Headquarters office.

    (a) General. The headquarters office of the Commission is located at 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (b) [Reserved]

[48 FR 2734, Jan. 21, 1983, as amended at 60 FR 49335, Sept. 25, 1995]



Sec.  140.2  Regional office--regional coordinators.

    Each of the Regional offices described herein functions as set forth 
in this section under the direction of a Regional Coordinator who, as a 
collateral duty, oversees the administration of the office and 
represents the Commission in negotiations with employee union officials 
and in interactions with external parties. Each regional office has 
delegated authority for the enforcement of the Act and administration of 
the programs of the Commission in the particular regions.
    (a) The Eastern Regional Office is located at 140 Broadway, New 
York, New York, 10005 and is responsible for enforcement of the Act and 
administration of programs of the Commission in the States of Alabama, 
Connecticut, Delaware, Florida, Georgia, Kentucky, Maine, Maryland, 
Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North 
Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, 
Vermont, Virginia, and West Virginia.
    (b) The Central Regional Office is located at 525 West Monroe 
Street, Suite 1100, Chicago, Illinois 60661 and is responsible for 
enforcement of the Act and administration of programs of the Commission 
in the States of Illinois, Indiana, Michigan, Ohio and Wisconsin.
    (c) The Southwestern Regional Office is located at Two Emanuel 
Cleaver II Blvd., Suite 300, Kansas City, Missouri 64112, and is 
responsible for enforcement of the Act and administration of the 
programs of the Commission in the States of Alaska, Arizona, Arkansas, 
California, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, 
Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, 
Oregon, South Dakota, Texas, Utah, Washington, and Wyoming.

[69 FR 41426, July 9, 2004, as amended at 72 FR 16269, Apr. 4, 2007]



                           Subpart B_Functions



Sec.  140.10  The Commission.

    The Commission is composed of a Chairman and four other 
Commissioners, not more than three of whom may be members of the same 
political party, who are appointed by the President, with the advice and 
consent of the Senate, for 5-year terms, one term ending each year. The 
Commission is

[[Page 905]]

assisted by a staff, which includes lawyers, economists, accountants, 
investigators and examiners, as well as administrative and clerical 
employees.

[41 FR 28474, July 12, 1976]



Sec.  140.11  Emergency action by the senior Commissioner available.

    (a) Authority of senior Commissioner. When it is not feasible to 
convene a quorum of the Commission, the Senior Commissioner present at 
the principal offices of the Commission (or, during non-business hours, 
available in the Washington, DC area) may take emergency action on 
behalf of and in the name of the Commission in accordance with the 
procedures set forth in this section. Members of the Commission shall be 
considered senior in the following order: The Chairman, the Vice-
Chairman, and other Commissioners in order of their length of service on 
the Commission. Where two or more Commissioners have commenced their 
service on the same date, the Commissioner whose unexpired term in 
office is the longest will be considered senior.
    (b) Exercise of authority. Subject to the right of the Commission to 
review any emergency action taken as hereinafter provided, the Senior 
Commissioner may act on behalf of and in the name of the Commission with 
respect to all of the functions of the Commission except general 
rulemaking functions: Provided, however, That the Senior Commissioner 
shall not exercise any authority on behalf of the Commission (1) without 
consultation with such other member of the Commission as may at the time 
be present at the Commission's offices in Washington, DC, and without a 
reasonable attempt to consult, by telephone, with other members of the 
Commission; and (2) unless, in the opinion of the Senior Commissioner 
(after consulting with the General Counsel or his deputy or associate, 
and such other members of the Commission staff as the Senior 
Commissioner deems appropriate) the public interest requires that action 
be taken prior to the next scheduled meeting of the Commission.
    (c) Report to the Commission. The exercise of Senior Commissioner 
authority shall be reported to the Commission within one business day 
thereafter either by the Senior Commissioner or at his direction, and 
shall be recorded by the Secretariat in the Minute Record of all 
official actions of the Commission. The Secretariat shall promptly 
notify any directly affected person of the action taken and that it was 
the Senior Commissioner available, rather than the Commission as a 
whole, who took the action.
    (d) Review by the Commission. The Commission may, in the following 
circumstances, review any action taken under Senior Commissioner 
authority and may affirm, modify, alter or set aside the decision:
    (1) Upon the request of any member of the Commission, any action 
taken by a Senior Commissioner shall be reviewed by the Commission.
    (2) In the event action by a Senior Commissioner suspends, denies or 
revokes or otherwise directly and adversely affects any license, right 
or privilege of any person, that person may in writing request review by 
the Commission and shall be entitled to have the action of the Senior 
Commissioner reviewed by the Commission.
    (3) The Commission may, in its discretion, review any action taken 
by a Senior Commissioner upon petition by any other person.
    (e) Final effect of action by Senior Commissioner. In any matter, 
the action taken under Senior Commissioner authority shall be deemed the 
action of the Commission unless and until the Commission shall otherwise 
direct.

[41 FR 28474, July 12, 1976]



Sec.  140.12  Disposition of business by seriatim Commission
consideration.

    (a) Whenever the Chairman of the Commission is of the opinion that 
joint deliberation among the members of the Commission upon any matter 
is unnecessary in light of the nature of the matter, impracticable, or 
would impede the orderly disposition of agency business, but is of the 
view that such matter should be the subject of a vote of the Commission, 
such matter may be disposed of by circulation of any relevant materials 
concerning the matter.

[[Page 906]]

The relevant materials shall be circulated to each member of the 
Commission, unless a member is unavailable or has determined not to 
participate in the matter. A written record of the vote of each 
participating Commission member shall be reported to the Secretariat who 
shall retain it in the records of the Commission.
    (b) Whenever any member of the Commission so requests, any matter 
circulated for disposition pursuant to paragraph (a) of this section 
shall be withdrawn from circulation and scheduled instead for a 
Commission meeting.

[43 FR 43452, Sept. 26, 1978]



Sec.  140.13  Vacancy in position of Chairman.

    At any time that a vacancy exists in the position of Chairman of the 
Commission the remaining members of the Commission shall elect a member 
to serve as acting Chairman who shall exercise the executive and 
administrative functions of the Commission that would otherwise be 
exercised by a Chairman in accordance with section 2(a)(6) of the 
Commodity Exchange Act, as amended, until a new Chairman has been 
appointed by the President and confirmed by the Senate: Provided, 
however, That if the President shall appoint a new Chairman from among 
the existing members of the Commission, that Commissioner shall serve as 
acting Chairman for these purposes until such time as his appointment as 
Chairman has been confirmed or rejected by the Senate.

[43 FR 50167, Oct. 27, 1978]



Sec.  140.14  Delegation of authority to the Secretary of the 
Commission.

    After the Commission has formally reached a decision or taken other 
action on a matter, has agreed upon the language of the document which 
embodies the Commission decision or other action, including, but not 
limited to, a rule, regulation or order, and has directed that the 
document be issued, the Secretary of the Commission (or a person 
designated in writing by the Secretary) shall sign the document on 
behalf of the Commission. Signature by the Secretary shall be a 
ministerial function and shall not be discretionary. The delegation to 
the Secretary of the authority to sign documents on the Commission's 
behalf shall not affect any other delegation which the Commission has 
made, or may make, which authorizes any other officer or employee of the 
Commission to take action and to sign documents on the Commission's 
behalf. In addition, the Commission reserves the authority to provide 
for signature on its behalf by the Chairman or any other member of the 
Commission in particular circumstances.

[44 FR 33677, June 12, 1979]



Sec.  140.20  Designation of senior official to oversee Commission
use of national security information.

    (a) The Executive Director is hereby designated to oversee the 
Commission's program to ensure the safeguarding of national security 
information received by the Commission from other agencies, to chair a 
Commission committee composed of members of the staff selected by him 
with authority to act on all suggestions and complaints with respect to 
the Commission administration of its information security program, and, 
in conjunction with the Security Officer of the Commission, to ensure 
that practices for safeguarding national security information are 
systematically reviewed and that those practices which are duplicative 
or unnecessary are eliminated.
    (b) The Executive Director may submit any matter for which he has 
been designated under paragraph (a) of this section to the Commission 
for its consideration.

[44 FR 65736, Nov. 15, 1979, as amended at 61 FR 21955, May 13, 1996]



Sec.  140.21  Definitions.

    (a) Classified information. Information or material that is:
    (1) Owned by, produced for or by, or under control of the United 
States Government, and
    (2) Determined pursuant to Executive Order 12356 or prior or 
succeeding orders to require protection against unauthorized disclosure, 
and
    (3) So designated.

[[Page 907]]

    (b) Compromise. The disclosure of classified information to persons 
not authorized access thereto.
    (c) Custodians. An individual who has possession of or is otherwise 
charged with the responsibility for safeguarding or accounting for 
classified information.
    (d) Classification levels. Refers to Top Secret ``(TS)'', Secret 
``(S)'', and Confidential ``(C)'' levels used to identify national 
security information. Markings ``For Official Use Only,'' and ``Limited 
Official Use'' shall not be used to identify national security 
information.

[48 FR 15464, Apr. 11, 1983]



Sec.  140.22  Procedures.

    (a) Original classification. The Commodity Futures Trading 
Commission has no original classification authority.
    (b) Derivative classification. Personnel of the Commission shall 
respect the original classification markings assigned to information 
they receive from other agencies.
    (c) Declassification and downgrading. Since the Commission does no 
original classification of material, declassification and downgrading of 
sensitive material is not applicable.
    (d) Dissemination. All classified national security information 
which the Commission receives from any agency will be cared for and 
returned in accordance with the particular agency's policy guidelines 
and may not be disseminated to any other agency without the consent of 
the originating agency.

[48 FR 15464, Apr. 11, 1983]



Sec.  140.23  General access requirements.

    (a) Determination of trustworthiness. No person shall be given 
access to classified information unless a favorable determination has 
been made as to the person's trustworthiness. The determination of 
eligibility, referred to as a security clearance, shall be based on such 
investigations as the Commission may require in accordance with the 
applicable Office of Personnel Management standards and criteria.
    (b) Determination of need-to-know. A person is not entitled to 
receive classified information solely by virtue of having been granted a 
security clearance. A person must also have a need for access to the 
particular classified information sought in connection with the 
performance of official government duties or contractual obligations. 
The determination of that need shall be made by officials having 
responsibility for the classified information.

[48 FR 15464, Apr. 11, 1983]



Sec.  140.24  Control and accountability procedures.

    Persons entrusted with classified information shall be responsible 
for providing protection and accountability for such information at all 
times and for locking classified information in approved security 
equipment whenever it is not in use or under direct supervision of 
authorized persons.
    (a) General safeguards. (1) Classified material must not be left in 
unoccupied rooms or be left inadequately protected in an occupied 
office, or one occupied by other than security cleared employees. Under 
no circumstances shall classified material be placed in desk drawers or 
anywhere other than in approved storage containers.
    (2) Employees using classified material shall take every precaution 
to prevent deliberate or casual inspection of it by unauthorized 
persons. Classified material shall be kept under constant surveillance 
and face down or covered when not in use.
    (3) All copies of classified documents and any informal material 
such as memoranda, rough drafts, shorthand notes, carbon copies, carbon 
paper, typewriter ribbons, recording discs, spools and tapes shall be 
given the same classification and secure handling as the classified 
information they contain.
    (4) Commission personnel authorized to use classified materials will 
obtain them from the Executive Director or his delegee on the day 
required and return them to the Executive Director or his delegee before 
the close of business on the same day.
    (5) Classified information shall not be revealed in telephone or 
telecommunications conversations.
    (6) Any person who has knowledge of the loss or possible compromise 
of classified information shall immediately

[[Page 908]]

report the circumstances either to the Security Officer or to the 
Executive Director or his delegee. The Executive Director or his delegee 
shall initiate a preliminary inquiry to determine the circumstances 
surrounding an actual or possible compromise, and to determine what 
corrective measures and administrative, disciplinary, or legal action is 
necessary.
    (b) Reproduction controls. (1) The number of copies of documents 
containing classified information must be kept to the minimum required 
by operational necessity to decrease the risk of compromise and reduce 
storage costs.
    (2) Top Secret documents, except for the controlled initial 
distribution of information processed or received electrically, shall 
not be reproduced without the consent of the originator.
    (3) Unless restricted by the originating agency, Secret and 
Confidential documents may be reproduced to the extent required by 
operational needs.
    (4) Reproduced copies of classified documents shall be subject to 
the same accountability and controls as the original documents.
    (5) Classified reproduction shall be controlled by persons with the 
proper level of security clearance.
    (6) Records shall be maintained to show the number and distribution 
of reproduced copies to all Top Secret documents, of all classified 
documents covered by special access programs distributed outside the 
originating agency, and of all Secret and Confidential documents which 
are marked with special dissemination and reproduction limitations.
    (7) Unauthorized reproduction of classified material will be subject 
to appropriate disciplinary action.
    (c) Storage of classified material. (1) All classified material in 
the custody of the Commission will be stored in accordance with the 
guidelines set forth in 32 CFR 2001.43.
    (2) In addition, the Commission remains subject to the provisions of 
32 CFR part 2001, et seq., insofar as they are applicable to classified 
materials held by the Commission.

[48 FR 15464, Apr. 11, 1983, as amended at 61 FR 21955, May 13, 1996]



Sec.  140.61  [Reserved]



Sec.  140.72  Delegation of authority to disclose confidential 
information to a contract market, swap execution facility, swap
data repository, registered  futures association or self-regulatory 
organization.

    (a) Pursuant to the authority granted under sections 2(a)(11), 8a(5) 
and 8a(6) of the Act, the Commission hereby delegates, until such time 
as the Commission orders otherwise, to the Executive Director, the 
Deputy Executive Director, the Special Assistant to the Executive 
Director, the Director of the Division of Clearing and Intermediary 
Oversight, each Deputy Director of the Division of Clearing and 
Intermediary Oversight, the Chief Accountant, the General Counsel, each 
Deputy General Counsel, the Director of the Division of Market 
Oversight, each Deputy Director of the Division of Market Oversight, the 
Deputy Director of the Market and Trade Practice Surveillance Branch, 
the Director of the Division of Enforcement, each Deputy Director of the 
Division of Enforcement, each Associate Director of the Division of 
Enforcement, the Chief Counsel of the Division of Enforcement, each 
Regional Counsel of the Division of Enforcement, each of the Regional 
Administrators, the Chief Economist of the Office of the Chief 
Economist, the Deputy Chief Economist of the Office of the Chief 
Economist, the Director of the Office of International Affairs, and the 
Deputy Director of the Office of International Affairs, the authority to 
disclose to an official of any contract market, swap execution facility, 
swap data repository, registered futures association, or self-regulatory 
organization as defined in section 3(a)(26) of the Securities Exchange 
Act of 1934, any information necessary or appropriate to effectuate the 
purposes of the Act, including, but not limited to, the full facts 
concerning any transaction or market operation, including the names of 
the parties thereto. This authority to disclose shall be based on a 
determination that the transaction or market operation disrupts or tends 
to disrupt any market or is otherwise harmful or against the best 
interests of producers, consumers, or investors or that disclosure is 
necessary or appropriate

[[Page 909]]

to effectuate the purposes of the Act. The authority to make such a 
determination is also delegated by the Commission to the Commission 
employees identified in this section. A Commission employee delegated 
authority under this section may exercise that authority on his or her 
own initiative or in response to a request by an official of a contract 
market, swap execution facility, swap data repository, registered 
futures association or self-regulatory organization.
    (b) Disclosure under this section shall only be made to a contract 
market, swap execution facility, swap data repository, registered 
futures association or self-regulatory organization official who is 
named in a list filed with the Commission by the chief executive officer 
of the contract market, swap execution facility, swap data repository, 
registered futures association or self-regulatory organization, which 
sets forth the official's name, business address and telephone number. 
The chief executive officer shall thereafter notify the Commission of 
any deletions or additions to the list of officials authorized to 
receive disclosures under this section. The original list and any 
supplemental list required by this paragraph shall be filed with the 
Secretary of the Commission, and a copy thereof shall also be filed with 
the Regional Coordinator for the region in which the contract market, 
swap execution facility, or swap data repository is located or in which 
the registered futures association or self-regulatory organization has 
its principal office.
    (c) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which a Commission employee delegated authority under 
this section believes it appropriate, he or she may submit to the 
Commission for its consideration the question of whether disclosure of 
information should be made.
    (d) For purposes of this section, the term ``official'' shall mean 
any officer or member of a committee of a contract market, swap 
execution facility, swap data repository, registered futures association 
or self-regulatory organization who is specifically charged with market 
surveillance or audit or investigative responsibilities, or their duly 
authorized representative or agent, who is named on the list filed 
pursuant to paragraph (b) of this section or any supplement thereto.
    (e) For the purposes of this section, the term ``self-regulatory 
organization'' shall mean the same as that defined in section 3(a) (26) 
of the Securities Exchange Act of 1934.
    (f) Any contract market, swap execution facility, swap data 
repository, registered futures association or self-regulatory 
organization receiving information from the Commission under these 
provisions shall not disclose such information except that disclosure 
may be made in any self-regulatory action or proceeding.

[48 FR 22134, May 17, 1983, as amended at 57 FR 20638, May 14, 1992; 61 
FR 1709, Jan. 23, 1996; 66 FR 1576, Jan. 9, 2001; 67 FR 62352, Oct. 7, 
2002; 73 FR 79609, Dec. 30, 2008; 77 FR 66346, Nov. 2, 2012]



Sec.  140.73  Delegation of authority to disclose information to
United States, States, and foreign government agencies and foreign
futures authorities.

    (a) Pursuant to sections 2(a)(11), 8a(5) and 8(e) of the Act, the 
Commission hereby delegates, until such time as the Commission orders 
otherwise, to the General Counsel or, in his or her absence, to each 
Deputy General Counsel, the Director of the Division of Enforcement, 
each Deputy Director of the Division of Enforcement, the Chief Counsel 
of the Division of Enforcement, each Associate Director of the Division 
of Enforcement, each Regional Counsel of the Division of Enforcement, 
the Director of the Division of Market Oversight or, in his or her 
absence, each Deputy Director of the Division of Market Oversight, the 
Director of the Market Surveillance Section, the Director of the 
Division of Clearing and Intermediary Oversight or, in his or her 
absence, each Deputy Director of the Division of Clearing and 
Intermediary Oversight, the Chief Economist of the Office of the Chief 
Economist, the Deputy Chief Economist of the Office of the Chief 
Economist, and the Director of the Office of International Affairs or, 
in his or her absence, the Deputy Director of the Office of 
International Affairs, the authority to furnish information in the 
possession of the Commission obtained

[[Page 910]]

in connection with the administration of the Act, upon written request, 
to:
    (1) Any department or agency of the United States, including for 
this purpose an independent regulatory agency, acting within the scope 
of its jurisdiction;
    (2) Any department or agency of any State or any political 
subdivision thereof, acting within the scope of its jurisdiction; or
    (3) Any foreign futures authority, as defined in section 1a(10) of 
the Act, or any department or agency of any foreign government or 
political subdivision thereof, acting within the scope of its 
jurisdiction, provided that the Commission official making the 
disclosure is satisfied that the information will not be disclosed 
except in connection with an adjudicatory action or proceeding brought 
under the laws of such foreign government or political subdivision to 
which such foreign government or political subdivision or any department 
or agency thereof, or foreign futures authority is a party.
    (b) Any disclosure made pursuant to paragraph (a) of this section 
shall be made with the concurrence of the Director of the Division of 
Enforcement or in his or her absence a Deputy Director of the Division 
of Enforcement. Provided, however, that no such concurrence is necessary 
for the Director of the Division of Market Oversight or in his or her 
absence each Deputy Director of the Division or for the Director of the 
Market Surveillance Section to release information under paragraph 
(a)(1) of this section concerning current or on-going market 
transactions or operations.
    (c) In furnishing information under this delegation pursuant to 
paragraphs (a)(1) and (2) of this section, the Commission official 
making the disclosure shall remind the department or agency involved 
that section 8(e) of the Act prohibits the disclosure by such department 
or agency of information that would separately disclose the business 
transactions or market positions of any person and trade secrets or 
names of customers except in an action or proceeding under the laws of 
the United States, the State, or a political subdivision thereof to 
which the department or the agency of either the state or political 
subdivision, the Commission, or the United States is a party.
    (d) This delegation shall not affect any other delegation which the 
Commission has made or may make, which authorizes any other officer or 
employee of the Commission to furnish information to governmental bodies 
on the Commission's behalf.
    (e) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which any employee delegated authority therein believes 
it appropriate the matter may be submitted to the Commission for its 
consideration. Nothing in this section shall prohibit the Commission 
from exercising the authority delegated in paragraph (a) of this 
section.

[48 FR 22135, May 17, 1983, as amended at 57 FR 20638, May 14, 1992; 61 
FR 1709, Jan. 23, 1996; 66 FR 1576, Jan. 9, 2001; 67 FR 62352, Oct. 7, 
2002; 73 FR 79609, Dec. 30, 2008]



Sec.  140.74  Delegation of authority to issue special calls for
Series 03 Reports and Form 40.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight, or the Director's designee, the authority 
to issue special calls under Commission Rule 18.00 for series 03 
reports, and under Commission Rule 18.04 for a Form 40.
    (b) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the Director under paragraph (a) of 
this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight under paragraph (a) of this section.

[50 FR 47530, Nov. 19, 1985, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.  140.75  Delegation of authority to the Director of the Division 
of Clearing and Intermediary Oversight.

    Pursuant to sections 2(a)(11), 8a(5) and 8(g) of the Act, the 
Commission hereby delegates to the Director of the Division of Clearing 
and Intermediary

[[Page 911]]

Oversight and to such members of the Commission's staff acting under his 
or her direction as the Director may designate from time to time, the 
authority to disclose any registration information contained in the 
registration applications filed by Commission registrants or any 
compilation of such information maintained by the Commission to any 
department or agency of any State or any political subdivision thereof. 
Disclosure under this section may be made upon reasonable request made 
to the Commission or without request whenever the Director of Trading 
and Markets or any Commission employee designated by the Director to 
make disclosures under this section determines that such information may 
be appropriate for use by any department or agency of a State or 
political subdivision thereof. Notwithstanding the provisions of this 
section, in any case in which the Director of Division of Clearing and 
Intermediary Oversight deems it appropriate, or in any case in which the 
Commission so requests, the Director may submit matter to the Commission 
for its consideration.

[48 FR 22136, May 17, 1983, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.  140.76  Delegation of authority to disclose information in a 
receivership or bankruptcy proceeding.

    (a) Pursuant to sections 2(a)(11) and 8(b) of the Act, the 
Commission hereby delegates, until such time as the Commission orders 
otherwise, to the Director of the Division of Enforcement, the Director 
of the Division of Clearing and Intermediary Oversight, the General 
Counsel or any Commission employee under their direction as they may 
designate, the authority to disclose data and information that would 
separately disclose the business transactions or market positions of any 
person and trade secrets or names of customers, when such disclosure is 
made in any receivership proceeding involving a receiver appointed in a 
judicial proceeding brought under the Act, or in any bankruptcy 
proceeding in which the Commission has intervened or in which the 
Commission has the right to appear and be heard under title 11 of the 
United States Code.
    (b) Notwithstanding the provisions of paragraph (a), in any case in 
which the Director of the Division of Enforcement, the Director of the 
Division of Clearing and Intermediary Oversight, the General Counsel, or 
any employee designated by them to make disclosures pursuant to this 
section believes it appropriate, the matter may be submitted to the 
Commission for consideration. In addition, the Commission reserves to 
itself the authority to determine whether to grant a request for 
information in any particular case.

[49 FR 4464, Feb. 7, 1984, as amended at 67 FR 62352, Oct. 7, 2002]



Sec.  140.77  Delegation of authority to determine that applications
for contract market designation, swap execution facility registration,
or swap data repository registration are materially incomplete.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight or the Director's designees, the authority 
to determine that an application for contract market designation, swap 
execution facility registration, or swap data repository registration is 
materially incomplete under section 6 of the Commodity Exchange Act and 
to so notify the applicant.
    (b) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the director under paragraph (a) of 
this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight under paragraph (a) of this section.

[48 FR 34946, Aug. 2, 1983, as amended at 57 FR 20638, May 14, 1992; 67 
FR 62353, Oct. 7, 2002; 77 FR 66347, Nov. 2, 2012]



Sec.  140.80  Disclosure of information pursuant to a subpoena
or summons.

    The Commission shall provide notice to any person who has submitted 
information to the Commission when a summons or subpoena seeking the 
submitted information is received by the

[[Page 912]]

Commission. Notice ordinarily will be provided by mailing a copy of the 
summons or subpoena to the last known home or business address of the 
person who submitted the information. However, under circumstances which 
would make notice by mail unduly burdensome or costly, notice of the 
existence of the summons or subpoena may be affected by alternative 
means such as publication in the Federal Register. The Commission will 
not disclose such information until the expiration of at least fourteen 
days from the date of mailing, or such other notice as is given. This 
section shall not apply to (a) Congressional subpoenas or Congressional 
requests for information, (b) information which is considered by the 
Commission to be public information, or (c) information as to which the 
submitter has waived the notice provision of this section.

[49 FR 4464, Feb. 7, 1984]



Sec.  140.81  [Reserved]



Sec.  140.91  Delegation of authority to the Director of the Division 
of Trading and Markets.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, the following functions to the Director of 
the Division of Clearing and Intermediary Oversight and to such members 
of the Commission's staff acting under his direction as he may designate 
from time to time:
    (1) All functions reserved to the Commission inSec. 1.10 of this 
chapter, except for those relating to nonpublic treatment of reports set 
forth inSec. 1.10(g) of this chapter;
    (2) All functions reserved to the Commission inSec. 1.12 of this 
chapter;
    (3) All functions reserved to the Commission inSec. 1.14 of this 
chapter;
    (4) All functions reserved to the Commission inSec. 1.15 of this 
chapter;
    (5) All functions reserved to the Commission inSec. 1.16 of this 
chapter; and
    (6) All functions reserved to the Commission inSec. 1.17 of this 
chapter, except for those relating to non-enumerated cover cases set 
forth inSec. 1.17(j)(3) of this chapter.
    (7) All functions reserved to the Commission inSec. 1.25 of this 
chapter.
    (8) All functions reserved to the Commission inSec. 41.41 of this 
chapter. Any action taken pursuant to the delegation of authority under 
this paragraph (a)(8) shall be made with the concurrence of the General 
Counsel or, in his or her absence, a Deputy General Counsel.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.

[44 FR 13460, Mar. 12, 1979, as amended at 60 FR 8195, Feb. 13, 1995; 66 
FR 43087, Aug. 17, 2001; 66 FR 53523, Oct. 23, 2001; 67 FR 62353, Oct. 
7, 2002]



Sec.  140.92  Delegation of authority to grant registrations and 
renewals thereof.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight and to such members of the Commission's staff 
acting under his direction as he may designate, the authority to grant 
registrations and renewals thereof.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (a) of 
this section.

[45 FR 20785, Mar. 31, 1980, as amended at 67 FR 62353, Oct. 7, 2002]



Sec.  140.93  Delegation of authority to the Director of the Division
of Clearing and Intermediary Oversight.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, the following functions to the Director of 
the Division of Clearing and Intermediary Oversight and to such members 
of the Commission's staff acting under his direction as he may designate 
from time to time:

[[Page 913]]

    (1) All functions reserved to the Commission inSec. 4.12(a) of 
this chapter.
    (2) All functions reserved to the Commission inSec. 4.22(g)(3) of 
this chapter.
    (3) All functions reserved to the Commission inSec. 4.20(a) of 
this chapter.
    (4) All functions reserved to the Commission inSec. 4.5(c)(2)(ii) 
of this chapter.
    (5) All functions reserved to the Commission inSec. 4.6(b) of this 
chapter.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing Intermediary Oversight under paragraph (a) of this 
section.

[46 FR 26023, May 8, 1981, as amended at 46 FR 34311, July 1, 1981; 50 
FR 15884, Apr. 23, 1985; 52 FR 41986, Nov. 2, 1987; 67 FR 62353, Oct. 7, 
2002; 70 FR 2566, Jan. 14, 2005]



Sec.  140.94  Delegation of authority to the Director of the Division
of Clearing and Risk.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, the following functions to the Director of 
the Division of Clearing and Intermediary Oversight and to such members 
of the Commission's staff acting under his direction as he may designate 
from time to time:
    (1) All functions reserved to the Commission inSec. 5.7 of this 
chapter;
    (2) All functions reserved to the Commission inSec. 5.10 of this 
chapter;
    (3) All functions reserved to the Commission inSec. 5.11 of this 
chapter;
    (4) All functions reserved to the Commission inSec. 5.12 of this 
chapter, except for those relating to nonpublic treatment of reports set 
forth inSec. 5.12(i) of this chapter; and
    (5) All functions reserved to the Commission inSec. 5.14 of this 
chapter;
    (6) All functions reserved to the Commission in Sec.Sec. 
39.3(a)(2) and (a)(3) of this chapter;
    (7) All functions reserved to the Commission in Sec.Sec. 
39.5(b)(2), (b)(3)(ix), and (d)(3) of this chapter;
    (8) All functions reserved to the Commission inSec. 
39.10(c)(4)(iv) of this chapter;
    (9) All functions reserved to the Commission in Sec.Sec. 
39.11(b)(1)(vi), (b)(2)(ii), (c)(1), (c)(2), (f)(1) and (f)(4) of this 
chapter;
    (10) All functions reserved to the Commission inSec. 
39.12(a)(5)(i)(B) of this chapter;
    (11) All functions reserved to the Commission in Sec.Sec. 
39.13(g)(8)(ii), (h)(1)(i)(C), (h)(1)(ii), (h)(3)(i), (h)(3)(ii), and 
(h)(5)(i)(A) of this chapter;
    (12) The authority to request additional information in support of a 
rule submission underSec. 39.15(b)(2)(iii)(A) of this chapter and in 
support of a petition pursuant to section 4d of the Act underSec. 
39.15(b)(2)(iii)(B) of this chapter;
    (13) All functions reserved to the Commission in Sec.Sec. 
39.19(c)(3)(iv), (c)(5)(i), (c)(5)(ii), and (c)(5)(iii) of this chapter; 
and
    (14) All functions reserved to the Commission inSec. 39.21(d) of 
this chapter.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (a) of 
this section.

[75 FR 55449, Sept. 10, 2010, as amended at 76 FR 44474, July 26, 2011; 
76 FR 69472, Nov. 8, 2011]



Sec.  140.95  Delegation of authority with respect to withdrawals
from registration.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight and to such members of the Commission's staff 
acting under his direction as he may designate, the authority to review, 
postpone, condition, deny, or otherwise act upon a request for 
withdrawal from registration.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been

[[Page 914]]

delegated to him under paragraph (a) of this section to the Commission 
for its consideration.
    (c) Nothing in this section shall prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (a) of 
this section.

[46 FR 48918, Oct. 5, 1981, as amended at 67 FR 62353, Oct. 7, 2002]



Sec.  140.96  Delegation of authority to publish in the Federal Register.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight or the Director's designee, with the 
concurrence of the General Counsel or the General Counsel's designee, 
the authority to publish in the Federal Register notice of the 
availability for comment of the proposed terms and conditions of 
applications for contract market designation, swap execution facility 
and swap data repository registration, and to determine to publish, and 
to publish, requests for public comment on proposed exchange, swap 
execution facility, or swap data repository rules, and rule amendments, 
when there exists novel or complex issues that require additional time 
to analyze, an inadequate explanation by the submitting registered 
entity, or a potential inconsistency with the Act, including regulations 
under the Act.
    (b) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight or the Director's designee, and to the 
Director of the Division of Clearing and Intermediary Oversight or the 
Director's designee, with the concurrence of the General Counsel or the 
General Counsel's designee, the authority to determine to publish, and 
to publish, in the Federal Register, requests for public comment on 
proposed exchange and self-regulatory organization rule amendments when 
publication of the proposed rule amendment is in the public interest and 
will assist the Commission in considering the views of interested 
persons.
    (c) The Director of the Division of Market Oversight or the Director 
of the Division of Clearing and Intermediary Oversight may submit any 
matter which has been delegated to such Director under paragraphs (a) or 
(b) of this section to the Commission for its consideration.
    (d) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight and to the Director of the Division of 
Clearing and Intermediary Oversight under paragraphs (a) and (b) of this 
section.

[50 FR 47532, Nov. 19, 1985, as amended at 55 FR 35897, Sept. 4, 1990; 
57 FR 20638, May 14, 1992; 67 FR 62353, Oct. 7, 2002; 77 FR 66347, Nov. 
2, 2012]



Sec.  140.97  Delegation of authority regarding requests for 
classification of positions as bona fide hedging.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight, or the Director's designee, all functions 
reserved to the Commission in Sec.Sec. 1.47 and 1.48 of this chapter.
    (b) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the Director under paragraph (a) of 
this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight under paragraph (a) of this section.

[57 FR 12874, Apr. 14, 1992, as amended at 67 FR 62353, Oct. 7, 2002]



Sec.  140.98  Publication of no-action, interpretative and exemption
letters and other written communications.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
and except for applications for orders granting exemptions submitted 
pursuant to section 4(c) of the Commodity Exchange Act and any written 
responses thereto, each written response by the Commission or its staff 
to a letter or other written communication requesting:

[[Page 915]]

    (1) Interpretative legal advice with respect to the Commodity 
Exchange Act or any rule, regulation or order issued or adopted by the 
Commission thereunder;
    (2) A statement that, on the basis of the facts stated in such 
letter or other communication, the staff would not recommend that the 
Commission take any enforcement action; or
    (3) An exemption, on the basis of the facts stated in such letter or 
other communication, from the provisions of the Commodity Exchange Act 
or any rules, or regulations or orders issued or adopted by the 
Commission thereunder; shall be made available, together with the letter 
or other written communication making the request, for inspection and 
copying by any person as soon as practicable after the response has been 
sent or given to the person requesting it.
    (b) Any person submitting a letter or other written communication 
making such a request may also submit therewith a request that the 
letter or other written communication, as well as any Commission or 
staff response thereto, be accorded confidential treatment for a 
specified period of time, not exceeding 120 days from the date of the 
response thereto, together with a statement setting forth the 
considerations upon which the request for such treatment is based. If 
the staff determines that the request is reasonable and appropriate it 
will be granted and the letter or other written communication as well as 
the response thereto will not be made available for public inspection or 
copying until the expiration of the specified period. If it appears to 
the staff that the request for confidential treatment should be denied, 
the staff shall so advise the person making the request and such person 
may withdraw the letter or other written communication within 30 days 
thereafter. In such case, no response will be sent or given and the 
letter or other written communication shall remain in the Commission's 
files but will not be made public pursuant to this section. If such 
letter or other written communication is not so withdrawn, it shall be 
deemed to be available for public inspection and copying together with 
any written response thereto.
    (c) Notwithstanding the provisions of paragraphs (a) and (b) of this 
section, no portion of a letter or other written communication received 
by the Commission or its staff of the type described in paragraph (a) of 
this section, or any written response thereto, shall be made available 
for inspection and copying or otherwise published which would separately 
disclose the business transactions or market positions of any person and 
trade secrets or names of customers, except in accordance with the 
provisions of section 8 of the Commodity Exchange Act.

[57 FR 61291, Dec. 24, 1992]



Sec.  140.99  Requests for exemptive, no-action and interpretative
letters.

    (a) Definitions. For the purpose of this section:
    (1) Exemptive letter means a written grant of relief issued by the 
staff of a Division of the Commission from the applicability of a 
specific provision of the Act or of a rule, regulation or order issued 
thereunder by the Commission. An exemptive letter may only be issued by 
staff of a Division when the Commission itself has exemptive authority 
and that authority has been delegated by the Commission to the Division 
in question. An exemptive letter binds the Commission and its staff with 
respect to the relief provided therein. Only the Beneficiary may rely 
upon the exemptive letter.
    (2) No-action letter means a written statement issued by the staff 
of a Division of the Commission or of the Office of the General Counsel 
that it will not recommend enforcement action to the Commission for 
failure to comply with a specific provision of the Act or of a 
Commission rule, regulation or order if a proposed transaction is 
completed or a proposed activity is conducted by the Beneficiary. A no-
action letter represents the position only of the Division that issued 
it, or the Office of the General Counsel if issued thereby. A no-action 
letter binds only the issuing Division or the Office of the General 
Counsel, as applicable, and not the Commission or other Commission 
staff. Only the Beneficiary may rely upon the no-action letter.
    (3) Interpretative letter means written advice or guidance issued by 
the staff

[[Page 916]]

of a Division of the Commission or the Office of the General Counsel. An 
interpretative letter binds only the issuing Division or the Office of 
the General Counsel, as applicable, and does not bind the Commission or 
other Commission staff. An interpretative letter may be relied upon by 
persons in addition to the Beneficiary.
    (4) Letter means an exemptive, no-action or interpretative letter.
    (5) Division means the Division of Clearing and Intermediary 
Oversight or the Division of Market Oversight.
    (b) General requirements. (1) Issuance of a Letter is entirely 
within the discretion of Commission staff.
    (2) Each request for a Letter must comply with the requirements of 
this section. Commission staff may reject or decline to respond to a 
request that does not comply with the requirements of this section.
    (3) The request must relate to a proposed transaction or a proposed 
activity. Absent extraordinary circumstances, Commission staff will not 
issue a Letter based upon transactions or activities that have been 
completed or activities that have been conducted prior to the date upon 
which the request is filed with the Commission.
    (4) The request must be made by or on behalf of the person whose 
activities or transactions are the subject of the request. Commission 
staff will not respond to a request for a Letter that is made by or on 
behalf of an unidentified person.
    (5)(i) The request must set forth as completely as possible all 
material facts and circumstances giving rise to the request.
    (ii) Commission staff will not respond to a request based on a 
hypothetical situation. However, a requester may set forth one or more 
alternative structures or fact situations for a proposed transaction or 
activity; Provided, That the request complies with this section with 
respect to each alternative structure or fact situation.
    (c) Information requirements. Each request for a Letter must comply 
with the following information requirements:
    (1)(i) A request made by the person on whose behalf the Letter is 
sought must contain:
    (A) The name, main business address, main telephone number and, if 
applicable, the National Futures Association registration identification 
number of such person; and
    (B) The name and, if applicable, the National Futures Association 
registration identification number of each other person for whose 
benefit the person is seeking the Letter.
    (ii) When made by a requester other than the person on whose behalf 
the Letter is sought, the request must contain:
    (A) The name, main business address and main business telephone 
number of the requester;
    (B) The name and, if applicable, the National Futures Association 
registration identification number of the person on whose behalf the 
Letter is sought; and
    (C) The name and, if applicable, the National Futures Association 
registration identification number of each other person for whose 
benefit the requester is seeking the Letter.
    (iii) The request must provide the name, address and telephone 
number of a contact person from whom Commission staff may obtain 
additional information if necessary.
    (2) The section number of the particular provision of the Act and/or 
Commission rules, regulations or orders to which the request relates 
must be set forth in the upper right-hand corner of the first page of 
the request.
    (3) The request must be accompanied by:
    (i) A certification by a person with knowledge of the facts that the 
material facts as represented in the request are true and complete. The 
following form of certification is sufficient for this purpose:

    I hereby certify that the material facts set forth in the attached 
letter dated -------- are true and complete to the best of my knowledge.
(name and title)________________________________________________________


and
    (ii) An undertaking made by the person on whose behalf the Letter is 
sought or by that person's authorized representative that, if at any 
time prior to issuance of a Letter, any material representation made in 
the request

[[Page 917]]

ceases to be true and complete, the person who made the undertaking will 
ensure that Commission staff is informed promptly in writing of all 
materially changed facts and circumstances. If a material change in 
facts or circumstances occurs subsequent to issuance of a Letter, the 
person on whose behalf the Letter is sought (or that person's authorized 
representative at the time of the change) must promptly so inform 
Commission staff.
    (4) The request must identify the type of relief requested and 
Letter sought and must clearly state why a Letter is needed. The request 
must identify all relevant legal and factual issues and discuss the 
legal and public policy bases supporting issuance of the Letter.
    (5) The request must contain references to all relevant authorities, 
including applicable provisions of the Act, Commission rules, 
regulations and orders, judicial decisions, administrative decisions, 
relevant statutory interpretations and policy statements. Adverse 
authority must be cited and discussed.
    (6) The request must identify prior publicly available Letters 
issued by Commission staff in response to circumstances similar to those 
surrounding the request (including adverse Letters), and must identify 
any conditions imposed by prior Letters as prerequisites for the 
issuance of those Letters. Citation of a representative sample of prior 
Letters is sufficient where a comprehensive recitation of prior Letters 
on a given topic would be repetitious or would not assist the staff in 
considering the request.
    (7) Requests may ask that, if the requested exemptive relief, no-
action position or interpretative guidance is denied, the staff consider 
granting alternative relief or adopting an alternative position.
    (d) Filing requirements. Each request for a Letter must comply with 
the following filing requirements:
    (1) The request must be in writing and signed.
    (2) A request for a Letter relating to the provisions of the Act or 
the Commission's rules, regulations or orders governing designated 
contract markets, registered swap execution facilities, registered swap 
data repositories, exempt commercial markets, exempt boards of trade, 
the nature of particular transactions and whether they are exempt or 
excluded from being required to be traded on one of the foregoing 
entities, foreign trading terminals, hedging exemptions, and the 
reporting of market positions shall be filed with the Director, Division 
of Market Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. A request 
for a Letter relating to all other provisions of the Act or Commission 
rules shall be filed with the Director, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. The 
request must be submitted electronically using the email address 
[email protected] (for requests filed with the Division of Market 
Oversight), or [email protected] (for requests filed with the 
Division of Clearing and Intermediary Oversight), as appropriate, and a 
properly signed paper copy of the request must be provided to the 
Division of Market Oversight or the Division of Clearing and 
Intermediary Oversight, as appropriate, within ten days for purposes of 
verification of the electronic submission.
    (e) Form of staff response. No response to any request governed by 
this section is effective unless it is in writing, signed by appropriate 
Commission staff, and transmitted in final form to the recipient. 
Failure by Commission staff to respond to a request for a Letter does 
not constitute approval of the request. Nothing in this section shall 
preclude Commission staff from responding to a request for a Letter by 
way of endorsement or any other abbreviated, written form of response.
    (f) Withdrawal of requests. (1) A request for a Letter may be 
withdrawn by filing with Commission staff a written request for 
withdrawal, signed by the person on whose behalf the Letter was sought 
or by that person's authorized representative, that states whether the 
person on whose behalf the Letter was sought will proceed with the 
proposed transaction or activity.

[[Page 918]]

    (2) Where a request has been submitted by an authorized 
representative of the person on whose behalf a Letter is sought, the 
authorized representative may withdraw from representation at any time 
without explanation, Provided, That Commission staff is promptly so 
notified.
    (g) Failure to pursue a request. In the event that Commission staff 
requests additional information or analysis from a requester and the 
requester does not provide that information or analysis within thirty 
calendar days, Commission staff generally will issue a denial of the 
request; Provided, however, that Commission staff in its discretion may 
issue an extension of time to provide the information and or analysis.
    (h) Confidential treatment. Confidential treatment of a request for 
a Letter must be requested separately in accordance withSec. 140.98 or 
Sec.  145.9 of this chapter, as applicable.
    (i) Applicability to other sections. The provisions of this section 
shall not affect the requirements of, or otherwise be applicable to:
    (1) Notice filings required to be made to claim relief from the Act 
or from a Commission rule, regulation, or order including, without 
limitations, Sec.Sec. 4.5, 4.7(a), 4.7(b), 4.12(b), 4.13(b) and 
4.14(a)(8) of this chapter;
    (2) Requests for exemption pursuant to section 4(c) of the Act; or
    (3) Requests for exemption pursuant toSec. 41.33 of this chapter.

[63 FR 68181, Dec. 10, 1998, as amended at 65 FR 47859, Aug. 4, 2000; 66 
FR 44967, Aug. 27, 2001; 67 FR 62353, Oct. 7, 2002; 69 FR 41426, July 9, 
2004; 77 FR 66347, Nov. 2, 2012]



  Subpart C_Regulation Concerning Conduct of Members and Employees and 
             Former Members and Employees of the Commission

    Authority: 7 U.S.C. 4a(f) and (j), 12a(5), and 13, as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 106-
554, 114 Stat. 2763 (2000).

    Source: 41 FR 27511, July 2, 1976, unless otherwise noted.



Sec.  140.735-1  Authority and purpose.

    This subpart sets forth specific standards of conduct required of 
Commission members, employees of the Commission, and special government 
employees as well as regulations concerning former Commissioners, 
employees, and special government employees of the Commodity Futures 
Trading Commission. These rules are separate from and in addition to the 
Office of Government Ethics' conduct rules, Standards of Ethical Conduct 
for Employees of the Executive Branch, 5 CFR part 2635. In addition, 
this subpart contains references to various statutes governing employee 
conduct in order to aid Commission members, employees of the Commission 
and others in their understanding of statutory restrictions and 
requirements. \1\ Absent compelling countervailing reasons, all 
Commission members and employees are subject to all the terms of this 
section.
---------------------------------------------------------------------------

    \1\ These references, however, do not purport to cover all 
restrictions and requirements, and paraphrased restatements of statutory 
provisions are not intended to be, and should not be construed as, 
verbatim quotations of the law. Statutory text should be consulted in 
any situation in which it might apply.

[67 FR 5939, Feb. 8, 2002]



Sec.  140.735-2  Prohibited transactions.

    (a) Application. This section applies to all transactions effected 
by or on behalf of a Commission member or employee of the Commission, 
including transactions for the account of other persons effected by the 
member or employee, directly or indirectly under a power of attorney or 
otherwise. A member or employee shall be deemed to have a sufficient 
interest in the transactions of his or her spouse, minor child, or other 
relative who is a resident of the immediate household of the member or 
employee so that such transactions must be reported and are subject to 
all the terms of this section.
    (b) Prohibitions. Except as otherwise provided in this subsection, 
no member or employee of the Commission shall:
    (1) Participate, directly or indirectly, in any transaction:
    (i) In swaps;
    (ii) In commodity futures;

[[Page 919]]

    (iii) In retail forex transactions, as that term is defined inSec. 
5.1(m) of this chapter;
    (iv) Involving any commodity that is of the character of or which is 
commonly known to the trade as an option, privilege, indemnity, bid, 
offer, put, call, advance guaranty, or decline guaranty; or
    (v) For the delivery of any commodity under a standardized contract 
commonly known to the trade as a margin account, margin contract, 
leverage account, or leverage contract, or under any contract, account, 
arrangement, scheme, or device that the Commission determines serves the 
same function or functions as such a standardized contract, or is 
marketed or managed in substantially the same manner as such a 
standardized contract;
    (2) Effect any purchase or sale of a commodity option, futures 
contract, or swap involving a security or group of securities;
    (3) Sell a security which he or she does not own or consummate a 
sale by the delivery of a security borrowed by or for his or her 
account;
    (4) Participate, directly or indirectly, in any investment 
transaction in an actual commodity if:
    (i) Nonpublic information is used in the investment transaction;
    (ii) It is prohibited by rule or regulation of the Commission; or
    (iii) It is effected by means of any instrument regulated by the 
Commission and is not otherwise permitted by an exception under this 
section;
    (5) Purchase or sell any securities of a company which, to his or 
her knowledge, is involved in any:
    (i) Pending investigation by the Commission;
    (ii) Proceeding before the Commission or to which the Commission is 
a party;
    (iii) Other matter under consideration by the Commission that could 
have a direct and predictable effect upon the company; or
    (6) Recommend or suggest to another person any transaction in which 
the member or employee is not permitted to participate in any 
circumstance where the member or employee could reasonably expect to 
benefit or where the member or employee has or may have control or 
substantial influence over such person.
    (c) Exception for farming, ranching, and natural resource 
operations. The prohibitions in paragraphs (b)(1)(i), (ii), and (iv) of 
this section shall not apply to a transaction in connection with any 
farming, ranching, oil and gas, mineral rights, or other natural 
resource operation in which the member or employee has a financial 
interest, if he or she is not involved in the decision to engage in, and 
does not have prior knowledge of, the actual futures, commodity option, 
or swap transaction and has previously notified the General Counsel \2\ 
in writing of the nature of the operation, the extent of the member's or 
employee's interest, the types of transactions in which the operation 
may engage, and the identity of the person or persons who will make 
trading decisions for the operation; \3\ or
---------------------------------------------------------------------------

    \2\ As used in this subpart, ``General Counsel'' refers to the 
General Counsel in his or her capacity as counselor for the Commission 
and designated agency ethics official for the Commission, and includes 
his or her designee and the alternate designated agency ethics official 
appointed by the agency head pursuant to 5 CFR 2638.202.
    \3\ Although not required, if they choose to do so, members or 
employees may use powers of attorney or other arrangements in order to 
meet the notice requirements of, and to assure that they have no control 
or knowledge of, futures, commodity option, or swap transactions 
permitted under paragraph (c) of this section. A member or employee 
considering such arrangements should consult with the Office of General 
Counsel in advance for approval. Should a member or employee gain 
knowledge of an actual futures, commodity option, or swap transaction 
entered into by an operation described in paragraph (c) of this section 
that has already taken place and the market position represented by that 
transaction remains open, he or she should promptly report that fact and 
all other details to the General Counsel and seek advice as to what 
action, including recusal from any particular matter that will have a 
direct and predictable effect on the financial interest in question, may 
be appropriate.
---------------------------------------------------------------------------

    (d) Other exceptions. The prohibitions in paragraphs (b)(1), (2) and 
(3) of this section shall not apply to:
    (1) A transaction entered into by any publicly-available pooled 
investment

[[Page 920]]

vehicle (such as a mutual fund or exchange-traded fund) other than one 
operated by a person who is a commodity pool operator with respect to 
such entity if the direct or indirect ownership interest of the member 
or employee neither exercises control nor has the ability to exercise 
control over the transactions entered into by such vehicle; \4\
---------------------------------------------------------------------------

    \4\ Section 9(c) of the Commodity Exchange Act makes it a felony for 
any member or employee, or agent thereof, to participate, directly or 
indirectly in, inter alia, any transaction in commodity futures, option, 
leverage transaction, or other arrangement that the Commission 
determines serves the same function, unless authorized to do so by 
Commission rule or regulation. 17 CFR 4.5 excludes certain otherwise 
regulated persons from the definition of ``commodity pool operator'' 
with respect to operation of specific investment entities enumerated in 
the regulation.
---------------------------------------------------------------------------

    (2) The acceptance or exercise of any stock option or similar right 
granted by an employer as part of a compensation package to a spouse or 
minor child or other related member of the immediate household of a 
member or employee, or to the exercise of any stock option or similar 
right granted to the member or employee by a previous employer prior to 
commencement of the member's or employee's tenure with the Commission as 
part of such member's or employee's compensation package from such 
previous employer;
    (3) A transaction by any trust or estate of which the member or 
employee or the spouse, minor child, or other related member of the 
immediate household of the member or employee is solely a beneficiary, 
has no power to control, and does not in fact control or advise with 
respect to the investments of the trust or estate;
    (4) The exercise of any privilege to convert or exchange securities, 
of rights accruing unconditionally by virtue of ownership of other 
securities (as distinguished from a contingent right to acquire 
securities not subscribed for by others), or of rights in order to round 
out fractional shares in securities;
    (5) The acceptance of stock dividends on securities already owned, 
the reinvestment of cash dividends on a security already owned, or the 
participation in a periodic investment plan when the original purchase 
was otherwise consistent with this rule; or
    (6) Investment in any fund established pursuant to the Federal 
Employees Retirement System.
    (e) No prohibition on stocks or funds. Nothing in paragraph (b)(1) 
or (2) of this section shall prohibit a member or employee from 
purchasing, selling, or retaining any share that represents ownership of 
a publicly-owned corporation or interest in a publicly-available pooled 
investment vehicle containing any such shares (such as a mutual fund or 
exchange-traded fund) other than one operated by a person who is a 
commodity pool operator with respect to such pooled investment vehicle, 
regardless of whether any security futures product may at any time be or 
have been based upon shares of such corporation or pooled investment 
vehicle, and regardless of whether such pooled investment vehicle may, 
by design or effect, track or follow any group of securities that also 
underlies a futures contract.
    (f) Exception applicable to legally separated employees. This 
section shall not apply to transactions of a legally separated spouse of 
a member or employee, including transactions for the benefit of a minor 
child, if the member or employee has no power to control, and does not, 
in fact, advise or control with respect to such transactions. If the 
member or employee has actual or constructive knowledge of such 
transactions of a legally separated spouse or for the benefit of a minor 
child, the disqualification provisions ofSec. 140.735-2a(d)(2)(i)-
(iii) and 18 U.S.C. 208 are applicable.

[67 FR 5939, Feb. 8, 2002, as amended at 77 FR 66347, Nov. 2, 2012]



Sec.  140.735-2a  Prohibited interests.

    (a) Application. This section applies to all financial interests of 
a Commission member or employee of the Commission, including financial 
interests held by the member or employee for the account of other 
persons. A member or employee shall be deemed to have a sufficient 
interest in the financial interests of his or her spouse, minor child, 
or other relative who is a resident of the immediate household of

[[Page 921]]

the member or employee, so that such financial interests must be 
reported and are subject to all the terms of this section.
    (b) Prohibitions. Except as otherwise provided in this subsection, 
no member or employee of the Commission shall:
    (1) Have a financial interest, through ownership of securities or 
otherwise, in any person \5\ registered with the Commission (including 
futures commission merchants, associated persons and agents of futures 
commission merchants, floor brokers, commodity trading advisors and 
commodity pool operators, and any other persons required to be 
registered in a fashion similar to any of the above under the Commodity 
Exchange Act or pursuant to any rule or regulation promulgated by the 
Commission), or any contract market, swap execution facility, swap data 
repository, board of trade, or other trading facility, or any 
derivatives clearing organization subject to regulation or oversight by 
the Commission; \6\
---------------------------------------------------------------------------

    \5\ As defined in section 1a(38) of the Commodity Exchange Act and 
17 CFR 1.3(u) thereunder, a ``person'' includes an individual, 
association, partnership, corporation and a trust.
    \6\ Attention is directed to 18 U.S.C. 208.
    \7\ [Reserved]
---------------------------------------------------------------------------

    (c) Exceptions. The prohibitions in paragraph (b) of this section 
shall not apply to:
    (1) A financial interest in any publicly-available pooled investment 
vehicle (such as a mutual fund or exchange-traded fund) other than one 
operated by a person who is a commodity pool operator with respect to 
such entity if such vehicle does not have invested, or indicate in its 
prospectus the intent to invest, ten percent or more of its assets in 
securities of persons described in paragraph (b) of this section and the 
member or employee neither exercises control nor has the ability to 
exercise control over the financial interests held in such vehicle;
    (2) A financial interest in any corporate parent or affiliate of a 
person described in paragraph (b)(1) of this section if the operations 
of such person provide less than ten percent of the gross revenues of 
the corporate parent or affiliate; \8\
---------------------------------------------------------------------------

    \8\ It is the member's or employee's responsibility to monitor his 
or her financial interests and those of a spouse or minor child or other 
related member of his or her immediate household, to promptly report 
relevant changes to the General Counsel in writing, and to seek the 
advice of the General Counsel as to what action may be appropriate. In 
this regard, attention is directed to 18 U.S.C. 208, which bars an 
employee from participating in any particular matter that will have a 
direct and predictable effect on the financial interest in question.
---------------------------------------------------------------------------

    (3) A financial interest in any trust or estate of which the member 
or employee is solely a beneficiary, has no power to control, and does 
not in fact control or advise with respect to the investments of the 
trust or estate; except that such interest is subject to the provisions 
of paragraphs (d) and (f) of this section.
    (d) Retention or passive acquisition of prohibited financial 
interests. Nothing in this section shall prohibit a member or employee, 
or a spouse or minor child or other related member of the immediate 
household of the member or employee, from:
    (1) Retaining a financial interest that was permitted to be retained 
by the member or employee prior to the adoption of this regulation, was 
obtained prior to the commencement of employment with the Commission, or 
was acquired by a spouse prior to marriage to the member or employee; or
    (2) Acquiring, retaining, or controlling an otherwise prohibited 
financial interest, including but not limited to any security or option 
on a security (but not a security futures product), where the financial 
interest was acquired by inheritance, gift, stock split, involuntary 
stock dividend, merger, acquisition, or other change in corporate 
ownership, exercise of preemptive right, or otherwise without specific 
intent to acquire the financial interest, or by a spouse or minor child 
or other related member of the immediate household of the member or 
employee as part of an employment compensation package; provided, 
however, that retention of any interest allowed by paragraph (c)(3) or 
(d) of this section is permitted only where the employee:

[[Page 922]]

    (i) Makes full disclosure of any such interest on his or her annual 
financial disclosure (Standard Form 278 or Standard Form 450);
    (ii) Makes full written disclosure to the General Counsel within 30 
days of commencing employment or, for incumbents, within twenty days of 
his or her receipt of actual or constructive notice that the interest 
has been acquired; \9\ and
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    \9\ Changes in holdings, other than by purchase, which do not affect 
disqualification, such as those resulting from the automatic 
reinvestment of dividends, stock splits, stock dividends or 
reclassifications, may be reported on the annual statement, SF 278 or SF 
450, rather than when notification of the transaction is received. 
Acquisition by, for example, gifts, inheritance, or spinoffs, which may 
result in additional disqualifications pursuant to paragraph (d)(2)(iii) 
of this section and 18 U.S.C. 208 shall be reported to the General 
Counsel within 20 days of the receipt of actual or constructive notice 
thereof.
---------------------------------------------------------------------------

    (iii) Will be disqualified in accordance with 5 CFR part 2635, 
subpart D, and 18 U.S.C. 208 from participating in any particular matter 
that will have a direct and predictable effect on the financial interest 
in question. Any Commission member or employee affected by this section 
may, pursuant to 18 U.S.C. 208(b)(1) and 5 CFR 2640.301-303, request a 
waiver of the disqualification requirement.

    Note: With respect to any financial interest retained under 
paragraph (c)(3) or (d) of this section, Commission members and 
employees are reminded of their obligations under 18 U.S.C. 208 and 5 
CFR part 2635, subpart D, to disqualify themselves from participating in 
any particular matter in which they, their spouses or minor children 
have a financial interest.

    (e) Exception applicable to legally separated employees. This 
section shall not apply to the financial interests of a legally 
separated spouse of a Commission member or employee, including 
transactions for the benefit of a minor child, if the member or employee 
has no power to control and does not, in fact, advise or control with 
respect to such transactions. If the member or employee has actual or 
constructive knowledge of such financial interests held by a legally 
separated spouse or for the benefit of a minor child, the 
disqualification provisions of paragraphs (d)(2)(i)-(iii) of this 
section and 18 U.S.C. 208 are applicable.
    (f) Divestiture. Based upon a determination of substantial conflict 
under 5 CFR 2635.403(b) and 18 U.S.C. 208, the Commission, or its 
designee, may require in writing that a member or employee, or the 
spouse or minor child or other related member of the immediate household 
of a member or employee, divest a financial interest that he or she is 
otherwise authorized to retain under this section. \10\
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    \10\ Any evidence of a violation of 18 U.S.C. 208 must be reported 
by the General Counsel to the Commission, which may refer the matter to 
the Criminal Division of the Department of Justice and the United States 
Attorney in whose venue the violations lie. See 28 U.S.C. 535.

[67 FR 5940, Feb. 8, 2002, as amended at 67 FR 62353, Oct. 7, 2002; 77 
FR 66348, Nov. 2, 2012]



Sec.  140.735-3  Non-governmental employment and other outside activity.

    A Commission member or employee shall not accept employment or 
compensation from any person, exchange, swap execution facility, swap 
data repository or derivatives clearing organization subject to 
regulation by the Commission. For purposes of this section, a person 
subject to regulation by the Commission includes but is not limited to a 
contract market, swap execution facility, swap data repository or 
derivatives clearing organization or member thereof, a registered 
futures commission merchant, any person associated with a futures 
commission merchant or with any agent of a futures commission merchant, 
floor broker, commodity trading advisor, commodity pool operator or any 
person required to be registered in a fashion similar to any of the 
above or file reports under the Act or pursuant to any rule or 
regulation promulgated by the Commission.\11\
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    \11\ Attention is directed to section 2(a)(8) of the Commodity 
Exchange Act, which provides, among other things, that no Commission 
member or employee shall accept employment or compensation from any 
person, exchange or derivatives clearing organization 
(``clearinghouse'') subject to regulation by the Commission, or 
participate, directly or indirectly, in any contract market operations 
or transactions of a character subject to regulation by the Commission.

[77 FR 66348, Nov. 2, 2012]

[[Page 923]]



Sec.  140.735-4  Receipt and disposition of foreign gifts and decorations.

    (a) For purposes of this section only:
    (1) Commission member or employee means any Commission member or any 
person employed by or who occupies an office or a position in the 
Commission; an expert or consultant under contract with the Commission, 
or in the case of an organization performing services under such 
contract, any individual involved in the performance of such service; 
and the spouse, unless the individual and his or her spouse are 
separated, and any dependent, as defined by section 152 of the Internal 
Revenue Code of 1954, of any such person.
    (2) Foreign government means:
    (A) Any unit of foreign governmental authority, including any 
foreign national, state, local, and municipal government;
    (B) Any international or multinational organization whose membership 
is composed of any unit of foreign government described in paragraph 
(a)(2)(A) of this section; and
    (C) Any agent or representative of any such unit or such 
organization, while acting as such.
    (3) Gift means a tangible or intangible present (other than a 
decoration) tendered by, or received from, a foreign government, except 
grants and other forms of assistance to which section 108A of the Mutual 
Educational and Cultural Exchange Act of 1961 applies.
    (4) Decoration means an order, device, medal, badge, insignia, 
emblem, or award tendered by, or received from, a foreign government.
    (5) Minimal value means a retail value in the United States at the 
time of acceptance of $140 or less, except as redefined to reflect 
changes in the consumer price index at three year intervals by the 
Administrator of General Services pursuant to authority granted in 5 
U.S.C. 7342(a)(5)(A).
    (b) Commission members and employees shall not:
    (1) Request or otherwise encourage the tender of a gift or 
decoration;
    (2) Accept a gift of currency, except that which has an historical 
or numismatic value;
    (3) Accept gifts of travel or gifts of expenses for travel, such as 
transportation, food and lodging, from foreign governments, other than 
those authorized in paragraph (c)(5) of this section; or
    (4) Accept any gift or decoration, except as authorized by this 
section.
    (c) Gifts which may be accepted:
    (1) Commission members and employees may accept and retain gifts of 
minimal value tendered or received as a souvenir or mark of courtesy 
from a foreign government without further approval. If the value of a 
gift is uncertain, the recipient shall be responsible for establishing 
that it is of minimal value, as defined in this section. Documentary 
evidence may be required in support of the valuation.
    (2) Commission members and employees may accept, on behalf of the 
United States, gifts of more than minimal value tendered or received 
from a foreign government when it appears that to refuse the gift would 
likely cause offense or embarrassment or otherwise adversely affect the 
foreign relations of the United States. When a tangible gift of more 
than minimal value is accepted on behalf of the United States, it 
becomes the property of the United States.
    (3) Commission members and employees may accept a gift of more than 
minimal value where such gift is in the nature of an educational 
scholarship or medical treatment.
    (4) Within 60 days after accepting a tangible gift of more than 
minimal value, other than a gift described in paragraph (c)(5) of this 
section, a Commission member or employee shall file a statement with the 
Executive Director of the Commission which shall include the following 
information:
    (A) The name and position of the Commission member or employee;
    (B) A brief description of the gift and the circumstances justify 
acceptance;
    (C) The identity, if known, of the foreign government and the name 
and position of the individual who presented the gift;
    (D) The date of acceptance of the gift;

[[Page 924]]

    (E) The estimated value in the United States of the gift at the time 
of acceptance; and
    (F) The disposition or current location of the gift.
    (5) Commission members and employees are authorized to accept from a 
foreign government gifts of travel or gifts of expenses for travel 
taking place entirely outside the United States, such as transportation, 
food and lodging, of more than minimal value if the acceptance is 
approved by the Executive Director, upon a finding that it is consistent 
with the interests of the Commission. Either prior to or within 30 days 
after accepting each gift of travel or gift of travel expenses pursuant 
to this paragraph, the Commission member or employee concerned shall 
file a statement with the Executive Director containing the following 
information:
    (A) The name and position of the Commission member or employee;
    (B) A brief description of the gift and the circumstances justifying 
acceptance;
    (C) The identity, if known, of the foreign government and the name 
and position of the individual who presented the gift; and
    (D) The date of acceptance.
    (6) Not later than January 31 of each year the Executive Director 
shall compile a listing of all statements filed during the preceding 
year by Commission members and employees pursuant to paragraphs (c)(4) 
and (c)(5) of this section and shall transmit the listing to the 
Secretary of State.
    (d) Commission members or employees may accept, retain and wear 
decorations tendered by a foreign government in recognition of active 
field service in time of combat operations or awarded for other 
outstanding or unusually meritorious performance, subject to the 
approval of the Executive Director. Without this approval, the 
decoration is deemed to have been accepted on behalf of the United 
States, shall become the property of the United States, and shall be 
deposited by the employee, within 60 days of acceptance, with the 
Executive Director for official use or forwarding to the Administrator 
of General Services for disposal in accordance with paragraph (g) of 
this section. Under normal circumstances, it can be expected that a 
Commission member or employee will be notified of the intent of a 
foreign government to award him or her or a spouse or dependent a 
decoration for outstanding or unusually meritorious service sufficiently 
in advance so that the approval required can be sought prior to its 
acceptance. A request for the approval of the Executive Director shall 
be submitted in writing, stating the nature of the decoration and the 
reason why it is being awarded. Whenever possible, the request should 
also be accompanied by a statement from the foreign government, 
preferably in the form of the citation, which shows the basis for the 
tender of the award, whether it is in recognition of active field 
service in time of combat operations or for other outstanding or 
unusually meritorious performance.
    (e) Within 60 days after acceptance of a tangible gift of more than 
minimal value or a decoration for which the Executive Director has not 
given approval, a Commission member or employee shall:
    (1) Deposit the gift or decoration for disposal with the Executive 
Director; or
    (2) Subject to the approval of the Commission, upon the 
recommendation of the Executive Director, deposit the gift or decoration 
with the Commission for official use.

A gift or decoration may be retained for official use if the Commission 
determines that it can be properly displayed in an area accessible to 
employees and members of the public. Within 30 days after termination of 
the official use of a gift, the Executive Director shall forward the 
gift to the Administrator of General Services in accordance with 
paragraph (g) of this section.
    (f) Whenever possible, gifts and decorations that have been 
deposited with the Executive Director for disposal shall be returned to 
the donor. The Executive Director, in coordination with the Office of 
the General Counsel, shall examine the circumstances surrounding the 
donation, assessing whether any adverse effect on the foreign relations 
of the United States might result from the return of the gift or 
decoration to the donor. The appropriate Department of State officials

[[Page 925]]

shall be consulted if a question of adverse effect on United States 
foreign relations arises.
    (g) Gifts and decorations that have not been returned to the donor, 
retained for official use, or for which official use has terminated, 
shall be forwarded by the Executive Director to the Administrator of 
General Services for transfer, donation, or other disposal in accordance 
with the provisions of the Federal Property and Administrative Services 
Act of 1949, as amended, and 5 U.S.C. 7342.
    (h) In accordance with 5 U.S.C. 7342(h), the U.S. Attorney General 
may bring a civil action in any United States district court against any 
Commission member or employee who knowingly solicits or accepts a gift 
from a foreign government not consented to by the Congress of the United 
States in 5 U.S.C. 7342, or who fails to deposit or report such gift as 
required by 5 U.S.C. 7342. The court may assess a penalty against such 
Commission member or employee in any amount not exceeding the retail 
value of the gift improperly solicited or received plus $5,000.
    (i) A violation of the requirements set forth in this section by a 
Commission employee may be cause for appropriate disciplinary action 
which may be in addition to any penalty prescribed by law.
    (j)(1) The burden of proving minimal value shall be on the 
recipient. In the event of a dispute over the value of a gift, the 
Executive Director shall arrange for an outside appraiser to determine 
whether the gift is of more or less than minimal value.
    (2) When requested by the Administrator of Government Services, the 
Executive Director shall arrange for an appraisal of a gift or 
decoration.
    (k) No appropriated funds of the Commission may be used to buy any 
tangible gift of more than minimal value for any foreign individual, 
unless the gift has been approved by Congress.

[47 FR 24115, June 3, 1982. Redesignated at 58 FR 52658, Oct. 12, 1993; 
63 FR 32733, June 16, 1998]



Sec.  140.735-5  Disclosure of information.

    A Commission employee or former employee shall not divulge, or cause 
or allow to be divulged, confidential or non-public commercial, economic 
or official information to any unauthorized person, or release such 
information in advance of authorization for its release. \9\ Except as 
directed by the Commission or its General Counsel as provided in these 
regulations, no Commission employee or former employee is authorized to 
accept service of any subpoena for documentary information contained in 
or relating to the files of the Commission. Any employee or former 
employee who is served with a subpoena requiring testimony regarding 
non-public information or documents shall, unless the Commission 
authorizes the disclosure of such information, respectfully decline to 
disclose the information or produce the documents called for, basing his 
refusal on these regulations. \10\ Any employee or former employee who 
is served with a subpoena calling for information regarding the 
Commission's business

[[Page 926]]

shall promptly advise the General Counsel of the service of such 
subpoena, the nature of the information or documents sought, and any 
circumstances which may bear upon the desirability of making such 
information or document available in the public interest. \11\ In any 
proceeding in which the Commission is not a party, no employee of the 
Commission shall testify concerning matters related to the business of 
the Commission unless authorized to do so by the Commission.
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    \9\ Attention is directed to section 9(d) of the Commodity Exchange 
Act, which provides that it shall be a felony punishable by a fine of 
not more than $500,000 or imprisonment for not more than five years, or 
both, together with the costs of prosecution--(1) for any Commissioner 
of the Commission or any employee or agent thereof who, by virtue of his 
employment or position, acquires information which may affect or tend to 
affect the price of any commodity future or commodity and which 
information has not been promptly made public, to impart such 
information with intent to assist another person, directly or 
indirectly, to participate in any transaction in commodity futures, any 
transaction in an actual commodity, or in any transaction of the 
character of or which is commonly known to the trade as an option, 
privilege, indemnity, bid, offer, put, call, advance guaranty or decline 
guaranty, or in any transaction for the delivery of any commodity under 
a standardized contract commonly known to the trade as a margin account, 
margin contract, leverage account or leverage contract, or under any 
contract or other arrangement that the Commission determines to serve 
the same function or is marketed in the same manner as such standardized 
contract, and (2) for any person to acquire such information from any 
Commissioner of the Commission or any employee or agent thereof and to 
use such information in any of the foregoing transactions.
    \10\ No employee shall disclose such information unless directed to 
do so by the Commission.
    \11\ The prohibitions regarding confidential or nonpublic 
information stated above are intended to cover the matters addressed in 
sections 4(c), 8, and 9(d) of the Commodity Exchange Act as well as 
nonpublic information under the Freedom of Information Act, 5 U.S.C. 
552, the rules of the Commission thereunder, 17 CFR part 145, the 
Privacy Act, 5 U.S.C. 552a, the rules of the Commission thereunder, 17 
CFR part 146, and cases where, apart from specific prohibitions in any 
statute or rule, the disclosure or use of such information would be 
unethical.

[58 FR 52658, Oct. 12, 1993]



Sec.  140.735-6  Practice by former members and employees of the 
Commission.

    (a) Personal and substantial participation or nonpublic knowledge of 
a particular matter. No person who has been a member or employee of the 
Commission shall ever knowingly make, with the intent to influence, any 
communication to or appearance before the Commission in connection with 
any particular matter involving a specific party or parties \12\ in 
which such person, or one participating with him or her in the 
particular matter, participated personally and substantially, or gained 
nonpublic knowledge of facts thereof, while with the Commission. \13\
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    \12\ The phrase ``particular matter involving a specific party or 
parties'' does not apply to general rulemaking, general policy and 
standards formulation or other similar matters. SeeSec. 2637.201(c)(1) 
of the regulations of the Office of Government Ethics, 5 CFR 
2637.201(c)(1); cf., memorandum of the Attorney General dealing with the 
conflict-of-interest provisions prior to amendment by the Ethics in 
Government Act (reproduced following 18 U.S.C. 201).
    \13\ Attention is directed to 18 U.S.C. 207(a)(1), as amended, which 
generally prohibits former Federal officers and employees permanently 
from knowingly making, with the intent to influence, any communication 
to or appearance before any Federal (or District of Columbia) 
department, agency or court, or court martial, or any officer or 
employee thereof, in connection with any particular matter involving a 
specific party or parties in which the United States (or the District of 
Columbia) is a party or has a direct and substantial interest and in 
which the former officer or employee participated personally and 
substantially while with the government.
---------------------------------------------------------------------------

    (b) Particular matter under an individual's official responsibility. 
No person who has been a member or employee of the Commission shall, 
within two years after that employment has ceased, knowingly make, with 
the intent to influence, any communication to or appearance before the 
Commission in connection with a particular matter involving a specific 
party or parties which was actually pending under his official 
responsibility as a member or employee of the Commission at any time 
within one year prior to the termination of government service. \14\
---------------------------------------------------------------------------

    \14\ Attention is directed to 18 U.S.C. 207(a)(2), as amended. 
Section 207(a)(2) generally prohibits former Federal officers and 
employees, within two years after their Federal employment has ceased, 
from knowingly making, with the intent to influence, any communication 
to or appearance before any Federal (or District of Columbia) 
department, agency or court, or court martial, or any officer or 
employee thereof, in connection with any particular matter involving a 
specific party or parties in which the United States (or the District of 
Columbia) is a party or has a direct and substantial interest and which 
was actually pending under the official responsibility of the former 
officer or employee within one year prior to the termination of 
government service.
    As used in paragraph (b) of this section, the term ``official 
responsibility'' has the meaning assigned to it in 18 U.S.C. 202(b), 
namely, the ``direct administrative or operating authority, whether 
intermediate or final, and either exercisable alone or with others, and 
either personally or through subordinates, to approve, disapprove, or 
otherwise direct Government action.''
---------------------------------------------------------------------------

    (c) Restrictions on former members and senior employees. A former 
member or employee of the Commission who occupied a ``senior'' position 
specified in 18 U.S.C. 207(c)(2), as amended, shall not within one year 
after such ``senior'' employment has ceased, knowingly make, with the 
intent to influence, any

[[Page 927]]

communication to or appearance before the Commission on behalf of any 
other person in connection with any matter in which such person seeks 
official action by the Commission. \15\
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    \15\ Attention is directed to 18 U.S.C. 207(c), as amended, which 
places restrictions on the representational activities of certain senior 
officers and employees after their departure from a senior position. 
Section 207(c) generally makes it unlawful for one year after service in 
a ``senior'' position terminates for a former ``senior'' Federal 
employee to knowingly make, with the intent to influence, any 
communication to or appearance before an employee of a department or 
agency in which he served in any capacity during the one year period 
prior to termination from ``senior'' service, if that communication or 
appearance is on behalf of any other person (except the United States), 
in connection with any matter concerning which he seeks official action 
by that employee.
    Note that the one year period is measured from the date when the 
employee ceases to be a senior employee, not from the termination of 
Government service, unless the two occur simultaneously. This provision 
prohibits communications to or appearances before the Government and 
does not prohibit ``behind-the-scenes'' assistance. The restriction does 
not require that the former employee have ever been in any way involved 
in the matter that is the subject of the communication or appearance. 
The restriction applies with respect to any matter, whether or not 
involving a specific party.
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    (d) Exceptions. The prohibitions contained in paragraphs (a), (b), 
and (c) of this section do not apply to communications solely for the 
purpose of furnishing scientific or technological information if 
approved by the Commission or generally to giving testimony under oath 
or making a statement which is subject to penalty or perjury. Further, 
the prohibition contained in paragraph (c) of this section does not 
apply to an uncompensated statement in a particular area within the 
special knowledge of the former Commission member or employee. \16\
---------------------------------------------------------------------------

    \16\ Attention is directed to 18 U.S.C. 207(j), as amended (listing 
other exceptions). Self-representation is not prohibited under section 
207.
---------------------------------------------------------------------------

    (e) Reporting requirement. Any former member or employee of the 
Commission who, within two years after ceasing to be such, is employed 
or retained as the representative of any person (except the United 
States) in connection with a matter in which it is contemplated that he 
will appear before or communicate with the Commission shall, within ten 
days of such retainer or employment, or of the time when appearance 
before or communication with the Commission is first contemplated, file 
with the General Counsel of the Commission a statement as to the nature 
thereof together with any desired explanation as to why it is deemed 
consistent with this section. Employment of a recurrent character may be 
covered by a single comprehensive statement. Each such statement should 
include an appropriate caption indicating that it is filed pursuant to 
this section. The reporting requirement of this paragraph does not apply 
to communications incidental to court appearances in litigation 
involving the Commission.
    (f) Definitions. As used in this section, the phrase ``appearance 
before the Commission'' means any formal or informal appearance on 
behalf of any person (except the United States) before the Commission, 
or any member or employee thereof with an intent to influence. As used 
in this section, the phrase ``communication with the Commission'' means 
any oral or written communication made to the Commission, or any member 
or employee thereof, on behalf of any person (except the United States) 
with an intent to influence.
    (g) Advisory ruling. Persons in doubt as to the applicability of 
this section may apply for an advisory ruling by addressing a letter 
requesting such a ruling to the General Counsel.
    (h) Procedures for administrative enforcement of statutory 
restrictions on post-government employment conflicts of interest \17\--
(1) Scope. The provisions of this paragraph prescribe procedures for 
administrative enforcement of the restrictions which 18 U.S.C. 207 (a), 
(b), and (c), as amended, place on appearances before or communications 
with Federal (and District of Columbia) departments, agencies and 
courts, and other enumerated entities, as well as the officers and 
employees thereof, by

[[Page 928]]

former Commission members and employees.
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    \17\ This section does not apply to employees who leave service 
after December 31, 1990.
---------------------------------------------------------------------------

    (2) Investigations. The General Counsel of the Commission, or his or 
her designee, shall conduct such investigations as he or she deems 
appropriate to determine whether any former Commission member or 
employee have violated 18 U.S.C. 207 (a), (b) or (c), as amended. The 
General Counsel shall report the results of his or her investigations to 
the Commission and shall recommend to the Commission such action as he 
or she deems appropriate.
    (3) Hearings. Hearings required to be held under the provisions of 
this section shall be held before an Administrative Law Judge, utilizing 
the procedures prescribed by the Commission's rules of practice for 
adjudicatory proceedings (17 CFR part 10), except to the extent that 
those rules are inconsistent with the provisions of this section. Any 
proceeding brought under the provisions of this section shall be 
prosecuted by the General Counsel or his or her designee.
    (4) Sanctions. If the Commission finds, after notice and opportunity 
for a hearing, that a former Commission member or employee has violated 
18 U.S.C. 207 (a), (b) or (c), as amended, the Commission may prohibit 
that person from making, on behalf of any other person (except the 
United States), any formal or informal appearance before, or with the 
intent to influence any oral or written communication to, the Commission 
on a pending matter of business for a period not to exceed five years, 
or may take other appropriate disciplinary action.

[58 FR 52658, Oct. 12, 1993; 58 FR 58593, Nov. 2, 1993]



Sec.  140.735-7  Statutory violations applicable to conduct of 
Commission members and employees.

    A violation of section 2(a)(7), 8 or 9 (c) or (d) of the Commodity 
Exchange Act, as amended, shall be deemed to be a violation of this 
subpart as well.

[58 FR 52660, Oct. 12, 1993]



Sec.  140.735-8  Interpretative and advisory service.

    (a) Counselor for the Commission. The General Counsel, or his or her 
designee, will serve as Counselor for the Commission and as the 
Commission's representative to the Office of Government Ethics, on 
matters covered by this subpart. The General Counsel will also serve as 
the Commission's designated agency ethics official to review the 
financial reports filed by high-level Commission officials under title 
II of the Ethics in Government Act, as well as otherwise to coordinate 
and manage the Commission's ethics program.
    (b) Duties of the Counselor. The Counselor shall:
    (1) Coordinate the agency's counseling services and assure that 
counseling and interpretations on questions of conflict of interests and 
other matters covered by the regulations in this subpart are available 
as needed to Regional Deputy Counselors, who shall be appointed by the 
General Counsel, in coordination with the Chairman of the Commission, 
for each Regional Office of the Commission;
    (2) Render authoritative advice and guidance on matters covered by 
the regulations in this subpart which are presented to him or her by 
employees in the Washington, DC headquarters office; and
    (3) Receive information on, and resolve or forward to the Commission 
for consideration, any conflict of interests or apparent conflict of 
interests which appears in the annual financial disclosure (Standard 
Form 278 or Standard Form 450), or is disclosed to the General Counsel 
by a member or employee pursuant toSec. 140.735-2a(d) of this part, or 
otherwise is made known to the General Counsel.
    (i) A conflict of interests or apparent conflict of interests is 
considered resolved by the General Counsel when the affected member or 
employee has executed an ethics agreement pursuant to 5 CFR 2634.801 et 
seq. to undertake specific actions in order to resolve the actual or 
apparent conflict.
    (ii) If, after advice and guidance from the General Counsel, a 
member or employee does not execute an ethics agreement, the conflict of 
interests is considered unresolved and must be referred to the 
Commission for resolution or further action consistent with 18 U.S.C. 
208 and 28 U.S.C. 535.
    (iii) Where an unresolved conflict of interests or apparent conflict 
of interests is

[[Page 929]]

to be forwarded to the Commission by the General Counsel, the General 
Counsel will promptly notify the affected member or employee in writing 
of his or her intent to forward the matter to the Commission. Any member 
or employee so affected will be afforded an opportunity to be heard by 
the Commission through written submission.
    (c) Regional Deputy Counselors. Regional Deputy Counselors shall:
    (1) Give advice and guidance as requested to the employees assigned 
to their respective Regional Offices; and
    (2) Receive information on and refer to the Director of Human 
Resources, any conflict of interests or appearance of conflict of 
interests in Statements of Employment and Financial Interests submitted 
by employees to whom they are required to give advice and guidance.
    (d) Confidentiality of communications. Communications between the 
Counselor and Regional Deputy Counselors and an employee shall be 
confidential, except as deemed necessary by the Commission or the 
Counselor to carry out the purposes of this subpart and of the laws of 
the United States. \18\
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    \18\ No attorney-client privilege, however, attaches to such 
communications since the Counselors are counsel to the Commission, not 
to the employee. Thus, any evidence of criminal law violations divulged 
by an employee to the Counselor must be reported by the latter to the 
Commission, which may refer the matter to the Criminal Division of the 
Department of Justice and the United States Attorney in whose venue the 
violations lie.
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    (e) Furnishing of conduct regulations. The Director of Human 
Resources shall furnish a copy of this Conduct Regulation to each 
member, employee, and special government employee immediately upon his 
or her entrance on duty and shall thereafter, annually, and at such 
other times as circumstances warrant, bring to the attention of each 
member and employee this Conduct Regulation and all revisions thereof.
    (f) Availability of counseling services. The Director of Human 
Resources shall notify each member, employee, and special government 
employee of the availability of counseling services and of how and where 
these services are available at the time of entrance on duty and 
periodically thereafter.

[58 FR 52660, Oct. 12, 1993, as amended at 61 FR 21955, May 13, 1996; 62 
FR 13302, Mar. 20, 1997; 67 FR 5941, Feb. 8, 2002]



PART 141_SALARY OFFSET--Table of Contents



Sec.
141.1 Purpose and scope.
141.2 Definitions.
141.3 Applicability.
141.4 Notice requirements.
141.5 Hearing.
141.6 Written decision.
141.7 Coordinating offset with another Federal agency.
141.8 Procedures for salary offset.
141.9 Refunds.
141.10 Statute of limitations.
141.11 Non-waiver of rights.
141.12 Interest, penalties, and administrative costs.

    Authority: 5 U.S.C. 5514, E.O. 11609 (redesignated E.O. 12197), 5 
CFR part 550, subpart K, and 7 U.S.C. 4a(j), unless otherwise noted.

    Source: 55 FR 5207, Feb. 14, 1990, unless otherwise noted.



Sec.  141.1  Purpose and scope.

    (a) This regulation provides procedures for the collection by 
administrative offset of a federal employee's salary without his/her 
consent to satisfy certain debts owed to the federal government. These 
regulations apply to employees of other federal agencies and current 
employees of the Commission who owe debts to the Commission and to 
current employees of the Commission who owe debts to other federal 
agencies. This regulation does not apply when the employee consents to 
recovery from his/her current pay account.
    (b) This regulation does not apply to debts or claims arising under:
    (1) The Internal Revenue Code of 1954, as amended, 26 U.S.C. 1 et 
seq.;
    (2) The Social Security Act, 42 U.S.C. 301 et seq.;
    (3) The tariff laws of the United States; or
    (4) Any case where a collection of a debt by salary offset is 
explicitly provided for or prohibited by another statute.
    (c) This regulation does not apply to any adjustment to pay arising 
out of an employee's selection of coverage or

[[Page 930]]

a change in coverage under a federal benefits program requiring periodic 
deductions from pay if the amount to be recovered was accumulated over 
four pay periods or less.
    (d) This regulation does not preclude the compromise, suspension, or 
termination of collection action where appropriate under the standards 
implementing the Federal Claims Collection Act, 31 U.S.C. 3711 et seq., 
4 CFR parts 101 through 105, 45 CFR part 1177.
    (e) This regulation does not preclude an employee from requesting 
waiver of an overpayment under 5 U.S.C. 5584, 10 U.S.C. 2774 or 32 
U.S.C. 716 or in any way questioning the amount or validity of the debt 
by submitting a subsequent claim to the General Accounting Office in 
accordance with General Accounting Office procedures. This regulation 
does not preclude an employee from requesting a waiver pursuant to other 
statutory provisions applicable to the particular debt being collected. 
Neither the requesting of a waiver nor the filing of a claim with the 
General Accounting Office will affect the amount or validity of the debt 
being collected until a waiver has been granted or the debt has been 
determined to be for an incorrect amount or invalid.
    (f) Matters not addressed in these regulations should be reviewed in 
accordance with the Federal Claims Collection Standards at 4 CFR 101.1 
et seq.



Sec.  141.2  Definitions.

    For the purposes of this part the following definitions will apply:
    Agency means an executive agency as defined at 5 U.S.C. 105 
including the U.S. Postal Service, the U.S. Postal Commission, a 
military department as defined at 5 U.S.C. 102, an agency or court in 
the judicial branch, an agency of the legislative branch including the 
U.S. Senate and House of Representatives and other independent 
establishments that are entities of the Federal government.
    Creditor agency means the agency to which the debt is owed.
    Debt means an amount owed to the United States from sources which 
include loans insured or guaranteed by the United States and all other 
amounts due the United States from fees, leases, rents, royalties, 
services, sales of real or personal property, overpayments, penalties, 
damages, interests, fines, forfeitures (except those arising under the 
Uniform Code of Military Justice), and all other similar sources.
    Disposable pay means the amount that remains from an employee's 
federal pay after required deductions for social security, federal, 
state or local income tax, health insurance premiums, retirement 
contributions, life insurance premiums, federal employment taxes, and 
any other deductions that are required to be withheld by law.
    Hearing official means an individual responsible for conducting any 
hearing with respect to the existence or amount of a debt claimed, and 
who renders a decision on the basis of such hearing. A hearing official 
shall be an impartial member of the Office of the Executive Director not 
under the supervision or control of the head of the Commission.
    Paying agency means the agency that employs the individual who owes 
the debt and authorizes the payment of his/her current pay.
    Salary offset means an administrative offset to collect a debt 
pursuant to 5 U.S.C. 5514 by deduction(s) at one or more officially 
established pay intervals from the current pay account of an employee 
without his/her consent.



Sec.  141.3  Applicability.

    These regulations are to be followed when:
    (a) The Commission is owed a debt by an individual currently 
employed by another federal agency;
    (b) The Commission is owed a debt by an individual who is a current 
employee of the Commission;
    (c) The Commission employs an individual who owes a debt to another 
federal agency.



Sec.  141.4  Notice requirements.

    (a) Deductions shall not be made unless the employee is provided 
with written notice of the debt at least 30 days before salary offset 
commences.
    (b) The written notice shall contain:
    (1) A statement that the debt is owed and an explanation of its 
nature, and amount;

[[Page 931]]

    (2) The agency's intention to collect the debt by deducting from the 
employee's current disposable pay account;
    (3) The amount, frequency, proposed beginning date, and duration of 
the intended deduction(s);
    (4) An explanation of interest, penalties, and administrative 
charges, including a statement that such charges will be assessed unless 
excused in accordance with the Federal Claims Collections Standards at 4 
CFR 101.1 et seq.;
    (5) The employee's right to inspect, request, and receive a copy of 
government records relating to the debt;
    (6) The opportunity to establish a written schedule for the 
voluntary repayment of the debt;
    (7) The right to a hearing conducted by an impartial hearing 
official;
    (8) The methods and time period for petitioning for hearings;
    (9) A statement that the timely filing of a petition for a hearing 
will stay the commencement of collection proceedings;
    (10) A statement that a final decision on the hearing will be issued 
not later than 60 days after the filing of the petition requesting the 
hearing unless the employee requests and the hearing official grants a 
delay in the proceedings;
    (11) A statement that knowingly false or frivolous statements, 
representations, or evidence may subject the employee to:
    (i) Disciplinary procedures appropriate under chapter 75 of 5 
U.S.C., 5 CFR part 752, or any other applicable statutes or regulations;
    (ii) Penalties under the False Claims Act, 31 U.S.C. 3729-3731, or 
any other applicable statutory authority; or
    (iii) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002 or 
any other applicable statutory authority.
    (12) A statement of other rights and remedies available to the 
employee under statutes or regulations governing the program for which 
the collection is being made; and
    (13) Unless there are contractual or statutory provisions to the 
contrary, a statement that amounts paid on or deducted for the debt 
which are later waived or found not owed to the United States will be 
promptly refunded to the employee.



Sec.  141.5  Hearing.

    (a) Request for hearing. (1) An employee must file a petition for a 
hearing in accordance with the instructions outlined in the Commission's 
notice to offset.
    (2) A hearing may be requested by filing a written petition 
addressed to the Executive Director stating why the employee disputes 
the existence or amount of the debt. The petition for a hearing must be 
received by the Executive Director no later than fifteen (15) calendar 
days after the date of the notice to offset unless the employee can show 
good cause for failing to meet the deadline date.
    (b) Hearing procedures. (1) The hearing will be presided over by an 
impartial hearing official.
    (2) The hearing shall conform to procedures contained in the Federal 
Claims Collection Standards 4 CFR 102.3(c). The burden shall be on the 
employee to demonstrate that the existence or the amount of the debt is 
in error.



Sec.  141.6  Written decision.

    (a) The hearing official shall issue a written opinion no later than 
60 days after the hearing.
    (b) The written opinion will include a statement of the facts 
presented to demonstrate the nature and origin of the alleged debt; the 
hearing official's analysis, findings and conclusions; the amount and 
validity of the debt, and the repayment schedule.



Sec.  141.7  Coordinating offset with another Federal agency.

    (a) The Commission as the creditor agency. When the Commission 
determines that an employee of another federal agency owes a delinquent 
debt to the Commission, the Commission shall as appropriate:
    (1) Arrange for a hearing upon the proper petitioning by the 
employee;
    (2) Certify to the paying agency in writing that the employee owes 
the debt, the amount and basis of the debt, the date on which payment is 
due, the date the Government's right to collect the debt accrued, and 
that Commission regulations for salary offset have been approved by the 
Office of Personnel Management;

[[Page 932]]

    (3) If collection must be made in installments, the Commission must 
advise the paying agency of the amount or percentage of disposable pay 
to be collected in each installment;
    (4) Advise the paying agency of the actions taken under 5 U.S.C. 
5514(b) and provide the dates on which action was taken unless the 
employee has consented to salary offset in writing or signed a statement 
acknowledging that the Commission has complied with the procedures 
required by law. The written consent or acknowledgment must be sent to 
the paying agency;
    (5) If the employee is in the process of separating, the Commission 
must submit its debt claim to the paying agency as provided in this 
part. The paying agency must certify any amounts already collected, 
notify the employee, and send a copy of the certification and notice of 
the employee's separation to the Commission. If the paying agency is 
aware that the employee is entitled to payments from the Civil Service 
Retirement and Disability Fund or similar payments, it must certify to 
the agency responsible for making such payments the amount of the debt 
and that the provisions of 5 CFR 550.1108 have been followed; and
    (6) If the employee has already separated and all payments due from 
the paying agency have been paid, the Commission may request, unless 
otherwise prohibited, that money payable to the employee from the Civil 
Service Retirement and Disability Fund or other similar funds be 
collected by administrative offset.
    (b) The Commission as the paying agency. (1) Upon receipt of a 
properly certified debt claim from another agency, deductions will be 
scheduled to begin at the next established pay interval. The employee 
must receive written notice from the Commission that the Commission has 
received a certified debt claim from the creditor agency, the amount of 
the debt, the date salary offset will begin, and the amount of the 
deduction(s). The Commission shall not review the merits of the creditor 
agency's determination of the validity or the amount of the certified 
claim.
    (2) If the employee transfers to another agency after the creditor 
agency has submitted its debt claim to the Commission and before the 
debt is collected completely, the Commission must certify the total 
amount collected. One copy of the certification must be furnished to the 
employee. A copy must be furnished the creditor agency with notice of 
the employee's transfer.



Sec.  141.8  Procedures for salary offset.

    (a) Deductions to liquidate an employee's debt will be by the method 
and in the amount stated in the Commission's notice of intention to 
offset as provided inSec. 141.4. Debts will be collected in one lump 
sum where possible. If the employee is financially unable to pay in one 
lump sum, collection must be made in installments.
    (b) Debts will be collected by deduction at officially established 
pay intervals from an employee's current pay account unless alternative 
arrangements for repayment are made.
    (c) Installment deductions will be made over a period not greater 
than the anticipated period of employment. The size of installment 
deductions must bear a reasonable relationship to the size of the debt 
and the employee's ability to pay. The deduction for the pay intervals 
for any period must not exceed 15% of disposable pay unless the employee 
has agreed in writing to a deduction of a greater amount.
    (d) Unliquidated debts may be offset against any financial payment 
due to a separated employee including but not limited to final salary or 
leave payments in accordance with 31 U.S.C. 3716.



Sec.  141.9  Refunds.

    (a) The Commission will refund promptly any amounts deducted to 
satisfy debts owed to the Commission when the debt is waived, found not 
owed to the Commission or when directed by an administrative or judicial 
order.
    (b) The creditor agency will promptly return any amounts deducted by 
the Commission to satisfy debts owed to the creditor agency when the 
debt is waived, found not owed, or when directed by an administrative or 
judicial order.

[[Page 933]]

    (c) Unless required by law, refunds under this subsection shall not 
bear interest.



Sec.  141.10  Statute of limitations.

    If a debt has been outstanding for more than 10 years after the 
agency's right to collect the debt first accrued, the agency may not 
collect by salary offset unless facts material to the Government's right 
to collect were not known and could not reasonably have been known by 
the official or officials who were charged with the responsibility for 
discovery and collection of such debts.



Sec.  141.11  Non-waiver of rights.

    An employee's involuntary payment of all or any part of a debt 
collected under these regulations will not be construed as a waiver of 
any rights that employee may have under 5 U.S.C. 5514 or any other 
provision of contract or law unless there are statutes or contract(s) to 
the contrary.



Sec.  141.12  Interest, penalties, and administrative costs.

    Charges may be assessed for interest, penalties, and administrative 
costs in accordance with the Federal Claims Collection Standards, 4 CFR 
102.13.



PART 142_INDEMNIFICATION OF CFTC EMPLOYEES--Table of Contents



Sec.
142.1 Purpose and scope.
142.2 Policy.

    Authority: 7 U.S.C. 4a(j).

    Source: 54 FR 25234, June 14, 1989, unless otherwise noted.



Sec.  142.1  Purpose and scope.

    This part sets forth the policy and procedure with respect to the 
indemnification of Commission employees who are sued in their individual 
capacities and suffer an adverse judgment as a result of conduct taken 
within the scope of employment. (For purposes of this part the term 
Commission employees includes all present and former Commissioners and 
employees of the Commission). This part is intended to provide 
indemnification for adverse judgments for constitutional and federal 
statutory torts excepted from the Federal Tort Claims Act exclusive 
remedy provision 28 U.S.C. 2679(b) (as amended by the Federal Employees 
Liability Reform and Tort Compensation Act of 1988 (Pub. L. 100-694)). 
In any lawsuit which is filed against the employee alleging a common law 
tort occurring within the scope of employment, the United States may be 
substituted for the individual employee and any liability which may be 
found will be assessed against the government, pursuant to the Federal 
Employees Liability Reform and Tort Compensation Act of 1988.



Sec.  142.2  Policy.

    (a) The Commission may indemnify its employees by the payment of 
available funds, in whole, or in part, for any verdict, judgment or 
other monetary award which is rendered against any employee, provided 
that the conduct giving rise to the verdict, judgment or award was taken 
within the scope of his or her employment with the Commission and that 
such indemnification is in the interest of the United States, as 
determined by the Commission.
    (b) The Commission may settle or compromise a personal damage claim 
against its employee by the payment of available funds, at any time, 
provided the alleged conduct giving rise to the personal damage claim 
was taken within the scope of employment and that such settlement is in 
the interest of the United States as determined by the Commission in its 
discretion.
    (c) Absent exceptional circumstances, as determined by the 
Commission, the Commission will not entertain a request either to agree 
to indemnify or to settle a personal damage claim before entry of an 
adverse verdict, judgment or monetary award.
    (d) When an employee of the Commission becomes aware that an action 
may be or has been filed against the employee in his or her individual 
capacity as a result of conduct taken within the scope of his or her 
employment, the employee should immediately notify the Commission's 
Office of General Counsel that such an action is pending or threatened.

[[Page 934]]

    (e) The employee may thereafter request either (1) indemnification 
to satisfy a verdict, judgment or award entered against the employee or 
(2) payment to satisfy the requirements of a settlement proposal. The 
employee shall submit a written request, with documentation including 
copies of the verdict, judgment, award or settlement proposal, as 
appropriate, to the head of his or her division or office, who thereupon 
shall submit to the General Counsel, in a timely manner, a recommended 
disposition of the request. The General Counsel shall also seek the 
views of the Department of Justice. The General Counsel shall forward 
the request, the division or office's recommendation and the General 
Counsel's recommendation to the Commission for decision.
    (f) Any payment under this section either to indemnify a Commodity 
Futures Trading Commission employee or to settle a personal damage claim 
shall be contingent upon the availability of appropriated funds of the 
Commodity Futures Trading Commission.



PART 143_COLLECTION OF CLAIMS OWED THE UNITED STATES ARISING FROM 
ACTIVITIES UNDER THE COMMISSION'S JURISDICTION--Table of Contents



Sec.
143.1 Purpose.

                      Subpart A_General Provisions

143.2 Notice of claim.
143.3 Interest, penalty charges, and administrative costs.
143.4 Collection by offset.
143.5 Collection by compromise.
143.6 Referral for litigation.
143.7 Delegation of authority to the Executive Director.
143.8 Inflation-adjusted civil monetary penalties.

                Subpart B_Administrative Wage Garnishment

143.9 Administrative wage garnishment orders.
143.10 Garnishment hearings.

    Authority: 7 U.S.C. 9 and 15, 9a, 12a(5), 13a, 13a-1(d), and 13(a); 
31 U.S.C. 3701-3720E; 28 U.S.C. 2461 note.

    Source: 50 FR 5384, Feb. 8, 1985, unless otherwise noted.



Sec.  143.1  Purpose.

    This part provides procedures that the Commission will use to 
collect debts owed the United States arising from activities under the 
Commission's jurisdiction. As applicable, these procedures are based 
upon, and conform to, the Federal Claims Collection Act, as amended, 31 
U.S.C. 3701-3720E; the Federal Claims Collection Standards, 31 CFR Parts 
900-905, issued by the Department of the Treasury and the Department of 
Justice; administrative wage garnishment regulations issued by the 
Department of the Treasury, 31 CFR 285.11; and other laws applicable to 
the collection of non-tax debts owed to the United States arising from 
activities under the Commission's jurisdiction. Subpart A describes 
procedures for collection by offset against obligations of the United 
States to the debtor, by compromise, and by referral to the Department 
of Justice for litigation. It also sets forth the Commission's policy on 
collecting interest on unpaid claims, the method used in calculating 
such interest, and the maximum inflation-adjusted civil monetary 
penalties that may be assessed and enforced for each violation of the 
Commodity Exchange Act or regulations or orders of the Commission 
promulgated thereunder. Subpart B describes procedures for collection by 
administrative garnishment of the debtor's wages.

[69 FR 52997, Aug. 31, 2004]



                      Subpart A_General Provisions



Sec.  143.2  Notice of claim.

    (a) The Commission will send a written notice to any person who owes 
payment to the United States under this part, stating the basis for the 
claim, the interest, penalties, and administrative costs that may be 
imposed for non-payment, and the date full payment is due.
    (b) If the claim is disputed, the debtor shall respond to the notice 
in writing and state the reasons for non-payment. If the claim is not 
disputed but full payment is not made by the date indicated in the 
notice, the debtor

[[Page 935]]

shall state the reasons for the failure to make full payment.
    (c) If no response or an unsatisfactory response is received by the 
date indicated in the notice, the Commission may take further action as 
appropriate under the Commodity Exchange Act or regulations thereunder, 
or under 31 CFR parts 900-905 or the Federal Claims Collection Act as 
amended, 31 U.S.C. 3701-3720E.

[50 FR 5384, Feb. 8, 1985, as amended at 69 FR 52997, Aug. 31, 2004]



Sec.  143.3  Interest, penalty charges, and administrative costs.

    (a) The Commission will assess interest on unpaid claims. The rate 
of interest assessed shall be the rate of the current value of funds to 
the U.S. Treasury (i.e., the Treasury tax and loan account rate) as 
prescribed and published by the Secretary of the Treasury. The 
Commission will charge penalty fees of not more than 6 percent per year 
on any portion of a claim that is delinquent for more than 90 days. The 
Commission will also impose actual administrative costs to cover the 
processing and handling of delinquent claims.
    (b) Interest on claims will be charged and will run from the date 
the notice of claim is mailed if the amount of the claim is not paid 
within 30 days from that date. Interest will be calculated only on the 
principal of the claim. The rate of interest charged is the rate in 
effect on the date from which interest begins to run. The rate will 
remain fixed for the duration of the indebtedness.
    (c) The Commission may waive in whole or in part interest, penalty 
charges or administrative costs if it finds that:
    (1) The debtor is unable to pay any significant sum within a 
reasonable period of time;
    (2) Collection of interest or penalty charges jeopardizes collection 
of the principal of the claim; or
    (3) It is in the best interests of the United States.



Sec.  143.4  Collection by offset.

    (a) Whenever feasible, the Commission will collect claims under this 
part by means of administrative offset against obligations of the United 
States to the debtor.
    (b) The Commission will notify the debtor in writing of its intent 
to use offset procedures to collect the debt unless the debtor agrees to 
repayment. The notice to the debtor shall include the type and amount of 
the claim and an explanation of the debtor's rights for records and 
review under 31 U.S.C. 3716(a).
    (c) The Commission will seek to coordinate administrative offset 
with other federal agencies in accordance with 4 CFR part 102.



Sec.  143.5  Collection by compromise.

    The Commission may settle claims not exceeding $100,000 (excluding 
interest) by compromise at less than the principal amount of the claim 
if--
    (a) The debtor shows an inability to pay the full amount within a 
reasonable period of time;
    (b) The Government would be unable to enforce collection in full 
through litigation or administrative means within a reasonable period of 
time;
    (c) The cost of collecting the claim in full is not justified by the 
amount of the claim; or
    (d) The Commission's enforcement policy would be served by 
settlement of the claim for less than the full amount.

[50 FR 5384, Feb. 8, 1985, as amended at 57 FR 61292, Dec. 24, 1992]



Sec.  143.6  Referral for litigation.

    Claims that cannot be collected by the Commission under this part or 
for which collection action cannot be ended or suspended under 4 CFR 
part 104 will be referred to the Department of Justice for litigation.



Sec.  143.7  Delegation of authority to the Executive Director.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Executive Director or to any 
Commission employee under the Executive Director's supervision as he or 
she may designate, authority to take action to carry out subpart A and 
subpart B of this part and the requirements of 31 CFR parts 900-905 and 
31 CFR 285.11.

[[Page 936]]

    (b) Delegated waivers or compromise under this part shall be with 
the concurrence of the General Counsel and the Director of the Division 
of Enforcement or of their respective designees.

[50 FR 5384, Feb. 8, 1985, as amended at 69 FR 52997, Aug. 31, 2004]



Sec.  143.8  Inflation-adjusted civil monetary penalties.

    (a) Unless otherwise amended by an act of Congress, the inflation-
adjusted maximum civil monetary penalty for each violation of the 
Commodity Exchange Act or the rules, regulations or orders promulgated 
thereunder that may be assessed or enforced under the Commodity Exchange 
Act in an administrative proceeding before the Commission or a civil 
action in Federal court will be:
    (1) For a civil penalty assessed pursuant to Section 6(c) of the 
Commodity Exchange Act, 7 U.S.C. 9, against any person (other than a 
registered entity):
    (i) For manipulation or attempted manipulation violations:
    (A) Committed on or after May 22, 2008, not more than the greater of 
$1,000,000 or triple the monetary gain to such person for each such 
violation; and
    (B) [Reserved]
    (ii) For all other violations:
    (A) Committed between November 27, 1996 and October 22, 2000, not 
more than the greater of $110,000 or triple the monetary gain to such 
person for each such violation;
    (B) Committed between October 23, 2000 and October 22, 2004, not 
more than the greater of $120,000 or triple the monetary gain to such 
person for each such violation;
    (C) Committed between October 23, 2004 and October 22, 2008, not 
more than the greater of $130,000 or triple the monetary gain to such 
person for each such violation; and
    (D) Committed on or after October 23, 2008, not more than the 
greater of $140,000 or triple the monetary gain to such person for each 
such violation; and
    (2) For a civil monetary penalty assessed pursuant to Section 6(d) 
of the Commodity Exchange Act, 7 U.S.C. 13b, against any person (other 
than a registered entity):
    (i) For violations committed on or after August 15, 2011, not more 
than the greater of $140,000 or triple the monetary gain to such person 
for each such violation; and
    (ii) [Reserved]
    (3) For a civil monetary penalty assessed pursuant to Section 6b of 
the Commodity Exchange Act, 7 U.S.C. 13a, against any registered entity 
or any director, officer, agent, or employee of any registered entity:
    (i) For manipulation or attempted manipulation violations:
    (A) Committed between May 22, 2008 and August 14, 2011, not more 
than the greater of $1,000,000 or triple the monetary gain to such 
person for each such violation;
    (B) committed on or after August 15, 2011, not more than the greater 
of $1,025,000 or triple the monetary gain to such person for each such 
violation; and
    (ii) For all other violations:
    (A) Committed between November 27, 1996 and October 22, 2000, not 
more than $550,000 for each such violation;
    (B) Committed between October 23, 2000 and October 22, 2004, not 
more than $575,000 for each such violation;
    (C) Committed between October 23, 2004 and October 22, 2008, not 
more than $625,000 for each such violation;
    (D) Committed between October 23, 2008 and October 22, 2012, not 
more than the greater of $675,000 or triple the monetary gain to such 
person for each such violation; and
    (E) Committed on or after October 23, 2012, not more than the 
greater of $700,000 or triple the monetary gain to such person for each 
such violation; and
    (4) For a civil monetary penalty assessed pursuant to Section 6c of 
the Commodity Exchange Act, 7 U.S.C. 13a-1, against any registered 
entity or other person:
    (i) For manipulation or attempted manipulation violations:
    (A) Committed between May 22, 2008 and August 14, 2011, not more 
than the greater of $1,000,000 or triple the monetary gain to such 
person for each such violation; and
    (B) Committed on or after August 15, 2011, not more than the greater 
of $1,025,000 or triple the monetary gain

[[Page 937]]

to such person for each such violation; and
    (ii) For all other violations:
    (A) Committed between November 27, 1996 and October 22, 2000, not 
more than the greater of $110,000 or triple the monetary gain to such 
person for each such violation;
    (B) Committed between October 23, 2000 and October 22, 2004, not 
more than the greater of $120,000 or triple the monetary gain to such 
person for each such violation;
    (C) Committed between October 23, 2004 and October 22, 2008, not 
more than the greater of $130,000 or triple the monetary gain to such 
person for each such violation; and
    (D) Committed on or after October 23, 2008, not more than the 
greater of $140,000 or triple the monetary gain to such person for each 
such violation.
    (b) The Commission will adjust for inflation the maximum penalties 
set forth in this section at least once every four years.
    (c) Unless otherwise amended by an act of Congress, the penalties 
set forth in this section or any penalty adjusted for inflation in the 
future pursuant to paragraph (b) of this section shall be applicable 
only to violations of the Commodity Exchange Act, Commission rules, or 
Commission orders which occur after the date on which such future 
inflation adjustments become effective.

[61 FR 55566, Oct. 28, 1996, as amended at 65 FR 45711, July 25, 2000; 
69 FR 52995, Aug. 31, 2004; 73 FR 57514, Oct. 3, 2008; 77 FR 65102, Oct. 
25, 2012]



                Subpart B_Administrative Wage Garnishment

    Source: 69 FR 52997, Aug. 31, 2004, unless otherwise noted.



Sec.  143.9  Administrative wage garnishment orders.

    Whenever an individual owes the United States a delinquent non-tax 
debt arising from activities under the Commission's jurisdiction, the 
Commission, or another federal agency collecting the debt on behalf of 
the Commission, may initiate administrative proceedings to garnish the 
disposable income of the delinquent debtor in accordance with the 
requirements of, and the procedures set forth in, 31 CFR 285.11. The 
Commission's use of other debt-collection measures set forth in subpart 
A of this part does not preclude the initiation of an administrative 
wage garnishment proceeding against a delinquent debtor.



Sec.  143.10  Garnishment hearings.

    Any oral or written hearing required to establish the Commission's 
right to collect a delinquent debt through administrative wage 
garnishment shall be presided over by a hearing official designated by 
the Executive Director, with the concurrence of the General Counsel or 
the General Counsel's designee. Any qualified and impartial employee of 
the Commission designated by the Executive Director may serve as a 
hearing official. Except as otherwise provided in this section, the 
hearing shall be conducted in accordance with the requirements of, and 
the procedures set forth in, 31 CFR 285.11(f). All documents presented 
to the hearing official for his or her consideration shall be marked as 
exhibits and retained in the record. All testimony given at an oral 
hearing, either in person or by telephone, shall be under oath or 
affirmation; a transcript of the hearing shall be prepared and made part 
of the record. When a debtor requests a hearing, the designated hearing 
official shall hold the hearing and issue his or her written decision 
within 60 days of the Commission's receipt of the request, unless 
otherwise approved, in writing, by the Executive Director.



  PART 144_PROCEDURES REGARDING THE DISCLOSURE OF INFORMATION AND THE 
  TESTIMONY OF PRESENT OR FORMER OFFICERS AND EMPLOYEES IN RESPONSE
  TO SUBPOENAS OR OTHER DEMANDS OF A COURT--Table of Contents



Sec.
144.0 Purpose and scope.
144.1 Service upon the Commission.
144.2 Service upon an employee or former employee of the Commission.
144.3 Testimony by present or former Commission employees.
144.4 Production or disclosure of records by present or former 
          employees.

[[Page 938]]

144.5 Procedures when production or disclosure of Commission records or 
          information relating to Commission business is sought.
144.6 Fees.

    Authority: 5 U.S.C. 301; 7 U.S.C. 4a(j) and 12a(5); 31 U.S.C. 9701, 
unless otherwise noted.

    Source: 50 FR 11149, Mar. 20, 1985, unless otherwise noted.



Sec.  144.0  Purpose and scope.

    (a) The regulations in this part set forth procedures to be followed 
with respect to the disclosure, in response to a subpoena, order or 
other demand (collectively ``demand'') of a court or other authority of 
any material contained in the files of the Commission, of any 
information relating to material contained in the files of the 
Commission or any information acquired by any person while such person 
is or was an employee of the Commission as part of the performance of 
that person's official duties or by virtue of that person's official 
status. Employee as used in this part includes both members and 
employees of the Commission. Demand as used in this part does not 
include requests for the production of documents in compliance with Fed. 
R. Civ. P. 34.
    (b) Nothing in this part affects disclosure of information under the 
Freedom of Information Act (FOIA), 5 U.S.C. 552, the Privacy Act, 5 
U.S.C. 552a, the Sunshine Act, 552b, or the Commission's implementing 
regulations in part 145, 17 CFR 145.0, et seq., or pursuant to 
Congressional subpoena or pursuant to other Commission regulation. 
Nothing in this part otherwise permits disclosure of information by the 
Commission except as is provided by statute or other applicable law.
    (c) This part is intended to provide guidance for the internal 
operations of the Commission and is not intended to, does not, and may 
not be relied upon to create any right or benefit, substantive or 
procedural, enforceable at law against the Commission.



Sec.  144.1  Service upon the Commission.

    (a) Subject to paragraph (e) of this section, the Secretary of the 
Commission is the only person authorized to accept service of a demand 
directed to the Commission or to an employee of the Commission for 
documentary information contained in or relating to information 
contained in the files of the Commission.
    (b) Any such demand must be addressed to the Secretary of the 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (c) In the event that any such demand is attempted to be served upon 
an employee of the Commission other than the Secretary of the 
Commission, unless otherwise directed by the Commission's General 
Counsel, that employee shall respectfully decline to accept service on 
the ground that the employee is without authority to do so.
    (d) The Secretary shall promptly advise the General Counsel of any 
service of any demand, and the General Counsel shall thereafter advise 
the Commission regarding the matter.
    (e) A demand for information contained in the Commission's files 
concerning the registration of persons or entities for which authority 
has been delegated to the National Futures Association must be served 
upon the National Futures Association, 200 West Madison Street, Suite 
1600, Chicago, Illinois 60606, to the attention of the General Counsel.

[50 FR 11149, Mar. 20, 1985, as amended at 60 FR 49335, Sept. 25, 1995]



Sec.  144.2  Service upon an employee or former employee of the
Commission.

    (a) Any employee of the Commission who is served or is attempted to 
be served with a demand of a court or other authority seeking 
information or documents relating to the business of the Commission 
shall promptly advise the General Counsel of the service or attempted 
service of such demand, the nature of the information or documents 
sought by the demand and any circumstances that may bear upon the 
desirability in the public interest of disclosure of the information or 
the production of documents.
    (b) Any former employee of the Commission who is served or is 
attempted to be served with a demand of a court or other authority 
seeking information or documents relating to the business of the 
Commission shall promptly advise the General Counsel of the service

[[Page 939]]

or the attempted service of such demand, the nature of the information 
or documents sought by the demand and any circumstances that might bear 
upon the desirability in the public interest of the disclosure of the 
information or the production of documents.
    (c) After such further inquiry as appropriate, the General Counsel 
shall advise the Commission concerning the matter.



Sec.  144.3  Testimony by present or former Commission employees.

    (a) In any proceeding to which the Commission is not a party, an 
employee of the Commission shall not testify concerning matters related 
to the business of the Commission unless authorized to do so by the 
Commission upon the advice of the General Counsel.
    (b) In any proceeding, an employee or former employee of the 
Commission shall not testify concerning non-public matters related to 
the business of the Commission unless authorized to do so by the 
Commission upon the advice of the General Counsel. SeeSec. 140.735-9 
of these regulations.



Sec.  144.4  Production or disclosure of records by present or former
employees.

    (a) No employee of the Commission shall, in response to a demand by 
a court or other authority or otherwise in any proceeding in which the 
Commission is not a party, produce any material contained in the files 
of the Commission or disclose any information relating to material 
contained in the files of the Commission or disclose any information or 
produce any material acquired as part of the performance of the 
employee's official duties or by virtue of the employee's official 
status unless authorized to do so by the Commission, provided that 
Commission authorization shall not be required to comply with a demand 
solely for Commission documents generally available to the public. In 
litigation in which the Commission is a party no employee may produce 
any confidential Commission material without Commission authorization.
    (b) No former employee of the Commission shall, in response to a 
demand by a court or other authority or otherwise in any proceeding in 
which the Commission is not a party, produce without Commission 
authorization any material contained in or from the files of the 
Commission acquired as part of the performance of the former employee's 
official duties while employed by the Commission. No former employee may 
in any litigation produce confidential material acquired as part of the 
performance of the former employee's official duties while employed by 
the Commission unless authorized to do so by the Commission.



Sec.  144.5  Procedures when production or disclosure of Commission
records or information relating to Commission business is sought.

    (a) If in any proceeding oral testimony of an employee or former 
employee of the Commission is sought concerning matters related to the 
business of the Commission, an affidavit or, if that is not feasible, a 
signed statement by the party seeking the testimony or by his attorney, 
setting forth with particularity a summary of the testimony sought and 
its relevance to the proceeding, must be furnished to the Commission's 
General Counsel at the Commission's office in Washington, DC. When 
authorization by the Commission is required, any authorization shall be 
limited to the scope of the demand as summarized in such statement.
    (b) If a response to a demand by a court or other authority is 
required before instructions from the Commission are received, and 
Commission authorization is required, a Commission attorney shall be 
designated by the General Counsel to appear and to inform the court or 
other authority of these regulations and that the subpoena or demand has 
been referred for prompt consideration by the Commission. The Commission 
attorney shall request a stay of the demand pending receipt of 
instructions.
    (c) In the event that the court or other authority declines to stay 
the effect of the demand pending receipt of instructions or in the event 
that the court rules that there must be compliance with the demand 
irrespective of instructions not to produce the material or disclose the 
information sought,

[[Page 940]]

the Commission employee or former employee upon whom the demand has been 
made shall respectfully decline to comply with the demand.



Sec.  144.6  Fees.

    The provisions ofSec. 145.8 of these regulations with respect to 
fees for production of documents pursuant to the FOIA are applicable to 
this part.



PART 145_COMMISSION RECORDS AND INFORMATION--Table of Contents



Sec.
145.0 Definitions.
145.1 Information published in the Federal Register.
145.2 Records available for public inspection and copying; documents 
          published and indexed.
145.3 [Reserved]
145.4 Public records available with identifying details deleted; 
          nonpublic records available in abridged or summary form.
145.5 Disclosure of nonpublic records.
145.6 Commission offices to contact for assistance; registration records 
          available.
145.7 Requests for Commission records and copies thereof.
145.8 Fees for records services.
145.9 Petition for confidential treatment of information submitted to 
          the Commission.

Appendix A to Part 145--Compilation of Commission Records Available to 
          the Public
Appendix B to Part 145--Schedule of Fees
Appendix C to Part 145 [Reserved]

    Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80 Stat. 
383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat. 1561-1564 (5 
U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389 (5 U.S.C. 
4a(j)); unless otherwise noted.



Sec.  145.0  Definitions.

    For the purposes of part 145 the following definitions are 
applicable:
    Assistant Secretary--refers to the Assistant Secretary of the 
Commission for FOI, Privacy and Sunshine Acts Compliance.
    Compliance staff--refers to the FOI, Privacy and Sunshine Acts 
Compliance staff of the Office of the Secretariat at the Commission's 
principal office in Washington, DC assigned to respond to requests for 
information and to handle various other matters under the Freedom of 
Information Act, the Privacy Act of 1974, and the Government in the 
Sunshine Act.
    Public records--in addition to the records described inSec. 145.1 
(material published in the Federal Register) and inSec. 145.2 (records 
required to be made publicly available under the Freedom of Information 
Act), includes those records that have been determined by the Commission 
to be generally available to the public directly upon oral or written 
request from the Commission office or division responsible for the 
maintenance of such records. A compilation of Commission records 
routinely available to the public upon request appears in appendix A to 
this part 145.
    Nonpublic records--are records not identified inSec. 145.1,Sec. 
145.2, or appendix A of this part 145. Nonpublic records must be 
requested, in writing, in accordance with the provisions ofSec. 145.7.
    Record--is any information or agency record maintained by the 
Commission in any format, including an electronic format. It includes 
any document, writing, photograph, sound or magnetic recording, 
videotape, microfiche, drawing, or computer-stored information or output 
in the possession of the Commission. The term ``record'' does not 
include personal convenience materials over which the Commission has no 
control, such as appointment calendars and handwritten notes, which may 
be retained or destroyed at an employee's discretion.

[62 FR 17069, Apr. 9, 1997]



Sec.  145.1  Information published in the Federal Register.

    Except as provided inSec. 145.5, pertaining to nonpublic matters, 
the following materials shall be published in the Federal Register for 
the guidance of the public:
    (a) Description of the Commission's central and field organization 
and the established place at which, the employees from whom, and the 
methods whereby the public may obtain information, make submittals or 
requests, or obtain decisions;
    (b) Statements of the general course and method by which the 
Commission's

[[Page 941]]

functions are channeled and determined, including the nature and 
requirements of all formal and informal procedures available;
    (c) Rules of procedure, descriptions of forms available or the 
places at which forms may be obtained, and instructions as to the scope 
and contents of all papers, reports, or examinations;
    (d) Substantive rules of general applicability adopted as authorized 
by law, and statements of general policy or interpretations of general 
applicability formulated and adopted by the Commission; and
    (e) Each amendment, revision, or repeal of the foregoing.

[41 FR 16290, Apr. 16, 1976]



Sec.  145.2  Records available for public inspection and copying;
documents published and indexed.

    Except as provided inSec. 145.5, pertaining to nonpublic matters, 
and in addition to those documents listed in appendix A to part 145, 
Compilation of Commission Records Available to the Public, the following 
materials are available for public inspection and copying during normal 
business hours at the Commission's Public Reading Room, located at the 
principal office of the Commission in Washington, DC and at the regional 
offices of the Commission:
    (a) A guide for requesting records or publicly available information 
from the Commission which includes:
    (1) An index of all publicly available information of the 
Commission;
    (2) A description of major information and record locator systems;
    (3) Guidance for obtaining various types and categories of public 
information from the Commission;
    (b) Final opinions and orders of the Commission in the adjudication 
of cases, including concurring and dissenting opinions;
    (c) Statements of policy and interpretations which have been adopted 
by the Commission and are not published in the Federal Register;
    (d) Records released in response to FOIA requests that have been, or 
the Commission anticipates will be, the subject of additional FOIA 
requests;
    (e) Administrative manuals and instructions that affect the public; 
and
    (f) Indices providing identifying information to the public as to 
the materials made available pursuant to paragraphs (a) through (e) of 
this section.

[62 FR 17069, Apr. 9, 1997]



Sec.  145.3  [Reserved]



Sec.  145.4  Public records available with identifying details deleted;
nonpublic records available in abridged or summary form.

    (a) To the extent required to prevent a clearly unwarranted invasion 
of personal privacy, the Commission may delete identifying details when 
it makes available ``public records'' as defined inSec. 145.0(c). In 
such instances, the Commission shall explain the justification for the 
deletion fully in writing.
    (b) Certain ``nonpublic records,'' as defined inSec. 145.0(d), 
may, as authorized by the Commission, be made available for public 
inspection and copying in an abridged or summary form, with identifying 
details deleted.

[51 FR 26869, July 28, 1986]



Sec.  145.5  Disclosure of nonpublic records.

    The Commission may decline to publish or make available to the 
public any ``nonpublic records,'' as defined inSec. 145.0(d), if those 
records fall within the descriptions in paragraphs (a) through (i) of 
this section. The Commission shall publish or make available reasonably 
segregable portions of ``nonpublic records'' subject to a request under 
Sec.  145.7 if those portions do not fall within the descriptions in 
paragraphs (a) through (i) of this section. Requests for confidential 
treatment of segregable public information will not be processed.
    (a)(1) Specifically authorized under criteria established by an 
executive order to be kept secret in the interest of national defense or 
foreign policy, and (2) are in fact properly classified pursuant to such 
executive order;
    (b) Related solely to the internal personnel rules and practices of 
the Commission or any other agency of the Government of the United 
States, including operation rules, guidelines, and manuals of procedure 
for investigators, auditors, and other employees (other than those rules 
and practices which

[[Page 942]]

establish legal requirements to which members of the public are expected 
to conform);
    (c) Specifically exempted from disclosure by statute, including:
    (1) Data and information which would separately disclose the 
business transactions or market positions of any person and trade 
secrets or names of customers; and
    (2) Any data or information concerning or obtained in connection 
with any pending investigation of any person;
    (d) Trade secrets and commercial or financial information obtained 
from a person and privileged or confidential, including, but not limited 
to:
    (1)(i) Reports of stocks of grain, such as Forms 38, 38C, 38M and 
38T required to be filed pursuant to 17 CFR 1.44;
    (ii) Statements of reporting traders on Form 40 required to be filed 
pursuant to 17 CFR 18.04;
    (iii) Statements concerning special calls on positions required to 
be filed pursuant to 17 CFR part 21;
    (iv) Statements concerning identification of special accounts on 
Form 102 required to be filed pursuant to 17 CFR 17.01;
    (v) Reports required to be filed pursuant to parts 15 through 21 of 
this chapter;
    (vi) Reports concerning option positions of large traders required 
to be filed pursuant to part 16 of this chapter;
    (vii) Form 188; and
    (viii) The following reports and statements that are also set forth 
in paragraph (h) of this section, except as specified in 17 CFR 
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant 
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR 
pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed pursuant to 
17 CFR 31.13; the accountant's report on material inadequacies filed in 
accordance with 17 CFR 1.16(c)(5); all reports and statements required 
to be filed pursuant to 17 CFR 1.17(c)(6); and
    (A)(1) The following portions of Form CPO-PQR required to be filed 
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and (d); 
Question 3, subparts (g) and (h); Question 9; Question 10, subparts (b), 
(c), (d), (e), and (g); Question 11; Question 12; and Schedules B and C;
    (2) The following portions of Form CTA-PR required to be filed 
pursuant to 17 CFR 4.27: Question 2, subparts (c) and (d);
    (2) Information contained in reports, summaries, analyses, 
transcripts, letters or memoranda arising out of, in anticipation of or 
in connection with an examination or inspection of the books and records 
of any person or any other formal or informal inquiry or investigation; 
and
    (3) Information for which confidential treatment has been requested 
and granted in accordance withSec. 145.9;
    (e) Inter-agency or intra-agency memoranda or letters, except those 
which by law would routinely be made available to a party other than an 
agency in litigation with the Commission, including:
    (1) Records which reflect discussions between or consideration by 
members of the Commission or members of its staff, or both, of any 
action taken or proposed to be taken by the Commission or by any member 
of its staff; and
    (2) Reports, summaries, analyses, conclusions, or any other work 
product of members of the Commission or of attorneys, accountants, 
economists, analysts, or other members of the Commission's staff, 
prepared in the course of an inspection of the books or records of any 
person whose affairs are regulated by the Commission, or prepared 
otherwise in the course of any formal or informal inquiry, examination 
or investigation or related litigation conducted by or on behalf of the 
Commission;
    (f) Personnel files, medical files and similar files the disclosure 
of which would constitute a clearly unwarranted invasion of personal 
privacy, including but not limited to, information of that character 
contained in:
    (1) Files concerning employees of the Commission;
    (2) Files concerning persons subject to regulation by the 
Commission, including files with respect to applications for 
registration and biographical supplements submitted with such 
applications. Examples of the information on the applications and 
biographical supplements which may be protected are an individual's home 
address

[[Page 943]]

and telephone number, social security number, date and place of birth, 
fingerprints and, in appropriate cases, the information concerning prior 
arrests, indictments, criminal convictions or other judgments or 
sanctions imposed by State or Federal courts or regulatory authorities;
    (3) Files concerning information for which confidential treatment 
has been requested and granted in accordance withSec. 145.9;
    (g) Records or information compiled for law enforcement purposes to 
the extent that the production of such records or information:
    (1) Could reasonably be expected to interfere with enforcement 
activities undertaken or likely to be undertaken by the Commission or 
any other authority including, but not limited to, the Department of 
Justice or any United States Attorney or any Federal, State, local, or 
foreign governmental authority or any futures or securities industry 
self-regulatory organization;
    (2) Would deprive a person of a right to a fair trail or an 
impartial adjudication;
    (3) Could reasonably be expected to constitute an unwarranted 
invasion of personal privacy;
    (4) Could reasonably be expected to disclose the identity of a 
confidential source including a State, local or foreign agency or 
authority or any private institution which furnished information on a 
confidential basis and, in the case of a record or information compiled 
by a criminal law enforcement authority in the course of a criminal 
investigation or by an agency conducting a lawful national security 
intelligence investigation, information furnished by a confidential 
source;
    (5) Would disclose techniques or procedures or would disclose 
guidelines for law enforcement investigations or prosecutions if such 
disclosure could reasonably be expected to risk circumvention of the 
law; or
    (6) Could reasonably be expected to endanger the life or physical 
safety of any individual.
    (h) Contained in or related to examinations, operating, or condition 
reports prepared by, on behalf of, or for the use of the Commission or 
any other agency responsible for the regulation or supervision of 
financial institutions, including, but not limited to the following 
reports and statements that are also set forth in paragraph (d)(1)(viii) 
of this section, except as specified in 17 CFR 1.10(g)(2) and 17 CFR 
31.13(m): Forms 1-FR required to be filed pursuant to 17 CFR 1.10; FOCUS 
reports that are filed in lieu of Forms 1-FR pursuant to 17 CFR 1.10(h); 
Forms 2-FR required to be filed pursuant to 17 CFR 31.13; the 
accountant's report on material inadequacies filed in accordance with 17 
CFR 1.16(c)(5); all reports and statements required to be filed pursuant 
to 17 CFR 1.17(c)(6); and
    (1) The following portions of Form CPO-PQR required to be filed 
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and (d); 
Question 3, subparts (g) and (h); Question 9; Question 10, subparts (b), 
(c), (d), (e), and (g); Question 11; Question 12; and Question 13; and 
Schedules B and C;
    (2) The following portions of Form CTA-PR required to be filed 
pursuant to 17 CFR 4.27: Question 2, subparts (c) and (d); and
    (i) Geological and geophysical information and data, including maps, 
concerning wells.

(5 U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11), 4b, 4f, 4g, 5a, 8a, 
and 17 of the Commodity Exchange Act, 7 U.S.C. 2, 4a(j), 6b, 6f, 6g, 7a, 
12a, and 21, as amended, 92 Stat. 865 et seq.; secs. 2(a)(1), 4c(a)-(d), 
4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 
2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 
552b); secs. 2(a)(11) and 8 of the Commodity Exchange Act, 7 U.S.C. 4(j) 
and 12 (1983); secs. 8a(5) and 19 of the Commodity Exchange Act, as 
amended, 7 U.S.C. 12a(5) and 23 (1982); 5 U.S.C. 552 and 552b)

[41 FR 16290, Apr. 16, 1976, as amended at 44 FR 13458, Mar. 12, 1979; 
45 FR 2023, Jan. 10, 1980; 46 FR 24943, May 4, 1981; 46 FR 54534, Nov. 
3, 1981; 48 FR 35303, Aug. 3, 1983; 49 FR 4464, Feb. 7, 1984; 49 FR 
5541, Feb. 13, 1984; 51 FR 26870, July 28, 1986; 53 FR 4613, Feb. 17, 
1988; 54 FR 41084, Oct. 5, 1989; 62 FR 4642, Jan. 31, 1997; 64 FR 25, 
Jan. 4, 1999; 71 FR 5595, Feb. 2, 2006; 75 FR 55449, Sept. 10, 2010; 77 
FR 11342, Feb. 24, 2012]



Sec.  145.6  Commission offices to contact for assistance; registration
records available.

    (a) Whenever this part directs that a request be directed to the 
Assistant Secretary of the Commission for FOI,

[[Page 944]]

Privacy and Sunshine Acts Compliance, the request shall be made in 
writing and shall be addressed or otherwise directed to the Office of 
the Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. Requests for public 
records directed to a regional office of the Commission pursuant to 
Sec.  145.2 should be sent to:

Commodity Futures Trading Commission, 140 Broadway, New York, New York 
10005, Telephone: (646) 746-9700.
Commodity Futures Trading Commission, 525 West Monroe Street, Suite 1100 
North, Chicago, Illinois 60661, Telephone: (312) 596-0700.
Commodity Futures Trading Commission, Two Emanuel Cleaver II Blvd., 
Suite 300, Kansas City, Missouri 64112, Telephone: (816) 960-7700.

    (b)(1) The publicly available portions of Form 7-R (application for 
registration as a futures commission merchant, introducing broker, 
commodity trading advisor, commodity pool operator or leverage 
transaction merchant), Form 8-R (application for registration as an 
associated person, floor broker, floor trader and biographical 
supplement to application on Form 7-R), Form 3-R (changes and 
corrections; multiple associations) Form 8-S (certificate of special 
registration), Form 8-T (notice of termination), Form 7-W (withdrawal 
from firm registration) and Form 8-W (withdrawal from floor broker or 
floor trader registration) will be available for public inspection and 
copying. Such registration forms will be available in the offices of the 
National Futures Association, 200 West Madison Street, Chicago, Illinois 
60606. Telephone: (312) 781-1300.
    (2) The fingerprint card and any supplementary attachments filed in 
response to:
    (i) Items 6-9, 14-21, the ``Personal Information,'' or the 
``Disciplinary Information'' sections on Form 8-R;
    (ii) Item 3 on Form 8-S;
    (iii) Items 3-5, 9-11, the ``Withdrawal Reasons,'' the 
``Disciplinary Information,'' or the ``Matter Information'' sections on 
Form 8-T;
    (iv) Items 9-10 on Form 7-R;
    (v) Item 7 and the ``Additional Customer Information'' section on 
Form 7-W; and
    (vi) Item 7 on Form 8-W generally will not be available for public 
inspection and copying unless such disclosure is required under the 
Freedom of Information Act. Changes or corrections to those items 
reported on Form 3-R will be treated similarly. When such fingerprint 
cards or supplementary attachments are on file, the FOI, Privacy and 
Sunshine Acts compliance staff will decide any request for access in 
accordance with the procedures set forth in Sec.Sec. 145.7 and 145.9.

(7 U.S.C. 2, 4, 6, and 12; secs. 2(a)(1), 4c, 4d, 4e, 4f, 4k, 4m, 4n, 
4p, 8, 8a and 19 of the Commodity Exchange Act (7 U.S.C. 2 and 4, 6c, 
6d, 6e, 6f, 6k, 6m, 6n, 6p, 12, 12a and 23 (1982)); 5 U.S.C. 552 and 
552b)

[49 FR 39534, Oct. 9, 1984, and 51 FR 26870, July 28, 1986, as amended 
at 53 FR 8435, Mar. 15, 1988; 54 FR 19886, May 9, 1989; 57 FR 29203, 
July 1, 1992; 58 FR 19597, Apr. 15, 1993; 60 FR 49335, Sept. 25, 1995; 
64 FR 26, Jan. 4, 1999; 67 FR 62353, Oct. 7, 2002; 67 FR 63539, Oct. 15, 
2002; 69 FR 41426, July 9, 2004; 72 FR 16269, Apr. 4, 2007]



Sec.  145.7  Requests for Commission records and copies thereof.

    Requests for Commission records and copies thereof shall specify the 
preferred form or format (including electronic formats) of the response. 
The Commission will accommodate requesters as to form or format if the 
record is readily available in that form or format. When requesters do 
not specify the form or format of the response, the Commission will 
respond in the form or format in which the document is most accessible 
to the Commission.
    (a) Public inquiries and inspection of public records. Information 
concerning the nature and extent of available public records may be 
obtained in person, by telephone, via Internet (http://www.cftc.gov), or 
by writing to the Commission offices designated in Sec.Sec. 145.2 and 
145.6.
    (b) Requests for nonpublic records. Except as provided in paragraph 
(a) of this section with respect to public records, all requests for 
records maintained by the Commission shall be in writing, shall be 
addressed to the Assistant Secretary of the Commission

[[Page 945]]

for FOI, Privacy and Sunshine Acts Compliance, and shall be clearly 
marked ``Freedom of Information Act Request''.
    (c) Misdirected written requests/oral requests. (1) The Commission 
cannot assure that a timely or satisfactory response will be given to 
requests for records that are directed to the Commission other than in 
the manner prescribed in paragraph (b) of this section. Any misdirected 
written request for nonpublic records should be promptly forwarded to 
the Assistant Secretary of the Commission for FOI, Privacy and Sunshine 
Acts Compliance. Misdirected requests for nonpublic records will be 
considered to have been received for purposes of this section only when 
they actually have been received by the Assistant Secretary. The 
Commission will not entertain an appeal under paragraph (h) of this 
section from an alleged denial or failure to comply with a misdirected 
request, unless the request was in fact received by the Assistant 
Secretary for FOI, Privacy and Sunshine Acts Compliance.
    (2) While the Commission will attempt to comply with oral requests 
for copies of records designated by the Commission as public records, 
the Commission cannot assure a timely or satisfactory response to such 
requests. The Commission will not consider an oral request for nonpublic 
records. An appeal under paragraph (h) of this section from an alleged 
denial or failure to comply with an oral request will not be considered. 
Any person who has orally requested a copy of a record and who believes 
that the request was denied improperly should resubmit the request in 
writing in accordance with paragraph (b) of this section.
    (d) Description of requested records. Each written request for 
Commission records made under paragraph (b) of this section shall 
reasonably describe the records sought with sufficient specificity to 
permit the records to be located among the records maintained by or for 
the Commission. The Commission staff may communicate with the requester 
(by telephone when practicable) in an effort to reduce the 
administrative burden of processing a broad request and to minimize fees 
for copying and search services.
    (e) Description of requester and intended use of requested records. 
In each request for records, requesters shall reasonable identify 
themselves as a commercial user, educational institution, noncommercial 
scientific institution, or representative of the news media if one of 
these categories is applicable. The requester shall describe the use to 
which the records will be put.
    (f) Request for existing records. The Commission's response to a 
request for nonpublic records will encompass all nonpublic records 
identifiable as responsive to the request that are in existence on the 
date that the written request is received by the Assistant Secretary for 
FOI, Privacy and Sunshine Acts Compliance. The Commission need not 
create a new record in response to a FOIA request.
    (g) Fee agreement. A request for copies of records pursuant to 
paragraph (b) of this section must indicate the requester's agreement to 
pay all fees that are associated with the processing of the request, in 
accordance with the rates set forth in appendix B to part 145, or the 
requester's intention to limit the fees incurred to a stated amount. If 
the requester states a fee limitation, no work will be done that will 
result in fees beyond the stated amount. A requester who seeks a waiver 
or reduction of fees pursuant to paragraph (a)(8) of appendix B of this 
part must show that such a waiver or reduction would be in the public 
interest. If the Assistant Secretary receives a request for records 
under paragraph (b) of this section from a requester who has not paid 
fees from a previous request in accordance with appendix B of this part, 
the staff will decline to process the request until such fees have been 
paid.
    (h) Initial determination, denials. (1) With respect to any request 
for nonpublic records as defined inSec. 145.0(d), the Assistant 
Secretary of the Commission for FOI, Privacy and Sunshine Acts 
Compliance, or his or her designee, will forward the request to the 
Commission divisions or offices likely to maintain records that are 
responsive to the request. If a responsive record is located, the 
Assistant Secretary, or designee, will, in consultation with the 
Commission office in which the record

[[Page 946]]

was located, determine whether to comply with such request. The 
Assistant Secretary may, in his or her discretion, determine whether to 
comply with any portion of a request for nonpublic records before 
considering the remainder of the request.
    (2) Where it is determined to deny, in whole or in part, a request 
for nonpublic records, the Assistant Secretary, or designee, will notify 
the requester of the denial, citing applicable exemptions of the Freedom 
of Information Act or other provisions of law that require or allow the 
records to be withheld. The Assistant Secretary's response to the FOIA 
request should describe in general terms what categories of documents 
are being withheld under which applicable FOIA exemption or exemptions. 
The Assistant Secretary, in denying an initial request for records, is 
not required to provide the requester with an inventory of those 
documents determined to be exempt from disclosure.
    (3) The Assistant Secretary, or his or her designee, will issue an 
initial determination with respect to a FOIA request within twenty 
business days after receipt by the Assistant Secretary. In unusual 
circumstances, as defined in this paragraph, the prescribed time limit 
may be extended by written notice to the person making a request for a 
record or a copy. The notice shall set forth the reasons for the 
extension and the date on which a determination is expected to be 
dispatched. No such notice shall specify a date that would result in an 
extension for more than ten business days. As used in this paragraph, 
``unusual circumstances'' means, but only to the extent reasonably 
necessary to the proper processing of a particular request:
    (i) The need to search for and collect the requested records from 
field facilities or other establishments that are separate from the 
office processing the request;
    (ii) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which are demanded in 
a single request;
    (iii) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having a substantial interest in 
the determination of the request or among two or more components in the 
Commission having substantial subject matter interest therein;
    (iv) The need to coordinate a response with several Commission 
offices;
    (v) The need to obtain records currently being used by members of 
the Commission, the Commission staff, or the public;
    (vi) The need to respond to a large number of previously-filed FOIA 
requests.
    (i) Administrative review. (1) Any person who has been notified 
pursuant to paragraph (g) of this section that his request for records 
has been denied in whole or in part may file an application for review 
as set forth below.
    (2) An application for review must be received by the Office of 
General Counsel within 30 days of the date of the denial by the 
Assistant Secretary. This 30-day period shall not begin to run until the 
Assistant Secretary has issued an initial determination with respect to 
all portions of the request for nonpublic records. An application for 
review shall be in writing and shall be marked ``Freedom of Information 
Act Appeal.'' The original shall be sent to the Commission's Office of 
General Counsel. If the appeal involves information as to which the FOIA 
requester has received a detailed written justification of a request for 
confidential treatment pursuant toSec. 145.9(e), the requester must 
also serve a copy of the appeal on the submitter of the information.
    (3) The applicant must attach to the application for review a copy 
of all correspondence relevant to the request, i.e., the initial 
request, any correspondence amending or modifying the request, and all 
correspondence from the staff responding to the request.
    (4) The application for review shall state such facts and cite such 
legal or other authorities as the applicant may consider appropriate. 
The application may, in addition, include a description of the general 
benefit to the public from disclosure of that information.

[[Page 947]]

    (5) If the appeal involves information that is subject to a petition 
for confidential treatment filed underSec. 145.9, the submitter of the 
information shall have an opportunity to respond in writing to the 
appeal within 10 business days of the date of filing of the appeal. Any 
response shall be sent to the Commission's Office of General Counsel. 
Copies shall be sent to the Assistant Secretary of the Commission for 
FOI, Privacy and Sunshine Acts Compliance and to the person requesting 
the information.
    (6) The General Counsel, or his or her designee, shall have the 
authority to consider all appeals under this section from initial 
determinations of the Assistant Secretary of the Commission for FOI, 
Privacy and Sunshine Acts Compliance. The General Counsel may:
    (i) Determine either to affirm or to reverse the initial 
determination in whole or in part;
    (ii) Determine to disclose a record, even if exempt, if good cause 
for doing so either is shown by the application or otherwise appears;
    (iii) Remand the matter to the Assistant Secretary (A) to correct a 
deficiency in the initial processing of the request, or (B) when an 
investigation as to which the staff originally claimed exemption from 
mandatory disclosure on the basis of 5 U.S.C. 555(b)(7)(A) or 7 U.S.C. 
12(a) is subsequently closed; or;
    (iv) Refer the matter to the Commission for a decision.
    (7) If the initial denial of the request for nonpublic records is 
reversed, the Office of General Counsel shall, in writing, advise the 
requester that the records will be available on or after a specified 
date. If, on appeal, the denial of access to a record is affirmed in 
whole or in part, the person who requested the information shall be 
notified in writing of (1) the reasons for the denial and (2) the 
provisions of 5 U.S.C. 552(a)(4) providing for judicial review of a 
determination to withhold records.
    (j) Expedited processing. A request may be given expedited 
processing if the requester demonstrates a compelling need for the 
requested records. For purposes of this provision, the term ``compelling 
need'' means: That a failure to obtain requested records on an expedited 
basis could reasonably be expected to pose an imminent threat to the 
life or physical safety of an individual; or with respect to a request 
made by a person primarily engaged in disseminating information, urgency 
to inform the public concerning actual or alleged federal government 
activity. A requester who seeks expedited processing must demonstrate a 
compelling need by submitting a statement that is certified by the 
requester to be true and correct to the best of that person's knowledge 
and belief. The Assistant Secretary, or his or her designee, will 
determine whether to provide expedited processing, and notice of the 
determination will be provided to the requester, within ten days after 
the date of the request. If the request for expedited processing is 
denied, the requester may file an appeal with the Office of General 
Counsel within ten days of the date of the denial by the Assistant 
Secretary. The Office of General Counsel will respond to the appeal 
within ten days after the date of the appeal.

[51 FR 26870, July 28, 1986, as amended at 52 FR 19307, May 22, 1987; 62 
FR 17069, Apr. 9, 1997; 69 FR 67507, Nov. 18, 2004]



Sec.  145.8  Fees for records services.

    A schedule of fees for record services, including locating, and 
making records available, and copying, appears in appendix B to this 
part 145. Copies of the schedule of fees may also be obtained upon 
request made in person, by telephone or by mail from the FOI, Privacy 
and Sunshine Acts compliance staff, Office of the Secretariat or at any 
regional office of the Commission.

(7 U.S.C. 4a(j) and 16a as amended by Pub. L. 97-444, 96 Stat. 2294 
(1983), and 5 U.S.C. 552, 552a and 552b)

[41 FR 16290, Apr. 16, 1976, as amended at 49 FR 12684, Mar. 30, 1984]



Sec.  145.9  Petition for confidential treatment of information 
submitted to the Commission.

    (a) Purpose. This section provides a procedure by which persons 
submitting information in any form to the Commission can request that 
the information not be disclosed pursuant to a request under the Freedom 
of Information Act, 5 U.S.C. 552. This section does

[[Page 948]]

not affect the Commission's right, authority, or obligation to disclose 
information in any other context.
    (b) Scope. The provisions of this section shall apply only where the 
Commission has not specified that an alternative procedure be utilized 
in connection with a particular study, report, investigation, or other 
matter. See 40.8 for procedures to be utilized in connection with filing 
information required to be filed pursuant to 17 CFR parts 40 and 41.
    (c) Definitions. The following definitions apply to this section:
    (1) Submitter. A ``submitter'' is any person who submits any 
information or material to the Commission or who permits any information 
or material to be submitted to the Commission. For purposes of paragraph 
(d)(1)(ii) of this section only, ``submitter'' includes any person whose 
information has been submitted to a designated contract market, 
derivatives clearing organization, swap execution facility, swap data 
repository or registered futures association that in turn has submitted 
the information to the Commission.
    (2) FOIA requester. A ``FOIA requester'' is any person who files 
with the Commission a request to inspect or copy Commission records or 
documents pursuant to the Freedom of Information Act, 5 U.S.C. 552.
    (d) Written request for confidential treatment. (1) Any submitter 
may request in writing that the Commission afford confidential treatment 
under the Freedom of Information Act to any information that he or she 
submits to the Commission. Except as provided in paragraph (d)(4) of 
this section, no oral requests for confidential treatment will be 
accepted by the Commission. The submitter shall specify the grounds on 
which confidential treatment is being requested but need not provide a 
detailed written justification of the request unless required to do so 
under paragraph (e) of this section. Confidential treatment may be 
requested only on the grounds that disclosure:
    (i) Is specifically exempted by a statute that either requires that 
the matters be withheld from the public in such manner as to leave no 
discretion on the issue or establishes particular criteria for 
withholding or refers to particular types of matters to be withheld.
    (ii) Would reveal the submitter's trade secrets or confidential 
commercial or financial information.
    (iii) Would constitute a clearly unwarranted invasion of the 
submitter's personal privacy.
    (iv) Would reveal investigatory records compiled for law enforcement 
purposes whose disclosure would deprive the submitter of a right to a 
fair trial or an impartial adjudication.
    (v) Would reveal investigatory records compiled for law enforcement 
purposes whose disclosure would constitute an unwarranted invasion of 
the personal privacy of the submitter.
    (vi) Would reveal investigatory records compiled for law enforcement 
purposes when disclosure would interfere with enforcement proceedings or 
disclose investigative techniques and procedures, provided, that the 
claim may be made only by a designated contract market, derivatives 
clearing organization, swap execution facility, swap data repository or 
registered futures association with regard to its own investigatory 
records.
    (2) The original of any written request for confidential treatment 
must be sent to the Assistant Secretary of the Commission for FOI, 
Privacy and Sunshine Acts Compliance. A copy of any request for 
confidential treatment shall be sent to the Commission division or 
office receiving the original of any material for which confidential 
treatment is being sought.
    (3) A request for confidential treatment shall be clearly marked 
``FOIA Confidential Treatment Request'' and shall contain the name, 
address, and telephone number of the submitter. The submitter is 
responsible for informing the Assistant Secretary of the Commission for 
FOI, Privacy and Sunshine Acts Compliance of any changes in his or her 
name, address, and telephone number.
    (4) A request for confidential treatment should accompany the 
material for which confidential treatment is being sought. If a request 
for confidential treatment is filed after the filing of such material, 
the submitter shall have the burden of showing that it was

[[Page 949]]

not possible to request confidential treatment for that material at the 
time the material was filed. A request for confidential treatment of a 
future submission will not be processed. All records which contain 
information for which a request for confidential treatment is made or 
the appropriate segregable portions thereof should be marked by the 
person submitting the records with a prominent stamp, typed legend, or 
other suitable form of notice on each page or segregable portion of each 
page stating ``Confidential Treatment Requested by [name].'' If such 
marking is impractical under the circumstances, a cover sheet 
prominently marked ``Confidential Treatment Requested by [name]'' should 
be securely attached to each group of records submitted for which 
confidential treatment is requested. Each of the records transmitted in 
this matter should be individually marked with an identifying number and 
code so that they are separately identifiable. In some circumstances, 
such as when a person is testifying in the course of a Commission 
investigation or providing documents requested in the course of a 
Commission inspection, it may be impractical to submit a written request 
for confidential treatment at the time the information is first provided 
to the Commission. In no circumstances can the need to comply with the 
requirements of this section justify or excuse any delay in submitting 
information to the Commission. Rather, in such circumstances, the person 
testifying or otherwise submitting information should inform the 
Commission employee receiving the information, at the time the 
information is submitted or as soon thereafter as practicable, that the 
person is requesting confidential treatment for the information. The 
person shall then submit a written request for confidential treatment 
within 30 days of the submission of the information. If access is 
requested under the Freedom of Information Act with respect to material 
for which no timely request for confidential treatment has been made, it 
may be presumed that the submitter of the information has waived any 
interest in asserting that the material is confidential.
    (5) A request for confidential treatment shall state the length of 
time for which confidential treatment is being sought.
    (6) A request for confidential treatment (as distinguishing from the 
material that is the subject of the request) shall be considered a 
public document. When a submitter deems it necessary to include, in its 
request for confidential treatment, information for which it seeks 
confidential treatment, the submitter shall place that information in an 
appendix to the request.
    (7) On 10 business days notice from the Assistant Secretary, a 
submitter shall submit a detailed written justification of a request for 
confidential treatment, as specified in paragraph (e) of this section. 
Upon request and for good cause shown, the Assistant Secretary may grant 
an extension of such time. The Assistant Secretary will notify the 
submitter that failure to provide timely a detailed written 
justification will be deemed a waiver of the submitter's opportunity to 
appeal an adverse determination.
    (8)(i) Requests for confidential treatment for any reasonably 
segregable material that is not exempt from public disclosure under the 
Freedom of Information Act, as implemented inSec. 145.5, shall be 
summarily rejected underSec. 145.9(d)(9). Requests for confidential 
treatment of public information contained in financial reports as 
specified inSec. 1.10 shall not be processed. A submitter has the 
burden of specifying clearly and precisely the material that is the 
subject of the confidential treatment request. A submitter may be able 
to meet this burden in various ways, including:
    (A) Segregating material for which confidential treatment is being 
sought;
    (B) Submitting two copies of the submission: a copy from which 
material for which confidential treatment is being sought has been 
obliterated, deleted, or clearly marked and an unmarked copy; and
    (C) Clearly describing the material within a submission for which 
confidential treatment is being sought.
    (ii) A submitter shall not employ a method of specifying the 
material for which confidential treatment is being sought if that method 
makes it unduly

[[Page 950]]

difficult for the Commission to read the full submission, including all 
portion claimed to be confidential, in its entirely.
    (9) If a submitter fails to follow the procedures set forth in 
paragraphs (d)(1) through (d)(8) of this section, the Assistant 
Secretary of the Commission for FOI, Privacy and Sunshine Acts 
Compliance or his or her designee may summarily reject the submitter's 
request for confidential treatment with leave to the submitter to refile 
a proper petition. Failure of the Assistant Secretary or his or her 
designee summarily to reject a confidential treatment request pursuant 
to this paragraph shall not be construed to indicate that the submitter 
has complied with the procedures set forth in paragraphs (d)(1) through 
(d)(8) of this section.
    (10) Except as provided in paragraph (d)(9) of this section, no 
determination with respect to any request for confidential treatment 
will be made until the Commission receives a Freedom of Information Act 
request for the material for which confidential treatment is being 
sought.
    (e) Detailed written justification of request for confidential 
treatment. (1) If the Assistant Secretary or his or her designee 
determines that a FOIA request seeks material for which confidential 
treatment has been requested pursuant toSec. 145.9, the Assistant 
Secretary or his or her designee shall require the submitter to file a 
detailed written justification of the confidential request within ten 
business days (unless underSec. 145.9(d)(7) an extension of time has 
been granted) of that determination unless, pursuant to an earlier FOIA 
request, a prior determination to release or withhold the material has 
been made, the submitter has already provided sufficient information to 
grant the request for confidential treatment; or the material is 
otherwise in the public domain. The detailed written justification shall 
be filed with the Assistant Secretary of the Commission for FOI, Privacy 
and Sunshine Acts Compliance. It shall be clearly marked ``Detailed 
Written Justification of FOIA Confidential Treatment Request'' and shall 
contain the request number supplied by the Commission. The submitter 
shall also send a copy of the detailed written justification to the FOIA 
requester at the address specified by the Commission.
    (2) The period for filing a detailed written justification may be 
extended upon request and for good cause shown.
    (3) The detailed written justification of the confidential treatment 
request shall contain:
    (i) The reasons, referring to the specific exemptive provisions of 
the Freedom of Information Act listed in paragraph (d)(1) of this 
section, why the information that is the subject of the FOIA request 
should be withheld from access under the Freedom of Information Act;
    (ii) The applicability of any specific statutory or regulatory 
provisions that govern or may govern the treatment of the information;
    (iii) The existence and applicability of prior determinations by the 
Commission, other federal agencies, or courts concerning the specific 
exemptive provisions of the Freedom of Information Act pursuant to which 
confidential treatment is being requested. Submitters shall satisfy any 
evidentiary burdens imposed upon them by applicable Freedom of 
Information Act case law.
    (iv) Such additional facts and authorities as the submitter may 
consider appropriate.
    (4) The detailed written justification of a confidential treatment 
request shall be accompanied by affidavits to the extent necessary to 
establish the facts necessary to satisfy the submitter's evidentiary 
burden.
    (5) The detailed written justification of a confidential treatment 
request (as distinguished from the material that is the subject of the 
request) shall be considered a public document. However, a submitter 
will be permitted to submit to the Commission supplementary confidential 
affidavits with his or her detailed written justification if that is the 
only way in which he or she can convincingly demonstrate that the 
material that is the subject of the confidential treatment request 
should not be disclosed to the FOIA requester.
    (f) Initial determination with respect to petition for confidential 
treatment. (1)

[[Page 951]]

The Assistant Secretary for FOI, Privacy and Sunshine Acts Compliance or 
his or her designee, in consultation with the Office in which the record 
was located, shall issue an initial determination with respect to a 
confidential treatment request for material that is responsive to the 
FOIA request. This determination shall be issued at the same time as the 
initial determination with respect to the FOIA request. SeeSec. 
145.7(g). To the extent that the initial determination grants a 
confidential treatment request in full or in part, it should specify the 
FOIA exemptions upon which this determination is based and briefly 
describe the material to which each exemption applies. SeeSec. 
145.7(g)(2). To the extent that the initial determination denies 
confidential treatment to any material for which confidential treatment 
was requested, it should briefly describe the material for which 
confidential treatment is denied.
    (2) If the Assistant Secretary or his or her designee determines 
that a confidential treatment request shall be denied in full or in 
part, the submitter shall be informed of his or her right to appeal to 
the Commission's General Counsel in accordance with the procedures set 
forth in paragraph (g) of this section. The material for which 
confidential treatment was denied shall be released to the FOIA 
requester if the submitter does not file an appeal within 10 business 
days of the date on which his or her request was denied.
    (3) If the Assistant Secretary or his or her designee determines 
that a confidential treatment request shall be granted in full or in 
part, the FOIA requester shall be informed of his or her right to appeal 
to the Commission's General Counsel in accordance with the procedures 
set forth inSec. 145.7(h).
    (g) Appeal from initial determination that confidential treatment is 
not warranted. (1) An appeal from an initial determination to deny a 
confidential treatment request in full or in part shall be filed with 
the General Counsel of the Commission. No disclosure of the material 
that is the subject of the appeal shall be made until the appeal is 
resolved. If both a submitter and a FOIA requester appeal to the General 
Counsel from a partial grant and partial denial of a confidential 
treatment request, those appeals shall be consolidated.
    (2) Any appeal of a denial of a request for confidential treatment 
shall be in writing, and shall be clearly marked ``FOIA Confidential 
Treatment Appeal.'' The appeal shall include a copy of the initial 
determination and shall clearly indicate the portions of the initial 
determination from which an appeal is being taken.
    (3) The appeal shall be sent to the Commission's Office of General 
Counsel. A copy of the appeal shall be sent to the FOIA requester. The 
General Counsel or his or her designee shall have the authority to 
consider all appeals from initial determinations of the Assistant 
Secretary of the Commission for FOI, Privacy and Sunshine Acts 
compliance. The General Counsel may, in his sole and unfettered 
discretion, refer such appeals and questions concerning stays under 
paragraph (g)(10) of this section to the Commission for decision.
    (4) In the appeal, the submitter may supply additional 
substantiation for his or her request for confidential treatment, 
including additional affidavits and additional legal argument. Such 
submissions shall be governed by paragraph (e)(5) of this section.
    (5) The FOIA requester shall have an opportunity to respond in 
writing to the appeal within 10 business days of the date of filing of 
the FOIA Confidential Treatment Appeal. The FOIA requester need not 
respond, however. Any response shall be sent to the Commission's Office 
of General Counsel. A copy shall be sent to the submitter.
    (6) All FOIA Confidential Treatment Appeals and all responses 
thereto shall be considered public documents.
    (7) The General Counsel will make a determination with respect to 
any appeal within twenty business days after receipt by the Office of 
General Counsel of such appeal or within such extended period as may be 
permitted in accordance with the standards set forth inSec. 
145.7(g)(3). Although other procedures may be employed, to the extent 
possible the General Counsel will

[[Page 952]]

decide the appeal on the basis of the affidavits and other documentary 
evidence submitted by the submitter and the FOIA requests.
    (8) The General Counsel or his or her designee shall have the 
authority to remand any matter to the Assistant Secretary of the 
Commission for FOI, Privacy and Sunshine Acts Compliance to correct 
deficiencies in the initial processing of the confidential treatment 
request.
    (9) If the General Counsel or his or her designee denies a 
confidential treatment appeal in full or in part, the information for 
which confidential treatment is denied shall be disclosed to the FOIA 
requester 10 business days later, subject to any stay entered pursuant 
to paragraph (g)(10) of this section.
    (10) The General Counsel or his or here designee shall have the 
authority to enter and vacate stays as set forth below. If, within 10 
business days of the date of issuance of a determination by the General 
Counsel or his or her designee to disclose information for which a 
submitter sought confidential treatment, the submitter commences an 
action in federal court concerning that determination, the General 
Counsel will stay the public disclosure of the information pending final 
judicial resolution of the matter. The General Counsel or his or her 
designee may vacate a stay entered under this section, either on his or 
her own motion or at the request of the FOIA requester. If such a stay 
is vacated, the information will be released to the requester 10 
business days after the submitter is notified of this action, unless a 
court orders otherwise.
    (h) Extensions of time limits. Any time limit under this section may 
be extended for good cause shown, in the discretion of the Commission, 
the Commission's General Counsel, or the Assistant Secretary of the 
Commission for FOI, Privacy and Sunshine Acts Compliance.
    (i) A submitter whose confidential treatment request has been upheld 
by the Commission shall, upon request of the General Counsel, aid the 
Commission in defending a court action to compel the Commission to 
disclose the information subject to the confidential treatment request. 
If the submitter is unwilling to aid the Commission in this regard, the 
General Counsel may, in appropriate cases, make the information 
available to the public.

[51 FR 26871, July 28, 1986, as amended at 64 FR 26, Jan. 4, 1999; 69 FR 
67507, Nov. 18, 2004; 74 FR 17395, Apr. 15, 2009; 77 FR 66348, Nov. 2, 
2012]



Sec. Appendix A to Part 145--Compilation of Commission Records Available 
                              to the Public

    The following documents are available, upon request, directly from 
the office indicated. Unless otherwise noted, the mailing address for 
the Commission offices listed below is Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    (a) Office of External Affairs. (1) Commitments of Traders Reports.
    (2) Weekly Advisory (solely available on the Commission's Web site 
at http://www.cftc.gov/cftc/cftcpressoffice.htm).
    (3) Studies Prepared by Commission staff.
    (4) Educational material (e.g., newsletters, brochures, annual 
reports, conference or advisory meetings, technical information about 
specific markets or contracts).
    (5) Press releases.
    (6) Rule enforcement and financial reviews (public version).
    (7) CFTC litigation documents (e.g. administrative and civil 
complaints, injunctions, initial decisions, opinions and orders).
    (8) Commission rules and regulations, Federal Register notices, 
interpretative letters.
    (9) Speeches, Commissioner biographies and photographs.
    (10) Statistical data concerning the Commission's budget.
    (11) Statistical data concerning specific contracts and markets.
    (b) Office of the Secretariat (Public reading area with copying 
facilities available). (1) Comment letters and CFTC summaries of comment 
letters.
    (2) Terms and conditions of proposed contracts.
    (3) Registered entity filings relating to rules as defined inSec. 
40.1 of this chapter, unless covered by a request for confidential 
treatment.
    (4) National Futures Association (NFA) rule amendments.
    (5) Exchange and NFA disciplinary action notifications.
    (6) Open Commission meeting minutes.
    (7) Sunshine certificates for closed Commission meetings.
    (8) CFTC Advisory Committee final reports.
    (9) Opinions and orders of the Commission.

[[Page 953]]

    (10) Reparations orders and enforcement orders index.
    (11) Rulemaking index.
    (12) Exchange membership notification.
    (13) Publicly available portions of applications to become a 
registered entity including the transmittal letter, first page of the 
application cover sheet, proposed rules, proposed bylaws, corporate 
documents, any overview or similar summary provided by the applicant, 
any documents pertaining to the applicant's legal status and governance 
structure, including governance fitness information, and any other part 
of the application not covered by a request for confidential treatment.
    (c) Office of Proceedings. (1) Documents contained in reparations 
and enforcement cases, unless subject to protective order.
    (2) Complaint packages, which contain the Reparation Rules, Brochure 
``Questions and Answers About How You Can Resolve a Commodity-Market 
Related Dispute,'' and the complaint form.
    (3) Rules of Practice concerning administrative enforcement 
proceedings.
    (d) Executive Director, Administrative Services Section. Information 
Collection requests submitted to the Office of Management and Budget 
relating to requirements under the Paperwork Reduction Act of 1980, Pub. 
L. 96-511.
    (e) Division of Market Oversight. (1) Weekly stocks of grain 
reports.
    (2) Weekly cotton or call reports.
    (f) Division of Enforcement. Complaint package containing Division 
of Enforcement Questionnaire and list of federal, state and local 
enforcement authorities.
    (g) Division of Clearing and Intermediary Oversight. Publicly 
available portions of registration documents are available from the 
National Futures Association, 200 West Madison Street, Chicago, Illinois 
60606. See Commission Rule 145.6.

[51 FR 26874, July 28, 1986, as amended at 57 FR 29203, July 1, 1992; 59 
FR 5528, Feb. 7, 1994; 60 FR 49335, Sept. 25, 1995; 64 FR 27, Jan. 4, 
1999; 67 FR 62353, Oct. 7, 2002; 67 FR 63539, Oct. 15, 2002; 69 FR 
67507, Nov. 18, 2004; 77 FR 66348, Nov. 2, 2012]



              Sec. Appendix B to Part 145--Schedule of Fees

    (a) Charges for requests. The following charges may be made where 
applicable for responding to requests for records.
    (1) $4.75 for each quarter hour spent by clerical personnel in 
searching for or reviewing records.
    (2) When a search or review cannot be performed by clerical 
personnel, $10.25 for each quarter hour spent by professional personnel 
in searching or reviewing records.
    (3) When searches require the expertise of a computer specialist, 
staff time for programming and performing searches will be charged at 
$10.25 per quarter hour. For searches of records stored on personal 
computers used as workstations by Commission staff and shared access 
network servers, the computer processing time is included in the search 
time for the staff member using the workstation as set forth in 
paragraph (a) of this appendix.
    (4) Document duplication, including computer printouts, will be 
charged at $0.15 per page.
    (5) For copies of materials other than paper records, the requester 
will be charged the actual cost of materials and reproduction, including 
the time of clerical personnel at a rate of $4.75 per quarter hour.
    (6) When a request has been made and granted to examine Commission 
records at an office of the Commission other than the office in which 
the records are routinely maintained, the requester:
    (i) Will reimburse the Commission for the actual cost of 
transporting the records; and
    (ii) Will be charged at a rate of $4.75 for each quarter hour spent 
by clerical personnel in preparing the records for transit.
    (7) For certifying that requested records are true copies, the 
charge will be $3.00 per certification.
    (8) Upon request, records will be mailed by means of overnight or 
express mail at the fee of $10.00 per package mailed.
    (b) Waiver or reduction of fees. Fees will be waived or reduced by 
the Commission if:
    (1) The fee is less than or equal to $10.00, the approximate cost to 
the Commission of collecting the fee; or,
    (2) If the Commission determines that the disclosure of the 
information is likely to contribute significantly to public 
understanding of the operations or activities of the government and is 
not primarily in the commercial interest of the requester.
    (c) Applicability of fees. Fees shall be charged even if no records 
are ultimately furnished to the requester. Fees apply to various types 
of requests as follows.
    (1) Commercial use request. Fees for search time, review time and 
duplication of records will be charged to requests from or on behalf of 
one who seeks information for a user or purpose that furthers the 
commercial, trade or profit interests of the requester or the person on 
whose behalf the request is made.
    (2) Educational institution or noncommercial scientific institution. 
Only duplication fees will be charged to schools or to organizations 
which operate solely for the purpose of scientific research, the results 
of which are not intended to promote any particular product or industry. 
No charge will be made for the first 100 pages duplicated or for search 
or review time.
    (3) Representative of the news media. Only duplication fees will be 
charged to any person actively gathering news for an entity

[[Page 954]]

that is organized and operated to publish or broadcast news to the 
public. No charge will be made for the first 100 pages duplicated or for 
search or review time.
    (4) Other requesters. Fees for search time and duplication will be 
charged to requesters who are not covered by one of the categories 
above. No charge will be made for the first two hours of search time, 
the first 100 pages of duplication, or for review time. If the search is 
for records stored in a computer format, a combination of computer 
operation charges and search time charges will be waived up to the 
equivalent of two hours of professional search time.
    (d) Aggregation of requests. For purposes of determining fees, the 
Commission may aggregate reasonably related requests if multiple 
requests are made within a 30-day period or if there is a solid basis 
for believing that multiple requests were made solely to avoid fees.
    (e) Notification of fees. A request for Commission records may state 
that the party is willing to pay fees up to a stated limit for services 
to be provided in searching, reviewing and duplicating requested 
records. If such a statement is made, no work will be done that will 
result in fees beyond the stated limit without written authorization. If 
no limit is stated, no work will be done that will result in fees in 
excess of $25.00 without written authorization from the requester.
    (f) Advance payment of fees. The Commission may request advance 
payment of all or part of the fee (i) when fees are expected to exceed 
$250; or (ii) when a requester has previously failed to pay fees in a 
timely fashion.
    (g) Payment of fees. Payment should be made by check or money order 
payable to the Commodity Futures Trading Commission.
    (h) Interest on fees. The Commission will begin charging interest on 
unpaid bills starting on the 31th day following the day on which the 
bill was sent. Interest will be at the rate prescribed in 31 U.S.C. 
3717.
    (i) Collection of fees. If fees not paid, the Commission may 
disclose debts to appropriate authorities for collection or to consumer 
reporting agencies.

[52 FR 19308, May 22, 1987, as amended at 64 FR 27, Jan. 4, 1999; 69 FR 
67507, Nov. 18, 2004]



                 Sec. Appendix C to Part 145 [Reserved]



PART 146_RECORDS MAINTAINED ON INDIVIDUALS--Table of Contents



Sec.
146.1 Purpose and scope.
146.2 Definitions.
146.3 Requests by an individual for information or access.
146.4 Procedures for identifying the individual making the request.
146.5 Disclosure of requested information to individuals; fees for 
          copies of records.
146.6 Disclosure to third parties.
146.7 Content of systems of records.
146.8 Amendment of a record.
146.9 Appeals to the Commission.
146.10 Information supplied by the Commission when collecting 
          information from an individual.
146.11 Public notice of records systems.
146.12 Exemptions.
146.13 Inspector General exemptions.

Appendix A to Part 146--Fees for Copies of Records Requested Under the 
          Privacy Act of 1974

    Authority: 88 Stat. 1896 (5 U.S.C. 552a), as amended; 88 Stat. 1389 
(7 U.S.C. 4a(j)).

    Source: 41 FR 3212, Jan. 21, 1976, unless otherwise noted.



Sec.  146.1  Purpose and scope.

    (a) This part contains the rules of the Commodity Futures Trading 
Commission implementing the Privacy Act of 1974 (Pub. L. 93-579, 5 
U.S.C. 552a). These rules apply to all records maintained by this 
Commission which are not excepted or exempted as set forth inSec. 
146.12, insofar as they contain personal information concerning an 
individual, identify that individual by name or other symbol and are 
contained in a system of records from which information is retrieved by 
the individual's name or identifying symbol. Among the primary purposes 
of these rules are to permit individuals to determine whether 
information about them is contained in Commission files and, if so, to 
obtain access to that information; to establish procedures whereby 
individuals may have inaccurate and incomplete information corrected; 
and, to restrict access by unauthorized persons to that information.
    (b) In this part the Commission is also exempting certain Commission 
systems of records from some of the provisions of the Privacy Act of 
1974 that would otherwise be applicable to those systems. These 
exemptions are authorized under the Privacy Act, 5 U.S.C. 552a(k).



Sec.  146.2  Definitions.

    For purposes of this part 146:

[[Page 955]]

    (a) The term Commission means the Commodity Futures Trading 
Commission;
    (b) The term Executive Director refers to the executive level staff 
official appointed pursuant to section 2(a)(5) of the Commodity Exchange 
Act.
    (c) The term FOI, Privacy and Sunshine Acts compliance staff refers 
to the staff in the Office of the Secretariat in the Commission's 
principal office in Washington, DC who are assigned to respond to 
requests and handle various other matters under the Freedom of 
Information Act, the Privacy Act of 1974 and the Government in the 
Sunshine Act;
    (d) The term individual means a citizen of the United States or an 
alien lawfully admitted for permanent residence;
    (e) The term maintain includes maintain, collect, use, or 
disseminate;
    (f) The term record means any item, collection, or grouping of 
information about an individual that is maintained by the Commission, 
including but not limited to, his education, financial transactions, and 
criminal or employment history and that contains his name, or the 
identifying number, symbol, or other identifying particular assigned to 
the individual;
    (g) The term system of records means a group of any records under 
the control of the Commission from which information is retrieved by the 
name of the individual or by some identifying number, symbol, or other 
identifying particular assigned to the individual;
    (h) The term system notice means a notice of the existence and 
character of the Commission's system of records published in the Federal 
Register pursuant toSec. 146.11(a) of these rules;
    (i) The term routine use means, with respect to the disclosure of a 
record, the use of that record for a purpose which is compatible with 
the purpose for which it was collected;
    (j) The term Freedom of Information Act encompasses both the Freedom 
of Information Act, as amended, 5 U.S.C. 552, and the Commission's rules 
contained in part 145 of this title.
    (k) The term agency means any executive department, military 
department, Government corporation, Government controlled corporation or 
other establishment in the Executive branch of the Government or any 
independent regulatory agency.

[41 FR 3212, Jan. 21, 1976, as amended at 45 FR 26954, Apr. 22, 1980]



Sec.  146.3  Requests by an individual for information or access.

    (a) Any individual may request information on whether a system of 
records maintained by the Commission contains any information pertaining 
to him, or may request access to his record or to any information 
pertaining to him which is contained in a system of records. All 
requests shall be directed to the FOI, Privacy and Sunshine Acts 
compliance staff, Office of the Secretariat, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (b) A request for information or for access to records under this 
part may be made by mail or in person. The request shall:
    (1) Be in writing and signed by the individual making the request;
    (2) Include the full name (including the middle name) of the 
individual seeking the information or record, his home address and 
telephone number, his business address and telephone number; and
    (3) If he is or ever has been registered with the Commission or its 
predecessor agency, or associated with a firm so registered as a 
partner, officer or director or 10% shareholder, state in what capacity 
he is or was registered.
    (c) For each system of records from which information is sought, the 
request shall:
    (1) Specify the title and identifying number for that system as it 
appears in the system notice published by the Commission;
    (2) Provide additional identifying information, if any, specified in 
the system notice;
    (3) Describe the specific information or kind of information sought 
within that system of records; and
    (4) Set forth any special arrangements sought concerning the time, 
place, or form of access. A description of the information contained in 
a system notice and instructions on how to

[[Page 956]]

obtain copies of the Commission's system notices appear inSec. 
146.11(b).
    (d) The Commission will respond in writing to a request made under 
this section within ten days (excluding Saturdays, Sundays and legal 
public holidays) after receipt of the request. If a definitive reply 
cannot be given within ten days, the request will be acknowledged and an 
explanation will be given of the status of the request.
    (e) When an individual has requested access to records, available to 
him under these rules, he will either be notified in writing of where 
and when he may obtain access to the records requested or be given the 
name, address and telephone number of the member of the Commission staff 
with whom he should communicate to make further arrangements for access.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 49335, Sept. 25, 1995]



Sec.  146.4  Procedures for identifying the individual making 
the request.

    When a request for information or for access to records has been 
made pursuant toSec. 146.3, before information is given or access is 
granted pursuant toSec. 146.5 of these rules the Commission shall 
require reasonable identification of the person making the request to 
insure that information is given and records are disclosed only to the 
proper person.
    (a) An individual may establish his identity by:
    (1) Submitting with his request for information or for access a 
photocopy of two pieces of identification bearing his name and 
signature, one of which shall bear his current home or business address; 
or
    (2) Appearing at any office of the Commission (located at the 
addresses set forth inSec. 145.6 of these rules) during the regular 
working hours for that office and presenting either:
    (i) One piece of identification containing a photograph and 
signature, such as a drivers license or passport or
    (ii) Two pieces of identification bearing his name and signature, 
one of which shall bear his current home or business address; or
    (3) Providing such other proof of identity as the Commission deems 
satisfactory in the circumstances of a particular request.
    (b) If the Executive Director or other designated Commission 
official determines that the data in a requested record is so sensitive 
that unauthorized access could cause harm or embarrassment to the person 
whose record is involved, or if the person making the request is unable 
to produce satisfactory evidence of identity under paragraph (a) of this 
section, the individual making the request may be required to submit a 
notarized statement attesting to his identity and that he is familiar 
with and understands the criminal penalties provided under section 1001 
of title 18 of the U.S. Code for making false statements to a Government 
agency and under the Privacy Act, section 552a(i)(3) of title 5 of the 
U.S. Code, for obtaining records under false pretenses. Copies of these 
statutory provisions and forms for such notarized statements may be 
attained upon request from the FOI, Privacy and Sunshine Acts compliance 
staff, Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (c) The parent or guardian of a minor or a person judicially 
determined to be incompetent, in addition to establishing the identity 
of the person he represents as described in the previous paragraphs of 
this section, shall establish his own identity and his parentage or 
guardianship by furnishing a copy of a birth certificate showing 
parentage or a court order establishing the guardianship.
    (d) Nothing in this section shall preclude the Commission from 
requiring additional identification before granting access to the 
records if there is reason to believe that the person making the request 
may not be the individual to whom the record pertains, or where the 
sensitivity of the data warrants it.
    (e) The requirements of this section shall not apply if the records 
involved would be available to any person pursuant to the Commission's 
rules under the Freedom of Information Act as set forth in part 145 of 
this chapter.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 49335, Sept. 25, 1995]

[[Page 957]]



Sec.  146.5  Disclosure of requested information to individuals;
fee for copies of records.

    (a) Any individual who has requested access to his record or to any 
information pertaining to him in the manner prescribed inSec. 146.3, 
and has identified himself as prescribed inSec. 146.4, shall be 
permitted to review the record and have a copy made of all or any 
portion thereof in a form comprehensible to him, subject to fees for 
copying services set forth in appendix A to this part. Upon his request 
persons of his own choosing may accompany him, but the individual shall 
first furnish a written statement authorizing discussion of that 
individual's record in the accompany persons' presence.
    (b) Access will generally be granted in the office of the Commission 
where the records are maintained during normal business hours, but for 
good cause shown the Commission may grant access at another office of 
the Commission or at different times for the convenience of the 
individual making the request.
    (c) Where a document containing information about an individual also 
contains information not pertaining to him, the portion not pertaining 
to the individual shall not be disclosed to him except to the extent the 
information is available to any person under the Freedom of Information 
Act. If the records sought cannot be provided for review and copying in 
a meaningful form, the Commission shall provide to the individual a 
report of the information concerning the individual contained in the 
record or records which shall be complete and accurate in all material 
aspects.
    (d) Where the disclosure involves medical records, the records may 
be provided only to a physician designated in writing by the individual.
    (e) Requests for copies of documents may be directed to the FOI, 
Privacy and Sunshine Acts compliance staff, Office of the Secretariat, 
or to the member of the Commission's staff through whom arrangements for 
access were made.
    (f) Fees for copies of records shall be charged as set forth in the 
schedule of fees contained in appendix A to this part. Copies of the 
schedule may be obtained upon request from the FOI, Privacy and Sunshine 
Acts compliance staff, Office of the Secretariat, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581. Payment should be made by check or money order 
payable to the Commodity Futures Trading Commission. Advance payment of 
all or part of the fee may be required at the discretion of the 
Commission, but generally this will not be required for requests where 
the anticipated fee is less than $25.
    (g) Nothing in this section or inSec. 146.3 shall:
    (1) Require the disclosure of investigative records exempted under 
Sec.  146.12 of these rules;
    (2) Allow an individual access to any information compiled in 
reasonable anticipation of a civil action, administrative proceeding or 
a criminal proceeding;
    (3) Require the furnishing of information or records which cannot be 
retrieved by the name or other identifier of the individual making the 
request.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 45 
FR 26954, Apr. 22, 1980; 60 FR 49335, Sept. 25, 1995]



Sec.  146.6  Disclosure to third parties.

    (a) The Commission shall not disclose to any agency or to any person 
by any means of communication a record pertaining to an individual which 
is contained in a system of records, except under the following 
circumstances:
    (1) The individual to whom the record pertains has given his written 
consent to the disclosure;
    (2) The disclosure is to officers and employees of the Commission 
who need it in the performance of their duties;
    (3) Disclosure is required under the Freedom of Information Act (5 
U.S.C. 552);
    (4) Disclosure is for a routine use as defined inSec. 146.2(i) and 
described in the system notice for that system of records;
    (5) The disclosure is made to the Bureau of the Census for purposes 
of planning or carrying out a census or survey or related activity;
    (6) The disclosure is made to a recipient who has provided the 
agency with

[[Page 958]]

advance adequate written assurance that the record will be used solely 
as a statistical research or reporting record, and the record is to be 
transferred in a form that is not individually identifiable;
    (7) The disclosure is made to another agency or to an 
instrumentality of any Governmental jurisdiction within or under the 
control of the United States for a civil or criminal law enforcement 
activity if the activity is authorized by law and if the head of the 
agency or instrumentality has made a written request to the Commission 
specifying the particular portion desired and the law enforcement 
activity for which the record is sought;
    (8) The disclosure is made to a person pursuant to a showing of 
compelling circumstances affecting the health or safety of an individual 
if upon such disclosure notification is transmitted to the last known 
address of such individual;
    (9) The disclosure is made to either House of Congress, or, to the 
extent of matter within its jurisdiction, any committee or subcommittee 
thereof, any joint committee of Congress or subcommittee of any such 
joint committee;
    (10) The disclosure is made to the Comptroller General, or any of 
his authorized representatives, in the course of the performance of the 
duties of the General Accounting Office; or
    (11) The disclosure is pursuant to the order of a court of competent 
jurisdiction.
    (12) The disclosure is made, upon request, to a department or agency 
of any state or political subdivision thereof acting within the scope of 
its jurisdiction as permitted by section 8(e) of the Act and subject to 
the limitations of further dissemination as contained in section 8(e). 
Information disclosed pursuant to this paragraph may also include 
registration information maintained by the Commission on any registrant 
as authorized to be disclosed by section 8(g) of the Act. Registration 
information may be furnished to a department or agency of any state or 
political subdivision thereof upon reasonable request made by the 
department or agency or without request whenever the Commission or an 
employee designated bySec. 140.75 of this chapter determines that such 
information may be appropriate for use by the department or agency.
    (13) The disclosure is made, upon request, to a department or agency 
of any foreign government or any political subdivision thereof, acting 
within the scope of its jurisdiction, provided that, prior to 
disclosure, the Commission or an employee delegated authority bySec. 
140.73 of this chapter to disclose information pursuant to section 8(e) 
of the Act is satisfied that the information will not be disclosed by 
such department or agency except in connection with an adjudicatory 
action or proceeding brought under the laws of such foreign government 
or political subdivision to which such foreign government or political 
subdivision or any department or agency thereof is a party.
    (b) The Commission will make reasonable efforts to serve notice on 
an individual when any record on such individual is made available to 
any person under compulsory legal process when such process becomes a 
matter of public record. In any instance where a record on an 
individual, which has been submitted to the Commission by such 
individual, is sought pursuant to a summons or subpoena, notice will be 
given in accordance with the provisions of section 8(f) of the Commodity 
Exchange Act, andSec. 140.80 of this chapter, at least fourteen days 
prior to disclosure. Notice will not, however, be given with regard to 
any information as to which the submitter has waived the notice 
requirements ofSec. 140.80.
    (c) The Commission, with respect to each system of records under its 
control, shall keep an accurate accounting of certain disclosures.
    (1) A record shall be kept of all disclosures made under paragraph 
(a) ofSec. 146.6, except disclosures made with the consent of the 
individual to whom the record pertains (paragraph (a)(1) of this 
section), disclosures to authorized employees (paragraph (a)(2) of this 
section) and disclosures required under the Freedom of Information Act 
(paragraph (a)(3) of this section).
    (2) The record shall include:

[[Page 959]]

    (i) The date, nature, and purpose of each disclosure of a record 
made to any person or to another agency;
    (ii) The name and address of the person or agency to whom the 
disclosure was made.
    (3) The accounting will be retained for at least five years or the 
life of the record, whichever is longer, after the disclosure for which 
the accounting is made.
    (d) The accounting described in paragraph (c) of this section will 
be made available to the individual named in the record upon his written 
request, directed to the FOI, Privacy and Sunshine Acts compliance 
staff, Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, 
except that the accounting will not be revealed with respect to 
disclosures made under paragraph (a)(7) of this section pertaining to 
law enforcement activity, and to disclosures involving systems of 
investigative records exempted underSec. 146.12 of these rules.
    (e) Whenever an amendment or correction of a record or a notation of 
dispute concerning the accuracy of records is made by the Commission in 
accordance with Sec.Sec. 146.8 and 146.9 of these rules, the 
Commission will inform any person or other agency to whom the record was 
previously disclosed, if an accounting of the disclosure was made 
pursuant to the requirements of paragraph (c) of this section.

(Secs. 2(a)(11), 8 and 8a of the Commodity Exchange Act, 7 U.S.C. 4a(j), 
12 and 12a, as amended by Pub. L. 97-444)

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 48 
FR 22136, May 17, 1983; 49 FR 4465, Feb. 7, 1984; 60 FR 49335, Sept. 25, 
1995]



Sec.  146.7  Content of systems of records.

    (a) The Commission will maintain in its records only such 
information about an individual as is relevant and necessary to 
accomplish the purposes of the Commodity Exchange Act and other purposes 
required to be accomplished by statute or by executive order of the 
President.
    (b) The Commission will maintain no record describing how any 
individual exercises rights guaranteed by the First Amendment unless 
expressly authorized by statute or by the individual about whom the 
record is maintained or unless pertinent to and within the scope of an 
authorized law enforcement activity.
    (c) The Commission will collect information to the greatest extent 
practicable directly from the subject individual when the information 
may result in adverse determinations about an individual's rights, 
benefits, and privileges under Federal programs.
    (d) The Commission will maintain all records which are used by the 
Commission in making any determination about any individual with such 
accuracy, relevance, timeliness, and completeness as is reasonably 
necessary to assure fairness to the individual in the determination.



Sec.  146.8  Amendment of a record.

    (a) Any individual may request amendment of information pertaining 
to him which is contained in a system of records maintained by the 
Commission and which is filed under his name or other individual 
identifier if he believes the information is not accurate, relevant, 
timely or complete. A request for amendment shall be directed to the 
FOI, Privacy and Sunshine Acts compliance staff, Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.
    (b) A request for amendment may be made by mail or in person and 
shall: (1) Be in writing and signed by the person making the request; 
(2) describe the particular record to be amended with sufficient 
specificity to permit the record to be located among those maintained by 
the Commission; and (3) specify the nature of the amendment sought and 
the justification for the requested change. The person making the 
request may be required to provide the information specified in 
Sec.Sec. 146.3 and 146.4 of these rules in order to simplify 
identification of the record and permit verification of the identity of 
the person making the request for amendment.
    (c) Receipt of a request for amendment will be acknowledged in 
writing within ten days (excluding Saturdays,

[[Page 960]]

Sundays, and legal public holidays) except that, if the individual is 
given notice within the ten day period that his request will or will not 
be complied with, no acknowledgement is required.
    (d) Assistance in preparing a request to amend a record may be 
obtained from the FOI, Privacy and Sunshine Acts compliance staff, 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (e) Upon receipt of a request for amendment the Executive Director 
of the Commission or a person designated by the Executive Director shall 
promptly determine whether the record is materially inaccurate, 
incomplete, misleading, or is irrelevant or not timely, as claimed by 
the individual, and, if so, shall cause the record to be amended in 
accordance with the individual's request.
    (f) If the Executive Director or designee grants the request to 
amend the record, the individual shall promptly be advised of the 
decision and of the action taken, and notice shall be given of the 
correction and its substance to each person or agency to whom the record 
had previously been disclosed, as shown on the record of disclosures 
maintained in accordance withSec. 146.6(c).
    (g) If the Executive Director or designee disagrees in whole or in 
part with a request for amendment of a record, the individual shall 
promptly be notified of the complete or partial denial of his request 
and the reasons for the refusal. The individual shall also be notified 
of the procedures for administrative review by the Commission of any 
complete or partial denial of a request for amendment, which are set 
forth inSec. 146.9.
    (h) If a request is received for amendment of a record prepared by 
another agency which is in the possession or control of the Commission, 
the request for amendment will be forwarded to that agency. If that 
agency determines that the correction should be made, the Commission 
will amend its records accordingly and notify the individual making the 
request for amendment of the change. If the other agency declines to 
make the amendment, the Executive Director or designee will 
independently determine whether the amendment will be made to the record 
in the Commission's possession or control, considering any explanation 
given by the other agency for its decision.

[41 FR 3211, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 60 
FR 49335, Sept. 25, 1995]



Sec.  146.9  Appeals to the Commission.

    (a) Any individual may petition the Commission:
    (1) To review a refusal to comply with an individual request for 
access to records pursuant to the Privacy Act, 5 U.S.C. 552a(d)(1), and 
Sec.Sec. 146.3 and 146.5 of the rules in this part;
    (2) To review denial of a request for amendment made pursuant to 
Sec.  146.8;
    (3) To correct any determination that may have been made adverse to 
the individual based in whole or in part upon inaccurate, irrelevant, 
untimely or incomplete information;
    (4) To correct a failure to comply with any other provision of the 
Privacy Act, 5 U.S.C. 552a, and the rules of this part 146, which has 
had an adverse effect on the individual.
    (b) The petition to the Commission shall be in writing and shall (1) 
state in what manner it is claimed the Commission or any Commission 
employee has failed or refused to comply with provisions of the Privacy 
Act or of the rules contained in this part 146, and (2) set forth the 
corrective action the petitioner wishes the Commission to take. The 
petitioner may, if he wishes, state such facts and cite such legal or 
other authorities as he considers appropriate.
    (c) The petition shall be directed to the FOI, Privacy and Sunshine 
Acts compliance staff, Office of the Secretariat, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581.
    (d) The Commission will make a determination of any petition filed 
pursuant to thisSec. 146.9 within thirty days (excluding Saturdays, 
Sundays and legal public holidays) after receipt by the FOI, Privacy and 
Sunshine Acts compliance staff, Office of the Secretariat of the 
petition, unless for good cause shown, the Commission extends

[[Page 961]]

the 30-day period. If a petition is denied, the Commission will notify 
the petitioner in writing and state the reasons therefor.
    (e) Where the petition is made for review of a denial of a request 
for amendment made pursuant toSec. 146.8, the following additional 
procedures shall apply:
    (1) If upon review the Commission grants the petition to amend the 
record, notice of the correction and its substance shall be given to 
each person or agency to whom the record had previously been disclosed, 
as shown on the record of disclosures maintained in accordance with 
Sec.  146.6(c) of these rules.
    (2) If upon review the initial denial of the request for amendment 
is upheld in whole or in part, the individual shall be notified of the 
provisions for judicial review of that determination which are set forth 
in section 552a(g)(1)(A) and (2)(A), of title 5 of the U.S. Code and the 
provisions for disputed records set forth in paragraph (e)(3) of this 
section.
    (3) If after review the Commission has declined to amend the records 
as the individual has requested, the individual may file with the FOI, 
Privacy and Sunshine Acts compliance staff, Office of the Secretariat a 
concise statement setting forth why he disagrees with the Commission's 
denial of his request. Any subsequent disclosure containing information 
about which a statement of disagreement has been filed shall clearly 
note the portion which is disputed, and include a copy of the 
individual's statement. The Commission may also include a copy of a 
concise statement explaining its reasons for not making the amendments 
requested.
    (f) The General Counsel or his or her designee is hereby delegated 
the authority to act for the Commission in deciding appeals under this 
section. The General Counsel may, in his or her sole and unfettered 
discretion, refer such appeals to the Commission for decision.

[41 FR 3211, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 45 
FR 26954, Apr. 22, 1980; 51 FR 26874, July 28, 1986; 60 FR 49336, Sept. 
25, 1995]



Sec.  146.10  Information supplied by the Commission when collecting
information from an individual.

    The Commission will inform each individual whom it asks to supply 
information, on the form which it uses to collect the information or on 
a separate form that can be retained by the individual of:
    (a) The authority (whether granted by statute, or by executive order 
of the President) which authorizes the solicitation of the information 
and whether disclosure of such information is mandatory or voluntary;
    (b) The principal purpose or purposes for which the information is 
intended to be used;
    (c) The routine uses which may be made of the information, as 
published in the Federal Register; and
    (d) The effects on him, if any, of not providing all or any part of 
the requested information.



Sec.  146.11  Public notice of records systems.

    (a) The Commission will publish in the Federal Register at least 
biennially a notice of the existence and character of each of its 
systems of records, which notice shall include--
    (1) The name and location of the system;
    (2) The categories of individuals on whom records are maintained in 
the system;
    (3) The categories of records maintained in the system;
    (4) Each routine use of the records contained in the system, 
including the categories of users and the purpose of such use;
    (5) The policies and practices of the Commission regarding storage, 
retrievability, access controls, retention, and disposal of the records;
    (6) The title and business address of the Commission official who is 
responsible for the system of records;
    (7) The procedures whereby an individual can be notified at his 
request if the system of records contains a record pertaining to him;
    (8) The procedures whereby an individual can be notified at his 
request how he can gain access to any record

[[Page 962]]

pertaining to him contained in the system of records, and how he can 
contest its contents; and
    (9) The categories of sources of records in the system.
    (b) Copies of the notices as printed in the Federal Register will be 
available in each office of the Commission. Locations of Commission 
offices are listed inSec. 145.6. Mail requests shall be directed to 
the FOI, Privacy and Sunshine Acts compliance staff, Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. The first copy will 
be furnished free of charge. A charge will be made for each additional 
copy.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 45 
FR 26955, Apr. 22, 1980; 60 FR 49336, Sept. 25, 1995; 65 FR 53560, Sept. 
5, 2000]



Sec.  146.12  Exemptions.

    (a) Investigatory materials compiled for law enforcement purposes 
are exempt from portions of the Privacy Act of 1974 and of these rules 
as set forth in paragraph (c) of this section, on the basis and to the 
extent that individual access to these files could impair the 
effectiveness and orderly conduct of the Commission's regulatory and 
enforcement program. Materials exempted under this paragraph are 
contained in the system of records entitled ``Exempted Investigatory 
Records'' and/or in the system of records entitled ``Exempted Closed 
Commission Meetings.'' Notwithstanding the foregoing, however, no record 
which has served as a basis for denying an individual a right, 
privilege, or benefit to which he would otherwise be eligible, shall be 
maintained in this system, unless the disclosure of such material would 
reveal the identity of a source who furnished information to the 
Government under an express promise that the identity of the source 
would be held in confidence, or, prior to the effective date of this 
section, under an implied promise that the identity of the source would 
be held in confidence. For records of this type, if practicable, 
material identifying the confidential source shall be extracted or 
summarized in a manner which protects the source and the summary or 
extract shall be maintained in a comparable nonexempted system of 
records.
    (b) Investigatory material compiled solely for the purpose of 
determining suitability, eligibility, or qualifications for employment 
with the Commission are exempt from portions of the Privacy Act of 1974 
and of these rules as set forth in paragraph (c) of this section, to the 
extent that it identifies a confidential source. This is done in order 
to encourage persons from whom information is sought to provide 
information to the Commission which, absent assurances of 
confidentiality, they would be unwilling to give. However, if 
practicable, material identifying a confidential source shall be 
extracted or summarized in a manner which protects the source and the 
summary or extract shall be maintained in a non-exempt system containing 
the same category of record. Materials exempted under this paragraph are 
included in the system of records entitled ``Exempted Employee 
Background Investigation Material'' and/or in the system of records 
entitled ``Exempted Closed Commission Meetings.''
    (c) The systems set forth in paragraphs (a) and (b) of this section 
are hereby exempted from the provisions of sections 552a(c), (3)(d), 
(e)(1), (e)(4)(G), (e)(4)(H), (e)(4)(I) and (f) of title 5 of the U.S. 
Code (the Privacy Act of 1974), and are also exempted from the following 
sections of these rules:Sec. 146.3 (requests for information and for 
access);Sec. 146.5 (access to records);Sec. 146.6(d) (accounting of 
disclosures to be made available to the individual);Sec. 146.11(a) 
(7), (8), (9) (content of the system notice); andSec. 146.7(a) 
(relevancy of records).

[41 FR 3212, Jan. 21, 1976, as amended at 53 FR 35198, Sept. 12, 1988]



Sec.  146.13  Inspector General exemptions.

    (a) Pursuant to section (j) of the Privacy Act of 1974, the 
Commission has deemed it necessary to adopt the following exemptions to 
specified provisions of the Privacy Act:
    (1) Pursuant to, and limited by 5 U.S.C. 552a(j)(2), the system of 
records maintained by the Office of the Inspector General of the 
Commission entitled ``Office of the Inspector General Investigative 
Files,'' shall be exempted from

[[Page 963]]

the provisions of 5 U.S.C. 552a (except subsections (b), (c)(1) and (2), 
(e)(4)(A) through (F), (e)(6), (7), (9), (10), and (11), and (i)) and 
from 17 CFR 146.3, 146.4, 146.5, 146.6 (b), (d) and (e), 146.7 (a), (c) 
and (d), 146.8, 146.9, 146.10, 146.11(a) (7), (8) and (9), insofar as 
the system contains information pertaining to criminal law enforcement 
investigations.
    (2) [Reserved]
    (b) Pursuant to section (k) of the Privacy Act of 1974, the 
Commission has deemed it necessary to adopt the following exemptions to 
specified provisions of the Privacy Act:
    (1) Pursuant to, and limited by 5 U.S.C. 552(k)(2), the system of 
records maintained by the Office of the Inspector General of the 
Commission entitled ``Office of the Inspector General Investigative 
Files,'' shall be exempted from 5 U.S.C. 552a(c)(3), (d), (e)(1), 
(e)(4)(G), (H) and (I), and (f) and from 17 CFR 146.3, 146.4, 146.5, 
146.6(d), 146.7(a), 146.8, 146.9, 146.11(a) (7), (8) and (9), insofar as 
it contains investigatory materials compiled for law enforcement 
purposes.
    (2) [Reserved]

[57 FR 4364, Feb. 5, 1992]



Sec. Appendix A to Part 146--Fees for Copies of Records Requested Under 
                         the Privacy Act of 1974

    a. The following schedule of fees shall apply to copies of records 
requested pursuant to the Privacy Act of 1974, 5 U.S.C. 552a andSec. 
146.5(f).
    (1) For requests for copies of documents, the charge will be 15 
cents per page.
    (2) For materials other than paper records, including computer and 
cassette tapes, the direct cost of the materials and, if required, time 
spent by clerical personnel copying the materials shall be charged. 
Persons making the request shall be notified of the amount of the charge 
and shall give specific approval before the request is processed.
    (3) For certifying that requested records are true copies, the fee 
will be $3.00 per certification in addition to other fees, if any.
    (4) Upon request, records will be mailed by means of an overnight/
express service at the fee of $10.00 per unit mailed.
    (5) The Commission may, upon application by the individual, furnish 
any records without charge or at a reduced rate, if it determines that 
such wavier or reduction of fee is in the public interest.
    b. Requests for copies of documents shall be addressed to FOI, 
Privacy and Sunshine Acts compliance staff, Office of Secretariat, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    c. Payment should be made by check or money order payable to the 
Commodity Futures Trading Commission.
    d. Advance payment of all or part of the fee may be required at the 
discretion of the Commission. Generally, advance payment will not be 
required where the anticipated fee is less than $25.

(7 U.S.C. 4a(j) and 16a as amended by Pub. L. 97-444, 96 Stat. 2294 
(1983) and 5 U.S.C. 552. 662a and 552b)

[41 FR 3212, Jan. 21, 1976, as amended at 45 FR 26955, Apr. 22, 1980; 48 
FR 46011, Oct. 11, 1983; 48 FR 55280, Dec. 12, 1983; 49 FR 12684, Mar. 
30, 1984; 60 FR 49336, Sept. 25, 1995]



PART 147_OPEN COMMISSION MEETINGS--Table of Contents



Sec.
147.1 General policy considerations, purpose and scope of rules relating 
          to open Commission meetings.
147.2 Definitions.
147.3 General requirement of open meetings; grounds upon which meetings 
          may be closed.
147.4 Procedure for announcing meetings.
147.5 General procedure for closing meetings.
147.6 Special procedure for closing certain meetings.
147.7 Maintenance of transcripts, recordings and minutes of closed 
          meetings.
147.8 Public availability of transcripts, recordings and minutes of 
          closed meetings.
147.9 Requests for copies of transcripts, recordings or minutes of 
          closed meetings.
147.10 Interpretation of this part with other provisions.

    Authority: Sec. 3(a), Pub. L. 94-409, 90 Stat. 1241 (5 U.S.C. 552b); 
sec. 101(a)(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C. 4a(j) (Supp. V, 
1975)), unless otherwise noted.

    Source: 42 FR 13704, Mar. 11, 1977, unless otherwise noted.



Sec.  147.1  General policy considerations, purpose and scope of rules
relating to open Commission meetings.

    (a) This part contains the rules of the Commodity Futures Trading 
Commission implementing the open meeting requirements of the Government 
in the Sunshine Act (Pub. L. 94-409, 90 Stat. 1241, 5 U.S.C. 552b). 
These rules apply to all deliberations of a quorum of the Commission 
which determine or result in the conduct or disposition of official

[[Page 964]]

Commission business, with the exception of deliberations required or 
permitted bySec. 147.4,Sec. 147.5 orSec. 147.6.
    (b) Among the primary purposes of these rules is the Commission's 
desire to inform the public to the fullest extent possible of its 
activities as an aid to its properly carrying out its responsibility for 
administrating and enforcing the Commodity Exchange Act, as amended, 7 
U.S.C. 1 et seq., and the Commission's belief that, in order to 
guarantee public confidence in the integrity of its decision-making, it 
must, to the fullest possible extent, conduct its business in an open 
manner.



Sec.  147.2  Definitions.

    For purposes of this part:
    (a) Agency includes the Commodity Futures Trading Commission;
    (b) Commission means the Commodity Futures Trading Commission;
    (c) Commissioner means a member of the Commodity Futures Trading 
Commission duly appointed as a Commissioner in accordance with section 
2(a)(2) of the Commodity Exchange Act, as amended, 7 U.S.C. 4a(a);
    (d) Meeting means the deliberations of a quorum of Commissioners 
that determine or result in the joint conduct or disposition of official 
Commission business, but does not include deliberations required or 
permitted bySec. 147.4,Sec. 147.5 orSec. 147.6;
    (e) Person includes an individual, partnership, corporation, 
association, exchange or other entity or organization;
    (f) Quorum means at least the minimum number of Commissioners 
required to take action on behalf of the Commission;
    (g) The term FOI, Privacy and Sunshine Acts compliance staff refers 
to the staff in the Office of the Secretariat in the Commission's 
principal office in Washington, DC who are assigned to respond to 
requests and handle various other matters under the Freedom of 
Information Act, the Privacy Act of 1974 and the Government in the 
Sunshine Act.

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980]



Sec.  147.3  General requirement of open meetings; grounds upon which
meetings may be closed.

    (a) Commissioners shall not jointly conduct or dispose of agency 
business other than in accordance with the rules of this part, and 
meetings shall not be held in places which restrict membership or 
attendance or otherwise discriminate on the basis of race, color, creed, 
national origin, ancestry, religion or sex. Except as provided in 
paragraph (b) of this section, every portion of every meeting of the 
Commission shall be open to public observation.
    (b) Except where the Commission finds that the public interest 
requires otherwise, meetings or portions of meetings shall not be open 
to public observation, and the requirements of Sec.Sec. 147.4, 147.5 
and 147.6 shall not apply to any information pertaining to such meetings 
or portions of meetings otherwise required by the rules of this part to 
be publicly disclosed, where the Commission determines that such 
meetings or portions of meetings or the disclosure of such information 
is likely to:
    (1) Disclose matters that (i) are specifically authorized under 
criteria established by an Executive order to be kept secret in the 
interests of national defense or foreign policy, and (ii) are in fact 
properly classified pursuant to such Executive order;
    (2) Relate solely to the internal personnel rules and personnel 
practices of the Commission or any other agency of the Government of the 
United States, including, but not limited to, operational rules, 
guidelines, and manuals of procedure for investigators, auditors, and 
other employees (other than those rules and practices which establish 
legal requirements to which members of the public are expected to 
conform);
    (3) Disclose matters specifically exempted from disclosure by 
statute (other than the Freedom of Information Act, as amended, 5 U.S.C. 
552), provided that such statute (i) requires that the matters be 
withheld from the public in such a manner as to leave no discretion on 
the issue, or (ii) establishes particular criteria for withholding or 
refers to particular types of matters to be withheld. This includes,

[[Page 965]]

but is not limited to, data and information which would separately 
disclose the business transactions or market positions of any person and 
trade secrets or names of customers and data and information concerning 
or obtained in connection with any pending investigation of any person;
    (4)(i) Disclose trade secrets and commercial or financial 
information obtained from a person and privileged or confidential 
including, but not limited to:
    (A) Reports of stocks of grain, such as Forms 38, 38C, 38M and 38T, 
required to be filed pursuant to 17 CFR 1.44;
    (B) Statements of reporting traders on Form 40 required to be filed 
pursuant to 17 CFR 18.04;
    (C) Statements concerning special calls on positions required to be 
filed pursuant to 17 CFR part 21;
    (D) Statements concerning identification of special accounts on Form 
102 required to be filed pursuant to 17 CFR 17.01;
    (E) Reports required to be filed pursuant to parts 15 through 21 of 
this chapter;
    (F) Reports concerning option positions of large traders required to 
be filed pursuant to part 16 of this chapter;
    (G) Form 188; and
    (H) The following reports and statements that are also set forth in 
paragraph (b)(8) of this section, except as specified in 17 CFR 
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant 
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR 
pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed pursuant to 
17 CFR 31.13; the accountant's report on material inadequacies filed in 
accordance with 17 CFR 1.16(c)(5); all reports and statements required 
to be filed pursuant to 17 CFR 1.17(c)(6); the following portions of 
Form CPO-PQR required to be filed pursuant to 17 CFR 4.27: Schedule A: 
Question 2, subparts (b) and (d); Question 3, subparts (g) and (h); 
Question 9; Question 10, subparts (b), (c), (d), (e), and (g); Question 
11; and Question 12; and Schedules B and C; and the following portions 
of Form CTA-PR required to be filed pursuant to 17 CFR 4.27: Question 2, 
subparts (c) and (d);
    (ii) Information contained in reports, summaries, analyses, 
transcripts, letters or memoranda arising out of, in anticipation of or 
in connection with an examination or inspection of the books and records 
of any person or any other formal or informal inquiry or investigation; 
and
    (iii) Information for which confidential treatment has been 
requested and granted in accordance with 17 CFR 145.9;
    (5) Involve accusing any person of a crime, or formally censuring 
any person, including but not limited to:
    (i) Requests by the Commission that the Attorney General of the 
United States institute a criminal action against any person believed to 
have violated any provision of the Commodity Exchange Act, as amended, 7 
U.S.C. 1, et seq., or any rule, regulation or order thereunder;
    (ii) The consideration of any administrative proceeding instituted 
or to be instituted by the Commission against any person for a violation 
of the Commodity Exchange Act, as amended, 7 U.S.C. 1, et seq., or any 
rule, regulation or order thereunder;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy, 
including, but not limited to, information of that character contained 
in:
    (i) Files concerning employees of the Commission;
    (ii) Files concerning persons subject to regulation by the 
Commission, including files with respect to applications for 
registration and biographical supplements submitted with such 
applications. Examples of the information on the applications and 
biographical supplements which may be protected are an individual's home 
address and telephone number, social security number, date and place of 
birth, fingerprints and, in appropriate cases, the information 
concerning prior arrests, indictments, criminal convictions or other 
judgments or sanctions imposed by State or Federal courts or regulatory 
authorities; and
    (iii) Files containing information for which confidential treatment 
has been requested and granted in accordance with 17 CFR 145.9;

[[Page 966]]

    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, to the extent that production of such records or information 
would (i) interfere with enforcement proceedings, (ii) deprive a person 
of a right to a fair trial or an impartial adjudication, (iii) 
constitute an unwarranted invasion of personal privacy, (iv) disclose 
the identity of a confidential source, (v) disclose investigative 
techniques and procedures, or (vi) endanger the life or physical safety 
of law enforcement personnel. Investigatory records and information 
include all documents, records, transcripts, correspondence and related 
memoranda and work-product concerning examinations and other inquiries 
or investigations and related litigation as authorized by law, which 
pertain to or may disclose the possible violations by any person of any 
provision of law, including the Commodity Exchange Act, as amended, or 
of any rule or regulation adopted by the Commission or which pertain to 
the qualifications of any person registered or seeking registration 
under that Act or of any person affiliated with such person; and all 
written communications from or to any person who has confidentially 
complained or otherwise furnished information respecting such possible 
violations, as well as all correspondence and memoranda in connection 
with such confidential complaints or information;
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Commission or any other agency responsible for the regulation 
or supervision of financial institutions, including, but not limited to 
the following reports and statements that are also set forth in 
paragraph (b)(4)(i)(H) of this section, except as specified in 17 CFR 
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant 
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR 
pursuant to 17 CFR 1.10(h); Forms 2-FR pursuant to 17 CFR 31.13; the 
accountant's report on material inadequacies filed in accordance with 
1.16(c)(5); and all reports and statements required to be filed pursuant 
to 17 CFR 1.17(c)(6); and
    (i) The following portions of Form CPO-PQR required to be filed 
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D; 
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d), 
(e), and (g); Question 11; Question 12; and Question 13; and Schedules B 
and C; and
    (ii) The following portions of Form CTA-PR required to be filed 
pursuant to 17 CFR 4.27: Schedule B: Question 4, subparts (b), (c), (d), 
and (e); Question 5; and Question 6;
    (9) Disclose information the premature disclosure of which would be 
likely to (i) lead to significant financial speculation in currencies, 
securities, or commodities, (ii) significantly endanger the stability of 
any financial institution, or (iii) frustrate significantly the 
implementation of a proposed Commission action, except where the 
Commission has already disclosed to the public the content or nature of 
its proposed action, or where the Commission is required by law to make 
such disclosure on its own initiative prior to taking final Commission 
action on such proposal; or
    (10) Specifically concern the Commission's issuance of a subpena, or 
the Commission's participation in a civil action or proceeding, an 
action in a foreign court or international tribunal, or an arbitration, 
or the initiation, conduct, or disposition by the Commission of a 
particular case of formal agency ajudication pursuant to the procedures 
in 5 U.S.C. 554 or otherwise

[[Page 967]]

involving a determination on the record after opportunity for a hearing.

(5 U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11), 4b, 4f, 4g, 5a, 8a, 
and 17 of the Commodity Exchange Act, 7 U.S.C. 2, 4a(j), 6b, 6f, 6g, 7a, 
12a, and 21, as amended, 92 Stat. 865 et seq.; secs. 2(a)(1), 4c(a)-(d), 
4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 
2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 
552b); secs. 2(a)(11) and 8, 7 U.S.C. 4a(j) and 12 (1983); secs. 8a(5) 
and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 12a(5) and 23 
(1982); 5 U.S.C. 552 and 552b)

[42 FR 13704, Mar. 11, 1977, as amended at 42 FR 42851, Aug. 25, 1977; 
44 FR 13458, Mar. 12, 1979; 45 FR 2023, Jan. 10, 1980; 46 FR 24943, May 
4, 1981; 46 FR 54534, Nov. 3, 1981; 48 FR 35303, Aug. 3, 1983; 49 FR 
4465, Feb. 7, 1984; 49 FR 5541, Feb. 13, 1984; 53 FR 4613, Feb. 17, 
1988; 54 FR 41084, Oct. 5, 1989; 62 FR 4642, Jan. 31, 1997; 64 FR 27, 
Jan. 4, 1999; 71 FR 5595, Feb. 2, 2006; 75 FR 55450, Sept. 10, 2010; 77 
FR 11342, Feb. 24, 2012]



Sec.  147.4  Procedure for announcing meetings.

    (a) Advance notice of all meetings of the Commission shall be 
provided to the public. In the case of each meeting, except as provided 
in paragraph (b) of this section and inSec. 147.6, the Commission 
shall, except to the extent that such information is exempt from 
disclosure under the provisions ofSec. 147.3(b), make a public 
announcement, at least one week before the date of the meeting of the 
time, place and subject matter of the meeting and which portions of the 
meeting shall be open or closed to the public, and shall indicate an 
official of the Commission who may be contacted at a designated 
telephone number for information about the meeting.
    (b) When a majority of Commissioners determines by a recorded vote 
that Commission business requires a meeting be held upon public notice 
of less than one week as required by paragraph (a) of this section, the 
Commission shall, except to the extent that such information is exempt 
from disclosure under the provisions ofSec. 147.3(b), make a public 
announcement, at the earliest practicable time, of the time, place and 
subject matter of the meeting and which portions of the meeting shall be 
open or closed to the public, and indicate an official of the Commission 
who may be contacted at a designated telephone number for information 
about the meeting.
    (c)(1) When it becomes necessary to change the time or place of a 
meeting for which a public announcement has been made pursuant to 
paragraphs (a) or (b) of this section, the Commission shall publicly 
announce such change at the earliest practicable time.
    (2) When it becomes necessary with respect to a meeting for which a 
public announcement has already been made pursuant to paragraphs (a), 
(b) or (c)(1) of this section to change the subject matter of a meeting, 
or change the Commission's determination as to which portions of a 
meeting shall be open or closed to the public, a majority of all 
Commissioners shall determine by a recorded vote that Commission 
business requires such a change and that no earlier announcement of the 
charge was possible, and the Commission shall publicly announce such 
change and the vote of each Commissioner upon such change at the 
earliest practicable time.
    (d) Public announcement of meetings, as required by this section, 
shall be provided as follows:
    (1) A public calendar shall be printed and distributed by the 
Commission on a regular basis to interested persons to provide advance 
public notice of meetings as required by paragraph (a) of this section, 
and, to the extent practicable, as required by paragraphs (b) and (c) of 
this section. Upon request in writing to the Office of Public Affairs, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581, any person or organization will be 
sent the public calendar on a regular basis free of charge. Copies of 
the public calendar also will be publicly available in the Commission's 
Office of Public Affairs.
    (2) Interested persons may contact the Commission's Office of the 
Secretariat during normal business hours to obtain information 
concerning future meetings.
    (e) Immediately following each public announcement required by this 
section, the Commission shall submit for publication in the Federal 
Register, except to the extent that such information is exempt from 
disclosure under the provisions ofSec. 147.3(b), notice of the

[[Page 968]]

time, place, and subject matter of a meeting, which portions of the 
meeting shall be open or closed to the public, any change in one of the 
preceding, and the name and telephone number of an official of the 
Commission who may be contacted for information about the meeting.

[42 FR 13704, Mar. 11, 1977, as amended at 60 FR 49336, Sept. 25, 1995]



Sec.  147.5  General procedure for closing meetings.

    (a) The Commission shall determine that a meeting or portion of a 
meeting will be closed to public observation pursuant toSec. 147.3(b) 
only upon the majority vote of all Commissioners. The vote of each 
Commissioner shall be recorded, and the use of proxies shall be 
prohibited.
    (b) A separate vote of Commissioners shall be taken with respect to 
each meeting a portion or portions of which are proposed to be closed to 
the public pursuant toSec. 147.3(b), or with respect to any 
information which is proposed to be withheld underSec. 147.3(b).
    (c) A single vote of Commissioners may be taken with respect to a 
series of meetings, a portion or portions of which are proposed to be 
closed to the public, or with respect to any information concerning such 
series of meetings, when each meeting in such series involves the same 
particular matters and is scheduled to be held no more than thirty days 
after the initial meeting in such series.
    (d) Whenever any person whose interests may be directly affected by 
a portion of a meeting requests in writing to the Commission that the 
Commission close such portion to the public for any of the reasons set 
forth inSec. 147.3(b) (5), (6) or (7), the Commission, upon the 
request of any Commissioner, shall vote by recorded vote whether to 
close that portion of the meeting.
    (e) Whenever any Commission employee whose appointment, employment 
or dismissal is to be the subject of a meeting or portion of meeting 
closed to the public pursuant toSec. 147.3(b) requests in writing to 
the Commission that the Commission open that meeting or portion of 
meeting, the Commission shall open that meeting or portion of meeting to 
the public.
    (f) Within one day of any vote taken pursuant to paragraphs (b), (c) 
or (d) of this section, the Commission shall make publicly available a 
written copy of that vote reflecting the vote of each Commissioner on 
the question. If the Commission determines by a vote taken pursuant to 
paragraphs (b), (c) or (d) of this section that a portion of a meeting 
is to be closed to the public, the Commission shall, within one day of 
such vote, make publicly available a full written explanation of its 
action closing the portion of the meeting together with a list of all 
persons expected to attend the meeting and their affiliations, except to 
the extent that such information is exempt from disclosure under the 
provisions ofSec. 147.3(b).
    (g) Before any meeting or portion of a meeting may be closed 
pursuant toSec. 147.3(b), the Commission's General Counsel shall 
publicly certify that, in his or her opinion, the meeting or portion of 
meeting may be closed to the public, and shall state each relevant 
exemptive provision.
    (h) Written copies of votes to close meetings and written 
explanations of Commission actions closing portions of meetings to the 
public required to be made publicly available by paragraph (f) of this 
section shall be available for public inspection in the offices of the 
FOI, Privacy and Sunshine Acts compliance staff, Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.
    (i) A copy of the certification of the Commission's General Counsel 
required by paragraph (g) of this section, together with a statement 
from the presiding officer at any meeting closed, in whole or in part, 
pursuant toSec. 147.3(b), setting forth the time and place of the 
meeting, and the persons present, shall be retained by the Commission 
and, except to the extent that such information is exempt from 
disclosure under the provisions ofSec. 147.3(b), shall be available 
for public inspection in the offices of the FOI, Privacy and Sunshine 
Acts compliance staff, Office of the Secretariat, Commodity Futures 
Trading Commission, Three Lafayette

[[Page 969]]

Centre, 1155 21st Street, NW., Washington, DC 20581.

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
60 FR 49336, Sept. 25, 1995]



Sec.  147.6  Special procedure for closing certain meetings.

    (a) Any meeting or portion of meeting that may properly be closed to 
the public pursuant toSec. 147.3(b) (4), (8), (9)(i), (9)(ii) or (10), 
or any combination thereof, may be closed if a majority of Commissioners 
votes by recorded vote at the beginning of such meeting, or portion 
thereof, to close the exempt portion or portions of the meeting.
    (b) The provisions ofSec. 147.4, and ofSec. 147.5 (a), (b), (c), 
(d), (e), (f) and (h) shall not apply to any portion of a meeting to 
which paragraph (a) of this section is applied. The provisions ofSec. 
147.5(g) and (i) shall apply to any such portions of meetings.
    (c) A written copy of all votes taken pursuant to paragraph (a) of 
this section reflecting the vote of each Commissioner on the question 
shall be made available for public inspection in the offices of the FOI, 
Privacy and Sunshine Acts compliance staff, Office of the Secretariat, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    (d) The Commission shall, except to the extent that such information 
is exempt from disclosure under the provisions ofSec. 147.3(b), make 
public announcement at the earliest practicable time of the time, place, 
and subject matter of any portion of a meeting to which paragraph (a) of 
this section is applied. Such public announcement shall be provided, to 
the extent practicable, through the Commission's public calendar as 
described inSec. 147.4(d)(1), and by the Commission's Office of the 
Secretariat as set forth inSec. 147.4(d)(2).

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
60 FR 49336, Sept. 25, 1995]



Sec.  147.7  Maintenance of transcripts, recordings and minutes
of closed meetings.

    (a) The Commission shall make and maintain a complete transcript or 
electronic recording adequate to record fully the proceedings of each 
meeting or portion of meeting closed to the public, except as provided 
in paragraph (b) of this section.
    (b)(1) In the case of each meeting or portion of meeting closed to 
the public pursuant toSec. 147.3(b) (8), (9)(i), (9)(ii) or (b)(10), 
or any combination thereof, the Commission shall make and maintain 
either a complete transcript or recording as described in paragraph (a) 
of this section, or a set of minutes.
    (2) When the Commission elects to keep minutes under paragraph 
(b)(1) of this section, the minutes shall fully and clearly describe all 
matters discussed at the closed meeting or closed portion thereof, and 
shall provide a full and accurate summary of any actions taken, and the 
reasons therefor, including a description of each of the views expressed 
on any item, and a record of any roll call vote taken which reflects the 
vote of each Commissioner on the question. All documents considered in 
connection with any actions taken shall be identified in such minutes.



Sec.  147.8  Public availability of transcripts, recordings and minutes
of closed meetings.

    (a) The Commission shall make promptly available to the public, in 
the offices of the FOI, Privacy and Sunshine Acts compliance staff, 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, the 
transcript, electronic recording or set of minutes of the discussion of 
any item on the agenda of any closed meeting or closed portion thereof 
(as required bySec. 147.7), or of any item of the testimony of any 
witness received at such meeting or portion thereof, except for such 
item or items of such discussion or testimony that are determined, in 
accordance with the procedure set forth in paragraph (b) of this 
section, to contain information which may be withheld underSec. 
147.3(b).
    (b)(1) All determinations made pursuant to paragraph (a) of this 
section that items of discussion or testimony reflected in transcripts, 
recordings or sets of minutes of closed meetings or closed portions 
thereof are exempt from disclosure pursuant toSec. 147.3(b),

[[Page 970]]

shall be made by the Assistant Secretary of the Commission for FOI, 
Privacy and Sunshine Acts compliance after due consultation with the 
Office of the Commission's General Counsel and the Director of any 
affected staff division.
    (2) Any person who objects to any determination made pursuant to 
paragraph (b)(1) of this section may seek Commission review of that 
determination by filing with the Commission's Office of the Secretariat 
a brief written statement that review is sought which contains a concise 
statement of the reasons why the determination should be set aside.
    (c) The Commission shall maintain a complete verbatim copy of the 
transcript, a complete electronic recording or a complete copy of the 
minutes of each meeting or portion of a meeting closed to the public, 
which are made in accordance withSec. 147.7(a) orSec. 147.7(b), for 
a period of at least two years after such meeting or portion of meeting, 
or until one year after the conclusion of any Commission proceeding with 
respect to which the meeting or portion thereof was held, whichever 
occurs later.

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
60 FR 49336, Sept. 25, 1995]



Sec.  147.9  Requests for copies of transcripts, recordings or minutes
of closed meetings.

    (a) Copies of a transcript transcription of an electronic recording 
or set of minutes disclosing the identity of each speaker, which are 
publicly available pursuant toSec. 147.8(a), shall be furnished to any 
person at the actual cost of duplication or transcription pursuant to 
the schedule of fees set forth in 17 CFR part 145, appendix B (a)(4), 
(a)(5), (a)(7), (a)(8), (a)(9), (d) and (e).
    (b) Requests for copies of transcripts, transcriptions of electronic 
recordings or sets of minutes as described in paragraph (a) of this 
section shall be made either in person, by telephone, or by mail 
addressed to the FOI, Privacy and Sunshine Acts compliance staff, Office 
of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

(7 U.S.C. 4a(j) and 16a as amended by Pub. L. 97-444, 96 Stat. 2294 
(1983) and 5 U.S.C. 552, 552a, and 552b)

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
48 FR 46012, Oct. 11, 1983; 49 FR 12684, Mar. 30, 1984; 60 FR 49336, 
Sept. 25, 1995]



Sec.  147.10  Interpretation of this part with other provisions.

    (a) Nothing in this part shall be interpreted as:
    (1) Expanding or limiting the present rights of any person under 
part 145 of this title (implementing the provisions of the Freedom of 
Information Act, 5 U.S.C. 552), except that the exemptions set forth in 
Sec.  147.3(b) of this part shall govern in the case of any request made 
pursuant to part 145 to copy or inspect the transcripts, recordings or 
sets of minutes described in this part; or
    (2) Authorizing the Commission to withhold from any person any 
record, including transcripts, recordings or sets of minutes required by 
this part, which is otherwise accessible to such individual under part 
146 of this title (implementing the provisions of the Privacy Act, 5 
U.S.C. 552a).
    (b) The requirements of chapter 33 of title 44, U.S. Code (with 
respect to the disposal of records), shall not apply to the transcripts, 
recordings and minutes described in this part.



PART 148_IMPLEMENTATION OF THE EQUAL ACCESS TO JUSTICE ACT IN COVERED
ADJUDICATORY PROCEEDINGS BEFORE THE COMMISSION--Table of Contents



                      Subpart A_General Provisions

Sec.
148.1 Purpose of these rules.
148.2 When the Act applies.
148.3 Proceedings covered.
148.4 Eligibility of applicants.
148.5 Standards for awards.
148.6 Allowable fees and expenses.
148.7 Rulemaking on maximum rates for attorney fees.
148.8 Awards against other agencies.

             Subpart B_Information Required from Applicants

148.11 Contents of application.

[[Page 971]]

148.12 Net worth exhibit.
148.13 Documentation of fees and expenses.
148.14 When an application may be filed.

            Subpart C_Procedures for Considering Applications

148.21 Filing and service of documents.
148.22 Answer to application.
148.23 Reply.
148.24 Comments by other parties.
148.25 Settlement.
148.26 Further proceedings.
148.27 Decision.
148.28 Appeal to the Commission.
148.29 Judicial review.
148.30 Payment of award.

    Authority: Equal Access to Justice Act, 5 U.S.C. 504(c)(1) and secs. 
2(a)(11) and 8a(5) of the Commodity Exchange Act, 7 U.S.C. 4a(j) and 
12a(5), unless otherwise noted.

    Source: 46 FR 57671, Nov. 25, 1981, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  148.1  Purpose of these rules.

    The Equal Access to Justice Act, 5 U.S.C. 504 (called ``the Act'' in 
this part), provides for the award of attorney fees and other expenses 
to eligible individuals and entities who are prevailing private parties 
in adjudicatory proceedings before the Commission. An eligible party may 
receive an award when it prevails over the Commission, unless the 
Commission's position was substantially justified or special 
circumstances make an award unjust. The rules in this part describe the 
parties eligible for awards and the proceedings that are covered. They 
also explain how to apply for awards, and the procedures and standards 
that the Commission will use to make them.

[51 FR 18880, May 23, 1986]



Sec.  148.2  When the Act applies.

    The Act applies to any covered adjudicatory proceeding pending 
before the Commission on or after October 1, 1981. This includes 
proceedings begun before October 1, 1981, if final Commission action has 
not been taken before that date. Awards may be sought for fees and other 
expenses incurred before October 1, 1981, in any such covered 
proceeding.

[51 FR 18880, May 23, 1986]



Sec.  148.3  Proceedings covered.

    (a) The Act applies to adjudicatory proceedings conducted by the 
Commission. These are adjudications under 5 U.S.C. 554 in which the 
position of the Commission or any other agency of the United States, or 
any component of an agency, is presented by an attorney or other 
representative who enters an appearance and participates in the 
proceeding. Reparation proceedings under section 14 of the Commodity 
Exchange Act, 7 U.S.C. 18, Commission review of exchange disciplinary 
and access denial actions under section 8c of the Commodity Exchange 
Act, 7 U.S.C. 12c, and registered futures association disciplinary and 
membership denial actions under section 17 of the Commodity Exchange 
Act, 7 U.S.C. 21, are not covered by the Act. Proceedings brought to 
determine whether or not to grant or renew registrations pursuant to 
sections 8a or 17(o), of the Commodity Exchange Act, 7 U.S.C. 8, 12a and 
21(o), or contract market designations pursuant to section 6(a) of the 
Commodity Exchange Act, 7 U.S.C. 8 (a), are excluded, but proceedings 
brought to suspend or revoke registrations or contract market 
designations are covered if they are otherwise adjudicatory proceedings. 
For the Commission, the types of proceedings generally covered are 
adjudicatory proceedings as defined inSec. 10.2(b) of this chapter; 
part 14 proceedings, if they involve a hearing, are also covered.
    (b) The Commission's decision not to identify a type of proceeding 
as an adversary adjudication shall not preclude the filing of an 
application by a party who believes the proceeding is covered by the 
Act; whether the proceeding is covered will then be an issue for 
resolution in the proceedings on the application.
    (c) If a proceeding includes both matters covered by the Act and 
matters specifically excluded from coverage, any award made will include 
only fees and expenses related to covered issues.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986; 59 
FR 5528, Feb. 7, 1994]

[[Page 972]]



Sec.  148.4  Eligibility of applicants.

    (a) To be eligible for an award of attorney fees and other expenses 
under the Act, the applicant must be a party to the adjudicatory 
proceeding for which it seeks an award. The term ``party'' is defined in 
5 U.S.C. 551(3). The applicant must show that it meets all conditions of 
eligibility set out in this subpart and in subpart B.
    (b) The types of eligible applicants are as follows:
    (1) An individual with a net worth of not more than $2 million;
    (2) The sole owner of an unincorporated business who has a net worth 
of not more than $7 million, including both personal and business 
interests, and not more that 500 employees;
    (3) A charitable or other tax-exempt organization described in 
section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)) 
with not more than 500 employees;
    (4) A cooperative association as defined in section 15(a) of the 
Agricultural Marketing Act (12 U.S.C. 1141j(a)) with not more than 500 
employees; and
    (5) Any other partnership, corporation, association, unit of local 
government, or public or private organization with a net worth of not 
more than $7 million and not more than 500 employees.
    (c) For the purpose of eligibility, the net worth and number of 
employees of an applicant shall be determined as of the date the 
adjudicatory proceeding was initiated.
    (d) An applicant who owns an unincorporated business will be 
considered as an ``individual'' rather than a ``sole owner of an 
unincorporated business'' if the issues on which the applicant prevails 
are related primarily to personal interests rather than to business 
interests.
    (e) The employees of an applicant include all persons who regularly 
perform services for compensation for the applicant, under the 
applicant's direction and control. The term ``employee'' also embraces 
all the agents of an applicant, by whatever title or label they may be 
known, for whose acts or omissions the applicant may be held liable 
under the Commodity Exchange Act. See 7 U.S.C. 4. Part-time employees 
shall be included on a proportional basis.
    (f) The net worth and number of employees of the applicant and all 
of its affiliates shall be aggregated to determine eligibility. Any 
individual, corporation or other entity that directly or indirectly 
controls or owns a majority of the voting shares or other interest of 
the applicant, or any corporation or other entity of which the applicant 
directly or indirectly owns or controls a majority of the voting shares 
or other interest, will be considered an affiliate for purposes of this 
part, unless the Presiding Officer determines that such treatment would 
be unjust and contrary to the purposes of the Act in light of the actual 
relationship between the affiliated entities. In addition, the Presiding 
Officer may determine that financial relationships of the applicant 
other than those described in this paragraph constitute special 
circumstances that would make an award unjust.
    (g) An applicant that participates in a proceeding on behalf of one 
or more other persons or entitles that would be ineligible is not itself 
eligible for an award.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986]



Sec.  148.5  Standards for awards.

    (a) A prevailing applicant may receive an award for fees and 
expenses incurred in connection with an adjudicatory proceeding, or in a 
significant and discrete substantive portion of the proceeding, unless 
the position of the Commission was substantially justified. The position 
of the Commission includes, in addition to the position taken by the 
Commission in the adversary adjudication, the action or failure to act 
by the Commission upon which the adversary adjudication is based. The 
burden of proof that an award should not be made to an eligible 
prevailing applicant is on the Commission.
    (b) An award will be reduced or denied if the applicant has unduly 
or unreasonably protracted the adjudicatory

[[Page 973]]

proceeding or if special circumstances make the award sought unjust.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986]



Sec.  148.6  Allowable fees and expenses.

    (a) Awards will be based on rates customarily charged by persons 
engaged in the business of acting as attorneys, agents and expert 
witnesses, even if the services were made available without charge or at 
a reduced rate to the applicant.
    (b) No award for the fee of an attorney or agent under these rules 
may exceed $75 per hour. No award to compensate an expert witness may 
exceed the maximum daily rate prescribed for GS-18 under section 5332 of 
title 5 of the U.S. Code. However, an award may also include the 
reasonable expenses of the attorney, agent, or witness as a separate 
item, if the attorney, agent or witness ordinarily charges clients 
separately for such expenses.
    (c) In determining the reasonableness of the fee sought for an 
attorney, agent or expert witness, the Presiding Officer shall consider 
the following:
    (1) If the attorney, agent or witness is in private practice, his or 
her customary fee for similar services, or, if an employee of the 
applicant, the fully allocated cost of the services;
    (2) The prevailing rate for similar services in the community in 
which the attorney, agent or witness ordinarily performs services;
    (3) The time actually spent in the representation of the applicant;
    (4) The time reasonably spent in light of the difficulty or 
complexity of the issues in the adjudicatory proceeding; and
    (5) Such other factors as may bear on the value of the services 
provided.
    (d) The reasonable cost of any study, analysis, test, project or 
similar matter prepared on behalf of a party may be awarded, to the 
extent that the charge for the service does not exceed the prevailing 
rate for similar services, and the study or other matter was necessary 
for preparation of the applicant's case.



Sec.  148.7  Rulemaking on maximum rates for attorney fees.

    (a) If warranted by an increase in the cost of living or by special 
circumstances (such as limited availability of attorneys qualified to 
handle certain types of proceedings), the Commission may adopt 
regulations providing that attorney fees may be awarded at a rate higher 
than $75 per hour in some or all of the types of proceedings covered by 
this part. The Commission will conduct any rulemaking proceedings for 
this purpose under the informal rulemaking procedures of the 
Administrative Procedure Act, 5 U.S.C. 553.
    (b) Any person may file with the Commission a petition for 
rulemaking to increase the maximum rate for attorney fees, in accordance 
withSec. 13.2 of this chapter.



Sec.  148.8  Awards against other agencies.

    If an applicant is entitled to an award because it prevails over 
another agency of the United States that participates in an adjudicatory 
proceeding before the Commission and takes a postion that is not 
substantially justified, the award or an appropriate portion of the 
award shall be made against that agency.



             Subpart B_Information Required from Applicants



Sec.  148.11  Contents of application.

    (a) An application for an award of fees and expenses under the Act 
shall identify the applicant and the adjudicatory proceeding for which 
an award is sought. The application shall show that the applicant has 
prevailed and identify the position of the Commission or other agency 
that the applicant alleges was not substantially justified. Unless the 
applicant is an individual, the application shall also state the number 
of employees of the applicant and describe briefly the type and purpose 
of its organization or business.
    (b) The application shall also include a statement that the 
applicant's net worth does not exceed $2 million (if an individual) or 
$7 million (for all other applicants, including their affiliates).

[[Page 974]]

However, an applicant may omit this statement if:
    (1) It attaches a copy of a ruling by the Internal Revenue Service 
that it qualifies as an organization described in section 501(c)(3) of 
the Internal Revenue Code (26 U.S.C. 501(c)(3)) or, in the case of a 
tax-exempt organization not required to obtain a ruling from the 
Internal Revenue Service on its exempt status, a statement that 
describes the basis for the applicant's belief that it qualifies under 
such section; or
    (2) It states that it is a cooperative association as defined in 
section 15(a) of the Agricultural Marketing Act (12 U.S.C. 1141j(a)).
    (c) The application shall state the amount of fees and expenses for 
which an award is sought.
    (d) The application may also include any other matters that the 
applicant wishes the Commission to consider in determining whether and 
in what amount an award should be made.
    (e) The application shall be signed by the applicant or an 
authorized officer or attorney of the applicant. It shall also contain 
or be accompanied by a written verification under oath or under penalty 
of perjury that the information provided in the application is true and 
correct.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986]



Sec.  148.12  Net worth exhibit.

    (a) Each applicant except a qualified tax-exempt organization or 
cooperative association must provide with its application a detailed 
exhibit showing the net worth of the applicant and any affiliates (as 
defined inSec. 148.4(f) of this part) when the adjudicatory proceeding 
was initiated. The exhibit may be in any form convenient to the 
applicant that provides full disclosure of the applicant's and its 
affiliates' assets and liabilities and is sufficient to determine 
whether the applicant qualifies under the standards in this part. The 
Presiding Officer may require an applicant to file additional 
information to determine its eligibility for an award.
    (b) Ordinarily, the net worth exhibit will be included in the public 
record of the adjudicatory proceeding. However, an applicant that 
objects to public disclosure of information in any portion of the 
exhibit and believes there are legal grounds for withholding it from 
disclosure may submit that portion of the exhibit directly to the 
Presiding Officer in a sealed envelope labeled ``Confidential Financial 
Information,'' accompanied by a motion to withhold the information from 
public disclosure. The motion shall describe the information sought to 
be withheld and explain, in detail, why it falls within one or more of 
the specific exemptions from mandatory disclosure under the Freedom of 
Information Act, 5 U.S.C. 552(b)(1)-(9), why public disclosure of the 
information would adversely affect the applicant, and why disclosure is 
not required in the public interest. The material in question shall be 
served on counsel representing the Commission or other agency against 
which the applicant seeks an award, but need not be served on any other 
party to the adjudicatory proceeding. If the Presiding Officer finds 
that the information should not be withheld from disclosure, it shall be 
placed in the public record of the adjudicatory proceeding. Otherwise, 
any request to inspect or copy the exhibit shall be disposed of in 
accordance with the Commission's established procedures under the 
Freedom of Information Act as provided in part 145 of this chapter. For 
that purpose, the applicant shall file a copy of its motion with the 
Commission's Freedom of Information Act Compliance Staff in the Office 
of the Secretariat, Washington, DC.



Sec.  148.13  Documentation of fees and expenses.

    The application shall be accompanied by full documentation of the 
fees and expenses, including the cost of any study, analysis, test, 
project or similar matter, for which an award is sought. A separate 
itemized statement shall be submitted for each professional firm or 
individual whose services are covered by the application, showing the 
hours spent in connection with the proceeding by each individual, a 
description of the specific services performed, the rate at which each 
fee has been computed, any expenses for which reimbursement is sought, 
the total amount claimed, and the total amount paid or payable by the 
applicant or by

[[Page 975]]

any other person or entity for the services provided. The Presiding 
Officer may require the applicant to provide vouchers, receipts, or 
other substantiation for any expenses claimed.



Sec.  148.14  When an application may be filed.

    (a) An application may be filed whenever the applicant has prevailed 
in the adjudicatory proceeding or in a significant and discrete 
substantive portion of the proceeding, subject to the separate hearing 
procedure pursuant toSec. 10.63(b) of this chapter, but in no case 
later than 30 days after the Commission's final disposition of the 
adjudicatory proceeding.
    (b) If review or reconsideration is sought or taken of a decision as 
to which an applicant believes it has prevailed, proceedings for the 
award of fees shall be stayed pending final disposition of the 
underlying controversy.
    (c) For purposes of this rule, final disposition means the later of
    (1) The date on which an initial decision by the Presiding Officer 
becomes final pursuant toSec. 10.84 of this chapter;
    (2) Issuance of an order disposing of any petitions for 
reconsideration of the Commission's final order in the proceeding 
pursuant toSec. 10.106 of the Rules of Practice;
    (3) If no petition for reconsideration is filed, the last date on 
which such a petition could have been filed pursuant toSec. 10.106 of 
the Rules of Practice; or
    (4) Issuance of a final Commission order or any other final 
resolution of a proceeding, such as a settlement or voluntary dismissal, 
which is not subject to a petition for reconsideration.



            Subpart C_Procedures for Considering Applications



Sec.  148.21  Filing and service of documents.

    Any application for an award or other pleading or document related 
to an application shall be filed and served on all parties to the 
adjudicatory proceeding, except as provided inSec. 148.12(b) for 
confidential financial information.



Sec.  148.22  Answer to application.

    (a) Within 30 days after service of an application, counsel 
representing the Commission or other agency against which an award is 
sought may file an answer to the application. Unless counsel for the 
Commission or for another relevant agency requests an extension of time 
for filing or files a statement of intent to negotiate under paragraph 
(b) of this section, failure to file an answer within the 30-day period 
may be treated as a consent to the award requested.
    (b) If counsel for the Commission or for another relevant agency and 
the applicant believe that the issues in the fee application can be 
settled, they may jointly file a statement of their intent to negotiate 
a settlement. The filing of this statement shall extend the time for 
filing an answer for an additional 30 days, and further extensions may 
be granted by the Presiding Officer upon request by counsel for the 
Commission or for another relevant agency and the applicant.
    (c) Any answer shall explain in detail any objections to the award 
requested and identify the facts relied on in support of the position of 
counsel for the Commission or for another relevant agency. If the answer 
is based on any alleged facts not already in the record of the 
adjudicatory proceeding, counsel for the Commission or for another 
relevant agency shall include with the answer either supporting 
affidavits or a request for further proceedings underSec. 148.26 of 
this part.



Sec.  148.23  Reply.

    Within 15 days after service of an answer, the applicant may file a 
reply. If the reply is based on any alleged facts not already in the 
record of the adjudicatory proceeding, the applicant shall include with 
the reply either supporting affidavits or a request for further 
proceedings underSec. 148.26 of this part.



Sec.  148.24  Comments by other parties.

    Any party to an adjudicatory proceeding other than the applicant and 
counsel for the Commission or for another relevant agency may file 
comments on an application within 30 days after it is served or on an 
answer within 15 days after it is served. A commenting party may not 
participate further in proceedings on the application unless the 
Presiding Officer determines

[[Page 976]]

that the public interest requires such participation in order to permit 
full exploration of matters raised in the comments.



Sec.  148.25  Settlement.

    The applicant may propose settlement of the award to the Commission 
before final action on the application, either in connection with a 
settlement of the adjudicatory proceeding, or after the adjudicatory 
proceeding has been concluded, in either case in accordance withSec. 
10.108 of this chapter. If a prevailing party offers a proposed 
settlement of an award before an application has been filed, the 
application shall be filed with the proposed settlement.



Sec.  148.26  Further proceedings.

    (a) Ordinarily, the determination of an award will be made on the 
basis of the written record. However, on request of either the applicant 
or counsel for the Commission or for another relevant agency, or on his 
or her own initiative, the Presiding Officer may order further 
proceedings, such as an informal conference, oral argument, additional 
written submissions or an evidentiary hearing. Such further proceedings 
shall be held only when necessary for full and fair resolution of the 
issues arising from the application, and shall be conducted as promptly 
as possible. Whether or not the position of the Commission was 
substantially justified shall be determined on the basis of the 
administrative record, as a whole, which is made in the adversary 
adjudication for which fees and other expenses are sought. No discovery 
and/or evidentiary proceedings shall be permitted into the question of 
whether the agency's position was substantially justified.
    (b) A request that the Presiding Officer order further proceedings 
under this section shall specifically identify the information sought or 
the disputed issues and shall explain why additional proceedings are 
necessary to resolve the issues.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18881, May 23, 1986]



Sec.  148.27  Decision.

    The Presiding Officer shall issue an initial decision on the 
application in accordance with the provisions ofSec. 10.84 of this 
chapter. The decision shall include written findings and conclusions on 
the applicant's eligibility and status as a prevailing party, and an 
explanation of the reasons for any difference between the amount 
requested and the amount awarded. The decision shall also include, if at 
issue, findings on whether the Commission's position was substantially 
justified, whether the applicant unduly or unreasonably protracted the 
adjudicatory proceedings, or whether special circumstances make an award 
unjust. If the applicant has sought an award against more than one 
agency, the decision shall allocate responsibility for payment of any 
award made among the agencies, and shall explain the reasons for the 
allocation made.



Sec.  148.28  Appeal to the Commission.

    (a) Either the applicant or counsel for the Commission or for 
another relevant agency may appeal the initial decision on the fee 
application by complying with the requirements of this section. An 
appealing party shall serve upon opposing parties and shall file with 
the Proceedings Clerk a notice of appeal within fifteen (15) days after 
service of the initial decision. The notice need consist only of a brief 
statement indicating the filing party's intent to appeal the initial 
decision, and shall include the date upon which the initial decision was 
rendered, the name of the proceeding, and the docket number of the 
proceeding. The failure of a party timely to file and serve a notice of 
appeal in accordance with this paragraph, or to perfect the appeal in 
accordance with paragraph (b) of this section, shall constitute a 
voluntary waiver of any objection to the initial decision, and of all 
further administrative or judicial review under these rules and the 
Equal Access to Justice Act.
    (b) An appeal shall be perfected by the appealing party by timely 
filing with the Proceedings Clerk an appeal brief which meets the 
requirements of paragraphs (b) and (d) of this section. An original and 
one copy of the appeal brief shall be filed within thirty (30) days 
after filing of the notice of appeal. By motion of the appealing party, 
the Commission may, for good cause

[[Page 977]]

shown, extend the time for filing the appeal brief. If the appeal brief 
is not filed within the time prescribed in this subparagraph, the 
Commission may, upon its own motion or upon motion by a party, dismiss 
the appeal, in which event the initial decision shall become the final 
decision and order of the Commission, effective upon service of the 
order of dismissal.
    (c) The opposing party may, within thirty (30) days after service of 
the appeal brief, file an original and one copy of an answering brief, 
and serve one copy thereof, unless the time limit is extended by the 
Commission upon motion of the party and for good cause shown.
    (d) Parties filing an appeal brief or answering brief shall meet the 
requirements ofSec. 10.12 of this chapter as to form. The content of 
briefs shall satisfy the requirements ofSec. 10.102(d) of this 
chapter, except that any party, with leave of the Commission, may file 
an informal document in lieu of a brief. No brief shall exceed thirty-
five (35) pages in length without advance leave of the Commission.
    (e) On review, the Commission may, in its discretion, consider sua 
sponte any issues arising from the record and may base its determination 
thereon, or limit the issues to those presented in the statement of 
issues in the briefs, treating those issues not raised as waived.

[51 FR 18881, May 23, 1986]



Sec.  148.29  Judicial review.

    Judicial review of final Commission decisions on awards may be 
sought as provided in 5 U.S.C. 504(c)(2).



Sec.  148.30  Payment of award.

    An applicant seeking payment of an award from the Commission shall 
submit to the Executive Director of the Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581, a copy of the 
Commission's final decision granting the award, accompanied by a 
statement that the applicant will not seek review of the decision in the 
United States courts. At the same time, the applicant shall provide a 
copy of his submissions to counsel for the Commission. The Commission 
will, within 60 days of receipt of the applicant's submissions, forward 
to the United States Department of the Treasury a Standard Form 1166, 
``Voucher and Schedule of Payments,'' so as to have the Treasury 
Department issue a check in the amount awarded in the Commission's 
decision, unless judicial review of the award or of the underlying 
decision in the adjudicatory proceeding has been sought by the applicant 
or any other party to the adjudicatory proceeding.

[46 FR 57671, Nov. 25, 1981, as amended at 60 FR 49336, Sept. 25, 1995]



PART 149_ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP 
IN PROGRAMS OR ACTIVITIES CONDUCTED BY THE COMMODITY FUTURES TRADING
COMMISSION--Table of Contents



Sec.
149.101 Purpose.
149.102 Application.
149.103 Definitions.
149.104-149.110 [Reserved]
149.111 Notice.
149.112-149.129 [Reserved]
149.130 General prohibitions against discrimination.
149.131-149.139 [Reserved]
149.140 Employment.
149.141-149.148 [Reserved]
149.149 Program accessibility: Discrimination prohibited.
149.150 Program accessibility: Existing facilities.
149.151 Program accessibility: New construction and alterations.
149.152-149.159 [Reserved]
149.160 Communications.
149.161-149.169 [Reserved]
149.170 Compliance procedures.

    Authority: 29 U.S.C 794, unless otherwise noted.

    Source: 51 FR 22889, 22896, June 23, 1986, unless otherwise noted.



Sec.  149.101  Purpose.

    This part effectuates section 119 of the Rehabilitation, 
Comprehensive Services, and Developmental Disabilities Amendments of 
1978, which amended section 504 of the Rehabilitation Act of 1973 to 
prohibit discrimination on the basis of handicap in programs or 
activities conducted by Executive agencies or the U.S. Postal Service.

[[Page 978]]



Sec.  149.102  Application.

    This part applies to all programs or activities conducted by the 
agency.



Sec.  149.103  Definitions.

    For purposes of this part, the term--
    Assistant Attorney General means the Assistant Attorney General, 
Civil Rights Division, U.S. Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, brailled materials, 
audio recordings, telecommunications devices and other similar services 
and devices. Auxiliary aids useful for persons with impaired hearing 
include telephone handset amplifiers, telephones compatible with hearing 
aids, telecommunication devices for deaf persons (TDD's), interpreters, 
notetakers, written materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the agency's alleged 
discriminatory action in sufficient detail to inform the agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Handicapped person means any person who has a physical or mental 
impairment that substantially limits one or more major life activities, 
has a record of such an impairment, or is regarded as having such an 
impairment.
    As used in this definition, the phrase:
    (1) Physical or mental impairment includes--
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech, and hearing impairments, 
cerebral palsy, epilepsy, muscular dystrophy, multiple sclerosis, 
cancer, heart disease, diabetes, mental retardation, emotional illness, 
and drug addiction and alocoholism.
    (2) Major life activities includes functions such as caring for 
one's self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the agency as having such an impairment.
    Historic preservation programs means programs conducted by the 
agency that have preservation of historic properties as a primary 
purpose.
    Historic properties means those properties that are listed or 
eligible for listing in the National Register of Historic Places or 
properties designated as historic under a statute of the appropriate 
State or local government body.
    Qualified handicapped person means--

[[Page 979]]

    (1) With respect to preschool, elementary, or secondary education 
services provided by the agency, a handicapped person who is a member of 
a class of persons otherwise entitled by statute, regulation, or agency 
policy to receive education services from the agency.
    (2) With respect to any other agency program or activity under which 
a person is required to perform services or to achieve a level of 
accomplishment, a handicapped person who meets the essential eligibility 
requirements and who can acheive the purpose of the program or activity 
without modifications in the program or activity that the agency can 
demonstrate would result in a fundamental alteration in its nature;
    (3) With respect to any other program or activity, a handicapped 
person who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (4) Qualified handicapped person is defined for purposes of 
employment in 29 CFR 1613.702(f), which is made applicable to this part 
bySec. 149.140.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
(Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794)), as amended by the 
Rehabilitation Act Amendments of 1974 (Pub. L. 93-516, 88 Stat. 1617), 
and the Rehabilitation, Comprehensive Services, and Developmental 
Disabilities Amendments of 1978 (Pub. L. 95-602, 92 Stat. 2955). As used 
in this part, section 504 applies only to programs or activities 
conducted by Executive agencies and not to federally assisted programs.
    Substantial impairment means a significant loss of the integrity of 
finished materials, design quality, or special character resulting from 
a permanent alteration.



Sec.Sec. 149.104-149.110  [Reserved]



Sec.  149.111  Notice.

    The agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the agency, and make such 
information available to them in such manner as the head of the agency 
finds necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this regulation.



Sec.Sec. 149.112-149.129  [Reserved]



Sec.  149.130  General prohibitions against discrimination.

    (a) No qualified handicapped person shall, on the basis of handicap, 
be excluded from participation in, be denied the benefits of, or 
otherwise be subjected to discrimination under any program or activity 
conducted by the agency.
    (b)(1) The agency, in providing any aid, benefit, or service, may 
not, directly or through contractual, licensing, or other arrangements, 
on the basis of handicap--
    (i) Deny a qualified handicapped person the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified handicapped person an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified handicapped person with an aid, benefit, 
or service that is not as effective in affording equal opportunity to 
obtain the same result, to gain the same benefit, or to reach the same 
level of achievement as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
handicapped persons or to any class of handicapped persons than is 
provided to others unless such action is necessary to provide qualified 
handicapped persons with aid, benefits, or services that are as 
effective as those provided to others;
    (v) Deny a qualified handicapped person the opportunity to 
participate as a member of planning or advisory boards; or
    (vi) Otherwise limit a qualified handicapped person in the enjoyment 
of any right, privilege, advantage, or opportunity enjoyed by others 
receiving the aid, benefit, or service.
    (2) The agency may not deny a qualified handicapped person the 
opportunity to participate in programs or

[[Page 980]]

activities that are not separate or different, despite the existence of 
permissibly separate or different programs or activities.
    (3) The agency may not, directly or through contractual or other 
arrangments, utilize criteria or methods of administration the purpose 
or effect of which would--
    (i) Subject qualified handicapped persons to discrimination on the 
basis of handicap; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program activity with respect to handicapped persons.
    (4) The agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would--
    (i) Exclude handicapped persons from, deny them the benefits of, or 
otherwise subject them to discrimination under any program or activity 
conducted by the agency; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to handicapped persons.
    (5) The agency, in the selection of procurement contractors, may not 
use criteria that subject qualified handicapped persons to 
discrimination on the basis of handicap.
    (6) The agency may not administer a licensing or certification 
program in a manner that subjects qualified handicapped persons to 
discrimination on the basis of handicap, nor may the agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified handicapped persons to discrimination on 
the basis of handicap. However, the programs or activities of entities 
that are licensed or certified by the agency are not, themselves, 
covered by this part.
    (c) The exclusion of nonhandicapped persons from the benefits of a 
program limited by Federal statute or Executive order to handicapped 
persons or the exclusion of a specific class of handicapped persons from 
a program limited by Federal statute or Executive order to a different 
class of handicapped persons is not prohibited by this part.
    (d) The agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified handicapped 
persons.



Sec.Sec. 149.131-149.139  [Reserved]



Sec.  149.140  Employment.

    No qualified handicapped person shall, on the basis of handicap, be 
subjected to discrimination in employment under any program or activity 
conducted by the agency. The definitions, requirements, and procedures 
of section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 791), as 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1613, shall apply to employment in federally conducted programs or 
activities.



Sec.Sec. 149.141-149.148  [Reserved]



Sec.  149.149  Program accessibility: Discrimination prohibited.

    Except as otherwise provided inSec. 149.150, no qualified 
handicapped person shall, because the agency's facilities are 
inaccessible to or unusable by handicapped persons, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the agency.



Sec.  149.150  Program accessibility: Existing facilities.

    (a) General. The agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by handicapped persons. This paragraph does 
not--
    (1) Necessarily require the agency to make each of its existing 
facilities accessible to and usable by handicapped persons;
    (2) In the case of historic preservation programs, require the 
agency to take any action that would result in a substantial impairment 
of significant historic features of an historic property; or
    (3) Require the agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where

[[Page 981]]

agency personnel believe that the proposed action would fundamentally 
alter the program or activity or would result in undue financial and 
administrative burdens, the agency has the burden of proving that 
compliance withSec. 149.150(a) would result in such alteration or 
burdens. The decision that compliance would result in such alteration or 
burdens must be made by the agency head or his or her designee after 
considering all agency resources available for use in the funding and 
operation of the conducted program or activity, and must be accompanied 
by a written statement of the reasons for reaching that conclusion. If 
an action would result in such an alteration or such burdens, the agency 
shall take any other action that would not result in such an alteration 
or such burdens but would nevertheless ensure that handicapped persons 
receive the benefits and services of the program or activity.
    (b) Methods--(1) General. The agency may comply with the 
requirements of this section through such means as redesign of 
equipment, reassignment of services to accessible buildings, assignment 
of aides to beneficiaries, home visits, delivery of services at 
alternate accessible sites, alteration of existing facilities and 
construction of new facilities, use of accessible rolling stock, or any 
other methods that result in making its programs or activities readily 
accessible to and usable by handicapped persons. The agency is not 
required to make structural changes in existing facilities where other 
methods are effective in achieving compliance with this section. The 
agency, in making alterations to existing buildings, shall meet 
accessibility requirements to the extent compelled by the Architectural 
Barriers Act of 1968, as amended (42 U.S.C. 4151-4157), and any 
regulations implementing it. In choosing among available methods for 
meeting the requirements of this section, the agency shall give priority 
to those methods that offer programs and activities to qualified 
handicapped persons in the most integrated setting appropriate.
    (2) Historic preservation programs. In meeting the requirements of 
Sec.  149.150(a) in historic preservation programs, the agency shall 
give priority to methods that provide physical access to handicapped 
persons. In cases where a physical alteration to an historic property is 
not required because ofSec. 149.150(a)(2) or (a)(3), alternative 
methods of achieving program accessibility include--
    (i) Using audio-visual materials and devices to depict those 
portions of an historic property that cannot otherwise be made 
accessible;
    (ii) Assigning persons to guide handicapped persons into or through 
portions of historic properties that cannot otherwise be made 
accessible; or
    (iii) Adopting other innovative methods.
    (c) Time period for compliance. The agency shall comply with the 
obligations established under this section by October 21, 1986, except 
that where structural changes in facilities are undertaken, such changes 
shall be made by August 22, 1989, but in any event as expeditiously as 
possible.
    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve program accessibility, the 
agency shall develop, by February 23, 1987, a transition plan setting 
forth the steps necessary to complete such changes. The agency shall 
provide an opportunity to interested persons, including handicapped 
persons or organizations representing handicapped persons, to 
participate in the development of the transition plan by submitting 
comments (both oral and written). A copy of the transition plan shall be 
made available for public inspection. The plan shall, at a minimum--
    (1) Identify physical obstacles in the agency's facilities that 
limit the accessibility of its programs or activities to handicapped 
persons;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for implementation of the 
plan.

[[Page 982]]



Sec.  149.151  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
handicapped persons. The definitions, requirements, and standards of the 
Architectural Barriers Act (42 U.S.C. 4151-4157), as established in 41 
CFR 101-19.600 to 101-19.607, apply to buildings covered by this 
section.



Sec.Sec. 149.152-149.159  [Reserved]



Sec.  149.160  Communications.

    (a) The agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The agency shall furnish appropriate auxiliary aids where 
necessary to afford a handicapped person an equal opportunity to 
participate in, and enjoy the benefits of, a program or activity 
conducted by the agency.
    (i) In determining what type of auxiliary aid is necessary, the 
agency shall give primary consideration to the requests of the 
handicapped person.
    (ii) The agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices for deaf person (TDD's) or 
equally effective telecommunication systems shall be used.
    (b) The agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The agency shall provide signage at a primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and adminstrative 
burdens. In those circumstances where agency personnel believe that the 
proposed action would fundamentally alter the program or activity or 
would result in undue financial and administrative burdens, the agency 
has the burden of proving that compliance withSec. 149.160 would 
result in such alteration or burdens. The decision that compliance would 
result in such alteration or burdens must be made by the agency head or 
his or her designee after considering all agency resources available for 
use in the funding and operation of the conducted program or activity, 
and must be accompanied by a written statement of the reasons for 
reaching that conclusion. If an action required to comply with this 
section would result in such an alteration or such burdens, the agency 
shall take any other action that would not result in such an alteration 
or such burdens but would nevertheless ensure that, to the maximum 
extent possible, handicapped persons receive the benefits and services 
of the program or activity.



Sec.Sec. 149.161-149.169  [Reserved]



Sec.  149.170  Compliance procedures.

    (a) Except as provided in paragraph (b) of this section, this 
section applies to all allegations of discrimination on the basis of 
handicap in programs or activities conducted by the agency.
    (b) The agency shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1613 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791).
    (c) The Executive Director of the Commission shall be responsible 
for coordinating implementation of this section. Complaints may be sent 
to the Equal Employment Opportunity Officer, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (d) The agency shall accept and investigate all complete complaints 
for which it has jurisdiction. All complete complaints must be filed 
within 180

[[Page 983]]

days of the alleged act of discrimination. The agency may extend this 
time period for good cause.
    (e) If the agency receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate government 
entity.
    (f) The agency shall notify the Architectural and Transportation 
Barriers Compliance Board upon receipt of any complaint alleging that a 
building or facility that is subject to the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151-4157), or section 502 of the 
Rehabilitation Act of 1973, as amended (29 U.S.C. 792), is not readily 
accessible to and usable by handicapped persons.
    (g) Within 180 days of the receipt of a complete complaint for which 
it has jurisdiction, the agency shall notify the complainant of the 
results of the investigation in a letter containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found; and
    (3) A notice of the right to appeal.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 90 days of receipt from 
the agency of the letter required bySec. 149.170(g). The agency may 
extend this time for good cause.
    (i) Timely appeals shall be accepted and processed by the head of 
the agency.
    (j) The head of the agency shall notify the complainant of the 
results of the appeal within 60 days of the receipt of the request. If 
the head of the agency determines that additional information is needed 
from the complainant, he or she shall have 60 days from the date of 
receipt of the additional information to make his or her determination 
on the appeal.
    (k) The time limits cited in paragraphs (g) and (j) of this section 
may be extended with the permission of the Assistant Attorney General.
    (l) The agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.

[51 FR 22889, 22896, June 23, 1986, as amended at 51 FR 22889, June 23, 
1986; 60 FR 49336, Sept. 25, 1995]



PART 150_LIMITS ON POSITIONS--Table of Contents



Sec.
150.1 Definitions.
150.2 Position limits.
150.3 Exemptions.
150.4 Aggregation of positions.
150.5 Exchange-set speculative position limits.
150.6 Responsibility of contract markets.

    Authority: 7 U.S.C. 6a, 6c, and 12a(5), as amended by the Commodity 
Futures Modernization Act of 2000, appendix E of Pub. L. 106-554, 114 
Stat. 2763 (2000).

    Source: 52 FR 38923, Oct. 20, 1987, unless otherwise noted.



Sec.  150.1  Definitions.

    As used in this part--
    (a) Spot month means the futures contract next to expire during that 
period of time beginning at the close of trading on the trading day 
preceding the first day on which delivery notices can be issued to the 
clearing organization of a contract market.
    (b) Single month means each separate futures trading month, other 
than the spot month future.
    (c) All-months means the sum of all futures trading months including 
the spot month future.
    (d) Eligible entity means--
    A commodity pool operator, the operator of a trading vehicle which 
is excluded or who itself has qualified for exclusion from the 
definition of the term ``pool'' or commodity pool operator,'' 
respectively, underSec. 4.5 of this chapter; the limited partner or 
shareholder in a commodity pool the operator of which is exempt from 
registration underSec. 4.13 of this chapter; a commodity trading 
advisor; a bank or trust company; a savings association; an insurance 
company; or the separately organized affiliates of any of the above 
entities:
    (1) Which authorizes an independent account controller independently 
to control all trading decisions for positions it holds directly or 
indirectly, or

[[Page 984]]

on its behalf, but without its day-to-day direction; and
    (2) Which maintains:
    (i) Only such minimum control over the independent account 
controller as is consistent with its fiduciary responsibilities and 
necessary to fulfill its duty to supervise diligently the trading done 
on its behalf; or
    (ii) If a limited partner or shareholder of a commodity pool the 
operator of which is exempt from registration underSec. 4.13 of this 
chapter, only such limited control as is consistent with its status.
    (e) Independent account controller means a person--
    (1) Who specifically is authorized by an eligible entity, as defined 
in paragraph (d) of this section, independently to control trading 
decisions on behalf of, but without the day-to-day direction of, the 
eligible entity;
    (2) Over whose trading the eligible entity maintains only such 
minimum control as is consistent with its fiduciary responsibilities to 
fulfill its duty to supervise diligently the trading done on its behalf 
or as is consistent with such other legal rights or obligations which 
may be incumbent upon the eligible entity to fulfill;
    (3) Who trades independently of the eligible entity and of any other 
independent account controller trading for the eligible entity;
    (4) Who has no knowledge of trading decisions by any other 
independent account controller; and
    (5) Who is registered as a futures commission merchant, an 
introducing broker, a commodity trading advisor, an associated person or 
any such registrant, or is a general partner of a commodity pool the 
operator of which is exempt from registration underSec. 4.13 of this 
chapter.
    (f) Futures-equivalent means an option contract which has been 
adjusted by the previous day's risk factor, or delta coefficient, for 
that option which has been calculated at the close of trading and 
published by the applicable exchange underSec. 16.01 of this chapter.
    (g) Long position means a long call option, a short put option or a 
long underlying futures contract.
    (h) Short position means a short call option, a long put option or a 
short underlying futures contract.
    (i) For the following commodities, the first delivery month of the 
``crop year'' is as follows:

------------------------------------------------------------------------
                 Commodity                    Beginning delivery month
------------------------------------------------------------------------
corn......................................  December.
cotton....................................  October.
oats......................................  July.
soybeans..................................  September.
soybean meal..............................  October.
soybean oil...............................  October.
wheat (spring)............................  September.
wheat (winter)............................  July.
------------------------------------------------------------------------


[52 FR 38923, Oct. 20, 1987, as amended at 53 FR 41571, Oct. 24, 1988; 
56 FR 14315, Apr. 9, 1991; 57 FR 44492, Sept. 28, 1992; 58 FR 17981, 
Apr. 7, 1993; 64 FR 24046, May 5, 1999]



Sec.  150.2  Position limits.

    No person may hold or control positions, separately or in 
combination, net long or net short, for the purchase or sale of a 
commodity for future delivery or, on a futures-equivalent basis, options 
thereon, in excess of the following:

                       Speculative Position Limits
------------------------------------------------------------------------
                                       Limits by number of contracts
------------------------------------------------------------------------
                                                   Single
             Contract               Spot month     month      All months
------------------------------------------------------------------------
                         Chicago Board of Trade
------------------------------------------------------------------------
Corn and Mini-Corn \1\...........          600       33,000       33,000
Oats.............................          600        2,000        2,000
Soybeans and Mini-Soybeans \1\...          600       15,000       15,000
Wheat and Mini-Wheat \1\.........          600       12,000       12,000
Soybean Oil......................          540        8,000        8,000
Soybean Meal.....................          720        6,500        6,500
------------------------------------------------------------------------

[[Page 985]]

 
                       Minneapolis Grain Exchange
------------------------------------------------------------------------
Hard Red Spring Wheat............          600       12,000       12,000
------------------------------------------------------------------------
                            ICE Futures U.S.
------------------------------------------------------------------------
Cotton No. 2.....................          300        5,000        5,000
------------------------------------------------------------------------
                       Kansas City Board of Trade
------------------------------------------------------------------------
Hard Winter Wheat................          600       12,000       12,000
------------------------------------------------------------------------
\1\ For purposes of compliance with these limits, positions in the
  regular sized and mini-sized contracts shall be aggregated.


[76 FR 71684, Nov. 18, 2011]



Sec.  150.3  Exemptions.

    (a) Positions which may exceed limits. The position limits set forth 
inSec. 150.2 of this part may be exceeded to the extent such position 
are:
    (1) Bona fide hedging transactions as defined inSec. 1.3(z) of 
this chapter;
    (2) [Reserved]
    (3) Spread or arbitrage positions between single months of a futures 
contract and/or, on a futures-equivalent basis, options thereon, outside 
of the spot month, in the same crop year; provided however, That such 
spread or arbitrage positions, when combined with any other net 
positions in the single month, do not exceed the all-months limit set 
forth inSec. 150.2; or
    (4) Carried for an eligible entity as defined inSec. 150.1(d), in 
the separate account or accounts of an independent account controller, 
as defined inSec. 150.1(e), and not in the spot month if there is a 
position limit which applies to individual trading months during their 
expiration; Provided, however, That the overall positions held or 
controlled by each such independent account controller may not exceed 
the limits specified inSec. 150.2.
    (i) Additional Requirements for Exemption of Affiliated Entities. If 
the independent account controller is affiliated with the eligible 
entity or another independent account controller, each of the affiliated 
entities must:
    (A) Have, and enforce, written procedures to preclude the affiliated 
entities from having knowledge of, gaining access to, or receiving data 
about, trades of the other. Such procedures must include document 
routing and other procedures or security arrangements, including 
separate physical locations, which would maintain the independence of 
their activities; provided, however, That such procedures may provide 
for the disclosure of information which is reasonably necessary for an 
eligible entity to maintain the level of control consistent with its 
fiduciary responsibilities and necessary to fulfill its duty to 
supervise diligently the trading done on its behalf;
    (B) Trade such accounts pursuant to separately-developed and 
independent trading systems;
    (C) Market such trading systems separately; and
    (D) Solicit funds for such trading by separate Disclosure Documents 
that meet the standards ofSec. 4.24 orSec. 4.34 of this chapter, as 
applicable, where such Disclosure Documents are required under part 4 of 
this chapter.
    (ii) [Reserved]
    (b) Call for information. Upon call by the Commission, the Director 
of the Division of Market Oversight or the Director's delegee, any 
person claiming an exemption from speculative position limits under this 
section must provide to the Commission such information as specified in 
the call relating to the positions owned or controlled by that person; 
trading done pursuant to the claimed exemption; the futures, options or 
cash market positions which support the claim of exemption; and

[[Page 986]]

the relevant business relationships supporting a claim of exemption.

[53 FR 41571, Oct. 24, 1988, as amended at 56 FR 14315, Apr. 9, 1991; 57 
FR 44492, Sept. 28, 1992; 58 FR 17982, Apr. 7, 1993; 60 FR 38193, July 
25, 1995; 67 FR 62353, Oct. 7, 2002]



Sec.  150.4  Aggregation of positions.

    (a) Positions to be aggregated. The position limits set forth in 
Sec.  510.2 of this part shall apply to all positions in accounts for 
which any person by power of attorney or otherwise directly or 
indirectly holds positions or controls trading or to positions held by 
two or more persons acting pursuant to an expressed or implied agreement 
or understanding the same as if the positions were held by, or the 
trading of the position were done by, a single individual.
    (b) Ownership of accounts. For the purpose of applying the position 
limits set forth inSec. 510.2, except for the ownership interest of 
limited partners, shareholders, members of a limited liability company, 
beneficiaries of a trust or similar type of pool participant in a 
commodity pool subject to the provisos set forth in paragraph (c) of 
this section, any trader holding positions in more than one account, or 
holding accounts or positions in which the trader by power of attorney 
or otherwise directly or indirectly has a 10% or greater ownership or 
equity interest, must aggregate all such accounts or positions.
    (c) Ownership by limited partners, shareholders or other pool 
participants. For the purpose of applying the position limits set forth 
inSec. 150.2:
    (1) A commodity pool operator having ownership or equity interest of 
10% or greater in an account or positions as a limited partner, 
shareholder or other similar type of pool participant must aggregate 
those accounts or positions with all other accounts or positions owned 
or controlled by the commodity pool operator;
    (2) A trader that is a limited partner, shareholder or other similar 
type of pool participant with an ownership or equity interest of 10% or 
greater in a pooled account or positions who is also a principal or 
affiliate of the operator of the pooled account must aggregate the 
pooled account or positions with all other accounts or positions owned 
or controlled by that trader, provided, however, that the trader need 
not aggregate such pooled positions or accounts if:
    (i) The pool operator has, and enforces, written procedures to 
preclude the trader from having knowledge of, gaining access to, or 
receiving data about the trading or positions of the pool;
    (ii) The trader does not have direct, day-to-day supervisory 
authority or control over the pool's trading decisions; and
    (iii) The trader, if a principal of the commodity pool operator, 
maintains only such minimum control over the commodity pool operator as 
is consistent with its responsibilities as a principal and necessary to 
fulfill its duty to supervise the trading activities of the commodity 
pool;
    (3) Each limited partner, shareholder, or other similar type of pool 
participant having an ownership or equity interest of 25% or greater in 
a commodity pool the operator of which is exempt from registration under 
Sec.  4.13 of this chapter must aggregate the pooled account or 
positions with all other accounts or positions owned or controlled by 
that trader.
    (d) Trading control by futures commission merchants. The position 
limits set forth inSec. 150.2 of this part shall be construed to apply 
to all positions held by a futures commission merchant or its separately 
organized affiliates in a discretionary account, or in an account which 
is part of, or participates in, or receives trading advice from a 
customer trading program of a futures commission merchant or any of the 
officers, partners, or employees of such futures commission merchant or 
its separately organized affiliates, unless:
    (1) A trader other than the futures commission merchant or the 
affilate directs trading in such an account;
    (2) The futures commission merchant or the affiliate maintains only 
such minimum control over the trading in such an account as is necessary 
to fulfill its duty to supervise diligently trading in the account; and
    (3) Each trading decision of the discretionary account or the 
customer trading program is determined independently of all trading 
decisions in

[[Page 987]]

other accounts which the futures commission merchant or the affiliate 
holds, has a financial interest of 10% or more in, or controls.
    (e) Call for information. Upon call by the Commission, the Director 
of the Division of Market Oversight or the Director's delegatee, any 
person claiming an exemption under paragraphs (c) or (d) of this section 
must provide to the Commission such information as specified in the call 
relating to the positions owned or controlled by that person, trading 
done pursuant to the claimed exemption, or the relevant business 
relationships supporting a claim of exemption.

[64 FR 24047, May 5, 1999, as amended at 67 FR 62353, Oct. 7, 2002]



Sec.  150.5  Exchange-set speculative position limits.

    (a) Exchange limits. Each contract market as a condition of 
designation under part 5, appendix A, of this chapter shall be bylaw, 
rule, regulation, or resolution limit the maximum number of contracts a 
person may hold or control, separately or in combination, net long or 
net short, for the purchase or sale of a commodity for future delivery 
or, on a futures-equivalent basis, options thereon. This section shall 
not apply to a contract market for which position limits are set forth 
inSec. 150.2 of this part or for a futures or option contract market 
on a major foreign currency, for which there is no legal impediment to 
delivery and for which there exists a highly liquid cash market. Nothing 
in this section shall be construed to prohibit a contract market from 
fixing different and separate position limits for different types of 
futures contracts based on the same commodity, or from fixing different 
position limits for different futures or for different delivery months, 
or from exempting positions which are normally known in the trade as 
``spreads, straddles, or arbitrage,'' of from fixing limits which apply 
to such positions which are different from limits fixed for other 
positions.
    (b) Levels at designation. At the time of its initial designation, a 
contract market must provide for speculative position limit levels as 
follows:
    (1) For physical delivery contracts, the spot month limit level must 
be no greater than one-quarter of the estimated spot month deliverable 
supply, calculated separately for each month to be listed, and for cash 
settled contracts, the spot month limit level must be no greater than 
necessary to minimize the potential for manipulation or distortion of 
the contract's or the underlying commodity's price;
    (2) Individual nonspot or all-months-combined levels must be no 
greater than 1,000 contracts for tangible commodities other than energy 
products;
    (3) Individual nonspot or all-months-combined levels must be no 
greater than 5,000 contracts for energy products and nontangible 
commodities, including contracts on financial products.
    (c) Adjustments to levels. Contract markets may adjust their 
speculative limit levels as follows:
    (1) For physical delivery contracts, the spot month limit level must 
be no greater than one-quarter of the estimated spot month deliverable 
supply, calculated separately for each month to be listed, and for cash 
settled contracts, the spot month limit level must be no greater than 
necessary to minimize the potential for manipulation or distortion of 
the contract's or the underlying commodity's price; and
    (2) Individual nonspot or all-months-combined levels must be no 
greater than 10% of the average combined futures and delta-adjusted 
option month-end open interest for the most recent calendar year up to 
25,000 contracts with a marginal increase of 2.5% thereafter or be based 
on position sizes customarily held by speculative traders on the 
contract market, which shall not be extraordinarily large relative to 
total open positions in the contract, the breadth and liquidity of the 
cash market underlying each delivery month and the opportunity for 
arbitrage between the futures market and the cash market in the 
commodity underlying the futures contract.
    (d) Hedge exemption. (1) No exchange bylaw, rule, regulation, or 
resolution adopted pursuant to this section shall apply to bona fide 
hedging positions as defined by a contract market in accordance with 
Sec.  1.3(z)(1) of this chapter.

[[Page 988]]

Provided, however, that the contract market may limit bona fide hedging 
positions or any other positions which have been exempted pursuant to 
paragraph (e) of this section which it determines are not in accord with 
sound commercial practices or exceed an amount which may be established 
and liquidated in an orderly fashion.
    (2) Traders must apply to the contract market for exemption from its 
speculative position limit rules. In considering whether to grant such 
an application for exemption, contract markets must take into account 
the factors contained in paragraph (d)(1) of this section.
    (e) Trader accountability exemption. Twelve months after a contract 
market's initial listing for trading or at any time thereafter, contract 
markets may submit for Commission approval under section 5a(a)(12) of 
the Act andSec. 1.41(b) of this chapter a bylaw, rule, regulation, or 
resolution, substituting for the position limits required under 
paragraphs (a), (b) and (c) of this section an exchange rule requiring 
traders to be accountable for large positions as follows:
    (1) For futures and option contracts on a financial instrument or 
product having an average open interest of 50,000 contracts and an 
average daily trading volume of 100,000 contracts and a very highly 
liquid cash market, an exchange bylaw, regulation or resolution 
requiring traders to provide information about their position upon 
request by the exchange;
    (2) For futures and option contracts on a financial instrument or 
product or on an intangible commodity having an average moth-end open 
interest of 50,000 and an average daily volume of 25,000 contracts and a 
highly liquid cash market, an exchange bylaw, regulation or resolution 
requiring traders to provide information about their position upon 
request by the exchange and to consent to halt increasing further a 
trader's positions if so ordered by the exchange;
    (3) For futures and option contracts on a tangible commodity, 
including but not limited to metals, energy products, or international 
soft agricultural products, having an average month-end open interest of 
50,000 contracts and an average daily volume of 5,000 contracts and a 
liquid cash market, an exchange bylaw, regulation or resolution 
requiring traders to provide information about their position upon 
request by the exchange and to consent to halt increasing further a 
trader's positions if so ordered by the exchange, provided, however, 
such contract markets are not exempt from the requirement of paragraphs 
(b) or (c) that they adopt an exchange bylaw, regulation or resolution 
setting a spot month speculative position limit with a level no grater 
than one quarter of the estimated spot month deliverable supply;
    (4) For purposes of this paragraph, trading volume and open interest 
shall be calculated by combining the month-end futures and its related 
option contract, on a delta-adjusted basis, for all months listed during 
the most recent calendar year.
    (f) Other exemptions. Exchange speculative position limits adopted 
pursuant to this section shall not apply to any position acquired in 
good faith prior to the effective date of any bylaw, rule, regulation, 
or resolution which specifies such limit or to a person that is 
registered as a futures commission merchant or as a floor broker under 
authority of the Act except to the extent that transactions made by such 
person are made on behalf of or for the account or benefit of such 
person. In addition to the express exemptions specified in this section, 
a contract market may propose such other exemptions from the 
requirements of this section consistent with the purposes of this 
section and shall submit such rules Commission review under section 
5a(1)(12) of the Act andSec. 1.41(b) of this chapter.
    (g) Aggregation. In determining whether any person has exceeded the 
limits established under this section, all positions in accounts for 
which such person by power of attorney or otherwise directly or 
indirectly controls trading shall be included with the positions held by 
such person; such limits upon positions shall apply to positions held by 
two or more person acting pursuant to an express or implied agreement or 
understanding, the same as if

[[Page 989]]

the positions were held by a single person.

[64 FR 24048, May 5, 1999]



Sec.  150.6  Responsibility of contract markets.

    Nothing in this part shall be construed to affect any provisions of 
the Act relating to manipulation or corners nor to relieve any contract 
market or its governing board from responsibility under section 5(4) of 
the Act to prevent manipulation and corners.

[52 FR 38923, Oct. 20, 1987, as amended at 59 FR 5528, Feb. 7, 1993]



PART 151_POSITION LIMITS FOR FUTURES AND SWAPS--Table of Contents



Sec.
151.1 Definitions.
151.2 Core Referenced Futures Contracts.
151.3 Spot months for Referenced Contracts.
151.4 Position limits for Referenced Contracts.
151.5 Bona fide hedging and other exemptions for Referenced Contracts.
151.6 Position visibility.
151.7 Aggregation of positions.
151.8 Foreign boards of trade.
151.9 Pre-existing positions.
151.10 Form and manner of reporting and submitting information or 
          filings.
151.11 Designated contract market and swap execution facility position 
          limits and accountability rules.
151.12 Delegation of authority to the Director of the Division of Market 
          Oversight.
151.13 Severability.

Appendix A to Part 151--Spot-Month Position Limits
Appendix B to Part 151--Examples of Bona Fide Hedging Transactions and 
          Positions

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 76 FR 71684, Nov. 18, 2011, unless otherwise noted.



Sec.  151.1  Definitions.

    As used in this part--
    Basis contract means an agreement, contract or transaction that is 
cash-settled based on the difference in price of the same commodity (or 
substantially the same commodity) at different delivery locations;
    Calendar spread contract means a cash-settled agreement, contract, 
or transaction that represents the difference between the settlement 
price in one or a series of contract months of an agreement, contract or 
transaction and the settlement price of another contract month or 
another series of contract months' settlement prices for the same 
agreement, contract or transaction.
    Commodity index contract means an agreement, contract, or 
transaction that is not a basis or any type of spread contract, based on 
an index comprised of prices of commodities that are not the same or 
substantially the same; provided that, a commodity index contract used 
to circumvent speculative position limits shall be considered to be a 
Referenced Contract for the purpose of applying the position limits of 
Sec.  151.4.
    Core Referenced Futures Contract means a futures contract that is 
listed inSec. 151.2.
    Eligible Entity means a commodity pool operator; the operator of a 
trading vehicle which is excluded, or which itself has qualified for 
exclusion from the definition of the term ``pool'' or ``commodity pool 
operator,'' respectively, underSec. 4.5 of this chapter the limited 
partner or shareholder in a commodity pool the operator of which is 
exempt from registration underSec. 4.13 of this chapter; a commodity 
trading advisor; a bank or trust company; a savings association; an 
insurance company; or the separately organized affiliates of any of the 
above entities:
    (1) Which authorizes an independent account controller independently 
to control all trading decisions with respect to the eligible entity's 
client positions and accounts that the independent account controller 
holds directly or indirectly, or on the eligible entity's behalf, but 
without the eligible entity's day-to-day direction; and
    (2) Which maintains:
    (i) Only such minimum control over the independent account 
controller as is consistent with its fiduciary responsibilities to the 
managed positions and accounts, and necessary to fulfill its duty to 
supervise diligently the trading done on its behalf; or

[[Page 990]]

    (ii) If a limited partner or shareholder of a commodity pool the 
operator of which is exempt from registration underSec. 4.13 of this 
chapter, only such limited control as is consistent with its status.
    Entity means a ``person'' as defined in section 1a of the Act.
    Excluded commodity means an ``excluded commodity'' as defined in 
section 1a of the Act.
    Independent Account Controller means a person:
    (1) Who specifically is authorized by an eligible entity 
independently to control trading decisions on behalf of, but without the 
day-to-day direction of, the eligible entity;
    (2) Over whose trading the eligible entity maintains only such 
minimum control as is consistent with its fiduciary responsibilities for 
managed positions and accounts to fulfill its duty to supervise 
diligently the trading done on its behalf or as is consistent with such 
other legal rights or obligations which may be incumbent upon the 
eligible entity to fulfill;
    (3) Who trades independently of the eligible entity and of any other 
independent account controller trading for the eligible entity;
    (4) Who has no knowledge of trading decisions by any other 
independent account controller; and
    (5) Who is registered as a futures commission merchant, an 
introducing broker, a commodity trading advisor, or an associated person 
of any such registrant, or is a general partner of a commodity pool the 
operator of which is exempt from registration underSec. 4.13 of this 
chapter.
    Intercommodity spread contract means a cash-settled agreement, 
contract or transaction that represents the difference between the 
settlement price of a Referenced Contract and the settlement price of 
another contract, agreement, or transaction that is based on a different 
commodity.
    Referenced Contract means, on a futures equivalent basis with 
respect to a particular Core Referenced Futures Contract, a Core 
Referenced Futures Contract listed inSec. 151.2, or a futures 
contract, options contract, swap or swaption, other than a basis 
contract or commodity index contract, that is:
    (1) Directly or indirectly linked, including being partially or 
fully settled on, or priced at a fixed differential to, the price of 
that particular Core Referenced Futures Contract; or
    (2) Directly or indirectly linked, including being partially or 
fully settled on, or priced at a fixed differential to, the price of the 
same commodity underlying that particular Core Referenced Futures 
Contract for delivery at the same location or locations as specified in 
that particular Core Referenced Futures Contract.
    Spot month means, for Referenced Contracts, the spot month defined 
inSec. 151.3.
    Spot-month, single-month, and all-months-combined position limits 
mean, for Referenced Contracts based on a commodity identified inSec. 
151.2, the maximum number of contracts a trader may hold as set forth in 
Sec.  151.4.
    Spread contract means either a calendar spread contract or an 
intercommodity spread contract.
    Swap means ``swap'' as defined in section 1a of the Act and as 
further defined by the Commission.
    Swap dealer means ``swap dealer'' as that term is defined in section 
1a of the Act and as further defined by the Commission.
    Swaption means an option to enter into a swap or a physical 
commodity option.
    Trader means a person that, for its own account or for an account 
that it controls, makes transactions in Referenced Contracts or has such 
transactions made.



Sec.  151.2  Core Referenced Futures Contracts.

    (a) Agricultural commodities. Core Referenced Futures Contracts in 
agricultural commodities include the following futures contracts and 
options thereon:
    (1) Core Referenced Futures Contracts in legacy agricultural 
commodities:
    (i) Chicago Board of Trade Corn (C);
    (ii) Chicago Board of Trade Oats (O);
    (iii) Chicago Board of Trade Soybeans (S);
    (iv) Chicago Board of Trade Soybean Meal (SM);

[[Page 991]]

    (v) Chicago Board of Trade Soybean Oil (BO);
    (vi) Chicago Board of Trade Wheat (W);
    (vii) ICE Futures U.S. Cotton No. 2 (CT);
    (viii) Kansas City Board of Trade Hard Winter Wheat (KW); and
    (ix) Minneapolis Grain Exchange Hard Red Spring Wheat (MWE).
    (2) Core Referenced Futures Contracts in non-legacy agricultural 
commodities:
    (i) Chicago Mercantile Exchange Class III Milk (DA);
    (ii) Chicago Mercantile Exchange Feeder Cattle (FC);
    (iii) Chicago Mercantile Exchange Lean Hog (LH);
    (iv) Chicago Mercantile Exchange Live Cattle (LC);
    (v) Chicago Board of Trade Rough Rice (RR);
    (vi) ICE Futures U.S. Cocoa (CC);
    (vii) ICE Futures U.S. Coffee C (KC);
    (viii) ICE Futures U.S. FCOJ-A(OJ);
    (ix) ICE Futures U.S. Sugar No. 11 (SB); and
    (x) ICE Futures U.S. Sugar No. 16 (SF).
    (b) Metal commodities. Core Referenced Futures Contracts in metal 
commodities include the following futures contracts and options thereon:
    (1) Commodity Exchange, Inc. Copper (HG);
    (2) Commodity Exchange, Inc. Gold (GC);
    (3) Commodity Exchange, Inc. Silver (SI);
    (4) New York Mercantile Exchange Palladium (PA); and
    (5) New York Mercantile Exchange Platinum (PL).
    (c) Energy commodities. The Core Referenced Futures Contracts in 
energy commodities include the following futures contracts and options 
thereon:
    (1) New York Mercantile Exchange Henry Hub Natural Gas (NG);
    (2) New York Mercantile Exchange Light Sweet Crude Oil (CL);
    (3) New York Mercantile Exchange New York Harbor Gasoline Blendstock 
(RB); and
    (4) New York Mercantile Exchange New York Harbor Heating Oil (HO).



Sec.  151.3  Spot months for Referenced Contracts.

    (a) Agricultural commodities. For Referenced Contracts based on 
agricultural commodities, the spot month shall be the period of time 
commencing:
    (1) At the close of business on the business day prior to the first 
notice day for any delivery month and terminating at the end of the 
delivery period in the underlying Core Referenced Futures Contract for 
the following Referenced Contracts:
    (i) ICE Futures U.S. Cocoa (CC) contract;
    (ii) ICE Futures U.S. Coffee C (KC) contract;
    (iii) ICE Futures U.S. Cotton No. 2 (CT) contract;
    (iv) ICE Futures U.S. FCOJ-A (OJ) contract;
    (v) Chicago Board of Trade Corn (C) contract;
    (vi) Chicago Board of Trade Oats (O) contract;
    (vii) Chicago Board of Trade Rough Rice (RR) contract;
    (viii) Chicago Board of Trade Soybeans (S) contract;
    (ix) Chicago Board of Trade Soybean Meal (SM) contract;
    (x) Chicago Board of Trade Soybean Oil (BO) contract;
    (xi) Chicago Board of Trade Wheat (W) contract;
    (xii) Minneapolis Grain Exchange Hard Red Spring Wheat (MW) 
contract; and
    (xiii) Kansas City Board of Trade Hard Winter Wheat (KW) contract;
    (2) At the close of business of the first business day after the 
fifteenth calendar day of the calendar month preceding the delivery 
month if the fifteenth calendar day is a business day, or at the close 
of business of the second business day after the fifteenth day if the 
fifteenth day is a non-business day and terminating at the end of the 
delivery period in the underlying Core Referenced Futures Contract for 
the ICE Futures U.S. Sugar No. 11 (SB) Referenced Contract;
    (3) At the close of business on the sixth business day prior to the 
last trading day and terminating at the end of the delivery period in 
the underlying Core Referenced Futures Contract for

[[Page 992]]

the ICE Futures U.S. Sugar No. 16 (SF) Referenced Contract;
    (4) At the close of business on the business day immediately 
preceding the last five business days of the contract month and 
terminating at the end of the delivery period in the underlying Core 
Referenced Futures Contract for the Chicago Mercantile Exchange Live 
Cattle (LC) Referenced Contract;
    (5) On the ninth trading day prior to the last trading day and 
terminating on the last trading day for Chicago Mercantile Exchange 
Feeder Cattle (FC) contract;
    (6) On the first trading day of the contract month and terminating 
on the last trading day for the Chicago Mercantile Exchange Class III 
Milk (DA) contract; and
    (7) At the close of business on the fifth business day prior to the 
last trading day and terminating on the last trading day for the Chicago 
Mercantile Exchange Lean Hog (LH) contract.
    (b) Metal commodities. The spot month shall be the period of time 
commencing at the close of business on the business day prior to the 
first notice day for any delivery month and terminating at the end of 
the delivery period in the underlying Core Referenced Futures Contract 
for the following Referenced Contracts:
    (1) Commodity Exchange, Inc. Gold (GC) contract;
    (2) Commodity Exchange, Inc. Silver (SI) contract;
    (3) Commodity Exchange, Inc. Copper (HG) contract;
    (4) New York Mercantile Exchange Palladium (PA) contract; and
    (5) New York Mercantile Exchange Platinum (PL) contract.
    (c) Energy commodities. The spot month shall be the period of time 
commencing at the close of business of the third business day prior to 
the last day of trading in the underlying Core Referenced Futures 
Contract and terminating at the end of the delivery period for the 
following Referenced Contracts:
    (1) New York Mercantile Exchange Light Sweet Crude Oil (CL) 
contract;
    (2) New York Mercantile Exchange New York Harbor No. 2 Heating Oil 
(HO) contract;
    (3) New York Mercantile Exchange New York Harbor Gasoline Blendstock 
(RB) contract; and
    (4) New York Mercantile Exchange Henry Hub Natural Gas (NG) 
contract.



Sec.  151.4  Position limits for Referenced Contracts.

    (a) Spot-month position limits. In accordance with the procedure in 
paragraph (d) of this section, and except as provided or as otherwise 
authorized bySec. 151.5, no trader may hold or control a position, 
separately or in combination, net long or net short, in Referenced 
Contracts in the same commodity when such position is in excess of:
    (1) For physical-delivery Referenced Contracts, a spot-month 
position limit that shall be based on one-quarter of the estimated spot-
month deliverable supply as established by the Commission pursuant to 
paragraphs (d)(1) and (d)(2) of this section; and
    (2) For cash-settled Referenced Contracts:
    (i) A spot-month position limit that shall be based on one-quarter 
of the estimated spot-month deliverable supply as established by the 
Commission pursuant to paragraphs (d)(1) and (d)(2) of this section. 
Provided, however,
    (ii) For New York Mercantile Exchange Henry Hub Natural Gas 
Referenced Contracts:
    (A) A spot-month position limit equal to five times the spot-month 
position limit established by the Commission for the physical-delivery 
New York Mercantile Exchange Henry Hub Natural Gas Referenced Contract 
pursuant to paragraph (a)(1); and
    (B) An aggregate spot-month position limit for physical-delivery and 
cash-settled New York Mercantile Exchange Henry Hub Natural Gas 
Referenced Contracts equal to five times the spot-month position limit 
established by the Commission for the physical-delivery New York 
Mercantile Exchange Henry Hub Natural Gas Referenced Contract pursuant 
to paragraph (a)(1).
    (b) Non-spot-month position limits. In accordance with the procedure 
in paragraph (d) of this section, and except as otherwise authorized in 
Sec.  151.5, no person may hold or control positions, separately or in 
combination, net long or net short, in the same commodity

[[Page 993]]

when such positions, in all months combined (including the spot month) 
or in a single month, are in excess of:
    (1) Non-legacy Referenced Contract position limits. All-months-
combined aggregate and single-month position limits, fixed by the 
Commission based on 10 percent of the first 25,000 contracts of average 
all-months-combined aggregated open interest with a marginal increase of 
2.5 percent thereafter as established by the Commission pursuant to 
paragraph (d)(3) of this section;
    (2) Aggregate open interest calculations for non-spot-month position 
limits for non-legacy Referenced Contracts. (i) For the purpose of 
fixing the speculative position limits for non-legacy Referenced 
Contracts in paragraph (b)(1) of this section, the Commission shall 
determine:
    (A) The average all-months-combined aggregate open interest, which 
shall be equal to the sum, for 12 or 24 months of values obtained under 
paragraph (B) and (C) of this section for a period of 12 or 24 months 
prior to the fixing date divided by 12 or 24 respectively as of the last 
day of each calendar month;
    (B) The all-months-combined futures open interest of a Referenced 
Contract is equal to the sum of the month-end open interest for all of 
the Referenced Contract's open contract months in futures and option 
contracts (on a delta adjusted basis) across all designated contract 
markets; and
    (C) The all-months-combined swaps open interest is equal to the sum 
of all of a Referenced Contract's month-end open swaps positions, 
considering open positions attributed to both cleared and uncleared 
swaps, where the uncleared all-months-combined swaps open positions 
shall be the absolute sum of swap dealers' net uncleared open swaps 
positions by counterparty and by single Referenced Contract month as 
reported to the Commission pursuant to part 20 of this chapter, provided 
that, other than for the purpose of determining initial non-spot-month 
position limits, open swaps positions attributed to swaps with two swap 
dealer counterparties shall be counted once for the purpose of 
determining uncleared all-months-combined swaps open positions, provided 
further that, upon entry of an order underSec. 20.9 of this chapter 
determining that operating swap data repositories are processing 
positional data that will enable the Commission effectively to conduct 
surveillance in swaps, the Commission shall rely on data from such swap 
data repositories to compute the all-months-combined swaps open 
interest;
    (ii) Notwithstanding the provisions of this section, for the purpose 
of determining initial non-spot-month position limits for non-legacy 
Referenced Contracts, the Commission may estimate uncleared all-months-
combined swaps open positions based on uncleared open swaps positions 
reported to the Commission pursuant to part 20 of this chapter by 
clearing organizations or clearing members that are swap dealers; and
    (3) Legacy agricultural Referenced Contract position limits. All-
months-combined aggregate and single-month position limits, fixed by the 
Commission at the levels provided below as established by the Commission 
pursuant to paragraph (d)(4) of this section:

------------------------------------------------------------------------
                 Referenced contract                    Position limits
------------------------------------------------------------------------
(i) Chicago Board of Trade Corn (C) contract........              33,000
(ii) Chicago Board of Trade Oats (O) contract.......               2,000
(iii) Chicago Board of Trade Soybeans (S) contract..              15,000
(iv) Chicago Board of Trade Wheat (W) contract......              12,000
(v) Chicago Board of Trade Soybean Oil (BO) contract               8,000
(vi) Chicago Board of Trade Soybean Meal (SM)                      6,500
 contract...........................................
(vii) Minneapolis Grain Exchange Hard Red Spring                  12,000
 Wheat (MW) contract................................
(viii) ICE Futures U.S. Cotton No. 2 (CT) contract..               5,000
(ix) Kansas City Board of Trade Hard Winter Wheat                 12,000
 (KW) contract......................................
------------------------------------------------------------------------


[[Page 994]]

    (c) Netting of positions--(1) For Referenced Contracts in the spot 
month. (i) For the spot-month position limit in paragraph (a) of this 
section, a trader's positions in the physical-delivery Referenced 
Contract and cash-settled Referenced Contract are calculated separately. 
A trader cannot net any physical-delivery Referenced Contract with cash-
settled Referenced Contracts towards determining the trader's positions 
in each of the physical-delivery Referenced Contract and cash-settled 
Referenced Contracts in paragraph (a) of this section. However, a trader 
can net positions in cash-settled Referenced Contracts in the same 
commodity.
    (ii) Notwithstanding the netting provision in paragraph (c)(1)(i) of 
this section, for the aggregate spot-month position limit in New York 
Mercantile Exchange Henry Hub Natural Gas Referenced Contracts in 
paragraph (a)(2)(ii) of this section, a trader's positions shall be 
combined and the net resulting position in the physical-delivery 
Referenced Contract and cash-settled Referenced Contracts shall be 
applied towards determining the trader's aggregate position.
    (2) For the purpose of applying non-spot-month position limits, a 
trader's position in a Referenced Contract shall be combined and the net 
resulting position shall be applied towards determining the trader's 
aggregate single-month and all-months-combined position.
    (d) Establishing and effective dates of position limits--(1) Initial 
spot-month position limits for Referenced Contracts--(i) Sixty days 
after the term ``swap'' is further defined under the Wall Street 
Transparency and Accountability Act of 2010, the spot-month position 
limits for Referenced Contracts referred to in appendix A shall apply to 
all the provisions of this part.
    (2) Subsequent spot-month position limits for Referenced Contracts. 
(i) Commencing January 1st of the second calendar year after the term 
``swap'' is further defined under the Wall Street Transparency and 
Accountability Act of 2010, the Commission shall fix position limits by 
Commission order that shall supersede the initial limits established 
under paragraph (d)(1) of this section.
    (ii) In fixing spot-month position limits for Referenced Contracts, 
the Commission shall utilize the estimates of deliverable supply 
provided by a designated contract market under paragraph (d)(2)(iii) of 
this section unless the Commission determines to rely on its own 
estimate of deliverable supply.
    (iii) Each designated contract market shall submit to the Commission 
an estimate of deliverable supply for each Core Referenced Futures 
Contract that is subject to a spot-month position limit and listed or 
executed pursuant to the rules of the designated contract market 
according to the following schedule commencing January 1st of the second 
calendar year after the term ``swap'' is further defined under the Wall 
Street Transparency and Accountability Act of 2010:
    (A) For metal Core Referenced Futures Contracts listed inSec. 
151.2(b), by the 31st of December and biennially thereafter;
    (B) For energy Core Referenced Futures Contracts listed inSec. 
151.2(c), by the 31st of March and biennially thereafter;
    (C) For corn, wheat, oat, rough rice, soybean and soybean products, 
livestock, milk, cotton, and frozen concentrated orange juice Core 
Referenced Futures Contracts, by the 31st of July, and annually 
thereafter;
    (D) For coffee, sugar, and cocoa Core Referenced Futures Contracts, 
by the 30th of September, and annually thereafter.
    (iv) For purposes of estimating deliverable supply, a designated 
contract market may use any guidance adopted in the Acceptable Practices 
for Compliance with Core Principle 3 found in part 38 of the 
Commission's regulations.
    (v) The estimate submitted under paragraph (d)(2)(iii) of this 
section shall be accompanied by a description of the methodology used to 
derive the estimate along with any statistical data supporting the 
designated contract market's estimate of deliverable supply.
    (vi) The Commission shall fix and publish pursuant to paragraph (e) 
of

[[Page 995]]

this section, the spot-month limits by Commission order, no later than:
    (A) For metal Referenced Contracts listed inSec. 151.2(b), by the 
28th of February following the submission of estimates of deliverable 
supply provided to the Commission under paragraph (d)(2)(iii)(A) of this 
section and biennially thereafter;
    (B) For energy Referenced Contracts listed inSec. 151.2(c), by the 
31st of May following the submission of estimates of deliverable supply 
provided to the Commission under paragraph (d)(2)(iii)(B) of this 
section and biennially thereafter;
    (C) For corn, wheat, oat, rough rice, soybean and soybean products, 
livestock, milk, cotton, and frozen concentrated orange juice Referenced 
Contracts, by the 30th of September following the submission of 
estimates of deliverable supply provided to the Commission under 
paragraph (d)(2)(iii)(C) of this section and annually thereafter;
    (D) For coffee, sugar, and cocoa Referenced Contracts, by the 30th 
of November following the submission of estimates of deliverable supply 
provided to the Commission under paragraph (d)(2)(iii)(D) of this 
section and annually thereafter.
    (3) Non-spot-month position limits for non-legacy Referenced 
Contract. (i) Initial non-spot-month limits for non-legacy Referenced 
Contracts shall be fixed and published within one month after the 
Commission has obtained or estimated 12 months of values pursuant to 
paragraphs (b)(2)(i)(B), (b)(2)(i)(C), and (b)(2)(ii) of this section, 
and shall be fixed and made effective as provided in paragraph (b)(2) 
and (e) of this section.
    (ii) Subsequent non-spot-month limits for non-legacy Referenced 
Contracts shall be fixed and published within one month after two years 
following the fixing and publication of initial non-spot-month position 
limits and shall be based on the higher of 12 months average all-months-
combined aggregate open interest, or 24 months average all-months-
combined aggregate open interest, as provided for in paragraphs (b)(2) 
and (e) of this section.
    (iii) Initial non-spot-month limits for non-legacy Referenced 
Contracts shall be made effective by Commission order.
    (4) Non-spot-month legacy limits for legacy agricultural Referenced 
Contracts. The non-spot-month position limits for legacy agricultural 
Referenced Contracts shall be effective sixty days after the term 
``swap'' is further defined under the Wall Street Transparency and 
Accountability Act of 2010, and shall apply to all the provisions of 
this part.
    (e) Publication. The Commission shall publish position limits on the 
Commission's Web site at http://www.cftc.gov prior to making such limits 
effective, other than those limits specified under paragraph (b)(3) of 
this section and appendix A to this part.
    (1) Spot-month position limits shall be effective:
    (i) For metal Referenced Contracts listed inSec. 151.2(b), on the 
1st of May after the Commission has fixed and published such limits 
under paragraph (d)(2)(vi)(A) of this section;
    (ii) For energy Referenced Contracts listed inSec. 151.2(c), on 
the 1st of August after the Commission has fixed and published such 
limits under paragraph (d)(2)(vi)(B) of this section;
    (iii) For corn, wheat, oat, rough rice, soybean and soybean 
products, livestock, milk, cotton, and frozen concentrated orange juice 
Referenced Contracts, on the 1st of December after the Commission has 
fixed and published such limits under paragraph (d)(2)(vi)(C) of this 
section; and
    (iv) For coffee, sugar, and cocoa Referenced Contracts, on the 1st 
of February after the Commission has fixed and published such limits 
under paragraph (d)(2)(vi)(D) of this section.
    (2) The Commission shall publish month-end all-months-combined 
futures open interest and all-months-combined swaps open interest 
figures within one month, as practicable, after such data is submitted 
to the Commission.
    (3) Non-spot-month position limits established under paragraph 
(b)(2) of this section shall be effective on the 1st calendar day of the 
third calendar month immediately following publication on the 
Commission's Web site under paragraph (d)(3) of this section.

[[Page 996]]

    (f) Rounding. In determining or calculating all levels and limits 
under this section, a resulting number shall be rounded up to the 
nearest hundred contracts.



Sec.  151.5  Bona fide hedging and other exemptions for Referenced Contracts.

    (a) Bona fide hedging transactions or positions. (1) Any person that 
complies with the requirements of this section may exceed the position 
limits set forth inSec. 151.4 to the extent that a transaction or 
position in a Referenced Contract:
    (i) Represents a substitute for transactions made or to be made or 
positions taken or to be taken at a later time in a physical marketing 
channel;
    (ii) Is economically appropriate to the reduction of risks in the 
conduct and management of a commercial enterprise; and
    (iii) Arises from the potential change in the value of one or 
several--
    (A) Assets that a person owns, produces, manufactures, processes, or 
merchandises or anticipates owning, producing, manufacturing, 
processing, or merchandising;
    (B) Liabilities that a person owns or anticipates incurring; or
    (C) Services that a person provides, purchases, or anticipates 
providing or purchasing; or
    (iv) Reduces risks attendant to a position resulting from a swap 
that--
    (A) Was executed opposite a counterparty for which the transaction 
would qualify as a bona fide hedging transaction pursuant to paragraph 
(a)(1)(i) through (iii) of this section; or
    (B) Meets the requirements of paragraphs (a)(1)(i) through (iii) of 
this section.
    (v) Notwithstanding the foregoing, no transactions or positions 
shall be classified as bona fide hedging for purposes ofSec. 151.4 
unless such transactions or positions are established and liquidated in 
an orderly manner in accordance with sound commercial practices and the 
provisions of paragraph (a)(2) of this section regarding enumerated 
hedging transactions and positions or paragraphs (a)(3) or (4) of this 
section regarding pass-through swaps of this section have been 
satisfied.
    (2) Enumerated hedging transactions and positions. Bona fide hedging 
transactions and positions for the purposes of this paragraph mean any 
of the following specific transactions and positions:
    (i) Sales of Referenced Contracts that do not exceed in quantity:
    (A) Ownership or fixed-price purchase of the contract's underlying 
cash commodity by the same person; and
    (B) Unsold anticipated production of the same commodity, which may 
not exceed one year of production for an agricultural commodity, by the 
same person provided that no such position is maintained in any 
physical-delivery Referenced Contract during the last five days of 
trading of the Core Referenced Futures Contract in an agricultural or 
metal commodity or during the spot month for other physical-delivery 
contracts.
    (ii) Purchases of Referenced Contracts that do not exceed in 
quantity:
    (A) The fixed-price sale of the contract's underlying cash commodity 
by the same person;
    (B) The quantity equivalent of fixed-price sales of the cash 
products and by-products of such commodity by the same person; and
    (C) Unfilled anticipated requirements of the same cash commodity, 
which may not exceed one year for agricultural Referenced Contracts, for 
processing, manufacturing, or use by the same person, provided that no 
such position is maintained in any physical-delivery Referenced Contract 
during the last five days of trading of the Core Referenced Futures 
Contract in an agricultural or metal commodity or during the spot month 
for other physical-delivery contracts.
    (iii) Offsetting sales and purchases in Referenced Contracts that do 
not exceed in quantity that amount of the same cash commodity that has 
been bought and sold by the same person at unfixed prices basis 
different delivery months, provided that no such position is maintained 
in any physical-delivery Referenced Contract during the last five days 
of trading of the Core Referenced Futures Contract in an agricultural or 
metal commodity or during the spot month for other physical-delivery 
contracts.

[[Page 997]]

    (iv) Purchases or sales by an agent who does not own or has not 
contracted to sell or purchase the offsetting cash commodity at a fixed 
price, provided that the agent is responsible for the merchandising of 
the cash positions that is being offset in Referenced Contracts and the 
agent has a contractual arrangement with the person who owns the 
commodity or holds the cash market commitment being offset.
    (v) Anticipated merchandising hedges. Offsetting sales and purchases 
in Referenced Contracts that do not exceed in quantity the amount of the 
same cash commodity that is anticipated to be merchandised, provided 
that:
    (A) The quantity of offsetting sales and purchases is not larger 
than the current or anticipated unfilled storage capacity owned or 
leased by the same person during the period of anticipated merchandising 
activity, which may not exceed one year;
    (B) The offsetting sales and purchases in Referenced Contracts are 
in different contract months, which settle in not more than one year; 
and
    (C) No such position is maintained in any physical-delivery 
Referenced Contract during the last five days of trading of the Core 
Referenced Futures Contract in an agricultural or metal commodity or 
during the spot month for other physical-delivery contracts.
    (vi) Anticipated royalty hedges. Sales or purchases in Referenced 
Contracts offset by the anticipated change in value of royalty rights 
that are owned by the same person provided that:
    (A) The royalty rights arise out of the production, manufacturing, 
processing, use, or transportation of the commodity underlying the 
Referenced Contract, which may not exceed one year for agricultural 
Referenced Contracts; and
    (B) No such position is maintained in any physical-delivery 
Referenced Contract during the last five days of trading of the Core 
Referenced Futures Contract in an agricultural or metal commodity or 
during the spot month for other physical-delivery contracts.
    (vii) Service hedges. Sales or purchases in Referenced Contracts 
offset by the anticipated change in value of receipts or payments due or 
expected to be due under an executed contract for services held by the 
same person provided that:
    (A) The contract for services arises out of the production, 
manufacturing, processing, use, or transportation of the commodity 
underlying the Referenced Contract, which may not exceed one year for 
agricultural Referenced Contracts;
    (B) The fluctuations in the value of the position in Referenced 
Contracts are substantially related to the fluctuations in value of 
receipts or payments due or expected to be due under a contract for 
services; and
    (C) No such position is maintained in any physical-delivery 
Referenced Contract during the last five days of trading of the Core 
Referenced Futures Contract in an agricultural or metal commodity or 
during the spot month for other physical-delivery contracts.
    (viii) Cross-commodity hedges. Sales or purchases in Referenced 
Contracts described in paragraphs (a)(2)(i) through (vii) of this 
section may also be offset other than by the same quantity of the same 
cash commodity, provided that:
    (A) The fluctuations in value of the position in Referenced 
Contracts are substantially related to the fluctuations in value of the 
actual or anticipated cash position; and
    (B) No such position is maintained in any physical-delivery 
Referenced Contract during the last five days of trading of the Core 
Referenced Futures Contract in an agricultural or metal commodity or 
during the spot month for other physical-delivery contracts.
    (3) Pass-through swaps. Bona fide hedging transactions and positions 
for the purposes of this paragraph include the purchase or sales of 
Referenced Contracts that reduce the risks attendant to a position 
resulting from a swap that was executed opposite a counterparty for whom 
the swap transaction would qualify as a bona fide hedging transaction 
pursuant to paragraph (a)(2) of this section (``pass-through swaps''), 
provided that no such position is maintained in any physical-delivery 
Referenced Contract during the last five days of trading of the Core 
Referenced Futures Contract in an agricultural or metal commodity or 
during the spot month for other physical-delivery contracts unless such 
pass-

[[Page 998]]

through swap position continues to offset the cash market commodity 
price risk of the bona fide hedging counterparty.
    (4) Pass-through swap offsets. For swaps executed opposite a 
counterparty for whom the swap transaction would qualify as a bona fide 
hedging transaction pursuant to paragraph (a)(2) of this section (pass-
through swaps), such pass-through swaps shall also be classified as a 
bona fide hedging transaction for the counterparty for whom the swap 
would not otherwise qualify as a bona fide hedging transaction pursuant 
to paragraph (a)(2) of this section (``non-hedging counterparty''), 
provided that the non-hedging counterparty purchases or sells Referenced 
Contracts that reduce the risks attendant to such pass-through swaps. 
Provided further, that the pass-through swap shall constitute a bona 
fide hedging transaction only to the extent the non-hedging counterparty 
purchases or sells Referenced Contracts that reduce the risks attendant 
to the pass-through swap.
    (5) Any person engaging in other risk-reducing practices commonly 
used in the market which they believe may not be specifically enumerated 
inSec. 151.5(a)(2) may request relief from Commission staff under 
Sec.  140.99 of this chapter or the Commission under section 4a(a)(7) of 
the Act concerning the applicability of the bona fide hedging 
transaction exemption.
    (b) Aggregation of accounts. Entities required to aggregate accounts 
or positions underSec. 151.7 shall be considered the same person for 
the purpose of determining whether a person or persons are eligible for 
a bona fide hedge exemption underSec. 151.5(a).
    (c) Information on cash market commodity activities. Any person with 
a position that exceeds the position limits set forth inSec. 151.4 
pursuant to paragraphs (a)(2)(i)(A), (a)(2)(ii)(A), (a)(2)(ii)(B), 
(a)(2)(iii), or (a)(2)(iv) of this section shall submit to the 
Commission a 404 filing, in the form and manner provided for inSec. 
151.10.
    (1) The 404 filing shall contain the following information with 
respect to such position for each business day the same person exceeds 
the limits set forth inSec. 151.4, up to and through the day the 
person's position first falls below the position limits:
    (i) The date of the bona fide hedging position, an indication of 
under which enumerated hedge exemption or exemptions the position 
qualifies for bona fide hedging, the corresponding Core Referenced 
Futures Contract, the cash market commodity hedged, and the units in 
which the cash market commodity is measured;
    (ii) The entire quantity of stocks owned of the cash market 
commodity that is being hedged;
    (iii) The entire quantity of fixed-price purchase commitments of the 
cash market commodity that is being hedged;
    (iv) The sum of the entire quantity of stocks owned of the cash 
market commodity and the entire quantity of fixed-price purchase 
commitments of the cash market commodity that is being hedged;
    (v) The entire quantity of fixed-price sale commitments of the cash 
commodity that is being hedged;
    (vi) The quantity of long and short Referenced Contracts, measured 
on a futures-equivalent basis to the applicable Core Referenced Futures 
Contract, in the nearby contract month that are being used to hedge the 
long and short cash market positions;
    (viii) The total number of long and short Referenced Contracts, 
measured on a futures equivalent basis to the applicable Core Referenced 
Futures Contract, that are being used to hedge the long and short cash 
market positions; and
    (viii) Cross-commodity hedging information as required under 
paragraph (g) of this section.
    (2) Notice filing. Persons seeking an exemption under this paragraph 
shall file a notice with the Commission, which shall be effective upon 
the date of the submission of the notice.
    (d) Information on anticipated cash market commodity activities--(1) 
Initial statement. Any person who intends to exceed the position limits 
set forth inSec. 151.4 pursuant to paragraph (a)(2)(i)(B), 
(a)(2)(ii)(C), (a)(2)(v), (a)(2)(vi), or (a)(2)(vii) of this section in 
order to hedge anticipated production,

[[Page 999]]

requirements, merchandising, royalties, or services connected to a 
commodity underlying a Referenced Contract, shall submit to the 
Commission a 404A filing in the form and manner provided inSec. 
151.10. The 404A filing shall contain the following information with 
respect to such activities, by Referenced Contract:
    (i) A description of the type of anticipated cash market activity to 
be hedged; how the purchases or sales of Referenced Contracts are 
consistent with the provisions of (a)(1) of this section; and the units 
in which the cash commodity is measured;
    (ii) The time period for which the person claims the anticipatory 
hedge exemption is required, which may not exceed one year for 
agricultural commodities or one year for anticipated merchandising 
activity;
    (iii) The actual use, production, processing, merchandising (bought 
and sold), royalties and service payments and receipts of that cash 
market commodity during each of the three complete fiscal years 
preceding the current fiscal year;
    (iv) The anticipated use production, or commercial or merchandising 
requirements (purchases and sales), anticipated royalties, or service 
contract receipts or payments of that cash market commodity which are 
applicable to the anticipated activity to be hedged for the period 
specified in (d)(1)(ii) of this section;
    (v) The unsold anticipated production or unfilled anticipated 
commercial or merchandising requirements of that cash market commodity 
which are applicable to the anticipated activity to be hedged for the 
period specified in (d)(1)(ii) of this section;
    (vi) The maximum number of Referenced Contracts long and short (on 
an all-months-combined basis) that are expected to be used for each 
anticipatory hedging activity for the period specified in (d)(1)(ii) of 
this section on a futures equivalent basis;
    (vii) If the hedge exemption sought is for anticipated merchandising 
pursuant to (a)(2)(v) of this section, a description of the storage 
capacity related to the anticipated merchandising transactions, 
including:
    (A) The anticipated total storage capacity, the anticipated 
merchandising quantity, and purchase and sales commitments for the 
period specified in (d)(1)(ii) of this section;
    (B) Current inventory; and
    (C) The total storage capacity and quantity of commodity moved 
through the storage capacity for each of the three complete fiscal years 
preceding the current fiscal year; and
    (viii) Cross-commodity hedging information as required under 
paragraph (g) of this section.
    (2) Notice filing. Persons seeking an exemption under this paragraph 
shall file a notice with the Commission. Such a notice shall be filed at 
least ten days in advance of a date the person expects to exceed the 
position limits established under this part, and shall be effective 
after that ten day period unless otherwise notified by the Commission.
    (3) Supplemental reports for 404A filings. Whenever a person intends 
to exceed the amounts determined by the Commission to constitute a bona 
fide hedge for anticipated activity in the most recent statement or 
filing, such person shall file with the Commission a statement that 
updates the information provided in the person's most recent filing at 
least ten days in advance of the date that person wishes to exceed those 
amounts.
    (e) Review of notice filings. (1) The Commission may require persons 
submitting notice filings provided for under paragraphs (c)(2) and 
(d)(2) of this section to submit such other information, before or after 
the effective date of a notice, which is necessary to enable the 
Commission to make a determination whether the transactions or positions 
under the notice filing fall within the scope of bona fide hedging 
transactions or positions described under paragraph (a) of this section.
    (2) The transactions and positions described in the notice filing 
shall not be considered, in part or in whole, as bona fide hedging 
transactions or positions if such person is so notified by the 
Commission.
    (f) Additional information from swap counterparties to bona fide 
hedging transactions. All persons that maintain positions in excess of 
the limits set forth in

[[Page 1000]]

Sec.  151.4 in reliance upon the exemptions set forth in paragraphs 
(a)(3) and (4) of this section shall submit to the Commission a 404S 
filing, in the form and manner provided for inSec. 151.10. Such 404S 
filing shall contain the following information with respect to such 
position for each business day that the same person exceeds the limits 
set forth inSec. 151.4, up to and through the day the person's 
position first falls below the position limit that was exceeded:
    (1) By Referenced Contract;
    (2) By commodity reference price and units of measurement used for 
the swaps that would qualify as a bona fide hedging transaction or 
position gross long and gross short positions; and
    (3) Cross-commodity hedging information as required under paragraph 
(g) of this section.
    (g) Conversion methodology for cross-commodity hedges. In addition 
to the information required under this section, persons who avail 
themselves of cross-commodity hedges pursuant to (a)(2)(viii) of this 
section shall submit to the Commission a form 404, 404A, or 404S filing, 
as appropriate. The first time such a form is filed where a cross-
commodity hedge is claimed, it should contain a description of the 
conversion methodology. That description should explain the conversion 
from the actual commodity used in the person's normal course of business 
to the Referenced Contract that is being used for hedging, including an 
explanation of the methodology used for determining the ratio of 
conversion between the actual or anticipated cash positions and the 
person's positions in the Referenced Contract.
    (h) Recordkeeping. Persons who avail themselves of bona fide hedge 
exemptions shall keep and maintain complete books and records concerning 
all of their related cash, futures, and swap positions and transactions 
and make such books and records, along with a list of pass-through swap 
counterparties for pass-through swap exemptions under (a)(3) of this 
section, available to the Commission upon request.
    (i) Additional requirements for pass-through swap counterparties. A 
party seeking to rely uponSec. 151.5(a)(3) to exceed the position 
limits ofSec. 151.4 with respect to such a swap may only do so if its 
counterparty provides a written representation (e.g., in the form of a 
field or other representation contained in a mutually executed trade 
confirmation) that, as to such counterparty, the swap qualifies in good 
faith as a bona fide hedging transaction under paragraph (a)(3) of this 
section at the time the swap was executed. That written representation 
shall be retained by the parties to the swap for a period of at least 
two years following the expiration of the swap and furnished to the 
Commission upon request. Any person that represents to another person 
that the swap qualifies as a pass-through swap under paragraph (a)(3) of 
this section shall keep and make available to the Commission upon 
request all relevant books and records supporting such a representation 
for a period of at least two years following the expiration of the swap.
    (j) Financial distress exemption. Upon specific request made to the 
Commission, the Commission may exempt a person or related persons under 
financial distress circumstances for a time certain from any of the 
requirements of this part. Financial distress circumstances are 
situations involving the potential default or bankruptcy of a customer 
of the requesting person or persons, affiliate of the requesting person 
or persons, or potential acquisition target of the requesting person or 
persons. Such exemptions shall be granted by Commission order.



Sec.  151.6  Position visibility.

    (a) Visibility levels. A person holding or controlling positions, 
separately or in combination, net long or net short, in Referenced 
Contracts that equal or exceed the following levels in all months or in 
any single month (including the spot month), shall comply with the 
reporting requirements of paragraphs (b) and (c) of this section:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
(1) Visibility Levels for Metal Referenced Contracts
------------------------------------------------------------------------
(i) Commodity Exchange, Inc. Copper (HG)............               8,500

[[Page 1001]]

 
(ii) Commodity Exchange, Inc. Gold (GC).............              30,000
(iv) Commodity Exchange, Inc. Silver (SI)...........               8,500
(v) New York Mercantile Exchange Palladium (PA).....               1,500
(vi) New York Mercantile Exchange Platinum (PL).....               2,000
------------------------------------------------------------------------
(2) Visibility Levels for Energy Referenced Contracts
------------------------------------------------------------------------
(i) New York Mercantile Exchange Light Sweet Crude                50,000
 Oil (CL)...........................................
(ii) New York Mercantile Exchange Henry Hub Natural               50,000
 Gas (NG)...........................................
(iii) New York Mercantile Exchange New York Harbor                10,000
 Gasoline Blendstock (RB)...........................
(iv) New York Mercantile Exchange New York Harbor                 16,000
 No. 2 Heating Oil (HO).............................
------------------------------------------------------------------------

    (b) Statement of person exceeding visibility level. Persons meeting 
the provisions of paragraph (a) of this section, shall submit to the 
Commission a 401 filing in the form and manner provided for inSec. 
151.10. The 401 filing shall contain the following information, by 
Referenced Contract:
    (1) A list of dates, within the applicable calendar quarter, on 
which the person held or controlled a position that equaled or exceeded 
such visibility levels; and
    (2) As of the first business Tuesday following the applicable 
calendar quarter and as of the day, within the applicable calendar 
quarter, in which the person held the largest net position (on an all 
months combined basis) in excess of the level in paragraph (a) of this 
section:
    (i) Separately by futures, options and swaps, gross long and gross 
short futures equivalent positions in all months in the applicable 
Referenced Contract(s) (using economically reasonable and analytically 
supported deltas) on a futures-equivalent basis; and
    (ii) If applicable, by commodity referenced price, gross long and 
gross short uncleared swap positions in all months basis in the 
applicable Referenced Contract(s) futures-equivalent basis (using 
economically reasonable and analytically supported deltas).
    (c) 404 filing. A person that holds a position in a Referenced 
Contract that equals or exceeds a visibility level in a calendar quarter 
shall submit to the Commission a 404 filing in the form and manner 
provided for inSec. 151.10, and it shall contain the information 
regarding such positions as described inSec. 151.5(c) as of the first 
business Tuesday following the applicable calendar quarter and as of the 
day, within the applicable calendar quarter, in which the person held 
the largest net position in excess of the level in all months.
    (d) Alternative filing. With the express written permission of the 
Commission or its designees, the submission of a swaps or physical 
commodity portfolio summary statement spreadsheet in digital format, 
only insofar as the spreadsheet provides at least the same data as that 
required by paragraphs (b) or (c) of this section respectively may be 
substituted for the 401 or 404 filing respectively.
    (e) Precedence of other reporting obligations. Reporting obligations 
imposed by regulations other than those contained in this section shall 
supersede the reporting requirements of paragraphs (b) and (c) of this 
section but only insofar as other reporting obligations provide at least 
the same data and are submitted to the Commission or its designees at 
least as often as the reporting requirements of paragraphs (b) and (c) 
of this section.
    (f) Compliance date. The compliance date of this section shall be 
sixty days after the term ``swap'' is further defined under the Wall 
Street Transparency and Accountability Act of 2010. A document will be 
published in the Federal Register establishing the compliance date.



Sec.  151.7  Aggregation of positions.

    (a) Positions to be aggregated. The position limits set forth in 
Sec.  151.4 shall apply to all positions in accounts for which any 
person by power of attorney or otherwise directly or indirectly holds 
positions or controls trading and

[[Page 1002]]

to positions held by two or more persons acting pursuant to an expressed 
or implied agreement or understanding the same as if the positions were 
held by, or the trading of the position were done by, a single 
individual.
    (b) Ownership of accounts generally. For the purpose of applying the 
position limits set forth inSec. 151.4, except for the ownership 
interest of limited partners, shareholders, members of a limited 
liability company, beneficiaries of a trust or similar type of pool 
participant in a commodity pool subject to the provisos set forth in 
paragraph (c) of this section or in accounts or positions in multiple 
pools as set forth in paragraph (d) of this section, any person holding 
positions in more than one account, or holding accounts or positions in 
which the person by power of attorney or otherwise directly or 
indirectly has a 10 percent or greater ownership or equity interest, 
must aggregate all such accounts or positions.
    (c) Ownership by limited partners, shareholders or other pool 
participants. (1) Except as provided in paragraphs (c)(2) and (3) of 
this section, a person that is a limited partner, shareholder or other 
similar type of pool participant with an ownership or equity interest of 
10 percent or greater in a pooled account or positions who is also a 
principal or affiliate of the operator of the pooled account must 
aggregate the pooled account or positions with all other accounts or 
positions owned or controlled by that person, unless:
    (i) The pool operator has, and enforces, written procedures to 
preclude the person from having knowledge of, gaining access to, or 
receiving data about the trading or positions of the pool;
    (ii) The person does not have direct, day-to-day supervisory 
authority or control over the pool's trading decisions; and
    (iii) The pool operator has complied with the requirements of 
paragraph (h) of this section on behalf of the person or class of 
persons.
    (2) A commodity pool operator having ownership or equity interest of 
10 percent or greater in an account or positions as a limited partner, 
shareholder or other similar type of pool participant must aggregate 
those accounts or positions with all other accounts or positions owned 
or controlled by the commodity pool operator.
    (3) Each limited partner, shareholder, or other similar type of pool 
participant having an ownership or equity interest of 25 percent or 
greater in a commodity pool the operator of which is exempt from 
registration underSec. 4.13 of this chapter must aggregate the pooled 
account or positions with all other accounts or positions owned or 
controlled by that person.
    (d) Identical trading. Notwithstanding any other provision of this 
section, for the purpose of applying the position limits set forth in 
Sec.  151.4, any person that holds or controls the trading of positions, 
by power of attorney or otherwise, in more than one account, or that 
holds or controls trading of accounts or positions in multiple pools 
with identical trading strategies must aggregate all such accounts or 
positions that a person holds or controls.
    (e) Trading control by futures commission merchants. The position 
limits set forth inSec. 151.4 shall be construed to apply to all 
positions held by a futures commission merchant or its separately 
organized affiliates in a discretionary account, or in an account which 
is part of, or participates in, or receives trading advice from a 
customer trading program of a futures commission merchant or any of the 
officers, partners, or employees of such futures commission merchant or 
its separately organized affiliates, unless:
    (1) A trader other than the futures commission merchant or the 
affiliate directs trading in such an account;
    (2) The futures commission merchant or the affiliate maintains only 
such minimum control over the trading in such an account as is necessary 
to fulfill its duty to supervise diligently trading in the account; and
    (3) Each trading decision of the discretionary account or the 
customer trading program is determined independently of all trading 
decisions in other accounts which the futures commission merchant or the 
affiliate holds, has a financial interest of 10 percent or more in, or 
controls.
    (f) Independent Account Controller. An eligible entity need not 
aggregate its

[[Page 1003]]

positions with the eligible entity's client positions or accounts 
carried by an authorized independent account controller, as defined in 
Sec.  151.1, except for the spot month provided in physical-delivery 
Referenced Contracts, provided, however, that the eligible entity has 
complied with the requirements of paragraph (h) of this section, and 
that the overall positions held or controlled by such independent 
account controller may not exceed the limits specified inSec. 151.4.
    (1) Additional requirements for exemption of Affiliated Entities. If 
the independent account controller is affiliated with the eligible 
entity or another independent account controller, each of the affiliated 
entities must:
    (i) Have, and enforce, written procedures to preclude the affiliated 
entities from having knowledge of, gaining access to, or receiving data 
about, trades of the other. Such procedures must include document 
routing and other procedures or security arrangements, including 
separate physical locations, which would maintain the independence of 
their activities; provided, however, that such procedures may provide 
for the disclosure of information which is reasonably necessary for an 
eligible entity to maintain the level of control consistent with its 
fiduciary responsibilities and necessary to fulfill its duty to 
supervise diligently the trading done on its behalf;
    (ii) Trade such accounts pursuant to separately developed and 
independent trading systems;
    (iii) Market such trading systems separately; and
    (iv) Solicit funds for such trading by separate disclosure documents 
that meet the standards ofSec. 4.24 orSec. 4.34 of this chapter, as 
applicable where such disclosure documents are required under part 4 of 
this chapter.
    (g) Exemption for underwriting. Notwithstanding any of the 
provisions of this section, a person need not aggregate the positions or 
accounts of an owned entity if the ownership interest is based on the 
ownership of securities constituting the whole or a part of an unsold 
allotment to or subscription by such person as a participant in the 
distribution of such securities by the issuer or by or through an 
underwriter.
    (h) Notice filing for exemption. (1) Persons seeking an aggregation 
exemption under paragraph (c), (e), (f), or (i) of this section shall 
file a notice with the Commission, which shall be effective upon 
submission of the notice, and shall include:
    (i) A description of the relevant circumstances that warrant 
disaggregation; and
    (ii) A statement certifying that the conditions set forth in the 
applicable aggregation exemption provision has been met.
    (2) Upon call by the Commission, any person claiming an aggregation 
exemption under this section shall provide to the Commission such 
information concerning the person's claim for exemption. Upon notice and 
opportunity for the affected person to respond, the Commission may 
amend, suspend, terminate, or otherwise modify a person's aggregation 
exemption for failure to comply with the provisions of this section.
    (3) In the event of a material change to the information provided in 
the notice filed under this paragraph, an updated or amended notice 
shall promptly be filed detailing the material change.
    (4) A notice shall be submitted in the form and manner provided for 
inSec. 151.10.
    (i) Exemption for federal law information sharing restriction. 
Notwithstanding any provision of this section, a person is not subject 
to the aggregation requirements of this section if the sharing of 
information associated with such aggregation would cause either person 
to violate Federal law or regulations adopted thereunder and provided 
that such a person does not have actual knowledge of information 
associated with such aggregation. Provided, however, that such person 
file a prior notice with the Commission detailing the circumstances of 
the exemption and an opinion of counsel that the sharing of information 
would cause a violation of Federal law or regulations adopted 
thereunder.



Sec.  151.8  Foreign boards of trade.

    The aggregate position limits inSec. 151.4 shall apply to a trader 
with positions in Referenced Contracts executed

[[Page 1004]]

on, or pursuant to the rules of a foreign board of trade, provided that:
    (a) Such Referenced Contracts settle against any price (including 
the daily or final settlement price) of one or more contracts listed for 
trading on a designated contract market or swap execution facility that 
is a trading facility; and
    (b) The foreign board of trade makes available such Referenced 
Contracts to its members or other participants located in the United 
States through direct access to its electronic trading and order 
matching system.



Sec.  151.9  Pre-existing positions.

    (a) Non-spot-month position limits. The position limits set forth in 
Sec.  151.4(b) of this chapter may be exceeded to the extent that 
positions in Referenced Contracts remain open and were entered into in 
good faith prior to the effective date of any rule, regulation, or order 
that specifies a position limit under this part.
    (b) Spot-month position limits. Notwithstanding the pre-existing 
exemption in non-spot months, a person must comply with spot month 
limits.
    (c) Pre-Dodd-Frank and transition period swaps. The initial position 
limits established underSec. 151.4 shall not apply to any swap 
positions entered into in good faith prior to the effective date of such 
initial limits. Swap positions in Referenced Contracts entered into in 
good faith prior to the effective date of such initial limits may be 
netted with post-effective date swap and swaptions for the purpose of 
applying any position limit.
    (d) Exemptions. Exemptions granted by the Commission underSec. 
1.47 for swap risk management shall not apply to swap positions entered 
into after the effective date of initial position limits established 
underSec. 151.4.



Sec.  151.10  Form and manner of reporting and submitting information
or filings.

    Unless otherwise instructed by the Commission or its designees, any 
person submitting reports under this section shall submit the 
corresponding required filings and any other information required under 
this part to the Commission as follows:
    (a) Using the format, coding structure, and electronic data 
transmission procedures approved in writing by the Commission; and
    (b) Not later than 9 a.m. Eastern Time on the next business day 
following the reporting or filing obligation is incurred unless:
    (1) A 404A filing is submitted pursuantSec. 151.5(d), in which 
case the filing must be submitted at least ten business days in advance 
of the date that transactions and positions would be established that 
would exceed a position limit set forth inSec. 151.4;
    (2) A 404 filing is submitted pursuant toSec. 151.5(c) or a 404S 
is submitted pursuant toSec. 151.5(f), the filing must be submitted 
not later than 9 a.m. on the third business day after a position has 
exceeded the level in a Referenced Contract for the first time and not 
later than the third business day following each calendar month in which 
the person exceeded such levels;
    (3) The filing is submitted pursuant toSec. 151.6, then the 401 or 
404, or their respective alternatives as provided for underSec. 
151.6(d), shall be submitted within ten business days following the 
quarter in which the person holds a position in excess in the visibility 
levels provided inSec. 151.6(a); or
    (4) A notice of disaggregation is filed pursuant toSec. 151.7(h), 
in which case the notice shall be submitted within five business days of 
when the person claims a disaggregation exemption.
    (e) When the reporting entity discovers errors or omissions to past 
reports, the entity so notifies the Commission and files corrected 
information in a form and manner and at a time as may be instructed by 
the Commission or its designee.



Sec.  151.11  Designated contract market and swap execution facility
position limits and accountability rules.

    (a) Spot-month limits. (1) For all Referenced Contracts executed 
pursuant to their rules, swap execution facilities that are trading 
facilities and designated contract markets shall adopt, enforce, and, 
establish rules and procedures for monitoring and enforcing spot-month 
position limits set at levels no greater than those established by the 
Commission underSec. 151.4.

[[Page 1005]]

    (2) For all agreements, contracts, or transactions executed pursuant 
to their rules that are not subject to the limits set forth in paragraph 
(a)(1) of this section, it shall be an acceptable practice for swap 
execution facilities that are trading facilities and designated contract 
markets to adopt, enforce, and establish rules and procedures for 
monitoring and enforcing spot-month position limits set at levels no 
greater than 25 percent of estimated deliverable supply, consistent with 
Commission guidance set forth in this title.
    (b) Non-spot-month limits--(1) Referenced Contracts. For Referenced 
Contracts executed pursuant to their rules, swap execution facilities 
that are trading facilities and designated contract markets shall adopt 
enforce, and establish rules and procedures for monitoring and enforcing 
single month and all-months limits at levels no greater than the 
position limits established by the Commission underSec. 151.4(d)(3) or 
(4).
    (2) Non-referenced contracts. For all other agreements, contracts, 
or transactions executed pursuant to their rules that are not subject to 
the limits set forth inSec. 151.4, except as provided inSec. 
151.11(b)(3) and (c), it shall be an acceptable practice for swap 
execution facilities that are trading facilities and designated contract 
markets to adopt, enforce, and establish rules and procedures for 
monitoring and enforcing single-month and all-months-combined position 
limits at levels no greater than ten percent of the average delta-
adjusted futures, swaps, and options month-end all months open interest 
in the same contract or economically equivalent contracts executed 
pursuant to the rules of the designated contract market or swap 
execution facility that is a trading facility for the greater of the 
most recent one or two calendar years up to 25,000 contracts with a 
marginal increase of 2.5 percent thereafter.
    (3) Levels at designation or initial listing. Other than in 
Referenced Contracts, at the time of its initial designation or upon 
offering a new contract, agreement, or transaction to be executed 
pursuant to its rules, it shall be an acceptable practice for a 
designated contract market or swap execution facility that is a trading 
facility to provide for speculative limits for an individual single-
month or in all-months-combined at no greater than 1,000 contracts for 
physical commodities other than energy commodities and 5,000 contracts 
for other commodities, provided that the notional quantity for such 
contracts, agreements, or transactions, corresponds to a notional 
quantity per contract that is no larger than a typical cash market 
transaction in the underlying commodity.
    (4) For purposes of this paragraph, it shall be an acceptable 
practice for open interest to be calculated by combining the all months 
month-end open interest in the same contract or economically equivalent 
contracts executed pursuant to the rules of the designated contract 
market or swap execution facility that is a trading facility (on a 
delta-adjusted basis, as appropriate) for all months listed during the 
most recent one or two calendar years.
    (c) Alternatives. In lieu of the limits provided for underSec. 
151.11(a)(2) or (b)(2), it shall be an acceptable practice for swap 
execution facilities that are trading facilities and designated contract 
markets to adopt, enforce, and establish rules and procedures for 
monitoring and enforcing position accountability rules with respect to 
any agreement, contract, or transaction executed pursuant to their rules 
requiring traders to provide information about their position upon 
request by the exchange and to consent to halt increasing further a 
trader's position upon request by the exchange as follows:
    (1) On an agricultural or exempt commodity that is not subject to 
the limits set forth inSec. 151.4, having an average month-end open 
interest of 50,000 contracts and an average daily volume of 5,000 
contracts and a liquid cash market, provided, however, such swap 
execution facilities that are trading facilities and designated contract 
markets are not exempt from the requirement set forth in paragraph 
(a)(2) that they adopt a spot-month position limit with a level no 
greater than 25 percent of estimated deliverable supply; or
    (2) On a major foreign currency, for which there is no legal 
impediment to delivery and for which there exists a highly liquid cash 
market; or

[[Page 1006]]

    (3) On an excluded commodity that is an index or measure of 
inflation, or other macroeconomic index or measure; or
    (4) On an excluded commodity that meets the definition of section 
1a(19)(ii), (iii), or (iv) of the Act.
    (d) Securities futures products. Position limits for securities 
futures products are specified in 17 CFR part 41.
    (e) Aggregation. Position limits or accountability rules established 
under this section shall be subject to the aggregation standards of 
Sec.  151.7.
    (f) Exemptions--(1) Hedge exemptions. (i) For purposes of exempt and 
agricultural commodities, no designated contract market or swap 
execution facility that is a trading facility bylaw, rule, regulation, 
or resolution adopted pursuant to this section shall apply to any 
position that would otherwise be exempt from the applicable Federal 
speculative position limits as determined bySec. 151.5; provided, 
however, that the designated contract market or swap execution facility 
that is a trading facility may limit bona fide hedging positions or any 
other positions which have been exempted pursuant toSec. 151.5 which 
it determines are not in accord with sound commercial practices or 
exceed an amount which may be established and liquidated in an orderly 
fashion.
    (ii) For purposes of excluded commodities, no designated contract 
market or swap execution facility that is a trading facility by law, 
rule, regulation, or resolution adopted pursuant to this section shall 
apply to any transaction or position defined underSec. 1.3(z) of this 
chapter; provided, however, that the designated contract market or swap 
execution facility that is a trading facility may limit bona fide 
hedging positions that it determines are not in accord with sound 
commercial practices or exceed an amount which may be established and 
liquidated in an orderly fashion.
    (2) Procedure. Persons seeking to establish eligibility for an 
exemption must comply with the procedures of the designated contract 
market or swap execution facility that is a trading facility for 
granting exemptions from its speculative position limit rules. In 
considering whether to permit or grant an exemption, a designated 
contract market or swap execution facility that is a trading facility 
must take into account sound commercial practices and paragraph (d)(1) 
of this section and apply principles consistent withSec. 151.5.
    (g) Other exemptions. Speculative position limits adopted pursuant 
to this section shall not apply to:
    (1) Any position acquired in good faith prior to the effective date 
of any bylaw, rule, regulation, or resolution which specifies such 
limit;
    (2) Spread or arbitrage positions either in positions in related 
Referenced Contracts or, for contracts that are not Referenced 
Contracts, economically equivalent contracts provided that such 
positions are outside of the spot month for physical-delivery contracts; 
or
    (3) Any person that is registered as a futures commission merchant 
or floor broker under authority of the Act, except to the extent that 
transactions made by such person are made on behalf of or for the 
account or benefit of such person.
    (h) Ongoing responsibilities. Nothing in this part shall be 
construed to affect any provisions of the Act relating to manipulation 
or corners or to relieve any designated contract market, swap execution 
facility that is a trading facility, or governing board of a designated 
contract market or swap execution facility that is a trading facility 
from its responsibility under other provisions of the Act and 
regulations.
    (i) Compliance date. The compliance date of this section shall be 60 
days after the term ``swap'' is further defined under the Wall Street 
Transparency and Accountability Act of 2010. A document will be 
published in the Federal Register establishing the compliance date.
    (j) Notwithstanding paragraph (i) of this section, the compliance 
date of provisions of paragraph (b)(1) of this section as it applies to 
non-legacy Referenced Contracts shall be upon the establishment of any 
non-spot-month position limits pursuant toSec. 151.4(d)(3). In the 
period prior to the establishment of any non-spot-month position limits 
pursuant toSec. 151.4(d)(3) it shall be an acceptable practice for a 
designated

[[Page 1007]]

contract market or swap execution facility to either:
    (1) Retain existing non-spot-month position limits or accountability 
rules; or
    (2) Establish non-spot-month position limits or accountability 
levels pursuant to the acceptable practice described inSec. 
151.11(b)(2) and (c)(1) based on open interest in the same contract or 
economically equivalent contracts executed pursuant to the rules of the 
designated contract market or swap execution facility that is a trading 
facility.



Sec.  151.12  Delegation of authority to the Director of the Division
of Market Oversight.

    (a) 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, the 
authority:
    (1) InSec. 151.4(b) for determining levels of open interest, in 
Sec.  151.4(d)(2)(ii) to estimate deliverable supply, inSec. 
151.4(d)(3)(ii) to fix non-spot-month limits, and inSec. 151.4(e) to 
publish position limit levels.
    (2) InSec. 151.5 requesting additional information or determining 
whether a filing should not be considered as bona fide hedging;
    (3) InSec. 151.6 for accepting alternative position visibility 
filings under paragraphs (c)(2) and (d) therein;
    (4) InSec. 151.7(h)(2) to call for additional information from a 
trader claiming an aggregation exemption;
    (5) InSec. 151.10 for providing instructions or determining the 
format, coding structure, and electronic data transmission procedures 
for submitting data records and any other information required under 
this part.
    (b) The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which has been delegated 
in this section.
    (c) Nothing in this section prohibits the Commission, at its 
election, from exercising the authority delegated in this section.



Sec.  151.13  Severability.

    If any provision of this part, or the application thereof to any 
person or circumstances, is held invalid, such invalidity shall not 
affect other provisions or application of such provision to other 
persons or circumstances which can be given effect without the invalid 
provision or application.



         Sec. Appendix A to Part 151--Spot-Month Position Limits

------------------------------------------------------------------------
                                                           Referenced
                       Contract                          contract spot-
                                                          month limit
------------------------------------------------------------------------
                    Agricultural Referenced Contracts
------------------------------------------------------------------------
ICE Futures U.S. Cocoa...............................              1,000
ICE Futures U.S. Coffee C............................                500
Chicago Board of Trade Corn..........................                600
ICE Futures U.S. Cotton No. 2........................                300
ICE Futures U.S. FCOJ-A..............................                300
Chicago Mercantile Exchange Class III Milk...........              1,500
Chicago Mercantile Exchange Feeder Cattle............                300
Chicago Mercantile Exchange Lean Hog.................                950
Chicago Mercantile Exchange Live Cattle..............                450
Chicago Board of Trade Oats..........................                600
Chicago Board of Trade Rough Rice....................                600
Chicago Board of Trade Soybeans......................                600
Chicago Board of Trade Soybean Meal..................                720
Chicago Board of Trade Soybean Oil...................                540
ICE Futures U.S. Sugar No. 11........................              5,000
ICE Futures U.S. Sugar No. 16........................              1,000
Chicago Board of Trade Wheat.........................                600
Minneapolis Grain Exchange Hard Red Spring Wheat.....                600
Kansas City Board of Trade Hard Winter Wheat.........                600
------------------------------------------------------------------------
                       Metal Referenced Contracts
------------------------------------------------------------------------
Commodity Exchange, Inc. Copper......................              1,200

[[Page 1008]]

 
New York Mercantile Exchange Palladium...............                650
New York Mercantile Exchange Platinum................                500
Commodity Exchange, Inc. Gold........................              3,000
Commodity Exchange, Inc. Silver......................              1,500
------------------------------------------------------------------------
                       Energy Referenced Contracts
------------------------------------------------------------------------
New York Mercantile Exchange Light Sweet Crude Oil...              3,000
New York Mercantile Exchange New York Harbor Gasoline              1,000
 Blendstock..........................................
New York Mercantile Exchange Henry Hub Natural Gas...              1,000
New York Mercantile Exchange New York Harbor Heating               1,000
 Oil.................................................
------------------------------------------------------------------------



Sec. Appendix B to Part 151--Examples of Bona Fide Hedging Transactions 
                              and Positions

    A non-exhaustive list of examples of bona fide hedging transactions 
or positions underSec. 151.5 is presented below. A transaction or 
position qualifies as a bona fide hedging transaction or position when 
it meets the requirements underSec. 151.5(a)(1) and one of the 
enumerated provisions underSec. 151.5(a)(2). With respect to a 
transaction or position that does not fall within an example in this 
appendix , a person seeking to rely on a bona fide hedging exemption 
underSec. 151.5 may seek guidance from the Division of Market 
Oversight.

                           1. Royalty Payments

    a. Fact Pattern: In order to develop an oil field, Company A 
approaches Bank B for financing. To facilitate the loan, Bank B first 
establishes an independent legal entity commonly known as a special 
purpose vehicle (SPV). Bank B then provides a loan to the SPV. Payments 
of principal and interest from the SPV to the Bank are based on a fixed 
price for crude oil. The SPV in turn makes a production loan to Company 
A. The terms of the production loan require Company A to provide the SPV 
with volumetric production payments (VPPs) based on the SPV's share of 
the production and the prevailing price of crude oil. Because the price 
of crude may fall, the SPV reduces that risk by entering into a NYMEX 
Light Sweet Crude Oil crude oil swap with Swap Dealer C. The swap 
requires the SPV to pay Swap Dealer C the floating price of crude oil 
and for Swap Dealer C to pay a fixed price. The notional quantity for 
the swap is equal to the expected production underlying the VPPs to the 
SPV.
    Analysis: The swap between Swap Dealer C and the SPV meets the 
general requirements for bona fide hedging transactions (Sec.  
151.5(a)(1)(i)-(iii)) and the specific requirements for royalty payments 
(Sec.  151.5(a)(2)(vi)). The VPPs that the SPV receives represent 
anticipated royalty payments from the oil field's production. The swap 
represents a substitute for transactions to be made in the physical 
marketing channel. The SPV's swap position qualifies as a hedge because 
it is economically appropriate to the reduction of risk. The SPV is 
reasonably certain that the notional quantity of the swap is equal to 
the expected production underlying the VPPs. The swap reduces the risk 
associated with a change in value of a royalty asset. The fluctuations 
in value of the SPV's anticipated royalties are substantially related to 
the fluctuations in value of the NYMEX Light Sweet Crude Oil Referenced 
Contract swap with Swap Dealer C. The risk-reducing position will not 
qualify as a bona fide hedge in a physical-delivery Referenced Contract 
during the spot month.
    b. Continuation of Fact Pattern: Swap Dealer C offsets the risk 
associated with the swap to the SPV by selling Referenced Contracts. The 
notional quantity of the Referenced Contracts sold by Swap Dealer C 
exactly matches the notional quantity of the swap with the SPV.
    Analysis: Because the SPV enters the swap as a bona fide hedger 
underSec. 151.5(a)(2)(vi), the offset of the risk of the swap in a 
Referenced Contract by Swap Dealer C qualifies as a bona fide hedging 
transaction underSec. 151.5(a)(3). As provided inSec. 151.5(a)(3), 
the risk reducing position of Swap Dealer C does not qualify as a bona 
fide hedge in a physical-delivery Referenced Contract during the spot 
month.

                              2. Sovereigns

    a. Fact Pattern: A Sovereign induces a farmer to sell his 
anticipated production of 100,000 bushels of corn forward to User A at a 
fixed price for delivery during the expected harvest. In return for the 
farmer entering into the fixed-price forward sale, the Sovereign agrees 
to pay the farmer the difference between the market price at the time of 
harvest and the price of the fixed-price forward, in the event that the 
market price is above the price of the forward. The fixed-price forward 
sale of 100,000 bushels of corn reduces the farmer's downside price risk 
associated with his anticipated agricultural

[[Page 1009]]

production. The Sovereign faces commodity price risk as it stands ready 
to pay the farmer the difference between the market price and the price 
of the fixed-price contract. To reduce that risk, the Sovereign 
purchases 100,000 bushels of Chicago Board of Trade (``CBOT'') Corn 
Referenced Contract call options.
    Analysis: Because the Sovereign and the farmer are acting together 
pursuant to an express agreement, the aggregation provisions ofSec. 
151.7 andSec. 151.5(b) apply and they are treated as a single person. 
Taking the positions of the Sovereign and farmer jointly, the risk 
profile of the combination of the forward sale and the long call is 
approximately equivalent to the risk profile of a synthetic long 
put.\521\ A synthetic long put may be a bona fide hedge for anticipated 
production. Thus, that single person satisfies the general requirements 
for bona fide hedging transactions (Sec.  151.5(a)(1)(i)-(iii)) and 
specific requirements for anticipated agricultural production (Sec.  
151.5(a)(2)(i)(B)). The synthetic long put is a substitute for 
transactions that the farmer will make at a later time in the physical 
marketing channel after the crop is harvested. The synthetic long put 
reduces the price risk associated with anticipated agricultural 
production. The size of the hedge is equivalent to the size of the 
Sovereign's risk exposure. As provided underSec. 151.5(a)(2)(i)(B), 
the Sovereign's risk-reducing position will not qualify as a bona fide 
hedge in a physical-delivery Referenced Contract during the last five 
trading days.
---------------------------------------------------------------------------

    \521\ Put-call parity describes the mathematical relationship 
between price of a put and call with identical strike prices and expiry.
---------------------------------------------------------------------------

                               3. Services

    a. Fact Pattern: Company A enters into a risk service agreement to 
drill an oil well with Company B. The risk service agreement provides 
that a portion of the revenue receipts to Company A depends on the value 
of the oil produced. Company A is concerned that the price of oil may 
fall resulting in lower anticipated revenues from the risk service 
agreement. To reduce that risk, Company A sells 5,000 NYMEX Light Sweet 
Crude Oil Referenced Contracts, which is equivalent to the firm's 
anticipated share of the oil produced.
    Analysis: Company A's hedge of a portion of its revenue stream from 
the risk service agreement meets the general requirements for bona fide 
hedging (Sec.  151.5(a)(1)(i)-(iii)) and the specific provisions for 
services (Sec.  151.5(a)(2)(vii)). Selling NYMEX Light Sweet Crude Oil 
Referenced Contracts is a substitute for transactions to be taken at a 
later time in the physical marketing channel once the oil is produced. 
The Referenced Contracts sold by Company A are economically appropriate 
to the reduction of risk because the total notional quantity of the 
Referenced Contracts sold by Company A equals its share of the expected 
quantity of future production under the risk service agreement. Because 
the price of oil may fall, the transactions in Referenced Contracts 
arise from a potential reduction in the value of the service that 
Company A is providing to Company B. The contract for services involves 
the production of a commodity underlying the NYMEX Exchange Light Sweet 
Crude Oil Referenced Contract. As provided underSec. 151.5(a)(2)(vii), 
the risk reducing position will not qualify as a bona fide hedge during 
the spot month of the physical-delivery Referenced Contract.
    b. Fact Pattern: A City contracts with Firm A to provide waste 
management services. The contract requires that the trucks used to 
transport the solid waste use natural gas as a power source. According 
to the contract, the City will pay for the cost of the natural gas used 
to transport the solid waste by Firm A. In the event that natural gas 
prices rise, the City's waste transport expenses rise. To mitigate this 
risk, the City establishes a long position in NYMEX Natural Gas 
Referenced Contracts that is equivalent to the expected use of natural 
gas over the life of the service contract.
    Analysis: This transaction meets the general requirements for bona 
fide hedging transaction (Sec.  151.5(a)(1)(i)-(iii)) and the specific 
provisions for services (Sec.  151.5(a)(2)(vii)). Because the City is 
responsible for paying the cash price for the natural gas used to power 
the trucks that transport the solid waste under the services agreement, 
the long hedge is a substitute for transactions to be taken at a later 
time in the physical marketing channel. The transaction is economically 
appropriate to the reduction of risk because the total notional quantity 
of the positions Referenced Contracts purchased equals the expected use 
of natural gas over the life of the contract. The positions in 
Referenced Contracts reduce the risk associated with an increase in 
anticipated liabilities that the City may incur in the event that the 
price of natural gas increases. The service contract involves the use of 
a commodity underlying a Referenced Contract. As provided underSec. 
151.5(a)(2)(vii), the risk reducing position will not qualify as a bona 
fide hedge during the spot month of the physical-delivery Referenced 
Contract.
    c. Fact Pattern: Natural Gas Producer A induces Pipeline Operator B 
to build a pipeline between Producer A's natural gas wells and the Henry 
Hub pipeline interconnection by entering into a fixed-price contract for 
natural gas transportation that guarantees a specified quantity of gas 
to be transported over the pipeline. With the construction of the new 
pipeline, Producer A plans to deliver

[[Page 1010]]

natural gas to Henry Hub at a price differential between his gas wells 
and Henry Hub that is higher than its transportation cost. Producer A is 
concerned, however, that the price differential may decline. To lock in 
the price differential, Producer A decides to sell outright NYMEX Henry 
Hub Natural Gas Referenced Contract cash-settled futures contracts and 
buy an outright swap that NYMEX Henry Hub Natural Gas at his gas wells.
    Analysis: This transaction satisfies the general requirements for a 
bona fide hedge exemption (Sec.Sec. 151.5(a)(1)(i)-(iii)) and specific 
provisions for services (Sec.  151.5(a)(2)(vii)).\522\ The hedge 
represents a substitute for transactions to be taken in the future 
(e.g., selling natural gas at Henry Hub). The hedge is economically 
appropriate to the reduction of risk that the location differential will 
decline, provided the hedge is not larger than the quantity equivalent 
of the cash market commodity to be produced and transported. As provided 
underSec. 151.5(a)(2)(vii), the risk reducing position will not 
qualify as a bona fide hedge during the spot month of the physical-
delivery Referenced Contract.
---------------------------------------------------------------------------

    \522\ Note that in addition to the use of Referenced Contracts, 
Producer A could have hedged this risk by using a basis contract, which 
is excluded from the definition of Referenced Contracts.
---------------------------------------------------------------------------

                         4. Lending a Commodity

    a. Fact Pattern: Bank B lends 1,000 ounces of gold to Jewelry 
Fabricator J at LIBOR plus a differential. Under the terms of the loan, 
Jewelry Fabricator J may later purchase the gold at a differential to 
the prevailing price of Commodity Exchange, Inc. (``COMEX'') Gold (i.e., 
an open-price purchase agreement embedded in the terms of the loan). 
Jewelry Fabricator J intends to use the gold to make jewelry and 
reimburse Bank B for the loan using the proceeds from jewelry sales. 
Because Bank B is concerned about its potential loss if the price of 
gold drops, it reduces the risk of a potential loss in the value of the 
gold by selling COMEX Gold Referenced Contracts with an equivalent 
notional quantity of 1,000 ounces of gold.
    Analysis: This transaction meets the general bona fide hedge 
exemption requirements (Sec.Sec. 151.5(a)(1)(i)-(iii)) and the 
specific requirements associated with owing a cash commodity (Sec.  
151.5(a)(2)(i)). Bank B's short hedge of the gold represents a 
substitute for a transaction to be made in the physical marketing 
channel. Because the total notional quantity of the amount of gold 
contracts sold is equal to the amount of gold that Bank B owns, the 
hedge is economically appropriate to the reduction of risk. Finally, the 
transactions in Referenced Contracts arise from a potential change in 
the value of the gold owned by Bank B.
    b. Fact Pattern: Silver Processor A agrees to purchase scrap metal 
from a Scrap Yard that will be processed into 5,000 ounces of silver. To 
finance the purchase, Silver Processor A borrows 5,000 ounces of silver 
from Bank B and sells the silver in the cash market. Using the proceeds 
from the sale of silver in the cash market, Silver Processor A pays the 
Scrap Yard for the scrap metal containing 5,000 ounces of silver at a 
negotiated discount from the current spot price. To repay Bank B, Silver 
Processor A may either: Provide Bank B with 5,000 ounces of silver and 
an interest payment based on a differential to LIBOR; or repay the Bank 
at the current COMEX Silver settlement price plus an interest payment 
based on a differential to LIBOR (i.e., an open-price purchase 
agreement). Silver Processor A processes and refines the scrap to repay 
Bank B. Although Bank B has lent the silver, it is still exposed to a 
reduction in value if the price of silver falls. Bank B reduces the risk 
of a possible decline in the value of their silver asset over the loan 
period by selling COMEX Silver Referenced Contracts with a total 
notional quantity equal to 5,000 ounces.
    Analysis: This transaction meets the general requirements for a bona 
fide hedging transaction (Sec.Sec. 151.5(a)(1)(i)-(iii)) and specific 
provisions for owning a commodity (Sec.  151.5(a)(2)(i)). Bank B's hedge 
of the silver that it owns represents a substitute for a transaction in 
the physical marketing channel. The hedge is economically appropriate to 
the reduction of risk because the bank owns 5,000 ounces of silver. The 
hedge reduces the risk of a potential change in the value of the silver 
that it owns.

                          5. Processor Margins

    a. Fact Pattern: Soybean Processor A has a total throughput capacity 
of 100 million tons of soybeans per year. Soybean Processor A 
``crushes'' soybeans into products (soybean oil and meal). It currently 
has 20 million tons of soybeans in storage and has offset that risk 
through fixed-price forward sales of the amount of products expected to 
be produced from crushing 20 million tons of soybeans, thus locking in 
the crushing margin on 20 million tons of soybeans. Because it has 
consistently operated its plant at full capacity over the last three 
years, it anticipates purchasing another 80 million tons of soybeans 
over the next year. It has not sold the crushed products forward. 
Processor A faces the risk that the difference in price between soybeans 
and the crushed products could change such that crush products (i.e., 
the crush spread) will be insufficient to cover its operating margins. 
To lock in the crush spread, Processor A purchases 80 million tons of 
CBOT Soybean Referenced Contracts

[[Page 1011]]

and sells CBOT Soybean Meal and Soybean Oil Referenced Contracts, such 
that the total notional quantity of soybean meal and oil Referenced 
Contracts equals the expected production from crushing soybeans into 
soybean meal and oil respectively.
    Analysis: These hedging transactions meet the general requirements 
for bona fide hedging transactions (Sec.Sec. 151.5(a)(1)(i)-(iii)) and 
the specific provisions for unfilled anticipated requirements and unsold 
anticipated agricultural production (Sec.Sec. 151.5(a)(2)(i)-(ii)). 
Purchases of soybean Referenced Contracts qualify as bona fide hedging 
transaction provided they do not exceed the unfilled anticipated 
requirements of the cash commodity for one year (in this case 80 million 
tons). Such transactions are a substitute for purchases to be made at a 
later time in the physical marketing channel and are economically 
appropriate to the reduction of risk. The transactions in Referenced 
Contracts arise from a potential change in the value of soybeans that 
the processor anticipates owning. The size of the permissible hedge 
position in soybeans must be reduced by any inventories and fixed-price 
purchases because they are no longer unfilled requirements. As provided 
underSec. 151.5(a)(2)(ii)(C), the risk reduction position that is not 
in excess of the anticipated requirements for soybeans for that month 
and the next succeeding month qualifies as a bona fide hedge during the 
last five trading days provided it is not in a physical-delivery 
Referenced Contract.
    Given that Soybean Processor A has purchased 80 million tons worth 
of CBOT Soybean Referenced Contracts, it can reduce its processing risk 
by selling soybean meal and oil Referenced Contracts equivalent to the 
expected production. The sale of CBOT Soybean, Soybean Meal, and Soybean 
Oil contracts represents a substitute for transactions to be taken at a 
later time in the physical marketing channel by the soybean processor. 
Because the amount of soybean meal and oil Referenced Contracts sold 
forward by the soybean processor corresponds to expected production from 
80 million tons of soybeans, the hedging transactions are economically 
appropriate to the reduction of risk in the conduct and management of 
the commercial enterprise. These transactions arise from a potential 
change in the value of soybean meal and oil that is expected to be 
produced. The size of the permissible hedge position in the products 
must be reduced by any fixed-price sales because they are no longer 
unsold production. As provided underSec. 151.5(a)(2)(i)(B), the risk 
reducing position does not qualify as a bona fide hedge in a physical-
delivery Referenced Contract during the last five trading days in the 
event the anticipated crushed products have not been produced.

                          6. Portfolio Hedging

    a. Fact Pattern: It is currently January and Participant A owns five 
million bushels of corn located in its warehouses. Participant A has 
entered into fixed-price forward sale contracts with several processors 
for a total of five million bushels of corn that will be delivered in 
May of this year. Participant A has separately entered into fixed-price 
purchase contracts with several merchandisers for a total of two million 
bushels of corn to be delivered in March of this year. Participant A's 
gross long cash position is equal to seven million bushels of corn. 
Because Participant A has sold forward five million bushels of corn, its 
net cash position is equal to long two million bushels of corn. To 
reduce its price risk, Participant A chooses to sell the quantity 
equivalent of two million bushels of CBOT Corn Referenced Contracts.
    Analysis: The cash position and the fixed-price forward sale and 
purchases are all in the same crop year. Participant A currently owns 
five million bushels of corn and has effectively sold that amount 
forward. The firm is concerned that the remaining amount--two million 
bushels worth of fixed-price purchase contracts--will fall in value. 
Because the firm's net cash position is equal to long two million 
bushels of corn, the firm is exposed to price risk. Selling the quantity 
equivalent of two million bushels of CBOT Corn Referenced Contracts 
satisfies the general requirements for bona fide hedging transactions 
(Sec.Sec. 151.5(a)(1)(i)-(iii)) and the specific provisions associated 
with owning a commodity (Sec.  151.5(a)(2)(i)).\523\ Participant A's 
hedge of the two million bushels represents a substitute to a fixed-
price forward sale at a later time in the physical marketing channel. 
The transaction is economically appropriate to the reduction of risk 
because the amount of Referenced Contracts sold does not exceed the 
quantity equivalent risk exposure (on a net basis) in the cash commodity 
in the current crop year. Lastly, the hedge arises from a potential 
change in the value of corn owned by Participant A.
---------------------------------------------------------------------------

    \523\ Participant A could also choose to hedge on a gross basis. In 
that event, Participant A would sell the quantity equivalent of seven 
million bushels of March Chicago Board of Trade Corn Referenced 
Contracts, and separately purchase the quantity equivalent of five 
million bushels of May Chicago Board of Trade Corn Referenced Contracts.
---------------------------------------------------------------------------

                      7. Anticipated Merchandising

    a. Fact Pattern: Elevator A, a grain merchandiser, owns a 31 million 
bushel storage facility. The facility currently has 1 million bushels of 
corn in storage. Based upon its historical purchasing and selling 
patterns for the last three years, Elevator A expects that in September 
it will enter into fixed-price

[[Page 1012]]

forward purchase contracts for 30 million bushels of corn that it 
expects to sell in December. Currently the December corn futures price 
is substantially higher than the September corn futures price. In order 
to reduce the risk that its unfilled storage capacity will not be 
utilized over this period and in turn reduce Elevator A's profitability, 
Elevator A purchases the quantity equivalent of 30 million bushels of 
September CBOT Corn Referenced Contracts and sells 30 million bushels of 
December CBOT Corn Referenced Contracts.
    Analysis: This hedging transaction meets the general requirements 
for bona fide hedging transactions (Sec.Sec. 151.5(a)(1)(i)-(iii)) and 
specific provisions associated with anticipated merchandising (Sec.  
151.5(a)(2)(v)). The hedging transaction is a substitute for 
transactions to be taken at a later time in the physical marketing 
channel. The hedge is economically appropriate to the reduction of risk 
associated with the firm's unfilled storage capacity because: (1) The 
December CBOT Corn futures price is substantially above the September 
CBOT Corn futures price; and (2) Elevator A reasonably expects to engage 
in the anticipated merchandising activity based on a review of its 
historical purchasing and selling patterns at that time of the year. The 
risk arises from a change in the value of an asset that the firm owns. 
As provided bySec. 151.5(a)(2)(v), the size of the hedge is equal to 
the firm's unfilled storage capacity relating to its anticipated 
merchandising activity. The purchase and sale of offsetting Referenced 
Contracts are in different months, which settle in not more than twelve 
months. As provided underSec. 151.5(a)(2)(v), the risk reducing 
position will not qualify as a bona fide hedge in a physical-delivery 
Referenced Contract during the last 5 trading days of the September 
contract.

                        8. Aggregation of Persons

    a. Fact Pattern: Company A owns 100 percent of Company B. Company B 
buys and sells a variety of agricultural products, such as wheat and 
cotton. Company B currently owns 1 million bushels of wheat. To reduce 
some of its price risk, Company B decides to sell the quantity 
equivalent of 600,000 bushels of CBOT Wheat Referenced Contracts. After 
communicating with Company B, Company A decides to sell the quantity 
equivalent of 400,000 bushels of CBOT Wheat Referenced Contracts.
    Analysis: Because Company A owns more than 10 percent of Company B, 
Company A and B are aggregated together as one person underSec. 151.7. 
UnderSec. 151.5(b), entities required to aggregate accounts or 
positions underSec. 151.7 shall be considered the same person for the 
purpose of determining whether a person or persons are eligible for a 
bona fide hedge exemption under paragraphSec. 151.5(a). The sale of 
wheat Referenced Contracts by Company A and B meets the general 
requirements for bona fide hedging transactions (Sec.Sec. 
151.5(a)(1)(i)-(iii)) and the specific provisions for owning a cash 
commodity (Sec.  151.5(a)(2)(i)). The transactions in Referenced 
Contracts by Company A and B represent a substitute for transactions to 
be taken at a later time in the physical marketing channel. The 
transactions in Referenced Contracts by Company A and B are economically 
appropriate to the reduction of risk because the combined total of 
1,000,000 bushels of CBOT Wheat Referenced Contracts sold by Company A 
and Company B does not exceed the 1,000,000 bushels of wheat that is 
owned by Company A. The risk exposure for Company A and B results from a 
potential change in the value of wheat.

                        9. Repurchase Agreements

    a. Fact Pattern: When Elevator A purchased 500,000 bushels of wheat 
in April it decided to reduce its price risk by selling the quantity 
equivalent of 500,000 bushels of CBOT Wheat Referenced Contracts. 
Because the price of wheat has steadily risen since April, Elevator A 
has had to make substantial maintenance margin payments. To alleviate 
its concern about further margin payments, Elevator A decides to enter 
into a repurchase agreement with Bank B. The repurchase agreement 
involves two separate contracts: A fixed-price sale from Elevator A to 
Bank B at today's spot price; and an open-priced purchase agreement that 
will allow Elevator A to repurchase the wheat from Bank B at the 
prevailing spot price three months from now. Because Bank B obtains 
title to the wheat under the fixed-price purchase agreement, it is 
exposed to price risk should the price of wheat drop. It therefore 
decides to sell the quantity equivalent of 500,000 bushels of CBOT Wheat 
Referenced Contracts.
    Analysis: Bank B's hedging transaction meets the general 
requirements for bona fide hedging transactions (Sec.Sec. 
151.5(a)(1)(i)-(iii)) and the specific provisions for owning the cash 
commodity (Sec.  151.5(a)(2)(i)). The sale of Referenced Contracts by 
Bank B is a substitute for a transaction to be taken at a later time in 
the physical marketing channel either to Elevator A or to another 
commercial party. The transaction is economically appropriate to the 
reduction of risk in the conduct and management of the commercial 
enterprise of Bank B because the notional quantity of Referenced 
Contracts sold by Bank B is not larger than the quantity of cash wheat 
purchased by Bank B. Finally, the purchase of CBOT Wheat Referenced 
Contracts reduces the risk associated with owning cash wheat.

[[Page 1013]]

                              10. Inventory

    a. Fact Pattern: Copper Wire Fabricator A is concerned about 
possible reductions in the price of copper. Currently it is November and 
it owns inventory of 100,000 pounds of copper and 50,000 pounds of 
finished copper wire. Currently, deferred futures prices are lower than 
the nearby futures price. Copper Wire Fabricator A expects to sell 
150,000 pounds of finished copper wire in February. To reduce its price 
risk, Copper Wire Fabricator A sells 150,000 pounds of February COMEX 
Copper Referenced Contracts.
    Analysis: The Copper Wire Fabricator A's hedging transaction meets 
the general requirements for bona fide hedging transactions (Sec.Sec. 
151.5(a)(1)(i)-(iii)) and the provisions for owning a commodity (Sec.  
151.5(a)(2)(i)(A)). The sale of Referenced Contracts represents a 
substitute for transactions to be taken at a later time. The 
transactions are economically appropriate to the reduction of risk in 
the conduct and management of the commercial enterprise because the 
price of copper could drop further. The transactions in Referenced 
Contracts arise from a possible reduction in the value of the inventory 
that it owns.



PART 155_TRADING STANDARDS--Table of Contents



Sec.
155.1 Definitions.
155.2 Trading standards for floor brokers.
155.3 Trading standards for futures commission merchants.
155.4 Trading standards for introducing brokers.
155.5--155.6 [Reserved]
155.10 Exemptions.

    Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, unless otherwise noted.



Sec.  155.1  Definitions.

    For purposes of this part, the term affiliated person of a futures 
commission merchant or of an introducing broker means any general 
partner, officer, director, owner of more than ten percent of the equity 
interest, associated person or employee of the futures commission 
merchant or of the introducing broker, and any relative or spouse of any 
of the foregoing persons, or any relative of such spouse, who shares the 
same home as any of the foregoing persons.

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

[46 FR 63036, Dec. 30, 1981, and 48 FR 35304, Aug. 3, 1983]



Sec.  155.2  Trading standards for floor brokers.

    Each contract market shall adopt rules which shall, at a minimum, 
with respect to each member of the contract market acting as a floor 
broker:
    (a) Prohibit such member from purchasing any commodity for future 
delivery, purchasing any call option, or selling any put option, for his 
own account or for any account in which he has an interest, while 
holding an order of another person for the (1) purchase of any future, 
(2) purchase of any call option, or (3) sale of any put option, in the 
same commodity which is executable at the market price or at the price 
at which such purchase or sale can be made for the member's own account 
or any account in which he has an interest.
    (b) Prohibit such member from selling any commodity for future 
delivery, selling any call option, or purchasing any put option, for his 
own account or for any account in which he has an interest, while 
holding an order of another person for the (1) sale of any future, (2) 
sale of any call option, or (3) purchase of any put option, in the same 
commodity which is executable at the market price or at the price at 
which such sale or purchase can be made for the member's own account or 
any account in which he has an interest.
    (c) Prohibit such member from executing any transaction for any 
account of another person for which buying and/or selling orders can be 
placed or originated, or for which transactions can be executed, by such 
member without the prior specific consent of the account owner, 
regardless of whether the general authorization for such orders or 
transactions is pursuant to a written agreement, except that orders for 
such an account may be placed with another member for execution.
    (d) Prohibit such member from disclosing at any time that he is 
holding an order of another person or from divulging any order revealed 
to him by reason of his relationship to such other person, except 
pursuant to paragraph (c) of this section or at the request of an 
authorized representative of the Commission or the contract market.
    (e) Prohibit such member from taking, directly or indirectly, the 
other

[[Page 1014]]

side of any order of another person revealed to him by reason of his 
relationship to such other person, except with such other person's prior 
consent and in conformity with contract market rules approved by the 
Commission.
    (f) Prohibit such member from making any purchase or sale which has 
been directly or indirectly prearranged.
    (g) Prohibit such member from allocating trades among accounts 
except in accordance with rules of the contract market which have been 
approved by the Commission.
    (h) Prohibit such member from withholding or withdrawing from the 
market any order or part of an order of another person for the 
convenience of another member.
    (i) Require that every execution of a transaction on the floor by 
such member be confirmed promptly with the opposite floor broker or 
floor trader; such confirmation shall identify price or premium, 
quantity, future or commodity option and respective clearing members. In 
the event a contract market cannot require prompt identification of 
respective clearing members without seriously disrupting the functions 
of its marketplace, the contract market may petition the Commission for 
exemption from this requirement. Such petition shall include:
    (1) An explanation of why the contract market cannot require the 
prompt identification of respective clearing members without seriously 
disrupting the functions of its marketplace, and
    (2) A proposed contract market rule which will insure that the 
opposite sides of every trade executed on the contract market can be 
effectively matched and will be accepted by a clearing member for 
clearance or will be otherwise sufficiently guaranteed.

The Commission may, in its discretion and upon such terms and conditions 
as it deems appropriate, grant such petition for exemption upon finding 
that the functions of the contract market may be seriously disrupted by 
requiring the prompt identification of respective clearing members and 
that the contract market appears to have adequately insured that every 
trade executed thereon can be effectively matched and will be accepted 
by a clearing member for clearance or will be otherwise sufficiently 
guaranteed.

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

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[41 FR 56142, Dec. 23, 1976, as amended at 46 FR 54534, Nov. 3, 1981; 46 
FR 63036, Dec. 30, 1981; 47 FR 57020, Dec. 22, 1982; 59 FR 5528, Feb. 7, 
1994; 77 FR 66348, Nov. 2, 2012]



Sec.  155.3  Trading standards for futures commission merchants.

    (a) Each futures commission merchant shall, at a minimum, establish 
and enforce internal rules, procedures and controls to:
    (1) Insure, to the extent possible, that each order received from a 
customer which is executable at or near the market price is transmitted 
to the floor of the appropriate contract market before any order in any 
future or in any commodity option in the same commodity for any 
proprietary account, any other account in which an affiliated person has 
an interest, or any account for which an affiliated person may originate 
orders without the prior specific consent of the account owner, if the 
affiliated person has gained knowledge of the customer's order prior to 
the transmission to the floor of the appropriate contract market of the 
order for a proprietary account, an account in which the affiliated 
person has an interest, or an account in which the affiliated person may 
originate orders without the prior specific consent of the account 
owner; and
    (2) Prevent affiliated persons from placing orders, directly or 
indirectly, with another futures commission merchant in a manner 
designed to circumvent the provisions of paragraph (a)(1) of this 
section.
    (b) No futures commission merchant or any of its affiliated persons 
shall:
    (1) Disclose that an order of another person is being held by the 
futures commission merchant or any of its affiliated persons, unless 
such disclosure is necessary to the effective execution of such order or 
is made at the request of an authorized representative of the

[[Page 1015]]

Commission, the contract market on which such order is to be executed, 
or a futures association registered with the Commission pursuant to 
section 17 of the Act; or
    (2)(i) Knowingly take, directly or indirectly, the other side of any 
order of another person revealed to the futures commission merchant or 
any of its affiliated persons by reason of their relationship to such 
other person, except with such other person's prior consent and in 
conformity with contract market rules approved by or certified to the 
Commission.
    (ii) In the case of a customer who does not qualify as an 
``institutional customer'' as defined inSec. 1.3(g) of this chapter, a 
futures commission merchant must obtain the customer's prior consent 
through a signed acknowledgment, which may be accomplished in accordance 
withSec. 1.55(d) of this chapter.
    (c) No futures commission merchant shall knowingly handle the 
account of any affiliated person of another futures commission merchant 
or of an introducing broker unless the futures commission merchant:
    (1) Receives written authorization from a person designated by such 
other futures commission merchant or introducing broker with 
responsibility for the surveillance over such account pursuant to 
paragraph (a)(2) of this section orSec. 155.4(a)(2), respectively;
    (2) Prepares immediately upon receipt of an order for such account a 
written record of such order, including the account identification and 
order number, and records thereon, by time-stamp or other timing device, 
the date and time, to the nearest minute, the order is received; and
    (3) Transmits on a regular basis to such other futures commission 
merchant or introducing broker copies of all statements for such account 
and of all written records prepared upon the receipt of orders for such 
account pursuant to paragraph (c)(2) of this section.
    (d) No affiliated person of a futures commission merchant shall have 
an account, directly or indirectly, with another futures commission 
merchant unless:
    (1) Such affiliated person receives written authorization to 
maintain such an account from a person designated by the futures 
commission merchant with which such person is affiliated with 
responsibility for the surveillance over such account pursuant to 
paragraph (a)(2) of this section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such other futures commission merchant upon receipt 
of orders for such account pursuant to paragraph (c)(2) of this section 
are transmitted on a regular basis to the future commission merchant 
with which such person is affiliated.

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

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[41 FR 56142, Dec. 23, 1976, as amended at 44 FR 71821, Dec. 12, 1979; 
46 FR 54535, Nov. 3, 1981; 46 FR 63036, Dec. 30, 1981; 47 FR 57020, Dec. 
22, 1982; 48 FR 35304, Aug. 3, 1983; 66 FR 53523, Oct. 23, 2001; 70 FR 
5924, Feb. 4, 2005; 77 FR 66349, Nov. 2, 2012]



Sec.  155.4  Trading standards for introducing brokers.

    (a) Each introducing broker shall, at a minimum, establish and 
enforce internal rules, procedures and controls to:
    (1) Insure, to the extent possible, that each order received from a 
customer which is executable at or near the market price is transmitted 
to the futures commission merchant carrying the account of the customer 
before any order in any future or in any commodity option in the same 
commodity for any proprietary account, any other account in which an 
affiliated person has an interest, or any account for which an 
affiliated person may originate orders without the prior specific 
consent of the account owner, if the affiliated person has gained 
knowledge of the customer's order prior to the transmission to the floor 
of the appropriate contract market of the order for a proprietary 
account, an account in which the affiliated person has an interest, or 
an account in which the affiliated person may originate orders without 
the

[[Page 1016]]

prior specific consent of the account owner; and
    (2) Prevent affiliated persons from placing orders, directly or 
indirectly, with any futures commission merchant in a manner designed to 
circumvent the provisions of paragraph (a)(1) of this section.
    (b) No introducing broker or any of its affiliated persons shall:
    (1) Disclose that an order of another person is being held by the 
introducing broker or any of its affiliated persons, unless such 
disclosure is necessary to the effective execution of such order or is 
made at the request of an authorized representative of the Commission, 
the contract market on which such order is to be executed, or a futures 
association registered with the Commission pursuant to section 17 of the 
Act; or
    (2)(i) Knowingly take, directly or indirectly, the other side of any 
order of another person revealed to the introducing broker or any of its 
affiliated persons by reason of their relationship to such other person, 
except with such other persons's prior consent and in conformity with 
contract market rules approved by or certified to the Commission.
    (ii) In the case of a customer who does not qualify as an 
``institutional customer'' as defined inSec. 1.3(g) of this chapter, 
an introducing broker must obtain the customer's prior consent through a 
signed acknowledgment, which may be accomplished in accordance with 
Sec.  1.55(d) of this chapter.
    (c) No affiliated person of an introducing broker shall have an 
account, directly or indirectly, with any futures commission merchant 
unless:
    (1) Such affiliated person receives written authorization to 
maintain such an account from a person designated by the introducing 
broker with which such person is affiliated with responsibility for the 
surveillance over such account pursuant to paragraph (a)(2) of this 
section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such futures commission merchant upon receipt of 
orders for such account pursuant toSec. 155.3(c)(2) are transmitted on 
a regular basis to the introducing broker with which such person is 
affiliated.

[48 FR 35304, Aug. 3, 1983, as amended at 66 FR 53523, Oct. 23, 2001; 70 
FR 5924, Feb. 4, 2005; 77 FR 66349, Nov. 2, 2012]



Sec.Sec. 155.5-155.6  [Reserved]



Sec.  155.10  Exemptions.

    Except as otherwise provided in this part, the Commission may, in 
its discretion and upon such terms and conditions as it deems 
appropriate, exempt any contract market or other person from any of the 
provisions of this part.

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

[41 FR 56142, Dec. 23, 1976, as amended at 46 FR 63036, Dec. 30, 1981]



PART 156_BROKER ASSOCIATIONS--Table of Contents



Sec.
156.1 Definition.
156.2 Registration of broker association.
156.3 Contract market program for enforcement.
156.4 Disclosure of Broker Association Membership.

    Authority: 7 U.S.C. 6b, 6c, 6j(d), 7a(b), and 12a.

    Source: 58 FR 31171, June 1, 1993, unless otherwise noted.



Sec.  156.1  Definition.

    For the purposes of this part, the term broker association as 
applied to each board of trade shall include two or more contract market 
members with floor trading privileges, of whom at least one is acting as 
a floor broker, who: (1) Engage in floor brokerage activity on behalf of 
the same employer, (2) have an employer and employee relationship which 
relates to floor brokerage activity, (3) share profits and losses 
associated with their brokerage or trading activity, or (4) regularly 
share a deck of orders.



Sec.  156.2  Registration of broker association.

    (a) Registration required. It shall be unlawful for any member of a 
broker association to receive or to execute an order unless the broker 
association is

[[Page 1017]]

registered with the appropriate contract market in accordance with part 
(b) of this section.
    (b) Contract market rules required. Each contract market must adopt 
and maintain in effect rules, which have been submitted to the 
Commission pursuant to section 5a(a)(12)(A) of the Act and Commission 
Regulation 1.41, that, at a minimum, (1) define the term ``broker 
association'' to include the relationships set forth inSec. 156.1 of 
this part, (2) prohibit conduct described in paragraph (a) of this 
section, and (3) require registration of each relationship defined by 
its rules as a broker association no later than 10 days after 
establishment of such relationship. Contract market records of 
registration shall include the following information with respect to 
each broker association, if applicable:
    (i) Name;
    (ii) Form of organization, e.g., partnership, corporation, trust, 
etc.;
    (iii) Name of each person who is a member or otherwise has a direct 
beneficial interest in the association;
    (iv) Badge symbols and numbers for all members;
    (v) Account numbers for all accounts of any member, accounts in 
which any member(s) has an interest, and any proprietary or customer 
accounts controlled by any member(s);
    (vi) Identification of all other broker associations with which each 
member is associated; and
    (vii) Individual(s) authorized to represent the association in 
connection with its registration obligations.
    Any registration information provided to the contract market which 
becomes deficient or inaccurate must be updated or corrected promptly.
    (c) Other contract market rules. (1) Each contract market may submit 
rules pursuant to section 5a(a)(12)(A) of the Act and Commission 
Regulation 1.41 that interpret when contract market members would be 
deemed to ``regularly share a deck of orders.'' In the absence of such 
rules, a contract market must make such a determination on a case-by-
case basis. The basis for a determination whether brokers ``regularly 
share a deck of orders'' must be documented.
    (2) Each contract market may adopt rules, which must be submitted to 
the Commission pursuant to section 5a(a)(12)(A) of the Act and 
Commission Regulation 1.41, which set forth the basis and procedures for 
granting exemptions from the registration requirement contained in 
paragraph (b) of this section for de minimis activity.



Sec.  156.3  Contract market program for enforcement.

    A contract market must, as part of its responsibilities pursuant to 
the Act andSec. 1.51, demonstrate effective use of broker association 
registration information to monitor the trading activity of broker 
associations and their members for potential abuse and to secure 
compliance with all other contract market bylaws, rules, regulations and 
resolutions which may pertain to such associations or their members.



Sec.  156.4  Disclosure of Broker Association Membership.

    Each contract market shall make available to the public generally 
and upon request a list of all registered broker associations which 
identifies for each such association the name of each person who is a 
member or otherwise has a direct beneficial interest in the association. 
This list shall be updated at least semi-annually.

[61 FR 41498, Aug. 9, 1996]



PART 160_PRIVACY OF CONSUMER FINANCIAL INFORMATION UNDER TITLE V OF 
THE GRAMM	LEACH	BLILEY ACT--Table of Contents



Sec.
160.1 Purpose and scope.
160.2 Rule of construction.
160.3 Definitions.

                  Subpart A_Privacy and Opt Out Notices

160.4 Initial privacy notice to consumers required.
160.5 Annual privacy notice to customers required.
160.6 Information to be included in privacy notices.
160.7 Form of opt out notice to consumers; opt out methods.
160.8 Revised privacy notices.
160.9 Delivering privacy and opt out notices.

[[Page 1018]]

                     Subpart B_Limits on Disclosures

160.10 Limits on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
160.11 Limits on redisclosure and re-use of information.
160.12 Limits on sharing account number information for marketing 
          purposes.

                          Subpart C_Exceptions

160.13 Exception to opt out requirements for service providers and joint 
          marketing.
160.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
160.15 Other exceptions to notice and opt out requirements.

            Subpart D_Relation to Other Laws; Effective Date

160.16 Protection of Fair Credit Reporting Act.
160.17 Relation to state laws.
160.18 Effective date; transition rule.
160.19-160.29 [Reserved]
160.30 Procedures to safeguard customer records and information.

Appendix A to Part 160--Model Privacy Form
Appendix B to Part 160--Sample Clauses

    Authority: 7 U.S.C. 7b-2 and 12a(5); 15 U.S.C 6801, et seq., and 
sec. 1093, Pub. L. 111-203, 124 Stat. 1376.

    Source: 66 FR 21252, Apr. 27, 2001, unless otherwise noted.



Sec.  160.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal 
information about consumers by the financial institutions listed in 
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing nonpublic personal information to most 
nonaffiliated third parties by ``opting out'' of that disclosure, 
subject to the exceptions in Sec.Sec. 160.13, 160.14, and 160.15.
    (b) Scope. This part applies only to nonpublic personal information 
about individuals who obtain financial products or services primarily 
for personal, family, or household purposes from the institutions listed 
below. This part does not apply to information about companies or about 
individuals who obtain financial products or services primarily for 
business, commercial, or agricultural purposes. This part applies to all 
futures commission merchants, retail foreign exchange dealers, commodity 
trading advisors, commodity pool operators, introducing brokers, major 
swap participants and swap dealers that are subject to the jurisdiction 
of the Commission, regardless whether they are required to register with 
the Commission. These entities are hereinafter referred to in this part 
as ``you.'' This part does not apply to foreign (non-resident) futures 
commission merchants, retail foreign exchange dealers, commodity trading 
advisors, commodity pool operators, introducing brokers, major swap 
participants and swap dealers that are not registered with the 
Commission.

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55450, Sept. 10, 2010; 
76 FR 43878, July 22, 2011]



Sec.  160.2  Model privacy form and examples.

    (a) Model privacy form. Use of the model privacy form in appendix A 
of this part, consistent with the instructions in appendix A, 
constitutes compliance with the notice content requirements of 
Sec.Sec. 160.6 and 160.7 of this part, although use of the model 
privacy form is not required.
    (b) Examples. The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.

[74 FR 62974, Dec. 1, 2009]



Sec.  160.3  Definitions.

    For purposes of this part, unless the context requires otherwise:
    (a) Affiliate of a futures commission merchant, retail foreign 
exchange dealer, commodity trading advisor, commodity pool operator, 
introducing broker, major swap participant, or swap dealer means any 
company that controls, is controlled by, or is under

[[Page 1019]]

common control with a futures commission merchant, retail foreign 
exchange dealer, commodity trading advisor, commodity pool operator, 
introducing broker, major swap participant, or swap dealer that is 
subject to the jurisdiction of the Commission. In addition, a futures 
commission merchant, retail foreign exchange dealer, commodity trading 
advisor, commodity pool operator, introducing broker, major swap 
participant, or swap dealer subject to the jurisdiction of the 
Commission will be deemed an affiliate of a company for purposes of this 
part if:
    (1) That company is regulated under title V of the GLB Act by the 
Bureau of Consumer Financial Protection or by a Federal functional 
regulator other than the Commission; and
    (2) Rules adopted by the Bureau of Consumer Financial Protection or 
another Federal functional regulator under title V of the GLB Act treat 
the futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator, introducing broker, 
major swap participant, or swap dealer as an affiliate of that company.
    (b)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. Your notice will be 
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise 
sentences, paragraphs and sections;
    (B) Use short explanatory sentences or bullet lists whenever 
possible;
    (C) Use definite, concrete, everyday words and active voice whenever 
possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever 
possible; and
    (F) Avoid explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. Your notice is designed to call 
attention to the nature and significance of the information in it if 
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) Use distinctive type size, style and graphic devices, such as 
shading or sidebars when you combine your notice with other information.
    (iii) Notices on web sites. If you provide notice on a web page, you 
design your notice to call attention to the nature and significance of 
the information in it if you use text or visual cues to encourage 
scrolling down the page, if necessary to view the entire notice, and 
ensure that other elements on the web site, such as text, graphics, 
hyperlinks or sound, do not distract from the notice, and you either:
    (A) Place the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, nature 
and relevance of the notice.
    (c) Collect means to obtain information that you organize or can 
retrieve by the name of an individual or by identifying number, symbol 
or other identifying particular assigned to the individual, irrespective 
of the source of the underlying information.
    (d) Commission means the Commodity Futures Trading Commission.
    (e) Commodity pool operator has the same meaning as in section 1a(5) 
of the Commodity Exchange Act, as amended, and includes anyone 
registered as such under the Act.
    (f) Commodity trading advisor has the same meaning as in section 
1a(6) of the Commodity Exchange Act, as amended, and includes anyone 
registered as such under the Act.
    (g) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association or similar 
organization.
    (h)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from you that is to be used primarily for 
personal, family

[[Page 1020]]

or household purposes, or that individual's legal representative.
    (2) Examples. (i) An individual is your consumer if he or she 
provides nonpublic personal information to you in connection with 
obtaining or seeking to obtain brokerage or advisory services, whether 
or not you provide services to the individual or establish a continuing 
relationship with the individual.
    (ii) An individual is not your consumer if he or she provides you 
only with his or her name, address and general areas of investment 
interest in connection with a request for a brochure or other 
information about financial products or services.
    (iii) An individual is not your consumer if he or she has an account 
with another futures commission merchant (originating futures commission 
merchant) for which you provide clearing services for an account in the 
name of the originating futures commission merchant.
    (iv) An individual who is a consumer of another financial 
institution is not your consumer solely because you act as agent for, or 
provide processing or other services to, that financial institution.
    (v) An individual is not your consumer solely because he or she has 
designated you as trustee for a trust.
    (vi) An individual is not your consumer solely because he or she is 
a beneficiary of a trust for which you are a trustee.
    (vii) An individual is not your consumer solely because he or she is 
a participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (i) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (j) Control of a company means the power to exercise a controlling 
influence over the management or policies of a company whether through 
ownership of securities, by contract, or otherwise. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 percent of the voting securities of any company 
is presumed to control the company. Any person who does not own more 
than 25 percent of the voting securities of a company will be presumed 
not to control the company.
    (k) Customer means a consumer who has a customer relationship with 
you.
    (l)(1) Customer relationship means a continuing relationship between 
a consumer and you under which you provide one or more financial 
products or services to the consumer that are to be used primarily for 
personal, family or household purposes.
    (2) Examples--(i) Continuing relationship. A consumer has a 
continuing relationship with you if:
    (A) You are a futures commission merchant through whom a consumer 
has opened an account, or that carries the consumer's account on a 
fully-disclosed basis, or that effects or engages in commodity interest 
transactions with or for a consumer, even if you do not hold any assets 
of the consumer.
    (B) You are a retail foreign exchange dealer with whom a consumer 
has opened an account, or that effects or engages in retail forex 
transactions with or for a consumer, even if you do not hold any assets 
of the consumer;
    (C) You are an introducing broker that solicits or accepts specific 
orders for trades;
    (D) You are a commodity trading advisor with whom a consumer has a 
contract or subscription, either written or oral, regardless of whether 
the advice is standardized, or is based on, or tailored to, the 
commodity interest or cash market positions or other circumstances or 
characteristics of the particular consumer;
    (E) You are a commodity pool operator, and you accept or receive 
from the consumer, funds, securities, or property for the purpose of 
purchasing an interest in a commodity pool;
    (F) You hold securities or other assets as collateral for a loan 
made to the consumer, even if you did not make the loan or do not effect 
any transactions on behalf of the consumer; or
    (G) You regularly effect or engage in commodity interest 
transactions with or for a consumer even if you do not hold any assets 
of the consumer.
    (ii) No continuing relationship. A consumer does not have a 
continuing relationship with you if:

[[Page 1021]]

    (A) You have acted solely as a ``finder'' for a futures commission 
merchant, and you do not solicit or accept specific orders for trades; 
or
    (B) You have solicited the consumer to participate in a pool or to 
direct his or her account and he or she has not provided you with funds 
to participate in a pool or entered into any agreement for you to direct 
his or her account.
    (m) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board;
    (6) The Securities and Exchange Commission; and
    (7) The Commodity Futures Trading Commission.
    (n)(1) Financial institution means:
    (i) Any futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator, introducing broker, 
major swap participant, or swap dealer that is registered with the 
Commission as such or is otherwise subject to the Commission's 
jurisdiction; and
    (2) Financial institution does not include:
    (i) Any person or entity, other than a futures commission merchant, 
retail foreign exchange dealer, commodity trading advisor, commodity 
pool operator, introducing broker, major swap participant, or swap 
dealer that, with respect to any financial activity, is subject to the 
jurisdiction of the Commission under the Act.
    (ii) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (iii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights) or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (o)(1) Financial product or service means:
    (i) Any product or service that a futures commission merchant, 
retail foreign exchange dealer, commodity trading advisor, commodity 
pool operator, introducing broker, major swap participant, or swap 
dealer could offer that is subject to the Commission's jurisdiction; and
    (ii) Any product or service that any other financial institution 
could offer by engaging in an activity that is financial in nature or 
incidental to such a financial activity under section 4(k) of the Bank 
Holding Company Act of 1956, 12 U.S.C. 1843(k).
    (2) Financial service includes your evaluation or brokerage of 
information that you collect in connection with a request or an 
application from a consumer for a financial product or service.
    (p) Futures commission merchant has the same meaning as in section 
1a(20) of the Commodity Exchange Act, as amended, and includes any 
person registered as such under the Act.
    (q) GLB Act means the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 
113 Stat. 1338 (1999)).
    (r) Introducing broker has the same meaning as in section 1a(23) of 
the Commodity Exchange Act, as amended, and includes any person 
registered as such under the Act.
    (s) Major swap participant. The term ``major swap participant'' has 
the same meaning as in section 1a(33) of the Commodity Exchange Act, 7 
U.S.C. 1 et seq., as may be further defined by this title, and includes 
any person registered as such thereunder.
    (t)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not 
your affiliate, but nonaffiliated third party includes the other company 
that jointly employs the person.
    (2) Nonaffiliated third party includes any company that is an 
affiliate solely by virtue of your or your affiliate's direct or 
indirect ownership or control of the company in conducting merchant

[[Page 1022]]

banking or investment banking activities of the type described in 
section 4(k)(4)(H) or insurance company investment activities of the 
type described in section 4(k)(4)(I) of the Bank Holding Company Act of 
1956, 12 U.S.C. 1843(k)(4)(H) and (I).
    (u)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description or other grouping of consumers, and 
publicly available information pertaining to them, that is derived using 
any personally identifiable financial information that is not publicly 
available information.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (t)(1)(ii) of this section or when the publicly 
available information is disclosed in a manner that indicates the 
individual is or has been your consumer; or
    (ii) Any list, description or other grouping of consumers, and 
publicly available information pertaining to them, that is derived 
without using any personally identifiable financial information that is 
not publicly available information.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses that is derived in 
whole or in part using personally identifiable financial information 
that is not publicly available information, such as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available 
information, and is not disclosed in a manner that indicates that any of 
the individuals on the list is a consumer of a financial institution.
    (v)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to you to obtain a financial product or 
service from you;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examples--(i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to you on an application to open 
a commodity interest trading account, to invest in a commodity pool, or 
to obtain another financial product or service;
    (B) Account balance information, payment history, overdraft history, 
margin call history, trading history, and credit or debit card purchase 
information;
    (C) The fact that an individual is or has been one of your customers 
or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a 
manner that indicates that the individual is or has been your consumer;
    (E) Any information you collect through an Internet ``cookie'' (an 
information-collecting device from a web server); and
    (F) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; or
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not contain personal identifiers 
such as account numbers, names or addresses.
    (w)(1) Publicly available information means any information that you 
reasonably believe is lawfully made available to the general public 
from:
    (i) Federal, state or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by federal, state or local law.

[[Page 1023]]

    (2) Examples--(i) Reasonable belief. (A) You have a reasonable 
belief that information about your consumer is made available to the 
general public if you have confirmed, or your consumer has represented 
to you, that the information is publicly available from a source 
described in paragraphs (v)(1)(i)-(iii) of this section.
    (B) You have a reasonable belief that information about your 
consumer is made available to the general public if you have taken steps 
to submit the information, in accordance with your internal procedures 
and policies and with applicable law, to a keeper of federal, state or 
local government records that is required by law to make the information 
publicly available.
    (C) You have a reasonable belief that an individual's telephone 
number is lawfully made available to the general public if you have 
located the telephone number in the telephone book or on an internet 
listing service, or the consumer has informed you that the telephone 
number is not unlisted.
    (D) You do not have a reasonable belief that information about a 
consumer is publicly available solely because that information would 
normally be recorded with a keeper of federal, state or local government 
records that is required by law to make the information publicly 
available, if the consumer has the ability in accordance with applicable 
law to keep that information nonpublic, such as where a consumer may 
record a deed in the name of a blind trust.
    (ii) Government records. Publicly available information in 
government records includes information in government real estate 
records and security interest filings.
    (iii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a web site that is 
available to the general public on an unrestricted basis. A web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or password, so long as access is available to 
the general public.
    (x) Swap dealer. The term ``swap dealer'' has the same meaning as in 
section 1a(49) of the Commodity Exchange Act, 7 U.S.C. 1 et seq., as may 
be further defined by this title, and includes any person registered as 
such thereunder.
    (y) You means:
    (1) Any futures commission merchant;
    (2) Any retail foreign exchange dealer;
    (3) Any commodity trading advisor;
    (4) Any commodity pool operator;
    (5) Any introducing broker;
    (6) Any major swap participant; and
    (7) Any swap dealer.
    (z) Retail foreign exchange dealer has the same meaning as inSec. 
5.3(i)(1) of this chapter.

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55450, Sept. 10, 2010; 
76 FR 43878, July 22, 2011]



                  Subpart A_Privacy and Opt Out Notices



Sec.  160.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and 
conspicuous notice that accurately reflects your privacy policies and 
practices to:
    (1) Customer. An individual who becomes your customer, not later 
than when you establish a customer relationship, except as provided in 
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic personal 
information about the consumer to any nonaffiliated third party, if you 
make such a disclosure other than as authorized by Sec.Sec. 160.14 and 
160.15.
    (b) When initial notice to a consumer is not required. You are not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) You do not disclose any nonpublic personal information about the 
consumer to any nonaffiliated third party other than as authorized by 
Sec.Sec. 160.14 and 160.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship--(1) General rule. 
You establish a customer relationship when you and the consumer enter 
into a continuing relationship.

[[Page 1024]]

    (2) Examples of establishing customer relationship. You establish a 
customer relationship when the consumer:
    (i) Instructs you to execute a commodity interest transaction for 
the consumer;
    (ii) Opens a retail forex account, or opens a commodity interest 
account through an introducing broker or with a futures commission 
merchant that clears transactions for its customers through you on a 
fully-disclosed basis;
    (iii) Transmits specific orders for commodity interest transactions 
to you that you pass on to a futures commission merchant for execution, 
if you are an introducing broker;
    (iv) Enters into an advisory contract or subscription with you, 
whether in writing or orally, and whether you provide standardized, or 
individually tailored commodity trading advice based on the customer's 
commodity interest or cash market positions or other circumstances or 
characteristics, if you are a commodity trading adviser; or
    (v) Provides to you funds, securities, or property for an interest 
in a commodity pool, if you are a commodity pool operator.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from you that is to be used primarily for 
personal, family or household purposes, you satisfy the initial notice 
requirements of paragraph (a) of this section as follows:
    (1) You may provide a revised privacy notice underSec. 160.8 that 
covers the customer's new financial product or service; or
    (2) If the initial, revised or annual notice that you most recently 
provided to that customer was accurate with respect to the new financial 
product or service, you do not need to provide a new privacy notice 
under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may 
provide the initial notice required by paragraph (a)(1) of this section 
within a reasonable time after you establish a customer relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election;
    (ii) Providing notice not later than when you establish a customer 
relationship would substantially delay the customer's transaction and 
the customer agrees to receive the notice at a later time;
    (iii) A nonaffiliated financial institution establishes a customer 
relationship between you and a consumer without your prior knowledge; or
    (iv) You have established a customer relationship with a customer in 
a bulk transfer in accordance withSec. 1.65, if you are a transferee 
futures commission merchant, retail foreign exchange dealer or 
introducing broker.
    (2) Examples of exceptions--(i) Not at customer's election. 
Establishing a customer relationship is not at the customer's election 
if you acquire the customer's commodity interest account from another 
financial institution and the customer does not have a choice about your 
acquisition.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when you establish a customer relationship would 
substantially delay the customer's transaction when you and the 
individual agree over the telephone to enter into a customer 
relationship involving prompt delivery of the financial product or 
service.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when you establish a customer relationship would 
not substantially delay the customer's transaction when the relationship 
is initiated in person at your office or through other means by which 
the customer may view the notice, such as on a web site.
    (f) Delivery of notice. When you are required by this section to 
deliver an initial privacy notice, you must deliver it according to the 
provisions ofSec. 160.9. If you use a short-form initial notice for 
non-customers according toSec. 160.6(d), you may deliver your privacy 
notice as provided in sectionSec. 160.6(d)(3).

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55451, Sept. 10, 2010]



Sec.  160.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous notice 
to customers that accurately reflects your privacy policies and 
practices not less than annually during the life of the customer 
relationship. Annually means

[[Page 1025]]

at least once in any period of 12 consecutive months during which that 
relationship exists. You may define the 12-consecutive-month period, but 
you must apply it to the customer on a consistent basis.
    (2) Example. You provide notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual 
notice to the customer once in each calendar year following the calendar 
year in which you provided the initial notice. For example, if a 
customer opens an account on any day of year 1, you must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required to 
provide an annual notice to a former customer.
    (2) Examples. Your customer becomes a former customer when:
    (i) The individual's commodity interest account is closed;
    (ii) The individual's advisory contract or subscription is 
terminated or expires; or
    (iii) The individual has redeemed all of his or her units in your 
pool.
    (c) Delivery of notice. When you are required by this section to 
deliver an annual privacy notice, you must deliver it in the manner 
provided bySec. 160.9.



Sec.  160.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that you provide under Sec.Sec. 160.4, 160.5 and 160.8 must include 
each of the following items of information that applies to you or to the 
consumers to whom you send your privacy notice, in addition to any other 
information you wish to provide:
    (1) The categories of nonpublic personal information that you 
collect;
    (2) The categories of nonpublic personal information that you 
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom you disclose nonpublic personal information, other than those 
parties to whom you disclose information under Sec.Sec. 160.14 and 
160.15;
    (4) The categories of nonpublic personal information about your 
former customers that you disclose and the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information about your former customers, other than those parties to 
whom you disclose information under Sec.Sec. 160.14 and 160.15;
    (5) If you disclose nonpublic personal information to a 
nonaffiliated third party underSec. 160.13 (and no other exception 
applies to that disclosure), a separate statement of the categories of 
information you disclose and the categories of third parties with whom 
you have contracted;
    (6) An explanation of the consumer's rights underSec. 160.10(a) to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that you make underSec. 603(d)(2)(A)(iii) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is, 
notices regarding the ability to opt out of disclosures of information 
among affiliates);
    (8) Your policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If you disclose nonpublic personal information to third 
parties as authorized under Sec.Sec. 160.14 and 160.15, you are not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec.Sec. 160.4 and 160.5. When describing the 
categories with respect to those parties, it is sufficient to state that 
you make disclosures to other nonaffiliated companies:
    (1) For your everyday business purposes, such as [include all that 
apply] to process transactions, maintain account(s), respond to court 
orders and legal investigations, or report to credit bureaus; or
    (2) As permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
you collect. You satisfy the requirement to categorize the nonpublic 
personal information that you collect if you list the following 
categories, as applicable:

[[Page 1026]]

    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your 
affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer reporting agency.
    (2) Categories of nonpublic personal information you disclose. (i) 
You satisfy the requirement to categorize the nonpublic personal 
information you disclose if you list the categories described in 
paragraph (e)(1) of this section, as applicable, and a few examples to 
illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic 
personal information about consumers that you collect, you may simply 
state that fact without describing the categories or examples of the 
nonpublic personal information you disclose.
    (3) Categories of affiliates and nonaffiliated third parties to whom 
you disclose. You satisfy the requirement to categorize the affiliates 
and nonaffiliated third parties to whom you disclose nonpublic personal 
information if you list the following categories, as applicable, and a 
few examples to illustrate the types of third parties in each category:
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint 
marketers. If you disclose nonpublic personal information under the 
exception inSec. 160.13 to a nonaffiliated third party to market 
products or services that you offer alone or jointly with another 
financial institution, you satisfy the disclosure requirement of 
paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you 
disclose, using the same categories and examples you used to meet the 
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your 
behalf or on behalf of you and another financial institution; or
    (B) A financial institution with which you have a joint marketing 
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to 
reserve the right to disclose, nonpublic personal information to 
affiliates or nonaffiliated third parties except as authorized under 
Sec.Sec. 160.14 and 160.15, you may simply state that fact, in 
addition to information you must provide under paragraphs (a)(1), 
(a)(8), (a)(9) and (b) of this section.
    (6) Confidentiality and security. You describe your policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to 
the information; and
    (ii) State whether you have security practices and procedures in 
place to ensure the confidentiality of the information in accordance 
with your policy. You are not required to describe technical information 
about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) You may satisfy the initial notice requirements in Sec.Sec. 
160.4(a)(2), 160.7(b) and 160.7(c) for a consumer who is not a customer 
by providing a short-form initial notice at the same time as you deliver 
an opt out notice as required in 160.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain 
your privacy notice.
    (3) You must deliver your short-form initial notice according to 
Sec.  160.9. You are not required to deliver your privacy notice with 
your short-form initial notice. You instead may simply provide the 
consumer a reasonable means to obtain your privacy notice. If a consumer 
who receives your short-form notice requests your privacy notice, you 
must deliver your privacy notice according toSec. 160.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable 
means by

[[Page 1027]]

which a consumer may obtain a copy of your privacy notice if you:
    (i) Provide a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at your office, 
maintain copies of the notice on hand that you provide to the consumer 
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve 
the right to disclose in the future, but do not currently disclose; and
    (2) Categories of affiliates and nonaffiliated third parties to whom 
you reserve the right in the future to disclose, but to whom you do not 
currently disclose, nonpublic personal information.
    (f) Model privacy form. Pursuant toSec. 160.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in appendix A of this part.

[66 FR 21252, Apr. 27, 2001, as amended at 74 FR 62974, December 1, 
2009]



Sec.  160.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an opt 
out notice underSec. 160.10(a), you must provide a clear and 
conspicuous notice to each of your consumers that accurately explains 
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic 
personal information about your consumer to a nonaffiliated third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.
    (2) Examples--(i) Adequate opt out notice. You provide adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal information 
that you disclose or reserve the right to disclose, and all of the 
categories of nonaffiliated third parties to which you disclose the 
information, as described inSec. 160.6(a)(2) and (3), and state that 
the consumer can opt out of the disclosure of that information; and
    (B) Identify the financial products or services that the consumer 
obtains from you, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable means to opt out. You provide a reasonable means to 
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice;
    (C) Provide an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at your web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable 
means of opting out if:
    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that you 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. You may require each consumer to opt 
out through a specific means, as long as that means is reasonable for 
the consumer.
    (b) Same form as initial notice permitted. You may provide the opt 
out notice together with or on the same written or electronic form, as 
the initial notice you provide in accordance withSec. 160.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If you provide the opt out notice after the initial 
notice in accordance withSec. 160.4, you must also include a copy of 
the initial notice with the opt out notice in writing, or, if the 
consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service from you, you

[[Page 1028]]

may provide a single opt out notice; however, you must honor a request 
from one or more joint account holders for a separate opt out notice. 
Your opt out notice must explain how you will treat an opt out direction 
by a joint consumer.
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint trading account with you 
and arrange for you to send statements to John's address, you may do any 
of the following, but you must explain in your opt out notice which opt 
out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an opt out direction from either John or Mary;
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John opts out, you may not 
require Mary to opt out as well before implementing John's opt out 
direction; or
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other.
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call).
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John, and not 
about John and Mary jointly.
    (e) Time to comply with opt out. You must comply with a consumer's 
opt out direction as soon as reasonably practicable after you receive 
it.
    (f) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (g) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing, either by hard copy or, if the consumer agrees, 
electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
you collected during or related to that relationship. If the individual 
subsequently establishes a new customer relationship with you, the opt 
out direction that applied to the former relationship does not apply to 
the new relationship.
    (h) Delivery. When you are required by this section to deliver an 
opt out notice, you must deliver it according toSec. 160.9.
    (i) Model privacy form. Pursuant toSec. 160.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in appendix A of this part.

[66 FR 21252, Apr. 27, 2001, as amended at 74 FR 62974, December 1, 
2009]



Sec.  160.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, you 
must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that you provided to that 
consumer underSec. 160.4, unless:
    (1) You have provided to the consumer a clear and conspicuous 
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before you 
disclose the information to the nonaffiliated third party, to opt out of 
the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec.Sec. 
160.13, 160.14, and 160.15, you must provide a revised notice before 
you:

[[Page 1029]]

    (i) Disclose a new category of nonpublic personal information to any 
nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that former customer has not 
had the opportunity to exercise an opt out right regarding that 
disclosure.
    (2) A revised notice is not required if you disclose nonpublic 
personal information to a new nonaffiliated third party that you 
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy 
notice by this section, you must deliver it according toSec. 160.9.



Sec.  160.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices and 
opt out notices, including short-form initial notices that this part 
requires so that each consumer can reasonably be expected to receive 
actual notice in writing either in hard copy or, if the consumer agrees, 
electronically.
    (b)(1) Examples of reasonable expectation of actual notice. You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of 
the consumer; or
    (iii) For the consumer who conducts transactions electronically, 
post the notice on the electronic site and require the consumer to 
acknowledge receipt of the notice as a necessary step to obtaining a 
particular financial service or product.
    (2) Examples of unreasonable expectation of actual notice. You may 
not, however, reasonably expect that a consumer will receive actual 
notice of your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements of your privacy policies and practices; or
    (ii) Send the notice via electronic mail to a consumer who does not 
obtain a financial product or service from you electronically.
    (c) Annual notices only. You may reasonably expect that a consumer 
will receive actual notice of your annual privacy notice if:
    (1) The customer uses your web site to access financial products and 
services electronically and agrees to receive notices at the web site 
and you post your current privacy notice continuously in a clear and 
conspicuous manner on the web site; or
    (2) The customer has requested that you refrain from sending any 
information regarding the customer relationship, and your current 
privacy notice remains available to the customer upon request.
    (d) Oral description of notice insufficient. You may not provide any 
notice required by this part solely by orally explaining the notice, 
either in person or over the telephone.
    (e) Retention or accessibility of notices for customers. (1) For 
customers only, you must provide the initial notice required bySec. 
160.4(a)(1), the annual notice required bySec. 160.5(a), and the 
revised notice required bySec. 160.8, so that the customer can retain 
them or obtain them later in writing or, if the customer agrees, 
electronically.
    (2) Examples of retention or accessibility. You provide a privacy 
notice to the customer so that the customer can retain it or obtain it 
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of 
the customer; or
    (iii) Make your current privacy notice available on a web site (or a 
link to another web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the web site.
    (f) Joint notice with other financial institutions. You may provide 
a joint notice from you and one or more of your affiliates or other 
financial institutions, as identified in the notice, as long as the 
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships. If two or more customers jointly obtain a 
financial

[[Page 1030]]

product or service from you, you may satisfy the initial, annual, and 
revised notice requirements of paragraph (a) of this section by 
providing one notice to those customers jointly; however, you must honor 
a request by one or more joint account holders for a separate notice.



                     Subpart B_Limits on Disclosures



Sec.  160.10  Limits on disclosure of nonpublic personal information 
to nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this part, you may not, directly or through any affiliate, disclose any 
nonpublic personal information about a consumer to a nonaffiliated third 
party unless:
    (i) You have provided to the consumer an initial notice as required 
underSec. 160.4;
    (ii) You have provided to the consumer an opt out notice as required 
inSec. 160.7;
    (iii) You have given the consumer a reasonable opportunity, before 
you disclose the information to the nonaffiliated third party, to opt of 
the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that you not disclose nonpublic personal information about that consumer 
to a nonaffiliated third party, other than as permitted by Sec.Sec. 
160.13, 160.14 and 160.15.
    (3) Examples of reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of 
this section to the consumer and allow the consumer to opt out by 
mailing a form, calling a toll-free telephone number, or any other 
reasonable means within 30 days after the date you mailed the notices.
    (ii) By electronic means. A customer opens an on-line account with 
you and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and you allow the customer to opt out by 
any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction with a consumer, you provide the consumer with a reasonable 
opportunity to opt out if you provide the notices required in paragraph 
(a)(1) of this section at the time of the transaction and request that 
the consumer decide, as a necessary part of the transaction, whether to 
opt out before completing the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) You must comply with this section, regardless 
of whether you and the consumer have established a customer 
relationship.
    (2) Unless you comply with this section, you may not, directly or 
through any affiliate, disclose any nonpublic personal information about 
a consumer that you have collected, regardless of whether you have 
collected it before or after receiving the direction to opt out from the 
consumer.
    (c) Partial opt out. You may allow a consumer to select certain 
nonpublic personal information or certain nonaffiliated third parties 
with respect to which the consumer wishes to opt out.



Sec.  160.11  Limits on redisclosure and reuse of information.

    (a) (1) Information you receive under an exception. If you receive 
nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec.Sec. 160.14 or 160.15, your 
disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliate of the 
financial institution from which you received the information;
    (ii) You may disclose the information to your affiliates, but your 
affiliates may, in turn, disclose and use the information only to the 
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an 
exception inSec. 160.14 or 160.15 in the ordinary course of business 
to carry out the activity covered by the exception under which you 
received the information.
    (2) Example. If you receive a customer list from a nonaffiliated 
financial institution in order to provide account-

[[Page 1031]]

processing services under the exception inSec. 160.14(a), you may 
disclose that information under any exception in Sec.Sec. 160.14 or 
160.15 in the ordinary course of business in order to provide those 
services. For example, you could disclose that information in response 
to a properly authorized subpoena or in the ordinary course of business 
to your attorneys, accountants, and auditors. You could not disclose 
that information to a third party for marketing purposes or use that 
information for your own marketing purposes.
    (b)(1) Information you receive outside of an exception. If you 
receive nonpublic personal information from a nonaffiliated financial 
institution other than under an exception in Sec.Sec. 160.14 or 
160.15, you may disclose the information only:
    (i) To the affiliates of the financial institution from which you 
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose 
the information only to the extent that you can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which you 
received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec.Sec. 160.14 and 
160.15:
    (i) You may use that list for your own purposes;
    (ii) You may disclose that list to another nonaffiliated third party 
only if the financial institution from which you purchased the list 
could have lawfully disclosed that list to that third party. That is, 
you may disclose the list in accordance with the privacy policy of the 
financial institution from which you received the list as limited by the 
opt out direction of each consumer whose nonpublic personal information 
you intend to disclose, and you may disclose the list in accordance with 
an exception in Sec.Sec. 160.14 and 160.15, such as in the ordinary 
course of business to your attorneys, accountants, or auditors.
    (c) Information you disclose under an exception. If you disclose 
nonpublic personal information to a nonaffiliated third party under an 
exception in Sec.Sec. 160.14 or 160.15, the third party may disclose 
and use that information only as follows:
    (1) The third party may disclose the information to your affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec.Sec. 160.14 or 160.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.
    (d) Information you disclose outside of an exception. If you 
disclose nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec.Sec. 160.14 or 160.15, the third 
party may disclose the information only:
    (1) To your affiliates;
    (2) To its affiliates, but its affiliates, in turn, may disclose the 
information only to the extent the third party can disclose the 
information; and
    (3) To any other person, if the disclosure would be lawful if you 
made it directly to that person.



Sec.  160.12  Limits on sharing account number information for 
marketing purposes.

    (a) General prohibition on disclosure of account numbers. You must 
not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code for a consumer's credit card account, deposit 
account or transaction account to any nonaffiliated third party for use 
in telemarketing, direct mail marketing or other marketing through 
electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you 
disclose an account number or similar form of access number or access 
code:
    (1) To your agent or service provider solely in order to perform 
marketing for your own services or products, as long as the agent or 
service provider is

[[Page 1032]]

not authorized to directly initiate charges to the account; or
    (2) To a participant in a private-label credit card program or an 
affinity or similar program where the participants in the program are 
identified to the customer when the customer enters into the program.
    (c) Example. An account number, or similar form of access number or 
access code, does not include a number or code in an encrypted form, as 
long as you do not provide the recipient with a means to decode the 
number or code.



                          Subpart C_Exceptions



Sec.  160.13  Exception to opt out requirements for service providers
and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec.Sec. 160.7 
and 160.10 do not apply when you provide nonpublic personal information 
to a nonaffiliated third party to perform services for you or functions 
on your behalf if you:
    (i) Provide the initial notice in accordance withSec. 160.4; and
    (ii) Enter into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which you disclosed the information, 
including use under an exception in Sec.Sec. 160.14 or 160.15 in the 
ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under 
this section to a financial institution with which you perform joint 
marketing, your contractual agreement with that institution meets the 
requirements of paragraph (a)(1)(ii) of this section if it prohibits the 
institution from disclosing or using the nonpublic personal information 
except as necessary to carry out the joint marketing or under an 
exception in Sec.Sec. 160.14 or 160.15 in the ordinary course of 
business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for you under paragraph (a) of this 
section may include marketing of your own products or services or 
marketing of financial products or services offered pursuant to joint 
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which you and one 
or more financial institutions jointly offer, endorse or sponsor a 
financial product or service.



Sec.  160.14  Exceptions to notice and opt out requirements for
processing and servicing transactions.

    (a) Exceptions for processing and servicing transactions at 
consumer's request. The requirements for initial notice inSec. 
160.4(a)(2), for the opt out in Sec.Sec. 160.7 and 160.10, and for 
initial notice inSec. 160.13 in connection with service providers and 
joint marketing, do not apply if you disclose nonpublic personal 
information as necessary to effect, administer, or enforce a transaction 
that a consumer requests or authorizes, or in connection with:
    (1) Processing or servicing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or 
with another entity as part of an extension of credit on behalf of such 
entity as part of a private label credit card program or other extension 
of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale or 
similar transaction related to a transaction of the consumer.
    (b) Necessary to effect, administer or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce your rights or the rights of other persons engaged in carrying 
out the financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or

[[Page 1033]]

the product or service business of which it is a part;
    (iii) To provide a confirmation, statement or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by you or any other party;
    (v) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited or 
otherwise paid using a debit, credit or other payment card, check or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts or interests therein; or
    (C) The audit of debit, credit or other payment information.



Sec.  160.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to notice and opt out requirements. The requirements 
for initial notice inSec. 160.4(a)(2), for the opt out in Sec.Sec. 
160.7 and 160.10, and for initial notice inSec. 160.13 in connection 
with service providers and joint marketing do not apply when you 
disclose nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security or your records 
pertaining to the consumer, service, product or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;
    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that are rating you, persons that 
are assessing your compliance with industry standards, and your 
attorneys, accountants and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978, 12 U.S.C. 3401 et seq., to law enforcement agencies 
(including a Federal functional regulator, the Secretary of the 
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records 
and Reports on Monetary Instruments and Transactions) and 12 U.S.C. 
Chapter 21 (Financial Recordkeeping), a State insurance authority, with 
respect to any person domiciled in that insurance authority's state that 
is engaged in providing insurance, and the Bureau of Consumer Financial 
Protection), self-regulatory organizations, or for an investigation on a 
matter related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act, 15 U.S.C. 1681 et seq.; or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with federal, state or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal or 
regulatory investigation, or subpoena or summons by federal, state or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities having jurisdiction over you for examination, compliance or 
other purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to your disclosure to a nonaffiliated mortgage 
lender of the value of the assets in the customer's account so that the 
lender can evaluate the consumer's application for a mortgage loan.
    (2) A consumer may revoke consent by subsequently exercising the 
right to

[[Page 1034]]

opt out of future disclosures of nonpublic personal information as 
permitted underSec. 160.7(f).

[66 FR 21252, Apr. 27, 2001, as amended at 76 FR 43879, July 22, 2011]



            Subpart D_Relation to Other Laws; Effective Date



Sec.  160.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit or 
supersede the operation of the Fair Credit Reporting Act, 15 U.S.C. 1681 
et seq., and no inference shall be drawn on the basis of the provisions 
of this part regarding whether information is transaction or experience 
information under section 603 of that Act.



Sec.  160.17  Relation to state laws.

    (a) In general. This part shall not be construed as superseding, 
altering or affecting any statute, regulation, order or interpretation 
in effect in any state, except to the extent that such state statute, 
regulation, order or interpretation is inconsistent with the provisions 
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under state law. For purposes of this 
section, a state statute, regulation, order or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order or interpretation affords any person is 
greater than the protection provided under this part, as determined by 
the Bureau of Consumer Financial Protection, after consultation with the 
Commission, on its own motion or upon the petition of any interested 
party.

[66 FR 21252, Apr. 27, 2001, as amended at 76 FR 43879, July 22, 2011]



Sec.  160.18  Effective date; compliance date; transition rule.

    (a) Effective date. This part is effective on June 21, 2001. In 
order to provide sufficient time for you to establish policies and 
systems to comply with the requirements for this part, the compliance 
date for this part is March 31, 2002.
    (b)(1) Notice requirement for consumers who are your customers on 
the effective date. By March 31, 2002, you must have provided an initial 
notice, as required bySec. 160.4, to consumers who are your customers 
on March 31, 2002.
    (2) Example. You provide an initial notice to consumers who are your 
customers on March 31, 2002 if, by that date, you have established a 
system for providing an initial notice to all new customers and have 
mailed the initial notice to all your existing customers.
    (c) One-year grandfathering of service agreements. Until March 31, 
2003, a contract that you have entered into with a nonaffiliated third 
party to perform services for you or functions on your behalf satisfies 
the provisions ofSec. 160.13(a)(1)(ii) even if the contract does not 
include a requirement that the third party maintain the confidentiality 
of nonpublic personal information, as long as you entered into the 
agreement on or before March 31, 2002.

[66 FR 21252, Apr. 27, 2001, as amended at 66 FR 24061, 24183, May 11, 
2001; 67 FR 6790, Feb. 13, 2002]



Sec.Sec. 160.19-160.29  [Reserved]



Sec.  160.30  Procedures to safeguard customer records and information.

    Every futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator, introducing broker, 
major swap participant, and swap dealer subject to the jurisdiction of 
the Commission must adopt policies and procedures that address 
administrative, technical and physical safeguards for the protection of 
customer records and information.

[76 FR 43879, July 22, 2011]



             Sec. Appendix A to Part 160--Model Privacy Form

    A. The Model Privacy Form

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                         B. General Instructions

                  1. How the Model Privacy Form Is Used

    (a) The model form may be used, at the option of a financial 
institution, including a group of financial institutions that use a 
common privacy notice, to meet the content requirements of the privacy 
notice and opt-out notice set forth in Sec.Sec. 160.6 and 160.7 of 
this part.
    (b) The model form is a standardized form, including page layout, 
content, format, style, pagination, and shading. Institutions seeking to 
obtain the safe harbor through use of the model form may modify it only 
as described in these Instructions.
    (c) Note that disclosure of certain information, such as assets, 
income, and information from a consumer reporting agency, may give rise 
to obligations under the Fair Credit Reporting Act [15 U.S.C. 1681-
1681x] (FCRA), such as a requirement to permit a consumer to opt out of 
disclosures to affiliates or designation as a consumer reporting agency 
if disclosures are made to nonaffiliated third parties.
    (d) The word ``customer'' may be replaced by the word ``member'' 
whenever it appears in the model form, as appropriate.

                2. The Contents of the Model Privacy Form

    The model form consists of two pages, which may be printed on both 
sides of a single sheet of paper, or may appear on two separate pages. 
Where an institution provides a long list of institutions at the end of 
the model form in accordance with Instruction C.3(a)(1), or provides 
additional information in accordance with Instruction C.3(c), and such 
list or additional information exceeds the space available on page two 
of the model form, such list or additional information may extend to a 
third page.
    (a) Page One. The first page consists of the following components:
    (1) Date last revised (upper right-hand corner).
    (2) Title.
    (3) Key frame (Why?, What?, How?).
    (4) Disclosure table (``Reasons we can share your personal 
information'').
    (5) ``To limit our sharing'' box, as needed, for the financial 
institution's opt-out information.
    (6) ``Questions'' box, for customer service contact information.
    (7) Mail-in opt-out form, as needed.
    (b) Page Two. The second page consists of the following components:
    (1) Heading (Page 2).
    (2) Frequently Asked Questions (``Who we are'' and ``What we do'').
    (3) Definitions.
    (4) ``Other important information'' box, as needed.

                 3. The Format of the Model Privacy Form

    The format of the model form may be modified only as described 
below.
    (a) Easily readable type font. Financial institutions that use the 
model form must use an easily readable type font. While a number of 
factors together produce easily readable type font, institutions are 
required to use a minimum of 10-point font (unless otherwise expressly 
permitted in these Instructions) and sufficient spacing between the 
lines of type.
    (b) Logo. A financial institution may include a corporate logo on 
any page of the notice, so long as it does not interfere with the 
readability of the model form or the space constraints of each page.
    (c) Page size and orientation. Each page of the model form must be 
printed on paper in portrait orientation, the size of which must be 
sufficient to meet the layout and minimum font size requirements, with 
sufficient white space on the top, bottom, and sides of the content.
    (d) Color. The model form must be printed on white or light color 
paper (such as cream) with black or other contrasting ink color. Spot 
color may be used to achieve visual interest, so long as the color 
contrast is distinctive and the color does not detract from the 
readability of the model form. Logos may also be printed in color.

[[Page 1042]]

    (e) Languages. The model form may be translated into languages other 
than English.

            C. Information Required in the Model Privacy Form

    The information in the model form may be modified only as described 
below:

1. Name of the Institution or Group of Affiliated Institutions Providing 
                               the Notice

    Insert the name of the financial institution providing the notice or 
a common identity of affiliated institutions jointly providing the 
notice on the form wherever [name of financial institution] appears.

                               2. Page One

    (a) Last revised date. The financial institution must insert in the 
upper right-hand corner the date on which the notice was last revised. 
The information shall appear in minimum 8-point font as ``rev. [month/
year]'' using either the name or number of the month, such as ``rev. 
July 2009'' or ``rev. 7/09''.
    (b) General instructions for the ``What?'' box.
    (1) The bulleted list identifies the types of personal information 
that the institution collects and shares. All institutions must use the 
term ``Social Security number'' in the first bullet.
    (2) Institutions must use five (5) of the following terms to 
complete the bulleted list: Income; account balances; payment history; 
transaction history; transaction or loss history; credit history; credit 
scores; assets; investment experience; credit-based insurance scores; 
insurance claim history; medical information; overdraft history; 
purchase history; account transactions; risk tolerance; medical-related 
debts; credit card or other debt; mortgage rates and payments; 
retirement assets; checking account information; employment information; 
wire transfer instructions.
    (c) General instructions for the disclosure table. The left column 
lists reasons for sharing or using personal information. Each reason 
correlates to a specific legal provision described in paragraph C.2(d) 
of this Instruction. In the middle column, each institution must provide 
a ``Yes'' or ``No'' response that accurately reflects its information 
sharing policies and practices with respect to the reason listed on the 
left. In the right column, each institution must provide in each box one 
of the following three (3) responses, as applicable, that reflects 
whether a consumer can limit such sharing: ``Yes'' if it is required to 
or voluntarily provides an opt-out; ``No'' if it does not provide an 
opt-out; or ``We don't share'' if it answers ``No'' in the middle 
column. Only the sixth row (``For our affiliates to market to you'') may 
be omitted at the option of the institution. See paragraph C.2(d)(6) of 
this Instruction.
    (d) Specific disclosures and corresponding legal provisions.
    (1) For our everyday business purposes. This reason incorporates 
sharing information under Sec.Sec. 160.14 and 160.15 and with service 
providers pursuant toSec. 160.13 of this part other than the purposes 
specified in paragraphs C.2(d)(2) or C.2(d)(3) of these Instructions.
    (2) For our marketing purposes. This reason incorporates sharing 
information with service providers by an institution for its own 
marketing pursuant toSec. 160.13 of this part. An institution that 
shares for this reason may choose to provide an opt-out.
    (3) For joint marketing with other financial companies. This reason 
incorporates sharing information under joint marketing agreements 
between two or more financial institutions and with any service provider 
used in connection with such agreements pursuant toSec. 160.13 of this 
part. An institution that shares for this reason may choose to provide 
an opt-out.
    (4) For our affiliates' everyday business purposes--information 
about transactions and experiences. This reason incorporates sharing 
information specified in sections 603(d)(2)(A)(i) and (ii) of the FCRA. 
An institution that shares for this reason may choose to provide an opt-
out.
    (5) For our affiliates' everyday business purposes--information 
about creditworthiness. This reason incorporates sharing information 
pursuant to section 603(d)(2)(A)(iii) of the FCRA. An institution that 
shares for this reason must provide an opt-out.
    (6) For our affiliates to market to you. This reason incorporates 
sharing information specified in section 624 of the FCRA. This reason 
may be omitted from the disclosure table when: the institution does not 
have affiliates (or does not disclose personal information to its 
affiliates); the institution's affiliates do not use personal 
information in a manner that requires an opt-out; or the institution 
provides the affiliate marketing notice separately. Institutions that 
include this reason must provide an opt-out of indefinite duration. An 
institution not required to provide an opt-out under this subparagraph 
may elect to include this reason in the model form. Note: The CFTC's 
Regulations do not address the affiliate marketing rule.
    (7) For nonaffiliates to market to you. This reason incorporates 
sharing described in Sec.Sec. 160.7 and 160.10(a) of this part. An 
institution that shares personal information for this reason must 
provide an opt-out.
    (e) To limit our sharing: A financial institution must include this 
section of the model form only if it provides an opt-out. The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Institutions

[[Page 1043]]

must select one or more of the applicable opt-out methods described: 
telephone, such as by a toll-free number; a Web site; or use of a mail-
in opt-out form. Institutions may include the words ``toll-free'' before 
telephone, as appropriate. An institution that allows consumers to opt 
out online must provide either a specific Web address that takes 
consumers directly to the opt-out page or a general Web address that 
provides a clear and conspicuous direct link to the opt-out page. The 
opt-out choices made available to the consumer who contacts the 
institution through these methods must correspond accurately to the 
``Yes'' responses in the third column of the disclosure table. In the 
part titled ``Please note'' institutions may insert a number that is 30 
or greater in the space marked ``[30].'' Instructions on voluntary or 
state privacy law opt-out information are in paragraph C.2(g)(5) of 
these Instructions.
    (f) Questions box. Customer service contact information must be 
inserted as appropriate, where [phone number] or [Web site] appear. 
Institutions may elect to provide either a phone number, such as a toll-
free number, or a Web address, or both. Institutions may include the 
words ``toll-free'' before the telephone number, as appropriate.
    (g) Mail-in opt-out form. Financial institutions must include this 
mail-in form only if they state in the ``To limit our sharing'' box that 
consumers can opt out by mail. The mail-in form must provide opt-out 
options that correspond accurately to the ``Yes'' responses in the third 
column in the disclosure table. Institutions that require customers to 
provide only name and address may omit the section identified as 
``[account ].'' Institutions that require additional or 
different information, such as a random opt-out number or a truncated 
account number, to implement an opt-out election should modify the 
``[account ]'' reference accordingly. This includes 
institutions that require customers with multiple accounts to identify 
each account to which the opt-out should apply. An institution must 
enter its opt-out mailing address: in the far right of this form (see 
version 3); or below the form (see version 4). The reverse side of the 
mail-in opt-out form must not include any content of the model form.
    (1) Joint accountholder. Only institutions that provide their joint 
accountholders the choice to opt out for only one accountholder, in 
accordance with paragraph C.3(a)(5) of these Instructions, must include 
in the far left column of the mail-in form the following statement: ``If 
you have a joint account, your choice(s) will apply to everyone on your 
account unless you mark below. Apply my choice(s) only to me.'' The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Financial institutions that provide insurance products or 
services, provide this option, and elect to use the model form may 
substitute the word ``policy'' for ``account'' in this statement. 
Institutions that do not provide this option may eliminate this left 
column from the mail-in form.
    (2) FCRA Section 603(d)(2)(A)(iii) opt-out. If the institution 
shares personal information pursuant to section 603(d)(2)(A)(iii) of the 
FCRA, it must include in the mail-in opt-out form the following 
statement: ``Do not share information about my creditworthiness with 
your affiliates for their everyday business purposes.''
    (3) FCRA Section 624 opt-out. If the institution incorporates 
section 624 of the FCRA in accord with paragraph C.2(d)(6) of these 
Instructions, it must include in the mail-in opt-out form the following 
statement: ``Do not allow your affiliates to use my personal information 
to market to me.''
    (4) Nonaffiliate opt-out. If the financial institution shares 
personal information pursuant toSec. 160.10(a) of this part, it must 
include in the mail-in opt-out form the following statement: ``Do not 
share my personal information with nonaffiliates to market their 
products and services to me.''
    (5) Additional opt-outs. Financial institutions that use the 
disclosure table to provide opt-out options beyond those required by 
Federal law must provide those opt-outs in this section of the model 
form. A financial institution that chooses to offer an opt-out for its 
own marketing in the mail-in opt-out form must include one of the two 
following statements: ``Do not share my personal information to market 
to me.'' or ``Do not use my personal information to market to me.'' A 
financial institution that chooses to offer an opt-out for joint 
marketing must include the following statement: ``Do not share my 
personal information with other financial institutions to jointly market 
to me.''
    (h) Barcodes. A financial institution may elect to include a barcode 
and/or ``tagline'' (an internal identifier) in 6-point font at the 
bottom of page one, as needed for information internal to the 
institution, so long as these do not interfere with the clarity or text 
of the form.

                               3. Page Two

    (a) General Instructions for the Questions. Certain of the Questions 
may be customized as follows:
    (1) ``Who is providing this notice?'' This question may be omitted 
where only one financial institution provides the model form and that 
institution is clearly identified in the title on page one. Two or more 
financial institutions that jointly provide the model form must use this 
question to identify themselves as required bySec. 160.9(f) of this 
part. Where the list of institutions exceeds four (4) lines, the 
institution must describe in the response to this question the general 
types of institutions jointly providing the

[[Page 1044]]

notice and must separately identify those institutions, in minimum 8-
point font, directly following the ``Other important information'' box, 
or, if that box is not included in the institution's form, directly 
following the ``Definitions.'' The list may appear in a multi-column 
format.
    (2) ``How does [name of financial institution] protect my personal 
information?'' The financial institution may only provide additional 
information pertaining to its safeguards practices following the 
designated response to this question. Such information may include 
information about the institution's use of cookies or other measures it 
uses to safeguard personal information. Institutions are limited to a 
maximum of 30 additional words.
    (3) ``How does [name of financial institution] collect my personal 
information?'' Institutions must use five (5) of the following terms to 
complete the bulleted list for this question: Open an account; deposit 
money; pay your bills; apply for a loan; use your credit or debit card; 
seek financial or tax advice; apply for insurance; pay insurance 
premiums; file an insurance claim; seek advice about your investments; 
buy securities from us; sell securities to us; direct us to buy 
securities; direct us to sell your securities; make deposits or 
withdrawals from your account; enter into an investment advisory 
contract; give us your income information; provide employment 
information; give us your employment history; tell us about your 
investment or retirement portfolio; tell us about your investment or 
retirement earnings; apply for financing; apply for a lease; provide 
account information; give us your contact information; pay us by check; 
give us your wage statements; provide your mortgage information; make a 
wire transfer; tell us who receives the money; tell us where to send the 
money; show your government-issued ID; show your driver's license; order 
a commodity futures or option trade. Institutions that collect personal 
information from their affiliates and/or credit bureaus must include 
after the bulleted list the following statement: ``We also collect your 
personal information from others, such as credit bureaus, affiliates, or 
other companies.'' Institutions that do not collect personal information 
from their affiliates or credit bureaus but do collect information from 
other companies must include the following statement instead: ``We also 
collect your personal information from other companies.'' Only 
institutions that do not collect any personal information from 
affiliates, credit bureaus, or other companies can omit both statements.
    (4) ``Why can't I limit all sharing?'' Institutions that describe 
state privacy law provisions in the ``Other important information'' box 
must use the bracketed sentence: ``See below for more on your rights 
under state law.'' Other institutions must omit this sentence.
    (5) ``What happens when I limit sharing for an account I hold 
jointly with someone else?'' Only financial institutions that provide 
opt-out options must use this question. Other institutions must omit 
this question. Institutions must choose one of the following two 
statements to respond to this question: ``Your choices will apply to 
everyone on your account.'' or ``Your choices will apply to everyone on 
your account--unless you tell us otherwise.'' Financial institutions 
that provide insurance products or services and elect to use the model 
form may substitute the word ``policy'' for ``account'' in these 
statements.
    (b) General Instructions for the Definitions.
    The financial institution must customize the space below the 
responses to the three definitions in this section. This specific 
information must be in italicized lettering to set off the information 
from the standardized definitions.
    (1) Affiliates. As required bySec. 160.6(a)(3) of this part, where 
[affiliate information] appears, the financial institution must:
    (i) If it has no affiliates, state: ``[name of financial 
institution] has no affiliates'';
    (ii) If it has affiliates but does not share personal information, 
state: ``[name of financial institution] does not share with our 
affiliates''; or
    (iii) If it shares with its affiliates, state, as applicable: ``Our 
affiliates include companies with a [common corporate identity of 
financial institution] name; financial companies such as [insert 
illustrative list of companies]; nonfinancial companies, such as [insert 
illustrative list of companies]; and others, such as [insert 
illustrative list].''
    (2) Nonaffiliates. As required bySec. 160.6(c)(3) of this part, 
where [nonaffiliate information] appears, the financial institution 
must:
    (i) If it does not share with nonaffiliated third parties, state: '' 
[name of financial institution] does not share with nonaffiliates so 
they can market to you''; or
    (ii) If it shares with nonaffiliated third parties, state, as 
applicable: ``Nonaffiliates we share with can include [list categories 
of companies such as mortgage companies, insurance companies, direct 
marketing companies, and nonprofit organizations].''
    (3) Joint Marketing. As required bySec. 160.13 of this part, where 
[joint marketing] appears, the financial institution must:
    (i) If it does not engage in joint marketing, state: ``[name of 
financial institution] doesn't jointly market''; or
    (ii) If it shares personal information for joint marketing, state, 
as applicable: ``Our joint marketing partners include [list categories 
of companies such as credit card companies].''
    (c) General instructions for the ``Other important information'' 
box. This box is optional. The space provided for information in this

[[Page 1045]]

box is not limited. Only the following types of information can appear 
in this box.
    (1) State and/or international privacy law information; and/or
    (2) Acknowledgment of receipt form.


[74 FR 62975, Dec. 1, 2009]



               Sec. Appendix B to Part 160--Sample Clauses

    This appendix only applies to privacy notices provided before 
January 1, 2011. Financial institutions, including a group of financial 
holding company affiliates that use a common privacy notice, may use the 
following sample clauses, if the clause is accurate for each institution 
that uses the notice. Note that disclosure of certain information, such 
as assets, income and information from a consumer reporting agency, may 
give rise to obligations under the Fair Credit Reporting Act, such as a 
requirement to permit a consumer to opt out of disclosures to affiliates 
or designation as a consumer reporting agency if disclosures are made to 
nonaffiliated third parties.

      A-1--Categories of Information You Collect (All Institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec.  160.6(a)(1) to describe the categories of nonpublic personal 
information you collect.

                            Sample Clause A-1

    We collect nonpublic personal information about you from the 
following sources:
     Information we receive from you on applications 
or other forms;
     Information about your transactions with us, our 
affiliates or others; and
     Information we receive from a consumer reporting 
agency.

A-2--Categories of Information You Disclose (Institutions That Disclose 
                       Outside of the Exceptions)

    You may use one of these clauses, as applicable, to meet the 
requirement ofSec. 160.6(a)(2) to describe the categories of nonpublic 
personal information you disclose. You may use these clauses if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec.Sec. 160.13, 160.14 and 160.15.

                    Sample Clause A-2, Alternative 1

    We may disclose the following kinds of nonpublic personal 
information about you:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, Social Security number, assets and income''];
     Information about your transactions with us, our 
affiliates or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].

                    Sample Clause A-2, Alternative 2

    We may disclose all of the information that we collect, as described 
[describe location in the notice, such as ``above'' or ``below''].

  A-3--Categories of Information You Disclose and Parties To Whom You 
 Disclose (Institutions That Do Not Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirements of 
Sec.Sec. 160.6(a)(2), (3) and (4) to describe the categories of 
nonpublic personal information about customers and former customers that 
you disclose and the categories of affiliates and nonaffiliated third 
parties to whom you disclose. You may use this clause if you do not 
disclose nonpublic personal information to any party, other than as is 
permitted by the exceptions in Sec.Sec. 160.14 and 160.15.

                            Sample Clause A-3

    We do not disclose any nonpublic personal information about our 
customers or former customers to anyone, except as permitted by law.

   A-4--Categories of Parties To Whom You Disclose (Institutions That 
                   Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec.  160.6(a)(3) to describe the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information. You may use this clause if you disclose nonpublic personal 
information other than as permitted by the exceptions in Sec.Sec. 
160.13, 160.14 and 160.15, as well as when permitted by the exceptions 
in Sec.Sec. 160.14 and 160.15.

                            Sample Clause A-4

    We may disclose nonpublic personal information about you to the 
following types of third parties:
     Financial service providers, such as [provide 
illustrative examples, such as ``mortgage bankers''];
     Non-financial companies, such as [provide 
illustrative examples, such as ``retailers, direct marketers, airlines 
and publishers'']; and
     Others, such as [provide illustrative examples, 
such as ``non-profit organizations''].

[[Page 1046]]

    We may also disclose nonpublic personal information about you to 
nonaffiliated third parties as permitted by law.

             A-5--Service Provider/Joint Marketing Exception

    You may use one of these clauses, as applicable, to meet the 
requirements ofSec. 160.6(a)(5) related to the exception for service 
providers and joint marketers inSec. 160.13. If you disclose nonpublic 
personal information under this exception, you must describe the 
categories of nonpublic personal information you disclose and the 
categories of third parties with whom you have contracted.

                    Sample Clause A-5, Alternative 1

    We may disclose the following information to companies that perform 
marketing services on our behalf or to other financial institutions with 
which we have joint marketing agreements:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, Social Security number, assets and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].

                    Sample Clause A-5, Alternative 2

    We may disclose all of the information we collect, as described 
[describe location in the notice, such as ``above'' or ``below''] to 
companies that perform marketing services on our behalf or to other 
financial institutions with which we have joint marketing agreements.

A-6--Explanation of Opt Out Right (Institutions That Disclose Outside of 
                             the Exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec.  160.6(a)(6) to provide an explanation of the consumer's right to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right. You may use this clause if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec.Sec. 160.13, 160.14 and 160.15.

                            Sample Clause A-6

    If you prefer that we not disclose nonpublic personal information 
about you to nonaffiliated third parties you may opt out of those 
disclosures; that is, you may direct us not to make those disclosures 
(other than disclosures permitted or required by law). If you wish to 
opt out of disclosures to nonaffiliated third parties, you may [describe 
a reasonable means of opting out, such as ``call the following toll-free 
number: (insert number)''].

          A-7--Confidentiality and Security (All Institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec.  160.6(a)(8) to describe your policies and practices with respect 
to protecting the confidentiality and security of nonpublic personal 
information.

                            Sample Clause A-7

    We restrict access to nonpublic personal information about you to 
[provide an appropriate description, such as ``those employees who need 
to know that information to provide products or services to you'']. We 
maintain physical, electronic and procedural safeguards that comply with 
federal standards to safeguard your nonpublic personal information.


[66 FR 21252, Apr. 27, 2001, as amended at 74 FR 62984, Dec. 1, 2009]



PART 162_PROTECTION OF CONSUMER INFORMATION UNDER THE FAIR CREDIT 
REPORTING ACT--Table of Contents



Sec.
162.1 Purpose and scope.
162.2 Definitions.

              Subpart A_Business Affiliate Marketing Rules

162.3 Affiliate marketing opt out and exceptions.
162.4 Scope and duration of opt out.
162.5 Contents of opt-out notice; consolidated and equivalent notices.
162.6 Reasonable opportunity to opt out.
162.7 Reasonable and simple methods of opting out.
162.8 Acceptable delivery of opt-out notices
162.9 Renewal of opt out.
162.10-162.20 [Reserved]

                        Subpart B_Disposal Rules

162.21 Proper disposal of consumer information.

Appendix A to Part 162--Sample Clauses

    Authority: Sec. 1088, Pub. L. 111-203; 124 Stat. 1376 (2010).

    Source: 76 FR 43884, July 22, 2011, unless otherwise noted.

[[Page 1047]]



Sec.  162.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to implement various 
provisions in the Fair Credit Reporting Act, 15 U.S.C. 1681, et seq. 
(``FCRA''), which provide certain protections to consumer information.
    (b) Scope. This part applies to certain consumer information held by 
the entities listed below. This part shall apply to futures commission 
merchants, retail foreign exchange dealers, commodity trading advisors, 
commodity pool operators, introducing brokers, major swap participants 
and swap dealers, regardless of whether they are required to register 
with the Commission. This part does not apply to foreign futures 
commission merchants, foreign retail foreign exchange dealers, commodity 
trading advisors, commodity pool operators, introducing brokers, major 
swap participants and swap dealers unless such entity registers with the 
Commission. Nothing in this part modifies limits or supersedes the 
requirements set forth in part 160 of this title.
    (c) Examples. The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part. Examples in a section illustrate only the 
issue described in the section and do not illustrate any other issue 
that may arise in this part.



Sec.  162.2  Definitions.

    (a) Affiliate. The term ``affiliate'' for the purposes of this part 
means any person that is related by common ownership or common corporate 
control with a covered affiliate.
    (b) Clear and conspicuous. The term ``clear and conspicuous'' means 
reasonably understandable and designed to call attention to the nature 
and significance of the information presented in the notice.
    (c) Common ownership or common corporate control. The term ``common 
ownership or common corporate control'' for the purposes of this part 
means the power to exercise a controlling influence over the management 
or policies of a company whether through ownership of securities, by 
contract, or otherwise. Any person who owns beneficially, either 
directly or through one or more controlled companies, more than 25 
percent of the voting securities of any company is presumed to control 
the company. Any person who does not own more than 25 percent of the 
voting securities of a company will be presumed not to control the 
company.
    (d) Company. The term ``company'' means any corporation, limited 
liability company, business trust, general or limited partnership, 
association, or similar organization.
    (e) Concise.--
    (1) In general. The term ``concise'' means a reasonably brief 
expression or statement.
    (2) Combination with other required disclosures. A notice required 
by this part may be concise even if it is combined with other 
disclosures required or authorized by Federal or state law.
    (f) Consumer. Except as otherwise provided, the term ``consumer'' 
means an individual person. The term consumer does not include market 
makers, floor brokers, locals, or individual persons whose information 
is not collected to determine eligibility for personal, family, or 
household purposes.
    (g) Consumer information. The term ``consumer information'' means 
any record about an individual, whether in paper, electronic, or other 
form, that is a consumer report or is derived from a consumer report (as 
defined in section 603(d)(2) of the FCRA). Consumer information also 
means a compilation of such records. Consumer information does not 
include information that does not identify individuals, such as 
aggregate information or blind data.
    (h) Covered affiliate. The term ``covered affiliate'' means a 
futures commission merchant, retail foreign exchange dealer, commodity 
trading advisor, commodity pool operator, introducing broker, major swap 
participant or swap dealer, which is subject to the jurisdiction of the 
Commission.
    (i) Dispose or Disposal.--
    (1) In general. The terms ``dispose'' or ``disposal'' means:
    (i) The discarding or abandonment of consumer information; or
    (ii) The sale, donation, or transfer of any medium, including 
computer equipment, upon which consumer information is stored.

[[Page 1048]]

    (2) Sale, donation, or transfer of consumer information. The sale, 
donation, or transfer of consumer information is not considered disposal 
for the purposes of subpart B.
    (j) Dodd-Frank Act. The term ``Dodd-Frank Act'' means the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 
Stat. 1376 (2010)).
    (k) Eligibility information. The term ``eligibility information'' 
means any information that would be a consumer report if the exclusions 
from the definition of ``consumer report'' in section 603(d)(2)(A) of 
the FCRA did not apply. Examples of the type of information that would 
fall within the definition of eligibility information include an 
affiliate's own transaction or experience information, such as 
information about a consumer's account history with that affiliate, and 
other information, such as information from credit bureau reports or 
applications. Eligibility information does not include aggregate or 
blind data that does not contain personal identifiers such as account 
numbers, names, or addresses.
    (l) FCRA. The term ``FCRA'' means the Fair Credit Reporting Act (15 
U.S.C. 1681 et seq.).
    (m) Financial product or service. The term ``financial product or 
service'' means any product or service that a futures commission 
merchant, retail foreign exchange dealer, commodity trading advisor, 
commodity pool operator, introducing broker, major swap participant or 
swap dealer could offer that is subject to the Commission's 
jurisdiction.
    (n) GLB Act. The term ``GLB Act'' means the Gramm-Leach-Bliley Act 
(Pub. L. 106-102, 113 Stat. 1338 (1999)).
    (o) Major swap participant. The term ``major swap participant'' has 
the same meaning as in section 1a(33) of the Commodity Exchange Act, 7 
U.S.C. 1 et seq., as may be further defined by this title, and includes 
any person registered as such thereunder.
    (p) Person. The term ``person'' means any individual, partnership, 
corporation, trust, estate, cooperative, association, or other entity.
    (q) Pre-existing business relationship. The term ``pre-existing 
business relationship'' means a relationship between a person, or a 
person's licensed agent, and a consumer based on--
    (1) A financial contract between the person and the consumer which 
is in force on the date on which the consumer is sent a solicitation by 
this part;
    (2) The purchase, rental, or lease by the consumer of a persons' 
services or a financial transaction (including holding an active account 
or policy in force or having another continuing relationship) between 
the consumer and the person, during the 18-month period immediately 
preceding the date on which the consumer is sent a solicitation covered 
by this part; or
    (3) An inquiry or application by the consumer regarding a financial 
product or service offered by that person during the three-month period 
immediately preceding the date on which the consumer is sent a 
solicitation covered by this part.
    (r) Solicitation--(1) In general. The term ``solicitation'' means 
the marketing of a financial product or service initiated by an 
affiliate to a particular consumer that is--
    (i) Based on eligibility information communicated to that covered 
affiliate by an affiliate that has or previously had the pre-existing 
business relationship with a consumer as described in this part; and
    (ii) Intended to encourage the consumer to purchase or obtain such 
financial product or service. A solicitation does not include marketing 
communications that are directed at the general public.
    (2) Examples. Examples of what communications constitute 
solicitations include communications such as a telemarketing 
solicitation, direct mail, or e-mail, when those communications are 
directed to a specific consumer based on eligibility information. A 
solicitation does not include communications that are directed at the 
general public without regard to eligibility information, even if those 
communications are intended to encourage consumers to purchase financial 
products and services from the affiliate initiating the communications.
    (s) Swap dealer. The term ``swap dealer'' has the same meaning as in 
section 1a(49) of the Commodity Exchange Act,

[[Page 1049]]

7 U.S.C. 1 et seq., as may be further defined by this title, and 
includes any person registered as such thereunder.



              Subpart A_Business Affiliate Marketing Rules



Sec.  162.3  Affiliate marketing opt out and exceptions.

    (a) Initial notice and opt out. A covered affiliate may not use 
eligibility information about a consumer that the covered affiliate 
receives from an affiliate with the consumer to make a solicitation for 
marketing purposes to such consumer unless--
    (1) It is clearly and conspicuously disclosed to the consumer in 
writing or if the consumer agrees, electronically, in a concise notice 
that the person may use shared eligibility information about that 
consumer received from an affiliate to make solicitations for marketing 
purposes to such consumer;
    (2) The consumer is provided a reasonable opportunity and a 
reasonable and simple method to opt out, or prohibit the covered 
affiliate from using eligibility information to make solicitations for 
marketing purposes to the consumer; and
    (3) The consumer has not opted out.
    (b) Persons responsible for satisfying the notice requirement. The 
notice required by this section must be provided:
    (1) By an affiliate that has or previously had a pre-existing 
business relationship with a consumer; or
    (2) As part of a joint notice from two or more members of an 
affiliated group of companies, provided that at least one of the 
affiliates on the joint notice has or previously had a pre-existing 
business relationship with the consumer.
    (c) Exceptions. These proposed regulations would not apply to the 
following covered affiliate:
    (1) A covered affiliate that has a pre-existing business 
relationship with a consumer;
    (2) Communications between an employer and employee-consumer (or his 
or her beneficiary) in connection with an employee benefit plan;
    (3) A covered affiliate that is currently providing services to the 
consumer;
    (4) If the consumer initiated the communication with the covered 
affiliate by oral, electronic, or written means;
    (5) If the consumer authorized or requested the covered affiliate's 
solicitation; or
    (6) If compliance by a person with these regulations would prevent 
that person's compliance with state insurance laws pertaining to unfair 
discrimination.
    (d) Making solicitations.--(1) When a solicitation occurs. A covered 
affiliate makes a solicitation for marketing purposes if the person--
    (i) Receives eligibility information from an affiliate;
    (ii) Uses that eligibility information to do one or more of the 
following:
    (A) Identify the consumer or type of consumer to receive a 
solicitation;
    (B) Establish criteria used to select the consumer to receive a 
solicitation about the covered affiliate's financial products or 
services; or
    (C) Decide which of the services or contracts to market to the 
consumer or tailor the solicitation to that consumer; and
    (iii) As a result of the covered affiliate's use of the eligibility 
information, the consumer is provided a solicitation.
    (2) Receipt of eligibility information. A covered affiliate may 
receive eligibility information from an affiliate in various ways, 
including when the affiliate places that information into a common 
database that the covered affiliate may access.
    (3) Service providers. Except as provided in paragraph (d)(5) of 
this section, a covered affiliate receives or uses an affiliate's 
eligibility information if a service provider acting on the covered 
affiliate's behalf (regardless of whether such service provider is a 
third party or an affiliate of the covered affiliate) receives or uses 
that information in the manner described in paragraph (d)(1)(i) or 
(d)(1)(ii) of this section. All relevant facts and circumstances will 
determine whether a service provider is acting on behalf of a covered 
affiliate when it receives or uses an affiliate's eligibility 
information in connection with marketing the covered affiliate's 
financial products or services.

[[Page 1050]]

    (4) Use by an affiliate of its own eligibility information. Unless a 
covered affiliate uses eligibility information that the covered 
affiliate receives from an affiliate in the manner described in 
paragraph (d)(2) of this section, the covered affiliate does not make a 
solicitation subject to this subpart:
    (i) Uses its own eligibility information that it obtained in 
connection with a pre-existing business relationship it has or 
previously had with the consumer to market the covered affiliate's 
financial products or services to the consumer; or
    (ii) Directs its service provider to use the affiliate's own 
eligibility information that it obtained in connection with a pre-
existing business relationship it has or previously had with the 
consumer to market the covered affiliate's financial products or 
services to the consumer, and the covered affiliate does not communicate 
directly with the service provider regarding that use.
    (5) Use of eligibility information by a service provider--(i) In 
general. A covered affiliate does not make a solicitation subject to 
this subpart if a service provider (including an affiliated or third-
party service provider that maintains or accesses a common database that 
the covered affiliate may access) receives eligibility information from 
an affiliate that has or previously had a pre-existing business 
relationship with the consumer and uses that eligibility information to 
market the covered affiliate's financial products or services to the 
consumer, so long as--
    (A) The affiliate controls access to and use of its eligibility 
information by the service provider (including the right to establish 
the specific terms and conditions under which the service provider may 
use such information to market the covered affiliate's financial 
products or services);
    (B) The affiliate establishes specific terms and conditions under 
which the service provider may access and use such affiliate's 
eligibility information to market the covered affiliate's financial 
products and services (or those of affiliates generally) to the 
consumer, such as the identity of the affiliated companies whose 
financial products or services may be marketed to the consumer by the 
service provider, the types of financial products or services of 
affiliated companies that may be marketed, and the number of times the 
consumer may receive marketing materials, and periodically evaluates the 
service provider's compliance with those terms and conditions;
    (C) The affiliate requires the service provider to implement 
reasonable policies and procedures designed to ensure that the service 
provider uses such affiliate's eligibility information in accordance 
with the terms and conditions established by such affiliate relating to 
the marketing of the covered affiliate's financial products or services;
    (D) The affiliate is identified on or with the marketing materials 
provided to the consumer; and
    (E) The covered affiliate does not directly use its affiliate's 
eligibility information in the manner described in paragraph (b)(1)(ii) 
of this section.
    (ii) Writing requirements. (A) The requirements of paragraphs 
(b)(5)(i)(A) and (C) of this section must be set forth in a written 
agreement between the affiliate that has or previously had a pre-
existing business relationship with the consumer and the service 
provider; and
    (B) The specific terms and conditions established by the affiliate 
as provided in paragraph (b)(5)(i)(B) of this section must be set forth 
in writing.
    (e) Relation to affiliate-sharing notice and opt out. Nothing in 
this rulemaking will limit the responsibility of a covered affiliate to 
comply with the notice and opt-out provisions under other privacy rules 
under the FCRA, the GLB Act or the CEA.



Sec.  162.4  Scope and duration of opt out.

    (a) Scope of opt-out election--(1) In general. The consumer's 
election to opt out prohibits any covered affiliate subject to the scope 
of the opt-out notice from using eligibility information received from 
another affiliate to make solicitations to the consumer.
    (2) Continuing relationship--(i) In general. If the consumer 
establishes a continuing relationship with a covered affiliate or its 
affiliate, an opt-out notice may apply to eligibility information 
obtained in connection with--
    (A) A single continuing relationship or multiple continuing 
relationships

[[Page 1051]]

that the consumer establishes with a covered affiliate or its 
affiliates, including continuing relationships established subsequent to 
delivery of the opt-out notice, so long as the notice adequately 
describes the continuing relationships covered by the opt out; or
    (B) Any other transaction between the consumer and the covered 
affiliate or its affiliates as described in the notice.
    (ii) Examples of a continuing relationship. A consumer has a 
continuing relationship with a covered affiliate or its affiliate if:
    (A) The covered affiliate is a futures commission merchant through 
whom a consumer has opened an account, or that carries the consumer's 
account on a fully-disclosed basis, or that effects or engages in 
commodity interest transactions with or for a consumer, even if the 
covered affiliate does not hold any assets of the consumer;
    (B) The covered affiliate is an introducing broker that solicits or 
accepts specific orders for trades;
    (C) The covered affiliate is a commodity trading advisor with whom a 
consumer has a contract or subscription, either written or oral, 
regardless of whether the advice is standardized, or is based on, or 
tailored to, the commodity interest or cash market positions or other 
circumstances or characteristics of the particular consumer;
    (D) The covered affiliate is a commodity pool operator, and accepts 
or receives from the consumer, funds, securities, or property for the 
purpose of purchasing an interest in a commodity pool;
    (E) The covered affiliate is a major swap participant that holds 
securities or other assets as collateral for a loan made to the 
consumer, even if the covered affiliate did not make the loan or do not 
affect any transactions on behalf of the consumer; or
    (F) The covered affiliate is a swap dealer that regularly effects or 
engages in swap transactions with or for a consumer even if the covered 
affiliate does not hold any assets of the consumer.
    (3) No continuing relationship--(i) In general. If there is no 
continuing relationship between a consumer and the covered affiliate or 
its affiliate, and the covered affiliate or its affiliate obtain 
eligibility information about a consumer in connection with a 
transaction with the consumer, such as an isolated transaction or a 
credit application that is denied, an opt-out notice provided to the 
consumer only applies to eligibility information obtained in connection 
with that transaction.
    (ii) Examples of no continuing relationship. A consumer does not 
have a continuing relationship with a covered affiliate or its affiliate 
if:
    (A) The covered affiliate has acted solely as a ``finder'' for a 
futures commission merchant, and the covered affiliate does not solicit 
or accept specific orders for trades; or
    (B) The covered affiliate has solicited the consumer to participate 
in a pool or to direct his or her account and he or she has not provided 
the covered affiliate with funds to participate in a pool or entered 
into any agreement with the covered affiliate to direct his or her 
account.
    (4) Menu of alternatives. A consumer may be given the opportunity to 
choose from a menu of alternatives when electing to prohibit 
solicitations, such as by electing to prohibit solicitations from 
certain types of affiliates covered by the opt-out notice but not other 
types of affiliates covered by the notice, electing to prohibit 
solicitations based on certain types of eligibility information but not 
other types of eligibility information, or electing to prohibit 
solicitations by certain methods of delivery but not other methods of 
delivery. However, one of the alternatives must allow the consumer to 
prohibit all solicitations from all of the affiliates that are covered 
by the notice.
    (5) Special rule for a notice following termination of all 
continuing relationships. A consumer must be given a new opt-out notice 
if, after all continuing relationships with the covered affiliate or its 
affiliate(s) are terminated, the consumer subsequently establishes 
another continuing relationship with the covered affiliate or its 
affiliate(s) and the consumer's eligibility information is to be used to 
make a solicitation. The new opt-out notice must apply, at a minimum, to 
eligibility information obtained in connection with the new continuing 
relationship. Consistent

[[Page 1052]]

with paragraph b of this section, the consumer's decision not to opt out 
after receiving the new opt-out notice would not override a prior opt-
out election by the consumer that applies to eligibility information 
obtained in connection with a terminated relationship, regardless of 
whether the new opt-out notice applies to eligibility information 
obtained in connection with the terminated relationship.
    (b) Duration of opt-out election. An opt-out election must be 
effective for a period of at least five years beginning when the 
consumer's opt-out election is received and implemented, unless the 
consumer subsequently revokes the opt-out election in writing or, if the 
consumer agrees, electronically. An opt-out election may be established 
for a period of more than five years or for an indefinite period unless 
revoked.
    (c) Time period in which a consumer can opt out. A consumer may opt 
out at any time.
    (d) No effect on opt-out period. An opt-out period may not be 
shortened by sending a renewal notice to the consumer before expiration 
of the opt-out period, even if the consumer does not renew the opt out.



Sec.  162.5  Contents of opt-out notice; consolidated and equivalent
notices.

    (a) Contents of the opt-out notice--(1) In general. An opt-out 
notice must be in writing, be clear and conspicuous, as well as concise, 
and must accurately disclose the following:
    (i) (A) The name of the affiliate that has or previously had a pre-
existing business relationship with a consumer, which is providing the 
notice; or
    (B) If jointly provided jointly by multiple affiliates and each 
affiliate shares a common name, then the notice may indicate that it is 
being provided by multiple companies with the same name or multiple 
companies in the same group or family of companies. If the affiliates 
providing the notice do not share a common name, then the notice must 
either separately identify each affiliate by name or identify each of 
the common names used by those affiliates;
    (ii) The list of affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer;
    (iii) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (iv) A statement that the consumer may elect to limit the use of 
eligibility information to make solicitations to the consumer;
    (v) A statement that the consumer's election will apply for the 
specified period of time and, if applicable, that the consumer will be 
allowed to renew the election once that period expires;
    (vi) If the notice is provided to consumers who have previously 
elected to opt out, that such consumer does not need to act again until 
the consumer receives a renewal notice; and
    (vii) A reasonable and simple method for the consumer to opt out.
    (2) Specifying length of time period. If consumer is granted an opt-
out period longer than a five-year duration, the opt-out notice must 
specify the length of the opt-out period.
    (3) No revised notice for extension of opt-out period. The duration 
of an opt-out period may be increased for a period longer than the 
period specified in the opt-out notice without having to provide a 
revised notice of the increase to the consumer.
    (b) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service, a single opt-out notice may be provided 
to joint consumers.
    (2) Any of the joint consumers may exercise the right to opt out on 
behalf of each joint consumer.
    (3) The opt-out election notice must explain how an opt-out election 
by a joint consumer will be treated. That is, the notice should specify 
whether an opt-out election by a joint consumer will be treated as 
applying to all of the associated joint consumers, or as applying to 
each joint consumer separately.
    (4) If the opt-out election notice provides that each joint consumer 
is permitted to opt out separately, one of the joint consumers must be 
permitted to opt out on behalf of all of the joint consumers and the 
joint consumer must be

[[Page 1053]]

permitted to exercise his or her separate rights to opt out in a single 
response.
    (5) A covered affiliate cannot require all joint consumers to opt 
out before implementing any opt-out election.
    (c) Alternative contents. If the consumer is afforded a broader 
right to opt out of receiving marketing than is required by this 
subpart, the requirements of this section may be satisfied by providing 
the consumer with a clear, conspicuous, and concise notice that 
accurately discloses the consumer's opt-out rights.
    (d) Coordinated and consolidated consumer notices. A notice required 
by this subpart may be coordinated and consolidated with any other 
notice or disclosure required to be issued under any other provision of 
law by the covered affiliate providing the notice, including but not 
limited to notices in the FCRA or the GLB Act privacy notices.
    (e) Equivalent notices. A notice or disclosure that is equivalent to 
the notice required by this part in terms of content, and that is 
provided to a consumer together with a notice required by any other 
provision of law, satisfies the requirements of this section.
    (f) Model notices. Model notices are provided in appendix A of this 
part. These notices were meant to facilitate compliance with this 
subpart; provided, however, that nothing herein shall be interpreted to 
require persons subject to this part to use the model notices.



Sec.  162.6  Reasonable opportunity to opt out.

    (a) In general. A covered affiliate must not use eligibility 
information about a consumer that the covered affiliate receives from an 
affiliate to make a solicitation to such consumer about the covered 
affiliate's financial products or services, unless the consumer is 
provided a reasonable opportunity to opt out, as required by this 
subpart.
    (b) Examples. A reasonable opportunity to opt out under this subpart 
is:
    (1) If the opt-out notice is mailed to the consumer, the consumer 
has 30 days from the date the notice is mailed to opt out.
    (2) If the opt-out notice is sent via electronic means to the 
consumer, the consumer has 30 days from the date the consumer 
acknowledges receipt to elect to opt out by any reasonable method.
    (3) If the opt-out notice is sent via e-mail (where the consumer has 
agreed to receive disclosures by e-mail), the consumer is given 30 days 
after the e-mail is sent to elect to opt out by any reasonable method.
    (4) If the opt-out notice provided to the consumer at the time of an 
electronic transaction, the consumer is required to decide, as a 
necessary part of proceeding with the transaction, whether to opt out 
before completing the transaction.
    (5) If the opt-out notice is provided during an in-person 
transaction, the consumer is required to decide, as a necessary part of 
completing the transaction, whether to opt out through a simple process.
    (6) If the opt-out notice is provided in conjunction with other 
privacy notices required by law, the consumer is allowed to exercise the 
opt-out election within a reasonable period of time and in the same 
manner as the opt out under that privacy notice.



Sec.  162.7  Reasonable and simple methods of opting out.

    (a) In general. A covered affiliate shall be prohibited from using 
eligibility information about a consumer received from an affiliate to 
make a solicitation to the consumer about the covered affiliate's 
financial products or services, unless the consumer is provided a 
reasonable and simple method to opt out, as required by this subpart.
    (b) Examples. Reasonable and simple methods of opting out include:
    (1) Designating a check-off box in a prominent position on an opt-
out election form;
    (2) Including a reply form and a self-addressed envelope (in a 
mailing);
    (3) Providing an electronic means, if the consumer agrees, that can 
be electronically mailed or processed through an Internet Web site;
    (4) Providing a toll-free telephone number; or
    (5) Exercising an opt-out election through whatever means are 
acceptable under a consolidated privacy notice required under other 
laws.

[[Page 1054]]

    (c) Specific opt-out method. Each consumer may be required to opt 
out through a specific method, as long as that method is acceptable 
under this subpart.



Sec.  162.8  Acceptable delivery methods of opt-out notices.

    (a) In general. The opt-out notice must be provided so that each 
consumer can reasonably be expected to receive actual notice.
    (b) Electronic notices. For opt-out notices provided electronically, 
the notice may be provided in compliance with either the electronic 
disclosure provisions inSec. 1.4 of this title or the provisions in 
section 101 of the Electronic Signatures in Global and National Commerce 
Act, 15 U.S.C. 7001 et seq.



Sec.  162.9  Renewal of opt out.

    (a) Renewal notice and opt-out requirement--(1) In general. Since 
the FCRA provides that opt-out elections can expire in a period of no 
less than five years, an affiliate that has or previously had a pre-
existing business relationship with a consumer must provide a renewal 
notice to the consumer after such time in order to allow its affiliates 
to make solicitations. After the opt-out election period expires, its 
affiliates may make solicitations unless:
    (i) The consumer has been given a renewal notice that complies with 
the requirements of this section and Sec.Sec. 162.6 through 162.8 of 
this subpart, and a reasonable opportunity and a reasonable and simple 
method to renew the opt-out election, and the consumer does not renew 
the opt out; or
    (ii) An exception in Sec. 162.3(c) of this subpart applies.
    (2) Renewal period. Each opt-out renewal must be effective for a 
period of at least five years as provided inSec. 162.4(b) of this 
subpart.
    (3) Affiliates who may provide the renewal notice. The notice 
required by this paragraph must be provided:
    (i) By the affiliate that provided the previous opt-out notice, or 
its successor; or
    (ii) As part of a joint renewal notice from two or more members of 
an affiliated group of companies, or their successors, that jointly 
provided the previous opt-out notice.
    (b) Contents of renewal or extension notice. The contents of the 
renewal notice must include all of the same contents of the initial 
notices, but also must include:
    (1) A statement that the consumer previously elected to limit the 
use of certain information to make solicitations to the consumer;
    (2) A statement that the consumer may elect to renew the consumer's 
previous election; and
    (3) If applicable, a statement that the consumer's election to renew 
will apply for a specified period of time stated in the notice and that 
the consumer will be allowed to renew the election once that period 
expires.
    (c) Timing of renewal notice. Renewal notices must be provided in a 
reasonable period of time before the expiration of the opt-out election 
period or any time after the expiration of the opt-out period, but 
before solicitations that would have been prohibited by the expired opt-
out election are made to the consumer.
    (d) No effect on opt-out period. An opt-out period may not be 
shortened by sending a renewal notice to the consumer before the 
expiration of the opt-out period, even if the consumer does not renew 
the opt-out election.



Sec.Sec. 162.10-162.20  [Reserved]



                        Subpart B_Disposal Rules



Sec.  162.21  Proper disposal of consumer information.

    (a) In general. Any covered affiliate must adopt must adopt 
reasonable, written policies and procedures that address administrative, 
technical, and physical safeguards for the protection of consumer 
information. These written policies and procedures must be reasonably 
designed to:
    (1) Insure the security and confidentiality of consumer information;
    (2) Protect against any anticipated threats or hazards to the 
security or integrity of consumer information; and
    (3) Protect against unauthorized access to or use of consumer 
information that could result in substantial harm or inconvenience to 
any consumer.

[[Page 1055]]

    (b) Standard. Any covered affiliate under this part who maintains or 
otherwise possesses consumer information for a business purpose must 
properly dispose of such information by taking reasonable measures to 
protect against unauthorized access to or use of the information in 
connection with its disposal.
    (c) Examples. The following examples are ``reasonable'' disposal 
measures for the purposes of this subpart--
    (1) Implementing and monitoring compliance with policies and 
procedures that require the burning, pulverizing, or shredding of papers 
containing consumer information so that the information cannot 
practicably be read or reconstructed;
    (2) Implementing and monitoring compliance with policies and 
procedures that require the destruction or erasure of electronic media 
containing consumer information so that the information cannot 
practically be read or reconstructed; and
    (3) After due diligence, entering into and monitoring compliance 
with a written contract with another party engaged in the business of 
record destruction to dispose of consumer information in a manner that 
is consistent with this rule.
    (d) Relation to other laws. Nothing in this section shall be 
construed:
    (1) To require a person to maintain or destroy any record pertaining 
to a consumer that is imposed under Sec. 1.31 or any other provision of 
law; or
    (2) To alter or affect any requirement imposed under any other 
provision of law to maintain or destroy such a record.



               Sec. Appendix A to Part 162--Sample Clauses

    A. Although use of the model forms is not required, use of the model 
forms in this appendix (as applicable) complies with the requirement in 
section 624 of the FCRA for clear, conspicuous, and concise notices.
    B. Certain changes may be made to the language or format of the 
model forms without losing the protection from liability afforded by use 
of the model forms. These changes may not be so extensive as to affect 
the substance, clarity, or meaningful sequence of the language in the 
model forms. Persons making such extensive revisions will lose the safe 
harbor that this appendix provides. Acceptable changes include, for 
example:
    1. Rearranging the order of the references to ``your income'', 
``your account history'', and ``your credit score''.
    2. Substituting other types of information for ``income'', ``account 
history'', or ``credit score'' for accuracy, such as ``payment 
history'', ``credit history'', or ``claims history''.
    3. Substituting a clearer and more accurate description of the 
affiliates providing or covered by the notice for phrases such as ``the 
[ABC] group of companies,'' including without limitation a statement 
that the entity providing the notice recently purchased the consumer's 
account.
    4. Substituting other types of affiliates covered by the notice for 
``commodity advisor'', ``futures clearing merchant'', or ``swap dealer'' 
affiliates.
    5. Omitting items that are not accurate or applicable. For example, 
if a person does not limit the duration of the opt-out period, the 
notice may omit information about the renewal notice.
    6. Adding a statement informing consumers how much time they have to 
opt out before shared eligibility information may be used to make 
solicitations to them.
    7. Adding a statement that the consumer may exercise the right to 
opt out at any time.
    8. Adding the following statement, if accurate: ``If you previously 
opted out, you do not need to do so again.''
    9. Providing a place on the form for the consumer to fill in 
identifying information, such as his or her name and address.
     A-1 Model Form for Initial Opt-out notice 
(Single-Affiliate Notice)
     A-2 Model Form for Initial Opt-out notice (Joint 
Notice)
     A-3 Model Form for Renewal Notice (Single-
Affiliate Notice)
     A-4 Model Form for Renewal Notice (Joint Notice)
     A-5 Model Form for Voluntary ``No Marketing'' 
Notice

   A-1 Model Form for Initial Opt-Out Notice (Single-Affiliate Notice)

          [Your Choice To Limit Marketing]/[Marketing Opt Out]

--[Name of Affiliate] is providing this notice.
--[Optional: Federal law gives you the right to limit some but not all 
marketing from our affiliates. Federal law also requires us to give you 
this notice to tell you about your choice to limit marketing from our 
affiliates.]
--You may limit our affiliates in the [ABC] group of companies, such as 
our [commodity advisor, futures clearing merchant, and swap dealer] 
affiliates, from marketing their financial products or services to you 
based on your personal information that

[[Page 1056]]

we collect and share with them. This information includes your [income], 
your [account history with us], and your [credit score].
--Your choice to limit marketing offers from our affiliates will apply 
[until you tell us to change your choice]/[for x years from when you 
tell us your choice]/[for at least 5 years from when you tell us your 
choice]. [Include if the opt-out period expires.] Once that period 
expires, you will receive a renewal notice that will allow you to 
continue to limit marketing offers from our affiliates for [another x 
years]/[at least another 5 years].
--[Include, if applicable, in a subsequent notice, including an annual 
notice, for consumers who may have previously opted out.] If you have 
already made a choice to limit marketing offers from our affiliates, you 
do not need to act again until you receive the renewal notice.

    To limit marketing offers, contact us [include all that apply]:

--By telephone: 1-877--

--On the Web: www.--.com
--By mail: check the box and complete the form below, and send the form 
to:
--[Company name]
--[Company address]
----Do not allow your affiliates to use my personal information to 
market to me.

        A-2 Model Form for Initial Opt-Out Notice (Joint Notice)

          [Your Choice to Limit Marketing]/[Marketing Opt Out]

--The [ABC group of companies] is providing this notice.
--[Optional: Federal law gives you the right to limit some but not all 
marketing from the [ABC] companies. Federal law also requires us to give 
you this notice to tell you about your choice to limit marketing from 
the [ABC] companies.]
--You may limit the [ABC companies], such as the [ABC commodity advisor, 
futures clearing merchant, and swap dealer] affiliates, from marketing 
their financial products or services to you based on your personal 
information that they receive from other [ABC] companies. This 
information includes your [income], your [account history], and your 
[credit score].
--Your choice to limit marketing offers from the [ABC] companies will 
apply [until you tell us to change your choice]/[for x years from when 
you tell us your choice]/[for at least 5 years from when you tell us 
your choice]. [Include if the opt-out period expires.] Once that period 
expires, you will receive a renewal notice that will allow you to 
continue to limit marketing offers from the [ABC] companies for [another 
x years]/[at least another 5 years].
-[Include, if applicable, in a subsequent notice, including an annual 
notice, for consumers who may have previously opted out.] If you have 
already made a choice to limit marketing offers from the [ABC] 
companies, you do not need to act again until you receive the renewal 
notice.

To limit marketing offers, contact us
[include all that apply]:

By telephone: 1-877--

On the Web: www.--.com
By mail: check the box and complete the form below, and send the form 
to:
[Company name]
[Company address]
---- Do not allow any company [in the ABC group of companies] to use my 
personal information to market to me.

       A-3 Model Form for Renewal Notice (Single-Affiliate Notice)

 [Renewing Your Choice To Limit Marketing]/[Renewing Your Marketing Opt 
                                  Out]

-[Name of Affiliate] is providing this notice.
-[Optional: Federal law gives you the right to limit some but not all 
marketing from our affiliates. Federal law also requires us to give you 
this notice to tell you about your choice to limit marketing from our 
affiliates.]
-You previously chose to limit our affiliates in the [ABC] group of 
companies, such as our [commodity advisor, futures clearing merchant, 
and swap dealer] affiliates, from marketing their financial products or 
services to you based on your personal information that we share with 
them. This information includes your [income], your [account history 
with us], and your [credit score].
-Your choice has expired or is about to expire.

To renew your choice to limit marketing for [x] more years, contact us 
[include all that apply]:

By telephone: 1-877--

On the Web: www.--.com
By mail: check the box and complete the form below, and send the form 
to:
[Company name]
[Company address]
----Renew my choice to limit marketing for [x] more years.

            A-4 Model Form for Renewal Notice (Joint Notice)

 [Renewing Your Choice To Limit Marketing]/[Renewing Your Marketing Opt 
                                  Out]

-The [ABC group of companies] is providing this notice.
-[Optional: Federal law gives you the right to limit some but not all 
marketing from

[[Page 1057]]

the [ABC] companies. Federal law also requires us to give you this 
notice to tell you about your choice to limit marketing from the [ABC] 
companies.]
-You previously chose to limit the [ABC companies], such as the [ABC 
commodity advisor, futures clearing merchant, and swap dealer] 
affiliates, from marketing their financial products or services to you 
based on your personal information that they receive from other [ABC] 
companies. This information includes your [income], your [account 
history], and your [credit score].
-Your choice has expired or is about to expire.

To renew your choice to limit marketing for [x] more years, contact us 
[include all that apply]:

By telephone: 1-877--

On the Web: www.--.com
By mail: check the box and complete the form below, and send the form 
to:
[Company name]
[Company address]
---- Renew my choice to limit marketing for [x] more years.

          A-5 Model Form for Voluntary ``No Marketing'' Notice

                     [Your Choice To Stop Marketing]

-[Name of Affiliate] is providing this notice.
You may choose to stop all marketing from us and our affiliates.

To stop all marketing offers, contact us [include all that apply]:

By telephone: 1-877--

On the Web: www.--.com
By mail: check the box and complete the form below, and send the form 
to:
[Company name]
[Company address]
---- Do not market to me.



PART 165_WHISTLEBLOWER RULES--Table of Contents



Sec.
165.1 General.
165.2 Definitions.
165.3 Procedures for submitting original information.
165.4 Confidentiality.
165.5 Prerequisites to the consideration of an award.
165.6 Whistleblowers ineligible for an award.
165.7 Procedures for award applications and Commission award 
          determinations.
165.8 Amount of award.
165.9 Criteria for determining amount of award.
165.10 Contents of record for award determination.
165.11 Awards based upon related actions.
165.12 Payment of awards from the Fund, financing of customer education 
          initiatives, and deposits and credits to the Fund.
165.13 Appeals.
165.14 Procedures applicable to the payment of awards.
165.15 Delegations of authority.
165.16 No immunity.
165.17 Awards to whistleblowers who engage in culpable conduct.
165.18 Staff communications with whistleblowers from represented 
          entities.
165.19 Nonenforceability of certain provisions waiving rights and 
          remedies or requiring arbitration of disputes.

Appendix A to Part 165--Guidance With Respect to the Protection of 
          Whistleblowers Against Retaliation

    Authority: 7 U.S.C. 2, 5, 12a(5) and 26, as amended by Title VII of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 
111-203, 124 Stat. 1376 (July 16, 2010).

    Source: 76 FR 53200, Aug. 25, 2011, unless otherwise noted.



Sec.  165.1  General.

    Section 23 of the Commodity Exchange Act, entitled ``Commodity 
Whistleblower Incentives and Protection,'' requires the Commission to 
pay awards, subject to certain limitations and conditions, to 
whistleblowers who voluntarily provide the Commission with original 
information about violations of the Commodity Exchange Act. This part 
165 describes the whistleblower program that the Commission intends to 
establish to implement the provisions of Section 23, and explains the 
procedures the whistleblower will need to follow in order to be eligible 
for an award. Whistleblowers should read these procedures carefully, 
because the failure to take certain required steps within the time 
frames described in this part may result in disqualification from 
receiving an award. Unless expressly provided for in this part, no 
person is authorized to make any offer or promise, or otherwise to bind 
the Commission with respect to the payment of any award or the amount 
thereof.



Sec.  165.2  Definitions.

    As used in this part:

[[Page 1058]]

    (a) Action. The term ``action'' generally means a single captioned 
judicial or administrative proceeding. Notwithstanding the foregoing:
    (1) For purposes of making an award underSec. 165.7, the 
Commission will treat as a Commission action two or more administrative 
or judicial proceedings brought by the Commission if these proceedings 
arise out of the same nucleus of operative facts; or
    (2) For purposes of determining the payment on an award underSec. 
165.14, the Commission will deem as part of the Commission action upon 
which the award was based any subsequent Commission proceeding that, 
individually, results in a monetary sanction of $1,000,000 or less, and 
that arises out of the same nucleus of operative facts.
    (b) Aggregate amount. The phrase ``aggregate amount'' means the 
total amount of an award granted to one or more whistleblowers pursuant 
toSec. 165.8.
    (c) Analysis. The term ``analysis'' means the whistleblower's 
examination and evaluation of information that may be generally 
available, but which reveals information that is not generally known or 
available to the public.
    (d) Collected by the Commission. The phrase ``collected by the 
Commission'' refers to any funds received, and confirmed by the U.S. 
Department of the Treasury, in satisfaction of part or all of a civil 
monetary penalty, disgorgement obligation, or fine owed to the 
Commission.
    (e) Covered judicial or administrative action. The phrase ``covered 
judicial or administrative action'' means any judicial or administrative 
action brought by the Commission under the Commodity Exchange Act whose 
successful resolution results in monetary sanctions exceeding 
$1,000,000.
    (f) Fund. The term ``Fund'' means the Commodity Futures Trading 
Commission Customer Protection Fund.
    (g) Independent knowledge. The phrase ``independent knowledge'' 
means factual information in the whistleblower's possession that is not 
generally known or available to the public. The whistleblower may gain 
independent knowledge from the whistleblower's experiences, 
communications and observations in the whistleblower's personal business 
or social interactions. The Commission will not consider the 
whistleblower's information to be derived from the whistleblower's 
independent knowledge if the whistleblower obtained the information:
    (1) From sources generally available to the public such as corporate 
filings and the media, including the Internet;
    (2) Through a communication that was subject to the attorney-client 
privilege, unless the disclosure is otherwise permitted by the 
applicable federal or state attorney conduct rules;
    (3) In connection with the legal representation of a client on whose 
behalf the whistleblower, or the whistleblower's employer or firm, have 
been providing services, and the whistleblower seek to use the 
information to make a whistleblower submission for the whistleblower's 
own benefit, unless disclosure is authorized by the applicable federal 
or state attorney conduct rules;
    (4) Because the whistleblower was an officer, director, trustee, or 
partner of an entity and another person informed the whistleblower of 
allegations of misconduct, or the whistleblower learned the information 
in connection with the entity's processes for identifying, reporting, 
and addressing possible violations of law;
    (5) Because the whistleblower was an employee whose principal duties 
involved compliance or internal audit responsibilities; or
    (6) By a means or in a manner that is determined by a United States 
court to violate applicable Federal or state criminal law.
    (7) Exceptions. Paragraphs (g)(4) and (5) of this section shall not 
apply if:
    (i) The whistleblower has a reasonable basis to believe that 
disclosure of the information to the Commission is necessary to prevent 
the relevant entity from engaging in conduct that is likely to cause 
substantial injury to the financial interest or property of the entity 
or investors;
    (ii) The whistleblower has a reasonable basis to believe that the 
relevant entity is engaging in conduct that will impede an investigation 
of the misconduct; or
    (iii) At least 120 days have elapsed since the whistleblower 
provided the

[[Page 1059]]

information to the relevant entity's audit committee, chief legal 
officer, chief compliance officer (or their equivalents), or the 
whistleblower's supervisor, or since the whistleblower received the 
information, if the whistleblower received it under circumstances 
indicating that the entity's audit committee, chief legal officer, chief 
compliance officer (or their equivalents), or the whistleblower's 
supervisor was already aware of the information.
    (h) Independent analysis. The phrase ``independent analysis'' means 
the whistleblower's own analysis, whether done alone or in combination 
with others.
    (i) Information that led to successful enforcement. The Commission 
will consider that the whistleblower provided original information that 
led to the successful enforcement of a judicial or administrative 
action, or related action, in the following circumstances:
    (1) The whistleblower gave the Commission original information that 
was sufficiently specific, credible, and timely to cause the Commission 
staff to commence an examination, open an investigation, reopen an 
investigation that the Commission had closed, or to inquire concerning 
different conduct as part of a current examination or investigation, and 
the Commission brought a successful judicial or administrative action 
based in whole or in part on conduct that was the subject of the 
whistleblower's original information; or
    (2) The whistleblower gave the Commission original information about 
conduct that was already under examination or investigation by the 
Commission, the Congress, any other authority of the federal government, 
a state Attorney General or securities regulatory authority, any self-
regulatory organization, futures association or the Public Company 
Accounting Oversight Board (except in cases where the whistleblower was 
an original source of this information as defined in paragraph (i) of 
this section), and the whistleblower's submission significantly 
contributed to the success of the action.
    (3) The whistleblower reported original information through an 
entity's internal whistleblower, legal, or compliance procedures for 
reporting allegations of possible violations of law before or at the 
same time the whistleblower reported them to the Commission; the entity 
later provided the whistleblower's information to the Commission, or 
provided results of an audit or investigation initiated in whole or in 
part in response to information the whistleblower reported to the 
entity; and the information the entity provided to the Commission 
satisfies either paragraph (i)(1) or (i)(2) of this section. Under this 
paragraph (i)(3), the whistleblower must also submit the same 
information to the Commission in accordance with the procedures set 
forth inSec. 165.3 within 120 days of providing it to the entity.
    (j) Monetary sanctions. The phrase ``monetary sanctions,'' when used 
with respect to any judicial or administrative action, or related 
action, means--
    (1) Any monies, including penalties, disgorgement, restitution, and 
interest ordered to be paid; and
    (2) Any monies deposited into a disgorgement fund or other fund 
pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7246(b)) as a result of such action or any settlement of such action.
    (k) Original information. The phrase ``original information'' means 
information that--
    (1) Is derived from the independent knowledge or independent 
analysis of a whistleblower;
    (2) Is not already known to the Commission from any other source, 
unless the whistleblower is the original source of the information;
    (3) Is not exclusively derived from an allegation made in a judicial 
or administrative hearing, in a governmental report, hearing, audit, or 
investigation, or from the news media, unless the whistleblower is a 
source of the information; and
    (4) Is submitted to the Commission for the first time after July 21, 
2010 (the date of enactment of the Wall Street Transparency and 
Accountability Act of 2010).
    (5) Original information shall not lose its status as original 
information solely because the whistleblower submitted such information 
prior to October 24, 2011, provided such information was submitted after 
July 21, 2010, the

[[Page 1060]]

date of enactment of the Wall Street Transparency and Accountability Act 
of 2010. In order to be eligible for an award, a whistleblower who 
submits original information to the Commission after July 21, 2010, but 
prior to October 24, 2011, must comply with the procedure set forth in 
Sec.  165.3(d).
    (l) Original source. The whistleblower must satisfy the 
whistleblower's status as the original source of information to the 
Commission's satisfaction.
    (1) Information obtained from another source. The Commission will 
consider the whistleblower to be an ``original source'' of the same 
information that the Commission obtains from another source if the 
information the whistleblower provide satisfies the definition of 
original information and the other source obtained the information from 
the whistleblower or the whistleblower's representative.
    (i) In order to be considered an original source of information that 
the Commission receives from Congress, any other federal, state or local 
authority, or any self-regulatory organization, the whistleblower must 
have voluntarily given such authorities the information within the 
meaning of this part. In determining whether the whistleblower is the 
original source of information, the Commission may seek assistance and 
confirmation from one of the other entities or authorities described 
above.
    (ii) In the event that the whistleblower claims to be the original 
source of information that an authority or another entity, other than as 
set forth in paragraph (l)(1)(i) of this section, provided to the 
Commission, the Commission may seek assistance and confirmation from 
such authority or other entity.
    (2) Information first provided to another authority or person. If 
the whistleblower provides information to Congress, any other federal or 
state authority, a registered entity, a registered futures association, 
a self-regulatory organization, or to any of any of the persons 
described in paragraphs (g)(4) and (5) of this section, and the 
whistleblower, within 120 days, make a submission to the Commission 
pursuant toSec. 165.3, as the whistleblower must do in order for the 
whistleblower to be eligible to be considered for an award, then, for 
purposes of evaluating the whistleblower's claim to an award underSec. 
165.7, the Commission will consider that the whistleblower provided 
original information as of the date of the whistleblower's original 
disclosure, report, or submission to one of these other authorities or 
persons. The whistleblower must establish the whistleblower's status as 
the original source of such information, as well as the effective date 
of any prior disclosure, report, or submission, to the Commission's 
satisfaction. The Commission may seek assistance and confirmation from 
the other authority or person in making this determination.
    (3) Information already known by the Commission. If the Commission 
already knows some information about a matter from other sources at the 
time the whistleblower makes the whistleblower's submission, and the 
whistleblower is not an original source of that information, as 
described above, the Commission will consider the whistleblower an 
``original source'' of any information the whistleblower separately 
provides that is original information that materially adds to the 
information that the Commission already possesses.
    (m) Related action. The phrase ``related action,'' when used with 
respect to any judicial or administrative action brought by the 
Commission under the Commodity Exchange Act, means any judicial or 
administrative action brought by an entity listed inSec. 165.11(a) 
that is based upon the original information voluntarily submitted by a 
whistleblower to the Commission pursuant toSec. 165.3 that led to the 
successful resolution of the Commission action.
    (n) Successful resolution. The phrase ``successful resolution,'' 
when used with respect to any judicial or administrative action brought 
by the Commission under the Commodity Exchange Act, includes any 
settlement of such action or final judgment in favor of the Commission. 
It shall also have the same meaning as ``successful enforcement.''
    (o) Voluntary submission or voluntarily submitted. (1) The phrase 
``voluntary

[[Page 1061]]

submission'' or ``voluntarily submitted'' within the context of 
submission of original information to the Commission under this part, 
shall mean the provision of information made prior to any request from 
the Commission, Congress, any other federal or state authority, the 
Department of Justice, a registered entity, a registered futures 
association, or a self-regulatory organization to the whistleblower or 
anyone representing the whistleblower (such as an attorney) about a 
matter to which the information in the whistleblower's submission is 
relevant. If the Commission or any of these other authorities makes a 
request, inquiry, or demand to the whistleblower or the whistleblower's 
representative first, the whistleblower's submission will not be 
considered voluntary, and the whistleblower will not be eligible for an 
award, even if the whistleblower's response is not compelled by subpoena 
or other applicable law. For purposes of this paragraph, the 
whistleblower will be considered to have received a request, inquiry or 
demand if documents or information from the whistleblower is within the 
scope of a request, inquiry, or demand that the whistleblower's employer 
receives, unless, after receiving the documents or information from the 
whistleblower, the whistleblower's employer fails to provide the 
whistleblower's documents or information to the requesting authority in 
a timely manner.
    (2) In addition, the whistleblower's submission will not be 
considered voluntary if the whistleblower is under a pre-existing legal 
or contractual duty to report the violations that are the subject of the 
whistleblower's original information to the Commission, Congress, any 
other federal or state authority, the Department of Justice, a 
registered entity, a registered futures association, or a self-
regulatory organization, or a duty that arises out of a judicial or 
administrative order.
    (p) Whistleblower(s). (1) The term ``whistleblower'' or 
``whistleblowers'' means any individual, or two (2) or more individuals 
acting jointly, who provides information relating to a potential 
violation of the Commodity Exchange Act to the Commission, in the manner 
established bySec. 165.3. A company or another entity is not eligible 
to be a whistleblower.
    (2) Prohibition against retaliation. The anti-retaliation 
protections under Section 23(h) of the Commodity Exchange Act apply 
whether or not the whistleblower satisfies the requirements, procedures 
and conditions to qualify for an award. For purposes of the anti-
retaliation protections afforded by Section 23(h)(1)(A)(i) of the 
Commodity Exchange Act, the whistleblower is a whistleblower if:
    (i) The whistleblower possess a reasonable belief that the 
information the whistleblower is providing relates to a possible 
violation of the CEA, or the rules or regulations thereunder, that has 
occurred, is ongoing, or is about to occur; and
    (ii) The whistleblower provides that information in a manner 
described inSec. 165.3.



Sec.  165.3  Procedures for submitting original information.

    A whistleblower's submission of information to the Commission will 
be a two-step process.
    (a) First, the whistleblower will need to submit the whistleblower's 
information to the Commission. The whistleblower may submit the 
whistleblower's information:
    (1) By completing and submitting a Form TCR online and submitting it 
electronically through the Commission's Web site at http://www.cftc.gov; 
or
    (2) By completing the Form TCR and mailing or faxing the form to the 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, Fax (202) 418-5975.
    (b) Further, to be eligible for an award, the whistleblower must 
declare under penalty of perjury at the time the whistleblower submits 
the whistleblower's information pursuant to paragraph (a)(1) or (2) of 
this section that the whistleblower's information is true and correct to 
the best of the whistleblower's knowledge and belief.
    (c) Notwithstanding paragraph (b) of this section, if the 
whistleblower submitted the whistleblower's original information to the 
Commission anonymously, then the whistleblower's identity must be 
disclosed to the Commission and verified in a form and manner

[[Page 1062]]

acceptable to the Commission consistent with the procedure set forth in 
Sec.  165.7(c) prior to Commission's payment of any award.
    (d) If the whistleblower submitted original information in writing 
to the Commission after July 21, 2010 (the date of enactment of the Wall 
Street Transparency and Accountability Act of 2010) but before the 
effective date of these rules, the whistleblower will be eligible for an 
award only in the event that the whistleblower provided the original 
information to the Commission in a format or manner other than that 
described in paragraph (a) of this section, the whistleblower submits a 
completed Form TCR within 120 days of the effective date of these rules 
and otherwise follows the procedures set forth above in paragraphs (a) 
and (b) of this section.



Sec.  165.4  Confidentiality.

    (a) In general. Section 23(h)(2) of the Commodity Exchange Act 
requires that the Commission not disclose information that could 
reasonably be expected to reveal the identity of a whistleblower, except 
that the Commission may disclose such information in the following 
circumstances:
    (1) When disclosure is required to a defendant or respondent in 
connection with a public proceeding that the Commission institutes or in 
another public proceeding that is filed by an authority to which the 
Commission provides the information, as described below;
    (2) When the Commission determines that it is necessary to 
accomplish the purposes of the Commodity Exchange Act and to protect 
customers, it may provide whistleblower information to: The Department 
of Justice; an appropriate department or agency of the Federal 
Government, acting within the scope of its jurisdiction; a registered 
entity, registered futures association, or a self-regulatory 
organization; a state attorney general in connection with a criminal 
investigation; any appropriate state department or agency, acting within 
the scope of its jurisdiction; or a foreign futures authority; and
    (3) The Commission may make disclosures in accordance with the 
Privacy Act of 1974 (5 U.S.C. 552a).
    (b) Anonymous whistleblowers. A whistleblower may anonymously submit 
information to the Commission, however, the whistleblower must follow 
the procedures inSec. 165.3(c) for submitting original information 
anonymously. Such whistleblower who anonymously submits information to 
the Commission must also follow the procedures inSec. 165.7(c) in 
submitting to the Commission an application for a whistleblower award.



Sec.  165.5  Prerequisites to the consideration of an award.

    (a) Subject to the eligibility requirements described in these 
rules, the Commission will pay an award to one or more whistleblowers 
who:
    (1) Provide a voluntary submission to the Commission;
    (2) That contains original information; and
    (3) That leads to the successful resolution of a covered Commission 
judicial or administrative action or successful enforcement of a related 
action; and
    (b) In order to be eligible, the whistleblower must:
    (1) Have given the Commission original information in the form and 
manner that the Commission requires inSec. 165.3 and be the original 
source of information;
    (2) Provide the Commission, upon its staff's request, certain 
additional information, including: explanations and other assistance, in 
the manner and form that staff may request, in order that the staff may 
evaluate the use of the information submitted; all additional 
information in the whistleblower's possession that is related to the 
subject matter of the whistleblower's submission; and testimony or other 
evidence acceptable to the staff relating to the whistleblower's 
eligibility for an award; and
    (3) If requested by Commission staff, enter into a confidentiality 
agreement in a form acceptable to the Commission, including a provision 
that a violation of the confidentiality agreement may lead to the 
whistleblower's ineligibility to receive an award.

[[Page 1063]]



Sec.  165.6  Whistleblowers ineligible for an award.

    (a) No award underSec. 165.7 shall be made:
    (1) To any whistleblower who is, or was at the time the 
whistleblower acquired the original information submitted to the 
Commission, a member, officer, or employee of: the Commission; the Board 
of Governors of the Federal Reserve System; the Office of the 
Comptroller of the Currency; the Board of Directors of the Federal 
Deposit Insurance Corporation; the Director of the Office of Thrift 
Supervision; the National Credit Union Administration Board; the 
Securities and Exchange Commission; the Department of Justice; a 
registered entity; a registered futures association; a self-regulatory 
organization; or a law enforcement organization;
    (2) To any whistleblower who is convicted of a criminal violation 
related to the judicial or administrative action for which the 
whistleblower otherwise could receive an award underSec. 165.7;
    (3) To any whistleblower who submits information to the Commission 
that is based on the facts underlying the covered judicial or 
administrative action submitted previously by another whistleblower;
    (4) To any whistleblower who acquired the information the 
whistleblower gave the Commission from any of the individuals described 
in paragraphs (a)(1), (2), (3) or (6) of this section;
    (5) To any whistleblower who, in the whistleblower's submission, the 
whistleblower's other dealings with the Commission, or the 
whistleblower's dealings with another authority in connection with a 
related action, knowingly and willfully makes any false, fictitious, or 
fraudulent statement or representation, or uses any false writing or 
document, knowing that it contains any false, fictitious, or fraudulent 
statement or entry, or omitted any material fact, where, in the absence 
of such fact, other statements or representations made by the 
whistleblower would be misleading;
    (6) To any whistleblower who acquired the original information 
reported to the Commission as a result of the whistleblower's role as a 
member, officer or employee of either a foreign regulatory authority or 
law enforcement organization;
    (7) To any whistleblower who is, or was at the time the 
whistleblower acquired the original information submitted to the 
Commission, a member, officer, or employee of a foreign regulatory 
authority or law enforcement organization; or
    (8) To any whistleblower who acquired the original information the 
whistleblower gave the Commission from any other person with the intent 
to evade any provision of these rules.
    (b) Notwithstanding a whistleblower's ineligibility for an award for 
any reason set forth in paragraph (a) of this section, the whistleblower 
will remain eligible for the anti-retaliation protections set forth in 
Section 23(h)(1) of the Commodity Exchange Act.



Sec.  165.7  Procedures for award applications and Commission award 
determinations.

    (a) Whenever a Commission judicial or administrative action results 
in monetary sanctions totaling more than $1,000,000 (i.e., a covered 
judicial or administrative action) the Commission will publish on the 
Commission's Web site a ``Notice of Covered Action.'' Such Notice of 
Covered Action will be published subsequent to the entry of a final 
judgment or order that alone, or collectively with other judgments or 
orders previously entered in the Commission covered administrative or 
judicial action, exceeds $1,000,000 in monetary sanctions. The 
Commission will not contact whistleblower claimants directly as to 
Notices of Covered Actions; prospective claimants should monitor the 
Commission Web site for such Notices. A whistleblower claimant will have 
90 days from the date of the Notice of Covered Action to file a claim 
for an award based on that action, or the claim will be barred.
    (b) To file a claim for a whistleblower award, the whistleblower 
must file Form WB-APP, Application for Award for Original Information 
Provided Pursuant to Section 23 of the Commodity Exchange Act. The 
whistleblower must sign this form as the claimant and submit it to the 
Commission by mail or fax to Commodity Futures Trading

[[Page 1064]]

Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, Fax (202) 418-5975. The Form WB-APP, including any 
attachments, must be received by the Commission within 90 calendar days 
of the date of the Notice of Covered Action or 90 calendar days 
following the date of a final judgment in a related action in order to 
be considered for an award.
    (c) If the whistleblower provided the whistleblower's original 
information to the Commission anonymously pursuant to Sec.Sec. 165.3 
and 165.4 and:
    (1) The whistleblower is making the whistleblower's claim for a 
whistleblower award on a disclosed basis, the whistleblower must 
disclose the whistleblower's identity on the Form WB-APP. The 
whistleblower's identity must be verified in a form and manner that is 
acceptable to the Commission prior to the payment of any award; or
    (2) The whistleblower is making the whistleblower's claim for a 
whistleblower award on an anonymous basis, the whistleblower must be 
represented by counsel. The whistleblower must provide the 
whistleblower's counsel with a completed Form WB-APP that is signed by 
the whistleblower by no later than the date upon which the 
whistleblower's counsel submits to the Commission a copy of the Form WB-
APP that does not disclose the whistleblower's identity and is signed 
solely by the whistleblower's counsel. In addition, the whistleblower's 
counsel must retain the signed original of the whistleblower's Form WB-
APP in counsel's records. Upon request of the Commission staff, 
whistleblower's counsel must produce to the Commission the 
whistleblower's signed original WB-APP and the whistleblower's identity 
must be verified in a form and manner that is acceptable to the 
Commission prior to the payment of any award.
    (d) Once the time for filing any appeals of the Commission's 
judicial or administrative action and all related actions has expired, 
or, where an appeal has been filed, after all appeals in the judicial, 
administrative and related actions have concluded, the Commission will 
evaluate all timely whistleblower award claims submitted on Form WB-APP 
in accordance with the criteria set forth in this part 165. In 
connection with this process, the Commission may require that the 
whistleblower provide additional information relating to the 
whistleblower's eligibility for an award or satisfaction of any of the 
conditions for an award, as set forth inSec. 165.5(b). Following that 
evaluation, the Commission will send the whistleblower a Final Order 
setting forth whether the claim is allowed or denied and, if allowed, 
setting forth the award percentage amount.
    (e) The Commission's Office of the Secretariat will provide the 
whistleblower with the Final Order of the Commission.



Sec.  165.8  Amount of award.

    If all of the conditions are met for a whistleblower award in 
connection with a covered judicial or administrative action or a related 
action, the Commission will then decide the amount of the award pursuant 
to the procedure set forth inSec. 165.7.
    (a) Whistleblower awards shall be in an aggregate amount equal to--
    (1) Not less than 10 percent, in total, of what has been collected 
of the monetary sanctions imposed in the covered judicial or 
administrative action or related actions; and
    (2) Not more than 30 percent, in total, of what has been collected 
of the monetary sanctions imposed in the covered judicial or 
administrative action or related actions.
    (b) If the Commission makes awards to more than one whistleblower in 
connection with the same action or related action, the Commission will 
determine an individual percentage award for each whistleblower, but in 
no event will the total amount awarded to all whistleblowers as a group 
be less than 10 percent or greater than 30 percent of the amount the 
Commission or the other authorities collect.



Sec.  165.9  Criteria for determining amount of award.

    The determination of the amount of an award shall be in the 
discretion of the Commission. The Commission may exercise this 
discretion directly or through delegated authority pursuant toSec. 
165.15.

[[Page 1065]]

    (a) In determining the amount of an award, the Commission shall take 
into consideration--
    (1) The significance of the information provided by the 
whistleblower to the success of the covered judicial or administrative 
action or related action;
    (2) The degree of assistance provided by the whistleblower and any 
legal representative of the whistleblower in a covered judicial or 
administrative action or related action;
    (3) The programmatic interest of the Commission in deterring 
violations of the Commodity Exchange Act by making awards to 
whistleblowers who provide information that leads to the successful 
enforcement of such laws;
    (4) Whether the award otherwise enhances the Commission's ability to 
enforce the Commodity Exchange Act, protect customers, and encourage the 
submission of high quality information from whistleblowers; and
    (5) Potential adverse incentives from oversize awards.
    (b) Factors that may increase the amount of a whistleblower's award. 
In determining whether to increase the amount of an award, the 
Commission will consider the following factors, which are not listed in 
order of importance.
    (1) Significance of the information provided by the whistleblower. 
The Commission will assess the significance of the information provided 
by a whistleblower to the success of the Commission action or related 
action. In considering this factor, the Commission may take into 
account, among other things:
    (i) The nature of the information provided by the whistleblower and 
how it related to the successful enforcement action, including whether 
the reliability and completeness of the information provided to the 
Commission by the whistleblower resulted in the conservation of 
Commission resources; and
    (ii) The degree to which the information provided by the 
whistleblower supported one or more successful claims brought in the 
Commission action or related action.
    (2) Assistance provided by the whistleblower. The Commission will 
assess the degree of assistance provided by the whistleblower and any 
legal representative of the whistleblower in the Commission action or 
related action. In considering this factor, the Commission may take into 
account, among other things:
    (i) Whether the whistleblower provided ongoing, extensive, and 
timely cooperation and assistance by, for example, helping to explain 
complex transactions, interpreting key evidence, or identifying new and 
productive lines of inquiry;
    (ii) The timeliness of the whistleblower's initial report to the 
Commission or to an internal compliance or reporting system of business 
organizations committing, or impacted by, the violations of the 
Commodity Exchange Act, where appropriate;
    (iii) The resources conserved as a result of the whistleblower's 
assistance;
    (iv) Whether the whistleblower appropriately encouraged or 
authorized others to assist the staff of the Commission who might 
otherwise not have participated in the investigation or related action;
    (v) The efforts undertaken by the whistleblower to remediate the 
harm caused by the violations of the Commodity Exchange Act, including 
assisting the authorities in the recovery of the fruits and 
instrumentalities of the violations; and
    (vi) Any unique hardships experienced by the whistleblower as a 
result of his or her reporting and assisting in the enforcement action.
    (3) Law enforcement interest. The Commission will assess its 
programmatic interest in deterring violations of the Commodity Exchange 
Act by making awards to whistleblowers who provide information that 
leads to the successful enforcement of such laws. In considering this 
factor, the Commission may take into account, among other things:
    (i) The degree to which an award enhances the Commission's ability 
to enforce the commodity laws;
    (ii) The degree to which an award encourages the submission of high 
quality information from whistleblowers by appropriately rewarding 
whistleblower submissions of significant information and assistance, 
even in cases where the

[[Page 1066]]

monetary sanctions available for collection are limited or potential 
monetary sanctions were reduced or eliminated by the Commission because 
an entity self-reported a commodities violation following the 
whistleblower's related internal disclosure, report, or submission;
    (iii) Whether the subject matter of the action is a Commission 
priority, whether the reported misconduct involves regulated entities or 
fiduciaries, whether the whistleblower exposed an industry-wide 
practice, the type and severity of the commodity violations, the age and 
duration of misconduct, the number of violations, and the isolated, 
repetitive, or ongoing nature of the violations;
    (iv) The dangers to market participants or others presented by the 
underlying violations involved in the enforcement action, including the 
amount of harm or potential harm caused by the underlying violations, 
the type of harm resulting from or threatened by the underlying 
violations, and the number of individuals or entities harmed; and
    (v) The degree, reliability and effectiveness of the whistleblower's 
assistance, including the consideration of the whistleblower's complete, 
timely truthful assistance to the Commission and criminal authorities.
    (4) Participation in internal compliance systems. The Commission 
will assess whether, and the extent to which, the whistleblower and any 
legal representative of the whistleblower participated in internal 
compliance systems. In considering this factor, the Commission may take 
into account, among other things:
    (i) Whether, and the extent to which, a whistleblower reported the 
possible Commodity Exchange Act violations through internal 
whistleblower, legal or compliance procedures before, or at the same 
time as, reporting them to the Commission; and
    (ii) Whether, and the extent to which, a whistleblower assisted any 
internal investigation or inquiry concerning the reported Commodity 
Exchange Act violations.
    (c) Factors that may decrease the amount of a whistleblower's award. 
In determining whether to decrease the amount of an award, the 
Commission will consider the following factors, which are not listed in 
order of importance.
    (1) Culpability. The Commission will assess the culpability or 
involvement of the whistleblower in matters associated with the 
Commission's action or related actions. In considering this factor, the 
Commission may take into account, among other things:
    (i) The whistleblower's role in the Commodity Exchange Act 
violations;
    (ii) The whistleblower's education, training, experience, and 
position of responsibility at the time the violations occurred;
    (iii) Whether the whistleblower acted with scienter, both generally 
and in relation to others who participated in the violations;
    (iv) Whether the whistleblower financially benefitted from the 
violations;
    (v) Whether the whistleblower is a recidivist;
    (vi) The egregiousness of any wrongdoing committed by the 
whistleblower; and
    (vii) Whether the whistleblower knowingly interfered with the 
Commission's investigation of the violations or related enforcement 
actions.
    (2) Unreasonable reporting delay. The Commission will assess whether 
the whistleblower unreasonably delayed reporting the Commodity Exchange 
Act violations. In considering this factor, the Commission may take into 
account, among other things:
    (i) Whether the whistleblower was aware of the relevant facts but 
failed to take reasonable steps to report or prevent the violations from 
occurring or continuing;
    (ii) Whether the whistleblower was aware of the relevant facts but 
only reported them after learning about a related inquiry, 
investigation, or enforcement action; and
    (iii) Whether there was a legitimate reason for the whistleblower to 
delay reporting the violations.
    (3) Interference with internal compliance and reporting systems. The 
Commission will assess, in cases where the whistleblower interacted with 
his or her entity's internal compliance or reporting system, whether the 
whistleblower undermined the integrity of

[[Page 1067]]

such system. In considering this factor, the Commission will take into 
account whether there is evidence provided to the Commission that the 
whistleblower knowingly:
    (i) Interfered with an entity's established legal, compliance, or 
audit procedures to prevent or delay detection of the reported Commodity 
Exchange Act violation;
    (ii) Made any material false, fictitious, or fraudulent statements 
or representations that hindered an entity's efforts to detect, 
investigate, or remediate the reported Commodity Exchange Act 
violations; or
    (iii) Provided any false writing or document knowing the writing or 
document contained any false, fictitious or fraudulent statements or 
entries that hindered an entity's efforts to detect, investigate, or 
remediate the reported Commodity Exchange Act violations.
    (d) The Commission shall not take into consideration the balance of 
the Fund in determining the amount of an award.



Sec.  165.10  Contents of record for award determinations.

    (a) The following items constitute the record upon which the award 
determination underSec. 165.7 shall be made:
    (1) The whistleblower's Form TCR, ``Tip, Complaint or Referral,'' 
including related attachments, and other documentation provided by the 
whistleblower to the Commission;
    (2) The whistleblower's Form WB-APP, ``Application for Award for 
Original Information Provided Pursuant to Section 23 of the Commodity 
Exchange Act,'' and related attachments;
    (3) The complaint, notice of hearing, answers and any amendments 
thereto;
    (4) The final judgment, consent order, or administrative speaking 
order;
    (5) The transcript of the related administrative hearing or civil 
injunctive proceeding, including any exhibits entered at the hearing or 
proceeding;
    (6) Any other documents that appear on the docket of the proceeding; 
and
    (7) Sworn declarations (including attachments) from the Commission's 
Division of Enforcement staff regarding any matters relevant to the 
award determination.
    (b) The record upon which the award determinations underSec. 165.7 
shall be made shall not include any Commission pre-decisional, attorney-
client privilege, attorney work product privilege, or internal 
deliberative process materials related to the Commission or its staff's 
determination: To file or settle the related covered judicial or 
administrative action; and/or whether, to whom and in what amount to 
make a whistleblower award. Further, the record upon which the award 
determination underSec. 165.7 shall be made shall not include any 
other entity's pre-decisional, attorney-client privilege, attorney work 
product privilege, or internal deliberative process materials related to 
its or its staff's determination to file or settle a related action.



Sec.  165.11  Awards based upon related actions.

    Provided that a whistleblower or whistleblowers comply with the 
requirements in Sec.Sec. 165.3, 165.5 and 165.7, and pursuant toSec. 
165.8, the Commission or its delegate may grant an award based on the 
amount of monetary sanctions collected in a ``related action'' or 
``related actions'' rather than on the amount collected in a covered 
judicial or administrative action, where:
    (a) A ``related action'' is a judicial or administrative action that 
is brought by:
    (1) The Department of Justice;
    (2) An appropriate department or agency of the Federal Government, 
acting within the scope of its jurisdiction;
    (3) A registered entity, registered futures association, or self-
regulatory organization;
    (4) A State criminal or appropriate civil agency, acting within the 
scope of its jurisdiction; or
    (5) A foreign futures authority; and
    (b) The ``related action'' is based on the same original information 
that the whistleblower voluntarily submitted to the Commission and led 
to a successful resolution of the Commission judicial or administrative 
action.

[[Page 1068]]



Sec.  165.12  Payment of awards from the Fund, financing of customer
education initiatives, and deposits and credits to the Fund.

    (a) The Commission shall pay awards to whistleblowers from the Fund.
    (b) The Commission shall deposit into or credit to the Fund:
    (1) Any monetary sanctions collected by the Commission in any 
covered judicial or administrative action that is not otherwise 
distributed, or ordered to be distributed, to victims of a violation of 
the Commodity Exchange Act underlying such action, unless the balance of 
the Fund at the time the monetary sanctions are collected exceeds 
$100,000,000. In the event the Fund's value exceeds $100,000,000, any 
monetary sanctions collected by the Commission in a covered judicial or 
administrative action that is not otherwise distributed, or ordered to 
be distributed, to victims of violations of the Commodity Exchange Act 
or the rules and regulations thereunder underlying such action, shall be 
deposited into the general fund of the U.S. Treasury.
    (2) In the event that the amounts deposited into or credited to the 
Fund under paragraph (b)(1) of this section are not sufficient to 
satisfy an award made pursuant toSec. 165.7, then, pursuant to Section 
23(g)(3)(B) of the Commodity Exchange Act;
    (i) An amount equal to the unsatisfied portion of the award;
    (ii) Shall be deposited into or credited to the Fund;
    (iii) From any monetary sanction collected by the Commission in any 
judicial or administrative action brought by the Commission under the 
Commodity Exchange Act, regardless of whether it qualifies as a 
``covered judicial or administrative action''; provided, however, that 
such judicial or administrative action is based on information provided 
by a whistleblower.
    (c) Office of Consumer Outreach. The Commission shall undertake and 
maintain customer education initiatives through its Office of Consumer 
Outreach. The initiatives shall be designed to help customers protect 
themselves against fraud or other violations of the Commodity Exchange 
Act, or the rules or regulations thereunder. The Commission shall fund 
the initiatives and may utilize funds deposited into the Fund during any 
fiscal year in which the beginning (October 1) balance of the Fund is 
greater than $10,000,000. The Commission shall budget, on an annual 
basis, the amount used to finance customer education initiatives, taking 
into consideration the balance of the Fund.



Sec.  165.13  Appeals.

    (a) Any Final Order of the Commission relating to a whistleblower 
award determination, including whether, to whom, or in what amount to 
make whistleblower awards, may be appealed to the appropriate court of 
appeals of the United States not more than 30 days after the Final Order 
of the Commission is issued.
    (b) The record on appeal shall consist of:
    (1) The Contents of Record for Award Determinations, as set forth in 
Sec.  165.9; and
    (2) The Final Order of the Commission, as set forth inSec. 165.7.



Sec.  165.14  Procedures applicable to the payment of awards.

    (a) A recipient of a whistleblower award is entitled to payment on 
the award only to the extent that the monetary sanction upon which the 
award is based is collected in the Commission judicial or administrative 
action or in a related action.
    (b) Payment of a whistleblower award for a monetary sanction 
collected in a Commission action or related action shall be made within 
a reasonable time following the later of:
    (1) The date on which the monetary sanction is collected; or
    (2) The completion of the appeals process for all whistleblower 
award claims arising from:
    (i) The Notice of Covered Action, in the case of any payment of an 
award for a monetary sanction collected in a covered judicial or 
administrative action; or
    (ii) The related action, in the case of any payment of an award for 
a monetary sanction collected in a related action.
    (c) If there are insufficient amounts available in the Fund to pay 
the entire amount of an award payment within a

[[Page 1069]]

reasonable period of time from the time for payment specified by 
paragraph (b) of this section, then subject to the following terms, the 
balance of the payment shall be paid when amounts become available in 
the Fund, as follows:
    (1) Where multiple whistleblowers are owed payments from the Fund 
based on awards that do not arise from the same Notice of Covered Action 
(or related action), priority in making these payments will be 
determined based upon the date that the Final Order of the Commission is 
made. If two or more of these Final Orders of the Commission are entered 
on the same date, then those whistleblowers owed payments will be paid 
on a pro rata basis until sufficient amounts become available in the 
Fund to pay their entire payments.
    (2) Where multiple whistleblowers are owed payments from the Fund 
based on awards that arise from the same Notice of Covered Action (or 
related action), they will share the same payment priority and will be 
paid on a pro rata basis until sufficient amounts become available in 
the Fund to pay their entire payments.



Sec.  165.15  Delegations of authority.

    (a) Delegation of authority to the Executive Director. The 
Commission hereby delegates, until such time as the Commission orders 
otherwise, to the Executive Director or to any Commission employee under 
the Executive Director's supervision as he or she may designate, the 
authority to take the following actions to carry out this part 165 and 
the requirements of Section 23(h) of Commodity Exchange Act.
    (1) Delegated authority underSec. 165.12(a), (b). The Executive 
Director's delegated authority to deposit into or credit collected 
monetary sanctions to the Fund and the payment of awards therefrom shall 
be with the concurrence of the General Counsel and the Director of the 
Division of Enforcement or of their respective designees.
    (2) Delegated authority to select a Whistleblower Award 
Determination Panel that shall be composed of three of the Commission's 
Offices or Divisions. The Whistleblower Award Determination Panel shall 
include neither the Division of Enforcement nor the Office of General 
Counsel.
    (b) Delegation of Authority to Whistleblower Award Determination 
Panel. The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Whistleblower Award Determination 
Panel the authority to make whistleblower award determinations under 
this part 165, including the determinations as whether, to whom, or in 
what amount to make awards. Award determinations in matters involving 
monetary sanctions in either the Commission's action or a related action 
that total more than $15,000,000 (i.e., matters with a maximum potential 
whistleblower award greater than $5,000,000) must be determined by the 
heads of the Offices or Divisions comprising the Whistleblower Award 
Determination Panel. In all other matters, award determinations may be 
determined by the employee designees of the heads of the Offices or 
Divisions comprising the Whistleblower Award Determination Panel.
    (c) Delegation of Authority to the Whistleblower Office. With the 
exception ofSec. 165.12, the Commission hereby delegates, until such 
time as the Commission orders otherwise, to the head of the 
Whistleblower Office the authority to take any action under this part 
165 that is not otherwise delegated to either the Executive Director or 
the Whistleblower Award Determination Panel under this section, 
including the authority to administer the Commission's whistleblower 
program and liaise with whistleblowers.



Sec.  165.16  No immunity.

    The Commodity Whistleblower Incentives and Protections provisions 
set forth in Section 23(h) of Commodity Exchange Act and this part 165 
do not provide individuals who provide information to the Commission 
with immunity from prosecution. The fact that an individual may become a 
whistleblower and assist in Commission investigations and enforcement 
actions does not preclude the Commission from bringing an action against 
the whistleblower based upon the whistleblower's own conduct in 
connection with violations of the Commodity Exchange Act and the 
Commission's regulations. If such

[[Page 1070]]

an action is determined to be appropriate, however, the Commission's 
Division of Enforcement will take the whistleblower's cooperation into 
consideration in accordance with its sanction recommendations to the 
Commission.



Sec.  165.17  Awards to whistleblowers who engage in culpable conduct.

    In determining whether the required $1,000,000 threshold has been 
satisfied for purposes of making any award, the Commission will not take 
into account any monetary sanctions that the whistleblower is ordered to 
pay, or that is ordered against any entity whose liability is based 
primarily on conduct that the whistleblower principally directed, 
planned, or initiated. Similarly, if the Commission determines that a 
whistleblower is eligible for an award, any amounts that the 
whistleblower or such an entity pay in sanctions as a result of the 
action or related actions will not be included within the calculation of 
the amounts collected for purposes of making payments pursuant toSec. 
165.14.



Sec.  165.18  Staff communications with whistleblowers from represented
entities.

    If the whistleblower is a whistleblower who is a director, officer, 
member, agent, or employee of an entity that has counsel, and the 
whistleblower has initiated communication with the Commission relating 
to a potential violation of the Commodity Exchange Act, the Commission's 
staff is authorized to communicate directly with the whistleblower 
regarding the subject of the whistleblower's communication without 
seeking the consent of the entity's counsel.



Sec.  165.19  Nonenforceability of certain provisions waiving rights
and remedies or requiring arbitration of disputes.

    The rights and remedies provided for in this part 165 of the 
Commission's regulations may not be waived by any agreement, policy, 
form, or condition of employment, including by a predispute arbitration 
agreement. No predispute arbitration agreement shall be valid or 
enforceable if the agreement requires arbitration of a dispute arising 
under this Part.



Sec. Appendix A to Part 165--Guidance With Respect to the Protection of 
                   Whistleblowers Against Retaliation

    Section 23(h)(1) of Commodity Exchange Act prohibits employers from 
engaging in retaliation against whistleblowers. This provision provides 
whistleblowers with certain protections against retaliation, including: 
A federal cause of action against the employer, which must be filed in 
the appropriate district court of the United States within two (2) years 
of the employer's retaliatory act; and potential relief for prevailing 
whistleblowers, including reinstatement, back pay, and compensation for 
other expenses, including reasonable attorney's fees.
    (a) In General. No employer may discharge, demote, suspend, 
threaten, harass, directly or indirectly, or in any other manner 
discriminate against, a whistleblower in the terms and conditions of 
employment because of any lawful act done by the whistleblower--
    (1) In providing information to the Commission in accordance with 
this part 165; or
    (2) In assisting in any investigation or judicial or administrative 
action of the Commission based upon or related to such information.
    (b) Enforcement--(1) Cause of Action.--An individual who alleges 
discharge or other discrimination in violation of section 23(h)(1)(A) of 
the Commodity Exchange Act may bring an action under section 23(h)(1)(B) 
of the Commodity Exchange Act in the appropriate district court of the 
United States for the relief provided in section 23(h)(1)(C) of the 
Commodity Exchange Act, unless the individual who is alleging discharge 
or other discrimination in violation of section 23(h)(1)(A) of the 
Commodity Exchange Act is an employee of the Federal Government, in 
which case the individual shall only bring an action under section 1221 
of title 5, United States Code.
    (2) Subpoenas.--A subpoena requiring the attendance of a witness at 
a trial or hearing conducted under section 23(h)(1)(A) of the Commodity 
Exchange Act may be served at any place in the United States.
    (3) Statute of Limitations.--An action under section 23(h)(1)(B) of 
the Commodity Exchange Act may not be brought more than 2 years after 
the date on which the violation reported in Section 23(h)(1)(A) of the 
Commodity Exchange Act is committed.
    (c) Relief.--Relief for an individual prevailing in an action 
brought under section 23(h)(1)(B) of the Commodity Exchange Act shall 
include--

[[Page 1071]]

    (1) Reinstatement with the same seniority status that the individual 
would have had, but for the discrimination;
    (2) The amount of back pay otherwise owed to the individual, with 
interest; and
    (3) Compensation for any special damages sustained as a result of 
the discharge or discrimination, including litigation costs, expert 
witness fees, and reasonable attorney's fees.
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                          Privacy Act Statement

    This notice is given under the Privacy Act of 1974. The Privacy Act 
requires that the Commodity Futures Trading Commission (CFTC or 
Commission) inform individuals of the following when asking for 
information. This form may be used by anyone wishing to provide the CFTC 
with information concerning a violation of the Commodity Exchange Act or 
the Commission's regulations. If the whistleblower is submitting this 
information for the Commission's whistleblower award program pursuant to 
Section 23 of the Commodity Exchange Act, the information provided will 
enable the Commission to determine the whistleblower's eligibility for 
payment of an award. This information may be disclosed to Federal, 
state, local, or foreign agencies responsible for investigating, 
prosecuting, enforcing, or implementing laws, rules, or regulations 
implicated by the information consistent with the confidentiality 
requirements set forth therein, including pursuant to Section 23 of the 
Commodity Exchange Act and part 165 of the Commission's regulations 
thereunder. Furnishing the information is voluntary, but a decision not 
to do so may result in the whistleblower not being eligible for award 
consideration.
    Questions concerning this form may be directed to the Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581.

                          Submission Procedures

     After completing this Form TCR, please send it 
electronically, by mail, e-mail or delivery to the Commission: 
electronically via the Commission's Web site; by mail or delivery to the 
Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st 
Street, NW., Washington, DC 20581; by e-mail to XXXXX.gov; or by 
facsimile to (202) XXX-XXXX.
     The whistleblower has the right to submit 
information anonymously.
     If the whistleblower is submitting information 
for the Commission's whistleblower award program, the whistleblower must 
submit the whistleblower's information using this Form TCR.

                  Instructions for Completing Form TCR

                    Section A: Information About You

    Questions 1-4: Please provide the following information about 
yourself:
     Last name, first name, and middle initial;
     Complete address, including city, state and zip 
code;
     Telephone number and, if available, an alternate 
number where the whistleblower can be reached;
     The whistleblower's e-mail address (to facilitate 
communications, we strongly encourage the whistleblower to provide the 
whistleblower's email address);
     The whistleblower's preferred method of 
communication; and
     The whistleblower's occupation.

Section B: Information about the Whistleblower's Attorney. Complete this 
Section Only if the Whistleblower is Represented by an Attorney in this 
                                 Matter

    Questions 1-4: Provide the following information about the attorney 
representing the whistleblower in this matter:
     Attorney's name;
     Firm name;
     Complete address, including city, state and zip 
code;
     Telephone number and fax number; and
     E-mail address.

[[Page 1079]]

Section C: Tell Us About the Individual and/or Entity The Whistleblower 
                         Has a Complaint Against

    If the whistleblower's complaint relates to more than two 
individuals and/or entities, the whistleblower may use additional 
sheets, if necessary.
    Question 1: Choose one of the following that best describes the 
individual's profession or entity's type to which the whistleblower's 
complaint relates:
     For Individuals: Accountant, analyst, associated 
person, attorney, auditor, broker, commodity trading advisor, commodity 
pool operator, compliance officer, employee, executing broker, executive 
officer or director, financial planner, floor broker, floor trader, 
trader, unknown, or other (specify).
     For Entities: Bank, commodity trading advisor, 
commodity pool operator, commodity pool, futures commission merchant, 
hedge fund, introducing broker, major swap participant, retail foreign 
exchange dealer, swap dealer, unknown, or other (specify).
    Questions 2-4: For each individual and/or entity, provide the 
following information, if known:
     Full name;
     Complete address, including city, state and zip 
code;
     Telephone number;
     E-mail address; and
     Internet address, if applicable.

         Section D: Tell Us About the Whistleblower's Complaint

    Question 1: State the date (mm/dd/yyyy) that the alleged conduct 
began.
    Question 2: Choose the option that the whistleblower believes best 
describes the nature of the whistleblower's complaint. If the 
whistleblower is alleging more than one violation, please list all that 
the whistleblower believes may apply. Use additional sheets, if 
necessary.
     Theft/misappropriation;
     Misrepresentation/omission (i.e., false/
misleading marketing/sales literature; inaccurate, misleading or non-
disclosure by commodity pool operator, commodity trading advisor, 
futures commission merchant, introducing broker, retail foreign exchange 
dealer, major swap participant, swap dealer, or their associated 
person(s); false/material misstatements in any report or statement);
     Ponzi/pyramid scheme;
     Off-exchange foreign currency, commodity, or 
precious metal fraud;
     Registration violations (including unregistered 
commodity pool operator; commodity trading advisor; futures commission 
merchant; introducing broker; retail foreign exchange dealer; swap 
dealer; or their associated person(s));
     Trading (after hours trading; algorithmic 
trading; disruptive trading; front running; insider trading; 
manipulation/attempted manipulation of commodity prices; market timing; 
inaccurate quotes/pricing information; program trading; trading 
suspensions; volatility);
     Fees/mark-ups/commissions (excessive, unnecessary 
or unearned administrative, commission or sales fees; failure to 
disclose fees; insufficient notice of change in fees; excessive or 
otherwise improper spreads or fills);
     Sales and advisory practices (background 
information on past violations/integrity; breach of fiduciary duty/
responsibility; churning/excessive trading; cold calling; conflict of 
interest; abuse of authority in discretionary trading; failure to 
respond to client, customer or participant; guarantee against loss; 
promise to profit; high pressure sales techniques; instructions by 
client, customer or participant not followed; investment objectives not 
followed; solicitation methods (e.g., cold calling, seminars);
     Customer accounts (unauthorized trading); 
identity theft affecting account; inaccurate valuation of Net Asset 
Value; or
     Other (analyst complaints; market maker 
activities; employer/employee disputes; specify other).
    Question 3a: State whether the whistleblower or the whistleblower's 
counsel has had any prior communications with the CFTC concerning this 
matter.
    Question 3b: If the answer to question 3a is yes, provide the name 
of the CFTC staff member with whom the whistleblower or the 
whistleblower's counsel communicated.
    Question 4a: Indicate whether the whistleblower or the 
whistleblower's counsel has provided the information the whistleblower 
is providing to the CFTC to any other agency or organization.
    Question 4b: If the answer to question 4a is yes, provide details.
    Question 4c: Provide the name and contact information of the point 
of contact at the other agency or organization, if known.
    Question 5a: Indicate whether the whistleblower's complaint relates 
to an entity of which the whistleblower is, or was in the past, an 
officer, director, counsel, employee, consultant, or contractor.
    Question 5b: If the answer to question 5a is yes, state whether the 
whistleblower has reported this violation to the whistleblower's 
supervisor, compliance office, whistleblower hotline, ombudsman, or any 
other available mechanism at the entity for reporting violations.
    Question 5c: If the answer to question 5b is yes, provide details.
    Question 5d: Provide the date on which the whistleblower took the 
actions described in questions 5a and 5b.
    Question 6a: Indicate whether the whistleblower has taken any other 
action regarding the whistleblower's complaint, including

[[Page 1080]]

whether the whistleblower complained to the Commission, another 
regulator, a law enforcement agency, or any other agency or 
organization; initiated legal action, mediation or arbitration, or 
initiated any other action.
    Question 6b: If the whistleblower answered yes to question 6a, 
provide details, including the date on which the whistleblower took the 
action(s) described, the name of the person or entity to whom the 
whistleblower directed any report or complaint and contact information 
for the person or entity, if known, and the complete case name, case 
number, and forum of any legal action the whistleblower has taken. Use 
additional sheets, if necessary.
    Question 7a: Choose from the following the option that the 
whistleblower believes best describes the type of financial product or 
investment at issue, if applicable:
     Commodity futures;
     Options on commodity futures;
     Commodity options;
     Foreign currency transactions;
     Swaps; or
     Other (specify).
    Question 7b: Provide the name of the financial product or 
investment, if applicable.
    Question 8: State in detail all the facts pertinent to the alleged 
violation. Explain why the whistleblower believes the facts described 
constitute a violation of the Commodity Exchange Act. Use additional 
sheets, if necessary.
    Question 9: Describe all supporting materials in the whistleblower's 
possession, custody or control, and the availability and location of 
additional supporting materials not in the whistleblower's possession, 
custody or control. Use additional sheets, if necessary.
    Question 10: Describe how the whistleblower obtained the information 
that supports the whistleblower's allegation. If any information was 
obtained from an attorney or in a communication where an attorney was 
present, identify such information with as much particularity as 
possible. In addition, if any information was obtained from a public 
source, identify the source with as much particularity as possible. Use 
additional sheets, if necessary.
    Question 11: The whistleblower may use this space to identify any 
documents or other information in the whistleblower's submission on this 
Form TCR that the whistleblower believes could reasonably be expected to 
reveal the whistleblower's identity. Explain the basis for the 
whistleblower's belief that the whistleblower's identity would be 
revealed if the documents or information were disclosed to a third 
party.
    Question 12: Provide any additional information the whistleblower 
thinks may be relevant.

                   Section E: Eligibility Requirements

    Question 1: State whether the whistleblower is currently, or was at 
the time the whistleblower acquired the original information that the 
whistleblower is submitting to the Commodity Futures Trading Commission, 
a member, officer or employee of the Department of Justice, the 
Commodity Futures Trading Commission, the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, the Office Thrift Supervision, National 
Credit Union Administration, the Securities and Exchange Commission, a 
registered entity, a registered futures association, a self-regulatory 
organization, or any law enforcement organization.
    Question 2: State whether the whistleblower is providing the 
information pursuant to a cooperation agreement with the Commodity 
Futures Trading Commission or with any other agency or organization.
    Question 3: State whether the whistleblower is providing this 
information before the whistleblower (or anyone representing you) 
received any request, inquiry or demand that relates to the subject 
matter of the whistleblower's submission: (i) From the CFTC; (ii) in 
connection with an investigation, inspection or examination by any 
registered entity, registered futures association or self-regulatory 
organization; or (iii) in connection with an investigation by the 
Congress, or any other federal or state authority.
    Question 4: State whether the whistleblower is currently a subject 
or target of a criminal investigation, or has the whistleblower been 
convicted of a criminal violation, in connection with the information 
the whistleblower is submitting to the Commodity Futures Trading 
Commission.
    Question 5: State whether the whistleblower acquired the information 
the whistleblower is providing to the Securities and Exchange Commission 
from any individual described in Questions 1 through 5 of this Section.
    Question 6: State whether the whistleblower is currently, or was at 
the time the whistleblower acquired the original information that the 
whistleblower is submitting to the Commodity Futures Trading Commission, 
a member, officer, or employee of a foreign regulatory authority or law 
enforcement organization.
    Question 7: Use this space to provide additional details relating to 
the whistleblower's responses to questions 1 through 6. Use additional 
sheets, if necessary.

                 Section F: Whistleblower's Declaration

    The whistleblower must sign this Declaration if the whistleblower is 
submitting this information pursuant to the Commodity Futures Trading 
Commission whistleblower

[[Page 1081]]

program and wish to be considered for an award. If the whistleblower is 
submitting the whistleblower's information anonymously, the 
whistleblower must still sign this Declaration, and the whistleblower 
must provide the whistleblower's attorney with the original of this 
signed form.
    If the whistleblower is not submitting the whistleblower's 
information pursuant to the Commodity Futures Trading Commission 
whistleblower program, the whistleblower do not need to sign this 
Declaration.

                    Section G: Counsel Certification

    If the whistleblower is submitting this information pursuant to the 
Commodity Futures Trading Commission whistleblower program and is doing 
so anonymously through an attorney, the whistleblower's attorney must 
sign the Counsel Certification section.
    If the whistleblower is represented in this matter but the 
whistleblower is not submitting the whistleblower's information pursuant 
to the Commodity Futures Trading Commission whistleblower program, the 
whistleblower's attorney does not need to sign the Counsel Certification 
Section.

[[Page 1082]]

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                          Privacy Act Statement

    This notice is given under the Privacy Act of 1974. The Privacy Act 
requires that the Commodity Futures Trading Commission (CFTC or 
Commission) inform individuals of the following when asking for 
information. The information provided will enable the Commission to 
determine the whistleblower's eligibility for payment of an award 
pursuant to Section 23 of the Commodity Exchange Act. This information 
may be disclosed to Federal, state, local, or foreign agencies 
responsible for investigating, prosecuting, enforcing, or implementing 
laws, rules, or regulations implicated by the information consistent 
with the confidentiality requirements set forth in Section 23 of the 
Commodity Exchange Act and part 165 of the Commission's Regulations 
thereunder. Furnishing the information is voluntary, but a decision not 
to do so may result in the whistleblower not being eligible for award 
consideration.

[[Page 1085]]

    Questions concerning this form may be directed to the Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581.

                                 General

     This form should be used by persons making a 
claim for a whistleblower award in connection with information provided 
to the CFTC or to another agency in a related action. In order to be 
deemed eligible for an award, the whistleblower must meet all the 
requirements set forth in Section 23 of the Commodities Exchange Act and 
the rules thereunder.
     The whistleblower must sign the Form WB-APP as 
the claimant. If the whistleblower provided the whistleblower's 
information to the CFTC anonymously, the whistleblower must now disclose 
the whistleblower's identity on this form and the whistleblower's 
identity must be verified in a form and manner that is acceptable to the 
CFTC prior to the payment of any award.
    [cir] If the whistleblower is filing the whistleblower's claim in 
connection with information that the whistleblower provided to the CFTC, 
then the whistleblower's Form WB-APP, and any attachments thereto, must 
be received by the CFTC within ninety (90) days of the date of the 
Notice of Covered Action or the date of a final judgment in a related 
action to which the claim relates.
    [cir] If the whistleblower is filing the whistleblower's claim in 
connection with information the whistleblower provided to another agency 
in a related action, then the whistleblower's Form WB-APP, and any 
attachments there to, must be received by the Commodity Futures Trading 
Commission as follows:
     If a final order imposing monetary sanctions has 
been entered in a related action at the time the whistleblower submits 
the whistleblower's claim for an award in connection with a Commission 
action, the whistleblower must submit the whistleblower's claim for an 
award in that related action on the same Form WB-APP that the 
whistleblower uses for the Commission action.
     If a final order imposing monetary sanctions in a 
related action has not been entered at the time the whistleblower 
submits the whistleblower's claim for an award in connection with a 
Commission action, the whistleblower must submit the whistleblower's 
claim on Form WB-APP within ninety (90) days of the issuance of a final 
order imposing sanctions in the related action.
     The whistleblower must submit the whistleblower's 
Form WB-APP to us in one of the following two ways:
    [cir] By mailing or delivering the signed form to the Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581; or
    [cir] By faxing the signed form to (202) XXX-XXXX.

                 Instructions for Completing Form WB-APP

                   Section A: Applicant's Information

    Questions 1-3: Provide the following information about yourself:
     First and last name, and middle initial, and 
social security number;
     Complete address, including city, state and zip 
code;
     Telephone number and, if available, an alternate 
number where the whistleblower can be reached; and
     E-mail address.

                    Section B: Attorney's Information

    If the whistleblower is represented by an attorney in this matter, 
provide the information requested. If the whistleblower is not 
represented by an attorney in this matter, leave this Section blank.
    Questions 1-4: Provide the following information about the attorney 
representing the whistleblower in this matter:
     Attorney's name;
     Firm name;
     Complete address, including city, state and zip 
code;
     Telephone number and fax number; and
     E-mail address.

                    Section C: Tip/Complaint Details

    Question 1: Indicate the manner in which the whistleblower's 
original information was submitted to the CFTC.
    Question 2a: Include the TCR (Tip, Complaint or Referral) number to 
which this claim relates.
    Question 2b: Provide the date on which the whistleblower submitted 
the whistleblower's information to the CFTC.
    Question 2c: Provide the name of the individual(s) or entity(s) to 
which the whistleblower's tip, complaint, or referral related.

                   Section D: Notice of Covered Action

    The process for making a claim for a whistleblower award begins with 
the publication of a ``Notice of a Covered Action'' on the Commission's 
Web site. This Notice is published whenever a judicial or administrative 
action brought by the Commission results in the imposition of monetary 
sanctions exceeding $1,000,000. The Notice is published on the 
Commission's Web site subsequent to the entry of a final judgment or 
order in the action that by itself, or collectively with other judgments 
or orders previously entered in the action, exceeds the $1,000,000 
threshold required for a whistleblower to be potentially eligible for an 
award. The Commission

[[Page 1086]]

will not contact whistleblower claimants directly as to Notices of 
Covered Actions; prospective claimants should monitor the Commission Web 
site for such Notices.
    Question 1: Provide the date of the Notice of Covered Action to 
which this claim relates.
    Question 2: Provide the notice number of the Notice of Covered 
Action.
    Question 3a: Provide the case name referenced in Notice of Covered 
Action.
    Question 3b: Provide the case number referenced in Notice of Covered 
Action.

             Section E: Claims Pertaining to Related Actions

    Question 1: Provide the name of the agency or organization to which 
the whistleblower provided the whistleblower's information.
    Question 2: Provide the name and contact information for the 
whistleblower's point of contact at the agency or organization, if 
known.
    Question 3a: Provide the date on which that the whistleblower 
provided the whistleblower's information to the agency or organization 
referenced in question E1.
    Question 3b: Provide the date on which the agency or organization 
referenced in question E1 filed the related action that was based upon 
the information the whistleblower provided.
    Question 4a: Provide the case name of the related action.
    Question 4b: Provide the case number of the related action.

        Section F: Eligibility Requirements and Other Information

    Question 1: State whether the whistleblower is currently, or was at 
the time the whistleblower acquired the original information that the 
whistleblower submitted to the CFTC, a member, officer or employee of 
the Department of Justice, the Commodity Futures Trading Commission, the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, the Federal Deposit Insurance Corporation, the Office of 
Thrift Supervision, the National Credit Union Administration, the 
Securities and Exchange Commission, a registered entity, a registered 
futures association, a self-regulatory organization, any law enforcement 
organization, or a foreign regulatory authority or law enforcement 
organization.
    Question 2: State whether the whistleblower provided the information 
submitted to the CFTC pursuant to a cooperation agreement with the CFTC 
or with any other agency or organization.
    Question 3: State whether the whistleblower acquired the information 
the whistleblower provided to the CFTC from any individual described in 
Question 1 through 2 of this Section.
    Question 5: If the whistleblower answered ``yes'' to questions 1 
though 3 of this Section, please provide details.
    Question 5a: State whether the whistleblower provided the 
information submitted to the CFTC before the whistleblower (or anyone 
representing the whistleblower) received any request, inquiry or demand 
that relates to the subject matter of the whistleblower's submission: 
(i) From the CFTC; (ii) in connection with an investigation, inspection 
or examination by any registered entity, registered futures association 
or self-regulatory organization; or (iii) in connection with an 
investigation by the Congress, or any other federal or state authority.
    Question 5b: If the whistleblower answered ``yes'' to questions 5a, 
please provide details. Use additional sheets if necessary.
    Question 6a: State whether the whistleblower is the subject or 
target of a criminal investigation, or has been convicted of a criminal 
violation, in connection with the information upon which the 
whistleblower's application for an award is based.
    Question 6b: If the whistleblower answered ``yes'' to question 6a, 
please provide details, including the name of the agency or organization 
that conducted the investigation or initiated the action against you, 
the name and telephone number of the whistleblower's point of contact at 
the agency or organization, if available, and the investigation/case 
name and number, if applicable. Use additional sheets, if necessary.

                     Section G: Entitlement to Award

    This section is optional. Use this section to explain the basis for 
the whistleblower's belief that the whistleblower is entitled to an 
award in connection with the whistleblower's submission of information 
to the Commission or to another agency in connection with a related 
action. Specifically, address how the whistleblower believes the 
whistleblower voluntarily provided the Commission with original 
information that led to the successful enforcement of a judicial or 
administrative action filed by the Commission, or a related action. 
Refer toSec. 165.11 of part 165 of the Commission's Regulations for 
further information concerning the relevant award criteria. The 
whistleblower may use additional sheets, if necessary.
    Section 23(c)(1)(B) of the CEA requires the Commission to consider 
in determining the amount of an award the following factors: (a) The 
significance of the information provided by a whistleblower to the 
success of the Commission action or related action; (b) the degree of 
assistance provided by the whistleblower and any legal representative of 
the whistleblower in the Commission action or related action; (c) the 
programmatic interest of the Commission in deterring violations of the 
Commodity Exchange Act (including Regulations under the Act) by making

[[Page 1087]]

awards to whistleblowers who provide information that leads to the 
successful enforcement of such laws; and (d) whether the award otherwise 
enhances the Commission's ability to enforce the Commodity Exchange Act, 
protect customers, and encourage the submission of high quality 
information from whistleblowers. Address these factors in the 
whistleblower's response as well.

                         Section H: Declaration

    This section must be signed by the claimant.



PART 166_CUSTOMER PROTECTION RULES--Table of Contents



Sec.
166.1 Definitions.
166.2 Authorization to trade.
166.3 Supervision.
166.4 Branch offices.
166.5 Dispute settlement procedures.

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7, 12a, 
21, and 23, as amended by the Commodity Futures Modernization Act of 
2000, appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).



Sec.  166.1  Definitions.

    (a) The term Commission registrant as used in this part means any 
person who is registered or required to be registered with the 
Commission pursuant to the Act or any rule, regulation, or order 
thereunder.
    (b) [Reserved]
    (c) The term customer as used in this part means any person trading, 
intending to trade, or receiving or seeking advice concerning any 
commodity interest, including any existing or prospective client or 
subscriber of a commodity trading advisor or existing or prospective 
participant in a commodity pool, but the term does not include a person 
who is acting in the capacity of a Commission registrant with respect to 
the trade.
    (d) The term commodity account as used in this part means the 
account of a customer in which any commodity interest is, or is intended 
to be, traded.

[43 FR 31886, July 24, 1978, as amended at 46 FR 54535, Nov. 3, 1981; 52 
FR 29003, Aug. 5, 1987; 72 FR 63979, Nov. 14, 2007]



Sec.  166.2  Authorization to trade.

    No futures commission merchant, retail foreign exchange dealer, 
introducing broker or any of their associated persons may directly or 
indirectly effect a transaction in a commodity interest for the account 
of any customer unless before the transaction the customer, or person 
designated by the customer to control the account:
    (a) With respect to a commodity interest as defined in any paragraph 
of the commodity interest definition inSec. 1.3(yy) of this chapter, 
specifically authorized the futures commission merchant, retail foreign 
exchange dealer, introducing broker or any of their associated persons 
to effect the transaction (a transaction is ``specifically authorized'' 
if the customer or person designated by the customer to control the 
account specifies--
    (1) The precise commodity interest to be purchased or sold; and
    (2) The exact amount of the commodity interest to be purchased or 
sold); or
    (b) With respect to a commodity interest as defined in paragraph (1) 
or (2) of the commodity interest definition inSec. 1.3(yy) of this 
chapter, authorized in writing the futures commission merchant, 
introducing broker or any of their associated persons to effect 
transactions in commodity interests for the account without the 
customer's specific authorization; Provided, however, That if any such 
futures commission merchant, introducing broker or any of their 
associated persons is also authorized to effect transactions in foreign 
futures or foreign options without the customer's specific 
authorization, such authorization must be expressly documented.

[75 FR 55451, Sept. 10, 2010, as amended at 77 FR 66349, Nov. 2, 2012]



Sec.  166.3  Supervision.

    Each Commission registrant, except an associated person who has no 
supervisory duties, must diligently supervise the handling by its 
partners, officers, employees and agents (or persons occupying a similar 
status or performing a similar function) of all commodity interest 
accounts carried, operated, advised or introduced by the registrant and 
all other activities of its partners, officers, employees and agents (or 
persons occupying a similar status or performing a similar function) 
relating to

[[Page 1088]]

its business as a Commission registrant.

[48 FR 35304, Aug. 3, 1983]



Sec.  166.4  Branch offices.

    Each branch office of each Commission registrant must use the name 
of the firm of which it is a branch for all purposes, and must hold 
itself out to the public under such name. The act, omission or failure 
of any person acting for the branch office, within the scope of his 
employment or office, shall be deemed the act, omission or failure of 
the Commission registrant as well as of such person.

[48 FR 35304, Aug. 3, 1983]



Sec.  166.5  Dispute settlement procedures.

    (a) Definitions. (1) The term claim or grievance as used in this 
section shall mean any dispute that:
    (A) Arises out of any transaction executed on or subject to the 
rules of a designated contract market,
    (B) Is executed or effected through a member of such facility, a 
participant transacting on or through such facility or an employee of 
such facility, and
    (C) Does not require for adjudication the presence of essential 
witnesses or third parties over whom the facility does not have 
jurisdiction and who are not otherwise available.
    (ii) Arises out of any retail forex transaction (as defined inSec. 
5.1(m) of this chapter).
    (2) The term customer as used in this section includes any person 
for or on behalf of whom a member of a designated contract market, or a 
participant transacting on or through such designated contract market, 
effects a transaction on such contract market, except another member of 
or participant in such designated contract market. Provided, however, a 
person who is an ``eligible contract participant'' as defined in section 
1a(18) of the Act shall not be deemed to be a customer within the 
meaning of this section.
    (3) The term Commission registrant as used in this section means a 
person registered under the Act as a futures commission merchant, retail 
foreign exchange dealer, introducing broker, floor broker, commodity 
pool operator, commodity trading advisor, or associated person.
    (b) Voluntariness. The use by customers of dispute settlement 
procedures shall be voluntary as provided in paragraphs (c) and (g) of 
this section.
    (c) Customers. No Commission registrant shall enter into any 
agreement or understanding with a customer in which the customer agrees, 
prior to the time a claim or grievance arises, to submit such claim or 
grievance to any settlement procedure except as follows:
    (1) Signing the agreement must not be made a condition for the 
customer to utilize the services offered by the Commission registrant.
    (2) If the agreement is contained as a clause or clauses of a 
broader agreement, the customer must separately endorse the clause or 
clauses containing the cautionary language and provisions specified in 
this section. A futures commission merchant or introducing broker may 
obtain such endorsement as provided inSec. 1.55(d) of this chapter for 
the following classes of customers only:
    (i) A plan defined as a government plan or church plan in section 
3(32) or section 3(33) of title I of the Employee Retirement Income 
Security Act of 1974 or a foreign person performing a similar role or 
function subject as such to comparable foreign regulation; and
    (ii) A person who is a ``qualified eligible participant'' or a 
``qualified eligible client'' as defined inSec. 4.7 of this chapter.
    (3) The agreement may not require any customer to waive the right to 
seek reparations under section 14 of the Act and part 12 of this 
chapter. Accordingly, such customer must be advised in writing that he 
or she may seek reparations under section 14 of the Act by an election 
made within 45 days after the Commission registrant notifies the 
customer that arbitration will be demanded under the agreement. This 
notice must be given at the time when the Commission registrant notifies 
the customer of an intention to arbitrate. The customer must also be 
advised that if he or she seeks reparations under section 14 of the Act 
and the Commission declines to institute reparations proceedings, the 
claim or

[[Page 1089]]

grievance will be subject to the pre-existing arbitration agreement and 
must also be advised that aspects of the claim or grievance that are not 
subject to the reparations procedure (i.e., do not constitute a 
violation of the Act or rules thereunder) may be required to be 
submitted to the arbitration or other dispute settlement procedure set 
forth in the pre-existing arbitration agreement.
    (4) The agreement must advise the customer that, at such time as he 
or she may notify the Commission registrant that he or she intends to 
submit a claim to arbitration, or at such time as such person notifies 
the customer of its intent to submit a claim to arbitration, the 
customer will have the opportunity to elect a qualified forum for 
conducting the proceeding.
    (5) Election of forum. (i) Within ten business days after receipt of 
notice from the customer that he or she intends to submit a claim to 
arbitration, or at the time a Commission registrant notifies the 
customer of its intent to submit a claim to arbitration, the Commission 
registrant must provide the customer with a list of organizations whose 
procedures meet Acceptable Practices established by the Commission for 
dispute resolution, together with a copy of the rules of each forum 
listed. The list must include:
    (A) The designated contract market, if applicable and if available, 
upon which the transaction giving rise to the dispute was executed or 
could have been executed;
    (B) A registered futures association; and
    (C) At least one other organization that will provide the customer 
with the opportunity to select the location of the arbitration 
proceeding from among several major cities in diverse geographic regions 
and that will provide the customer with the choice of a panel or other 
decision-maker composed of at least one or more persons, of which at 
least a majority are not members or associated with a member of the 
designated contract market, if applicable, or employee thereof, and that 
are not otherwise associated with the designated contract market (mixed 
panel), if applicable: Provided, however, that the list of qualified 
organizations provided by a Commission registrant that is a floor broker 
need not include a registered futures association unless a registered 
futures association has been authorized to act as a decision-maker in 
such matters.
    (ii) The customer shall, within forty-five days after receipt of 
such list, notify the opposing party of the organization selected. A 
customer's failure to provide such notice shall give the opposing party 
the right to select an organization from the list.
    (6) Fees. The agreement must acknowledge that the Commission 
registrant will pay any incremental fees that may be assessed by a 
qualified forum for provision of a mixed panel, unless the arbitrators 
in a particular proceeding determine that the customer has acted in bad 
faith in initiating or conducting that proceeding.
    (7) Cautionary Language. The agreement must include the following 
language printed in large boldface type:

    Three Forums Exist for the Resolution of Commodity Disputes: Civil 
Court litigation, reparations at the Commodity Futures Trading 
Commission (CFTC) and arbitration conducted by a self-regulatory or 
other private organization.
    The CFTC recognizes that the opportunity to settle disputes by 
arbitration may in some cases provide many benefits to customers, 
including the ability to obtain an expeditious and final resolution of 
disputes without incurring substantial costs. The CFTC requires, 
however, that each customer individually examine the relative merits of 
arbitration and that your consent to this arbitration agreement be 
voluntary.
    By signing this agreement, you: (1) May be waiving your right to sue 
in a court of law; and (2) are agreeing to be bound by arbitration of 
any claims or counterclaims which you or [name] may submit to 
arbitration under this agreement. You are not, however, waiving your 
right to elect instead to petition the CFTC to institute reparations 
proceedings under Section 14 of the Commodity Exchange Act with respect 
to any dispute that may be arbitrated pursuant to this agreement. In the 
event a dispute arises, you will be notified if [name] intends to submit 
the dispute to arbitration. If you believe a violation of the Commodity 
Exchange Act is involved and if you prefer to request a section 14 
``Reparations'' proceeding before the CFTC, you will have 45 days from 
the date of such notice in which to make that election.
    You need not sign this agreement to open or maintain an account with 
[name]. See 17 CFR 166.5.


[[Page 1090]]


    (d) Enforceability. A dispute settlement procedure may require 
parties utilizing such procedure to agree, under applicable state law, 
submission agreement or otherwise, to be bound by an award rendered in 
the procedure, provided that the agreement to submit the claim or 
grievance to the procedure was made in accordance with paragraph (c) or 
(g) of this section or that the agreement to submit the claim or 
grievance was made after the claim or grievance arose. Any award so 
rendered shall be enforceable in accordance with applicable law.
    (e) Time limits for submission of claims. The dispute settlement 
procedure established by a designated contract market shall not include 
any unreasonably short limitation period foreclosing submission of 
customers' claims or grievances or counterclaims.
    (f) Counterclaims. A procedure established by a designated contract 
market under the Act for the settlement of customers' claims or 
grievances against a member or employee thereof may permit the 
submission of a counterclaim in the procedure by a person against whom a 
claim or grievance is brought. The designated contract market may permit 
such a counterclaim where the counterclaim arises out of the transaction 
or occurrence that is the subject of the customer's claim or grievance 
and does not require for adjudication the presence of essential 
witnesses, parties, or third persons over whom the designated contract 
market does not have jurisdiction. Other counterclaims arising out of a 
transaction subject to the Act and rules promulgated thereunder for 
which the customer utilizes the services of the registrant may be 
permissible where the customer and the registrant have agreed in advance 
to require that all such submissions be included in the proceeding, and 
if the aggregate monetary value of the counterclaims is capable of 
calculation.
    (g) Eligible contract participants. A person who is an ``eligible 
contract participant'' as defined in section 1a(12) of the Act may 
negotiate any term of an agreement or understanding with a Commission 
registrant in which the eligible contract participant agrees, prior to 
the time a claim or grievance arises, to submit such claim or grievance 
to any settlement procedure provided for in the agreement.

[66 FR 42287, Aug. 10, 2001, as amended at 75 FR 55451, Sept. 10, 2010; 
77 FR 66349, Nov. 2, 2012]



PART 170_REGISTERED FUTURES ASSOCIATIONS--Table of Contents



  Subpart A_Standards Governing Commission Review of Applications for 
    Registration as a Futures Association Under Section 17 of the Act

Sec.
170.1 Demonstration of purposes (section 17(b)(1) of the Act).
170.2 Membership restrictions (section 17(b)(2) of the Act).
170.3 Fair and equitable representation of members (section 17(b)(5) of 
          the Act).
170.4 Allocation of dues (section 17(b)(6) of the Act).
170.5 Prevention of fraudulent and manipulative practices (section 
          17(b)(7) of the Act).
170.6 Disciplinary proceedings (sections 17(b)(8) and (b)(9) of the 
          Act).
170.7 Membership denial (section 17(b)(9) of the Act).
170.8 Settlement of customer disputes (section 17(b)(10) of the Act).
170.9 General standard.
170.10 Proficiency examinations (sections 4p and 17(p) of the Act).

Subpart B_Registration Statement of Futures Associations to be Submitted 
                            to the Commission

170.11 Form of registration statement; review of registration statement.
170.12 Delegation of authority to Director of the Division of Clearing 
          and Intermediary Oversight.

        Subpart C_Membership in a Registered Futures Association

170.15 Futures commission merchants.
170.16 Swap dealers and major swap participants.

    Authority: 7 U.S.C. 6p, 12a, and 21, as amended by the Commodity 
Futures Modernization Act of 2000, appendix E of Pub. L. 106-554, 114 
Stat. 2763 (2000).

    Source: 44 FR 20651, Apr. 6, 1979, unless otherwise noted.

[[Page 1091]]



  Subpart A_Standards Governing Commission Review of Applications for 
    Registration as a Futures Association Under Section 17 of the Act



Sec.  170.1  Demonstration of purposes (section 17(b)(1) of the Act).

    A futures association must demonstrate that it will be able to carry 
out the purposes of section 17 of the Act. Since a basic purpose of a 
futures association is to regulate the practices of its members, an 
association should demonstrate that it will require its members to 
adhere to regulatory requirements governing their business practices at 
least as stringent as those imposed by the Commission. For example, the 
association should be prepared to establish and maintain in accordance 
withSec. 1.52 of this chapter, a financial compliance program for 
those members of the association who are futures commission merchants.



Sec.  170.2  Membership restrictions (section 17(b)(2) of the Act).

    If it appears to the Commission to be necessary or appropriate in 
the public interest and to carry out the purposes of section 17 of the 
Act, a futures association may restrict its membership to individuals 
registered by the Commission in a particular capacity or to individuals 
doing business in a particular geographical region or to firms having a 
particular level of capital assets or which engage in a specified amount 
of business per year.

[48 FR 35305, Aug, 3, 1983]



Sec.  170.3  Fair and equitable representation of members 
(section 17(b)(5) of the Act).

    A futures association must assure fair and equitable representation 
of the views and interests of all association members in the procedures 
providing for the adoption, amendment or repeal of any association rule, 
in an association's procedure for the selection of association officers 
and directors and in all other phases of the association's affairs and 
activities, including disciplinary and membership hearings. No single 
group or class of association members shall dominate or otherwise 
exercise disproportionate influence on any governing board of an 
association or on any disciplinary or membership panel of such an 
association. Non-members of the association shall be represented 
wherever practicable on any board or hearing panel of the association.



Sec.  170.4  Allocation of dues (section 17(b)(6) of the Act).

    Dues imposed on members of a futures association must be allocated 
equitably among members and may not be structured in a manner 
constituting a barrier to entry of any person seeking to engage in 
commodity-related business activities.



Sec.  170.5  Prevention of fraudulent and manipulative practices
(section 17(b)(7) of the Act).

    A futures association must establish and maintain a program for the 
protection of customers and option customers, including the adoption of 
rules to protect customers and option customers and customer funds and 
to promote fair dealing with the public. These rules shall set forth the 
ethical standards for members of the association in their business 
dealings with the public. An applicant association must also demonstrate 
its capability to foster a professional atmosphere among its members, 
including an acceptance of an adherence to the ethical standards, and to 
monitor and enforce compliance with the customer and option customer 
protection program and rules.

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6d, 6f, 6g, 6k, 6m, 
6n, 12a, 19 and 21; 5 U.S.C. 552 and 552b))

[47 FR 57020, Dec. 22, 1982]



Sec.  170.6  Disciplinary proceedings (sections 17(b)(8) and (b)(9) of the Act).

    A futures association must provide a fair and orderly procedure with 
respect to disciplinary actions brought against association members or 
persons associated with members. These rules governing such disciplinary 
actions shall contain, at a minimum, the procedural safeguards contained 
in section 17(b)(9) of the Act. In addition, an association, in 
disciplining its members should demonstrate that it will:

[[Page 1092]]

    (a) Take vigorous action against those who engage in activities in 
violation of association rules;
    (b) Conduct proceedings in a manner consistent with the fundamental 
elements of due process; and
    (c) Impose discipline which is fair and has a reasonable basis in 
fact.

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

[44 FR 20651, Apr. 6, 1979, as amended at 46 FR 63036, Dec. 30, 1981]



Sec.  170.7  Membership denial (section 17(b)(9) of the Act).

    A futures association must provide a fair and orderly procedure for 
processing membership applications and for affording any person to be 
denied membership an opportunity to submit evidence in response to the 
grounds for denial stated by the association. The procedures governing 
denials of membership in the association shall contain, at a minimum, 
the procedural safeguards contained in section 17(b)(9) of the Act.

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

[44 FR 20651, Apr. 6, 1979, as amended at 46 FR 63036, Dec. 30, 1981]



Sec.  170.8  Settlement of customer disputes 
(section 17(b)(10) of the Act).

    A futures association must be able to demonstrate its capacity to 
promulgate rules and to conduct proceedings that provide a fair, 
equitable and expeditious procedure, through arbitration or otherwise, 
for the voluntary settlement of a customer's claim or grievance brought 
against any member of the association or any employee of a member of the 
association. Such rules shall conform to and be consistent with section 
17(b)(10) of the Act and be consistent with the guidelines and 
acceptable practices for dispute resolution found within appendix A and 
appendix B to part 38 of this chapter.

[66 FR 42288, Aug. 10, 2001]



Sec.  170.9  General standard.

    An applicant seeking registration as a futures association by the 
Commission must demonstrate the association's ability to comply with 
standards and requirements set forth in this part. The applicant must 
also demonstrate its ability to satisfy the provisions of section 17 of 
the Act as well as other applicable legal considerations, including that 
the association will promote fair and open competition among its members 
and will conduct its affairs consistent with the public interest to be 
protected by the antitrust laws. The Commission shall not register an 
applicant association unless the Commission finds that the applicant has 
satisfied the conditions and requirements of section 17 of the Act and 
of this part and that registration will be in the public interest.



Sec.  170.10  Proficiency examinations (sections 4p and 17(p) of the Act).

    A futures association may prescribe different training standards and 
proficiency examinations for persons registered in more than one 
capacity: Provided, That nothing contained in the Act or these 
regulations, including any exemption from registration for persons 
registered in another capacity, shall be deemed to preclude the 
establishment of training standards and a proficiency examination 
requirement for functions performed in such other capacity.

[48 FR 35305, Aug. 3, 1983]



Subpart B_Registration Statement of Futures Associations to be Submitted 
                            to the Commission



Sec.  170.11  Form of registration statement; review of registration
statement.

    (a) Any association seeking registration by the Commission as a 
futures association must file with the Commission a letter requesting 
that the association be registered by the Commission as a futures 
association and accompany the letter with the following: (1) The 
constitution, charter or articles of incorporation of the association, 
(2) the bylaws of the association, (3) any other rules, resolutions or 
regulations of the association corresponding to the foregoing, (4) a 
detailed description of the association's organization, membership and 
rules of procedure and (5) a detailed statement of the association's 
capability to comply with the provisions of section 17 of the Act and 
this

[[Page 1093]]

part. This letter and the accompanying information shall be considered 
as the registration statement of the association. This letter and the 
accompanying information shall be filed with the Secretariat of the 
Commission at Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (b) At any time after an applicant's registration statement has been 
filed, the applicant association shall submit to the Commission any 
supporting or additional information concerning the application of the 
association as the Commission may request.
    (c) If it appears to the Commission, after reviewing any 
registration statement filed by an applicant association, that the 
applicant has not satisfied the requirements for registration set forth 
in section 17 of the Act or of this part, the Commission may, in its 
discretion, notify the applicant in writing to that effect. Such notice 
shall specify those requirements of section 17 or of this part which do 
not appear to have been satisfied and shall afford the applicant a 
period of at least 60 days in which to respond to the Commission's 
notice by demonstrating or achieving compliance with the requirements 
specified by the Commission or otherwise. An applicant may withdraw its 
registration statement from Commission consideration at any time within 
such 60 day period.

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

[44 FR 20651, Apr. 6, 1979, as amended at 46 FR 63036, Dec. 30, 1981; 60 
FR 49336, Sept. 25, 1995]



Sec.  170.12  Delegation of authority to Director of the Division of
Clearing and Intermediary Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, to the Director of the Division of Clearing and Intermediary 
Oversight the authority to take any of the actions enumerated in 
Sec.Sec. 170.11 (b) and (c). Notwithstanding the provisions of this 
section, if the Director believes it appropriate, he may submit the 
matter to the Commission for its consideration.

[44 FR 20651, Apr. 6, 1979, as amended at 67 FR 62353, Oct. 7, 2002]



        Subpart C_Membership in a Registered Futures Association



Sec.  170.15  Futures commission merchants.

    (a) Except as provided in paragraph (b) of this section, each person 
registered as a futures commission merchant must become and remain a 
member of at least one futures association that is registered under 
section 17 of the Act and that provides for the membership therein of 
such futures commission merchant, unless no such futures association is 
so registered.
    (b) The requirements of paragraph (a) of this section shall not 
apply to a futures commission merchant registered in accordance with 
Sec.  3.10(a)(3) of this chapter.

[66 FR 43083, Aug. 17, 2001, as amended at 72 FR 2615, Jan. 22, 2007]



Sec.  170.16  Swap dealers and major swap participants.

    Each person registered as a swap dealer or major swap participant 
must become and remain a member of at least one futures association that 
is registered under section 17 of the Act and that provides for the 
membership therein of such swap dealer or major swap participant, as the 
case may be, unless no such futures association is so registered.

[77 FR 2629, Jan. 19, 2012]



PART 171_RULES RELATING TO REVIEW OF NATIONAL FUTURES ASSOCIATION 
DECISIONS IN DISCIPLINARY, MEMBERSHIP DENIAL, REGISTRATION AND MEMBER 
RESPONSIBILITY ACTIONS--Table of Contents



                      Subpart A_General Provisions

Sec.
171.1 Scope of rules.
171.2 Definitions.
171.3 Business address; hours.
171.4 Computation of time.
171.5 Extension of time.
171.6 Ex parte communications.
171.7 [Reserved]
171.8 Filing with the Proceedings Clerk.
171.9 Service.
171.10 Motions.
171.11 Sanctions.
171.12 Settlement.

[[Page 1094]]

171.13 Practice before the Commission.
171.14 Waiver of rules.

Subpart B_Notice and Effective Date of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions

171.20 [Reserved]
171.21 Notice of final decision.
171.22 Effective date of final decisions in disciplinary, membership 
          denial and registration actions.
171.23 Notice of appeal.
171.24 Submission of the record.
171.25 Appeal brief.
171.26 Answering brief.
171.27 Limited participation by interested persons.
171.28 Participation by Commission staff.

    Subpart C_Commission Review of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions

171.30 Scope of review.
171.31 Commission review in the absence of an appeal.
171.32 Oral argument.
171.33 Final decision by the Commission.
171.34 Standards of review.

    Subpart D_Commission Review of Decisions by the National Futures 
              Association In Member Responsibility Actions

171.40 Notice of the commencement of a member responsibility action.
171.41 Petition for a stay of effective date of a member responsibility 
          action pending a hearing by the National Futures Association.
171.42 Notice of a final decision of the National Futures Association in 
          a member responsibility action.
171.43 Petition for a stay of the effective date of a final decision of 
          the National Futures Association in a member responsibility 
          action.
171.44 Notice of appeal.
171.45 General procedures.
171.46 Standards of review.

                    Subpart E_Delegation of Functions

171.50 Delegation to the General Counsel.

    Authority: 7 U.S.C. 4a, 12a and 21, unless otherwise noted.

    Source: 55 FR 41068, Oct. 9, 1990, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  171.1  Scope of rules.

    (a) Matters included. Unless specifically excluded by subsection 
(b), this part governs review by the Commission, pursuant to sections 
17(h), (i) and (o) of the Commodity Exchange Act (``Act''), as amended, 
of any disciplinary action, membership denial action, registration 
action or member responsibility action taken by the National Futures 
Association or any registered futures association. Unless specifically 
indicated, references in this part to the National Futures Association 
shall also include any other registered futures association.
    (b) Matters excluded. The Commission will not review under these 
rules the following decisions by the National Futures Association:
    (1) A decision in a disciplinary action if the party aggrieved by 
the decision knowingly failed to pursue the right to appeal an adverse 
decision to the Appeals Committee of the National Futures Association 
and there are no extraordinary circumstances that otherwise warrant 
Commission consideration of the aggrieved party's appeal;
    (2) A decision in an arbitration action brought pursuant to section 
17(b)(10) of the Act or any rule of the National Futures Association;
    (3) Suspension of a member based solely on that member's failure to 
pay National Futures Association dues;
    (4) A decision to disqualify any member for service on the National 
Futures Association Board of Directors, Business Conduct Committees, 
Hearing Committee or arbitration panels pursuant to the standards for 
service adopted by the National Futures Association to implement 
Commission rule 1.63;
    (5) Suspension of a member or a person associated with a member 
based solely on that person's failure to pay an arbitration award or a 
settlement agreement resulting from an arbitration action brought 
pursuant to section 17(b)(10) of the Act or rules and regulations of the 
National Futures Association, or a settlement agreement resulting from a 
mediation proceeding sponsored by the National Futures Association, 
unless there are extraordinary circumstances that involve something more 
than the ministerial application of a predetermined sanction, or raise a 
colorable claim that the National Futures Assocaition has acted 
arbitrarily.

[[Page 1095]]

    (c) Appeals from excluded decisions. If the General Counsel, or any 
employee under the General Counsel's supervision as the General Counsel 
may designate, determines that a notice of appeal submitted to the 
Commission is from a decision that is excluded from review under this 
part, the notice of appeal may be stricken and ordered to be returned to 
the aggrieved party who submitted it.
    (d) Applicability of these part 171 rules. Unless otherwise ordered, 
these rules will apply in their entirety to all appeals and matters 
relating thereto filed on or after October 31, 1990. Any part 171 
proceeding commenced prior to October 31, 1990 continues to be governed 
by the procedures established in former subpart F of part 3 of the 
Commission's regulations, if applicable, or by the procedures 
established for that proceeding by Commission order. Parties to any 
proceeding pending on October 31, 1990 may, within 30 days after October 
31, 1990 by written stipulation executed by all parties, and filed with 
the Proceedings Clerk before the Commission's final decision is 
rendered, elect to have the matter governed by the provisions of these 
part 171 rules.

[55 FR 41068, Oct. 9, 1990, as amended at 70 FR 2352, Jan. 13, 2005; 78 
FR 1145, Jan. 8, 2013]



Sec.  171.2  Definitions.

    For purposes of this part:
    (a) Commission decisional employee includes any member of the 
Commission staff who participates in, or may be reasonably expected to 
participate in, the decisionmaking process in any proceeding under this 
part. It does not include Commissioners or members of their personal 
staff.
    (b) Disciplinary action includes any proceeding brought by the 
National Futures Association to enforce its rules that may result in 
expulsion, suspension, censure, bar from association with a member, fine 
in excess of $100 or any comparable sanction being imposed on a member 
or a person associated with a member.
    (c) Ex parte communication shall include any communication, whether 
written or oral, which is both (1) not preceded by reasonable notice to 
all parties to a proceeding, and (2) not made on the public record. It 
shall not include requests made to the Commission's Opinions Section or 
Office of Proceedings for status reports or for an interpretation of 
these rules.
    (d) Final Decision means the decision that terminates the proceeding 
before the National Futures Association on the action that is the 
subject of the notice of appeal filed with the Commission.
    (e) To mail means to place in the United States mail (or to deliver 
to an overnight delivery service of established reliability) a properly 
addressed and post-paid document. Unless otherwise provided, documents 
filed and served by mail must be sent by no less expeditious means than 
first class United States mail.
    (f) Member includes any person admitted to membership by the 
National Futures Association.
    (g) Member Responsibility Action includes any action in which, based 
on a finding by the National Futures Association that there is reason to 
believe that summary action is necessary to protect the commodity 
futures markets, customers or other members of the association, a member 
or person associated with a member may be summarily suspended from 
membership or association with a member, required to restrict operations 
or otherwise directed to take remedial action.
    (h) Membership denial action includes any proceeding brought by the 
National Futures Association to (1) determine whether an applicant 
should be admitted to membership or be permitted to be associated with a 
member, (2) determine whether an applicant should be admitted to 
membership or be permitted to be associated with a member on a 
conditional basis, or (3) determine whether to revoke or restrict the 
membership or association status of any person who is a member or is 
associated with a member.
    (i) Party includes any person who has been the subject of a 
disciplinary action, membership denial action, or registration action by 
the National Futures Association; the National Futures Association 
itself; any person granted permission to participate as a party pursuant 
toSec. 171.27 of these rules; and any Division of the Commission

[[Page 1096]]

that files a Notice of Appearance pursuant toSec. 171.28 of these 
rules.
    (j) Person associated with a member includes any person permitted to 
register as an associate of a member by the National Futures 
Association.
    (k) Record of the proceeding shall include the order appealed from, 
the findings or report on which the order is based, the pleadings, 
evidence and proceedings before the National Futures Association 
decisonmaker and a copy of any rule of the National Futures Association 
that is material to the order.
    (l) Registration action includes any proceeding brought by the 
National Futures Association, pursuant to authority delegated by the 
Commission, to grant, condition, deny, suspend, restrict, or revoke the 
registration of any person.
    (m) Rule of the National Futures Association includes any article of 
incorporation, bylaw, rule, regulation, resolution or written 
interpretation of stated policy of the National Futures Association.



Sec.  171.3  Business address; hours.

    The principal office of the Commission is located at Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. It is open each 
day, except Saturdays, Sundays, and legal public holidays, from 8:15 
a.m. until 4:45 p.m., eastern standard time or eastern daylight savings 
time, whichever is currently in effect in Washington, DC.

[55 FR 41068, Oct. 9, 1990, as amended at 60 FR 49336, Sept. 25, 1995]



Sec.  171.4  Computation of time.

    (a) In general. In computing any period of time prescribed by these 
rules or allowed by the Commission, the day of the act, event, or 
default from which the designated period of time begins to run is not to 
be included. The last day of the period so computed is to be included 
unless it is a Saturday, a Sunday, or a legal holiday. In the latter 
circumstances, the period runs until the end of the next day which is 
not a Saturday, a Sunday, or a legal holiday. Intermediate Saturdays, 
Sundays, and legal holidays shall be included in the computation unless 
the period of time prescribed or allowed is less than seven (7) days.
    (b) Date of service of orders. In computing any period of time 
involving the date of service of an order, the date of service shall be 
the date the order is mailed or hand delivered by the Proceedings Clerk, 
which, unless otherwise indicated, shall be the date stamped on the 
order by the Proceedings Clerk.



Sec.  171.5  Extension of time.

    (a) In general. Except as otherwise provided by these rules, for 
good cause shown, on its own motion or the motion of a party, the 
Commission may at any time extend or shorten the time prescribed by the 
rules for filing any document. In any instance in which a specific time 
period is not prescribed in this part for an action to be taken 
concerning any matter, the Commission may establish a time for that 
action.
    (b) Filing of motion. Absent extraordinary circumstances, when the 
time period that has been prescribed for an action to be taken 
concerning any matter exceeds seven days, requests for extension of that 
time period shall be filed at least five days prior to the expiration of 
the time period provided and shall include an explanation of the facts 
and circumstances that justify the extension.



Sec.  171.6  Ex parte communications.

    (a) Prohibition of ex parte communications. (1) No party to a 
proceeding before the Commission under these rules and no person outside 
the Commission who has a direct or indirect interest (pecuniary or 
otherwise) in the outcome of the proceeding or might be aggrieved by the 
outcome of the proceeding shall make or knowingly cause to be made an ex 
parte communication relevant to the merits of the proceeding subject to 
these rules to a Commissioner, member of the personal staff of a 
Commissioner or Commission decisional employee.
    (2) No Commissioner, member of the personal staff of a Commissioner 
or Commission decisional employee shall make or knowingly cause to be 
made to a party to a proceeding subject to these rules or to any person 
outside the Commission who has a direct or indirect interest (pecuniary 
or otherwise) in the outcome of the proceeding or might be aggrieved by 
the outcome of

[[Page 1097]]

the proceeding, an ex parte communication relevant to the merits of the 
proceeding subject to these rules.
    (b) Procedure for handling. Any Commissioner, member of a 
Commissioner's personal staff or Commission decisional employee who 
receives, or who makes or knowingly causes to be made, an ex parte 
communication prohibited by paragraph (a) of this section shall:
    (1) Place on the public record of the proceeding:
    (i) All such written communications;
    (ii) Memoranda stating the substance of all such oral 
communications; and
    (iii) All written responses, and memoranda stating the substance of 
all oral responses, to the materials described in paragraphs (b)(1)(i) 
and (b)(1)(ii) of this section; and
    (2) Promptly give written notice of such communications and 
responses thereto to all parties to the proceedings to which the 
communication or responses relate.
    (c) Sanctions. (1) Upon receipt of an ex parte communication 
knowingly made or knowingly caused to be made by a party in violation of 
the prohibition contained in paragraph (a)(1) of this section, the 
Commission may, to the extent consistent with the interests of justice 
and the policies of the Act, require the party to show cause why his 
claim or interest in the proceeding should not be dismissed, denied, 
disregarded, or otherwise adversely affected on account of such 
violation.
    (2) Any Commissioner, member of a Commissioner's personal staff or 
Commission decisional employee who knowingly makes or knowingly causes 
to be made, or who knowingly solicits or knowingly causes the 
solicitation of, an ex parte communication which violates the 
prohibitions contained in paragraph (a)(2) of this section may be deemed 
to have engaged in conduct of the type proscribed by 17 CFR 140.735-
3(b)(3).
    (d) Applicability of prohibitions and sanctions against ex parte 
communications. (1)(i) The prohibitions of this section shall begin to 
apply at the time that a copy of a notice of appeal has been filed with 
the Proceedings Clerk in accordance withSec. 171.23 orSec. 171.44 of 
this part; or a petition for stay or for an emergency effective date has 
been filed in accordance withSec. 171.22,Sec. 171.41 orSec. 171.43 
of this part. The prohibitions of this section shall remain in effect 
until a final order has been entered in the proceeding which is no 
longer subject to review by the Commission or to review by any court.
    (ii) The Commission may, by specific order entered in a particular 
proceeding, determine that these prohibitions shall commence from some 
date prior, or shall continue until a date subsequent, to the times 
specified in paragraph (d)(1)(i) of this section.
    (2) The sanctions in paragraph (c)(1) of this section shall not 
apply to a person making a prohibited communication (or causing it to be 
made) absent evidence that the person acted with actual or constructive 
knowledge that the person receiving the communication was a 
Commissioner, member of the personal staff of a Commissioner or a 
Commission decisional employee.



Sec.  171.7  [Reserved]



Sec.  171.8  Filing with the Proceedings Clerk.

    (a) How to file. Any document that is required by this part to be 
filed with the Proceedings Clerk shall be filed by delivering it in 
person or by first-class mail or a more expeditious form of United 
States mail, or by overnight or similar commercial delivery service to: 
Proceedings Clerk, Office of Proceedings, Three Lafayette Centre, 1155 
21st Street NW., Washington, DC 20581; or faxing the document to (202) 
418-5532 or emailing it to [email protected]. To be timely filed 
under this part, a document must be delivered or mailed to the 
Proceedings Clerk within the time prescribed for filing.
    (b) Proof of filing. Proof of filing shall be made by attaching to 
the document for filing an affidavit of filing executed by any person 18 
years of age or older or a proof of filing executed by an attorney-at-
law qualified for practice before the Commission. The proof of filing 
shall certify that the attached document was delivered by hand to the 
Proceedings Clerk or deposited in the United States mail, with first-
class postage prepaid (or delivered to an

[[Page 1098]]

overnight delivery service of established reliability), addressed to the 
Proceedings Clerk, Office of Proceedings, Three Lafayette Centre, 1155 
21st Street, NW., Washington, DC 20581, on the date specified in the 
affidavit.
    (c) Formalities of filing--(1) Number of copies. Unless otherwise 
provided, any person filing a document with the Proceedings Clerk shall 
provide two conformed copies in addition to the original.
    (2) Title page. All documents filed with the Proceedings Clerk shall 
include, at the head thereof, or on a title page, the name of the 
Commission, the title of the proceeding, the docket number (if one has 
been assigned by the Proceedings Clerk), the subject of the particular 
document and the name of the person on whose behalf the document is 
being filed.
    (3) Paper, spacing, type. All documents filed with the Proceedings 
Clerk shall be typewritten, must be on one grade of good white paper no 
less than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or 
more than 11\1/2\ inches long, and must be bound on the top only. They 
must be double-spaced, except for long quotations (3 or more lines) and 
footnotes which should be single-spaced.
    (4) Signature--(i) By whom. All documents filed with the Proceedings 
Clerk shall be signed personally in ink:
    (A) By the person or persons on whose behalf they are tendered for 
filing;
    (B) By a general partner, officer or director of a partnership, 
corporation, association, or other legal entity; or
    (C) By an attorney-at-law having authority with respect thereto. The 
Proceedings Clerk may require appropriate evidence of the authority of a 
person subscribing a document on behalf of another person.
    (ii) Effect. The signature on any document of any person acting 
either for himself or as attorney or agent for another constitutes 
certification by him that:
    (A) He has read the document subscribed and knows the contents 
thereof;
    (B) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (C) To the best of his knowledge, information, and belief, every 
statement contained in the document is true and not misleading; and
    (D) The document is not being interposed for delay.

[55 FR 41068, Oct. 9, 1990, as amended at 60 FR 49336, Sept. 25, 1995; 
78 FR 12937, Feb. 26, 2013]



Sec.  171.9  Service.

    (a) General requirements. Unless otherwise provided, all documents 
filed with the Proceedings Clerk must be served upon all parties on the 
same day.
    (b) Manner of service. Service may be made by personal delivery 
(effective upon receipt), mail (effective upon deposit), facsimile 
(effective upon receipt) or electronic mail (effective upon receipt). 
When service is effected by mail, the time within which the person 
served may respond thereto shall be increased by five days. Parties who 
consent to accepting service of documents by electronic means in the 
underlying NFA action also consent to accepting service by the same 
means in proceedings under this part 171.
    (c) Proof of service. Proof of service shall be made by filing with 
the Proceedings Clerk, at the same time as the relevant document is 
filed, an affidavit of service executed by a person 18 years of age or 
older or a certificate of service executed by an attorney qualified to 
practice before the Commission. The proof of service shall state that 
service has been made and identify the person served, the date of 
service and the manner of service.
    (d) Designation of person to receive service. The first document 
filed in a proceeding by or on behalf of any party must state on the 
first page the name, postal address and telephone number of the person 
authorized to receive service for the party of all documents filed in 
the proceeding. Thereafter, service of documents shall be made upon the 
person authorized unless service on a different authorized person or on 
the party himself is authorized by the Commission, or unless pursuant to 
Sec.  171.8 the person authorized is changed by the party upon due 
notice to all other parties. Parties shall file and serve notification 
of any changes in the information provided pursuant to this

[[Page 1099]]

subparagraph as soon as practicable after the change occurs.
    (e) Service of orders and decisions. A copy of all notices, rulings, 
opinions and orders of the Commission shall be served on each of the 
parties by the Proceedings Clerk. Service will be deemed complete upon 
deposit in the mail.

[55 FR 41068, Oct. 9, 1990, as amended at 72 FR 42277, Aug. 2, 2007]



Sec.  171.10  Motions.

    (a) In general. An application for a form of relief not otherwise 
specifically provided for in this part shall be made by a written 
motion, filed with the Proceedings Clerk. The motion shall state the 
relief sought, basis for the relief and the authority relied upon.
    (b) Answers to motions. Unless otherwise provided, a party may file 
a written response to a motion within five days after service of the 
motion.
    (c) Motions for procedural orders. Motions for procedural orders, 
including motions for extensions of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such action may request reconsideration, vacation or modification of the 
action.
    (d) Dilatory motions. Frivolous or repetitive motions dealing with 
the same subject matter shall not be permitted.



Sec.  171.11  Sanctions.

    In the event a party fails to fulfill his obligations under these 
Rules, the Commission may impose appropriate sanctions including 
dismissal of the appeal or summary reversal of the decision under 
appeal. Sanctions may be imposed on the motion of a party or on the 
Commission's own motion.



Sec.  171.12  Settlement.

    At any time before the Commission has reached a final determination 
in a proceeding, the parties may request dismissal of the appeal based 
on a settlement agreement. If, in its view, the settlement is consistent 
with the public interest, the Commission will dismiss the proceeding.



Sec.  171.13  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. An individual may appear pro se 
(on his own behalf); a general partner may represent the partnership; a 
bona fide officer of a corporation, trust or association may represent 
the corporation, trust or association.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with the provisions of part 
14 of this chapter may represent parties as an attorney in proceedings 
before the Commission.
    (b) Debarment of counsel or representative during the course of a 
proceeding. Whenever, while a proceeding is pending before the 
Commission, the Commission finds that a person acting as counsel or 
representative for any party to the proceeding is guilty of contemptuous 
conduct, the Commission may order that such person be precluded from 
further acting as counsel or representative in a proceeding subject to 
these rules. The Commission may suspend the proceedings for a reasonable 
time for the purpose of enabling the party to obtain other counsel or 
representative.
    (c) Withdrawal from representation. Withdrawal from representation 
of a party will be only by leave of the Commission. Such leave to 
withdraw may be subject to conditions including submission of an 
affidavit averring that the party represented has actual knowledge of 
the withdrawal and providing the name and address of a successor counsel 
(or representative) or a statement that the represented party has 
determined to proceed pro se. If the party proceeds pro se, the 
statement shall include the address where the party can thereafter be 
served.



Sec.  171.14  Waiver of rules.

    To prevent undue hardship on any party or for other good cause 
shown, the Commission may waive any rule in this part in a particular 
case and may order proceedings in accordance with its direction. Such an 
order shall be based upon a determination that no

[[Page 1100]]

party will be prejudiced thereby and that the ends of justice will be 
served. Reasonable notice will be given to all parties of any action 
taken pursuant to this paragraph.



Subpart B_Notice and Effective Date of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions



Sec.  171.20  [Reserved]



Sec.  171.21  Notice of final decision.

    (a) When required. The National Futures Association shall promptly 
serve all parties, as well as the Proceedings Clerk and the Secretary of 
the Commission, with a written notice of any final decision in a 
disciplinary action, membership denial action or registration action 
subject to these rules. The notice may be contained in the written 
decision issued by the National Futures Association.
    (b) Content of the notice. At a minimum, the notice shall provide 
the following information:
    (1) The names of the parties to the proceeding;
    (2) The date the notice was served and the effective date of the 
decision;
    (3) A statement informing the parties of their right to appeal the 
decision to the Commission pursuant toSec. 171.28 as well as their 
right to seek a stay of the effective date of the decision pursuant to 
Sec.  171.27.
    (4) For a disciplinary action:
    (i) A statement setting forth the relevant acts of practices engaged 
in or omitted by the parties to the proceeding;
    (ii) A statement setting forth the specific rule or rules of the 
association violated by the relevant acts or practices or omissions to 
act of the parties to the proceeding;
    (iii) A statement setting forth the penalty imposed and the basis 
for its imposition.
    (5) For a membership action:
    (i) The specific grounds for the denial, bar, expulsion, or 
restriction;
    (ii) The findings made concerning those grounds;
    (iii) An explanation of the result reached in light of the grounds 
for ineligibility found and the findings made.
    (6) For a registration action:
    (i) The statutory disqualification at issue;
    (ii) The findings made concerning the statutory disqualification;
    (iii) An explanation of the result reached in light of the statutory 
disqualification shown and the findings made.
    (c) Effect of inadequate notice. (1) If the National Futures 
Association issues a notice of a final decision subject to these rules 
that is not substantially consistent with the requirements of this 
section, and the record does not establish that the errors therein are 
harmless, the notice may be stricken. The Commission may act on its own 
motion or on the motion of a party.
    (2) When a notice is struck, the final decision of the National 
Futures Association shall not be effective until a proper notice is 
served.



Sec.  171.22  Effective date of final decisions in disciplinary,
membership denial and registration actions.

    (a) General rule. A final decision of the National Futures 
Association in a disciplinary action, membership denial action or 
registration action shall be effective thirty days after service of the 
notice described inSec. 171.21.
    (b) Petitions for stay pending review or for an emergency effective 
date--(1) Stay pending review. Within ten days of service of the notice 
described inSec. 171.21, any aggrieved party may seek from the 
Commission a stay pending consideration of the merits of an appeal by 
filing and serving an appropriate petition. The mere filing of such a 
petition shall not stay the effective date of the decision. The burden 
of persuasion shall rest with the party seeking the stay. If the 
Commission does not grant the petition prior to the effective date of 
the decision under review, it shall be deemed denied. All petitions for 
stay must be accompanied by a notice of appeal.
    (2) Emergency effective date. Within ten days of service of the 
notice described inSec. 171.21, the National Futures Association may 
seek from the Commission an order establishing an emergency effective 
date for the decision by filing and serving an appropriate petition. The 
mere filing of such a petition

[[Page 1101]]

shall not alter the effective date of the decision. The burden of 
persuasion rests with the National Futures Association. If the 
Commission does not grant the petition by the date specified as the 
emergency effective date, it shall be deemed denied.
    (3) Contents of petition for stay and petition for an emergency 
effective date. A petition for stay or for an emergency effective date 
shall be in writing. Material factual allegations shall be supported by 
an affidavit or other sworn statement unless the parties stipulate that 
the material facts are not in dispute.
    (4) Response. Within five days of the service of the petition, a 
party may file in opposition to the petition. Material factual 
allegations shall be supported by an affidavit or other sworn statement 
unless the parties stipulate that the material facts are not in dispute.
    (c) Standards for determining petitions for a stay or an emergency 
effective date petition. In reviewing petitions filed under this 
seciton, the Comission shall consider:
    (1) The likelihood that a challenge to the merits of the decision 
will be successful; and
    (2) The likelihood that the denial of the petition would result in 
irreparable harm to the petitioner; and
    (3) The effect a grant of the petition would have on the opposing 
party; and
    (4) The effect a grant or denial of the petition would have on the 
public interest.
    (d) Expedited consideration. If, in its view, it is necessary to 
protect the petitioner's right to a meaningful determination of the 
issues raised in the petition, the Commission may act upon a petition 
for a stay or for an emergency effective date prior to its receipt of an 
opposing party's response. Any party aggrieved by such expedited 
consideration may seek reconsideration within seven days of service of 
the decision.



Sec.  171.23  Notice of appeal.

    (a) Time to file. Any party aggrieved by the final decision of the 
National Futures Association in a disciplinary, membership denial or 
registration action may, within thirty days of the National Futures 
Association's service of the notice described inSec. 171.21, file a 
notice of appeal with the Proceedings Clerk. The filing of such a notice 
shall not stay the effective date of the decision.
    (b) Contents. The notice of appeal shall consist of a brief 
statement indicating that the party is requesting Commission review of 
an action of the National Futures Association. It should identify:
    (1) The name and address of the person appealing and, if 
represented, the name and address of his representative;
    (2) The case name and docket number of the National Futures 
Association proceeding; and
    (3) The date of the decision.
    (c) Filing fee. Each notice of appeal must be accompanied by a 
nonrefundable filing fee of $100. This amount may be paid by check, bank 
draft or money order, payable to the Commodity Futures Trading 
Commission.
    (d) Defective notices of appeal. Notices of appeal that are untimely 
or not accompanied by the filing fee shall not be accepted by the 
Proceedings Clerk absent a showing, by motion, of excusable neglect.



Sec.  171.24  Submission of the record.

    Within thirty days after service of a notice of appeal, the National 
Futures Association shall file with the Proceedings Clerk two copies of 
the record of the proceeding (as defined bySec. 171.2(k)). The record 
shall be bound as a unit, chronologically indexed and tabbed, and 
certified as correct by a duly authorized official, agent or employee of 
the National Futures Asssociation. The National Futures Association 
shall serve on the party appealing, in lieu of the record, a copy of the 
index of the record and a copy of any document in the record not 
previously served on the party appealing. If the party appealing objects 
to the materials included or excluded in preparing the record, he shall 
file his objections with his brief on appeal. The Commission may, at any 
time, direct that an omission or misstatement be corrected and, if 
necessary, that a supplemental record be prepared and filed.



Sec.  171.25  Appeal brief.

    (a) Time to file. Any person who has filed a notice of appeal in 
accordance

[[Page 1102]]

with the provisions ofSec. 171.23, shall perfect the appeal by filing 
an appeal brief with the Proceedings Clerk within thirty days after 
service of the record by the National Futures Association. The 
Commission may dismiss any appeal for which an appeal brief is not 
timely filed.
    (b) Contents. Each appeal brief submitted to the Commission pursuant 
to this section shall include, in the order indicated:
    (1) A statement of the issues presented for review;
    (2) A statement of the case. The statement shall indicate briefly 
the nature of the case and include a full description of the action 
being challenged. There shall follow a clear and concise statement of 
all facts relevant to the consideration of the appeal with appropriate 
citations to the record;
    (3) An argument. The argument shall contain the contentions of the 
appellant with respect to the issues presented and the reasons 
supporting those contentions. It shall cite specifically to the relevant 
authorities and to those parts of the record that support appellant's 
contentions; and
    (4) A conclusion stating the precise relief sought.
    (c) Length of appeal brief. Without prior leave of the Commission, 
the appeal brief may not exceed thirty five pages, exclusive of any 
table of contents, table of cases, index and appendix containing 
transcripts of testimony, exhibits, rules, regulations or similar 
materials.



Sec.  171.26  Answering brief.

    (a) Time for filing answering brief. Within thirty days after 
service of the appeal brief, the National Futures Association shall file 
with the Proceedings Clerk an answering brief.
    (b) Contents of answering brief. The contents of the answering brief 
generally shall be consistent with those set forth inSec. 171.25(b) 
but may omit a statement of the issues and a statement of the case if 
the National Futures Association does not dispute the issues or the 
statement of the case contained in the appeal brief.
    (c) Length of the answering brief. Without prior leave of the 
Commission, the answering brief may not exceed thirty five pages, 
exclusive of any table of contents, table of cases, index and appendix 
containing transcripts of testimony, exhibits, statutes, rules, 
regulations or similar materials.



Sec.  171.27  Limited participation by interested persons.

    (a) Upon motion of any interested person or, on its own motion, the 
Commission may permit, or solicit, limited participation in the 
proceeding by such interested person. A motion for leave to participate 
in the proceeding shall be filed promptly, shall identify the interest 
of that person and shall show why participation in the proceeding by 
that person would serve the public interest. If the Commission 
determines that participation would serve the public interest, it shall 
by order establish a supplementary briefing schedule for the interested 
person and the parties to the proceeding.
    (b) For purposes of this subsection, interested person shall include 
parties and any other persons who might be adversely affected or 
aggrieved by the outcome of a proceeding; their officers, agents, 
employees, associates, affiliates, attorneys, accountants or other 
representatives; and any other person having a direct or indirect 
pecuniary or other interest in the outcome of a proceeding.



Sec.  171.28  Participation by Commission staff.

    The Division of Enforcement, the Division of Clearing and 
Intermediary Oversight or the Division of Market Oversight may 
participate in any proceeding by filing a notice of appearance. Such a 
notice shall be filed and served on or before the twentieth day 
following the date of service of its brief by the National Futures 
Association. The Commission shall by order establish a supplementary 
briefing schedule for the Commission staff and other parties to the 
proceeding. If it concludes that participation of the Commission staff 
will not serve the public interest, the Commission shall prohibit 
further participation.

[55 FR 41068, Oct. 9, 1990, as amended at 67 FR 62353, Oct. 7, 2002]

[[Page 1103]]



    Subpart C_Commission Review of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions



Sec.  171.30  Scope of review.

    On review, the Commission may, in its discretion and after 
appropriate consideration of the notice given to the parties, consider 
sua sponte any issues arising from the record before it and may base its 
determination thereon. The Commission may also limit its consideration 
to those issues specifically raised in the parties' briefs, treating all 
other issues as waived.



Sec.  171.31  Commission review in the absence of an appeal.

    (a) Request by Commission staff. At any time prior to the effective 
date of a final decision of the National Futures Association in a 
disciplinary, membership denial or registration action, the Division of 
Enforcement, the Division of Clearing and Intermediary Oversight or the 
Division of Market Oversight may file and serve a memorandum requesting 
the Commission to institute review of the National Futures Association 
proceeding. The filing of such a memorandum shall stay the effective 
date of the decision at issue for twenty days.
    (b) Response by the National Futures Association. The National 
Futures Association may file a response to the memorandum of the 
Commission staff within fifteen days of the service of the memorandum.
    (c) Commission determination of staff request. To preserve the 
status quo while it determines whether review is apropriate, the 
Commission may extend the stay of the effective date of the decision at 
issue for an additional 30 days. If the Commission decides to take 
review, the effective date of the decision at issue shall be stayed 
pending the decision of the Commission, unless otherwise ordered. The 
Commission shall by order establish the procedure for submission of both 
the record of the proceeding and the briefs of the parties to the 
proceeding.
    (d) Commission review on its own motion. At any time prior to the 
effective date of a final decision of the National Futures Association 
in a disciplinary, membership denial or registration action, the 
Commission may take review of a decision by issuing an appropriate 
order. If the Commission determines that it is appropriate to take 
review on its own motion, it shall by order establish the procedure for 
submission of both the record of the proceeding and the briefs of the 
parties.

[55 FR 41068, Oct. 9, 1990, as amended at 67 FR 62353, Oct. 7, 2002]



Sec.  171.32  Oral argument.

    (a) On motion of Commission. On its own motion, the Commission may, 
in its discretion, hear oral argument in a proceeding.
    (b) On request of party. Any party may file with the Proceedings 
Clerk a request in writing for the opportunity to present oral argument 
before the Commission, which the Commission may, in its discretion, 
grant or deny. A request under this paragraph must be filed concurrently 
with the party's brief.
    (c) Reporting and transcription. Oral argument before the Commission 
will be recorded and transcribed unless the Commission directs 
otherwise. In the event the Commission affords the parties the 
opportunity to present oral argument before the Commission, the oral 
argument will proceed in accordance with the provisions ofSec. 
10.103(b) of this chapter.



Sec.  171.33  Final decision by the Commission.

    (a) Opinion and order. Upon review, the Commission may affirm, 
modify, set aside, or remand for further proceedings, in whole or in 
part, the decision of the National Futures Association. The Commission's 
decision will be contained in its opinion and order which will be based 
upon the record before it, including the record of the registered 
futures association proceeding, briefs submitted to the Commission by 
the parties and any oral argument made in accordance withSec. 171.32. 
Except as provided in paragraph (b) of this section, the opinion and 
order will constitute the final decision of the Commission, effective 
upon service on

[[Page 1104]]

the parties. In the event the Commission is equally divided as to its 
decision, the decision of the National Futures Association shall be 
affirmed without a Commission opinion.
    (b) Order of summary affirmance. If the Commission finds that the 
result reached in the decision of the National Futures Association is 
substantially correct and that none of the arguments on appeal made by 
the appellant raise important questions of law or policy, the Commission 
may, by appropriate order, summarily affirm the decision without 
opinion. The decision of the National Futures Association shall 
constitute the Commission's final decision, effective upon service. 
Unless the Commission expressly indicates otherwise in its order, an 
order of summary affirmance does not reflect a Commission determination 
to adopt the rationale of the National Futures Association, and neither 
the order of summary affirmance nor the underlying order shall serve as 
Commission precedent in other proceedings.



Sec.  171.34  Standards of review.

    (a) Disciplinary actions. In reviewing a final decision of the 
National Futures Association in a disciplinary action, the Commission 
shall affirm the order of the National Futures Association, unless the 
Commission finds that:
    (1) The proceedings were not conducted in a manner consistent with 
fundamental fairness;
    (2) The proceedings were not conducted in a manner consistent with 
the rules of the National Futures Association;
    (3) The weight of the evidence does not support the findings of the 
National Futures Association concerning the relevant acts or practices 
engaged in or omitted;
    (4) The determination that the acts or practices engaged in or 
omitted violated rules of the National Futures Association does not rest 
on a reasonable interpretation of the rules at issue;
    (5) The National Futures Association's application of its rules is 
not consistent with the purposes of the Act;
    (6) The National Futures Association's choice of sanction is 
excessive or oppressive in light of the violations found having due 
regard for the public interest.
    (b) Membership denial actions. In reviewing a final decision of the 
National Futures Association in a membership denial action, the 
Commission shall affirm the order of the National Futures Association, 
unless the Commission finds that:
    (1) The proceedings were not conducted in a manner consistent with 
fundamental fairness;
    (2) The proceedings were not conducted in a manner consistent with 
the rules of the National Futures Association;
    (3) The weight of the evidence does not support the findings made or 
adopted in the final decision;
    (4) The conclusion of the National Futures Association is not 
consistent with the purposes of the Act.
    (c) Registration actions. In reviewing a decision of the National 
Futures Association in a registration action, the Commission shall 
affirm the order of the National Futures Association unless the 
Commission finds that:
    (1) The proceedings were not conducted in a manner consistent with 
fundamental fairness;
    (2) The proceedings were not conducted in a manner consistent with 
the rules of the National Futures Association;
    (3) The weight of the evidence does not support the findings made or 
adopted in the final decision;
    (4) The conclusion of the National Futures Association is not 
consistent with the purposes of the Act.



    Subpart D_Commission Review of Decisions by the National Futures 
              Association In Member Responsibility Actions



Sec.  171.40  Notice of the commencement of a member responsibility action.

    The notice of a Member Responsibility Action provided by the 
National Futures Association pursuant to its rules shall advise the 
affected parties of their right to petition the Commission pursuant to 
Sec.  171.41 to stay the effective date of the action pending a hearing 
before the National Futures

[[Page 1105]]

Association on the factual issues relevant to the suspension, 
restriction or remedial action ordered.



Sec.  171.41  Petition for a stay of effective date of a member
responsibility action pending a hearing by the National Futures
Association.

    (a) Time to file. Within ten days after the National Futures 
Association serves the notice required bySec. 171.40, any party 
aggrieved by the National Futures Association's determination that the 
member responsibility action should be effective prior to the 
opportunity for a hearing on the factual issues relevant to the 
suspension, restriction or remedial action imposed may petition the 
Commission to stay its effectiveness pending completion of further 
proceedings by the National Futures Association. The burden of 
persuasion shall rest with the party seeking the stay.
    (b) Content. A petition for stay shall meet the content requirements 
set forth inSec. 171.22(b)(3).
    (c) Response. A response may be filed by the National Futures 
Association in accordance withSec. 171.22(b)(4).
    (d) Standards for granting petition for stay. In reviewing petitions 
to stay the effectiveness of the member responsibility action pending 
completion of further proceedings, the Commission shall consider:
    (1) Whether, in the circumstances presented, the notice and 
opportunity for a hearing provided by the National Futures Association 
are consistent with principles of fundamental fairness; and
    (2) The likelihood that the denial of the petition would result in 
irreparable harm to petitioner; and
    (3) The effect a grant of the petition would have on the interests 
of the National Futures Association; and
    (4) The effect a grant or denial of the petition would have on the 
public interest.
    (e) If the suspension, restriction or remedial action imposed by the 
National Futures Assocation in a member responsibility action is 
effective at the time a petition for a stay is filed with the 
Commission, the Commission shall not delay its decision on the petition 
to await the receipt of the National Futures Association's response. If 
the action is not effective at the time the petition is filed, the 
Commission will not act upon the petition prior to the receipt of a 
response from the National Futures Association unless, in its view, 
expedited action on the petition is necessary to protect petitioner's 
right to a meaningful determination of the right to a stay. If the 
Commission grants the petition prior to the receipt of the response of 
the National Futures Association, the association may seek 
reconsideration of the Commission's action within seven days of service 
of the decision.
    (f) Proceedings following Commission disposition. If the petition 
for a stay is denied, the National Futures Association shall continue 
its action in accordance with the applicable rules of the association. 
If the petition for a stay is granted, the action shall be remanded to 
the National Futures Association for further proceedings as provided in 
the Commission's decision. Unless otherwise ordered by the Commission, a 
stay issued pursuant to this section shall not deprive the National 
Futures Association of the authority, after conducting a hearing under 
the appropriate rules of the association, to make the suspension, 
restriction or remedial action ordered in the member responsibility 
action immediately effective at the time a final decision is issued.



Sec.  171.42  Notice of a final decision of the National Futures 
Association in a member responsibility action.

    (a) When required. The National Futures Association shall promptly 
serve all parties, as well as the Proceeding Clerk and Secretary of the 
Commission, with a written notice of any final decision in a member 
responsibility action. The notice may be contained in the written 
decision issued by the National Futures Association. If the National 
Futures Association determines that the decision shall be effective upon 
issuance, in addition to serving a written notice, it shall also contact 
the parties and the Proceedings Clerk by telephone to inform them of its 
determination.

[[Page 1106]]

    (b) Contents of the written notice. At a minimum, the notice shall 
provide the following information:
    (1) The name of the parties to the proceeding;
    (2) The date the notice was served and the effective date of the 
decision;
    (3) A statement informing the parties of their right to appeal the 
decision to the Commission pursuant toSec. 171.44 as well as their 
right to seek a stay of the decision pending Commission consideration of 
their appeal pursuant toSec. 171.43;
    (4) A description of the action taken and the reasons for the 
action;
    (5) Findings of fact and conclusions of law on all issues relevant 
to its decision;
    (6) A determination of the appropriate relief based on the findings 
and conclusions.



Sec.  171.43  Petition for a stay of the effective date of a final
decision of the National Futures Association in a member
responsibility action.

    (a) Filing the petition. Within ten days of the service of the 
notice described inSec. 171.42, any aggrived party may seek from the 
Commission a stay of the effective date of the decision of the National 
Futures Association pending consideration of the merits of an appeal by 
filing and serving an appropriate petition. The mere filing of such a 
petition shall not stay the effective date of the decision. The burden 
of persuasion shall rest with the party seeking the stay.
    (b) Contents. A petition for a stay shall be in writing. Material 
factual allegations shall be supported by an affidavit or other sworn 
statement unless the parties stipulate that the material facts are not 
in dispute.
    (c) Response. Within five days of the service of the petition, the 
National Futures Association may file an opposition to the petition. 
Material factual allegations shall be supported by an affidavit or other 
sworn statement unless the parties stipulate that the material facts are 
not in dispute.
    (d) Standards for determining petitions for a stay. In reviewing 
petitions filed under this section, the Commission shall consider:
    (1) The likelihood that petitioner's challenge to the merits of the 
decision will be successful; and
    (2) The likelihood that the denial of the petition would result in 
irreparable harm to the petitioner; and
    (3) The effect a grant of the petition would have on the National 
Futures Association; and
    (4) The effect a grant or denial of the petition would have on the 
public interest.
    (e) Expedited consideration. If the suspension, restriction or 
remedial action imposed by the National Futures Association in a member 
responsibility action is effective at the time a petition for a stay is 
filed with the Commission, the Commission shall not delay its decision 
on the petition to await the receipt of the National Futures 
Association's response. If the decision is not effective at the time the 
petition is filed, the Commission will not act upon the petition prior 
to the receipt of a response from the National Futures Association 
unless, in its view, expedited action on the petition is necessary to 
protect petitioner's right to a meaningful determination of the right to 
a stay. If the Commission grants the petition prior to the receipt of 
the response of the National Futures Association, the association may 
seek reconsideration of the Commission's action within seven days of 
service of the decision.



Sec.  171.44  Notice of appeal.

    (a) Time to file. Any party aggrieved by a final decision of the 
National Futures Association in a member responsibility action may, 
within thirty days of the service of the notice described inSec. 
171.42, file with the Proceedings Clerk and serve on the National 
Futures Association a notice of appeal. The filing of such a notice 
shall not stay the effective date of the decision.
    (b) Contents. The notice of appeal shall meet the content 
requirements ofSec. 171.23(b).
    (c) Filing fee. Each notice of appeal must be accompanied by a 
nonrefundable filing fee of $100. This amount may be paid by check, bank 
draft or money order, payable to the Commodity Futures Trading 
Commission.

[[Page 1107]]

    (d) Defective notices of appeal. Notices of appeal that are untimely 
or not accompanied by the filing fee shall not be accepted by the 
Proceedings Clerk absent a showing, by motion, of excusable neglect.



Sec.  171.45  General procedures.

    The following procedural rules applicable to review of decisions of 
the National Futures Association in disciplinary, membership denial and 
registration actions shall also apply to the review of decisions of the 
National Futures Association in member responsibility actions:
    (a) Section 171.24 Submission of the Record.
    (b) Section 171.25 Appeal Brief.
    (c) Section 171.26 Answering Brief.
    (d) Section 171.27 Limited Participation By Interested Persons.
    (e) Section 171.28 Participation By Commission Staff.
    (f) Section 171.30 Scope of Review.
    (g) Section 171.31 Commission Review In the Absence of An Appeal.
    (h) Section 171.32 Oral Argument.
    (i) Section 171.33 Final Decision By the Commission.



Sec.  171.46  Standards of review.

    In reviewing the decision of the National Futures Association in a 
member responsibility action, the Commission shall consider whether:
    (a) The proceedings were conducted in a manner consistent with 
fundamental fairness;
    (b) The proceedings were conducted in a manner consistent with the 
rules of the National Futures Association;
    (c) The weight of the evidence supports the findings of the National 
Futures Association concerning the reasons for the action;
    (d) The determination that summary action is necessary to protect 
the commodity futures markets, customers, or members of the National 
Futures Association rests on a reasonable interpretation of the NFA 
rules at issue;
    (e) The National Futures Association's application of its rules is 
consistent with the purposes of the Act;
    (f) In light of the findings of the National Futures Association 
concerning the reasons for the action and the public interest, the 
suspension, restriction or remedial action imposed by the National 
Futures Association is not excessive, oppressive or an abuse of 
discretion.



                    Subpart E_Delegation of Functions



Sec.  171.50  Delegation to the General Counsel.

    (a) The Commission hereby delegates, until it orders otherwise, to 
the General Counsel, or any employee under the General Counsel's 
supervision as the General Counsel may designate, the authority:
    (1) To waive or modify any of the requirements of Sec.Sec. 171.25, 
171.26, 171.27 and to waive or modify any requirement of the part 171 
Rules insofar as it pertains to changes in the time permitted for 
filing, or the form, execution, service and filing of documents;
    (2) To enter orders under Sec.Sec. 171.10, 171.12, 171.21 and 
171.31(c);
    (3) To decline to accept any notice of appeal, or petition for stay 
pending review, of matters specified inSec. 171.1(b) and to so notify 
the appellant and the registered futures association;
    (4) To stay the effective date of a decision of the National Futures 
Association in a disciplinary, membership denial or registration action, 
or a decision relating to such actions issued by the Commission pursuant 
to these rules, for a reasonable period of time, not to exceed 10 days, 
when such a stay is necessary to allow the Commission to consider a 
petition to stay the effective date of such a decision or a motion for 
similar relief;
    (5) To decline to accept any document which has not been filed or 
perfected as specified in these rules;
    (6) To determine motions seeking permission to participate in a 
proceeding underSec. 171.27 and to establish the related briefing 
schedule;
    (7) To establish briefing schedules underSec. 171.28; and
    (8) To enter any order which, in his judgment, will facilitate or 
expedite Commission review of a decision by the National Futures 
Association in a disciplinary, membership denial or registration action.
    (b) Within seven days after service of a ruling issued pursuant to 
paragraph

[[Page 1108]]

(a) of this section, a party may file with the Proceedings Clerk a 
petition for Commission reconsideration of the ruling. Unless the 
Commission orders otherwise, the filing of a petition for 
reconsideration will not operate to stay the effective date of such 
ruling.
    (c) The General Counsel, or his designee, may submit to the 
Commission for its consideration any matter which has been delegated 
pursuant to paragraph (a) of this section.
    (d) Nothing in this section will be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated to 
the General Counsel, or his designee, under this section.

[55 FR 41068, Oct. 9, 1990, as amended at 64 FR 46271, Aug. 25, 1999; 78 
FR 1145, Jan. 8, 2013]



PART 180_PROHIBITION AGAINST MANIPULATION--Table of Contents



Sec.
180.1 Prohibition on the employment, or attempted employment, of 
          manipulative and deceptive devices.
180.2 Prohibition on price manipulation.

    Authority: 7 U.S.C. 6c(a), 9, 12(a)(5) and 15, as amended by Title 
VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Pub. L. 111-203, 124 Stat. 1376 (2010); 5 U.S.C. 552 and 552(b), unless 
otherwise noted.

    Source: 76 FR 41410, July 14, 2011, unless otherwise noted.



Sec.  180.1  Prohibition on the employment, or attempted employment,
of manipulative and deceptive devices.

    (a) It shall be unlawful for any person, directly or indirectly, in 
connection with any swap, or contract of sale of any commodity in 
interstate commerce, or contract for future delivery on or subject to 
the rules of any registered entity, to intentionally or recklessly:
    (1) Use or employ, or attempt to use or employ, any manipulative 
device, scheme, or artifice to defraud;
    (2) Make, or attempt to make, any untrue or misleading statement of 
a material fact or to omit to state a material fact necessary in order 
to make the statements made not untrue or misleading;
    (3) Engage, or attempt to engage, in any act, practice, or course of 
business, which operates or would operate as a fraud or deceit upon any 
person; or,
    (4) Deliver or cause to be delivered, or attempt to deliver or cause 
to be delivered, for transmission through the mails or interstate 
commerce, by any means of communication whatsoever, a false or 
misleading or inaccurate report concerning crop or market information or 
conditions that affect or tend to affect the price of any commodity in 
interstate commerce, knowing, or acting in reckless disregard of the 
fact that such report is false, misleading or inaccurate. 
Notwithstanding the foregoing, no violation of this subsection shall 
exist where the person mistakenly transmits, in good faith, false or 
misleading or inaccurate information to a price reporting service.
    (b) Nothing in this section shall be construed to require any person 
to disclose to another person nonpublic information that may be material 
to the market price, rate, or level of the commodity transaction, except 
as necessary to make any statement made to the other person in or in 
connection with the transaction not misleading in any material respect.
    (c) Nothing in this section shall affect, or be construed to affect, 
the applicability of Commodity Exchange Act section 9(a)(2).



Sec.  180.2  Prohibition on price manipulation.

    It shall be unlawful for any person, directly or indirectly, to 
manipulate or attempt to manipulate the price of any swap, or of any 
commodity in interstate commerce, or for future delivery on or subject 
to the rules of any registered entity.



PART 190_BANKRUPTCY--Table of Contents



Sec.
190.01 Definitions.
190.02 Operation of the debtor's estate subsequent to the filing date 
          and prior to the primary liquidation date.
190.03 Operation of the debtor's estate subsequent to the primary 
          liquidation date.
190.04 Operation of the debtor's estate--general.
190.05 Making and taking delivery on commodity contracts.
190.06 Transfers.
190.07 Calculation of allowed net equity.

[[Page 1109]]

190.08 Allocation of property and allowance of claims.
190.09 Member property.
190.10 General.

Appendix A to Part 190--Bankruptcy Forms
Appendix B to Part 190--Special Bankruptcy Distributions

    Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 12, 19, and 24, and 
11 U.S.C. 362, 546, 548, 556, and 761-766, unless otherwise noted.

    Source: 48 FR 8739, Mar. 1, 1983, unless otherwise noted.



Sec.  190.01  Definitions.

    For purposes of this part:
    (a)(1) Account class means each of the following types of customer 
accounts which must be recognized as a separate class of account by the 
trustee: futures accounts, foreign futures accounts, leverage accounts, 
delivery accounts as defined inSec. 190.05(a)(2) of this part, and 
cleared swaps accounts.
    (2)(i) To the extent that the equity balance, as defined inSec. 
190.07 of this part, of a customer in a commodity option, as defined in 
Sec.  1.3 of this chapter, may be commingled with the equity balance of 
such customer in any domestic commodity futures contract pursuant to 
regulations under the Act, the aggregate shall be treated for purposes 
of this part as being held in a futures account.
    (ii) To the extent that such equity balance of a customer in a 
commodity option may be commingled with the equity balance of such 
customer in any cleared swaps account pursuant to regulations under this 
act, the aggregate shall be treated for purposes of this part as being 
held in a cleared swaps account.
    (iii) If positions or transactions in commodity contracts that would 
otherwise belong to one account class (and the money, securities, or 
other property margining, guaranteeing, or securing such positions or 
transactions), are, pursuant to a Commission rule, regulation, or order 
(or a derivatives clearing organization rule approved in accordance with 
Sec.  39.15(b)(2) of this chapter), held separately from other positions 
and transactions in that account class, and are commingled with 
positions or transactions in commodity contracts of another account 
class (and the money, securities, or other property margining, 
guaranteeing, or securing such positions or transactions), then the 
former positions (and the relevant money, securities, or other property) 
shall be treated, for purposes of this part, as being held in an account 
of the latter account class.
    (b) Allowed net equity means the amount calculated as allowed net 
equity in accordance withSec. 190.07(a).
    (c) Bankruptcy Code means, except as the context of the regulations 
in this part otherwise requires, those provisions of the Bankruptcy 
Reform Act of 1978, as amended from time to time, relating to ordinary 
bankruptcies (chapters 1 through 5) and to liquidations (chapter 7 with 
the exception of subchapter III), together with the Federal rules of 
bankruptcy procedure relating thereto.
    (d) Business day means weekdays, not including Federal holidays.
    (e) Calendar day. A calendar day includes the time from midnight to 
midnight.
    (f) Clearing organization shall have the same meaning as that set 
forth in section 761(2) of the Bankruptcy Code.
    (g) Commodity broker means any person who is registered or required 
to register as a futures commission merchant under the Commodity 
Exchange Act including a person registered or required to be registered 
as such under Parts 32 and 33 of this chapter, and a ``commodity options 
dealer,'' ``foreign futures commission merchant,'' ``clearing 
organization,'' and ``leverage transaction merchant'' with respect to 
which there is a ``customer'' as those terms are defined in this 
section, but excluding a person registered as a futures commission 
merchant under section 4f(a)(2) of the Commodity Exchange Act.
    (h) Commodity contract shall have the same meaning, subject to 
paragraph (nn) of this section, as that set forth in section 761(4) of 
the Bankruptcy Code.
    (i) Commodity options dealer shall have the same meaning as that set 
forth in section 761(6) of the Bankruptcy Code.
    (j) Court means the bankruptcy court having jurisdiction over the 
debtor's estate.
    (k) Cover shall have the same meaning as that set forth inSec. 
1.17(j) of this chapter.

[[Page 1110]]

    (l) Customer shall have the same meaning as that set forth in 
section 761(9) of the Bankruptcy Code.
    (m) Customer claim of record means a customer claim which is 
determinable solely by reference to the records of the debtor.
    (n) Customer class means each of the following two classes of 
customers which must be recognized by the trustee: public customers and 
non-public customers.
    (o) Customer property, customer estate are used interchangeably to 
mean the property subject to pro rata distribution in a commodity broker 
bankruptcy which is entitled to the priority set forth in section 766(h) 
of the Bankruptcy Code and includes certain cash, securities, and other 
property as set forth inSec. 190.08(a).
    (p) Dealer option means an option granted, offered or sold pursuant 
to section 4c(d) of the Act and the Commission's regulations thereunder.
    (q) Debtor means an individual, association, partnership, 
corporation, or trust with respect to which a proceeding is commenced 
under subchapter IV of chapter 7 of the Bankruptcy Code.
    (r) Equity means the amount calculated as equity in accordance with 
Sec.  190.07(b)(1).
    (s) Filing date means the date a petition commencing a proceeding 
under the Bankruptcy Code is filed.
    (t) Final net equity determination date means the latest of
    (1) The day immediately following the day on which all commodity 
contracts held by or for the account of customers of the debtor have 
been transferred, liquidated or satisfied by exercise or delivery,
    (2) The day immediately following the day on which all property 
other than commodity contracts held for the account of customers has 
been transferred, returned or liquidated,
    (3) The bar date for filing customer proofs of claim, or
    (4) The day following the disposition of all disputed claims.
    (u) Foreign future shall have the same meaning as that set forth in 
section 761(11) of the Bankruptcy Code.
    (v) Foreign futures commission merchant shall have the same meaning 
as that set forth in section 761(12) of the Bankruptcy Code.
    (w) Funded balance means the amount calculated as funded balance in 
accordance withSec. 190.07(c).
    (x) House account means any commodity contract account owned by the 
debtor.
    (y) In-the-money amount means:
    (1) With respect to a call option, the amount by which the value of 
the physical commodity or the contract for sale of a commodity for 
future delivery which is the subject of the option exceeds the strike 
price of the option; and
    (2) With respect to a put option, the amount by which the value of 
the physical commodity or the contract for sale of a commodity for 
future delivery which is the subject of the option is exceeded by the 
strike price of the option.
    (z) Joint account means any commodity contract account held by more 
than one person and includes any account of a commodity pool which is 
not a legal entity.
    (aa) Leverage transaction merchant shall have the same meaning as 
that set forth in section 761(14) of the Bankruptcy Code.
    (bb) Net equity means the amount calculated as net equity in 
accordance withSec. 190.07(b).
    (cc) Non-public customer means any person enumerated in the 
definition of Proprietary Account inSec. 1.3 orSec. 31.4(e) of this 
chapter, any person excluded from the definition of ``foreign futures or 
foreign options customer'' in the proviso to section 30.1(c) of this 
chapter, or any person enumerated in the definition of Cleared Swaps 
Proprietary Account inSec. 22.1 of this chapter, in each case, if such 
person is defined as a ``customer'' under paragraph (k) of this section.
    (dd) Open commodity contract means a commodity contract which has 
been established in fact and which has not expired, been redeemed, been 
fulfilled by delivery or exercise, or been offset by another commodity 
contract.
    (ee) Order for relief means the filing of the petition in bankruptcy 
in a voluntary case and the adjudication of bankruptcy in an involuntary 
case.

[[Page 1111]]

    (ff) Premium means the amount agreed upon between the purchaser and 
seller, or their agents, for the purchase or sale of a commodity option.
    (gg) Primary liquidation date means the first business day 
immediately following the day on which all commodity contracts have been 
liquidated or transferred which are not being held open for later 
transfer in accordance withSec. 190.03.
    (hh) Principal contract means a contract which is not traded on a 
designated contract market, and includes leverage contracts and dealer 
options, but does not include:
    (1) Transactions executed off the floor of a designated contract 
market pursuant to rules approved by the Commission or rules which the 
designated contract market is required to enforce, or pursuant to rules 
of a foreign board of trade located outside the United States, its 
territories or possessions; or
    (2) Cleared swaps contracts.
    (ii) Public customer means any person defined as a customer under 
paragraph (k) of this section except a non-public customer.
    (jj) Security shall have the same meaning as that set forth in 
section 101(36) of the Bankruptcy Code.
    (kk) Short term obligation means any security, note, or other 
obligation with a duration or maturity date of 180 days or less.
    (ll) Specifically identifiable property means:
    (1) With respect to the following property received, acquired, or 
held by or for the account of the debtor from or for the account of a 
customer to margin, guarantee or secure an open commodity contract:
    (i) Any security which as of the filing date is:
    (A) Held for the account of a customer;
    (B) Registered in such customer's name;
    (C) Not transferable by delivery; and
    (D) Not a short term obligation; or
    (ii) Any warehouse receipt, bill of lading or other document of 
title which as of the filing date:
    (A) Can be identified on the books and records of the debtor as held 
for the account of a particular customer; and
    (B) Is not in bearer form and is not otherwise transferable by 
delivery.
    (2) With respect to open commodity contracts, and except as 
otherwise provided in paragraph (kk)(7) of this section, any such 
contract which:
    (i) As of the filing date is identified on the books and records of 
the debtor as held for the account of a particular customer;
    (ii) Is a bona fide hedging position or transaction as defined in 
Sec.  1.3 of this chapter or is a commodity option transaction which has 
been determined by the registered entity to be economically appropriate 
to the reduction of risks in the conduct and management of a commercial 
enterprise pursuant to rules which have been approved by the Commission 
pursuant to section 5c(c) of the Commodity Exchange Act; and
    (iii) Is in an account designated in the accounting records of the 
debtor as a hedging account in accordance withSec. 190.04(e)(1).
    (3) With respect to warehouse receipts, bills of lading or other 
documents of title, or physical commodities received, acquired, or held 
by or for the account of the debtor for the purpose of making or taking 
delivery or exercise from or for the account of a customer, any such 
document of title or commodity which as of the entry of the order for 
relief can be identified on the books and records of the debtor as 
received from or for the account of a particular customer as held 
specifically for the purpose of delivery or exercise.
    (4) Any cash or other property deposited prior to the entry of the 
order for relief to pay for the taking of physical delivery on a long 
commodity contract or for payment of the strike price upon exercise of a 
short put or a long call option contract on a physical commodity, which 
cannot be settled in cash, in excess of the amount necessary to margin 
such commodity contract prior to the notice date or exercise date, which 
cash or other property is identified on the books and records of the 
debtor as received from or for the account of a particular customer on 
or after three calendar days before the first notice date or three 
calendar days before the exercise date specifically for the purpose of 
payment of the notice price upon taking delivery or the

[[Page 1112]]

strike price upon exercise, respectively, and such customer takes 
delivery or exercises the option in accordance with the applicable 
designated contract market rules.
    (5) The cash price tendered for any property deposited prior to the 
entry of the order for relief to make physical delivery on a short 
commodity contract or for exercise of a long put or a short call option 
contract on a physical commodity, which cannot be settled in cash, to 
the extent it exceeds the amount necessary to margin such contract prior 
to the notice date or exercise date, which property is identified on the 
books and records of the debtor as received from or for the account of a 
particular customer on or after three calendar days before the first 
notice date or three calendar days before the exercise date specifically 
for the purpose of a delivery or exercise, respectively, and such 
customer makes delivery or exercises the option in accordance with the 
applicable contract market rules.
    (6) Notwithstanding paragraph (kk)(1) of this section, fully paid, 
non-exempt securities identified on the books and records of the debtor 
as held by the debtor for or on behalf of the commodity contract account 
of a particular customer for which, according to such books and records 
as of the filing date, no open commodity contracts were held in the same 
capacity.
    (7) Open commodity contracts transferred in accordance with the 
provisions ofSec. 190.06.
    (8) Except as is otherwise specified in this paragraph (kk), no 
customer property may be treated as specifically identifiable property.
    (9) Notwithstanding any other provision of this paragraph (kk), 
security futures products, and any money, securities or property held to 
margin, guarantee or secure such products, or accruing as a result of 
such products, shall not be considered specifically identifiable 
property for the purposes of Subchapter IV of the Bankruptcy Code or 
this part 190, if held in a securities account.
    (mm) Strike price means the price per unit multiplied by the total 
number of units at which a person may purchase or sell the physical 
commodity or the contract of sale of a commodity for future delivery 
which is the subject of a commodity option.
    (nn) Trustee means, as appropriate, the trustee in bankruptcy 
apointed to administer the debtor's estate and any interim or successor 
trustee.
    (oo) Leverage contract shall have the same meaning as that set forth 
inSec. 31.4(w) of this chapter.
    (pp) Cleared Swap. This term shall have the same meaning as set 
forth inSec. 22.1 of this chapter.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983, as 
amended at 48 FR 28980, June 24, 1983; 49 FR 5541, Feb. 13, 1984, 50 FR 
34617, Sept. 6, 1985; 59 FR 5704, Feb. 8, 1994; 66 FR 20745, Apr. 25, 
2001; 67 FR 58298, Sept. 13, 2002; 75 FR 17302, Apr. 6, 2010; 77 FR 
6378, Feb. 7, 2012]



Sec.  190.02  Operation of the debtor's estate subsequent to the filing
date and prior to the primary liquidation date.

    Subsequent to the filing date and prior to the primary liquidation 
date, the debtor's estate shall be operated as follows:
    (a) Notices to the Commission and Designated Self-Regulatory 
Organizations--(1) General. Each commodity broker which files a petition 
in bankruptcy shall, at or before the time of such filing, and each 
commodity broker against which such a petition is filed shall, as soon 
as possible, but no later than one calendar day after the receipt of 
notice of such filing, notify the Commission and such broker's 
designated self-regulatory organization, if any, in accordance with 
Sec.  190.10(a) of the filing date, the court in which the proceeding 
has been filed, and the docket number assigned to that proceeding by the 
court.
    (2) Of transfers under section 764(b) of the Bankruptcy Code. As 
soon as possible, but in no event later than the close of business on 
third calendar day

[[Page 1113]]

after the order for relief, the trustee, the applicable self-regulatory 
organization, or the commodity broker must notify the Commission in 
accordance withSec. 190.10(a) whether such entity or organization 
intends to transfer or to apply to transfer open commodity contracts on 
behalf of the commodity broker in accordance with section 764(b) of the 
Bankruptcy Code andSec. 190.06 (e) or (f).
    (b) Notices to customers--(1) Specifically identifiable property 
other than commodity contracts. The trustee must use its best efforts to 
promptly, but in no event later than two calendar days after entry of 
the order for relief, commence to publish in a daily newspaper or 
newspapers of general circulation approved by the court serving the 
location of each branch office of the commodity broker, for two 
consecutive days a notice to customers stating that all specifically 
identifiable property of customers other than open commodity contracts 
which has not otherwise been liquidated will be liquidated commencing on 
the sixth calendar day after the second publication date if the customer 
has not instructed the trustee in writing on or before the fifth 
calendar day after the second publication date to return such property 
pursuant to the terms for distribution of specifically identifiable 
property contained inSec. 190.08(d)(1) and, on the seventh calendar 
day after such second publication date, if such property has not been 
returned in accordance with such terms on or prior to that date. Such 
notice must describe specifically identifiable property in accordance 
with the definition in this part and must specify the terms upon which 
that property may be returned. Publication of the form of notice set 
forth in the appendix to this part will constitute sufficient notice for 
purposes of this paragraph (b)(1).
    (2) Request for instructions regarding transfer of open commodity 
contracts. The trustee must use its best efforts to request promptly, 
but in no event later than two calendar days after entry of an order for 
relief, customer instructions concerning the transfer or liquidation of 
the specifically identifiable open commodity contracts, if any, not 
required to be liquidated under paragraph (f)(1) of this section. The 
request for customer instructions required by this paragraph (b)(2) must 
state that the trustee is required to liquidate any such commodity 
contract for which transfer instructions have not been received on or 
before the seventh calendar day after entry of the order for relief, at 
an hour specified by the trustee, and any such commodity contract for 
which instructions have been received which has not been transferred in 
accordance withSec. 190.08(d)(2) on or before the seventh calendar day 
after entry of the order for relief. A form of notice is set forth in 
the appendix to this part.
    (3) Involuntary cases. Prior to entry of an order for relief, and 
upon leave of the court, the trustee appointed in an involuntary 
proceeding may notify customers of the commencement of such proceeding 
and may request customer instructions with respect to the return, 
liquidation or transfer of specifically identifiable property, including 
open commodity contracts.
    (4) Notice of bankruptcy and request for proof of customer claim. 
The trustee must promptly notify each customer of record in writing that 
an order for relief has been entered and must instruct each such 
customer to file a proof of customer claim containing the information 
specified in paragraph (d) of this section. Such notice may be given 
separately from the notices required by paragraphs (b) (1) and (3) of 
this section.
    (c) Disposition of customer instructions in the event of a transfer 
pursuant to section 764(b) of the Bankruptcy Code. If the debtor's open 
commodity contracts have been, or are to be, transferred in accordance 
with section 764(b) of the Bankruptcy Code andSec. 190.06, customer 
instructions previously received by the trustee with respect to open 
commodity contracts, or with respect to specifically identifiable 
property which is to be transferred with such contracts, shall be 
transmitted to the transferee of such contracts or property who shall 
comply therewith to the extent practicable.
    (d) Proof of customer claim. The trustee shall cause the proof of 
customer claim form referred to in paragraph (b)(4) of this section to 
set forth the

[[Page 1114]]

bar date for its filing and to request that customers provide, to the 
extent reasonably possible, information sufficient to determine a 
customer's claim in accordance with the regulations contained in this 
part, including in the discretion of the trustee:
    (1) The class of commodity contract account upon which each claim is 
based;
    (2) The number of accounts held by each claimant, and the capacity 
in which they are held;
    (3) The equity as of the filing date of each account based on 
commodity contract transactions in that account;
    (4) Whether each account is a public or a non-public customer 
account;
    (5) Whether any account is a discretionary account;
    (6) A description of all claims against the debtor not based upon a 
commodity contract account of the claimant;
    (7) A description of all claims of the debtor against the claimant 
not included in the equity of a commodity contract account of the 
claimant;
    (8) A description of any deposits of money, securities or property 
with the debtor made by the claimant indicating the portion of such, if 
any, which was contained in the information provided in paragraph (d)(3) 
of this section and identifying any such property which would be 
specifically identifiable property as defined inSec. 190.01(kk);
    (9) Whether the claimant is or was an ``affiliate,'' ``insider,'' or 
``relative'' of the debtor as these terms are defined by sections 101 
(2), (25), and (34), respectively, of the Bankruptcy Code;
    (10) The amount of the claimant's percentage interest in any joint 
account;
    (11) Whether the claimant's positions in security futures products 
are held in a futures account or a securities account, as these terms 
are defined inSec. 1.3 of this chapter;
    (12) Whether the claimant wishes to receive payment in kind, to the 
extent possible, for any claim for securities; and
    (13) Copies of any documents which support the information contained 
in the proof of customer claim, including without limitation, customer 
confirmations, account statements, and statements of purchase or sale.

A proof of claim form which may be used by the trustee is set forth in 
the appendix to this part.
    (e) Transfers--(1) All cases. The trustee for a commodity broker 
must immediately use its best efforts to effect a transfer in accordance 
withSec. 190.06 (e) and (f) no later than the seventh calendar day 
after the order for relief of the open commodity contracts and equity 
held by the commodity broker for or on behalf of its customers.
    (2) Involuntary cases. A commodity broker against which an 
involuntary petition in bankruptcy is filed, or the trustee if a trustee 
has been appointed in such case, must use its best efforts to effect a 
transfer in accordance withSec. 190.06 (e) and (f) of all open 
commodity contracts and equity held by the commodity broker for or on 
behalf of its customers and such other property as the Commission in its 
discretion may authorize, on or before the seventh calendar day after 
the filing date, and immediately cease doing business: Provided, 
however, That the commodity broker may trade for liquidation only, 
unless otherwise directed by the Commission, by any applicable self-
regulatory organization or by the court: And, Provided further, That if 
the commodity broker demonstrates to the Commission within such period 
that it was in compliance with the segregation and financial 
requirements of this chapter on the filing date, and the Commission 
determines, in its sole discretion, that such transfer or liquidation is 
neither appropriate nor in the public interest, the commodity broker may 
continue in business subject to applicable provisions of the Bankruptcy 
Code and of this chapter.
    (f) Liquidation or offset. After entry of the order for relief and 
subject to paragraph (e) of this section, which requires the trustee to 
attempt to make certain transfers permitted bySec. 190.06 and section 
764(b) of the Bankruptcy Code, the following commodity contracts and 
other property held by or for the account of a debtor must be liquidated 
or offset by the trustee promptly and in an orderly manner, subject to 
limit

[[Page 1115]]

moves and to applicable procedures under the Bankruptcy Code:
    (1) Open commodity contracts. All open commodity contracts except:
    (i) Dealer option contracts, if the dealer option grantor is not the 
debtor, which cannot be transferred on or before the seventh calendar 
day after the order for relief; and
    (ii) Specifically identifiable commodity contracts as defined in 
Sec.  190.01(kk)(2) for which an instruction prohibiting liquidation is 
noted prominently in the accounting records of the debtor and timely 
received under paragraph (b)(2) of this section. Notwithstanding the 
foregoing, an open commodity contract must be offset if: such contract 
is a futures contract or a Cleared Swaps contract which cannot be 
settled in cash and which would otherwise remain open either beyond the 
last day of trading (if applicable), or the first day on which notice of 
intent to deliver may be tendered with respect thereto, whichever occurs 
first; such contract is a long option on a physical commodity which 
cannot be settled in cash and would be automatically exercised, has 
value and would remain open beyond the last day for exercise; such 
contract is a short option on a physical commodity which cannot be 
settled in cash; or, as otherwise specified in these rules.
    (2) Specifically identifiable property other than open commodity 
contracts. Specifically identifiable property other than open commodity 
contracts to the extent that:
    (i) The fair market value of such property is less than 90% of its 
fair market value on the date of entry of the order for relief; or
    (ii) The trustee has not received instructions to return, or has not 
returned, such property upon the terms contained inSec. 190.08(d)(1) 
on or before the end of the period set forth in paragraph (b)(1) of this 
section.
    (3) All other property. All other property not required to be 
transferred or returned pursuant to customer instructions which has not 
been liquidated in accordance with paragraphs (f)(1) and (f)(2) of this 
section.
    (g) Treatment of open commodity contracts--(1) Margin payments by 
the trustee. Prior to the primary liquidation date, the trustee may make 
variation and maintenance margin payments to a commodity broker carrying 
the account of the debtor, as appropriate, pending liquidation of any 
open commodity contracts required to be liquidated under paragraph 
(f)(1) of this section, whether or not such contracts are specifically 
identifiable to a particular customer: Provided, That:
    (i) No payments may be made on behalf of accounts which are in 
deficit,
    (ii) No payments may be made on behalf of non-public customers or 
the debtor from funds which are segregated for the benefit of public 
customers,
    (iii) The trustee must make margin payments if payments of margin 
are received from customers after bankruptcy in response to margin 
calls, and
    (iv) No payments need be made to restore initial margin.
    (2) Margin calls. The trustee, or in the case of an involuntary 
bankruptcy, the commodity broker against which the petition is filed or 
the trustee if a trustee has been appointed, must issue margin calls 
with respect to any account in which the funded balance less the value 
on the date of return or transfer of any property previously returned or 
transferred does not equal or exceed:
    (i) 100% of the maintenance margin requirements of the applicable 
designated contact market or swap execution facility, if any, with 
respect to the open commodity contracts in such account; or
    (ii) If there are no such maintenance margin requirements, 100% of 
the clearing organization margin requirements applicable to the open 
commodity contracts in such account; or
    (iii) If there are no maintenance margin requirements or clearing 
organization margin requirements, then 50% of the initial margin 
applicable to the open commodity contracts in such account;

Provided, That no margin calls need be made by the trustee to restore 
initial margin. A margin call for such accounts should be made as soon 
as possible following the order for relief and the trustee shall be 
authorized, but not obligated, to liquidate any account for which such 
margin call is not met within a reasonable time as defined in

[[Page 1116]]

Sec.  190.04(e)(4): Provided, That the trustee must immediately 
liquidate any account which is in deficit.
    (3) Margin payments by the customer. The full amount of any margin 
payment by a customer in response to a margin call under paragraph 
(g)(2) of this section must be credited to the funded balance of the 
particular account for which it was made.

[48 FR 8739, Mar. 1, 1983, as amended at 67 FR 58298, Sept. 13, 2002; 77 
FR 6378, 6379, Feb. 7, 2012]



Sec.  190.03  Operation of the debtor's estate subsequent to the 
primary liquidation date.

    Subsequent to the primary liquidation date, accounts which contain 
open commodity contracts not required to be liquidated underSec. 
190.02 (f)(1) shall be operated by the trustee as follows:
    (a) Operation of accounts held open for transfer--(1) Establishment 
of transfer accounts. On the primary liquidation date, the trustee must 
generate a new statement of account for each class of account of a 
customer which contains a commodity contract not required to be 
liquidated underSec. 190.02(f)(1). The opening balance of such 
statement must be equal to its funded balance, less the value on the 
date of its transfer or return of any property transferred or returned 
with respect to the net equity claim for such account prior to the 
primary liquidation date.
    (2) Accounting for transfer accounts. The opening balance of any 
statement generated on the primary liquidation date in accordance with 
paragraph (a)(1) of this section must be adjusted for operations on or 
subsequent to the primary liquidation date in the same manner as the 
equity in a commodity contract account maintained for or on behalf of a 
customer would adjusted in the ordinary course of business prior to the 
filing date: Provided, however, That such statement of account must also 
be adjusted to reflect certain adjustments to the funded balance in 
accordance withSec. 190.07(c)(2), such that the balance in that 
account will always be equal to the funded balance of the claimant's net 
equity claim adjusted for corrections and subsequent operations less the 
value on the date of transfer or return of any property transferred or 
returned with respect to that claim prior to the primary liquidation 
date.
    (3) Margin calls. The trustee must promptly issue margin calls with 
respect to any account referred to under paragraph (a)(1) of this 
section in which the balance does not equal or exceed 100% of the 
maintenance margin requirements of the applicable designated contact 
market or swap execution facility, if any, with respect to the open 
commodity contracts in such account, or if there are no such maintenance 
margin requirements, 100% of the clearing organization's initial margin 
requirements applicable to the open commodity contracts in such account, 
or if there are no such maintenance margin requirements or clearing 
organization initial margin requirements, then 50% of the customer 
initial margin applicable to the commodity contracts in such account: 
Provided, That no margin calls need be made to restore customer initial 
margin.
    (4) Margin payments. The trustee may make variation or maintenance 
margin payments to the broker carrying any account referred to in 
paragraph (a)(1) of this section as appropriate if such payments do not 
exceed the balance of the statement of account generated under paragraph 
(a)(1) of this section with respect to which such contracts are 
credited. Any customer for which commodity contracts remain open 
subsequent to the primary liquidation date will not be relieved of the 
obligation to make margin payments by reason of the bankruptcy of the 
commodity broker: Provided, That the full amount of any margin payment 
made by a customer subsequent to the primary liquidation date must be 
credited to the account referred to in paragraph (a)(1) of this section 
for which it was made.
    (5) Distribution. No distribution of equity may be made to or on 
behalf of customers by the trustee with respect to an account 
established in accordance with paragraph (a)(1) of this section, except 
pursuant to paragraph (a)(4) of this section and toSec. 190.08(d).
    (b) Liquidation of open commodity contracts. Commodity contracts 
held open

[[Page 1117]]

by the trustee in accordance with paragraph (a)(1) of this section must 
be liquidated promptly and in an orderly manner, if:
    (1) Any payment of margin would result in a deficit in the account 
in which they are held;
    (2) The customer for, or on whose behalf, the account is held fails 
to meet a margin call within a reasonable time;
    (3) The trustee has received no customer instructions with respect 
to such contract by the sixth calendar day after entry of the order for 
relief;
    (4) The commodity contract has not been transferred in accordance 
withSec. 190.08(d)(2) on or before the seventh calendar day after 
entry of the order for relief; or
    (5) The commodity contract would otherwise remain open (e.g., 
because it cannot be settled in cash) beyond the last day of trading in 
such contract (if applicable) or the first day on which notice of 
delivery may be tendered with respect to such contract, whichever occurs 
first.
    (c) Liquidation of specifically identifiable property other than 
open commodity contracts. All specifically identifiable property other 
than open commodity contracts which have not been liquidated prior to 
the primary liquidation date, and for which no customer instructions 
have been timely received must be liquidated, to the extent reasonably 
possible, no later than the sixth calendar day after final publication 
of the notice referred to inSec. 190.02(b)(1). All other specifically 
identifiable property must be liquidated or returned, to the extent 
reasonably possible, no later than the seventh calendar day after final 
publication of such notice.

[48 FR 8739, Mar. 1, 1983, as amended at 77 FR 6378, 6380, Feb. 7, 2012]



Sec.  190.04  Operation of the debtor's estate--general.

    (a) Compliance with the Act and regulations. Except as specifically 
provided otherwise in this part, the trustee shall comply with all of 
the provisions of the Act and of the regulations thereunder as if it 
were the debtor.
    (b) Computation of funded balance. Using the information available, 
the trustee must compute a funded balance for each customer account 
which contains open commodity contracts as of the close of business each 
day subsequent to the order for relief until the final liquidation date. 
Such computation must be completed prior to noon on the next business 
day.
    (c) Records--(1) Maintenance. Subject to the requirements of the 
Bankruptcy Code, records of the computations required by this part shall 
be maintained in accordance withSec. 1.31 of this chapter by the 
trustee for the greater of the period required bySec. 1.31 of this 
chapter or for a period of one year after the close of the bankruptcy 
proceeding for which they were compiled.
    (2) Accessibility. The records required to be maintained by 
paragraph (c)(1) of this section shall be available during business 
hours to the Court, parties in interest, the Commission and the U.S. 
Department of Justice. At any time on or after the filing date, the 
commodity broker, or the trustee if a trustee has been appointed, shall 
be required to give the Commission and the U.S. Department of Justice 
immediate access to all records of the debtor, including records 
required to be retained in accordance withSec. 1.31 of this chapter 
and all other records of the commodity broker, whether or not the Act or 
this chapter would require such records to be maintained by the 
commodity broker.
    (d) Liquidation--(1) Order of liquidation--(i) In the market. 
Liquidation of open commodity contracts held for a house account or 
customer account by or on behalf of a commodity broker which is a debtor 
shall be accomplished pursuant to the rules of a clearing organization, 
a designated contract market, or a swap execution facility, as 
applicable. Such rules shall ensure that the process for liquidating 
open commodity contracts, whether for the house account or the customer 
account, results in competitive pricing, to the extent feasible under 
market conditions at the time of liquidation. Such rules must be 
submitted to the Commission for approval, pursuant to section 5c(c) of 
the Act, and be approved by the Commission. Alternatively, such rules 
must otherwise be submitted to and approved by the Commission (or its 
delegate pursuant to

[[Page 1118]]

Sec.  190.10(d) of this part) prior to their application.
    (ii) Book entry. Notwithstanding paragraph (d)(1) of this section, 
in appropriate cases, upon application by the trustee or the affected 
clearing organization, the Commission may permit open commodity 
contracts to be liquidated, or settlement on such contracts to be made, 
by book entry. Such book entry shall offset open commodity contracts, 
whether matched or not matched on the books of the commodity broker, 
using the settlement price for such commodity contracts as determined by 
the clearing organization. Such settlement price shall be determined by 
the rules of the clearing organization, which shall ensure that such 
settlement price is established in a competitive manner, to the extent 
feasible under market conditions at the time of liquidation. Such rules 
must be submitted to the Commission for approval pursuant to section 
5c(c) of the Act, and be approved by the Commission. Alternatively, such 
rules must otherwise be approved by the Commission (or its delegate 
pursuant toSec. 190.10(d) of this part) prior to their application.
    (2) Liquidation only. Nothing in this part shall be interpreted to 
permit the trustee to purchase or sell new commodity contracts for 
customers of the debtor except to offset open commodity contracts or to 
transfer any transferable notice received by the debtor or the trustee 
under any commodity contract: Provided, however, That the trustee may, 
in its discretion and with approval of the Commission, cover uncovered 
inventory or commodity contracts of the debtor which cannot be 
liquidated immediately because of price limits or other market 
conditions, or may take an offsetting position in a new month or at a 
strike price for which limits have not been reached.
    (3) Exception to liquidation only. Notwithstanding paragraph (d)(2) 
of this section, the trustee may, with the written permission of the 
Commission, operate the business of the debtor in the ordinary course, 
including the purchase or sale of new commodity contracts on behalf of 
the customers of the debtor under appropriate circumstances, as 
determined by the Commission.
    (e) Other matters--(1) Determination as to bona fide hedges. In 
determining which commodity contracts are eligible to be held open for 
transfer pursuant to customer instruction, the trustee may rely on the 
designation in the accounting records of the commodity broker that the 
account for or on behalf of which the contract is held is a hedging 
account. Commodity contracts maintained in a hedging account may be 
treated by the trustee as specifically identifiable.
    (2) Disbursements. The trustee shall make no disbursements to 
customers prior to final distribution except with approval of the court 
or in accordance withSec. 190.08(d).
    (3) Investment. The trustee shall promptly invest the equity 
resulting from the liquidation of commodity contracts, and the proceeds 
of the liquidation of specifically identifiable property, in obligations 
of the United States and obligations fully guaranteed as to principal 
and interest by the United States, and may similarly invest any customer 
equity in accounts which remain open in accordance withSec. 190.03: 
Provided, That such obligations are maintained in a depository located 
in the United States, its territories or possessions.
    (4) Margin calls--reasonable time. Except as otherwise provided in 
this part, a reasonable time for meeting margin calls made by the 
trustee shall be deemed to be one hour, or such greater period not to 
exceed one business day, as the trustee may determine in its sole 
discretion.
    (5) Management of long option contracts. Subject to the applicable 
liquidation provisions the trustee must use its best efforts to assure 
that a

[[Page 1119]]

long option contract with value does not expire worthless.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983, as amended at 48 FR 28980, June 24, 1983; 75 
FR 44893, July 30, 2010; 77 FR 6380, Feb. 7, 2012]



Sec.  190.05  Making and taking delivery on commodity contracts.

    (a) General. (1) In the event that the trustee is unable to 
liquidate an open commodity contract subject to physical delivery or an 
option on a physical commodity, which cannot be settled in cash, prior 
to the last day of trading in that contract as required by Sec.Sec. 
190.02(f)(1) and 190.03(b)(5), the trustee must use its best efforts to 
prevent property which is to be delivered for or on behalf of a customer 
to fulfill that contract, or property for which delivery is being taken 
with respect to a customer pursuant to that contract, from becoming part 
of the debtor's estate.
    (2) Delivery account shall mean any account prominently designated 
as such in the records of the debtor which contains only the 
specifically identifiable property associated with delivery set forth in 
Sec.  190.01(kk) (3), (4), and (5), except that with respect toSec. 
190.01(kk) (4) and (5), delivery need not be made or taken and exercise 
need not be effected for such property to be included in a delivery 
account.
    (3) The portion of the price or the proceeds of a commodity contract 
upon delivery which is not specifically identifiable property under 
Sec.  190.01(kk) (4) and (5) must be distributed pro rata under section 
766(h) of the Code.
    (b) Rules for deliveries on behalf of a customer of a debtor. Except 
in the case of a commodity contract which is settled in cash, each 
designated contract market, swap execution facility, or clearing 
organization shall adopt, maintain in effect and enforce rules which 
have been submitted in accordance with section 5c(c) of the Act for 
approval by the Commission, which:
    (1) Permit the making and taking of delivery to fulfill a commodity 
contract for a physical commodity or an option on a physical commodity, 
which has not become part of the debtor's estate on the date of the 
entry of the order for relief but with respect to which commodity 
contract:
    (i) Trading has ceased on the date of the entry of the order for 
relief;
    (ii) Notice of delivery has been tendered on or before the date of 
the entry of the order for relief; or,
    (iii) Trading ceases before it can be liquidated by the trustee, to 
be effected directly between the customer of the debtor and the person 
identified by the clearing organization as the party to whom delivery 
should be made or from whom delivery should be taken by such customer of 
the debtor without intervention of the trustee and without including 
such physical commodity or the payment for such physical commodity in 
any bankruptcy distribution: Provided, however, That a customer shall 
not be relieved of his obligation to make or take delivery for the sole 
reason that delivery must be made or taken from a commodity broker which 
is a debtor; and
    (2) Recognize that the equity of a customer of the debtor in a 
commodity contract upon which delivery is made or taken must be included 
in the net equity claim of that customer and, as such, can only be 
distributed pro rata at the time of, and as part of, any distributions 
to customers made by the trustee.
    (c) Delivery made or taken within the debtor's estate. (1) Any 
property in a delivery account which is part of the debtor's estate on 
the date of the order for relief may be returned under the terms set 
forth inSec. 190.08(d)(1)(ii).
    (2) If the property to be delivered is part of the debtor's estate 
on the date of the order for relief and a customer of the debtor is 
required to make delivery, the trustee must make delivery in the same 
manner as if no bankruptcy had occurred and the party by whom delivery 
is taken must pay the full notice price or strike price for delivery.

[[Page 1120]]

    (3) If delivery is to be made or taken on behalf of a house account 
the trustee must either make or take delivery, as the case may be, on 
behalf of the debtor's estate: Provided, That if the trustee, at any 
time, takes delivery of a physical commodity, the trustee must convert 
that physical commodity to cash as promptly as possible.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983, as amended at 48 FR 28980, June 24, 1983; 59 
FR 5704, Feb. 8, 1994; 77 FR 6378, 6381, Feb. 7, 2012]



Sec.  190.06  Transfers.

    (a) Transfer rules. No clearing organization or other self-
regulatory organization may adopt, maintain in effect or enforce rules 
which:
    (1) Are inconsistent with the provisions of this part;
    (2) Interfere with the acceptance by its members of open commodity 
contracts and the equity margining or securing such contracts from 
futures commission merchants, or persons which are required to be 
registered as futures com-mission merchants, which are required to 
transfer accounts pursuant toSec. 1.17(a)(4) of this chapter; or
    (3) Prevent the acceptance by its members of transfers of open 
commodity contracts and the equity margining or securing such contracts 
from futures commission merchants with respect to which a petition in 
bankruptcy has been filed, if such transfers have been approved by the 
Commission. Provided, however, that this paragraph shall not limit the 
exercise of any contractual right of a clearing organization or other 
registered entity to liquidate open commodity contracts.
    (b) Notice. Unless notice has been filed pursuant toSec. 1.65(b) 
of this chapter, if a futures commission merchant, or a person required 
to be registered as a futures commission merchant, intends to transfer 
commodity contracts held by or for a commodity broker from or for the 
account of a customer to another person registered as a futures 
commission merchant after a petition in bankruptcy has been filed by or 
against such commodity broker, the transferor must notify the Commission 
no later than is required underSec. 190.02(a)(2).
    (c) Financial requirements for transferees. (1) No transfer may be 
made which would cause the transferee to be in violation of the minimum 
financial requirements set forth in this chapter.
    (2) A transferee may accept a transfer of open commodity contracts 
even though the money, securities and other property eligible for 
transfer under the regulations contained in this part is insufficient to 
fully margin such positions, if the transferee agrees to accept the 
transfer subject to any loss due to the failure to recover such 
deficiency from the customers whose contracts it has accepted or from 
the estate of the debtor.
    (3) The transferee of a commodity contract for which notice is given 
underSec. 190.06(b)(2) must keep that contract open one business day 
after its receipt, unless the customer for whom the transfer is made 
fails to respond within a reasonable time to a margin call for the 
difference between the margin transferred with such contract and the 
margin which such transferee would require with respect to a similar 
commodity contract held for the account of a customer in the ordinary 
course of business.
    (4) No commission may be collected by the transferor with respect to 
the transfer of an open commodity contract for which notice is given 
underSec. 190.06(b)(2).
    (d) Customer instructions--(1) Customer instructions. A commodity 
broker must provide an opportunity for each customer to specify when 
undertaking its first hedging contract whether, in the event of 
bankruptcy, such customer prefers that open commodity contracts held in 
a hedging account be liquidated by the trustee without seeking customer 
instructions. Such commodity broker may obtain evidence of the customer 
instructions as provided inSec. 1.55(d) of this chapter.
    (2) Record of customer instructions. Each futures commission 
merchant

[[Page 1121]]

must indicate prominently in the accounting records in which it 
maintains open trade balances any customer accounts which are hedging 
accounts for which the customer has not specified that it prefers open 
contracts to be liquidated in bankruptcy by the trustee without 
instruction.
    (e) Eligibility for transfer under section 764(b) of the Bankruptcy 
Code--(1) Accounts eligible for transfer. Subject to the requirements of 
paragraph (e)(2) of this section, all accounts are eligible for transfer 
after the filing date pursuant to section 764(b) of the Bankruptcy Code, 
except:
    (i) House accounts or the accounts of general partners of the debtor 
if the debtor is a partnership;
    (ii) Leverage accounts, if the debtor is the leverage transaction 
merchant with respect to such accounts;
    (iii) Dealer option accounts, if the debtor is the dealer option 
grantor with respect to such accounts; or
    (iv) Accounts which are in deficit.
    (2) Amount of equity which may be transferred. In no case may money, 
securities or property be transferred in respect of any eligible account 
if the value of such money, securities or property would exceed the 
funded balance of such account based on available information as of the 
calendar day immediately preceding transfer less the value on the date 
of return or transfer of any property previously returned or transferred 
with respect thereto.
    (f) Special rules for transfers under section 764(b) of the 
Bankruptcy Code--(1) Dealer options--(i) Eligibility for transfer. Prior 
to exercise, any dealer option contract held by or for the account of a 
debtor which is a futures commission merchant from or for the account of 
a customer may be transferred even if the funded balance available for 
transfer which is attributable to such contract does not equal 100% of 
the portion of the purchase price required to be segregated with respect 
to such contract: Provided, That a dealer option contract will be 
eligible for transfer only if any deficiency in the funded balance of 
the customer account in which it is held is not due to amounts owed by 
such customer to the debtor; and, Provided further, That the transferee 
of any dealer option contract need not segregate more than an amount 
equal to that portion of the purchase price due the grantor which is 
transferred with the contract which should be equal to the grantor's 
funded balance in the portion of the purchase price segregated less any 
reasonable reserve established by the trustee for the nonrecovery of 
overpayments.
    (ii) Obligation of the dealer option grantor. In the event of the 
transfer of a dealer option contract pursuant to this section, the 
failure of the debtor futures commission merchant to segregate 100% of 
the purchase price due the grantor for such contract, or the failure of 
the dealer option grantor to collect 100% of such purchase price due the 
grantor, shall not excuse the dealer option grantor from its obligation 
to perform such contract in full upon its exercise, without any setoff 
or set aside for the premium deficiency.
    (2) Clearing organizations. Commodity contracts held by a clearing 
organization which is a debtor may not be transferred.
    (3) Partial transfers--(i) Of the customer estate. If all eligible 
customer accounts held by a debtor cannot be transferred under this 
section, a partial transfer may nonetheless be made. The Commission will 
not disapprove such a transfer for the sole reason that it was a partial 
transfer if it would prefer the transfer of accounts, the liquidation of 
which could adversely affect the market or the bankrupt estate. Any 
dealer option contract held by or for the account of a debtor which is a 
futures commission merchant from or for the account of a customer which 
has not previously been transferred, and is eligible for transfer, must 
be transferred on or before the seventh calendar day after entry of the 
order for relief.
    (ii) Of a customer account. If all of a customer's open commodity 
contracts cannot be transferred under this section, a partial transfer 
of contracts may be made. A partial transfer may be effected by 
liquidating that portion of the open commodity contracts held by a 
customer which represents sufficient equity to permit the transfer of 
the remainder. If any commodity contracts to be transferred in a partial

[[Page 1122]]

transfer are part of a spread or straddle, both sides of such spread or 
straddle must be transferred or neither side may be transferred.
    (g) Prohibition on avoidance of transfers under section 764(b) of 
the Bankruptcy Code--(1) Pre-relief transfers. Notwithstanding the 
provisions of paragraph (e) of this section, the following transfers may 
not be avoided by a trustee:
    (i) The transfer of commodity contract accounts prior to the entry 
of the order for relief in compliance withSec. 1.17(a)(4) of this 
chapter unless such transfer is disapproved by the Commission; or
    (ii) The transfer prior to the order for relief by a public 
customer, including a transfer by a public customer which is a commodity 
broker, of commodity contract accounts held from or for the account of 
such customer by or on behalf of the debtor unless:
    (A) The customer acted in collusion with the debtor or its 
principals to obtain a greater share of the bankrupt estate than that to 
which it would be entitled in a bankruptcy distribution; or
    (B) The transfer is disapproved by the Commission.
    (iii) The transfer prior to the order for relief by a clearing 
organization of one or more accounts held for or on behalf of customers 
of the debtor, provided that (I) the money, securities, or other 
property accompanying such transfer did not exceed the funded balance of 
each account based on available information as of the close of business 
on the business day immediately preceding such transfer less the value 
on the date of return or transfer of any property previously returned or 
transferred thereto, and (II) the transfer is not disapproved by the 
Commission.
    (2) Post-relief transfers. On or after the entry of the order for 
relief, the following transfers to one or more transferees may not be 
avoided by the trustee:
    (i) The transfer of a customer account eligible to be transferred 
under paragraph (e) or (f) of this section made by the trustee of the 
commodity broker or by any self-regulatory organization of the commodity 
broker:
    (A) On or before the seventh calendar day after the entry of the 
order for relief; and
    (B) The Commission is notified in accordance withSec. 190.02(a)(2) 
prior to the transfer and does not disapprove the transfer; or
    (ii) The transfer of a customer account at the direction of the 
Commission on or before the seventh calendar day after the order for 
relief upon such terms and conditions as the Commission may deem 
appropriate and in the public interest.
    (3) Withdrawals prior to bankruptcy. The withdrawal or settlement of 
a commodity contract account by a public customer including a public 
customer which is a commodity broker, prior to the filing date may not 
be avoided by a trustee unless:
    (i) The customer making the withdrawal or settlement acted in 
collusion with the debtor or its principals to obtain a greater share of 
the bankruptcy estate than that to which such customer would be entitled 
in a bankruptcy distribution; or
    (ii) The withdrawal or settlement is disapproved by the Commission.
    (h) Commission action. Notwithstanding any other provision of this 
section, in appropriate cases and to protect the public interest, the 
Commission may:
    (1) Prohibit the transfer of customer accounts; or
    (2) Permit transfers of accounts which do not comply with the 
requirements of this section.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983; 58 FR 
17505, Apr. 5, 1993; 77 FR 6378, 6381, Feb. 7, 2012]



Sec.  190.07  Calculation of allowed net equity.

    Allowed net equity shall be computed as follows:
    (a) Allowed claim. The allowed net equity claim of a customer shall 
be equal to the aggregate of the funded balances of such customer's net 
equity claim for each account class plus or minus the adjustments 
specified in paragraph (d) of this section.
    (b) Net equity. Net equity means the total claim of a customer 
against the estate of the debtor based on the commodity contracts held 
by the debtor for

[[Page 1123]]

or on behalf of such customer less any indebtedness of the customer to 
the debtor. Net equity shall be calculated as follows:
    (1) Step 1--Equity determination. Determine the equity balance of 
each customer account by computing, with respect to such account, the 
sum of:
    (i) The ledger balance;
    (ii) The open trade balance; and
    (iii) The current realizable market value, determined as of the 
close of the market on the last preceding market day, of any securities 
or other property held by or for the debtor from or for such account, 
plus accrued interest, if any.
    (A) For the purposes of this paragraph (b)(1), the ledger balance of 
a customer account shall be calculated by adding:
    (1) Cash deposited to purchase, margin, guarantee, secure, or settle 
a commodity contract;
    (2) Except as is otherwise provided in this chapter, the cash 
proceeds of such cash, or of securities or other property referred to in 
paragraph (b)(1) of this section held from or for the customer by or for 
the account of the commodity broker; and
    (3) Gains realized on trades, and
    (B) Subtracting from the result:
    (1) Losses realized on trades;
    (2) Disbursements to or on behalf of the customer; and
    (3) The normal costs attributable to the payment of commissions, 
brokerage, interest, taxes, storage, transaction fees, insurance and 
other costs and charges lawfully incurred in connection with the 
purchase, sale, exercise, or liquidation of any commodity contract in 
such account. For purposes of this paragraph (b)(1), the open trade 
balance of a customer's account shall be computed by subtracting the 
unrealized loss in value of the open commodity contracts held by or for 
such account from the unrealized gain in value of the open commodity 
contracts held by or for such account. In calculating the ledger balance 
or open trade balance of any customer, exclude any security futures 
products, any gains or losses realized on trades in such products, any 
property received to margin, guarantee or secure such products 
(including interest thereon or the proceeds thereof), to the extent any 
of the foregoing are held in a securities account, and any disbursements 
to or on behalf of such customer in connection with such products or 
such property held in a securities account.
    (2) Step 2--Customer determination (aggregation). Aggregate the 
credit and debit equity balances of all accounts of the same class held 
by a customer in the same capacity. Paragraphs (b)(2)(i) through 
(b)(2)(xiii) of this section prescribe which accounts must be treated as 
being held in the same capacity and which accounts must be treated as 
being held in a separate capacity.
    (i) Except as otherwise provided in this paragraph (b)(2), all 
accounts which are maintained with a debtor in a person's name and 
which, under this paragraph (b)(2), are deemed to be held by that person 
in its individual capacity shall be deemed to be held in the same 
capacity.
    (ii) An account maintained with a debtor by a guardian, custodian, 
or conservator for the benefit of a ward, or for the benefit of a minor 
under the Uniform Gift to Minors Act, shall be deemed to be held in a 
separate capacity from accounts held by such guardian, custodian or 
conservator in its individual capacity.
    (iii) An account maintained with a debtor in the name of an executor 
or administrator of an estate shall be deemed to be held in a separate 
capacity from accounts held by such executor or administrator in its 
individual capacity.
    (iv) Subject to paragraph (b)(2)(iii) of this section, an account 
maintained with a debtor in the name of a decedent, in the name of the 
decedent's estate, or in the name of the executor or administrator of 
such estate shall be deemed to be accounts held in the same capacity.
    (v) An account maintained with a debtor by a trustee shall be deemed 
to be held in the individual capacity of the grantor of the trust unless 
the trust is created by a valid written instrument for a purpose other 
than avoidance of an offset under the regulations contained in this 
part. A trust account which is not deemed to be held in the individual 
capacity of its grantor under paragraph (b)(2)(v) of this section

[[Page 1124]]

shall be deemed to be held in a separate capacity from accounts held in 
an individual capacity by the trustee, by the grantor or any successor 
in interest of the grantor, or by any trust beneficiary, and from 
accounts held by any other trust.
    (vi) An account maintained with a debtor by a corporation, 
partnership, or unincorporated association shall be deemed to be held in 
a separate capacity from accounts held by the shareholders, partners or 
members of such corporation, partnership or unincorporated association, 
if such entity was created for purposes other than avoidance of an 
offset under the regulations contained in this part.
    (vii) A hedging account of a person shall be deemed to be held in 
the same capacity as a speculative account of such person.
    (viii) Subject to paragraph (b)(2)(ix) of this section, the futures 
accounts, leverage accounts, options accounts, foreign futures accounts, 
delivery accounts (as defined inSec. 190.05(a)(2)), and cleared swaps 
accounts of the same person shall not be deemed to be held in separate 
capacities: Provided, however, that such accounts may be aggregated only 
in accordance with paragraph (b)(3) of this section.
    (ix) An omnibus customer account of a futures commission merchant 
maintained with a debtor shall be deemed to be held in a separate 
capacity from the house account and any other omnibus customer account 
of such futures commission merchant.
    (x) A joint account maintained with the debtor shall be deemed to be 
held in a separate capacity from any account held in an individual 
capacity by the participants in such account, from any account held in 
an individual capacity by a commodity pool operator or commodity trading 
advisor for such account, and from any other joint account: Provided, 
however, That if such account is not transferred in accordance with 
Sec.  190.06, it shall be deemed to be held in the same capacity as any 
other joint account held by identical participants and a participant's 
percentage interest therein shall be deemed to be held in the same 
capacity as any account held in an individual capacity by such 
participant.
    (xi) An account maintained with a debtor in the name of a plan 
which, on the filing date, has in effect a registration statement in 
accordance with the requirements of section 1031 of the Employee 
Retirement Income Security Act of 1974 and the regulations thereunder 
shall be deemed to be held in a separate capacity from an account held 
in an individual capacity by the plan administrator, any employer, 
employee, participant, or beneficiary with respect to such plan.
    (xii) Except as otherwise provided in this section, an account 
maintained with a debtor by an agent or nominee for a principal or a 
beneficial owner shall be deemed to be an account held in the individual 
capacity of such principal or beneficial owner.
    (xiii) With respect to the cleared swaps account class, each 
individual customer account within each omnibus customer account 
referred to in paragraph (ix) of this section shall be deemed to be held 
in a separate capacity from each other such individual customer account; 
subject to the provisions of paragraphs (b)(2)(i) through (xii) of this 
paragraph (b)(2).
    (xiv) Accounts held by a customer in separate capacities shall be 
deemed to be accounts of different customers. The burden of proving that 
an account is held in a separate capacity shall be upon the customer.
    (3) Step 3--Setoffs. (i) The net equity of one customer account may 
not be offset against the net equity of any other customer.
    (ii) Any obligation which is not required to be included in 
computing the equity of a customer under paragraph (b)(1) of this 
section, but which is owed by such customer to the debtor must be 
deducted from any obligation not required to be included in computing 
the equity of a customer which is owed by such debtor to the customer. 
If the former amount exceeds the latter, the excess must be deducted 
from the equity balance of the customer obtained after performing the 
preceding calculations required by paragraph (b) of this section: 
Provided, That if the customer owns more than two classes of accounts 
the excess must be offset against each positive equity balance in the 
same proportion as that positive

[[Page 1125]]

equity balance bears to the total of all positive equity balances of 
accounts of different classes held by such customer.
    (iii) A negative equity balance obtained with respect to one 
customer account class must be set off against a positive equity balance 
in any other account class of such customer held in the same capacity: 
Provided, That if a customer owns more than two classes of accounts such 
balance must be offset against each positive equity balance in the same 
proportion as that positive equity balance bears to the total of all 
positive equity balances in accounts of different classes held by such 
customer.
    (iv) To the extent any indebtedness of the debtor to the customer 
which is not required to be included in computing the equity of such 
customer under paragraph (b)(1) of this section exceeds such 
indebtedness of the customer to the debtor, the customer claim therefor 
will constitute a general creditor's claim rather than a customer 
property claim, and the net equity therefor shall be separately 
calculated.
    (v) The rules pertaining to separate capacities and permitted 
setoffs contained in this section must be applied subsequent to the 
entry of an order for relief; prior to the filing date, the provisions 
ofSec. 1.22 of this chapter and of sections 4d(a)(2) and 4d(f) of the 
Act (and, in each case, the regulations promulgated thereunder) shall 
govern what setoffs are permitted.
    (4) Step 4--Correction for distributions. The value on the date of 
transfer or distribution of any property transferred or distributed 
subsequent to the filing date and prior to the primary liquidation data 
with respect to each class of account held by a customer must be added 
to the equity obtained for that customer for accounts of that class 
after performing the steps contained in paragraphs (b)(1)-(3) of this 
section: Provided, however, That if all accounts for which there are 
customer claims of record and 100% of the equity pertaining thereto are 
transferred in accordance withSec. 190.06 and section 764(b) of the 
Bankruptcy Code, net equity shall be computed based solely upon those 
customer claims, if any, filed subsequent to bankruptcy which are not 
claims of record on the filing date.
    (5) Step 5--Correction for subsequent events. Compute any 
adjustments to Steps 1 through 4 of this paragraph (b) required to 
correct misestimates or errors including, without limitation, 
corrections for subsequent events such as the liquidation of 
unliquidated claims at a value different from the estimated value 
previously used in computing net equity.
    (6) Step 6--Net equity of accounts which remain open subsequent to 
the primary liquidation date. If the accounts of a customer contain 
commodity contracts which remain open subsequent to the primary 
liquidation date, the trustee must adjust the net equity obtained for 
that customer pursuant to the steps contained in paragraphs (b) (1) 
through (5) of this section as provided in paragraphs (d)(1) and (d)(2) 
of this section.
    (c) Calculation of funded balance. ``Funded balance'' means a 
customer's pro rata share of the customer estate with respect to each 
account class available as of the primary liquidation date for 
distribution to customers of the same class.
    (1) The funded balance of any customer claim shall be computed by:
    (i) Multiplying the ratio of the amount of the net equity claim less 
the amounts referred to in paragraph (c)(1)(ii) of this section of such 
customer for any account class bears to the sum of the net equity claims 
less the amounts referred to in paragraph (c)(1)(ii) of this section of 
all customers for accounts of that class by the sum of:
    (A) The value of the money, securities or property segregated on 
behalf of all accounts of the same class less the amounts referred to in 
paragraph (c)(1)(ii) of this section;
    (B) The value of any money, securities or property which must be 
allocated underSec. 190.08 to customer accounts of the same class; and
    (C) The amount of any add-back required under paragraph (b)(4) of 
this section; and
    (ii) Then adding 100% of any margin payment made between the entry 
of the order for relief and the primary liquidation date.

[[Page 1126]]

    (2) Corrections to funded balance. The funded balance must be 
adjusted, as of the primary liquidation date, to correct for subsequent 
events including, without limitation:
    (i) Added claimants;
    (ii) Disallowed claims;
    (iii) Liquidation of unliquidated claims at a value other than their 
estimated value;
    (iv) Recovery of property; and
    (v) Deficits generated by the continued operation of accounts after 
the primary liquidation date which cannot be fully adjusted under 
paragraph (d) of this section.
    (d) Adjustments to funded balance for operations subsequent to the 
primary liquidation date. If accounts of a customer contain commodity 
contracts which remain open subsequent to the primary liquidation date, 
the funded balance for each class must be adjusted until liquidation or 
transfer of all such open commodity contracts of that customer of the 
same class, as follows:
    (1) Unrealized and realized gains and any receipts of margin with 
respect thereto must be added to the funded balance;
    (2) Unrealized and realized losses, and the normal costs 
attributable to the payment of commissions, brokerage, interest, taxes, 
storage, transaction fees and other costs and charges lawfully incurred 
with respect to the maintenance or liquidation of such open commodity 
contracts, and any distributions must be subtracted from the funded 
balance; and
    (3) Subject to claims against the trustee for failure to liquidate, 
any deficit which is not recovered from the customer on whose behalf it 
is incurred must be charged against the funded balance of each account 
which remained open on the date the deficit occurred in the same 
proportion as the funded balance of each account bears to all the funded 
balances of all accounts which remained open on that date.
    (e) Valuation. In computing net equity, commodity contracts and 
other property held by or for a commodity broker must be valued as 
provided in this paragraph (e): Provided, however, that for all 
commodity contracts other than those listed in paragraph (e)(1) of this 
section, if identical commodity contracts, securities, or other property 
are liquidated on the same date, but cannot be liquidated at the same 
price, the trustee may use the weighted average of the liquidation 
prices in computing the net equity of each customer holding such 
contracts, securities, or property.
    (1) Commodity Contracts. Unless otherwise specified in this 
paragraph (e), the value of an open commodity contract shall be equal to 
the settlement price as calculated by the clearing organization pursuant 
to its rules: Provided, that such rules must either be submitted to the 
Commission, pursuant to section 5c(c)(4) of the Act and be approved by 
the Commission, or such rules must be otherwise approved by the 
Commission (or its delegate pursuant toSec. 190.10(d) of this part) 
prior to their application; Provided, further, that if such contract is 
transferred its value shall be determined as of the end of the 
settlement cycle in which it is transferred; and Provided, finally, that 
if such contract is liquidated, its value shall be equal to the net 
proceeds of liquidation.
    (2) Principal contracts. The valuation date of principal contracts 
which are not transferred shall be the date of the order for relief 
unless there is specific property which constitutes cover by the 
principal for the principal contract in which case it shall be the date 
of liquidation of the cover. For purposes of valuing contracts for which 
there is no established secondary market:
    (i) Cash price series approved by Commission. The market value of 
the physical commodity which is the subject of a principal contract 
shall be computed using a cash price series approved by the Commission 
for use by the dealer option grantor, in the case of dealer options, and 
by the leverage transaction merchant, in the case of leverage contracts.
    (ii) No cash price series approved by Commission. If no applicable 
cash price series has been submitted to the Commission, or if such a 
cash price series has been submitted, but has not been approved by the 
Commission, the market value of the physical commodity which is the 
subject of a principal contract shall be equal to the lesser of:

[[Page 1127]]

    (A) The market value of the physical commodity as of the close of 
business on the local cash market most proximate to the debtor's 
principal place of business; or
    (B) The spot month settlement price on a designated contract market 
which trades contracts in that physical commodity most proximate to the 
debtor's principal place of business: Provided, That where there is more 
than one local market as described in paragraphs (e)(2)(ii) (A) or (B) 
of this section, the trustee should use the most active market.
    (iii) Special rule for valuing dealer options. A dealer option which 
is in-the-money will be deemed to have been exercised for purposes of 
determining its value which shall be equal to the greater of:
    (A) The in-the-money amount; or
    (B) The premium paid for such option divided by the number of days 
contained in the option period and multiplied by the number of days 
remaining in such period on the liquidation date: Provided, That in the 
trustee's sole discretion, the trustee may reduce such value to an 
amount which does not exceed the average of the premiums recently paid 
for similar options granted by the same grantor.

Any time value not reflected in this computation claimed by a customer 
must be treated as a general creditor's claim.
    (iv) Special rule for valuing leverage contracts. Notwithstanding 
paragraphs (e)(2) (i) and (ii) of this section, if the records of the 
debtor are not sufficient to substantiate customer claims for profits 
and to identify the owners of contracts with losses, the liquidation 
value of a leverage contract shall be deemed to be an amount equal to 
the total deposit made by a customer in respect to such contract.
    (3) Bucketed contracts. The value of a commodity contract which has 
not been established in fact shall be deemed to be equal to the value of 
the total deposit made by a customer in respect to such contract.
    (4) Securities. The value of a listed security shall be equal to the 
closing price for such security on the exchange upon which it is traded. 
The value of all securities not traded on an exchange shall be equal in 
the case of a long position, to the average of the bid prices for long 
positions, and in the case of a short position, to the average of the 
asking prices for the short positions. If liquidated prior to the 
primary liquidation date, the value of such security shall be equal to 
the net proceeds of its liquidation. Securities which are not publicly 
traded shall be valued by the trustee, subject to approval of the court, 
using such professional assistance as the trustee deems necessary in its 
sole discretion under the circumstances.
    (5) Property. Cash commodities held in inventory, as collateral or 
otherwise, shall be valued at their fair market value. Subject to the 
other provisions of this paragraph (e), all other property shall be 
valued by the trustee subject to approval by the court, using such 
professional assistance as the trustee deems necessary in its sole 
discretion under the circumstances: Provided, however, That if such 
property is sold, its value for purposes of the calculations required by 
this part shall be the net proceeds of such sale: Provided further, That 
the sale is made in compliance with all applicable statutes, rules and 
orders of any court or governmental entity with jurisdiction thereover.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983, as 
amended at 67 FR 58298, Sept. 13, 2002; 69 FR 41427, July 9, 2004; 75 FR 
17303, Apr. 6, 2010; 77 FR 6378, 6381, Feb. 7, 2012]



Sec.  190.08  Allocation of property and allowance of claims.

    The property of the debtor's estate must be allocated among account 
classes and between customer classes as provided in this section, except 
for special distributions required under appendix B to this part. The 
property so allocated will constitute a separate estate of the customer 
class and the account class to which it is allocated, and will be 
designated by reference to such customer class and account class.
    (a) Scope of customer property. (1) Customer property includes the 
following:
    (i) All cash, securities, or other property or the proceeds of such 
cash, securities or other property received, acquired, or held by or for 
the account of

[[Page 1128]]

the debtor, from or for the account of a customer, including a non-
public customer, which is:
    (A) Property received, acquired or held to margin, guarantee, 
secure, purchase or sell a commodity contract;
    (B) Open commodity contracts;
    (C) Warehouse receipts, bills of lading, or other documents of title 
or property held or acquired by the debtor to fulfill a commodity 
contract;
    (D) Profits or contractual rights accruing to a customer as the 
result of a commodity contract;
    (E) The full proceeds of a letter of credit if such letter of credit 
was received, acquired or held to margin, guarantee, secure, purchase or 
sell a commodity contract;
    (F) Property hypothecated underSec. 1.30 of this chapter to the 
extent that the value of such property exceeds the proceeds of any loan 
of margin made with respect thereto, and
    (ii) All cash, securities, or other property which:
    (A) Is segregated on the filing date;
    (B) Is a security owned by the debtor to the extent there are 
customer claims for securities of the same class and series of an 
issuer;
    (C) Is specifically identifiable to a customer;
    (D) Is property of a type described in paragraph (a)(1)(i)(A) of 
this section which has been withdrawn and subsequently is recovered by 
the avoidance powers of the trustee;
    (E) Represents recovery of any debit balance, margin deficit, or 
other claim of the debtor against a customer account;
    (F) Was unlawfully converted but is part of the debtor's estate;
    (G) Is property of the debtor that any applicable law, rule, 
regulation, or order requires to be set aside for the benefit of 
customers, unless including such property in the customer estate would 
not significantly increase the customer estate;
    (H) Is property of the debtor's estate recovered by the Commission 
in any proceeding brought against the principals, agents, or employees 
of the debtor;
    (I) Is proceeds from the investment of customer property by the 
trustee pending final distribution; or
    (J) Is cash, securities or other property of the debtor's estate, 
including the debtor's trading or operating accounts and commodities of 
the debtor held in inventory, but only to the extent that the property 
enumerated in paragraphs (a)(1)(i)(E) and (a)(1)(ii)(A) through 
(a)(1)(ii)(H) of this section is insufficient to satisfy in full all 
claims of public customers.
    (2) Customer property will not include:
    (i) Claims against the debtor for damages for any wrongdoing of the 
debtor, including claims for misrepresentation or fraud, or for any 
violation of the Act or of the regulations thereunder;
    (ii) Other claims for property which are not based upon property 
received, acquired or held by or for the account of the debtor, from or 
for the account of the customer;
    (iii) Forward contracts;
    (iv) Property delivered to or from a customer to or by another 
customer to fulfill a commodity contract held for or on behalf of either 
customer by the debtor if such delivery is effected pursuant toSec. 
190.05 by a commodity broker other than the debtor;
    (v) Property deposited by a customer with a commodity broker after 
the entry of an order for relief which is not necessary to meet the 
maintenance margin requirements applicable to the accounts of such 
customer;
    (vi) Property hypothecated pursuant toSec. 1.30 of this chapter to 
the extent of the loan of margin with respect thereto; and
    (vii) Money, securities or property held to margin, guarantee or 
secure security futures products, or accruing as a result of such 
products, if held in a securities account.
    (b) Allocation of property between customer classes. No portion of 
the customer estate may be allocated to pay non-public customer claims 
until all public customer claims have been satisfied in full. Any 
property segregated on behalf of non-public customers must be treated 
initially as part of the public customer estate and allocated under 
paragraph (c)(2) of this section.
    (c) Allocation of property among account classes--(1) Segregated 
property.

[[Page 1129]]

Subject to paragraph (b) of this section, property held by or for the 
account of a customer, which is segregated on behalf of a specific 
account class, or readily traceable on the filing date to customers of 
such account class, must be allocated to the customer estate of the 
account class for which it is segregated or to which it is readily 
traceable.
    (2) All other property. Money, securities and property received from 
or for the account of customers on behalf of any account class which is 
recovered on behalf of the customer estate and which cannot be allocated 
in accordance with paragraph (c)(1) of this section, must be allocated 
as of the primary liquidation date in the following order:
    (i) To the estate of the account class for which, after the 
allocation required in paragraph (c)(1) of this section, the percentage 
of each public customer net equity claim which is funded is the lowest, 
until the funded percentage of net equity claims of such class equals 
the percentage of each public customer's net equity claim which is 
funded for the account class with the next lowest percentage of the 
funded claims; and then
    (ii) To the estate of the two account classes referred to in 
paragraph (c)(2)(i) of this section so that the percentage of the net 
equity claims which are funded for each class remains equal until the 
percentage of each public customer net equity claim which is funded 
equals the percentage of each public customer net equity claim which is 
funded for the account class with the next lowest percentage of funded 
claims, and so forth, until the percentage of each public customer net 
equity claim which is funded is equal for all classes of accounts; and 
then,
    (iii) Among account classes in the same proportion as the public 
customer net equity claims for each such account class bears to the 
total of public customer net equity claims of all account classes until 
the public customer claims of each account class are paid in full; and, 
thereafter,
    (iv) To the non-public customer estate for each account class in the 
same order as is prescribed in paragraphs (c)(2) (i) to (iii) of this 
section for the allocation of the customer estate among account classes.
    (d) Distribution of customer property--(1) Return or transfer of 
specifically identifiable property other than a commodity contract. 
Specifically identifiable property other than an open commodity contract 
not required to be liquidated underSec. 190.02(f)(2) may be returned 
or transferred on behalf of the customer to which it is identified:
    (i) If it is margining an open commodity contract, only if cash is 
first deposited with the trustee in an amount equal to the greater of 
the full fair market value of such property on the return date or the 
balance due on the return date on any loan by the debtor to the customer 
for which such property constitutes security; or
    (ii) If it is not so margining an open contract, at the option of 
the customer, either pursuant to the terms of paragraph (d)(1)(i) of 
this section, or pursuant to the following terms: such customer first 
deposits cash with the trustee in an amount equal to the amount by which 
the greater of the value of the specifically identifiable property to be 
transferred or returned on the date of such transfer or return or the 
balance due on the return date on any loan by the debtor to the customer 
for which such property constitutes security, together with any other 
disbursements made, or to be made, to such customer, plus a reasonable 
reserve in the trustee's sole discretion, exceeds the estimated 
aggregate of the funded balances for each class of account of such 
customer less the value on the date of its transfer or return of any 
property transferred or returned prior to the primary liquidation date 
with respect to the customer's net equity claim for such account; 
Provided, That adequate security for the nonrecovery of any overpayments 
by the trustee is provided to the debtor's estate by the customer.
    (2) Transfers of specifically identifiable commodity contracts under 
section 766 of the Bankruptcy Code. Any specifically identifiable 
commodity contract which is not required to be liquidated underSec. 
190.02(f)(1) orSec. 190.03(b), and which is not otherwise liquidated, 
may be transferred on behalf of a customer: Provided, That such customer 
must first

[[Page 1130]]

deposit cash with the trustee in an amount equal to the amount by which 
the equity to be transferred to margin such contract together with any 
other transfers or returns of specifically identifiable property or 
disbursements made, or to be made, to such customer, plus a reasonable 
reserve in the trustee's sole discretion, exceeds the estimated 
aggregate of the funded balances for each class of account of such 
customer less the value on the date of its transfer or return of any 
property transferred or returned prior to the primary liquidation date 
with the respect to the customer's net equity claim for such account: 
and, Provided further, That adequate security for the nonrecovery of any 
overpayments by the trustee is provided to the debtor's estate by the 
customer.
    (3) Distribution in kind of specifically identifiable securities. If 
any securities of a customer would have been specifically identifiable 
underSec. 190.01(kk)(6) if that customer had had no open commodity 
contracts, the customer may request that the trustee purchase or 
otherwise obtain the largest whole number of like-kind securities, with 
a fair market value (inclusive of transaction costs) which does not 
exceed that portion of such customer's allowed net equity claim that 
constitutes a claim for securities, if like-kind securities can be 
purchased in a fair and orderly manner.
    (4) Proof of customer claim. No distribution shall be made pursuant 
to paragraphs (d)(1) and (d)(3) of this section prior to receipt of a 
completed proof of customer claim as described inSec. 190.02(d).
    (5) No differential distributions. No further disbursements may be 
made to customers for whom transfers have been made pursuant toSec. 
190.06 and paragraph (d)(2) of this section, until a percentage of each 
net equity claim equivalent to the percentage distributed to such 
customers is distributed to all public customers. Partial distributions, 
other than the transfers referred to inSec. 190.06 and paragraph 
(d)(2) of this section, made prior to the final net equity determination 
date must be made pursuant to a preliminary plan of distribution 
approved by the court, upon notice to the parties and to all customers, 
which plan requires adequate security to the debtor's estate for the 
nonrecovery of any overpayments by the trustee and distributes an equal 
percentage of net equity to all public customers.
    (6) Margin payments. The trustee may make margin payments on behalf 
of any account which do not exceed the funded balance of that account.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122, Apr. 1, 1983, as amended at 59 
FR 17471, Apr. 13, 1994; 67 FR 58298, Sept. 13, 2002]



Sec.  190.09  Member property.

    (a) Member property. ``Member property'' means, in connection with a 
clearing organization bankruptcy, the property which may be used to pay 
that portion of the net equity claim of a member which is based on its 
house account.
    (b) Scope of Member Property. Member property shall include all 
money, securities and property received, acquired, or held by a clearing 
organization to margin, guarantee or secure, on behalf of a clearing 
member, the proprietary account, as defined inSec. 1.3 of this 
chapter, any account not belonging to a foreign futures or foreign 
options customer pursuant to the proviso inSec. 30.1(c), and any 
Cleared Swaps Proprietary Account, as defined inSec. 22.1: Provided, 
however, that any guaranty deposit or similar payment or deposit made by 
such member and any capital stock, or membership of such member in the 
clearing organization shall also be included in member property after 
payment in full of that portion of the net equity claim of the member 
based on its customer account and of any obligations due to the clearing 
organization which may be paid therefrom in accordance with the by-laws 
or rules of the clearing organization, including obligations due from 
the clearing organization to customers or other members.

[48 FR 8739, Mar. 1, 1983, as amended at 77 FR 6382, Feb. 7, 2012]



Sec.  190.10  General.

    (a) Notices. Unless instructed otherwise by the Commission, all 
mandatory or discretionary notices to be given to the Commission under 
this part shall

[[Page 1131]]

be directed by electronic mail to [email protected], with a 
copy sent by overnight mail to Director, Division of Clearing and Risk, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street NW., Washington, DC 20581. For purposes of this part, notice to 
the Commission shall be deemed to be given only upon actual receipt.
    (b) Request for exemption from time limit. (1) A trustee or any 
other person charged with the management of a commodity broker which has 
filed a petition in bankruptcy, or against which such a petition has 
been filed, may for good cause shown request from the Commission an 
exemption from, or extension of, any time limit prescribed by this part 
190: Provided, That no such exemption or extension will be granted for 
any time period established by the Bankruptcy Code, as amended, 11 
U.S.C. 101 et seq.
    (2) Such a request shall be made ex parte and by any means of 
communication, written or oral: Provided, That an oral request shall be 
confirmed in writing within one business day and such confirmation shall 
contain all the information required by paragraph (b)(3) of this 
section. Any such request shall be directed to the person as provided in 
paragarph (a) of this section, and at the address provided therein.
    (3) Such a request shall state the particular provision of the part 
190 rules with respect to which the exemption or extension is sought, 
the reason for the requested exemption or extension, the amount of time 
sought if the request is for an extension, and the reason why such 
exemption or extension would not be contrary to the purposes of the 
Bankruptcy Code and the Commission's part 190 regulations promulgated 
thereunder.
    (4) The Director of the Division of Clearing and Intermediary 
Oversight, or such members of the Commission's staff acting under his 
direction as he may designate, on the basis of the information provided 
in any such request, shall determine, in his sole discretion, whether to 
grant, deny or otherwise respond to a request, and shall communicate 
that determination by the most appropriate means to the person making 
the request and to the bankruptcy court with jurisdiction over the case.
    (c) Disclosure statement for non-cash margin. (1) Except as provided 
inSec. 1.65 of this chapter, no commodity broker (other than a 
clearing organization) may accept property other than cash from or for 
the account of a customer, other than a customer specified inSec. 
1.55(f) of this chapter, to margin, guarantee, or secure a commodity 
contract unless the commodity broker first furnishes the customer with 
the disclosure statement set forth in paragraph (c)(2) of this section 
in boldface print in at least 10 point type which may be provided as 
either a separate, written document or incorporated into the customer 
agreement, or with another statement approved underSec. 1.55(c) of 
this chapter and set forth in appendix A toSec. 1.55 which the 
Commission finds satisfies this requirement.
    (2) The disclosure statement required by paragraph (c)(1) of this 
section is as follows:

    THIS STATEMENT IS FURNISHED TO YOU BECAUSE RULE 190.10 (c) OF THE 
COMMODITY FUTURES TRADING COMMISSION REQUIRES IT FOR REASONS OF FAIR 
NOTICE UNRELATED TO THIS COMPANY'S CURRENT FINANCIAL CONDITION.
    1. YOU SHOULD KNOW THAT IN THE UNLIKELY EVENT OF THIS COMPANY'S 
BANKRUPTCY, PROPERTY, INCLUDING PROPERTY SPECIFICALLY TRACEABLE TO YOU, 
WILL BE RETURNED, TRANSFERRED OR DISTRIBUTED TO YOU, OR ON YOUR BEHALF, 
ONLY TO THE EXTENT OF YOUR PRO RATA SHARE OF ALL PROPERTY AVAILABLE FOR 
DISTRIBUTION TO CUSTOMERS.
    2. NOTICE CONCERNING THE TERMS FOR THE RETURN OF SPECIFICALLY 
IDENTIFIABLE PROPERTY WILL BE BY PUBLICATION IN A NEWSPAPER OF GENERAL 
CIRCULATION.
    3. THE COMMISSION'S REGULATIONS CONCERNING BANKRUPTCIES OF COMMODITY 
BROKERS CAN BE FOUND AT 17 CODE OF FEDERAL REGULATIONS PART 190.

    (3) The statement contained in paragraph (c)(2) of this section need 
be furnished only once to each customer to whom it is required to be 
furnished by this section.
    (d) Delegation of authority to the Director of the Division of 
Clearing and Intermediary Oversight. (1) Until such time

[[Page 1132]]

as the Commission orders otherwise, the Commission hereby delegates to 
the Director of the Division of Clearing and Intermediary Oversight, and 
to such members of the Commission's staff acting under his direction as 
he may designate, all the functions of the Commission set forth in this 
part except the authority to approve or disapprove a withdrawal or 
settlement of a commodity contract account by a public customer pursuant 
toSec. 190.06(g)(3).
    (2) The Director of the Division of Clearing and Intermediary 
Oversight may submit to the Commission for its consideration any matter 
which has been delegated to him pursuant to paragraph (d)(1) of this 
section.
    (3) Nothing in this section shall prohibit the Commission, at its 
election, from exercising its authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (d)(1) 
of this section.
    (e) Forward contracts. For purposes of this part, an entity for or 
with whom the debtor deals who holds a claim against the debtor solely 
on account of a forward contract will not be deemed to be a customer.
    (f) Notice of court papers pertaining to the operation of the 
estate. The trustee shall promptly provide the Commission with copies of 
any complaint, motion, or petition filed in a commodity broker 
bankruptcy which concerns the disposition of customer property. Court 
papers shall be directed to the Washington, DC headquarters of the 
Commission addressed as provided in paragraph (a) of this section.
    (g) Other. The Bankruptcy Code will not be construed by the 
Commission to prohibit a commodity broker from doing business as any 
combination of the following: futures commission merchant, commodity 
option dealer, foreign futures commission merchant or leverage 
transaction merchant, nor will the Commission construe the Bankruptcy 
Code to permit any operation, trade or business, or any combination of 
the foregoing, otherwise prohibited by the Act or by any rule, 
regulation or order of the Commission thereunder.
    (h) Rule of construction. Contracts in security futures products 
held in a securities account shall not be considered to be ``from or for 
the commodity contract account'' or ``from or for the commodity options 
account'' of such customers, as such terms are used in section 761(9) of 
the Bankruptcy Code.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983, as amended at 48 FR 28980, June 24, 1983; 58 
FR 17505, Apr. 5, 1993; 59 FR 34382, July 5, 1994; 60 FR 49336, Sept. 
25, 1995; 63 FR 8571, Feb. 20, 1998; 67 FR 58298, Sept. 13, 2002; 67 FR 
62353, Oct. 7, 2002; 77 FR 6378, 6382, Feb. 7, 2012]



              Sec. Appendix A to Part 190--Bankruptcy Forms

 Bankruptcy Appendix Form 1--Operation of the Debtor's Estate--Schedule 
                           of Trustee's Duties

    For the convenience of a prospective trustee, the Commission has 
constructed an approximate schedule of important duties which the 
trustee should perform during the early stages of a commodity broker 
bankruptcy proceeding. The schedule includes duties required by this 
part, subchapter IV of chapter 7 of the Bankruptcy Code as well as 
certain practical suggestions, but it is only intended to highlight the 
more significant duties and is not an exhaustive description of all the 
trustee's responsibilities. It also assumes that the commodity broker 
being liquidated is an FCM. Moreover, it is important to note that the 
operating facts in a particular bankruptcy proceeding may vary the 
schedule or obviate the need for any of the particular activities.

                                All Cases

                        Date of Order for Relief

    1. Assure that the commodity broker has notified the Commission, its 
designated self-regulatory organization (``DSRO'') (if any), and all 
applicable clearing organizations of which it is a member that a 
petition or order for relief has been filed (Sec.  190.02(a)(1)).
    2. Attempt to effectuate the transfer of entire customer accounts 
wherein the commodity contracts are transferred together with the money, 
securities, or other property margining, guaranteeing, or securing the 
commodity contracts (hereinafter the ``transfer'').

[[Page 1133]]

    3. Attempt to estimate shortfall of customer funds segregated 
pursuant to sections 4d(a) and (b) of the Act; customer funds segregated 
pursuant to section 4f of the Act; and the foreign futures or foreign 
options secured amount, as defined inSec. 1.3 of this chapter.
    a. The trustee should:
    i. Contact the DSRO (if any) and the clearing organizations and 
attempt to effectuate a transfer with such shortfall under section 
764(b) of the Code; notify the Commission for assistance (Sec.  
190.02(a)(2) and (e)(1),Sec. 190.06(b)(2), (e), (f)(3), (g)(2), and 
(h)) but recognize that if there is a substantial shortfall, a transfer 
of such funds or amounts is highly unlikely.
    ii. If a transfer cannot be effectuated, liquidate all customer 
commodity contracts that are margined, guaranteed, or secured by funds 
or amounts with such shortfall, except dealer options and specifically 
identifiable commodity contracts which are bona fide hedging positions 
(as defined inSec. 190.01(kk)(2)) with instructions not to be 
liquidated. (See Sec.Sec. 190.02(f) and 190.06(d)(1)). (In this 
connection, depending upon the size of the debtor and other 
complications of liquidation, the trustee should be aware of special 
liquidation rules, and in particular the availability under certain 
circumstances of book-entry liquidation (Sec.  190.04(d)(1)(ii)).
    b. If there is a small shortfall in any of the funds or amounts 
listed in paragraph 2, negotiate with the clearing organization to 
effect a transfer; notify the Commission (Sec.Sec. 190.02(a)(2) and 
(e)(1), 190.06(b)(2), (e), (f)(3), (g)(2), and (h)).
    4. Whether or not a transfer has occurred, liquidate or offset open 
commodity contracts not eligible for transfer (e.g., deficit accounts) 
(Sec.  190.06(e)(1)).
    5. Offset all futures contracts and Cleared Swaps contracts which 
cannot be settled in cash and which would otherwise remain open either 
beyond the last day of trading (if applicable) or the first day on which 
notice of intent to deliver may be tendered with respect thereto, 
whichever occurs first; offset all long options on a physical commodity 
which cannot be settled in cash, have value and would be automatically 
exercised or would remain open beyond the last day of exercise; and 
offset all short options on a physical commodity which cannot be settled 
in cash (Sec.  190.02(f)(1)).
    6. Compute estimated funded balance for each customer commodity 
contract account containing open commodity contracts (Sec.  190.04(b)) 
(daily thereafter).
    7. Make margin calls if necessary (Sec.  190.02(g)(1)) (daily 
thereafter).
    8. Liquidate or offset any open commodity contact account for which 
a customer has failed to meet a margin call (Sec.  190.02(f)(1)) (daily 
thereafter).
    9. Commence liquidation or offset of specifically identifiable 
property described inSec. 190.02(f)(2)(i) (property which has lost 10% 
or more of value) (and as appropriate thereafter).
    10. Commence liquidation or offset of property described inSec. 
190.02(f)(3) (``all other property'').
    11. Be aware of any contracts in delivery position and rules 
pertaining to such contracts (Sec.  190.05).

        First Calendar Day After the Entry of an Order for Relief

    1. If a transfer occurred on the date of entry of the order for 
relief:
    a. Liquidate any remaining open commodity contracts, except any 
dealer option or specifically identifiable commodity contract [hedge] 
(SeeSec. 190.01(kk)(2) andSec. 190.02(f)(1)), and not otherwise 
transferred in the transfer.
    b. Primary liquidation date for transferred or liquidated commodity 
contracts (Sec.  190.01(ff)).
    2. If no transfer has yet been effected, continue attempt to 
negotiate transfer of open commodity contracts and dealer options (Sec.  
190.02(c)(1)).
    3. Provide the clearing organization or Collecting Futures 
Commission Merchant (as such term is defined inSec. 22.1) with 
assurances to prevent liquidation of open commodity contract accounts 
available for transfer at the customer's instruction or liquidate all 
open commodity contracts except those available for transfer at a 
customer's instruction and dealer options.

       Second Calendar Day After the Entry of an Order for Relief

    If no transfer has yet been effected, request directly customer 
instructions regarding transfer of open commodity contracts and publish 
notice for customer instructions regarding the return of specifically 
identifiable property other than commodity contracts (Sec.Sec. 
190.02(b) (1) and (2)).

        Third Calendar Day After the Entry of an Order for Relief

    1. Second publication date for customer instructions (Sec.  
190.02(b)(1)) (publication is to be made on two consecutive days, 
whether or not the second day is a business day).
    2. Last day on which to notify the Commission with regard to whether 
a transfer in accordance with section 764(b) of the Bankruptcy Code will 
take place (Sec.  190.02(a)(2) andSec. 190.06(e)).

        Sixth Calendar Day After the Entry of an Order for Relief

    Last day for customers to instruct the trustee concerning open 
commodity contracts (Sec.  190.02(b)(2)).

[[Page 1134]]

       Seventh Calendar Day After the Entry of an Order for Relief

    1. If not previously concluded, conclude transfers underSec. 
190.06(e) and (f). (SeeSec. 190.02(e)(1) andSec. 
190.06(g)(2)(i)(A)).
    2. Transfer all open dealer option contracts which have not 
previously been transferred (Sec.  190.06(f)(3)(i)).
    3. Primary liquidation date (Sec.  190.01(ff)) (assuming no 
transfers and liquidation effected for all open commodity contracts for 
which no customer instructions were received by the sixth calendar day).
    4. Establishment of transfer accounts (Sec.  190.03(a)(1)) (assuming 
this is the primary liquidation date); mark such accounts to market 
(Sec.  190.03(a)(2)) (daily thereafter until closed).
    5. Liquidate or offset all remaining open commodity contracts (Sec.  
190.02(b)(2)).
    6. If not done previously, notify customers of bankruptcy and 
request customer proof of claim (Sec.  190.02(b)(4)).

       Eighth Calendar Day After the Entry of an Order for Relief

    Customer instructions due to trustee concerning specifically 
identifiable property (Sec.  190.02(b)(1)).

        Ninth Calendar Day After the Entry of an Order for Relief

    Commence liquidation of specifically identifiable property for which 
no arrangements for return have been made in accordance with customer 
instructions (Sec.Sec. 190.02(b)(1), 190.03(c)).

        Tenth Calendar Day After the Entry of an Order for Relief

    Complete liquidation to the extent reasonably possible of 
specifically identifiable property which has yet to be liquidated and 
for which no customer instructions have been received (Sec.  190.03(c)).

      Separate Procedures for Involuntary Petitions for Bankruptcy

    1. Within one calendar day after notice of receipt of filing of the 
petition in bankruptcy, the trustee should assure that proper 
notification has been given to the Commission, the commodity broker's 
designated self-regulatory organization (Sec.  190.02(a)(1)) (if any), 
and all applicable clearing organizations; margin calls should be issued 
if necessary (Sec.  190.02(g)(2)).
    2. On or before the seventh calendar day after the filing of a 
petition in bankruptcy, the trustee should use his best efforts to 
effect a transfer in accordance withSec. 190.06(e) and (f) of all open 
commodity contracts and equity held for or on behalf of customers of the 
commodity broker (Sec.  190.02(e)(2)) unless the debtor can provide 
certain assurances to the trustee.

  Bankruptcy Appendix Form 2-- Request for Instructions Concerning Non-
             Cash Property Deposited With (Commodity Broker)

    Please take notice: On (date), a petition in bankruptcy was filed by 
[against] (commodity broker). Those customers of (commodity broker) who 
deposited certain kinds of non-cash property (see below) with (commodity 
broker) may instruct the trustee of the estate to return their property 
to them as provided below.
    As no customer may obtain more than his or her proportionate share 
of the property available to satisfy customer claims, if you instruct 
the trustee to return your property to you, you will be required to pay 
the estate, as a condition to the return of your property, an amount 
determined by the trustee. If your property is not margining an open 
contract, this amount will approximate the difference between the market 
value of your property and your pro rata share of the estate, as 
estimated by the trustee. If your property is margining an open 
commodity contract, this amount will be approximately the full fair 
market value of the property on the date of its return.

             Kinds of Property to Which This Notice Applies

    1. Any security deposited as margin which, as of (date petition was 
filed), was securing an open commodity contract and is:

--registered in your name,
--not transferrable by delivery, and
--not a short-term obligation.
    2. Any fully-paid, non-exempt security held for your account in 
which there were no open commodity contracts as of (date petition was 
filed). (Rather than the return, at this time, of the specific 
securities you deposited with (commodity broker), you may instead 
request now, or at any later time, that the trustee purchase ``like-
kind'' securities of a fair market value which does not exceed your 
proportionate share of the estate).
    3. Any warehouse receipt, bill of lading or other document of title 
deposited as margin which, as of (date petition was filed), was securing 
an open commodity contract and--can be identified in (commodity 
broker)'s records as being held for your account, and--is neither in 
bearer form nor otherwise transferable by delivery.
    4. Any warehouse receipt bill of lading or other document of title, 
or any commodity received, acquired or held by (commodity broker) to 
make or take delivery or exercise from or for your account and which--
can be identified in (commodity broker)'s records as received from or 
for your account as held specifically for the purpose of delivery or 
exercise.

[[Page 1135]]

    5. Any cash or other property deposited to make or take delivery on 
a commodity contract may be eligible to be returned. The trustee should 
be contacted directly for further information if you have deposited such 
property with (commodity broker) and desire its return.
    Instructions must be received by (the 5th calendar day after 2d 
publication date) or the trustee will liquidate your property. (If you 
own such property but fail to provide the trustee with instructions, you 
will still have a claim against (commodity broker) but you will not be 
able to have your specific property returned to you).

    Note: Prior to receipt of your instructions, circumstances may 
require the trustee to liquidate your property, or transfer your 
property to another broker if it is margining open commodity contracts. 
If your property is transferred and your instructions were received 
within the required time, your instructions will be forwarded to the new 
broker.

    Instructions should be directed to: (Trustee's name, address, and/or 
telephone).
    Even if you request the return of your property, you must also pay 
the trustee the amount he specifies and provide the trustee with proof 
of your claim before (the 7th calendar day after 2d publication date) or 
your property will be liquidated. (Upon receipt of customer instructions 
to return property, the trustee will mail the sender a form which 
describes the information he must provide to substantiate his claim).

    Note: The trustee is required to liquidate your property despite the 
timely receipt of your instructions, money, and proof of claim if, for 
any reason, your property cannot be returned by (close of business on 
the 7th calendar day after 2d publication date).

Bankruptcy Appendix Form 3--Request for Instructions Concerning Transfer 
           of Your Hedge Contracts Held by (Commodity Broker)

United States Bankruptcy Court ----District of ----In re ----, Debtor, 
No. ----.
Please take notice: On (date), a petition in bankruptcy was filed by 
[against] (commodity broker).

    You indicated when your hedge account was opened that the commodity 
contracts in your hedge account should not be liquidated automatically 
in the event of the bankruptcy of (commodity broker), and that you 
wished to provide instructions at this time concerning their 
disposition.
    Instructions to transfer your commodity contracts and a cash deposit 
(as described below) must be received by the trustee by (the 6th 
calendar day after entry of order for relief) or your commodity 
contracts will be liquidated.
    If you request the transfer of your commodity contracts, prior to 
their transfer, you must pay the trustee in cash an amount determined by 
the trustee which will approximate the difference between the value of 
the equity margining your commodity contracts and your pro rata share of 
the estate plus an amount constituting security for the nonrecovery of 
any overpayments. In your instructions, you should specify the broker to 
which you wish your commodity contracts transferred.
    Be further advised that prior to receipt of your instructions, 
circumstances may, in any event, require the trustee to liquidate or 
transfer your commodity contracts. If your commodity contracts are so 
transferred and your instructions are received, your instructions will 
be forwarded to the new broker.
    Note also that the trustee is required to liquidate your positions 
despite the timely receipt of your instructions and money if, for any 
reason, you have not made arrangements to transfer and/or your contracts 
are not transferred by (7 calendar days after entry of order for 
relief).
    Instructions should be sent to: (Trustee's or designee's name, 
address, and/or telephone). [Instructions may also be provided by 
phone].

               Bankruptcy Appendix Form 4--Proof of Claim

[Note to trustee: As indicated inSec. 190.02(d), this form is provided 
as a guide to the trustee and should be modified as necessary depending 
upon the information which the trustee needs at the time a proof of 
claim is requested and the time provided for a response.]

                             Proof of Claim

United States Bankruptcy Court ----District of ----In re ----, Debtor, 
No. ----.
Return this form by ---- or your claim will be barred (unless extended, 
for good cause only).

    I. [If claimant is an individual claiming for himself] The 
undersigned, who is the claimant herein, resides at ----.
    [If claimant is a partnership claiming through a member] The 
undersigned, who resides at ----, is a member of ----, a partnership, 
composed of the undersigned and ----, of ----, and doing business at --
--, and is duly authorized to make this proof of claim on behalf of the 
partnership.
    [If claimant is a corporation claiming though a duly authorized 
officer] The undersigned, who resides at ---- is the ---- of ----, a 
corporation organized under the laws of ---- and doing business at ----, 
and is duly authorized to make this proof of claim on behalf of the 
corporation.
    [If claim is made by agent] The undersigned, who resides at ----, is 
the agent of

[[Page 1136]]

----, and is duly authorized to make this proof of claim on behalf of 
the claimant.
    II. The debtor was, at the time of the filing of the petition 
initiating this case, and still is, indebted to this claimant for the 
total sum of $ ----.
    III. List EACH account on behalf of which a claim is being made by 
number and name of account holder[s], and for EACH account, specify the 
following information:
    a. Whether the account is a futures, foreign futures, leverage, 
option (if an option account, specify whether exchange-traded, dealer or 
cleared swap), ``delivery'' account, or a cleared swaps account. A 
``delivery'' account is one which contains only documents of title, 
commodities, cash, or other property identified to the claimant and 
deposited for the purposes of making or taking delivery on a commodity 
underlying a commodity contract or for payment of the strike price upon 
exercise of an option.
    b. The capacity in which the account is held, as follows (and if 
more than one is applicable, so state):
    1. [The account is held in the name of the undersigned in his 
individual capacity];
    2. [The account is held by the undersigned as guardian, custodian, 
or conservator for the benefit of a ward or a minor under the Uniform 
Gift to Minors Act];
    3. [The account is held by the undersigned as executor or 
administrator of an estate];
    4. [The account is held by the undersigned as trustee for the trust 
beneficiary];
    5. [The account is held by the undersigned in the name of a 
corporation, partnership, or unincorporated association];
    6. [The account is held as an omnibus customer account of the 
undersigned futures commission merchant];
    7. [The account is held by the undersigned as part owner of a joint 
account];
    8. [The account is held by the undersigned in the name of a plan 
which, on the date the petition in bankruptcy was filed, had in effect a 
registration statement in accordance with the requirements ofSec. 1031 
of the Employee Retirement Income Security Act of 1974 and the 
regulations thereunder]; or
    9. [The account is held by the undersigned as agent or nominee for a 
principal or beneficial owner (and not described above in items 1-8 of 
this II, b)].
    10. [The account is held in any other capacity not described above 
in items 1-9 of this II, b. Specify the capacity].
    c. The equity, as of the date the petition in bankruptcy was filed, 
based on the commodity contracts in the account.
    d. Whether the person[s] (including a general partnership, limited 
partnership, corporation, or other type of association) on whose behalf 
the account is held is one of the following persons OR whether one of 
the following persons, alone or jointly, owns 10% or more of the 
account:
    1. [If the debtor is an individual--
    A. Such individual;
    B. Relative (as defined below in item 8 of this III.d) of the debtor 
or of a general partner of the debtor;
    C. Partnership in which the debtor is a general partner;
    D. General partner of the debtor; or
    E. Corporation of which the debtor is a director, officer, or person 
in control];
    2. [If the debtor is a partnership--
    A. Such partnership;
    B. General partner in the debtor;
    C. Relative (as defined in item 8 of this III.d) of a general 
partner in, general partner of, or person in control of the debtor;
    D. Partnership in which the debtor is a general partner;
    E. General partner of the debtor; or
    F. Person in control of the debtor];
    3. [If the debtor is a limited partnership--
    A. Such limited partnership;
    B. A limited or special partner in such partnership whose duties 
include:
    i. The management of the partnership business or any part thereof;
    ii. The handling of the trades or customer funds of customers of 
such partnership;
    iii. The keeping of records pertaining to the trades or customer 
funds of customers of such partnership; or
    iv. The signing or co-signing of checks or drafts on behalf of such 
partnership];
    4. [If the debtor is a corporation or association (except a debtor 
which is a futures commission merchant and is also a cooperative 
association of producers)--
    A. Such corporation or association;
    B. Director of the debtor;
    C. Officer of the debtor;
    D. Person in control of the debtor;
    E. Partnership in which the debtor is a general partner;
    F. General partner of the debtor;
    G. Relative (as defined in item 8 of this III.d) of a general 
partner, director, officer, or person in control of the debtor;
    H. An officer, director or owner of ten percent or more of the 
capital stock of such organization];
    5. [If the debtor is a futures commission merchant which is a 
cooperative association of producers--
    Shareholder or member of the debtor which is an officer, director or 
manager];
    6. [An employee of such individual, partnership, limited 
partnership, corporation or association whose duties include:
    A. The management of the business of such individual, partnership, 
limited partnership, corporation or association or any part thereof;
    B. The handling of the trades or customer funds of customers of such 
individual, partnership, limited partnership, corporation or 
association;

[[Page 1137]]

    C. The keeping of records pertaining to the trades or funds of 
customers of such individual, partnership, limited partnership, 
corporation or association; or
    D. The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, limited partnership, corporation or 
association];
    7. [Managing agent of the debtor];
    8. [A spouse or minor dependent living in the same household of ANY 
OF THE FOREGOING PERSONS, or any other relative, regardless of 
residency, (unless previously described in items 1-B, 2-C, or 4-G of 
this III.d) defined as an individual related by affinity or 
consanguinity within the third degree as determined by the common law, 
or individual in a step or adoptive relationship within such degree];
    9. [``Affiliate'' of the debtor, defined as:
    A. Entity that directly or indirectly owns, controls, or holds with 
power to vote, 20 percent or more of the out-standing voting securities 
of the debtor, other than an entity that holds such securities--
    i. In a fiduciary or agency capacity without sole discretionary 
power to vote such securities; or
    ii. Solely to secure a debt, if such entity has not in fact 
exercised such power to vote;
    B. Corporation 20 percent or more of whose outstanding voting 
securities are directly or indirectly owned, con-trolled, or held with 
power to vote, by the debtor, or by an entity that directly or 
indirectly owns, controls, or holds with power to vote, 20 percent or 
more of the outstanding voting securities of the debtor, other than an 
entity that holds such securities--
    i. In a fiduciary or agency capacity without sole discretionary 
power to vote such securities; or
    ii. Solely to secure a debt, if such entity has not in fact 
exercised such power to vote;
    C. Person whose business is operated under a lease or operating 
agreement by the debtor, or person substantially all of whose property 
is operated under an operating agreement with the debtor;
    D. Entity that otherwise, directly or indirectly, is controlled by 
or is under common control with the debtor];
    E. Entity that operates the business or all or substantially all of 
the property of the debtor under a lease or operating agreement; or
    F. Entity that otherwise, directly or indirectly, controls the 
debtor; or
    10. [Any of the persons listed in items 1-7 above of this III.d if 
such person is associated with an affiliate (see item 9 above) of the 
debtor as if the affiliate were the debtor].
    e. Whether the account is a discretionary account. (If it is, the 
name in which the ``attorney in fact'' is held).
    f. If the account is a joint account, the amount of the claimant's 
percentage interest in the account. (Also specify whether participants 
in a joint account are claiming separately or jointly).
    g. Whether the claimant's positions in security futures products are 
held in a futures account or securities account, as those terms are 
defined inSec. 1.3 of this chapter.
    IV. Describe all claims against the debtor not based upon a 
commodity contract account of the claimant (e.g., if landlord, for rent; 
if customer, for misrepresentation or fraud).
    V. Describe all claims of the DEBTOR against the CLAIMANT not 
already included in the equity of a commodity contract account[s] of the 
claimant (see III.c above).
    VI. Describe any deposits of money, securities or other property 
held by or for the debtor from or for the claimant, and indicate if any 
of this property was included in your answer to III.c above.
    VII. Of the money, securities, or other property described in VI 
above, identify any which consists of the following:
    a. With respect to property received, acquired, or held by or for 
the account of the debtor from or for the account of the claimant to 
margin, guarantee or secure an open commodity contract, the following:
    1. Any security which as of the filing date is:
    A. Held for the claimant's account;
    B. Registered in the claimant's name;
    C. Not transferable by delivery; and
    D. Not a short term obligation; or
    2. Any warehouse receipt, bill of lading or other document of title 
which as of the filing date:
    A. Can be identified on the books and records of the debtor as held 
for the account of the claimant; and
    B. Is not in bearer form and is not otherwise transferable by 
delivery.
    b. With respect to open commodity contracts, and except as otherwise 
provided below in item g of this VII, any such contract which:
    1. As of the date the petition in bankruptcy was filed, is 
identified on the books and records of the debtor as held for the 
account of the claimant;
    2. Is a bona fide hedging position or transaction as defined in Rule 
1.3 of the Commodity Futures Trading Commission (``CFTC'') or is a 
commodity option transaction which has been determined by a registered 
entity to be economically appropriate to the reduction of risks in the 
conduct and management of a commercial enterprise pursuant to rules 
which have been approved by the CFTC pursuant to section 5c(c) of the 
Commodity Exchange Act;
    3. Is in an account designated in the accounting records of the 
debtor as a hedging account.
    c. With respect to warehouse receipts, bills of lading or other 
documents of title, or

[[Page 1138]]

physical commodities received, acquired, or held by or for the account 
of the debtor for the purpose of making or taking delivery or exercise 
from or for the claimant's account, any such document of title or 
commodity which as of the filing date can be identified on the books and 
records of the debtor as received from or for the account of the 
claimant specifically for the purpose of delivery or exercise.
    d. Any cash or other property deposited prior to bankruptcy to pay 
for the taking of physical delivery on a long commodity contract or for 
payment of the strike price upon exercise of a short put or a long call 
option contract on a physical commodity, which cannot be settled in 
cash, in excess of the amount necessary to margin such commodity 
contract prior to the notice date or exercise date which cash or other 
property is identified on the books and records of the debtor as 
received from or for the account of the claimant within three or less 
days of the notice date or three or less days of the exercise date 
specifically for the purpose of payment of the notice price upon taking 
delivery or the strike price upon exercise.
    e. The cash price tendered for any property deposited prior to 
bankruptcy to make physical delivery on a short commodity contract or 
for exercise of a long put or a short call option contract on a physical 
commodity, which cannot be settled in cash, to the extent it exceeds the 
amount necessary to margin such contract prior to the notice exercise 
date which property is identified on the books and records of the debtor 
as received from or for the account of the claimant within three or less 
days of the notice date or of the exercise date specifically for the 
purpose of a delivery or exercise.
    f. Fully paid, non-exempt securities identified on the books and 
records of the debtor as held by the debtor for or on behalf of the 
commodity contract account of the claimant for which, according to such 
books and records as of the filing date, no open commodity contracts 
were held in the same capacity.
    g. Open commodity contracts transferred to another futures 
commission merchant by the trustee.
    VIII. Specify whether the claimant wishes to receive payment in 
kind, to the extent possible, for any claim for securities.
    IX. Attach copies of any documents which support the information 
provided in this proof of claim, including but not limited to customer 
confirmations, account statements, and statements of purchase or sale.
    This proof of claim must be filed with the trustee no later than --
--, or your claim will be barred unless an extension has been granted, 
available only for good cause.

Return this form to:
(Trustee's name (or designee's) and address)
________________________________________________________________________
 Dated:_________________________________________________________________
 (Signed)_______________________________________________________________

Penalty for Presenting Fraudulent Claim. Fine of not more than $5,000 or 
imprisonment for not more than five years or both--Title 18, U.S.C. 152.

(Approved by the Office of Management and Budget under control number 
3038-0021)

[77 FR 6382, Feb. 7, 2012]



      Sec. Appendix B to Part 190--Special Bankruptcy Distributions

    Framework 1--Special Distribution of Customer Funds for Futures 
           Contracts When FCM Participated in Cross-Margining

    The Commission has established the following distributional 
convention with respect to ``customer funds'' (asSec. 1.3 of this 
chapter defines such term) for futures contracts held by a futures 
commission merchant (FCM) that participated in a cross-margining (XM) 
program which shall apply if participating market professionals sign an 
agreement that makes reference to this distributional rule and the form 
of such agreement has been approved by the Commission by rule, 
regulation or order:
    All customer funds for futures contracts held in respect of XM 
accounts, regardless of the product that customers holding such accounts 
are trading, are required by Commission order to be segregated 
separately from all other customer segregated funds. For purposes of 
this distributional rule, XM accounts will be deemed to be commodity 
interest accounts and securities held in XM accounts will be deemed to 
be received by the FCM to margin, guarantee or secure commodity interest 
contracts. The maintenance of property in an XM account will result in 
subordination of the claim for such property to certain non-XM customer 
claims and thereby will operate to cause such XM claim not to be treated 
as a customer claim for purposes of the Securities Investors Protection 
Act and the XM securities to be excluded from the securities estate. 
This creates subclasses of futures customer accounts, an XM account and 
a non-XM account (a person could hold each type of account), and results 
in two pools of segregated funds belonging to futures customers: An XM 
pool and a non-XM pool. In the event that there is a shortfall in the 
non-XM pool of customer class segregated funds and there is no shortfall 
in the XM pool of customer segregated funds, all futures customer net 
equity claims, whether or not they arise out of the XM subclass of 
accounts, will be combined and will be paid pro rata out of the total 
pool of available XM and non-XM customer funds for futures contracts. In 
the event that there

[[Page 1139]]

is a shortfall in the XM pool of customer segregated funds and there is 
no shortfall in the non-XM pool of customer segregated funds, then 
futures customer net equity claims arising from the XM subclass of 
accounts shall be satisfied first from the XM pool of customer 
segregated funds, and futures customer net equity claims arising from 
the non-XM subclass of accounts shall be satisfied first from the non-XM 
customer segregated funds. Furthermore, in the event that there is a 
shortfall in both the non-XM and XM pools of customer segregated funds: 
(1) If the non-XM shortfall as a percentage of the segregation 
requirement in the non-XM pool is greater than or equal to the XM 
shortfall as a percentage of the segregation requirement in the XM pool, 
all futures customer net equity claims will be paid pro rata; and (2) if 
the XM shortfall as a percentage of the segregation requirement in the 
XM pool is greater than the non-XM shortfall as a percentage of the 
segregation requirement of the non-XM pool, non-XM futures customer net 
equity claims will be paid pro rata out of the available non-XM 
segregated funds, and XM futures customer net equity claims will be paid 
pro rata out of the available XM segregated funds. In this way, non-XM 
customers will never be adversely affected by an XM shortfall.
    The following examples illustrate the operation of this convention. 
The examples assume that the FCM has two customers, one with exclusively 
XM accounts and one with exclusively non-XM accounts. However, the 
examples would apply equally if there were only one customer, with both 
an XM account and a non-XM account.

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[77 FR 6386, Feb. 7, 2012]

                        PARTS 191	199 [RESERVED]

[[Page 1161]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 1163]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2013)

                      Title 1--General Provisions

 Chapter I  Administrative Committee of the Federal Register 
                (Parts 1--49)
Chapter II  Office of the Federal Register (Parts 50--299)
  Chapter 
       III  Administrative Conference of the United States (Parts 
                300--399)
Chapter IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
 Chapter I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
Chapter II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
  Chapter 
       III  Department of Health and Human Services (Parts 300-- 
                399)
Chapter IV  Department of Agriculture (Parts 400--499)
Chapter VI  Department of State (Parts 600--699)
  Chapter 
       VII  Agency for International Development (Parts 700--799)
  Chapter 
      VIII  Department of Veterans Affairs (Parts 800--899)
Chapter IX  Department of Energy (Parts 900--999)
Chapter XI  Department of Defense (Parts 1100--1199)
  Chapter 
       XII  Department of Transportation (Parts 1200--1299)
  Chapter 
      XIII  Department of Commerce (Parts 1300--1399)
  Chapter 
       XIV  Department of the Interior (Parts 1400--1499)
Chapter XV  Environmental Protection Agency (Parts 1500--1599)
  Chapter 
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
Chapter XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
  Chapter 
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
  Chapter 
     XXIII  Social Security Administration (Parts 2300--2399)
  Chapter 
      XXIV  Housing and Urban Development (Parts 2400--2499)
  Chapter 
       XXV  National Science Foundation (Parts 2500--2599)
  Chapter 
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 1164]]

  Chapter 
     XXVII  Small Business Administration (Parts 2700--2799)
  Chapter 
    XXVIII  Department of Justice (Parts 2800--2899)
  Chapter 
       XXX  Department of Homeland Security (Parts 3000--3099)
  Chapter 
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
  Chapter 
     XXXII  National Endowment for the Arts (Parts 3200--3299)
  Chapter 
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
  Chapter 
     XXXIV  Department of Education (Parts 3400--3499)
  Chapter 
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
  Chapter 
    XXXVII  Peace Corps (Parts 3700--3799)
  Chapter 
     LVIII  Election Assistance Commission (Parts 5800--5899)

                        Title 3--The President

 Chapter I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

 Chapter I  Government Accountability Office (Parts 1--199)
Chapter II  Recovery Accountability and Transparency Board (Parts 
                200--299)

                   Title 5--Administrative Personnel

 Chapter I  Office of Personnel Management (Parts 1--1199)
Chapter II  Merit Systems Protection Board (Parts 1200--1299)
  Chapter 
       III  Office of Management and Budget (Parts 1300--1399)
 Chapter V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
Chapter VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
  Chapter 
      VIII  Office of Special Counsel (Parts 1800--1899)
Chapter IX  Appalachian Regional Commission (Parts 1900--1999)
Chapter XI  Armed Forces Retirement Home (Parts 2100--2199)
  Chapter 
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
Chapter XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
  Chapter 
       XVI  Office of Government Ethics (Parts 2600--2699)
  Chapter 
       XXI  Department of the Treasury (Parts 3100--3199)
  Chapter 
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)

[[Page 1165]]

  Chapter 
     XXIII  Department of Energy (Parts 3300--3399)
  Chapter 
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
  Chapter 
       XXV  Department of the Interior (Parts 3500--3599)
  Chapter 
      XXVI  Department of Defense (Parts 3600-- 3699)
  Chapter 
    XXVIII  Department of Justice (Parts 3800--3899)
  Chapter 
      XXIX  Federal Communications Commission (Parts 3900--3999)
  Chapter 
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
  Chapter 
      XXXI  Farm Credit Administration (Parts 4100--4199)
  Chapter 
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
  Chapter 
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
  Chapter 
      XXXV  Office of Personnel Management (Parts 4500--4599)
  Chapter 
    XXXVII  Federal Election Commission (Parts 4700--4799)
Chapter XL  Interstate Commerce Commission (Parts 5000--5099)
  Chapter 
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
  Chapter 
      XLII  Department of Labor (Parts 5200--5299)
  Chapter 
     XLIII  National Science Foundation (Parts 5300--5399)
  Chapter 
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
  Chapter 
      XLVI  Postal Rate Commission (Parts 5600--5699)
  Chapter 
     XLVII  Federal Trade Commission (Parts 5700--5799)
  Chapter 
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
  Chapter 
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
 Chapter L  Department of Transportation (Parts 6000--6099)
  Chapter 
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
  Chapter 
      LIII  Department of Education (Parts 6300--6399)
  Chapter 
       LIV  Environmental Protection Agency (Parts 6400--6499)
Chapter LV  National Endowment for the Arts (Parts 6500--6599)
  Chapter 
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
  Chapter 
      LVII  General Services Administration (Parts 6700--6799)
  Chapter 
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
  Chapter 
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
Chapter LX  United States Postal Service (Parts 7000--7099)
  Chapter 
       LXI  National Labor Relations Board (Parts 7100--7199)
  Chapter 
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
  Chapter 
     LXIII  Inter-American Foundation (Parts 7300--7399)
  Chapter 
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
  Chapter 
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)

[[Page 1166]]

  Chapter 
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
  Chapter 
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
  Chapter 
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
  Chapter 
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
  Chapter 
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
  Chapter 
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
  Chapter 
    LXXIII  Department of Agriculture (Parts 8300--8399)
  Chapter 
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
  Chapter 
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
  Chapter 
    LXXVII  Office of Management and Budget (Parts 8700--8799)
  Chapter 
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
  Chapter 
    LXXXII  Special Inspector General for Iraq Reconstruction 
                (Parts 9200--9299)
  Chapter 
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
  Chapter 
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
  Chapter 
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
  Chapter 
     XCVII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)

                      Title 6--Domestic Security

 Chapter I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--99)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
 Chapter I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
Chapter II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
  Chapter 
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
Chapter IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)

[[Page 1167]]

 Chapter V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
Chapter VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
  Chapter 
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
  Chapter 
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
Chapter IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
 Chapter X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
Chapter XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
  Chapter 
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
Chapter XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
  Chapter 
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
  Chapter 
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
  Chapter 
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
Chapter XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
  Chapter 
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
  Chapter 
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
  Chapter 
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
  Chapter 
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
  Chapter 
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
  Chapter 
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
  Chapter 
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
  Chapter 
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
  Chapter 
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
  Chapter 
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
  Chapter 
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)

[[Page 1168]]

  Chapter 
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
  Chapter 
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
  Chapter 
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
  Chapter 
       XLI  [Reserved]
  Chapter 
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

 Chapter I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
 Chapter V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

 Chapter I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
Chapter II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
  Chapter 
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

 Chapter I  Nuclear Regulatory Commission (Parts 0--199)
Chapter II  Department of Energy (Parts 200--699)
  Chapter 
       III  Department of Energy (Parts 700--999)
 Chapter X  Department of Energy (General Provisions) (Parts 
                1000--1099)
  Chapter 
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
  Chapter 
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
  Chapter 
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

 Chapter I  Federal Election Commission (Parts 1--9099)
Chapter II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

 Chapter I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
Chapter II  Federal Reserve System (Parts 200--299)
  Chapter 
       III  Federal Deposit Insurance Corporation (Parts 300--399)

[[Page 1169]]

Chapter IV  Export-Import Bank of the United States (Parts 400--
                499)
 Chapter V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
Chapter VI  Farm Credit Administration (Parts 600--699)
  Chapter 
       VII  National Credit Union Administration (Parts 700--799)
  Chapter 
      VIII  Federal Financing Bank (Parts 800--899)
Chapter IX  Federal Housing Finance Board (Parts 900--999)
 Chapter X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
Chapter XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
  Chapter 
       XII  Federal Housing Finance Agency (Parts 1200--1299)
  Chapter 
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
  Chapter 
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
Chapter XV  Department of the Treasury (Parts 1500--1599)
  Chapter 
       XVI  Office of Financial Research (Parts 1600--1699)
  Chapter 
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
  Chapter 
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

 Chapter I  Small Business Administration (Parts 1--199)
  Chapter 
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
Chapter IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
 Chapter V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

 Chapter I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
Chapter II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
  Chapter 
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
 Chapter V  National Aeronautics and Space Administration (Parts 
                1200--1299)
Chapter VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
 Chapter I  Bureau of the Census, Department of Commerce (Parts 
                30--199)

[[Page 1170]]

Chapter II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
  Chapter 
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
Chapter IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
  Chapter 
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
  Chapter 
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
Chapter IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
Chapter XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
  Chapter 
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
  Chapter 
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
Chapter XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
  Chapter 
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

 Chapter I  Federal Trade Commission (Parts 0--999)
Chapter II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

 Chapter I  Commodity Futures Trading Commission (Parts 1--199)
Chapter II  Securities and Exchange Commission (Parts 200--399)
Chapter IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

 Chapter I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
  Chapter 
       III  Delaware River Basin Commission (Parts 400--499)
Chapter VI  Water Resources Council (Parts 700--799)
  Chapter 
      VIII  Susquehanna River Basin Commission (Parts 800--899)
  Chapter 
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

 Chapter I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)

[[Page 1171]]

Chapter II  United States International Trade Commission (Parts 
                200--299)
  Chapter 
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
Chapter IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

 Chapter I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
Chapter II  Railroad Retirement Board (Parts 200--399)
  Chapter 
       III  Social Security Administration (Parts 400--499)
Chapter IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
 Chapter V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
Chapter VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
  Chapter 
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
  Chapter 
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
Chapter IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

 Chapter I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
Chapter II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
  Chapter 
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

 Chapter I  Department of State (Parts 1--199)
Chapter II  Agency for International Development (Parts 200--299)
  Chapter 
       III  Peace Corps (Parts 300--399)
Chapter IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
 Chapter V  Broadcasting Board of Governors (Parts 500--599)
  Chapter 
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
Chapter IX  Foreign Service Grievance Board (Parts 900--999)
 Chapter X  Inter-American Foundation (Parts 1000--1099)
Chapter XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
  Chapter 
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
  Chapter 
      XIII  Millennium Challenge Corporation (Parts 1300--1399)

[[Page 1172]]

  Chapter 
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
Chapter XV  African Development Foundation (Parts 1500--1599)
  Chapter 
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
  Chapter 
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

 Chapter I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
Chapter II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
  Chapter 
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
 Chapter I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
Chapter II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
  Chapter 
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
Chapter IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
 Chapter V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
Chapter VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
  Chapter 
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
  Chapter 
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
Chapter IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)

[[Page 1173]]

 Chapter X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
  Chapter 
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
Chapter XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799)
Chapter XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
  Chapter 
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099)
  Chapter 
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

 Chapter I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
Chapter II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
  Chapter 
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
Chapter IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
 Chapter V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
Chapter VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
  Chapter 
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

 Chapter I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

 Chapter I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
Chapter II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

 Chapter I  Department of Justice (Parts 0--299)
  Chapter 
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
 Chapter V  Bureau of Prisons, Department of Justice (Parts 500--
                599)

[[Page 1174]]

Chapter VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
  Chapter 
       VII  Office of Independent Counsel (Parts 700--799)
  Chapter 
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
Chapter IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
Chapter XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
 Chapter I  National Labor Relations Board (Parts 100--199)
Chapter II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
  Chapter 
       III  National Railroad Adjustment Board (Parts 300--399)
Chapter IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
 Chapter V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
Chapter IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
 Chapter X  National Mediation Board (Parts 1200--1299)
  Chapter 
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
  Chapter 
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
  Chapter 
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
Chapter XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
  Chapter 
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
  Chapter 
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
Chapter XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

 Chapter I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
Chapter II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
Chapter IV  Geological Survey, Department of the Interior (Parts 
                400--499)
 Chapter V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
  Chapter 
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
  Chapter 
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

[[Page 1175]]

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
 Chapter I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
Chapter II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
Chapter IV  Secret Service, Department of the Treasury (Parts 
                400--499)
 Chapter V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
Chapter VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
  Chapter 
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
  Chapter 
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
Chapter IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
 Chapter X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
 Chapter I  Office of the Secretary of Defense (Parts 1--399)
 Chapter V  Department of the Army (Parts 400--699)
Chapter VI  Department of the Navy (Parts 700--799)
  Chapter 
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
  Chapter 
       XII  Defense Logistics Agency (Parts 1200--1299)
  Chapter 
       XVI  Selective Service System (Parts 1600--1699)
  Chapter 
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
  Chapter 
     XVIII  National Counterintelligence Center (Parts 1800--1899)
  Chapter 
       XIX  Central Intelligence Agency (Parts 1900--1999)
Chapter XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
  Chapter 
       XXI  National Security Council (Parts 2100--2199)
  Chapter 
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
  Chapter 
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
  Chapter 
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

 Chapter I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
Chapter II  Corps of Engineers, Department of the Army (Parts 
                200--399)

[[Page 1176]]

Chapter IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
 Chapter I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
Chapter II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
  Chapter 
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
Chapter IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
 Chapter V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
Chapter VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
  Chapter 
       VII  Office of Educational Research and Improvement, 
                Department of Education (799--799) [Reserved]
Chapter XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
  Chapter 
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

 Chapter I  National Park Service, Department of the Interior 
                (Parts 1--199)
Chapter II  Forest Service, Department of Agriculture (Parts 200--
                299)
  Chapter 
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
Chapter IV  American Battle Monuments Commission (Parts 400--499)
 Chapter V  Smithsonian Institution (Parts 500--599)
Chapter VI  [Reserved]
  Chapter 
       VII  Library of Congress (Parts 700--799)
  Chapter 
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
Chapter IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
 Chapter X  Presidio Trust (Parts 1000--1099)
Chapter XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
  Chapter 
       XII  National Archives and Records Administration (Parts 
                1200--1299)
Chapter XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
  Chapter 
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

[[Page 1177]]

             Title 37--Patents, Trademarks, and Copyrights

 Chapter I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
Chapter II  Copyright Office, Library of Congress (Parts 200--299)
  Chapter 
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
Chapter IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

 Chapter I  Department of Veterans Affairs (Parts 0--199)
Chapter II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

 Chapter I  United States Postal Service (Parts 1--999)
  Chapter 
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

 Chapter I  Environmental Protection Agency (Parts 1--1099)
Chapter IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
 Chapter V  Council on Environmental Quality (Parts 1500--1599)
Chapter VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
  Chapter 
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
Chapter 50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
Chapter 51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
Chapter 60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
Chapter 61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
 Chapters 
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
  Chapter 
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
  Chapter 
       102  Federal Management Regulation (Parts 102-1--102-299)
 Chapters 
       103  104 [Reserved]

[[Page 1178]]

  Chapter 
       105  General Services Administration (Parts 105-1--105-999)
  Chapter 
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
  Chapter 
       114  Department of the Interior (Parts 114-1--114-99)
  Chapter 
       115  Environmental Protection Agency (Parts 115-1--115-99)
  Chapter 
       128  Department of Justice (Parts 128-1--128-99)
 Chapters 
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
  Chapter 
       300  General (Parts 300-1--300-99)
  Chapter 
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
  Chapter 
       302  Relocation Allowances (Parts 302-1--302-99)
  Chapter 
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
  Chapter 
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

 Chapter I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
Chapter IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--599)
 Chapter V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
 Chapter I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
Chapter II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
  Chapter 
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

 Chapter I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
Chapter IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

[[Page 1179]]

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)158 I18[Reserved]
            Subtitle B--Regulations Relating to Public Welfare
Chapter II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
  Chapter 
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
Chapter IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
 Chapter V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
Chapter VI  National Science Foundation (Parts 600--699)
  Chapter 
       VII  Commission on Civil Rights (Parts 700--799)
  Chapter 
      VIII  Office of Personnel Management (Parts 800--899)
 Chapter X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
Chapter XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
  Chapter 
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
  Chapter 
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
  Chapter 
       XVI  Legal Services Corporation (Parts 1600--1699)
  Chapter 
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
  Chapter 
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
  Chapter 
       XXI  Commission on Fine Arts (Parts 2100--2199)
  Chapter 
     XXIII  Arctic Research Commission (Part 2301)
  Chapter 
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
  Chapter 
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

 Chapter I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
Chapter II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
  Chapter 
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
Chapter IV  Federal Maritime Commission (Parts 500--599)

[[Page 1180]]

                      Title 47--Telecommunication

 Chapter I  Federal Communications Commission (Parts 0--199)
Chapter II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
  Chapter 
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
Chapter IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

 Chapter 1  Federal Acquisition Regulation (Parts 1--99)
 Chapter 2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
 Chapter 3  Health and Human Services (Parts 300--399)
 Chapter 4  Department of Agriculture (Parts 400--499)
 Chapter 5  General Services Administration (Parts 500--599)
 Chapter 6  Department of State (Parts 600--699)
 Chapter 7  Agency for International Development (Parts 700--799)
 Chapter 8  Department of Veterans Affairs (Parts 800--899)
 Chapter 9  Department of Energy (Parts 900--999)
Chapter 10  Department of the Treasury (Parts 1000--1099)
Chapter 12  Department of Transportation (Parts 1200--1299)
Chapter 13  Department of Commerce (Parts 1300--1399)
Chapter 14  Department of the Interior (Parts 1400--1499)
Chapter 15  Environmental Protection Agency (Parts 1500--1599)
Chapter 16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
Chapter 17  Office of Personnel Management (Parts 1700--1799)
Chapter 18  National Aeronautics and Space Administration (Parts 
                1800--1899)
Chapter 19  Broadcasting Board of Governors (Parts 1900--1999)
Chapter 20  Nuclear Regulatory Commission (Parts 2000--2099)
Chapter 21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
Chapter 23  Social Security Administration (Parts 2300--2399)
Chapter 24  Department of Housing and Urban Development (Parts 
                2400--2499)
Chapter 25  National Science Foundation (Parts 2500--2599)
Chapter 28  Department of Justice (Parts 2800--2899)
Chapter 29  Department of Labor (Parts 2900--2999)
Chapter 30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
Chapter 34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
Chapter 51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)

[[Page 1181]]

Chapter 52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
Chapter 53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
Chapter 54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
Chapter 57  African Development Foundation (Parts 5700--5799)
Chapter 61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
Chapter 63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
Chapter 99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
 Chapter I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
Chapter II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
  Chapter 
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
Chapter IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
 Chapter V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
Chapter VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
  Chapter 
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
  Chapter 
      VIII  National Transportation Safety Board (Parts 800--999)
 Chapter X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
Chapter XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
  Chapter 
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

 Chapter I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
Chapter II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
  Chapter 
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 1182]]

Chapter IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
 Chapter V  Marine Mammal Commission (Parts 500--599)
Chapter VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 1183]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2013)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     22, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII, L
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV, L
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII, L
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 1184]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Bureau of Ocean Energy Management, Regulation,    30, II
     and Enforcement
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
   for the District of Columbia
[[Page 1185]]

Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V

[[Page 1186]]

  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV

[[Page 1187]]

Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 6, I; 8, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V

[[Page 1188]]

Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Bureau of Ocean Energy Management, Regulation,  30, II
       and Enforcement
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
Iraq Reconstruction, Special Inspector General    5, LXXXVII
     for
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Employee Benefits Security Administration       29, XXV

[[Page 1189]]

  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Office of Workers' Compensation Programs        20, VII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI

[[Page 1190]]

National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Offices of Independent Counsel                    28, VI
Office of Workers' Compensation Programs          20, VII
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Recovery Accountability and Transparency Board    4, II
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI

[[Page 1191]]

Rural Utilities Service                           7, XVII, XVIII, XLII, L
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
   and Water Commission, United States Section
[[Page 1192]]

Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1193]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2008 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2008

17 CFR
                                                                   73 FR
                                                                    Page
Chapter I
3.10 (c)(4) added..................................................54071
10 Authority citation revised......................................63360
10.12 (a)(2), (b) and (d)(1) revised...............................63360
12.10 (a)(2), (3) and (b) revised..................................63360
12.11 (a) and (c) revised..........................................63361
12.106 (c) revised.................................................70275
12.407 (d) revised.................................................70275
30 Order....................................................39226, 60625
30.8 Removed.......................................................54072
36.3 (b)(3)(ii) revised.............................................8604
40.1 (a) through (g) revised........................................8604
40.2 Heading, (a) introductory text, (1) and (2) revised............8605
40.3 (a) introductory text revised..................................8605
40.4 (a) and (b)(2) revised.........................................8605
40.5 (a) introductory text and (c) introductory text revised........8605
40.6 (a)(2), (c) introductory text, (1), (3) introductory text, 
        (i) and (ii)(B) amended; heading, (a) introductory text, 
        (2), (c)(2)(iii) and (iv) revised; (c)(2)(vii), (viii), 
        (ix), (3)(ii)(G) and (H) added..............................8605
140 Authority citation revised.....................................79609
140.72 (a) amended.................................................79609
140.73 (a) introductory text.......................................79609
143.8 (a) revised..................................................57514
190 Policy statement...............................................57235
    Technical correction...........................................65514

                                  2009

17 CFR
                                                                   74 FR
                                                                    Page
Chapter I
1.10 (b)(2)(iii) removed; (b)(2)(i), (ii)(A), (3), (c)(1), (2), 
        (d)(1)(ii), (4)(iii) and (h) revised.......................69008
1.12 (a)(2) and (i)(1) revised; (a)(3) removed; (i)(3) added.......69009
1.17 (a)(1)(i)(A), (B), (iii)(A), (b)(2), (3), (4) introductory 
        text, (7) introductory text, (8) introductory text and 
        (c)(5)(x) introductory text revised; (b)(9) and (10) added
                                                                   69282
4.7 (b)(2)(iii)(A), (B), (b)(2)(iv), (v) and (3)(i)(D) added; 
        (b)(3)(i) introductory text, (B), (C) and (ii) revised.....57590
4.13 (c)(2) removed; (c)(3) redesignated as new (c)(2).............57590
4.22 (a) introductory text, (1) introductory text, (2) 
        introductory text, (c) introductory text, (4), (5), (d), 
        (e) and (f)(2) revised; (c)(6) redesignated as (c)(8); 
        (a)(5), (6), and new (c)(6) and (7) added..................57590
4.26 (d)(1) and (2) revised; eff. 4-6-09............................9569
4.36 (d) revised; eff. 4-6-09.......................................9569
7 Authority citation revised.......................................39212
7.201 Removed......................................................39212
15 Authority citation revised......................................12188
15.00 Revised; eff. 4-22-09........................................12188
15.01 (a) revised; eff. 4-22-09....................................12189

[[Page 1194]]

15.05 Heading and (a) revised; (i) added; eff. 4-22-09.............12189
15.06 Added; eff. 4-22-09..........................................12190
16 Authority citation revised......................................12190
16.01 (e) revised; eff. 4-22-09....................................12190
16.02 Added; eff. 4-22-09..........................................12190
16.07 Heading and introductory text revised; (c) added; eff. 4-22-
        09.........................................................12190
17 Authority citation revised......................................12190
    Heading revised; eff. 4-22-09..................................12190
17.00 (a) heading, (1), (b)(1) and (f) revised; (c) added; eff. 4-
        22-09......................................................12190
17.03 Heading, introductory text, (a) and (b) revised; eff. 4-22-
        09.........................................................12191
17.04 Heading, (a) and (b)(1)(ii) revised; eff. 4-22-09............12191
18 Authority citation revised......................................12191
18.01 Revised; eff. 4-22-09........................................12191
18.04 (a)(7) and (b)(3)(i) revised; eff. 4-22-09...................12191
18.05 (a)(2), (3) and (4) revised; eff. 4-22-09....................12192
19 Authority citation revised......................................12192
19.00 (a) revised; eff. 4-22-09....................................12192
19.01 (b) introductory text and (1) revised; eff. 4-22-09..........12192
21 Authority citation revised......................................12192
21.01 Revised; eff. 4-22-09........................................12192
21.02 Heading, introductory text, (f) and (i) revised; eff. 4-22-
        09.........................................................12192
21.03 Heading, (a) through (d), (e) introductory text, (1) 
        introductory text, (iv), (v), (f), (g) and (h) revised; 
        eff. 4-22-09...............................................12192
21.04 Revised; eff. 4-22-09........................................12193
36 Authority citation revised......................................12194
36.3 (b) revised; eff. 4-22-09.....................................12194
    (c) revised; eff. 4-22-09......................................12195
    (d) added; eff. 4-22-09........................................12197
36 Appendix A added; eff. 4-22-09..................................12197
    Appendix B added; eff. 4-22-09.................................12198
38 Appendix B partial suspension lifted; amended...................18990
40 Authority citation revised......................................12202
    Heading revised; eff. 4-22-09..................................12202
40.1 (b)(2), (3), (f)(2) and (h) amended; eff. 4-22-09.............12202
40.2 (a) introductory text, (1) and (3)(iv) amended; (b) revised; 
        eff. 4-22-09...............................................12202
    (a)(3)(v) added................................................17394
40.3 (a)(1), (c)(1), (2) and (e)(2) amended; eff. 4-22-09..........12202
    (a)(7) revised.................................................17394
40.4 (b)(9)(ii) amended; eff. 4-22-09..............................12202
40.5 (a)(8) revised................................................17394
40.6 (a)(2), (c)(3)(ii)(G) and (H) revised; eff. 4-22-09...........12202
    (a)(3)(vi) revised.............................................17394
40.7 (b) amended; eff. 4-22-09.....................................12203
40.8 (a) revised; (b) redesignated as (c); new (b) added; eff. 4-
        22-09......................................................12203
    (c) and (d) added..............................................17394
40 Appendix D revised; eff. 4-22-09................................12203
    Appendix D amended.............................................17394
41.23 (a)(7) added.................................................17394
41.24 (a)(6) added.................................................17394

                                  2010

17 CFR
                                                                   75 FR
                                                                    Page
Chapter I
1.1 Removed........................................................55418
1.3 (nn) and (yy) revised..........................................55418
1.4 Revised........................................................55418
1.10 (j) revised...................................................55418
1.35 (a), (a-1) and (b) revised....................................55419
1.36 (a) revised...................................................55422
1.37 (a)(1) revised................................................55422
1.40 Revised.......................................................55422
1.46 (a) and (b) revised...........................................55422
1.52 (a), (c) introductory text, (1), (2), (g)(3), (4), (h), (j) 
        and (k) revised............................................55423
3.1 (c) revised....................................................55424
3.4 (a) revised....................................................55424
3.10 Heading, (a)(1), (b) and (d) revised..........................55424
3.12 Heading, (a), (f)(1)(iii)(E), (4), (h)(1)(i) and (iii) 
        revised; (j) removed.......................................55424
3.21 (b)(3), (c) introductory text, (1), (2), (3) and (4)(i) 
        revised....................................................55425
3.30 (a) revised...................................................55426
3.31 (a)(1), (b), (c) and (d) revised..............................55426
3.33 (a) introductory text, (b) introductory text, (6) and (e) 
        revised....................................................55426
3.44 (a)(1) through (5) revised....................................55427
3.45 (b) revised...................................................55427
3.50 (b)(2) revised................................................55427
3.60 (b)(2)(i)(B) revised..........................................55428

[[Page 1195]]

4.7 (a)(1)(v)(B) and (2)(i) revised................................55428
4.12 (b)(1)(i)(C) revised..........................................55428
4.13 (a)(3)(ii)(A) and (B)(1) revised..............................55428
4.14 (a)(7) revised................................................55428
4.23 (a)(1), (7), (b)(1) AND (2) revised...........................55428
4.24 (b)(1) introductory text, (e)(6), (g), (h)(2), (4)(iii), 
        (i)(2)(ii), (j)(1)(vi), (3), (l)(1)(iii), (2) introductory 
        text and (i) revised; (b)(1) clause amended; (i)(2)(xii) 
        redesignated as (i)(2)(xiii); (b)(4) and new (i)(2)(xii) 
        added......................................................55429
4.25 (c)(3)(ii) revised............................................55430
4.30 Revised.......................................................55430
4.33 (a)(6), (b)(1) and (2) revised................................55430
4.34 (b), (e)(2), (g), (h), (i)(2), (j)(1), (3), (k)(1)(ii), 
        (iii), (2) introductory text and (i) revised...............55430
5 Added............................................................55432
10.1 (a) revised...................................................55449
12 Policy statement.................................................3371
30 Order...........................................................35291
44 Added; interim..................................................63084
44.00 (c), (d) and (e) redesignated as (d), (e) and (f); (c) 
        revised; interim...........................................78896
44.03 Added; interim...............................................78896
140.94 Added.......................................................55449
145.5 (d)(1)(viii) and (h) revised.................................55449
147.3 (b)(4)(i)(H) and (8) revised.................................55450
160.1 (b) revised..................................................55450
160.3 (a) introductory text, (2), (n)(1)(i), (2)(i), (o)(1)(i) and 
        (u)(2)(i)(A) revised; (k)(2)(i)(B) through (F), (w)(2), 
        (3) and (4) redesignated as (k)(2)(i)(C) through (G), 
        (w)(3), (4) and (5); new (k)(2)(i)(B), new (w)(2) and (x) 
        added......................................................55450
160.4 (c)(2)(ii) and (e)(1)(iv) revised............................55451
160.30 Introductory text revised...................................55451
166.2 Revised......................................................55451
166.5 (a)(1)(i), (ii) and (iii) redesignated as (a)(1)(i)(A), (B) 
        and (C); new (a)(1)(ii) added; (a)(1)(iv) removed; (a)(2), 
        (3), (c)(5)(1)(A) and (C) revised..........................55451
190.01 (a) revised; (oo) added.....................................17302
190.04 (d)(3) added................................................44893
190.07 (b)(2)(viii) revised........................................17303
190 Appendix A amended.............................................17303

                                  2011

17 CFR
                                                                   76 FR
                                                                    Page
Chapter I
Chapter I Order......................................20835, 42508, 80233
1 Authority citation revised...........41056, 44264, 69429, 71683, 78798
    Policy statement...............................................77670
1.3 (zz) added.....................................................41056
    (c) and (d) revised; (k) removed; (aaa) through (fff) removed 
                                                                   69429
    (z) revised....................................................71683
1.12 (f)(1) removed................................................69430
1.25 Revised.......................................................78798
1.47 Removed.......................................................71684
1.48 Removed.......................................................71684
1.49 (d)(3) revised................................................44264
4 Authority citation revised................................44264, 71174
4.12 (b)(3) through (6) redesignated as (d)(1) through (4); (b) 
        heading, (1) introductory text, new (d)(1) introductory 
        text, (iii)(A), (B), (iv) and (2)(ii) revised; (b)(2) 
        amended; (c) added.........................................28644
4.13 (a)(3)(iv) and (4)(ii)(B) amended; (a)(5) redesignated as 
        (a)(6); new (a)(6)(i) introductory text, (b)(1)(ii) and 
        (2) revised; new (a)(5) added..............................28645
4.24 (h)(1)(i) revised.............................................44264
4.27 Added.........................................................71174
5 Authority citation revised.......................................56106
5.1 (d)(1)(i), (e)(1), (f)(1), (g) introductory text, (h)(1) and 
        (j) amended................................................56106
5.3 (a)(4)(i)(A) amended...........................................56106
5.10 (a)(1) introductory text and (c)(2) amended...................56106
5.11 (a)(1) introductory text, (2) introductory text and (d)(2) 
        amended....................................................56107
5.18 (a)(1)(ii) amended............................................56107
12.26 (c) revised..................................................63188
15 Authority citation revised......................................43862
15.00 Heading and introductory text revised........................43862
20 Added...........................................................43862
21 Authority citation revised......................................69430
21.04 Redesignated as 21.05; new 21.04 added.......................69430
21.05 Redesignated from 21.04......................................69430
21.06 Added........................................................69430

[[Page 1196]]

30.7 (c) revised; (g) added........................................78802
30.13 Added........................................................59245
30 Appendix D revised..............................................59247
35 Revised.........................................................49299
39 Authority citation revised......................................44473
    Revised........................................................69430
39.5 Redesignated as 39.8; new 39.5 added..........................44473
39.8 Redesignated from 39.5........................................44473
40 Revised.........................................................44790
40.6 (a) corrected.................................................45666
48 Added...........................................................80698
49 Added...........................................................54575
140.94 (a)(5) revised; (a)(6) added................................44474
    (a)(6) redesignated as (a)(7); heading, (a)(5) and new (7) 
revised; new (a)(6) and (8) through (14) added.....................69472
150.2 Revised......................................................71684
151 Added..........................................................71685
151.4 Interim in part..............................................71626
160 Heading and authority citation revised.........................43878
160.1 (b) revised..................................................43878
160.3 (a) through (v), (w) and (x) redesignated as (t) through 
        (w), (y) and (z); new (s), (x), (y)(6) and (7) added; (a), 
        (n)(1)(i), (ii), (o)(1)(i) and new (y)(4) and (5) revised 
                                                                   43878
160.15 (a)(4) revised..............................................43879
160.17 (b) revised.................................................43879
160.30 Revised.....................................................43879
162 Added..........................................................43884
165 Added..........................................................53200
180 Added..........................................................41410

                                  2012

17 CFR
                                                                   77 FR
                                                                    Page
Chapter I
Order..............................................................41260
1 Authority citation revised....20198, 21306, 30743, 36694, 48349, 66316
    Fee schedule............................................26672, 74351
1.3 (aa)(6) added...................................................2625
    (m) revised; (ggg) through (mmm) added.........................30743
    (ggg)(4)(ii)(D), (hhh)(6)(iii)(B)(2) and (jjj)(3)(iii)(A) 
corrected..........................................................39627
    (xxx), (yyy), (zzz), (aaaa) and (bbbb) added...................48349
    (a), (b), (e), (g), (h), (k), (n), (p) through (t), (x), (y) 
introductory text, (1), (2) introductory text, (iii)(B), (C), 
(v)(B), (C), (vii), (viii), (aa)(1)(i), (2)(i), (5), (bb), (cc), 
(ee), (ff), (gg), (ii), (kk), (mm)(1), (2) introductory text, (i), 
(nn), (oo), (pp), (rr)(2), (ss), (tt), (vv), (xx) and (yy) 
revised; (jj), (ll) and (uu) removed; (k) and (cccc) through 
(ssss) added.......................................................66316
1.4 Revised........................................................66320
1.6 Added..........................................................48354
1.7 Added..........................................................48354
1.8 Added..........................................................48354
1.9 Added..........................................................48354
1.16 (a)(4) revised................................................66320
1.17 (a)(1)(ii) removed; (c)(1)(iii) and (5)(xi) amended; 
        (c)(5)(ii)(A) and (xiii)(C) revised........................66320
1.20 Revised.......................................................66320
1.21 Revised.......................................................66321
1.22 Revised.......................................................66321
1.23 Revised.......................................................66321
1.24 Revised.......................................................66322
1.25 (c)(3) and (e) revised........................................66322
1.26 Revised.......................................................66322
1.27 (a) introductory text and (6) revised.........................66322
1.29 Revised.......................................................66322
1.30 Revised.......................................................66323
1.31 (a), (b) introductory text, (2)(iii) and (3)(i) revised.......66323
    (a)(1) revised.................................................75541
1.32 (a)(1), (2), (3) and (b) revised..............................66323
1.33 (a)(1)(iv) removed; (b)(2), (3) and (4) redesignated as 
        (b)(3), (4) and (5); (a)(3), (4) and new (b)(2) added; (a) 
        introductory text, (1) introductory text, (iii), (2) 
        introductory text, (i), (ii), (iv), (b) introductory text, 
        (1), (3)(i), new (iv), new (4), new (5) and (d) 
        introductory text revised..................................66323
1.34 Revised.......................................................66324
1.35 (a-1)(5)(iv) revised..........................................21306
    Revised........................................................66324
    Heading and (a) revised........................................75541
1.36 Revised.......................................................66328
1.37 Revised.......................................................66328

[[Page 1197]]

1.39 (a) introductory text, (1)(ii), (2), (3), (4), (b) and (c) 
        revised....................................................66329
1.40 Revised.......................................................66329
1.44 Removed.......................................................66329
1.46 (a)(1) introductory text, (iii), (iv), (2)(iii), (iv) and (b) 
        revised....................................................66329
1.49 (b)(1)(iii) revised...........................................66330
1.52 Revised.......................................................36694
1.53 Removed.......................................................66330
1.57 (a)(1), (2) introductory text, (ii), (c) introductory text, 
        (1), (2), (4)(i) and (iv) revised..........................66330
1.59 (a)(1), (4)(i), (5), (7), (8), (9) introductory text, (10), 
        (b)(1) introductory text, (i)(A), (C) and (c) revised......66330
1.62 Removed.......................................................66331
1.63 (a)(1), (b) introductory text and (d) revised.................66331
1.67 Revised.......................................................66331
1.68 Removed.......................................................66332
1.71 Added.........................................................20198
1.72 Added.........................................................21306
1.73 Added.........................................................21306
1.74 Added.........................................................21307
1.75 Added.........................................................21307
1 Appendix B amended; Appendix C removed...........................66332
3 Authority citation revised..........................2626, 20200, 51903
3.1 (f) and (g) added...............................................2626
    (f) corrected...................................................3590
    (a)(1) revised; (h) and (i) added..............................20200
    (a) introductory text, (2) and (3) revised; (a)(4) added; (d) 
and (e) removed....................................................51903
3.2 Heading revised; (c)(3) added...................................2626
    Heading, (c) introductory text and (2) revised.................51904
3.3 Added..........................................................20200
3.4 (a) revised.....................................................2626
    (a) revised....................................................51904
3.10 Heading, (a)(1)(i), (b)(1) and (d) revised; (a)(1)(iii), (iv) 
        and (v) added...............................................2626
    (a)(3)(i)(A), (c)(2)(i), (3)(i), (4)(ii), (iii) and (iv) 
revised; (c)(5) added..............................................51904
3.11 Revised.......................................................51905
3.12 (b), (c) introductory text, (g), (h)(1) introductory text, 
        (i) and (ii) revised.......................................51905
3.13 Removed.......................................................25338
3.21 (c) introductory text, (1)(iv), (2)(i) and (4)(i) revised; 
        (c)(1)(v) added.............................................2627
    (a)(1), (2), (b)(1), (2), (3), (c) introductory text, (4)(i) 
and (iii) revised; (a)(3) added....................................51906
3.22 (b) revised...................................................51906
3.30 (a) revised....................................................2627
     Revised.......................................................51906
3.31 (a)(1), (b) and (c)(2) revised.................................2628
    (a), (b), (c)(1) introductory text, (2) and (d) revised........51907
3.33 (a) introductory text, (b) introductory text, (6)(vi), (vii) 
        and (e) revised; (b)(6)(viii) and (ix) added................2628
    (a) introductory text, (b) introductory text and (e) revised 
                                                                   51907
3.40 (a)(2) introductory text and (iv) revised.....................51908
3.42 (a) introductory text, (2), (6) and (8) revised...............51908
3.44 (a)(5) revised................................................51908
3.46 (a) introductory text, (6), (8) and (10) revised..............51908
3.56 (b)(1)(iv) revised............................................51908
3.60 (b)(2)(i) introductory text, (f)(3) and (l) revised...........51908
3.64 (a)(2) revised................................................51909
3.75 (a) revised...................................................51909
4 Authority citation revised.................................9822, 54358
4.5 (c)(2)(iii) and (5) added; eff. 4-24-12........................11283
    (c)(2)(iii) and (5) correctly added; eff. 4-24-12..............17328
4.6 (a)(3) added; eff. 4-17-12......................................9822
4.7 (a)(3)(ix), (x) and (b)(3) revised; eff. 4-24-12...............11284
    (a)(3)(ix), (x) and (b)(3) correctly revised; eff. 4-24-12.....17329
    (a)(2)(i)(C) added.............................................54358
4.13 (a)(3)(ii)(B)(1), (2), (b)(1)(ii) and (e)(2) introductory 
        text revised; (a)(4) removed; (b)(4) redesignated as 
        (b)(5); new (b)(4) added; eff. 4-24-12.....................11284
    (a)(3)(ii)(B)(1), (2), (b)(1)(ii) and (e)(2) correctly 
revised; (a)(4) correctly removed; (b)(4) correctly redesignated 
as (b)(5); new (b)(4) correctly added; eff. 4-24-12................17329

[[Page 1198]]

4.14 (a)(8)(i)(D) revised; (a)(8)(iii)(D) redesignated as 
        (a)(8)(iii)(E); new (a)(8)(iii)(D) added; eff. 4-24-12.....11284
    (a)(8)(i)(D) correctly revised; (a)(8)(iii)(D) correctly 
redesignated as (a)(8)(iii)(E); new (a)(8)(iii)(D) correctly 
added; eff. 4-24-12................................................17330
4.22 (a)(3) revised................................................54358
4.23 (a)(1), (7) and (b)(1) revised................................54358
    (a)(1) and (b)(1) amended......................................66332
4.24 (b)(5) added; eff. 4-24-12....................................11285
    (b)(5) correctly added; eff. 4-24-12...........................17330
    (g), (h)(1)(i), (i)(2)(xii), (j)(1)(vi), (3), (l)(1)(iii), (2) 
introductory text and (i) revised..................................54358
4.27 Revised; eff. 7-2-12..........................................11285
    Correctly revised; eff. 7-2-12.................................17330
4.30 Revised.......................................................54359
4.32 Removed.......................................................54359
4.33 (a)(6) and (b)(1) revised.....................................54359
    (b)(1) amended.................................................66332
4.34 (b)(4) added; eff. 4-24-12....................................11285
    (b)(4) correctly added; eff. 4-24-12...........................17330
    (g), (i)(2), (j)(3), (k)(1)(iii), (2) introductory text and 
(i) revised........................................................54359
4 Appendix A revised; eff. 4-24-12.................................11286
    Appendix C added; eff. 4-24-12.................................11337
5.1 (k) and (m) revised............................................66332
7 Revised..........................................................66332
8 Removed..........................................................66332
15.00 (p)(1)(ii) revised...........................................66332
15.05 (a), (e), (f), (g) and (h) revised...........................66332
16 Heading and authority citation revised..........................36696
16.00 (a) introductory text revised................................66333
16.01 Revised......................................................36696
    Heading, (a)(1)(ii), (iv), (b)(1)(ii) and (iv) revised.........66333
18.05 (a)(2), (3) and (4) revised..................................66334
21.03 (b) revised..................................................66334
22 Added; eff. 4-9-12...............................................6371
22.1 Amended.......................................................66334
22.2 (c)(2)(ii) and (e)(1) revised.................................66334
22.3 (c)(2)(iii) and (d) revised...................................66334
22.5 (a) and (b) revised...........................................66334
22.9 (a) and (b) revised...........................................66334
22.10 Revised......................................................66335
22.11 Heading, (a)(1), (2), (b)(2), (c)(1), (2) and (d)(2) revised
                                                                   66335
22.12 (a) introductory text and (c) introductory text revised......66335
22.13 (a) revised..................................................66335
22.14 Heading, (a)(2) and (c)(2) revised...........................66335
22.15 Revised......................................................66335
22.16 Heading revised..............................................66335
23 Added............................................................2628
    Authority citation revised........................9822, 20202, 21307
23.1--23.20 (Subpart A) Heading corrected...........................3590
23.200--23.206 (Subpart F) Added...................................20202
23.400--23.451 (Subpart H) Added; eff. 4-17-12......................9822
23.500--23.506 (Subpart I) Added...................................21307
23.500--23.505 (Subpart I) Added...................................55960
23.600--23.607 (Subpart J) Added...................................20205
23.608 Added.......................................................21308
23.609 Added.......................................................21308
23.610 Added.......................................................21308
23.611 Added.......................................................21308
32 Revised.........................................................25338
33 Heading revised.................................................25343
33.2 (b) revised...................................................25343
33.4 Introductory text, (b)(1)(iii) and (d)(3) amended; (a)(4) and 
        (5)(iv) removed............................................25343
33.7 (b) introductory text, (1), (2), (5), (6), (7)(ii), (v) and 
        (x) amended; undesignated text following (b)(5) revised; 
        (b)(7)(iv) removed.........................................25343
36.1 Revised.......................................................66336
36.2 (a) introductory text, (2)(i), (b) introductory text, (c)(1), 
        (2)(i) introductory text, (ii) introductory text, (iii), 
        (iv)(A) introductory text and (3) revised; (a)(3) added....66336
36.3 Revised.......................................................66336
36 Appendix A amended..............................................66339
    Appendix B revised.............................................66340
37 Revised.........................................................21309
38 Authority citation revised...............................21309, 36697
38.1--38.6 (Subpart A) Subpart A heading added.....................21309
    Designated as Subpart A........................................36697

[[Page 1199]]

    Regulation at 77 FR 21309 correctly removed....................37803
38.1 Amended.......................................................36697
38.2 Revised................................................36697, 66343
38.3 Revised.......................................................36697
38.4 (a) and (b) revised...........................................36698
38.5 Revised.......................................................36699
38.7 Added.........................................................36699
38.8 Added.........................................................36699
38.9 Added.........................................................36699
38.10 Added........................................................36700
38.100 (Subpart B) Added...........................................36700
38.150--38.160 (Subpart C) Added...................................36700
38.200--38.201 (Subpart D) Added...................................36700
38.250--38.258 (Subpart E) Added...................................36700
38.300--38.301 (Subpart F) Added...................................36700
38.350--38.351 (Subpart G) Added...................................36700
38.400--38.401 (Subpart H) Added...................................36700
38.450--38.451 (Subpart I) Added...................................36700
38.500 (Subpart J) Added...........................................36700
38.550--38.553 (Subpart K) Added...................................36700
38.600--38.606 (Subpart L) Added...................................21309
    Regulation at 77 FR 21309 correctly removed....................37803
38.600--38.607 (Subpart L) Added...................................36700
38.601 (b) correctly added.........................................37803
38.650--38.651 (Subpart M) Added...................................36700
38.700--38.712 (Subpart N) Added...................................36700
38.750--38.751 (Subpart O) Added...................................36700
38.800--38.801 (Subpart P) Added...................................36700
38.850--38.851 (Subpart Q) Added...................................36700
38.900 (Subpart R) Added...........................................36700
38.950--38.951 (Subpart S) Added...................................36700
38.1000--38.1001 (Subpart T) Added.................................36700
38.1050--38.1051 (Subpart U) Added.................................36700
38.1100--38.1101 (Subpart V) Added.................................36700
38.1150 (Subpart W) Added..........................................36700
38.1200--38.1201 (Subpart X) Added.................................36700
38 Appendix A revised..............................................36709
    Appendix B revised.............................................36717
39 Authority citation revised...............................21309, 42590
39.6 Added.........................................................42590
    Removed........................................................74335
39.12 (a)(1)(vi) and (b)(7) added..................................21309
41.1 (e) revised...................................................66344
41.2 Revised.......................................................66344
41.11 (a) introductory text, (b)(1) introductory text, (2) 
        introductory text, (c) and (d)(5) introductory text 
        revised....................................................66344
41.12 (a) introductory text revised................................66344
41.13 Revised......................................................66344
41.21 (a)(1), (3), (b)(1), (2) and (4) revised.....................66344
41.22 Introductory text and (e) revised............................66344
41.23 (a) introductory text, (5) and (b) revised...................66344
41.24 (b) removed; (c) redesignated as new (b); new (b) revised....66344
41.25 (a)(1), (2) introductory text, (3) introductory text, 
        (i)(A), (B), (iv) and (d) revised..........................66345
41.27 (a)(1), (3) introductory text, (4)(v), (5), (b), (d) 
        introductory text, (1), (4) and (f) revised; (c)(2) and 
        (e)(2) removed.............................................66345
41.43 (a)(4)(i)(B) and (30) revised................................66346
41.49 (b) introductory text revised................................66346
42 Technical correction............................................48060
43 Added............................................................1243
    Technical correction............................................2909
45 Added............................................................2197
46 Added...........................................................35226
50 Added...........................................................44455
    Authority citation revised.....................................74335
50.1--50.24 (Subpart A) Added......................................74335
50.25--50.49 (Subpart B) Added.....................................74337
50.25 Designated under Subpart B...................................74337
50.50 (Subpart C) Added............................................74337
140.72 Heading, (a), (b), (d) and (f) revised......................66346
140.77 Heading and (a) revised.....................................66347
140.96 (a) and (b) revised.........................................66347
140.99 (d)(2) revised..............................................66347

[[Page 1200]]

140.735-2 (b)(1)(i), (ii) and (iii) redesignated as (b)(1)(ii), 
        (iv) and (v); new (b)(1)(i) and (iii) added); (b)(2) and 
        (c) revised................................................66347
140.735-2a (b)(1) revised..........................................66348
140.735-3 Revised..................................................66348
143.8 (a) revised..................................................65102
145.5 (d)(1)(viii) and (h) revised; eff. 4-24-12...................11342
145.9 (c)(1), (d)(1) introductory text and (vi) revised............66348
145 Appendix A amended.............................................66348
147.3 (b)(4)(i)(H) and (b)(8) revised; eff. 4-24-12................11342
155.2 Introductory text revised....................................66348
155.3 (a)(1), (b)(2)(ii) and (c)(1) revised........................66349
155.4 (a)(1), (b)(2)(ii) and (c)(2) revised........................66349
155.6 Removed......................................................66349
160 Appendices A and B correctly reinstated........................76356
166.2 (a) introductory text and (b) revised........................66349
166.5 (a)(2) revised...............................................66349
170.16 Added........................................................2629
190.01 (w), (y) and (kk)(6) amended; (e) through (oo) redesignated 
        as (f) through (pp); new (e) added; (a) and new (f), (cc, 
        (hh), (ll)(2)(ii), (4), (5) and (pp) revised; eff. 4-9-12 
                                                                    6378
190.02 (d)(1), (3), (6) and (7) amended; eff. 4-9-12................6378
    (a), (b)(1), (2), (d)(11), (e), (f)(1)(i), (ii) and (g)(2)(i) 
revised; eff. 4-9-12................................................6379
190.03 (a)(2) amended; eff. 4-9-12..................................6378
    (a)(3), (b)(3), (4), (5) and (c) revised; eff. 4-9-12...........6380
190.04 (d)(1) revised; eff. 4-9-12..................................6380
190.05 (a)(1) and (b)(1) amended; eff. 4-9-12.......................6378
    (b) introductory text revised; eff. 4-9-12......................6381
190.06 (g)(g)(1)(i), (ii), (3) amended; eff. 4-9-12.................6378
    (a), (e)(1)(iii), (2), (f)(3)(i) and (g)(2) revised; 
(e)(1)(iv) removed; (e)(1)(v) redesignated as new (e)(1)(iv); 
(g)(1)(iii) added; eff. 4-9-12......................................6381
190.07 (e)(1) and (2)(ii)(B) amended; eff. 4-9-12...................6378
    (b)(2)(viii), (ix), (3)(v), (c)(1)(i), (e) introductory text, 
(1) and (4) revised; (b)(2)(xiii) redesignated as (b)(2)(xiv); new 
(b)(2)(xiii) added; eff. 4-9-12.....................................6381
190.09 (b) revised; eff. 4-9-12.....................................6382
190.10 (d)(1) and (h) amended; eff. 4-9-12..........................6378
    (a) revised; eff. 4-9-12........................................6382
190 Appendix A revised; eff. 4-9-12.................................6382
    Appendix B revised; eff. 4-9-12.................................6386

                                  2013

   (Regulations published from January 1, 2013, through April 1, 2013)

17 CFR
                                                                   78 FR
                                                                    Page
Chapter I
Order................................................................858
9.9 (b)(1) introductory text, (3) and (4) revised...................1145
10.4 Revised.......................................................12934
10.8 Introductory text revised.....................................12934
10.12 (a)(1), (2)(ii), (iii), (iv), (3) and (b) through (f) 
        revised; (a)(4), (5) and (6) added; (g) removed............12935
10.102 (c) revised.................................................12935
12.2 Amended.......................................................12936
12.3 Revised.......................................................12936
12.10 (a)(3) revised................................................1145
    Revised........................................................12936
12.11 Revised......................................................12936
12.34 (a) revised..................................................12937
12.101 (a), (b) and (c) revised....................................12937
12.408 Heading revised..............................................1145
23.201 (b)(3)(ii) compliance date extended............................17
23.402 Compliance date extended.......................................17
23.410 (c) compliance date extended...................................17
23.430 Compliance date extended.......................................17
23.431 (a), (b) and (c) compliance date extended......................17
23.432 Compliance date extended.......................................17
23.434 (a)(2), (b) and (c) comliance date extended....................17
23.440 Compliance date extended.......................................17
23.450 Compliance date extended.......................................17

[[Page 1201]]

23.505 Compliance date extended.......................................17
171.1 (c) revised...................................................1145
171.8 (a) revised..................................................12937
171.50 (a) introductory text, (c) and (d) revised...................1145


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