[Title 17 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2023 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          
          
          Title 17

Commodity and Securities Exchanges


________________________

Parts 1 to 40

                         Revised as of April 1, 2023

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2023
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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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........................     941
      Alphabetical List of Agencies Appearing in the CFR......     961
      List of CFR Sections Affected...........................     971

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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 17 CFR 1.2 refers to 
                       title 17, part 1, section 
                       2.

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

[[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

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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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INCORPORATION BY REFERENCE

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This material, like any other properly issued regulation, has the force 
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    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page vii]]

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    Oliver A. Potts,
    Director,
    Office of the Federal Register
    April 1, 2023.







[[Page ix]]



                               THIS TITLE

    Title 17--Commodity and Securities Exchanges is composed of five 
volumes. The first two volumes, containing parts 1-40 and 41-199, 
comprise Chapter I--Commodity Futures Trading Commission. The third 
volume contains Chapter II--Securities and Exchange Commission, parts 
200-239. The fourth volume, comprising part 240, contains additional 
regulations of the Securities and Exchange Commission. The fifth volume, 
comprising part 241 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 codified under this title by the Commodity Futures Trading 
Commission, the Securities and Exchange Commission, and the Department 
of the Treasury as of April 1, 2023.

    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 sections of volume 4, 
containing part 240, and volume 5, containing part 241 to end.

    For this volume, Susannah C. Hurley was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



              TITLE 17--COMMODITY AND SECURITIES EXCHANGES




                   (This book contains parts 1 to 40)

  --------------------------------------------------------------------
                                                                    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............................           5
2               Official seal...............................         181
3               Registration................................         182
4               Commodity pool operators and commodity 
                    trading advisors........................         232
5               Off-exchange foreign currency transactions..         319
7               Registered entity rules altered or 
                    supplemented by the Commission..........         349
8

[Reserved]

9               Rules relating to review of exchange 
                    disciplinary, access denial or other 
                    adverse actions.........................         349
10              Rules of practice...........................         360
11              Rules relating to investigations............         392
12              Rules relating to reparations...............         397
13              Procedures for petitions for rulemaking.....         437
14              Rules relating to suspension or disbarment 
                    from appearance and practice............         437
15              Reports--general provisions.................         440
16              Reports by contract markets and swap 
                    execution facilities....................         448
17              Reports by reporting markets, futures 
                    commission merchants, clearing members, 
                    and foreign brokers.....................         452
18              Reports by traders..........................         485
19              Reports by persons holding reportable 
                    positions in excess of position limits, 
                    and by merchants and dealers in cotton..         496
20              Large trader reporting for physical 
                    commodity swaps.........................         504
21              Special calls...............................         524
22              Cleared swaps...............................         527
23              Swap dealers and major swap participants....         543
30              Foreign futures and foreign options 
                    transactions............................         652
31              Leverage transactions.......................         683

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32              Regulation of commodity option transactions.         716
33              Regulation of commodity option transactions 
                    that are options on contracts of sale of 
                    a commodity for future delivery.........         718
34              Regulation of hybrid instruments............         727
35              Swaps in an agricultural commodity 
                    (agricultural swaps)....................         728
36              Trade execution requirement.................         728
37              Swap execution facilities...................         729
38              Designated contract markets.................         771
39              Derivatives clearing organizations..........         823
40              Provisions common to registered entities....         922

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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.
1.6 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 Risk Management Program for futures commission merchants.
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 Customer funds to be segregated and separately accounted for.
1.21 Care of money and equities accruing to customers.
1.22 Use of customer funds restricted.
1.23 Interest of futures commission merchant in segregated funds; 
          additions and withdrawals.
1.24 Segregated funds; exclusions therefrom.
1.25 Investment of customer funds.
1.26 Deposit of instruments purchased with 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 Regulatory records; retention and production.
1.32 Reporting of segregated account computation and details regarding 
          the holding of futures customer funds
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 and 
          option customers.
1.37 Customer's or option 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 Designation of hedging accounts.
1.42 Delivery accounts.
1.43 Letters of credit as collateral.
1.44-1.45 [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 Public disclosures by futures commission merchants.
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.

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1.66 No-action positions with respect to floor traders.
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, 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 (2012).

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

                               Definitions



Sec.  1.1  [Reserved]



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:
    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, 
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.
    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

[[Page 7]]

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 
in Sec.  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.
    Board of Trade. This term means an organized exchange or other 
trading facility.
    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.
    Category of swaps; major swap category. For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of major swap 
participant in 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 
definition 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 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.
    Cleared Swaps Customer. This term has the meaning provided in Sec.  
22.1 of this chapter.
    Cleared Swaps Customer Account. This term has the meaning provided 
in Sec.  22.1 of this chapter.
    Cleared Swaps Customer Collateral. This term has the meaning 
provided in Sec.  22.1 of this chapter.
    Clearing initial margin. This term means initial margin posted by a 
clearing member with a derivatives clearing organization.
    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.
    Clearing organization or derivatives clearing organization. This 
term means

[[Page 8]]

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--
    (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.
    Commission. This term means the Commodity Futures Trading 
Commission.
    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.

    Commodity Exchange Act; the Act. These terms mean the Commodity 
Exchange Act, as amended, 7 U.S.C. 1 et seq.
    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.
    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 the regulations in this 
chapter.
    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

[[Page 9]]

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.
    Commodity trading advisor. (1) 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 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 the 
definition of commodity trading advisor in this section. The term client 
includes, without limitation, any subscriber of a commodity trading 
advisor.
    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 in Sec.  23.500 of this chapter.
    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.
    Contract of sale. This term includes sales, purchases, agreements of 
sale or purchase and agreements to sell or purchase.
    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.

[[Page 10]]

    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 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.
    Customer account. This term references both a Cleared Swaps Customer 
Account and a Futures Account, as defined in this section.
    Customer funds. This term means, collectively, Cleared Swaps 
Customer Collateral and futures customer funds.
    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.
    Delivery month. This term means the month of delivery specified in a 
contract of sale of any commodity for future delivery.
    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 under Sec.  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 under Sec.  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 necessitated by such minimum financial, 
cover, segregation and sales practice, and related reporting 
requirements from such leverage transaction merchant.
    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.
    Electronic trading facility. This term means a trading facility 
that--
    (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.
    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 in this section, is an eligible contract participant;
    (2) A swap dealer, as defined in section 1a(49) of the Act and in 
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 and Sec.  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 and Sec.  240.3a71-

[[Page 11]]

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 (5)(i) of this 
definition, 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 (7)(i) of this definition, 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 (7)(ii)(A) of this definition, the 
term shell company means any entity that limits its holdings to direct 
or indirect interests in entities that are relying on this paragraph 
(7); and
    (C) In determining whether an owner of an entity is an eligible 
contract participant for purposes of paragraph (7)(i) of this 
definition, 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 (7)(i) of this definition 
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 (7)(i) of this definition, a swap is 
used to hedge or mitigate commercial risk if the swap complies with the 
conditions in the definition in this section of hedging or mitigating 
commercial risk; and
    (8) Notwithstanding section 1a(18)(A)(iv) of the Act and paragraph 
(5) of this definition, 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

[[Page 12]]

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 to Sec.  4.13(a)(3) of this chapter.
    Financial entity; highly leveraged. (1) For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap 
participant in 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 
the definition of a major swap participant in 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.
    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--
    (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.
    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, 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.
    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.
    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.
    Foreign futures or foreign options secured amount. This term means 
all money, securities and property received by a futures commission 
merchant from, for, or on behalf of 30.7 customers as defined in Sec.  
30.1 of this chapter:

[[Page 13]]

    (1) To margin, guarantee, or secure foreign futures contracts and 
all money accruing to such 30.7 customers as the result of such 
contracts;
    (2) In connection with foreign options transactions representing 
premiums payable or premiums received, or to guarantee or secure 
performance on such transactions; and
    (3) All money accruing to such 30.7 customers as the result of 
trading in foreign futures contracts or foreign options.
    Future delivery. This term does not include any sale of a cash 
commodity for deferred shipment or delivery.
    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.
    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.
    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 (4) of this definition 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.
    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 this section

[[Page 14]]

shall not be deemed to be a futures customer within the meaning of 
sections 4d(a) and 4d(b) of the Act, the regulations in this chapter 
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 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.
    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.
    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 in Sec.  
1.17(a)(1)(iii).
    Hedging or mitigating commercial risk. For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33) and the definition of a major swap 
participant in 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

[[Page 15]]

    (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 
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 definition or Sec.  240.3a67-4 of this title.
    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.
    Institutional customer. This term has the same meaning as ``eligible 
contract participant'' as defined in section 1a(18) of the Act.
    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.
    Leverage contract. Shall have the same meaning as that set forth in 
Sec.  31.4(w) of this chapter.
    Leverage customer funds. This term means all money, securities and 
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.
    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

[[Page 16]]

soliciting or accepting orders for leverage contracts, and who accepts 
leverage customer funds (or extends credit in lieu thereof) in 
connection therewith.
    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 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 (3) of this 
definition, 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 (3) of this 
definition; but
    (ii) That person will be deemed a major swap participant pursuant to 
the timing requirements specified in paragraph (3) of this definition 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 in 
paragraph (1) of this definition otherwise would cause the person to be 
a major swap participant,

[[Page 17]]

provided the person meets the conditions set forth in paragraphs (6)(i), 
(ii) or (iii) of this definition.
    (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 the definition in this 
section of substantial position 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 the definition in this section of substantial 
position, 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 analysis shall exclude the same 
hedging and related positions that are excluded from consideration 
pursuant to paragraph (1)(i) of the definition in this section of 
substantial position; 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 (6)(iii)(A)(1) of this definition 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 (3)(ii)(1) of the definition in this 
section of substantial position 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

[[Page 18]]

    (2) The sum of the amount calculated under paragraph (6)(iii)(B)(1) 
of this definition 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 
(6)(iii) of the major swap participant definition:
    (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 (2) of 
the definition in this section of substantial position.
    (iv) For purposes of the calculations set forth in paragraph (6) of 
this definition, 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 (6)(i), (ii) or (iii) of this definition.
    (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 definition 
otherwise would cause the person to be a major swap participant.
    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.
    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 (1) of the 
definition in this section of narrow-based security index as used in the 
definition of security-based swap, 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:
    (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 definition 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 (1)(i)(A)(1) of this definition 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 (2) of this definition, for each 
reference entity included in the index, none of the criteria in 
paragraphs (1)(i)(D)(1) through (8) of this definition is satisfied:

[[Page 19]]

    (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. 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 (1)(i) 
of this definition.
    (2) Paragraph (1)(i)(D) of this definition will not apply with 
respect to a

[[Page 20]]

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 (1)(i)(D) of this 
definition comprise at least 80 percent of the index's weighting.
    (3) For purposes of this definition:
    (i) A reference entity included in the index is affiliated with 
another reference entity included in the index (for purposes of 
paragraph (3)(iv) of this definition) or another entity (for purposes of 
paragraph (3)(v) of this definition) 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 (3)(iv) of this definition) or another 
entity (for purposes of paragraph (3)(v) of this definition), 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 (3)(iv) of this definition) or another entity (for purposes of 
paragraph (3)(v) of this definition).
    (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 
(1)(i)(A) through (1)(i)(C) of this definition, 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 (3)(i) of this 
definition (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 (1)(i)(D)(1) through (1)(i)(D)(4) of this definition 
or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition 
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 (3)(i) of this 
definition (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).
    Meaning of ``narrow-based security index'' used in the definition of 
``security-based swap'' as applied to index credit default swaps. (1) 
Notwithstanding paragraph (1) of the definition in this section of 
narrow-based security index as used in the definition of ``security-
based swap,'' 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:

[[Page 21]]

    (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 (1)(i)(A)(1) of this definition 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 (2) of this definition, for each 
security included in the index, none of the criteria in paragraphs 
(1)(i)(D)(1) through (8) is satisfied if:
    (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 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

[[Page 22]]

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 
(1)(i) of this definition.
    (2) Paragraph (1)(i)(D) of this definition 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 (1)(i)(D) of this 
definition comprise at least 80 percent of the index's weighting.
    (3) For purposes of this definition:
    (i) An issuer of securities included in the index is affiliated with 
another issuer of securities included in the index (for purposes of 
paragraph (3)(iv) of this definition) or another entity (for purposes of 
paragraph (3)(v) of this definition) 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 (3)(iv) of this definition) or another 
entity (for purposes of paragraph (3)(v) of this definition), 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 (3)(iv) of this definition) or another entity (for purposes of 
paragraph (3)(v) of this definition).
    (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 
(1)(i)(A) through (1)(i)(C) of the definition of the 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, the 
term issuer of the security included in the index or a group of 
affiliated issuers of securities included in the index as determined in 
accordance with paragraph (3)(i) of this definition (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 (1)(i)(D)(1) through (1)(i)(D)(4) of this definition 
or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition 
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 (3)(i) of 
this definition (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).
    Member. This term means:
    (1) An individual, association, partnership, corporation, or trust--

[[Page 23]]

    (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.
    Narrow-based security index as used in the definition of ``security-
based swap''--(1) In general. Except as otherwise provided in the 
definitions in this section for 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 and meaning of narrow-
based security index as used in the definition of security-based swap as 
applied to index credit default swaps, 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 (1) of this definition, 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 (2)(i)(A) of this definition; 
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 (1) of this definition, 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 (3)(i)(A) of this 
definition; 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 (2) of this definition 
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 (3) of this definition 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.

[[Page 24]]

    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.
    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.
    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, as Sec.  22.1 of this chapter 
defines that term, that have not been fulfilled by delivery; not been 
offset; not expired; and not been terminated.
    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.
    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.
    Person. This term includes individuals, associations, partnerships, 
corporations, and trusts.
    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.
    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;

[[Page 25]]

    (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.
    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.
    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.
    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.
    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.
    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.
    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.
    Self-regulatory organization. This term means a contract market (as 
defined in Sec.  1.3(h)), a swap execution facility (as

[[Page 26]]

defined in Sec.  1.3(rrrr)), or a registered futures association under 
section 17 of the Act.
    Spread margin. This term means reduced initial margin that takes 
into account correlations between certain related positions held in a 
single account.
    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 of Sec.  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).
    Substantial counterparty exposure--(1) In general. For purposes of 
section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this 
section of major swap participant, 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 the definition in this section of substantial position, 
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.
    Substantial position--(1) In general. For purposes of section 1a(33) 
of the Act, 7 U.S.C. 1a(33), and the definition in this section of major 
swap participant, 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

[[Page 27]]

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 counterparty on a net 
basis, as provided by paragraph (2)(iii) of this definition, 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] TR23FE18.006

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 (3)(ii) of this definition; 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 (3)(iii) of this definition.
    (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

[[Page 28]]

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.
[GRAPHIC] [TIFF OMITTED] TR23FE18.007

    (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 (3)(ii)(A)(1) of this definition 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 
(3)(ii)(A)(1) of this definition 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 
(3)(ii)(A)(1) of this definition, 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 
(3)(ii)(A) of this definition, 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 (3)(ii)(A) of this definition, 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

[[Page 29]]

          paragraph (3)(ii)(A) of this definition; 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 
          (2)(iii) and (iv) of this definition, 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 
(3)(ii) of this definition 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 (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this 
definition, 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 (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this 
definition, 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 (3)(ii) of this definition in 
lieu of calculating the potential outward exposure of such swap 
positions in accordance with paragraph (3)(iii) of this definition.
    (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.

[[Page 30]]

    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 (2)(i) of this definition that is 
otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.
    (3) Foreign exchange forwards and foreign exchange swaps. 
Notwithstanding paragraph (2) of this definition:
    (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 (3)(i) of this definition:
    (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 definition, 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 definition, 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 definition, 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

[[Page 31]]

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 (4)(i)(B) of this 
definition, 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 (4)(i)(B) of this definition;
    (ii) The agreement, contract, or transaction to be reinsured 
satisfies the conditions set forth in paragraph (4)(i)(A) or paragraph 
(4)(i)(C) of this definition; 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 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 (4)(i)(B) of this definition 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 (4)(i)(C)(1) through (10) of this definition; 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 (4) of this definition, and that, at such time that it was 
entered into, was provided in accordance with the conditions set forth 
in paragraph (4)(i)(B) of this definition.
    (5) State. For purposes of paragraph (4) of this definition, 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 (3)(v) of this 
definition, 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

[[Page 32]]

in determining whether the agreement, contract, or transaction has been 
willfully structured to evade as provided in paragraphs (6)(i) through 
(6)(iii) of this definition.
    (v) An agreement, contract, or transaction that has been willfully 
structured to evade as provided in paragraphs (6)(i) through (6)(iii) of 
this definition 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 (6) or shall be considered for 
purposes of paragraph (6)(v) of this definition.
    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.
    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)(A) In general. Except as provided in 
paragraph (4)(vi) of this definition, 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 swaps 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 months have an aggregate gross notional amount of no more 
than $8 billion, 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), and Sec.  23.401(c) of this chapter), 
except as provided in paragraph (4)(i)(B) of this definition. For 
purposes of this definition, 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.
    (B) Utility special entities. (1) Solely for purposes of determining 
whether a person's swap dealing activity has exceeded the $25 million 
aggregate gross notional amount threshold set forth in paragraph 
(4)(i)(A) of this definition for swaps in which the counterparty is a 
special entity, a person may exclude utility operations-related swaps in 
which the counterparty is a utility special entity.

[[Page 33]]

    (2) For purposes of this paragraph (4)(i)(B), a utility special 
entity 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), and 23.401(c) of this 
chapter, that:
    (i) Owns or operates electric or natural gas facilities, electric or 
natural gas operations or anticipated electric or natural gas facilities 
or operations;
    (ii) Supplies natural gas or electric energy to other utility 
special entities;
    (iii) Has public service obligations or anticipated public service 
obligations under Federal, State or local law or regulation to deliver 
electric energy or natural gas service to utility customers; or
    (iv) Is a Federal power marketing agency as defined in section 3 of 
the Federal Power Act, 16 U.S.C. 796(19).
    (3) For purposes of this paragraph (4)(i)(B), a utility operations-
related swap is a swap that meets the following conditions:
    (i) A party to the swap is a utility special entity;
    (ii) A utility special entity is using the swap to hedge or mitigate 
commercial risk as defined in Sec.  50.50(c) of this chapter;
    (iii) The swap is related to an exempt commodity, as that term is 
defined in section 1a(20) of the Act, 7 U.S.C. 1a(20), or to an 
agricultural commodity insofar as such agricultural commodity is used 
for fuel for generation of electricity or is otherwise used in the 
normal operations of the utility special entity; and
    (iv) The swap is an electric energy or natural gas swap, or the swap 
is associated with: The generation, production, purchase or sale of 
natural gas or electric energy, the supply of natural gas or electric 
energy to a utility special entity, or the delivery of natural gas or 
electric energy service to customers of a utility special entity; fuel 
supply for the facilities or operations of a utility special entity; 
compliance with an electric system reliability obligation; or compliance 
with an energy, energy efficiency, conservation, or renewable energy or 
environmental statute, regulation, or government order applicable to a 
utility special entity.
    (4) A person seeking to rely on the exclusion in paragraph 
(4)(i)(B)(1) of this definition may rely on the written representations 
of the utility special entity that it is a utility special entity and 
that the swap is a utility operations-related swap, as such terms are 
defined in paragraphs (4)(i)(B)(2) and (3) of this definition, 
respectively, unless it has information that would cause a reasonable 
person to question the accuracy of the representation. The person must 
keep such representation in accordance with Sec.  1.31.
    (C) Insured depository institution swaps in connection with 
originating loans to customers. Solely for purposes of determining 
whether an insured depository institution has exceeded the $8 billion 
aggregate gross notional amount threshold set forth in paragraph 
(4)(i)(A) of this definition, an insured depository institution may 
exclude swaps entered into by the insured depository institution with a 
customer in connection with originating a loan to that customer, subject 
to the requirements of paragraphs (4)(i)(C)(1) through (6) of this 
definition.
    (1) Timing of execution of swap. The insured depository institution 
enters into the swap with the customer no earlier than 90 days before 
execution of the applicable loan agreement, or no earlier than 90 days 
before transfer of principal to the customer by the insured depository 
institution pursuant to the loan, unless an executed commitment or 
forward agreement for the applicable loan exists, in which event the 90 
day restriction does not apply;
    (2) Relationship of swap to loan. (i) The rate, asset, liability or 
other term underlying such swap is, or is 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; or
    (ii) Such swap is permissible under the insured depository 
institution's loan underwriting criteria and is commercially appropriate 
in order to hedge risks incidental to the borrower's business (other 
than for risks associated with an excluded commodity) that may affect 
the borrower's ability to repay the loan;
    (3) Duration of swap. The duration of the swap does not extend 
beyond termination of the loan;

[[Page 34]]

    (4) Level of funding of loan. (i) The insured depository institution 
is committed to be, under the terms of the agreements related to the 
loan, the source of at least five percent of the maximum principal 
amount under the loan; or
    (ii) If the insured depository institution is committed to be, under 
the terms of the agreements related to the loan, the source of less than 
five percent of the maximum principal amount under the loan, then the 
aggregate notional amount of all swaps entered by the insured depository 
institution with the customer in connection with the financial terms of 
the loan cannot exceed the principal amount of the insured depository 
institution's loan;
    (5) The swap is considered to have been entered into in connection 
with originating a loan with a customer if the insured depository 
institution:
    (i) Directly transfers the loan amount to the customer;
    (ii) Is a part of a syndicate of lenders that is the source of the 
loan amount that is transferred to the customer;
    (iii) Purchases or receives a participation in the loan; or
    (iv) Under the terms of the agreements related to the loan, is, or 
is intended to be, the source of funds for the loan; and
    (6) The loan to which the swap relates shall not include:
    (i) Any transaction that is a sham, whether or not intended to 
qualify for the exception from the de minimis threshold in this 
definition; or
    (ii) Any synthetic loan.
    (ii) [Reserved]
    (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 (4) of 
the definition of swap dealer, 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 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 (4)(i) of this definition.
    (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 (4)(i) through (iv) of this 
definition.
    (vi) Voluntary registration. Notwithstanding paragraph (4)(i) of 
this definition, 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 (5)(ii) and (iii) of this definition, 
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

[[Page 35]]

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
    (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 (6)(ii) of this definition, 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).

[[Page 36]]

    (C) For purposes of this paragraph (6)(ii) of this definition, 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 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 (6)(iii) of this definition or hedging or mitigating 
commercial risk as defined in Sec.  1.3 (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.
    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.
    Trading facility. This term has the meaning set forth in section 
1a(51) of the Act.

[[Page 37]]

    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.

[41 FR 3194, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affecting Sec.  1.3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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 record with 
which the electronic signature is associated, after such record has been 
electronically signed.

[77 FR 66320, Nov. 2, 2012]



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

[[Page 38]]

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 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

[[Page 39]]

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 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

[[Page 40]]

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:
    (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

[[Page 41]]

(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:
    (1) A Form 1-FR-FCM certified by an independent public accountant in 
accordance with Sec.  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 with Sec.  
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 with Sec.  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 with Sec.  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

[[Page 42]]

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 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 with Sec.  1.16, and must be filed no later than 60 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 under Sec.  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

[[Page 43]]

audit report under Sec.  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 and Sec.  
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 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.
    (5) Each futures commission merchant must file with the Commission 
the measure of the future commission merchant's leverage as of the close 
of the business each month. For purpose of this section, the term 
``leverage'' shall be defined by a registered futures association of 
which the futures commission merchant is a member. The futures 
commission merchant is required to file the leverage information with 
the Commission within 17 business days of the close of the futures 
commission merchant's month end.
    (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 (as set forth in 
Sec.  140.02 of this chapter) 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) All filings or other notices prepared by a futures commission 
merchant pursuant to this section must 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

[[Page 44]]

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 with Sec.  
1.16 which is filed by a futures commission merchant must 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 with Sec.  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 with Sec.  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 this Sec.  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 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 to Sec.  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, 
the statement of secured amounts and funds held in separate accounts for 
30.7 customers (as defined in Sec.  30.1 of this chapter) in accordance 
with Sec.  30.7 of this chapter, and the statement of cleared swaps 
customer segregation requirements and funds in cleared swaps customer 
accounts under section 4d(f) of the Act 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 this Sec.  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

[[Page 45]]

year ending as of the date of the statement of financial condition;
    (iii) A statement of the computation of the minimum capital 
requirements pursuant to Sec.  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, 
the statement of secured amounts and funds held in separate accounts for 
30.7 customers (as defined in Sec.  30.1 of this chapter) in accordance 
with Sec.  30.7 of the chapter, and the statement of cleared swaps 
customers segregation requirements and funds in cleared swaps customer 
accounts under section 4d(f) of the Act 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 to Sec.  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, the statement of secured amounts and funds held in 
separate accounts for 30.7 customers (as defined in Sec.  30.1 of this 
chapter) in accordance with Sec.  30.7 of this chapter, and the 
statement of cleared swaps customer segregation requirements and funds 
in cleared swaps customer accounts under section 4d(f) of the Act, 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 to Sec.  1.17. Such reconciliation must be certified by an 
independent public accountant in accordance with Sec.  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 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 under Sec.  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

[[Page 46]]

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 to Sec.  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 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 to Sec.  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 IIC (FOCUS report), for any 
period within the time specified in

[[Page 47]]

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 to Sec.  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 
to Sec.  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).
    (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.

[[Page 48]]

    (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 under Sec.  
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, 
the Statement (to be filed by a futures commission merchant only) of 
Secured Amounts and Funds held in Separate Accounts for 30.7 Customers 
(as defined in Sec.  30.1 of this chapter) in accordance with Sec.  30.7 
of this chapter, and the Statement (to be filed by futures commission 
merchants only) of Cleared Swaps Customer Segregation Requirements and 
Funds in Cleared Swaps Customer Accounts under section 4d(f) of the Act.
    (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, a security-based 
swap dealer, or a major security-based market participant may comply 
with the requirements of this section by filing (in accordance with 
paragraphs (a), (b), (c), and (j) of this section) a copy, as 
applicable, of its Financial and Operational Combined Uniform Single 
Report under the Securities Exchange Act of 1934, Part II, Part IIA, 
Part IIC, 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 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

[[Page 49]]

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 in Sec.  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 to Sec.  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 to Sec.  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 in Sec.  1.12(b) of this part or Sec.  
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 or Sec.  3.55, 3.56 or 3.60 of this chapter.
    (3) A retail foreign exchange dealer may enter into a guarantee 
agreement only with an introducing broker as defined in Sec.  5.1(f)(1) 
of this chapter. A retail foreign exchange dealer may not enter into a 
guarantee agreement with an introducing broker as defined in Sec.  1.3 
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 of Sec.  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

[[Page 50]]

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 
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 with Sec.  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 with Sec.  1.16 as of a 
date not more

[[Page 51]]

than one year prior to the date on which the report is filed: Provided, 
however, that an introducing broker as defined in Sec.  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 of Sec.  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 with Sec.  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 with Sec.  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 in Sec.  
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 in Sec.  
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 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 with Sec.  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 by Sec.  1.18 of this part, in a 
manner consistent with Form 1-FR-IB.

(The information collection requirements contained in Sec.  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 affecting Sec.  1.10, 
see the List of CFR Sections Affected, which appears in the

[[Page 52]]

Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  1.11  Risk Management Program for futures commission merchants.

    (a) Applicability. Nothing in this section shall apply to a futures 
commission merchant that 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 from soliciting or accepting 
orders for the purchase or sale of any commodity interest.
    (b) Definitions. For purposes of this section:
    (1) Business unit means any department, division, group, or 
personnel of a futures commission merchant or any of its affiliates, 
whether or not identified as such that:
    (i) Engages in soliciting or in accepting orders for the purchase or 
sale of any commodity interest 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; or
    (ii) Otherwise handles segregated funds, including managing, 
investing, and overseeing the custody of segregated funds, or any 
documentation in connection therewith, other than for risk management 
purposes; and
    (iii) Any personnel exercising direct supervisory authority of the 
performance of the activities described in paragraph (b)(1)(i) or (ii) 
of this section.
    (2) Customer means a futures customer as defined in Sec.  1.3, 
Cleared Swaps Customer as defined in Sec.  22.1 of this chapter, and 
30.7 customer as defined in Sec.  30.1 of this chapter.
    (3) Governing body means the proprietor, if the futures commission 
merchant is a sole proprietorship; a general partner, if the futures 
commission merchant is a partnership; the board of directors if the 
futures commission merchant is a corporation; the chief executive 
officer, the chief financial officer, the manager, the managing member, 
or those members vested with the management authority if the futures 
commission merchant is a limited liability company or limited liability 
partnership.
    (4) Segregated funds means money, securities, or other property held 
by a futures commission merchant in separate accounts pursuant to Sec.  
1.20 for futures customers, pursuant to Sec.  22.2 of this chapter for 
Cleared Swaps Customers, and pursuant to Sec.  30.7 of this chapter for 
30.7 customers.
    (5) Senior management means, any officer or officers specifically 
granted the authority and responsibility to fulfill the requirements of 
senior management by the governing body.
    (c) Risk Management Program. (1) Each futures commission merchant 
shall establish, maintain, and enforce a system of risk management 
policies and procedures designed to monitor and manage the risks 
associated with the activities of the futures commission merchant as 
such. For purposes of this section, such policies and procedures shall 
be referred to collectively as a ``Risk Management Program.''
    (2) Each futures commission merchant shall maintain written policies 
and procedures that describe the Risk Management Program of the futures 
commission merchant.
    (3) The Risk Management Program and the written risk management 
policies and procedures, and any material changes thereto, shall be 
approved in writing by the governing body of the futures commission 
merchant.
    (4) Each futures commission merchant shall furnish a copy of its 
written risk management policies and procedures to the Commission and 
its designated self-regulatory organization upon application for 
registration and thereafter upon request.
    (d) Risk management unit. As part of the Risk Management Program, 
each futures commission merchant 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 section. The risk 
management unit shall report directly to senior management and shall be 
independent from the business unit.

[[Page 53]]

    (e) Elements of the Risk Management Program. The Risk Management 
Program of each futures commission merchant shall include, at a minimum, 
the following elements:
    (1) Identification of risks and risk tolerance limits. (i) The Risk 
Management Program shall take into account market, credit, liquidity, 
foreign currency, legal, operational, settlement, segregation, 
technological, capital, and any other applicable risks together with a 
description of the risk tolerance limits set by the futures commission 
merchant and the underlying methodology in the 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, all lines of business of the futures commission merchant, 
and all other trading activity engaged in by the futures commission 
merchant. 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 
futures commission merchant, 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 futures commission merchant shall provide to senior management and 
to its governing body quarterly written reports setting forth all 
applicable risk exposures of the futures commission merchant; 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 Management Program. For purposes of this section, 
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 futures commission merchant.
    (ii) Furnishing to the Commission. Each futures commission merchant 
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) Specific risk management considerations. The Risk Management 
Program of each futures commission merchant shall include, but not be 
limited to, policies and procedures necessary to monitor and manage the 
following risks:
    (i) Segregation risk. The written policies and procedures shall be 
reasonably designed to ensure that segregated funds are separately 
accounted for and segregated or secured as belonging to customers as 
required by the Act and Commission regulations and must, at a minimum, 
include or address the following:
    (A) A process for the evaluation of depositories of segregated 
funds, including, at a minimum, documented criteria that any depository 
that will hold segregated funds, including an entity affiliated with the 
futures commission merchant, must meet, including criteria addressing 
the depository's capitalization, creditworthiness, operational 
reliability, and access to liquidity. The criteria should further 
consider the extent to which segregated funds are concentrated with any 
depository or group of depositories. The criteria also should include 
the availability of deposit insurance and the extent of the regulation 
and supervision of the depository;
    (B) A program to monitor an approved depository on an ongoing basis 
to assess its continued satisfaction of the futures commission 
merchant's established criteria, including a thorough due diligence 
review of each depository at least annually;
    (C) An account opening process for depositories, including 
documented authorization requirements, procedures that ensure that 
segregated funds are not deposited with a depository prior to the 
futures commission merchant receiving the acknowledgment letter required 
from such depository pursuant to Sec. Sec.  1.20, and 22.2 and 30.7 of 
this chapter, and procedures that ensure that

[[Page 54]]

such account is properly titled to reflect that it is holding segregated 
funds pursuant to the Act and Commission regulations;
    (D) A process for establishing a targeted amount of residual 
interest that the futures commission merchant seeks to maintain as its 
residual interest in the segregated funds accounts and such process must 
be designed to reasonably ensure that the futures commission merchant 
maintains the targeted residual amounts and remains in compliance with 
the segregated funds requirements at all times. The policies and 
procedures must require that senior management, in establishing the 
total amount of the targeted residual interest in the segregated funds 
accounts, perform appropriate due diligence and consider various 
factors, as applicable, relating to the nature of the futures commission 
merchant's business including, but not limited to, the composition of 
the futures commission merchant's customer base, the general 
creditworthiness of the customer base, the general trading activity of 
the customers, the types of markets and products traded by the 
customers, the proprietary trading of the futures commission merchant, 
the general volatility and liquidity of the markets and products traded 
by customers, the futures commission merchant's own liquidity and 
capital needs, and the historical trends in customer segregated fund 
balances, including undermargined amounts and net deficit balances in 
customers' accounts. The analysis and calculation of the targeted amount 
of the future commission merchant's residual interest must be described 
in writing with the specificity necessary to allow the Commission and 
the futures commission merchant's designated self-regulatory 
organization to duplicate the analysis and calculation and test the 
assumptions made by the futures commission merchant. The adequacy of the 
targeted residual interest and the process for establishing the targeted 
residual interest must be reassessed periodically by Senior Management 
and revised as necessary;
    (E) A process for the withdrawal of cash, securities, or other 
property from accounts holding segregated funds, where the withdrawal is 
not for the purpose of payments to or on behalf of the futures 
commission merchant's customers. Such policies and procedures must 
satisfy the requirements of Sec.  1.23, Sec.  22.17 of this chapter, or 
Sec.  30.7 of this chapter, as applicable;
    (F) A process for assessing the appropriateness of specific 
investments of segregated funds in permitted investments in accordance 
with Sec.  1.25. Such policies and procedures must take into 
consideration the market, credit, counterparty, operational, and 
liquidity risks associated with such investments, and assess whether 
such investments comply with the requirements in Sec.  1.25 including 
that the futures commission merchant manage the permitted investments 
consistent with the objectives of preserving principal and maintaining 
liquidity;
    (G) Procedures requiring the appropriate separation of duties among 
individuals responsible for compliance with the Act and Commission 
regulations relating to the protection and financial reporting of 
segregated funds, including the separation of duties among personnel 
that are responsible for advising customers on trading activities, 
approving or overseeing cash receipts and disbursements (including 
investment operations), and recording and reporting financial 
transactions. The policies and procedures must require that any movement 
of funds to affiliated companies and parties are properly approved and 
documented;
    (H) A process for the timely recording of all transactions, 
including transactions impacting customers' accounts, in the firm's 
books of record;
    (I) A program for conducting annual training of all finance, 
treasury, operations, regulatory, compliance, settlement, and other 
relevant officers and employees regarding the segregation requirements 
for segregated funds required by the Act and regulations, the 
requirements for notices under Sec.  1.12, procedures for reporting 
suspected breaches of the policies and procedures required by this 
section to the chief compliance officer, without fear of retaliation, 
and the consequences of failing to comply with the segregation 
requirements of the Act and regulations; and

[[Page 55]]

    (J) Policies and procedures for assessing the liquidity, 
marketability and mark-to-market valuation of all securities or other 
non-cash assets held as segregated funds, including permitted 
investments under Sec.  1.25, to ensure that all non-cash assets held in 
the customer segregated accounts, both customer-owned securities and 
investments in accordance with Sec.  1.25, are readily marketable and 
highly liquid. Such policies and procedures must require daily 
measurement of liquidity needs with respect to customers; assessment of 
procedures to liquidate all non-cash collateral in a timely manner and 
without significant effect on price; and application of appropriate 
collateral haircuts that accurately reflect market and credit risk.
    (ii) Operational risk. The Risk Management Program shall include 
automated financial risk management controls reasonably designed to 
prevent the placing of erroneous orders, including those that exceed 
pre-set capital, credit, or volume thresholds. The Risk Management 
Program shall ensure that the use of automated trading programs is 
subject to policies and procedures governing the use, supervision, 
maintenance, testing, and inspection of such programs.
    (iii) Capital risk. The written policies and procedures shall be 
reasonably designed to ensure that the futures commission merchant has 
sufficient capital to be in compliance with the Act and the regulations, 
and sufficient capital and liquidity to meet the reasonably foreseeable 
needs of the futures commission merchant.
    (4) Supervision of the Risk Management Program. The Risk Management 
Program shall include a supervisory system that is reasonably designed 
to ensure that the policies and procedures required by this section are 
diligently followed.
    (f) Review and testing. (1) The Risk Management Program of each 
futures commission merchant shall be reviewed and tested on at least an 
annual basis, or upon any material change in the business of the futures 
commission merchant that is reasonably likely to alter the risk profile 
of the futures commission merchant.
    (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 unit, or by a qualified third party audit service reporting 
to staff that are independent of the business unit. The results of the 
annual review of the Risk Management Program shall be promptly reported 
to and reviewed by the chief compliance officer, senior management, and 
governing body of the futures commission merchant.
    (3) Each futures commission merchant 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.
    (g) 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 futures commission merchant shall 
maintain records of the persons to whom the risk management policies and 
procedures were distributed and when they were distributed.
    (h) Recordkeeping. (1) Each futures commission merchant shall 
maintain copies of all written approvals required by this section.
    (2) All records or reports, including, but not limited to, the 
written policies and procedures and any changes thereto that a futures 
commission merchant is required to maintain pursuant to this regulation 
shall be maintained in accordance with Sec.  1.31 and shall be made 
available promptly upon request to representatives of the Commission.

[78 FR 68620, Nov. 14, 2013]

[[Page 56]]



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, or the minimum net capital requirements of 
the Securities and Exchange Commission if the applicant or registrant is 
registered with the Securities and Exchange Commission, must:
    (1) Give notice, as set forth in paragraph (n) of this section that 
the applicant's or registrant's capital is below the applicable minimum 
requirement. Such notice must be given immediately after the applicant 
or registrant knows or should have known that its adjusted net capital 
or net capital, as applicable, is less than minimum required amount; 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 on which such person's adjusted net capital is 
less than the minimum required; Provided, however, that if the applicant 
or registrant cannot calculate or otherwise immediately determine its 
financial condition, it must provide the notice required by paragraph 
(a)(1) of this section and include in such notice a statement that the 
entity cannot presently calculate its financial condition. The applicant 
or registrant must provide similar documentation of its financial 
condition 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 by Sec.  
1.17(a)(1)(i)(A);
    (2) 110 percent of the amount required by Sec.  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 in Sec.  
1.17(a)(1)(i)(B), in which case the required percentage is 110 percent;
    (4) For securities brokers or dealers, the amount of net capital 
specified in Rule 17a-11(b) of the Securities and Exchange Commission 
(17 CFR 240.17a-11(b)); or
    (5) For security-based swap dealers or major security-based swap 
participants, the amount of net capital specified in Rule 18a-8(b) of 
the Securities and Exchange Commission (17 CFR 240.18a-8(b)), must file 
notice to that effect, as soon as possible and no later than 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 
notice of such fact as specified in paragraph (n) of this section, 
specifying the books and records which have not been made or which are 
not current, and as soon as possible, but not later than forty-eight 
(48) hours after giving such notice, file a report as required by 
paragraph (n) of this section 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 to Sec.  1.16(e)(2), of the 
existence of any material inadequacy, as specified

[[Page 57]]

in Sec.  1.16(d)(2), such applicant or registrant must give notice of 
such material inadequacy, as provided in paragraph (n) of this section, 
as soon as possible but not later than twenty-four (24) hours of 
discovering or being notified of the material inadequacy. The applicant 
or registrant must file, in the manner provided for under paragraph (n) 
of this section, a report stating what steps have been and are being 
taken to correct the material inadequacy within forty-eight (48) hours 
of filing its notice of the material inadequacy.
    (e) Whenever any self-regulatory organization learns that a member 
registrant has failed to file a notice or report as required by this 
section, that self-regulatory organization must immediately report this 
failure by notice, as provided in paragraph (n) 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 notice, as 
provided in paragraph (n) of this section, of such a determination.
    (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 with Sec.  1.17, the futures commission 
merchant must immediately provide notice, as provided in paragraph (n) 
of this section, of such a determination to the designated self-
regulatory organization and the Commission. 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, 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 its own account, all such accounts 
shall be combined.
    (4) A futures commission merchant shall provide immediate notice, as 
provided in paragraph (n) of this section, 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 with Sec.  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, cleared swaps, 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 provide immediate notice, 
as provided in paragraph (n) of this section, whenever its excess 
adjusted net capital is less than six 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 
or 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 notice, as provided 
in

[[Page 58]]

paragraph (n) of this section, of a substantial reduction in capital as 
compared to that last reported in a financial report filed with the 
Commission pursuant to Sec.  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 under Sec.  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 as provided in paragraph (n) of this 
section within two business days of the event or series of events 
causing the reduction stating the reason for the reduction and steps the 
futures commission merchant will be taking to ensure an appropriate 
level of net capital is maintained by the futures commission merchant; 
and
    (2) If equity capital of the futures commission merchant or a 
subsidiary or affiliate of the futures commission merchant consolidated 
pursuant to Sec.  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 under Sec.  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 as provided in paragraph (n) of this section 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, 
or upon a reasonable belief that a substantial reduction in capital has 
occurred or will occur, the Director of the Division of Swap Dealer 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 in Sec.  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 trading on designated 
contract markets, or the amount of funds on deposit in segregated 
accounts for customers transacting in Cleared Swaps under part 22 of 
this chapter, or the total amount set aside on behalf of customers 
trading on non-United States markets under part 30 of this chapter, is 
less than the total amount of such funds required by the Act and the 
regulations to be on deposit in segregated or secured amount accounts on 
behalf of such customers, the registrant must report such deficiency 
immediately by notice to the registrant's designated self-regulatory 
organization and the Commission, as provided in paragraph (n) of this 
section.
    (i) A futures commission merchant must provide immediate notice, as 
set forth in paragraph (n) of this section, whenever it discovers or is 
informed that it has invested funds held for futures customers trading 
on designated contract markets pursuant to Sec.  1.20, Cleared Swaps 
Customer Collateral, as

[[Page 59]]

defined in Sec.  22.1 of this chapter, or 30.7 customer funds, as 
defined in Sec.  30.1 of this chapter, in instruments that are not 
permitted investments under Sec.  1.25, or has otherwise violated the 
requirements governing the investment of funds belonging to customers 
under Sec.  1.25.
    (j) A futures commission merchant must provide immediate notice, as 
provided in paragraph (n) of this section, whenever the futures 
commission merchant does not hold a sufficient amount of funds in 
segregated accounts for futures customers under Sec.  1.20, in 
segregated accounts for Cleared Swaps Customers under part 22 of this 
chapter, or in secured amount accounts for customers trading on foreign 
markets under part 30 of this chapter to meet the futures commission 
merchant's targeted residual interest in the segregated or secured 
amount accounts pursuant to its policies and procedures required under 
Sec.  1.11, or whenever the futures commission merchant's amount of 
residual interest is less than the sum of the undermargined amounts in 
its customer accounts as determined at the point in time that the firm 
is required to maintain the undermargined amounts under Sec.  1.22, and 
Sec. Sec.  22.2 and 30.7 of this chapter.
    (k) A futures commission merchant must provide immediate notice, as 
provided in paragraph (n) of this section, whenever the futures 
commission merchant, or the futures commission merchant's parent or 
material affiliate, experiences a material adverse impact to its 
creditworthiness or ability to fund its obligations, including any 
change that could adversely impact the firm's liquidity resources.
    (l) A futures commission merchant must provide prompt notice, but in 
no event later than 24 hours, as provided in paragraph (n) of this 
section, whenever the futures commission merchant experiences a material 
change in its operations or risk profile, including a change in the 
senior management of the futures commission merchant, the establishment 
or termination of a line of business, or a material adverse change in 
the futures commission merchant's clearing arrangements.
    (m) A futures commission merchant must provide notice, if the 
futures commission merchant has been notified by the Securities and 
Exchange Commission, a securities self-regulatory organization, or a 
futures self-regulatory organization, that it is the subject of a formal 
investigation. A futures commission merchant must provide a copy of any 
examination report issued to the futures commission merchant by the 
Securities and Exchange Commission or a securities self-regulatory 
organization. A futures commission merchant must provide the Commission 
with notice of any correspondence received from the Securities and 
Exchange Commission or a securities self-regulatory organization that 
raises issues with the adequacy of the futures commission merchant's 
capital position, liquidity to meet its obligations or otherwise operate 
its business, or internal controls. The notices and examination reports 
required by this section must be filed in a prompt manner, but in no 
event later than 24 hours of the reportable event, and must be filed in 
accordance with paragraph (n) of the section; Provided, however, that a 
futures commission merchant is not required to file a notice or copy of 
an examination report with the Securities and Exchange Commission, a 
securities self-regulatory organization, or a futures self-regulatory 
organization if such entity originally provided the communication or 
report to the futures commission merchant.
    (n) Notice. (1) Every notice and report required to be filed by this 
section by a futures commission merchant or a self-regulatory 
organization must be filed with the Commission, 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 report required to be 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. Every notice or report that is required to 
be filed by this section by a futures commission

[[Page 60]]

merchant or a self-regulatory organization must include a discussion of 
how the reporting event originated and what steps have been, or are 
being taken, to address the reporting event.
    (2) Every notice and report which an introducing broker or applicant 
for registration as an introducing broker is required to 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. Every notice or 
report that is required to be filed by this section by an introducing 
broker or applicant for registration as an introducing broker must 
include a discussion of how the reporting event originated and what 
steps have been, or are being taken, to address the reporting event.
    (3) Every notice or report that is required to be filed by a futures 
commission merchant with the Commission or with a designated self-
regulatory organization under this section must be in writing and must 
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; Provided, however, that if the registered 
futures commission merchant cannot file the notice or report using the 
electronic transmission approved by the Commission due to a transmission 
or systems failure, the futures commission merchant must immediately 
contact the Commission's regional office with jurisdiction over the 
futures commission merchant as provided in Sec.  140.02 of this chapter, 
and by email to [email protected]. Any such electronic submission must 
clearly indicate the futures commission merchant 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 affecting Sec.  1.12, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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 
sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets of

[[Page 61]]

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 under Sec.  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 under Sec.  
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 and Sec.  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 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

[[Page 62]]

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 to Sec.  
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 into the English language. For the purposes of 
this section, the term ``Foreign Futures Authority'' shall have the

[[Page 63]]

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 to Sec.  1.10 
unless another futures commission merchant is acting as the Reporting 
Broker or Dealer under Sec.  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 or Sec.  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 with Sec.  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 or Sec.  1.15.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a futures commission 
merchant concerning a Material Affiliated Person shall be

[[Page 64]]

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 by Sec.  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) of Sec.  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) of Sec.  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;
    (ii) Fiscal year-end annual consolidated and consolidating income 
statements and consolidated cash flow

[[Page 65]]

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 in Sec.  1.14.
    (4) The reports required to be filed pursuant to paragraphs (a)(1) 
and (2) of this section must 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 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.
    (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 to Sec.  1.10 
unless another futures commission merchant is acting as the Reporting 
Broker or Dealer under Sec.  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 to Sec.  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

[[Page 66]]

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 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 to Sec.  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 and Sec.  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 with Sec.  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 with Sec.  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 to Sec.  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

[[Page 67]]

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 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, as amended at 
78 FR 68625, Nov. 14, 2013]



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.

[[Page 68]]

    (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 public accountant or 
independent licensed public accountant.
    (4) Customer. The term ``customer'' means customer, as defined in 
Sec. Sec.  1.3, and 30.7 customer, as defined in Sec.  30.1 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; Provided, however, that a certified public accountant 
engaged to conduct an examination of a futures commission merchant must 
be registered with the Public Company Accounting Oversight Board and 
must have undergone an examination by the Public Company Accounting 
Oversight Board, and may not be subject to a permanent or temporary bar 
to engage in the examination of public issuers or brokers or dealers 
registered with the Securities and Exchange Commission as a result of a 
Public Company Accounting Oversight Board disciplinary hearing.
    (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 this Sec.  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.
    (4) The governing body of each futures commission merchant must 
ensure that the certified public accountant engaged is duly qualified to 
perform an audit of the futures commission merchant. Such an evaluation 
of the qualifications of the certified public accountant should include, 
among other issues, the certified public accountant's experience in 
auditing futures commission merchants, the depth of the certified public 
accountant's staff, the certified public accountant's knowledge of the 
Act and Regulations, the size and geographic location of the futures 
commission merchant, and the independence of the certified public 
accountant. The governing body should

[[Page 69]]

also review and consider the inspection reports issued by the Public 
Company Accounting Oversight Board as part of the assessment of the 
qualifications of the public accountant to perform an audit of the 
futures commission merchant.
    (c) Accountant's reports--(1) Technical requirements. The 
accountant's report must:
    (i) Be dated;
    (ii) Indicate the city and State where issued; and
    (iii) Identify without detailed enumeration the financial statements 
covered by the report.
    (2) Representations as to the audit. The accountant's report must 
state whether the audit was made in accordance with the auditing 
standards adopted by the Public Company Accounting Oversight Board, and 
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 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 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 with Sec.  
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

[[Page 70]]

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 to Sec.  
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 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) of Sec.  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

[[Page 71]]

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 in Sec.  1.10 (b)(1)(ii) or Sec.  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 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 to Sec.  240.17a-5(m) of this title, for an 
extension of time to file annual reports. The registrant must also 
promptly file 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 is required to be filed with 
the Commission must 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 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.
    (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 
to Sec.  240.17a-5(m) of this title, for an extension of time to file 
annual reports. The registrant must also file promptly 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

[[Page 72]]

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 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

[[Page 73]]

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; 78 FR 68625, Nov. 14, 2013; 85 FR 57543, Sept. 
15, 2020]



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, Provided, however, that if the futures commission 
merchant also is a swap dealer, the minimum amount shall be $20,000,000;
    (B) The futures commission merchant's risk-based capital 
requirement, computed as the sum of:
    (1) Eight percent of the total risk margin requirement (as defined 
in Sec.  1.17(b)(8) of this section) for positions carried by the 
futures commission merchant in customer accounts and noncustomer 
accounts; and
    (2) For a futures commission merchant that is also a registered swap 
dealer, two percent of the total uncleared swap margin, as that term is 
defined in paragraph (b)(11) of this section.
    (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) A futures commission merchant that is registered as a swap 
dealer and has received approval to use internal models to compute 
market risk and credit risk charges for uncleared swaps must maintain 
net capital equal to or in excess of $100 million and adjusted net 
capital equal to or in excess of $20 million.
    (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 and Sec.  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

[[Page 74]]

agreement which meets the requirements set forth in Sec.  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, or who cannot certify to the 
Commission immediately upon request and demonstrate with verifiable 
evidence that it has sufficient access to liquidity to continue 
operating as a going concern, 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 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 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 with Sec.  240.15c3-1 of this title, unless specifically 
stated otherwise in this section.
    (2) Customer. This term means a futures customer as defined in Sec.  
1.3, a cleared over the counter customer as defined in paragraph (b)(10) 
of this section, and a 30.7 customer as defined in Sec.  30.1 of this 
chapter.

[[Page 75]]

    (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 in Sec.  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 in Sec.  1.3 of this title, but is not a proprietary 
account as defined in Sec.  1.17(b)(3).
    (5) Clearing organization means clearing organization (as defined in 
Sec.  1.3) 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. This term 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 an account 
that is included in the definition of customer as defined in Sec.  
1.17(b)(2).
    (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 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 a swap 
cleared by a derivatives clearing organization or a clearing 
organization exempted by the Commission from registering as a 
derivatives clearing organization, and further includes positions 
cleared by any organization permitted to clear such positions under the 
laws of the relevant jurisdiction.
    (10) Cleared over the counter customer means any person for whom the 
futures commission merchant carries on its books one or more accounts 
for the cleared over the counter derivative positions of such person, 
and such account or accounts are not proprietary accounts as defined in 
Sec.  1.3 of this part.
    (11) Uncleared swap margin: This term means the amount of initial 
margin, computed in accordance with Sec.  23.154 of this chapter, that a 
dually-registered futures commission merchant and swap dealer would be 
required to collect from each counterparty for each outstanding swap 
position of the dually-registered futures commission merchant and swap 
dealer. A dually-registered futures commission merchant and swap dealer 
must include all swap positions in the calculation of the uncleared swap 
margin amount, including swaps that are exempt or excluded from the 
scope of the Commission's margin regulations for uncleared swaps

[[Page 76]]

pursuant to Sec.  23.150 of this chapter, exempt foreign exchange swaps 
or foreign exchange forwards, or netting set of swaps or foreign 
exchange swaps, for each counterparty, as if the counterparty was an 
unaffiliated swap dealer. Furthermore, in computing the uncleared swap 
margin amount, a dually-registered futures commission merchant and swap 
dealer may not exclude the initial margin threshold amount or the 
minimum transfer amount as such terms are defined in Sec.  23.151 of 
this chapter.
    (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, uncleared 
swaps, uncleared security-based swaps, 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, options, cleared swaps, 
or other Commission regulated 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', noncustomers', 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;
    (B)(1) 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 that are not 
outstanding more than thirty (30) days from the date they are due;
    (2) Dividends receivable that are not outstanding more than thirty 
(30) days from the payable date; and

[[Page 77]]

    (3) Commissions or fees receivable, including from other brokers or 
dealers, resulting from swap transactions that are not outstanding more 
than sixty (60) days from the month end accrual date provided they are 
billed promptly after the close of the month of their inception;
    (C) Receivables from clearing organizations and securities clearing 
organizations;
    (D) Receivables from registered futures commission merchants or 
brokers, resulting from commodity futures, options, cleared swaps, 
foreign futures or foreign options 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;
    (G) Receivables from third-party custodians that maintain the 
futures commission merchant's initial margin deposits associated with 
uncleared swap and security-based swap transactions pursuant to the 
margin rules of the Commission, the Securities and Exchange Commission, 
a prudential regulator, as defined in section 1a(39) of the Act, or a 
foreign jurisdiction that has received a Comparability Determination 
under Sec.  23.160 of this chapter.
    (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 in Sec.  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

[[Page 78]]

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 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

[[Page 79]]

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 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) Swaps:
    (A) Uncleared swaps that are credit-default swaps referencing broad-
based securities indices.(1) Short positions (selling protection). In 
the case of an uncleared short credit default swap that references a 
broad-based securities index, deducting the percentage of the notional 
amount based upon the current basis point spread of the credit default 
swap and the maturity of the credit default swap in accordance with the 
following table:

                              Table to Sec.   1.17(c)(5)(iii)(A)(1)--Market Risk Charges for Uncleared Credit Default Swaps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Basis point spread  (%)
       Length of time to maturity  of CDS contract       -----------------------------------------------------------------------------------------------
                                                            100 or less       101-300         301-400         401-500         501-699       700 or more
--------------------------------------------------------------------------------------------------------------------------------------------------------
Less than 12 months.....................................            0.67            1.33            3.33            5.00            6.67           10.00
12 months but less than 24 months.......................            1.00            2.33            5.00            6.67            8.33           11.67
24 months but less than 36 months.......................            1.33            3.33            6.67            8.33           10.00           13.33
36 months but less than 48 months.......................            2.00            4.00            8.33           10.00           11.67           15.00
48 months but less than 60 months.......................            2.67            4.67           10.00           11.67           13.33           16.67
60 months but less than 72 months.......................            3.67            5.67           11.67           13.33           15.00           18.33
72 months but less than 84 months.......................            4.67            6.67           13.33           15.00           16.67           20.00
84 months but less than 120 months......................            5.67           10.00           15.00           16.67           18.33           26.67
120 months and longer...................................            6.67           13.33           16.67           18.33           20.00           33.33
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 80]]

    (2) Long positions (purchasing protection). In the case of an 
uncleared swap that is a long credit default swap referencing a broad-
based security index, deducting 50 percent of the deduction that would 
be required by paragraph (c)(5)(iii)(A)(1) of this section if the swap 
was a short credit default swap, each such deduction not to exceed the 
current market value of the long position.
    (3) Long and short positions. (i) Long and short uncleared credit 
default swaps referencing the same broad-based security index. In the 
case of uncleared swaps that are long and short credit default swaps 
referencing the same broad-based security index, have the same credit 
events which would trigger payment by the seller of protection, have the 
same basket of obligations which would determine the amount of payment 
by the seller of protection upon the occurrence of a credit event, that 
are in the same or adjacent spread category and have a maturity date 
within three months of the other maturity category, deducting the 
percentage of the notional amounts specified in the higher maturity 
category under paragraph (c)(5)(iii)(A)(1) or (c)(5)(iii)(A)(2) of this 
section on the excess of the long or short position.
    (ii) Long basket of obligors and uncleared long credit default swap 
referencing a broad-based securities index. In the case of an uncleared 
swap that is a long credit default swap referencing a broad-based 
security index and the futures commission merchant is long a basket of 
debt securities comprising all of the components of the security index, 
deducting 50 percent of the amount specified in Sec.  240.15c3-
1(c)(2)(vi) of this title for the component of securities, provided the 
futures commission merchant can deliver the component securities to 
satisfy the obligation of the futures commission merchant on the credit 
default swap.
    (iii) Short basket of obligors and uncleared short credit default 
swap referencing a broad-based securities index. In the case of an 
uncleared swap that is a short credit default swap referencing a broad-
based security index and the futures commission merchant is short a 
basket of debt securities comprising all of the components of the 
security index, deducting the amount specified in Sec.  240.15c3-
1(c)(2)(vi) of this title for the component securities.
    (B) Interest rate swaps. In the case of an uncleared interest rate 
swap, deducting the percentage deduction specified in Sec.  240.15c3-
1(c)(2)(vi)(A) of this title based on the maturity of the interest rate 
swap, provided that the percentage deduction must be no less than one 
eighth of 1 percent of the amount of a long position that is netted 
against a short position in the case of an uncleared interest rate swap 
with a maturity of three months or more;
    (C) All other uncleared swaps. (1) In the case of any uncleared swap 
that is not a credit default swap or interest rate swap, deducting the 
amount calculated by multiplying the notional value of the uncleared 
swap by:
    (i) The percentage specified in Sec.  240.15c3-1 of this title 
applicable to the reference asset if Sec.  240.15c3-1 of this title 
specifies a percentage deduction for the type of asset and this section 
does not specify a percentage deduction;
    (ii) Six percent in the case of a currency swap that references 
euros, British pounds, Canadian dollars, Japanese yen, or Swiss francs, 
and twenty percent in the case of currency swaps that reference any 
other foreign currencies; or
    (iii) In the case of over-the-counter swap transactions involving 
commodities, 20 percent of the market value of the amount of the 
underlying commodities.
    (D) Netting of Swap Market Risk Charges. The deductions under 
paragraphs (c)(5)(iii)(B) and (C) of this section may be reduced by an 
amount equal to any reduction recognized for a comparable long or short 
position in the reference asset or interest rate under this section or 
in Sec.  240.15c3-1 of this title.
    (iv) Security-based Swaps: In the case of security-based swaps as 
defined in section 3(a) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)), the percentage as specified in Sec.  240.15c3-1 of this 
title.
    (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

[[Page 81]]

merchant that invests funds deposited by futures customers as defined in 
Sec.  1.3, Cleared Swaps Customers as defined in Sec.  22.1 of this 
chapter, and 30.7 customers as defined in Sec.  30.1 of this chapter in 
securities as permitted investments under Sec.  1.25, the deductions 
specified in Rule 240.15c3-1(c)(2)(vi) or Rule 240.15c3-1(c)(2)(vii) of 
the Securities and Exchange Commission (17 CFR 240.15c3-1(c)(2)(vi) and 
17 CFR 240.15c3-1(c)(2)(vii)) (``securities haircuts''). Futures 
commission merchants that establish and enforce written policies and 
procedures to assess the credit risk of commercial paper, convertible 
debt instruments, or nonconvertible debt instruments in accordance with 
Rule 240.15c3-1(c)(2)(vi) of the Securities and Exchange Commission (17 
CFR 240.15c3-1(c)(2)(vi)) may apply the lower haircut percentages 
specified in Rule 240.15c3-1(c)(2)(vi) for such commercial paper, 
convertible debt instruments and nonconvertible debt instruments. 
Futures commission merchants must maintain their written policies and 
procedures in accordance with Sec.  1.31;
    (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 in Sec.  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 in Sec.  240.15c3-1(c)(2)(viii) of this title;
    (viii) In the case of a futures commission merchant, for 
undermargined 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 no more than one business day. 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 no more than one business day, 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. In the event 
that an owner of a customer 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 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 paragraph (c)(5) of this section;
    (ix) In the case of a futures commission merchant, for undermargined 
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 no more than one business day. 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 no more than one business day 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. 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 paragraph shall be the

[[Page 82]]

lesser of the value attributable to such asset pursuant to the margin 
rules of the applicable board of trade, or the market value of such 
asset after application of the percentage deductions specified in 
paragraph (c)(5) of this section;
    (x) In the case of open futures contracts, cleared swaps, 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:
    (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 to Sec.  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, as Sec.  1.3 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 in Sec.  240.15c3-1 of this title;
    (xv) In the case of a futures commission merchant that is also a 
registered swap dealer, the amount of funds required from each swap 
counterparty and security-based swap counterparty to meet initial margin 
requirements of the Commission or Securities and Exchange Commission, as 
applicable, after application of calls for margin or other required 
deposits which are outstanding within the required time frame to collect 
margin or other required deposits;
    (xvi) In the case of a futures commission merchant that is also a 
registered swap dealer, the amount of initial margin calculated pursuant 
to Sec.  23.154 of

[[Page 83]]

this chapter for the account of a swap counterparty that is subject to a 
margin exception or exemption under Sec.  23.150 of this chapter, less 
any margin posted on such account, and the amount of initial margin 
calculated pursuant to Sec.  240.18a-3(c)(1)(i)(B) of this title for the 
account of a security-based swap counterparty that is subject to a 
margin exception or exemption under the rules of the Securities and 
Exchange Commission, less any margin posted on such account.
    (6)(i) Election of alternative capital deductions that have received 
approval of Securities and Exchange Commission pursuant to Sec.  
240.15c3-1(a)(7) of this title. 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, under Sec.  
240.15c3-1(a)(7) of this title, the Securities and Exchange Commission 
has approved by written order in lieu of the deductions that would 
otherwise be required under this section.
    (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 Swap Dealer 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 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

[[Page 84]]

of Swap Dealer 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 Swap Dealer 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 way of schedules to its FOCUS 
reports or by other filings, in satisfaction of Sec.  240.17a-5(a)(5) of 
this title;
    (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.
    (v) Election of alternative market risk and credit risk capital 
deductions for a futures commission merchant that is registered as a 
swap dealer and has received approval of the Commission or a registered 
futures association for which the futures commission merchant is a 
member. For purposes of this paragraph (c)(6)(v) only, all references to 
futures commission merchant means a futures commission merchant that is 
also registered as a swap dealer.
    (A) A futures commission merchant may apply in writing to the 
Commission or a registered futures association of which it is a member 
for approval to compute deductions for market risk and credit risk using 
internal models in lieu of the standardized deductions

[[Page 85]]

otherwise required under this section; Provided however, that the 
Commission must issue a determination that the registered futures 
association's model requirements and review process are comparable to 
the Commission's requirements and review process in order for the 
registered futures association's model approval to be accepted as an 
alternative means of compliance with this section. The futures 
commission merchant must file the application in accordance with 
instructions approved by the Commission and specified on the website of 
the registered futures association.
    (B) A futures commission merchant's application must include the 
information set forth in Appendix A to Subpart E of Part 23 and the 
market risk and credit risk charges must be computed in accordance with 
Sec.  23.102 of this chapter.
    (C) The Commission or registered futures association upon obtaining 
the Commission's determination that its requirements and model approval 
process are comparable to the Commission's requirements and process, may 
approve or deny the application, in whole or in part, or approve or deny 
an amendment to the application, in whole or in part, subject to any 
conditions or limitations the Commission or registered futures 
association may require, if the Commission or registered futures 
association finds the approval to be appropriate in the public interest, 
after determining, among other things, whether the applicant has met the 
requirements of Sec.  23.102 of this chapter.
    (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

[[Page 86]]

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 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

[[Page 87]]

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 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 to Sec.  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 of 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 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.

[[Page 88]]

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 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

[[Page 89]]

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 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

[[Page 90]]

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 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

[[Page 91]]

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 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

[[Page 92]]

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 240.15c3-1(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,

[[Page 93]]

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, 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

[[Page 94]]

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 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;

[[Page 95]]

    (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
    (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

[[Page 96]]

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 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

[[Page 97]]

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:
    (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

[[Page 98]]

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 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 affecting Sec.  1.17, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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 with Sec.  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 with Sec.  1.31 formal computations of its adjusted net 
capital and of its minimum financial requirements pursuant to Sec.  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 of Sec.  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

[[Page 99]]

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, that a capital treatment 
for such options is referenced in Sec.  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) General. A futures commission merchant must separately account 
for all futures customer funds and segregate such funds as belonging to 
its futures customers. A futures commission merchant shall deposit 
futures customer funds under an account name that clearly identifies 
them as futures customer funds and shows that such funds are segregated 
as required by sections 4d(a) and 4d(b) of the Act and by this part. A 
futures commission merchant must at all times maintain in the separate 
account or accounts money, securities and property in an amount at least 
sufficient in the aggregate to cover its total obligations to all 
futures customers as computed under paragraph (i) of this section. The 
futures commission merchant must perform appropriate due diligence as 
required by Sec.  1.11 on any and all locations of futures customer 
funds, as specified in paragraph (b) of this section, to ensure that the 
location in which the futures commission merchant has deposited such 
funds is a financially sound entity.
    (b) Location of futures customer funds. A futures commission 
merchant may deposit futures customer funds, subject to the risk 
management policies and procedures of the futures commission merchant 
required by Sec.  1.11, with the following depositories:
    (1) A bank or trust company;
    (2) A derivatives clearing organization; or
    (3) Another futures commission merchant.
    (c) Limitation on the holding of futures customer funds outside of 
the United States. A futures commission merchant may hold futures 
customer funds with a depository outside of the United States only in 
accordance with Sec.  1.49.
    (d) Written acknowledgment from depositories. (1) A futures 
commission merchant must obtain a written acknowledgment from each bank, 
trust company, derivatives clearing organization, or futures commission 
merchant prior to or contemporaneously with the opening of an account by 
the futures commission merchant with such depositories; provided, 
however, that a written acknowledgment need not be obtained from a 
derivatives clearing organization that has adopted and submitted to the 
Commission rules that provide for the segregation of futures customer 
funds in accordance with all relevant provisions of the Act and the 
rules in this chapter, and orders promulgated thereunder, and in such 
cases, the requirements set forth in paragraphs (d)(3) through (6) of 
this section shall not apply to the futures commission merchant.
    (2) The written acknowledgment must be in the form as set out in 
appendix A to this part.
    (3)(i) A futures commission merchant shall deposit futures customer 
funds only with a depository that agrees to provide the director of the 
Division of Swap Dealer and Intermediary Oversight, or any successor 
division, or such director's designees, with direct, read-only 
electronic access to transaction and account balance information for 
futures customer accounts.
    (ii) The written acknowledgment must contain the futures commission 
merchant's authorization to the depository to provide direct, read-only 
electronic access to futures customer account transaction and account 
balance information to the director of the Division of Swap Dealer and 
Intermediary Oversight, or any successor division, or such director's 
designees, without further notice to or consent from the futures 
commission merchant.
    (4) A futures commission merchant shall deposit futures customer 
funds only with a depository that agrees to provide the Commission and 
the futures commission merchant's designated self-regulatory 
organization

[[Page 100]]

with a copy of the executed written acknowledgment no later than three 
business days after the opening of the account or the execution of a new 
written acknowledgment for an existing account, as applicable. The 
Commission must receive the written acknowledgment from the depository 
via electronic means, in a format and manner determined by the 
Commission. The written acknowledgment must contain the futures 
commission merchant's authorization to the depository to provide the 
written acknowledgment to the Commission and to the futures commission 
merchant's designated self-regulatory organization without further 
notice to or consent from the futures commission merchant.
    (5) A futures commission merchant shall deposit futures customer 
funds only with a depository that agrees that accounts containing 
customer funds may be examined at any reasonable time by the director of 
the Division of Swap Dealer and Intermediary Oversight or the director 
of the Division of Clearing and Risk, or any successor divisions, or 
such directors' designees, or an appropriate officer, agent or employee 
of the futures commission merchant's designated self-regulatory 
organization. The written acknowledgment must contain the futures 
commission merchant's authorization to the depository to permit any such 
examination to take place without further notice to or consent from the 
futures commission merchant.
    (6) A futures commission merchant shall deposit futures customer 
funds only with a depository that agrees to reply promptly and directly 
to any request from the director of the Division of Swap Dealer and 
Intermediary Oversight or the director of the Division of Clearing and 
Risk, or any successor divisions, or such directors' designees, or an 
appropriate officer, agent or employee of the futures commission 
merchant's designated self-regulatory organization for confirmation of 
account balances or provision of any other information regarding or 
related to an account. The written acknowledgment must contain the 
futures commission merchant's authorization to the depository to reply 
promptly and directly as required by this paragraph without further 
notice to or consent from the futures commission merchant.
    (7) Where a written acknowledgment is required, the futures 
commission merchant shall promptly file a copy of the written 
acknowledgment with the Commission in the format and manner specified by 
the Commission no later than three business days after the opening of 
the account or the execution of a new written acknowledgment for an 
existing account, as applicable.
    (8) Where a written acknowledgment is required, a futures commission 
merchant shall obtain a new written acknowledgment within 120 days of 
any changes in the following:
    (i) The name or business address of the futures commission merchant;
    (ii) The name or business address of the bank, trust company, 
derivatives clearing organization or futures commission merchant 
receiving futures customer funds; or
    (iii) The account number(s) under which futures customer funds are 
held.
    (9) A futures commission merchant shall maintain each written 
acknowledgment readily accessible in its files in accordance with Sec.  
1.31, for as long as the account remains open, and thereafter for the 
period provided in Sec.  1.31.
    (e) Commingling. (1) A futures commission merchant may for 
convenience commingle the futures customer funds that it receives from, 
or on behalf of, multiple futures customers in a single account or 
multiple accounts with one or more of the depositories listed in 
paragraph (b) of this section.
    (2) A futures commission merchant shall not commingle futures 
customer funds with the money, securities or property of such futures 
commission merchant, or with any proprietary account of such futures 
commission merchant, or use such funds to secure or guarantee the 
obligation of, or extend credit to, such futures commission merchant or 
any proprietary account of such futures commission merchant; provided, 
however, a futures commission merchant may deposit proprietary funds in 
segregated accounts as permitted under Sec.  1.23.
    (3) A futures commission merchant may not commingle futures customer

[[Page 101]]

funds with funds deposited by 30.7 customers as defined in Sec.  30.1 of 
this chapter and set aside in separate accounts as required by part 30 
of this chapter, or with funds deposited by Cleared Swaps Customers as 
defined in Sec.  22.1 of this chapter and held in segregated accounts 
pursuant to section 4d(f) of the Act; provided, however, that a futures 
commission merchant may commingle futures customer funds with funds 
deposited by 30.7 customers or Cleared Swaps Customers if expressly 
permitted by a Commission regulation or order, or by a derivatives 
clearing organization rule approved in accordance with Sec.  39.15(b)(2) 
of this chapter.
    (f) Limitation on use of futures customer funds. (1) A futures 
commission merchant shall treat and deal with the funds of a futures 
customer as belonging to such futures customer. A futures commission 
merchant shall not use the funds of a futures customer to secure or 
guarantee the commodity interests, or to secure or extend the credit, of 
any person other than the futures customer for whom the funds are held.
    (2) A futures commission merchant shall obligate futures customer 
funds to a derivatives clearing organization, a futures commission 
merchant, or any depository solely to purchase, margin, guarantee, 
secure, transfer, adjust or settle trades, contracts or commodity option 
transactions of futures customers; provided, however, that a futures 
commission merchant is permitted to use the funds belonging to a futures 
customer that are necessary in the normal course of business to pay 
lawfully accruing fees or expenses on behalf of the futures customer's 
positions including commissions, brokerage, interest, taxes, storage and 
other fees and charges.
    (3) 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.
    (g) Derivatives clearing organizations--(1) General. All futures 
customer funds received by a derivatives clearing organization from a 
member 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. A derivatives clearing organization shall deposit futures 
customer funds under an account name that clearly identifies them as 
futures customer funds and shows that such funds are segregated as 
required by sections 4d(a) and 4d(b) of the Act and by this part.
    (2) Location of futures customer funds. A derivatives clearing 
organization may deposit futures customer funds with a bank or trust 
company, which may include a Federal Reserve Bank with respect to 
deposits of a derivatives clearing organization that is designated by 
the Financial Stability Oversight Council to be systemically important.
    (3) Limitation on the holding of futures customer funds outside of 
the United States. A derivatives clearing organization may hold futures 
customer funds with a depository outside of the United States only in 
accordance with Sec.  1.49.
    (4) Written acknowledgment from depositories. (i) A derivatives 
clearing organization must obtain a written acknowledgment from each 
depository prior to or contemporaneously with the opening of a futures 
customer funds account; provided, however, that a derivatives clearing 
organization is not required to obtain a written acknowledgment from a 
Federal Reserve Bank with which it has opened a futures customer funds 
account.
    (ii) The written acknowledgment must be in the form as set out in 
appendix B to this part.
    (iii) A derivatives clearing organization shall deposit futures 
customer funds only with a depository that agrees to provide the 
Commission with a copy of the executed written acknowledgment no later 
than three business days after the opening of the

[[Page 102]]

account or the execution of a new written acknowledgment for an existing 
account, as applicable. The Commission must receive the written 
acknowledgment from the depository via electronic means, in a format and 
manner determined by the Commission. The written acknowledgment must 
contain the derivatives clearing organization's authorization to the 
depository to provide the written acknowledgment to the Commission 
without further notice to or consent from the derivatives clearing 
organization.
    (iv) A derivatives clearing organization shall deposit futures 
customer funds only with a depository that agrees to reply promptly and 
directly to any request from the director of the Division of Clearing 
and Risk or the director of the Division of Swap Dealer and Intermediary 
Oversight, or any successor divisions, or such directors' designees, for 
confirmation of account balances or provision of any other information 
regarding or related to an account. The written acknowledgment must 
contain the derivatives clearing organization's authorization to the 
depository to reply promptly and directly as required by this paragraph 
without further notice to or consent from the derivatives clearing 
organization.
    (v) A derivatives clearing organization shall promptly file a copy 
of the written acknowledgment with the Commission in the format and 
manner specified by the Commission no later than three business days 
after the opening of the account or the execution of a new written 
acknowledgment for an existing account, as applicable.
    (vi) A derivatives clearing organization shall obtain a new written 
acknowledgment within 120 days of any changes in the following:
    (A) The name or business address of the derivatives clearing 
organization;
    (B) The name or business address of the depository receiving futures 
customer funds; or
    (C) The account number(s) under which futures customer funds are 
held.
    (vii) A derivatives clearing organization shall maintain each 
written acknowledgment readily accessible in its files in accordance 
with Sec.  1.31, for as long as the account remains open, and thereafter 
for the period provided in Sec.  1.31.
    (5) Commingling. (i) A derivatives clearing organization may for 
convenience commingle the futures customer funds that it receives from, 
or on behalf of, multiple futures commission merchants in a single 
account or multiple accounts with one or more of the depositories listed 
in paragraph (g)(2) of this section.
    (ii) A derivatives clearing organization shall not commingle futures 
customer funds with the money, securities or property of such 
derivatives clearing organization or with any proprietary account of any 
of its clearing members, or use such funds to secure or guarantee the 
obligations of, or extend credit to, such derivatives clearing 
organization or any proprietary account of any of its clearing members.
    (iii) A derivatives clearing organization may not commingle funds 
held for futures customers with funds deposited by clearing members on 
behalf of their 30.7 customers as defined in Sec.  30.1 of this chapter 
and set aside in separate accounts as required by part 30 of this 
chapter, or with funds deposited by clearing members on behalf of their 
Cleared Swaps Customers as defined in Sec.  22.1 of this chapter and 
held in segregated accounts pursuant section 4d(f) of the Act; provided, 
however, that a derivatives clearing organization may commingle futures 
customer funds with funds deposited by clearing members on behalf of 
their 30.7 customers or Cleared Swaps Customers if expressly permitted 
by a Commission regulation or order, or by a derivatives clearing 
organization rule approved in accordance with Sec.  39.15(b)(2) of this 
chapter.
    (h) Immediate availability of bank and trust company deposits. All 
futures customer funds deposited by a futures commission merchant or a 
derivatives clearing organization with a bank or trust company must be 
immediately available for withdrawal upon the demand of the futures 
commission merchant or derivatives clearing organization.
    (i) Requirements as to amount. (1) For purposes of this paragraph 
(i), the term ``account'' shall mean the entries on

[[Page 103]]

the books and records of a futures commission merchant pertaining to the 
futures customer funds of a particular futures customer.
    (2) The futures commission merchant must reflect in the account that 
it maintains for each futures customer the net liquidating equity for 
each such customer, calculated as follows: The market value of any 
futures customer funds that it receives from such customer, as adjusted 
by:
    (i) Any uses permitted under paragraph (f) of this section;
    (ii) Any accruals on permitted investments of such collateral under 
Sec.  1.25 that, pursuant to the futures commission merchant's customer 
agreement with that customer, are creditable to such customer;
    (iii) Any gains and losses with respect to contracts for the 
purchase or sale of a commodity for future delivery and any options on 
such contracts;
    (iv) Any charges lawfully accruing to the futures customer, 
including any commission, brokerage fee, interest, tax, or storage fee; 
and
    (v) Any appropriately authorized distribution or transfer of such 
collateral.
    (3) If the market value of futures customer funds in the account of 
a futures customer is positive after adjustments, then that account has 
a credit balance. If the market value of futures customer funds in the 
account of a futures customer is negative after adjustments, then that 
account has a debit balance.
    (4) The futures commission merchant must maintain in segregation an 
amount equal to the sum of any credit balances that the futures 
customers of the futures commission merchant have in their accounts. 
This balance may not be reduced by any debit balances that the futures 
customers of the futures commission merchants have in their accounts.

  Appendix A to Sec.  1.20--Futures Commission Merchant Acknowledgment 
       Letter for CFTC Regulation 1.20 Customer Segregated Account

[Date]
[Name and Address of Bank, Trust Company, Derivatives Clearing 
Organization or Futures Commission Merchant]

    We refer to the Segregated Account(s) which [Name of Futures 
Commission Merchant] (``we'' or ``our'') have opened or will open with 
[Name of Bank, Trust Company, Derivatives Clearing Organization or 
Futures Commission Merchant] (``you'' or ``your'') entitled:

[Name of Futures Commission Merchant] [if applicable, add ``FCM Customer 
Omnibus Account''] CFTC Regulation 1.20 Customer Segregated Account 
under Sections 4d(a) and 4d(b) of the Commodity Exchange Act [and, if 
applicable, ``, Abbreviated as [short title reflected in the 
depository's electronic system]'']
Account Number(s): [ ]
(collectively, the ``Account(s)'').

    You acknowledge that we have opened or will open the above-
referenced Account(s) for the purpose of depositing, as applicable, 
money, securities and other property (collectively the ``Funds'') of 
customers who trade commodities, options, swaps, and other products, as 
required by Commodity Futures Trading Commission (``CFTC'') Regulations, 
including Regulation 1.20, as amended; that the Funds held by you, 
hereafter deposited in the Account(s) or accruing to the credit of the 
Account(s), will be separately accounted for and segregated on your 
books from our own funds and from any other funds or accounts held by us 
in accordance with the provisions of the Commodity Exchange Act, as 
amended (the ``Act''), and part 1 of the CFTC's regulations, as amended; 
and that the Funds must otherwise be treated in accordance with the 
provisions of Section 4d of the Act and CFTC regulations thereunder.
    Furthermore, you acknowledge and agree that such Funds may not be 
used by you or by us to secure or guarantee any obligations that we 
might owe to you, and they may not be used by us to secure or obtain 
credit from you. You further acknowledge and agree that the Funds in the 
Account(s) shall not be subject to any right of offset or lien for or on 
account of any indebtedness, obligations or liabilities we may now or in 
the future have owing to you. This prohibition does not affect your 
right to recover funds advanced in the form of cash transfers, lines of 
credit, repurchase agreements or other similar liquidity arrangements 
you make in lieu of liquidating non-cash assets held in the Account(s) 
or in lieu of converting cash held in the Account(s) to cash in a 
different currency.
    In addition, you agree that the Account(s) may be examined at any 
reasonable time by the director of the Division of Swap Dealer and 
Intermediary Oversight of the CFTC or the director of the Division of 
Clearing and Risk of the CFTC, or any successor divisions, or such 
directors' designees, or an appropriate officer, agent or employee of 
our designated self-regulatory organization (``DSRO''), [Name of DSRO], 
and this letter constitutes the authorization and direction of the 
undersigned on our behalf to permit

[[Page 104]]

any such examination to take place without further notice to or consent 
from us.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other information 
regarding or related to the Account(s) from the director of the Division 
of Swap Dealer and Intermediary Oversight of the CFTC or the director of 
the Division of Clearing and Risk of the CFTC, or any successor 
divisions, or such directors' designees, or an appropriate officer, 
agent, or employee of [Name of DSRO], acting in its capacity as our 
DSRO, and this letter constitutes the authorization and direction of the 
undersigned on our behalf to release the requested information without 
further notice to or consent from us.
    You further acknowledge and agree that, pursuant to authorization 
granted by us to you previously or herein, you have provided, or will 
promptly provide following the opening of the Account(s), the director 
of the Division of Swap Dealer and Intermediary Oversight of the CFTC, 
or any successor division, or such director's designees, with 
technological connectivity, which may include provision of hardware, 
software, and related technology and protocol support, to facilitate 
direct, read-only electronic access to transaction and account balance 
information for the Account(s). This letter constitutes the 
authorization and direction of the undersigned on our behalf for you to 
establish this connectivity and access if not previously established, 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to the 
above information and access requests will be made in accordance with, 
and subject to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information or access request, in order to 
provide for the secure transmission and delivery of the requested 
information or access to the appropriate recipient(s). We will not hold 
you responsible for acting pursuant to any information or access request 
from the director of the Division of Swap Dealer and Intermediary 
Oversight of the CFTC or the director of the Division of Clearing and 
Risk of the CFTC, or any successor divisions, or such directors' 
designees, or an appropriate officer, agent, or employee of [Name of 
DSRO], acting in its capacity as our DSRO, upon which you have relied 
after having taken measures in accordance with your applicable policies 
and procedures to assure that such request was provided to you by an 
individual authorized to make such a request.
    In the event that we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Funds held 
in the Account(s), except upon instruction of the Trustee in Bankruptcy 
or pursuant to the Order of the respective U.S. Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, nothing 
contained herein shall be construed as limiting your right to assert any 
right of offset or lien on assets that are not Funds maintained in the 
Account(s), or to impose such charges against us or any proprietary 
account maintained by us with you. Further, it is understood that 
amounts represented by checks, drafts or other items shall not be 
considered to be part of the Account(s) until finally collected. 
Accordingly, checks, drafts and other items credited to the Account(s) 
and subsequently dishonored or otherwise returned to you or reversed, 
for any reason, and any claims relating thereto, including but not 
limited to claims of alteration or forgery, may be charged back to the 
Account(s), and we shall be responsible to you as a general endorser of 
all such items whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the Account(s) 
and the balances maintained therein are in conformity with the Act and 
CFTC regulations without any further inquiry, provided that, in the 
ordinary course of your business as a depository, you have no notice of 
or actual knowledge of a potential violation by us of any provision of 
the Act or the CFTC regulations that relates to the segregation of 
customer funds; and you shall not in any manner not expressly agreed to 
herein be responsible to us for ensuring compliance by us with such 
provisions of the Act and CFTC regulations; however, the aforementioned 
presumption does not affect any obligation you may otherwise have under 
the Act or CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree or 
levy relates in whole or in part to the Account(s). In any event, you 
shall not be liable by reason of any action or omission to act pursuant 
to any such order, judgment, decree or levy, to us or to any other 
person, firm, association or corporation even if thereafter any such 
order, decree, judgment or levy shall be reversed, modified, set aside 
or vacated.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of doubt, 
regardless of a change in the name of either party. This letter 
agreement supersedes and replaces any prior agreement between the 
parties in connection with the Account(s), including but not limited to 
any prior acknowledgment letter agreement, to

[[Page 105]]

the extent that such prior agreement is inconsistent with the terms 
hereof. In the event of any conflict between this letter agreement and 
any other agreement between the parties in connection with the 
Account(s), this letter agreement shall govern with respect to matters 
specific to Section 4d of the Act and the CFTC's regulations thereunder, 
as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to the 
principles of choice of law.
    Please acknowledge that you agree to abide by the requirements and 
conditions set forth above by signing and returning to us the enclosed 
copy of this letter agreement, and that you further agree to provide a 
copy of this fully executed letter agreement directly to the CFTC (via 
electronic means in a format and manner determined by the CFTC) and to 
[Name of DSRO], acting in its capacity as our DSRO. We hereby authorize 
and direct you to provide such copies without further notice to or 
consent from us, no later than three business days after opening the 
Account(s) or revising this letter agreement, as applicable.

[Name of Futures Commission Merchant]
By:
Print Name:
Title:
ACKNOWLEDGED AND AGREED:
[Name of Bank, Trust Company, Derivatives Clearing Organization or 
Futures Commission Merchant]
By:
Print Name:
Title:
Contact Information: [Insert phone number and email address]
DATE:

      Appendix B to Sec.  1.20--Derivatives Clearing Organization 
   Acknowledgment Letter for CFTC Regulation 1.20 Customer Segregated 
                                 Account

[Date]

[Name and Address of Bank or Trust Company]

    We refer to the Segregated Account(s) which [Name of Derivatives 
Clearing Organization] (``we'' or ``our'') have opened or will open with 
[Name of Bank or Trust Company] (``you'' or ``your'') entitled:

[Name of Derivatives Clearing Organization] Futures Customer Omnibus 
Account, CFTC Regulation 1.20 Customer Segregated Account under Sections 
4d(a) and 4d(b) of the Commodity Exchange Act [and, if applicable, ``, 
Abbreviated as [short title reflected in the depository's electronic 
system]'']

Account Number(s): [ ]

(collectively, the ``Account(s)'').

    You acknowledge that we have opened or will open the above-
referenced Account(s) for the purpose of depositing, as applicable, 
money, securities and other property (collectively the ``Funds'') of 
customers who trade commodities, options, swaps, and other products, as 
required by Commodity Futures Trading Commission (``CFTC'') Regulations, 
including Regulation 1.20, as amended; that the Funds held by you, 
hereafter deposited in the Account(s) or accruing to the credit of the 
Account(s), will be separately accounted for and segregated on your 
books from our own funds and from any other funds or accounts held by us 
in accordance with the provisions of the Commodity Exchange Act, as 
amended (the ``Act''), and part 1 of the CFTC's regulations, as amended; 
and that the Funds must otherwise be treated in accordance with the 
provisions of Section 4d of the Act and CFTC regulations thereunder.
    Furthermore, you acknowledge and agree that such Funds may not be 
used by you or by us to secure or guarantee any obligations that we 
might owe to you, and they may not be used by us to secure or obtain 
credit from you. You further acknowledge and agree that the Funds in the 
Account(s) shall not be subject to any right of offset or lien for or on 
account of any indebtedness, obligations or liabilities we may now or in 
the future have owing to you. This prohibition does not affect your 
right to recover funds advanced in the form of cash transfers, lines of 
credit, repurchase agreements or other similar liquidity arrangements 
you make in lieu of liquidating non-cash assets held in the Account(s) 
or in lieu of converting cash held in the Account(s) to cash in a 
different currency.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other information 
regarding or related to the Account(s) from the director of the Division 
of Clearing and Risk of the CFTC or the director of the Division of Swap 
Dealer and Intermediary Oversight of the CFTC, or any successor 
divisions, or such directors' designees, and this letter constitutes the 
authorization and direction of the undersigned on our behalf to release 
the requested information without further notice to or consent from us.
    The parties agree that all actions on your part to respond to the 
above information requests will be made in accordance with, and subject 
to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information request, in order to provide for 
the secure transmission and delivery of the requested information to the 
appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information request from

[[Page 106]]

the director of the Division of Clearing and Risk of the CFTC or the 
director of the Division of Swap Dealer and Intermediary Oversight of 
the CFTC, or any successor divisions, or such directors' designees, upon 
which you have relied after having taken measures in accordance with 
your applicable policies and procedures to assure that such request was 
provided to you by an individual authorized to make such a request.
    In the event that we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Funds held 
in the Account(s), except upon instruction of the Trustee in Bankruptcy 
or pursuant to the Order of the respective U.S. Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, nothing 
contained herein shall be construed as limiting your right to assert any 
right of offset or lien on assets that are not Funds maintained in the 
Account(s), or to impose such charges against us or any proprietary 
account maintained by us with you. Further, it is understood that 
amounts represented by checks, drafts or other items shall not be 
considered to be part of the Account(s) until finally collected. 
Accordingly, checks, drafts and other items credited to the Account(s) 
and subsequently dishonored or otherwise returned to you or reversed, 
for any reason, and any claims relating thereto, including but not 
limited to claims of alteration or forgery, may be charged back to the 
Account(s), and we shall be responsible to you as a general endorser of 
all such items whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the Account(s) 
and the balances maintained therein are in conformity with the Act and 
CFTC regulations without any further inquiry, provided that, in the 
ordinary course of your business as a depository, you have no notice of 
or actual knowledge of a potential violation by us of any provision of 
the Act or the CFTC regulations that relates to the segregation of 
customer funds; and you shall not in any manner not expressly agreed to 
herein be responsible to us for ensuring compliance by us with such 
provisions of the Act and CFTC regulations; however, the aforementioned 
presumption does not affect any obligation you may otherwise have under 
the Act or CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree or 
levy relates in whole or in part to the Account(s). In any event, you 
shall not be liable by reason of any action or omission to act pursuant 
to any such order, judgment, decree or levy, to us or to any other 
person, firm, association or corporation even if thereafter any such 
order, decree, judgment or levy shall be reversed, modified, set aside 
or vacated.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of doubt, 
regardless of a change in the name of either party. This letter 
agreement supersedes and replaces any prior agreement between the 
parties in connection with the Account(s), including but not limited to 
any prior acknowledgment letter agreement, to the extent that such prior 
agreement is inconsistent with the terms hereof. In the event of any 
conflict between this letter agreement and any other agreement between 
the parties in connection with the Account(s), this letter agreement 
shall govern with respect to matters specific to Section 4d of the Act 
and the CFTC's regulations thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to the 
principles of choice of law.
    Please acknowledge that you agree to abide by the requirements and 
conditions set forth above by signing and returning to us the enclosed 
copy of this letter agreement, and that you further agree to provide a 
copy of this fully executed letter agreement directly to the CFTC (via 
electronic means in a format and manner determined by the CFTC). We 
hereby authorize and direct you to provide such copy without further 
notice to or consent from us, no later than three business days after 
opening the Account(s) or revising this letter agreement, as applicable.

[Name of Derivatives Clearing Organization]

By:

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Bank or Trust Company]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

[78 FR 68627, Nov. 14, 2013, as amended at 79 FR 26832, May 12, 2014; 81 
FR 53267, Aug. 12, 2016; 85 FR 4850, Jan. 27, 2020]



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

    All money received directly or indirectly by, and all money and 
equities

[[Page 107]]

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.

    (a) 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.
    (b) Futures customer funds shall not be used to carry trades or 
positions of the same futures customer other than in contracts for the 
purchase of sale of any commodity for future delivery or for options 
thereon traded through the facilities of a designated contract market.
    (c)(1) The undermargined amount for a futures customer's account is 
the amount, if any, by which:
    (i) The total amount of collateral required for that futures 
customer's positions in that account, at the time or times referred to 
in paragraph (c)(2) of this section, exceeds
    (ii) The value of the futures customer funds for that account, as 
calculated in Sec.  1.20(i)(2).
    (2) Each futures commission merchant must compute, based on the 
information available to the futures commission merchant as of the close 
of each business day,
    (i) The undermargined amounts, based on the clearing initial margin 
that will be required to be maintained by that futures commission 
merchant for its futures customers, at each derivatives clearing 
organization of which the futures commission merchant is a member, at 
the point of the daily settlement (as described in Sec.  39.14 of this 
chapter) that will complete during the following business day for each 
such derivatives clearing organization less
    (ii) Any debit balances referred to in Sec.  1.20(i)(4) included in 
such undermargined amounts.
    (3)(i) Prior to the Residual Interest Deadline, such futures 
commission merchant must maintain residual interest in segregated funds 
that is at least equal to the computation set forth in paragraph (c)(2) 
of this section. Where a futures commission merchant is subject to 
multiple Residual Interest Deadlines, prior to each Residual Interest 
Deadline, such futures commission merchant must maintain residual 
interest in segregated funds that is at least equal to the portion of 
the computation set forth in paragraph (c)(2) of this section 
attributable to the clearing initial margin required by the derivatives 
clearing organization making such settlement.
    (ii) A futures commission merchant may reduce the amount of residual 
interest required in paragraph (c)(3)(i) of this section to account for 
payments received from or on behalf of undermargined futures customers 
(less the sum of any disbursements made to or on behalf of such 
customers) between the close of the previous business day and the 
Residual Interest Deadline.
    (4) For purposes of paragraph (c)(2) of this section, a futures 
commission merchant should include, as clearing initial margin, customer 
initial margin that the futures commission merchant will be required to 
maintain, for that futures commission merchant's futures customers, at 
another futures commission merchant.
    (5) Residual Interest Deadline defined. (i) Except as provided in 
paragraph (c)(5)(ii) of this section, the Residual

[[Page 108]]

Interest Deadline shall be the time of the settlement referenced in 
paragraph (c)(2)(i) or, as appropriate, (c)(4), of this section.
    (ii) Starting on November 14, 2014 and during the phase-in period 
described in paragraph (c)(5)(iii) of this section, the Residual 
Interest Deadline shall be 6:00 p.m. Eastern Time on the date of the 
settlement referenced in paragraph (c)(2)(i) or, as appropriate, (c)(4), 
of this section.
    (iii)(A) No later than May 16, 2016, the staff of the Commission 
shall complete and publish for public comment a report addressing, to 
the extent information is practically available, the practicability (for 
both futures commission merchants and customers) of moving that deadline 
from 6:00 p.m. Eastern Time on the date of the settlement referenced in 
paragraph (c)(2)(i) or, as appropriate, (c)(4), of this section to the 
time of that settlement (or to some other time of day), including 
whether and on what schedule it would be feasible to do so, and the 
costs and benefits of such potential requirements. Staff shall, using 
the Commission's Web site, solicit public comment and shall conduct a 
public roundtable regarding specific issues to be covered by such 
report.
    (B) Nine months after publication of the report required by 
paragraph (c)(5)(iii)(A) of this section, the Commission may (but shall 
not be required to) do either of the following:
    (1) Terminate the phase-in period through rulemaking, in which case 
the phase-in period shall end as of a date established by a final rule 
published in the Federal Register, which date shall be no less than one 
year after the date such rule is published; or
    (2) Determine that it is necessary or appropriate in the public 
interest to propose through rulemaking a different Residual Interest 
Deadline. In that event, the Commission shall establish, if necessary, a 
phase-in schedule in the final rule published in the Federal Register.
    (C) If the phase-in schedule has not been terminated or revised 
pursuant to paragraph (c)(5)(iii)(B) of this section, then the Residual 
Interest Deadline shall remain 6:00 p.m. Eastern Time on the date of the 
settlement referenced in paragraph (c)(2)(i) or, as appropriate, (c)(4) 
of this section until such time that the Commission takes further action 
through rulemaking.

[78 FR 68631, Nov. 14, 2013, as amended at 80 FR 15509, Mar. 24, 2015]



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

    (a)(1) The provision in sections 4d(a)(2) and 4d(b) of the Act and 
the provision in Sec.  1.20 that 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 regulations 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 in Sec.  1.25 of this part, as it may deem necessary to ensure any 
and all futures customers' accounts from becoming undersegregated at any 
time.
    (2) If a futures commission merchant discovers at any time that it 
is holding insufficient funds in segregated accounts to meet its 
obligations under Sec. Sec.  1.20 and 1.22, the futures commission 
merchant shall immediately deposit sufficient funds into segregation to 
bring the account into compliance.
    (b) A futures commission merchant may not withdraw funds, except 
withdrawals that are made to or for the benefit of futures customers, 
from an account or accounts holding futures customer funds unless the 
futures commission merchant has prepared the daily segregation 
calculation required by Sec.  1.32 as of the close of business on the 
previous business day. A futures commission merchant that has completed 
its daily segregation calculation may make withdrawals, in addition to 
withdrawals that are made to or for the benefit of futures customers, to 
the extent of its actual residual financial

[[Page 109]]

interest in funds held in segregated futures accounts, adjusted to 
reflect market activity and other events that may have decreased the 
amount of the firm's residual financial interest since the close of 
business on the previous business day, including the withdrawal of 
securities held in segregated safekeeping accounts held by a bank, trust 
company, derivatives clearing organization or other futures commission 
merchant. Such withdrawal(s), however, shall not result in the funds of 
one futures customer being used to purchase, margin or carry the trades, 
contracts or commodity options, or extend the credit of any other 
futures customer or other person.
    (c) Notwithstanding paragraphs (a) and (b) of this section, each 
futures commission merchant shall establish a targeted residual interest 
(i.e., excess funds) that is in an amount that, when maintained as its 
residual interest in the segregated funds accounts, reasonably ensures 
that the futures commission merchant shall remain in compliance with the 
segregated funds requirements at all times. Each futures commission 
merchant shall establish policies and procedures designed to reasonably 
ensure that the futures commission merchant maintains the targeted 
residual amounts in segregated funds at all times. The futures 
commission merchant shall maintain sufficient capital and liquidity, and 
take such other appropriate steps as are necessary, to reasonably ensure 
that such amount of targeted residual interest is maintained as the 
futures commission merchant's residual interest in the segregated funds 
accounts at all times. In determining the amount of the targeted 
residual interest, the futures commission merchant shall analyze all 
relevant factors affecting the amounts in segregated funds from time to 
time, including without limitation various factors, as applicable, 
relating to the nature of the futures commission merchant's business 
including, but not limited to, the composition of the futures commission 
merchant's customer base, the general creditworthiness of the customer 
base, the general trading activity of the customers, the types of 
markets and products traded by the customers, the proprietary trading of 
the futures commission merchant, the general volatility and liquidity of 
the markets and products traded by customers, the futures commission 
merchant's own liquidity and capital needs, and the historical trends in 
customer segregated fund balances and debit balances in customers' and 
undermargined accounts. The analysis and calculation of the targeted 
amount of the future commission merchant's residual interest must be 
described in writing with the specificity necessary to allow the 
Commission and the futures commission merchant's designated self-
regulatory organization to duplicate the analysis and calculation and 
test the assumptions made by the futures commission merchant. The 
adequacy of the targeted residual interest and the process for 
establishing the targeted residual interest must be reassessed 
periodically by the futures commission merchant and revised as 
necessary.
    (d) Notwithstanding any other paragraph of this section, a futures 
commission merchant may not withdraw funds, in a single transaction or a 
series of transactions, that are not made to or for the benefit of 
futures customers from futures accounts if such withdrawal(s) would 
exceed 25 percent of the futures commission merchant's residual interest 
in such accounts as reported on the daily segregation calculation 
required by Sec.  1.32 and computed as of the close of business on the 
previous business day, unless:
    (1) The futures commission merchant's chief executive officer, chief 
finance officer or other senior official that is listed as a principal 
of the futures commission merchant on its Form 7-R and is knowledgeable 
about the futures commission merchant's financial requirements and 
financial position pre-approves in writing the withdrawal, or series of 
withdrawals;
    (2) The futures commission merchant files written notice of the 
withdrawal or series of withdrawals, with the Commission and with its 
designated self-regulatory organization immediately after the chief 
executive officer, chief finance officer or other senior official as 
described in paragraph (d)(1) of this section pre-approves the 
withdrawal or

[[Page 110]]

series of withdrawals. The written notice must:
    (i) Be signed by the chief executive officer, chief finance officer 
or other senior official as described in paragraph (d)(1) of this 
section that pre-approved the withdrawal, and give notice that the 
futures commission merchant has withdrawn or intends to withdraw more 
than 25 percent of its residual interest in segregated accounts holding 
futures customer funds;
    (ii) Include a description of the reasons for the withdrawal or 
series of withdrawals;
    (iii) List the amount of funds provided to each recipient and each 
recipient's name;
    (iv) Include the current estimate of the amount of the futures 
commission merchant's residual interest in the futures accounts after 
the withdrawal;
    (v) Contain a representation by the chief executive officer, chief 
finance officer or other senior official as described in paragraph 
(d)(1) of this section that pre-approved the withdrawal, or series of 
withdrawals, that, after due diligence, to such person's knowledge and 
reasonable belief, the futures commission merchant remains in compliance 
with the segregation requirements after the withdrawal. The chief 
executive officer, chief finance officer or other senior official as 
described in paragraph (d)(1) of this section must consider the daily 
segregation calculation as of the close of business on the previous 
business day and any other factors that may cause a material change in 
the futures commission merchant's residual interest since the close of 
business the previous business day, including known unsecured futures 
customer debits or deficits, current day market activity and any other 
withdrawals made from the futures accounts; and
    (vi) Any such written notice filed with the Commission must 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 instruction issued by or 
approved by the Commission. Any such electronic submission must clearly 
indicate the registrant 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. Any written notice filed must be followed up with direct 
communication to the Regional office of the Commission that has 
supervisory authority over the futures commission merchant whereby the 
Commission acknowledges receipt of the notice; and
    (3) After making a withdrawal requiring the approval and notice 
required in paragraphs (d)(1) and (2) of this section, and before the 
completion of its next daily segregated funds calculation, no futures 
commission merchant may make any further withdrawals from accounts 
holding futures customer funds, except to or for the benefit of futures 
customers, without, for each withdrawal, obtaining the approval required 
under paragraph (d)(1) of this section and filing a written notice in 
the manner specified under paragraph (d)(2) of this section with the 
Commission and its designated self-regulatory organization signed by the 
chief executive officer, chief finance officer, or other senior 
official. The written notice must:
    (i) List the amount of funds provided to each recipient and each 
recipient's name;
    (ii) Disclose the reason for each withdrawal;
    (iii) Confirm that the chief executive officer, chief finance 
officer, or other senior official (and identify of the person if 
different from the person who signed the notice) pre-approved the 
withdrawal in writing;
    (iv) Disclose the current estimate of the futures commission 
merchant's remaining total residual interest in the segregated accounts 
holding futures customer funds after the withdrawal; and
    (v) Include a representation that, after due diligence, to the best 
of the notice signatory's knowledge and reasonable belief the futures 
commission merchant remains in compliance with the segregation 
requirements after the withdrawal.
    (e) If a futures commission merchant withdraws funds from futures 
accounts that are not made to or for the benefit

[[Page 111]]

of futures customers, and the withdrawal causes the futures commission 
merchant to not hold sufficient funds in the futures accounts to meet 
its targeted residual interest, as required to be computed under Sec.  
1.11, the futures commission merchant should deposit its own funds into 
the futures accounts to restore the account balance to the targeted 
residual interest amount by the close of business on the next business 
day, or, if appropriate, revise the futures commission merchant's 
targeted amount of residual interest pursuant to the policies and 
procedures required by Sec.  1.11. Notwithstanding the foregoing, if a 
the futures commission merchant's residual interest in customer accounts 
is less than the amount required by Sec.  1.22 at any particular point 
in time, the futures commission merchant must immediately restore the 
residual interest to exceed the sum of such amounts. Any proprietary 
funds deposited in the futures accounts must be unencumbered and 
otherwise compliant with Sec.  1.25, as applicable.

[78 FR 68632, Nov. 14, 2013, as amended at 79 FR 44126, July 30, 2014]



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 in Sec.  190.01 of 
this chapter.
    (C) The terms and conditions of such an agreement to repurchase must 
be in

[[Page 112]]

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:
    (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

[[Page 113]]

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.
    (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

[[Page 114]]

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 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, or from one or more counterparties under common 
ownership or control, subject to an agreement to resell the securities 
to the counterparty or counterparties, shall not exceed 25 percent of 
total assets held in segregation or under Sec.  30.7 of this chapter 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 to Sec.  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 with Sec.  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.
    (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 with Sec.  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

[[Page 115]]

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 with Sec.  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.  1.26. The futures commission merchant or the derivatives 
clearing organization shall obtain the acknowledgment letter required by 
Sec.  1.26 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 of Sec.  
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

[[Page 116]]

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 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 Federal Reserve Bank, a derivatives clearing 
organization, or the Depository Trust Company in an account that 
complies with the requirements of Sec.  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 under Sec.  1.27 of investments of 
customer funds, and

[[Page 117]]

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 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 may deposit unencumbered securities of the type 
specified in this section, which it owns for its own account, into a 
customer account. A futures commission merchant must include such 
securities, transfers of securities, and disposition of proceeds from 
the sale or maturity of such securities in the record of investments 
required to be maintained by Sec.  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 
in accordance with the provisions of Sec.  1.20 part. For purposes of 
this section and Sec. Sec.  1.27, 1.28, 1.29, and 1.32, securities of 
the type specified by this section that are owned by the futures 
commission merchant and deposited into a customer account shall be 
considered customer funds until such investments are withdrawn from 
segregation in accordance with the provisions of Sec.  1.23. Investments 
permitted by Sec.  1.25 that are owned by the futures commission 
merchant and deposited into a futures customer account pursuant to Sec.  
1.26 shall be considered futures customer funds until such investments 
are withdrawn from segregation in accordance with Sec.  1.23. 
Investments permitted by Sec.  1.25 that are owned by the futures 
commission merchant and deposited into a Cleared Swaps Customer Account, 
as defined in Sec.  22.1 of this chapter, shall be considered Cleared 
Swaps Customer Collateral, as defined in Sec.  22.1 of this chapter, 
until such investments are withdrawn from segregation in accordance with 
Sec.  22.17 of this chapter.

 Appendix to Sec.  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; 78 
FR 68633, Nov. 14, 2013; 86 FR 19419, Apr. 13, 2021]

[[Page 118]]



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

    (a) Each futures commission merchant who invests futures customer 
funds in instruments described in Sec.  1.25, except for investments in 
money market mutual funds, shall separately account for such instruments 
as futures customer funds and segregate such instruments as funds 
belonging to such futures customers in accordance with the requirements 
of Sec.  1.20. Each derivatives clearing organization which invests 
money belonging or accruing to futures customers of its clearing members 
in instruments described in Sec.  1.25, except for investments in money 
market mutual funds, shall separately account for such instruments as 
customer funds and segregate such instruments as customer funds 
belonging to such futures customers in accordance with Sec.  1.20.
    (b) Each futures commission merchant or derivatives clearing 
organization which invests futures customer funds in money market mutual 
funds, as permitted by Sec.  1.25, shall separately account for such 
funds and segregate such funds as belonging to such futures customers. 
Such funds shall be deposited under an account name that clearly shows 
that they belong to futures customers and are segregated as required by 
sections 4d(a) and 4d(b) of the Act and by this part. Each futures 
commission merchant or derivatives clearing organization, upon opening 
such an account, shall obtain and maintain readily accessible in its 
files in accordance with Sec.  1.31, for as long as the account remains 
open, and thereafter for the period provided in Sec.  1.31, a written 
acknowledgment and shall file such acknowledgment in accordance with the 
requirements of Sec.  1.20. In the event such funds are held directly 
with the money market mutual fund or its affiliate, the written 
acknowledgment shall be in the form as set out in appendix A or B to 
this section. In the event such funds are held with a depository, the 
written acknowledgment shall be in the form as set out in appendix A or 
B to Sec.  1.20. In either case, the written acknowledgment shall be 
obtained, provided to the Commission and designated self-regulatory 
organizations, and retained as required under Sec.  1.20.

  Appendix A to Sec.  1.26--Futures Commission Merchant Acknowledgment 
Letter for CFTC Regulation 1.26 Customer Segregated Money Market Mutual 
                              Fund Account

[Date]
[Name and Address of Money Market Mutual Fund]

    We propose to invest funds held by [Name of Futures Commission 
Merchant] (``we'' or ``our'') on behalf of our customers in shares of 
[Name of Money Market Mutual Fund] (``you'' or ``your'') under 
account(s) entitled (or shares issued to):

[Name of Futures Commission Merchant] [if applicable, add ``FCM Customer 
Omnibus Account''] CFTC Regulation 1.26 Customer Segregated Money Market 
Mutual Fund Account under Sections 4d(a) and 4d(b) of the Commodity 
Exchange Act [and, if applicable, ``, Abbreviated as [short title 
reflected in the depository's electronic system]'']
Account Number(s): [ ]
(collectively, the ``Account(s)'').

    You acknowledge that we are holding these funds, including any 
shares issued and amounts accruing in connection therewith 
(collectively, the ``Shares''), for the benefit of customers who trade 
commodities, options, swaps and other products (``Commodity 
Customers''), as required by Commodity Futures Trading Commission 
(``CFTC'') Regulation 1.26, as amended; that the Shares held by you, 
hereafter deposited in the Account(s) or accruing to the credit of the 
Account(s), will be separately accounted for and segregated on your 
books from our own funds and from any other funds or accounts held by us 
in accordance with the provisions of the Commodity Exchange Act, as 
amended (the ``Act''), and part 1 of the CFTC's regulations, as amended; 
and that the Shares must otherwise be treated in accordance with the 
provisions of Section 4d of the Act and CFTC regulations thereunder.
    Furthermore, you acknowledge and agree that such Shares may not be 
used by you or by us to secure or guarantee any obligations that we 
might owe to you, and they may not be used by us to secure or obtain 
credit from you. You further acknowledge and agree that the Shares in 
the Account(s) shall not be subject to any right of offset or lien for 
or on account of any indebtedness, obligations or liabilities we may now 
or in the future have owing to you.
    In addition, you agree that the Account(s) may be examined at any 
reasonable time by the director of the Division of Swap Dealer and 
Intermediary Oversight of the CFTC or the director of the Division of 
Clearing and Risk of the CFTC, or any successor divisions,

[[Page 119]]

or such directors' designees, or an appropriate officer, agent or 
employee of our designated self-regulatory organization (``DSRO''), 
[Name of DSRO], and this letter constitutes the authorization and 
direction of the undersigned on our behalf to permit any such 
examination to take place without further notice to or consent from us.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other account 
information regarding or related to the Account(s) from the director of 
the Division of Swap Dealer and Intermediary Oversight of the CFTC or 
the director of the Division of Clearing and Risk of the CFTC, or any 
successor divisions, or such directors' designees, or an appropriate 
officer, agent, or employee of [Name of DSRO], acting in its capacity as 
our DSRO, and this letter constitutes the authorization and direction of 
the undersigned on our behalf to release the requested information 
without further notice to or consent from us.
    You further acknowledge and agree that, pursuant to the 
authorization granted by us to you previously or herein, you have 
provided, or will provide following the opening of the Account(s), the 
director of the Division of Swap Dealer and Intermediary Oversight of 
the CFTC, or any successor division, or such director's designees, with 
technological connectivity, which may include provision of hardware, 
software, and related technology and protocol support, to facilitate 
direct, read-only electronic access to transaction and account balance 
information for the Account(s). This letter constitutes the 
authorization and direction of the undersigned on our behalf for you to 
establish this connectivity and access if not previously established, 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to the 
above information and access requests will be made in accordance with, 
and subject to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information or access request, in order to 
provide for the secure transmission and delivery of the requested 
information or access to the appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information or access request from the director of the Division of Swap 
Dealer and Intermediary Oversight of the CFTC or the director of the 
Division of Clearing and Risk of the CFTC, or any successor divisions, 
or such directors' designees, or an appropriate officer, agent, or 
employee of [Name of DSRO], acting in its capacity as our DSRO, upon 
which you have relied after having taken measures in accordance with 
your applicable policies and procedures to assure that such request was 
provided to you by an individual authorized to make such a request.
    In the event we become subject to either a voluntary or involuntary 
petition for relief under the U.S. Bankruptcy Code, we acknowledge that 
you will have no obligation to release the Shares held in the 
Account(s), except upon instruction of the Trustee in Bankruptcy or 
pursuant to the Order of the respective U.S. Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, nothing 
contained herein shall be construed as limiting your right to assert any 
right of offset or lien on assets that are not Shares maintained in the 
Account(s), or to impose such charges against us or any proprietary 
account maintained by us with you. Further, it is understood that 
amounts represented by checks, drafts or other items shall not be 
considered to be part of the Account(s) until finally collected. 
Accordingly, checks, drafts and other items credited to the Account(s) 
and subsequently dishonored or otherwise returned to you or reversed, 
for any reason and any claims relating thereto, including but not 
limited to claims of alteration or forgery, may be charged back to the 
Account(s), and we shall be responsible to you as a general endorser of 
all such items whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the Account(s) 
and the balances maintained therein are in conformity with the Act and 
CFTC regulations without any further inquiry, provided that, in the 
ordinary course of your business as a depository, you have no notice of 
or actual knowledge of a potential violation by us of any provision of 
the Act or the CFTC regulations that relates to the segregation of 
customer funds; and you shall not in any manner not expressly agreed to 
herein be responsible to us for ensuring compliance by us with such 
provisions of the Act and CFTC regulations; however, the aforementioned 
presumption does not affect any obligation you may otherwise have under 
the Act or CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree or 
levy relates in whole or in part to the Account(s). In any event, you 
shall not be liable by reason of any action or omission to act pursuant 
to such order, judgment, decree or levy, to us or to any other person, 
firm, association or corporation even if thereafter any such order, 
decree, judgment or levy shall be reversed, modified, set aside or 
vacated.
    We are permitted to invest customers' funds in money market mutual 
funds pursuant to CFTC Regulation 1.25. That rule sets

[[Page 120]]

forth the following conditions, among others, with respect to any 
investment in a money market mutual fund:
    (1) The net asset value of the fund must be computed by 9:00 a.m. of 
the business day following each business day and be made available to us 
by that time;
    (2) The fund must be legally obligated to redeem an interest in the 
fund and make payment in satisfaction thereof by the close of the 
business day following the day on which we make a redemption request 
except as otherwise specified in CFTC Regulation 1.25(c)(5)(ii); and,
    (3) The agreement under which we invest customers' funds must not 
contain any provision that would prevent us from pledging or 
transferring fund shares.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns, and for the avoidance of doubt, 
regardless of a change in the name of either party. This letter 
agreement supersedes and replaces any prior agreement between the 
parties in connection with the Account(s), including but not limited to 
any prior acknowledgment letter agreement, to the extent that such prior 
agreement is inconsistent with the terms hereof. In the event of any 
conflict between this letter agreement and any other agreement between 
the parties in connection with the Account(s), this letter agreement 
shall govern with respect to matters specific to Section 4d of the Act 
and the CFTC's regulations thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to the 
principles of choice of law.
    Please acknowledge that you agree to abide by the requirements and 
conditions set forth above by signing and returning to us the enclosed 
copy of this letter agreement, and that you further agree to provide a 
copy of this fully executed letter agreement directly to the CFTC (via 
electronic means in a format and manner determined by the CFTC) and to 
[Name of DSRO], acting in its capacity as our DSRO, in accordance with 
CFTC Regulation 1.20. We hereby authorize and direct you to provide such 
copies without further notice to or consent from us, no later than three 
business days after opening the Account(s) or revising this letter 
agreement, as applicable.

[Name of Futures Commission Merchant]
By:
Print Name:
Title:
ACKNOWLEDGED AND AGREED:
[Name of Money Market Mutual Fund]
By:
Print Name:
Title:
Contact Information: [Insert phone number and email address]
Date:

      Appendix B to Sec.  1.26--Derivatives Clearing Organization 
Acknowledgment Letter for CFTC Regulation 1.26 Customer Segregated Money 
                       Market Mutual Fund Account

[Date]

[Name and Address of Money Market Mutual Fund]

    We propose to invest funds held by [Name of Derivatives Clearing 
Organization] (``we'' or ``our'') on behalf of customers in shares of 
[Name of Money Market Mutual Fund] (``you'' or ``your'') under 
account(s) entitled (or shares issued to):

[Name of Derivatives Clearing Organization] Futures Customer Omnibus 
Account, CFTC Regulation 1.26 Customer Segregated Money Market Mutual 
Fund Account under Sections 4d(a) and 4d(b) of the Commodity Exchange 
Act [and, if applicable, ``, Abbreviated as [short title reflected in 
the depository's electronic system]'']

Account Number(s): [ ]

(collectively, the ``Account(s)'').

    You acknowledge that we are holding these funds, including any 
shares issued and amounts accruing in connection therewith 
(collectively, the ``Shares''), for the benefit of customers who trade 
commodities, options, swaps and other products, as required by Commodity 
Futures Trading Commission (``CFTC'') Regulation 1.26, as amended; that 
the Shares held by you, hereafter deposited in the Account(s) or 
accruing to the credit of the Account(s), will be separately accounted 
for and segregated on your books from our own funds and from any other 
funds or accounts held by us in accordance with the provisions of the 
Commodity Exchange Act, as amended (the ``Act''), and part 1 of the 
CFTC's regulations, as amended; and that the Shares must otherwise be 
treated in accordance with the provisions of Section 4d of the Act and 
CFTC regulations thereunder.
    Furthermore, you acknowledge and agree that such Shares may not be 
used by you or by us to secure or guarantee any obligations that we 
might owe to you, and they may not be used by us to secure or obtain 
credit from you. You further acknowledge and agree that the Shares in 
the Account(s) shall not be subject to any right of offset or lien for 
or on account of any indebtedness, obligations or liabilities we may now 
or in the future have owing to you.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other information 
regarding or related to the Account(s) from the director of the Division 
of Clearing and Risk of the CFTC or the director of the Division of Swap 
Dealer and Intermediary

[[Page 121]]

Oversight of the CFTC, or any successor divisions, or such directors' 
designees, and this letter constitutes the authorization and direction 
of the undersigned on our behalf to release the requested information 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to the 
above information requests will be made in accordance with, and subject 
to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information request, in order to provide for 
the secure transmission and delivery of the requested information to the 
appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information request from the director of the Division of Clearing and 
Risk of the CFTC or the director of the Division of Swap Dealer and 
Intermediary Oversight of the CFTC, or any successor divisions, or such 
directors' designees, upon which you have relied after having taken 
measures in accordance with your applicable policies and procedures to 
assure that such request was provided to you by an individual authorized 
to make such a request.
    In the event that we become subject to either a voluntary or 
involuntary petition for relief under the U.S. Bankruptcy Code, we 
acknowledge that you will have no obligation to release the Shares held 
in the Account(s), except upon instruction of the Trustee in Bankruptcy 
or pursuant to the Order of the respective U.S. Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, nothing 
contained herein shall be construed as limiting your right to assert any 
right of offset or lien on assets that are not Shares maintained in the 
Account(s), or to impose such charges against us or any proprietary 
account maintained by us with you. Further, it is understood that 
amounts represented by checks, drafts or other items shall not be 
considered to be part of the Account(s) until finally collected. 
Accordingly, checks, drafts and other items credited to the Account(s) 
and subsequently dishonored or otherwise returned to you or reversed, 
for any reason, and any claims relating thereto, including but not 
limited to claims of alteration or forgery, may be charged back to the 
Account(s), and we shall be responsible to you as a general endorser of 
all such items whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the Account(s) 
and the balances maintained therein are in conformity with the Act and 
CFTC regulations without any further inquiry, provided that, in the 
ordinary course of your business as a depository, you have no notice of 
or actual knowledge of a potential violation by us of any provision of 
the Act or the CFTC regulations that relates to the segregation of 
customer funds; and you shall not in any manner not expressly agreed to 
herein be responsible to us for ensuring compliance by us with such 
provisions of the Act and CFTC regulations; however, the aforementioned 
presumption does not affect any obligation you may otherwise have under 
the Act or CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree or 
levy relates in whole or in part to the Account(s). In any event, you 
shall not be liable by reason of any action or omission to act pursuant 
to any such order, judgment, decree or levy, to us or to any other 
person, firm, association or corporation even if thereafter any such 
order, decree, judgment or levy shall be reversed, modified, set aside 
or vacated.
    We are permitted to invest customers' funds in money market mutual 
funds pursuant to CFTC Regulation 1.25. That rule sets forth the 
following conditions, among others, with respect to any investment in a 
money market mutual fund:
    (1) The net asset value of the fund must be computed by 9:00 a.m. of 
the business day following each business day and be made available to us 
by that time;
    (2) The fund must be legally obligated to redeem an interest in the 
fund and make payment in satisfaction thereof by the close of the 
business day following the day on which we make a redemption request 
except as otherwise specified in CFTC Regulation 1.25(c)(5)(ii); and,
    (3) The agreement under which we invest customers' funds must not 
contain any provision that would prevent us from pledging or 
transferring fund shares.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of doubt, 
regardless of a change in the name of either party. This letter 
agreement supersedes and replaces any prior agreement between the 
parties in connection with the Account(s), including but not limited to 
any prior acknowledgment letter agreement, to the extent that such prior 
agreement is inconsistent with the terms hereof. In the event of any 
conflict between this letter agreement and any other agreement between 
the parties in connection with the Account(s), this letter agreement 
shall govern with respect to matters specific to Section 4d of the Act 
and the CFTC's regulations thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to the 
principles of choice of law.

[[Page 122]]

    Please acknowledge that you agree to abide by the requirements and 
conditions set forth above by signing and returning to us the enclosed 
copy of this letter agreement, and that you further agree to provide a 
copy of this fully executed letter agreement directly to the CFTC (via 
electronic means in a format and manner determined by the CFTC) in 
accordance with CFTC Regulation 1.20. We hereby authorize and direct you 
to provide such copy without further notice to or consent from us, no 
later than three business days after opening the Account(s) or revising 
this letter agreement, as applicable.
[Name of Derivatives Clearing Organization]

By:

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Money Market Mutual Fund]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

[78 FR 68634, Nov. 14, 2013, as amended at 79 FR 26833, May 12, 2014]



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.
    (c) Such records shall be retained in accordance with Sec.  1.31. No 
such investments shall be made except in instruments described in Sec.  
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 in Sec.  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  Gains and losses resulting from investment of customer funds.

    (a) The investment of customer funds in instruments described in 
Sec.  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 incremental income or interest income 
resulting therefrom.
    (b) The futures commission merchant or derivatives clearing 
organization, as

[[Page 123]]

applicable, shall bear sole responsibility for any losses resulting from 
the investment of customer funds in instruments described in Sec.  1.25. 
No investment losses shall be borne or otherwise allocated to the 
customers of the futures commission merchant and, if customer funds are 
invested by a derivatives clearing organization in its discretion, to 
the futures commission merchant.

[78 FR 68637, Nov. 14, 2013]



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. A futures commission merchant may not loan funds on an 
unsecured basis to finance customers' trading, nor may a futures 
commission merchant loan funds to customers secured by the customer 
accounts of such customers.

[78 FR 68637, Nov. 14, 2013]

                              Recordkeeping



Sec.  1.31  Regulatory records; retention and production.

    (a) Definitions. For purposes of this section:
    Electronic regulatory records means all regulatory records other 
than regulatory records exclusively created and maintained by a records 
entity on paper.
    Records entity means any person required by the Act or Commission 
regulations in this chapter to keep regulatory records.
    Regulatory records means all books and records required to be kept 
by the Act or Commission regulations in this chapter, including any 
record of any correction or other amendment to such books and records, 
provided that, with respect to such books and records stored 
electronically, regulatory records shall also include:
    (i) Any data necessary to access, search, or display any such books 
and records; and
    (ii) All data produced and stored electronically describing how and 
when such books and records were created, formatted, or modified.
    (b) Duration of retention. Unless specified elsewhere in the Act or 
Commission regulations in this chapter:
    (1) A records entity shall keep regulatory records of any swap or 
related cash or forward transaction (as defined in Sec.  23.200(i) of 
this chapter), other than regulatory records required by Sec.  
23.202(a)(1) and (b)(1)-(3) of this chapter, from the date the 
regulatory record was created until the termination, maturity, 
expiration, transfer, assignment, or novation date of the transaction 
and for a period of not less than five years after such date.
    (2) A records entity that is required to retain oral communications, 
shall keep regulatory records of oral communications for a period of not 
less than one year from the date of such communication.
    (3) A records entity shall keep each regulatory record other than 
the records described in paragraphs (b)(1) or (b)(2) of this section for 
a period of not less than five years from the date on which the record 
was created.
    (4) A records entity shall keep regulatory records exclusively 
created and maintained on paper readily accessible for no less than two 
years. A records entity shall keep electronic regulatory records readily 
accessible for the duration of the required record keeping period.
    (c) Form and manner of retention. Unless specified elsewhere in the 
Act or Commission regulations in this chapter, all regulatory records 
must be created and retained by a records entity in accordance with the 
following requirements:
    (1) Generally. Each records entity shall retain regulatory records 
in a form and manner that ensures the authenticity and reliability of 
such regulatory records in accordance with the

[[Page 124]]

Act and Commission regulations in this chapter.
    (2) Electronic regulatory records. Each records entity maintaining 
electronic regulatory records shall establish appropriate systems and 
controls that ensure the authenticity and reliability of electronic 
regulatory records, including, without limitation:
    (i) Systems that maintain the security, signature, and data as 
necessary to ensure the authenticity of the information contained in 
electronic regulatory records and to monitor compliance with the Act and 
Commission regulations in this chapter;
    (ii) Systems that ensure the records entity is able to produce 
electronic regulatory records in accordance with this section, and 
ensure the availability of such regulatory records in the event of an 
emergency or other disruption of the records entity's electronic record 
retention systems; and
    (iii) The creation and maintenance of an up-to-date inventory that 
identifies and describes each system that maintains information 
necessary for accessing or producing electronic regulatory records.
    (d) Inspection and production of regulatory records. Unless 
specified elsewhere in the Act or Commission regulations in this 
chapter, a records entity, at its own expense, must produce or make 
accessible for inspection all regulatory records in accordance with the 
following requirements:
    (1) Inspection. All regulatory records shall be open to inspection 
by any representative of the Commission or the United States Department 
of Justice.
    (2) Production of paper regulatory records. A records entity must 
produce regulatory records exclusively created and maintained on paper 
promptly upon request of a Commission representative.
    (3) Production of electronic regulatory records. (i) A request from 
a Commission representative for electronic regulatory records will 
specify a reasonable form and medium in which a records entity must 
produce such regulatory records.
    (ii) A records entity must produce such regulatory records in the 
form and medium requested promptly, upon request, unless otherwise 
directed by the Commission representative.
    (4) Production of original regulatory records. A records entity may 
provide an original regulatory record for reproduction, which a 
Commission representative may temporarily remove from such entity's 
premises for this purpose. Upon request of the records entity, the 
Commission representative shall issue a receipt for any original 
regulatory record received. At the request of a Commission 
representative, a records entity shall, upon the return thereof, issue a 
receipt for the original regulatory record returned by such 
representative.

[82 FR 24486, May 30, 2017]



Sec.  1.32  Reporting of segregated account computation and details 
regarding the holding of futures customer funds.

    (a) Each futures commission merchant must compute as of the close of 
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 
deductions (i.e., ``securities haircuts'') as set forth in Rule 15c3-
1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR 241.15c3-
1(c)(2)(vi)), held for the same futures customer's account. Futures 
commission merchants that establish and enforce written policies and 
procedures to assess the credit risk of commercial paper, convertible 
debt instruments, or nonconvertible debt instruments in accordance with 
Rule 240.15c3-1(c)(2)(vi)

[[Page 125]]

of the Securities and Exchange Commission (17 CFR 240.15c3-1(c)(2)(vi)) 
may apply the lower haircut percentages specified in Rule 240.15c3-
1(c)(2)(vi) for such commercial paper, convertible debt instruments and 
nonconvertible debt instruments. 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) Each futures commission merchant is required to document its 
segregation computation required by paragraph (a) of this section by 
preparing a Statement of Segregation Requirements and Funds in 
Segregation for Customers Trading on U.S. Commodity Exchanges contained 
in the Form 1-FR-FCM as of the close of each business day. Nothing in 
this paragraph shall affect the requirement that a futures commission 
merchant at all times maintain sufficient money, securities and property 
to cover its total obligations to all futures customers, in accordance 
with Sec.  1.20.
    (d) Each futures commission merchant is required to submit to the 
Commission and to the firm's designated self-regulatory organization the 
daily Statement of Segregation Requirements and Funds in Segregation for 
Customers Trading on U.S. Commodity Exchanges required by paragraph (c) 
of this section by noon the following business day.
    (e) Each futures commission merchant shall file the Statement of 
Segregation Requirements and Funds in Segregation for Customers Trading 
on U.S. Commodity Exchanges required by paragraph (c) of this section in 
an electronic format using a form of user authentication assigned in 
accordance with procedures established or approved by the Commission.
    (f) Each futures commission merchant is required to submit to the 
Commission and to the firm's designated self-regulatory organization a 
report listing the names of all banks, trust companies, futures 
commission merchants, derivatives clearing organizations, or any other 
depository or custodian holding futures customer funds as of the 
fifteenth day of the month, or the first business day thereafter, and 
the last business day of each month. This report must include:
    (1) The name and location of each entity holding futures customer 
funds;
    (2) The total amount of futures customer funds held by each entity 
listed in paragraph (f)(1) of this section; and
    (3) The total amount of cash and investments that each entity listed 
in paragraph (f)(1) of this section holds for the futures commission 
merchant. The futures commission merchant must report the following 
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 of a State (municipal securities);
    (iii) General obligation issued by any enterprise sponsored by the 
United States (government sponsored enterprise securities);
    (iv) Certificates of deposit issued by a bank;
    (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;
    (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; 
and
    (vii) Interests in money market mutual funds.
    (g) Each futures commission merchant must report the total amount of 
futures customer-owned securities held by the futures commission 
merchant as margin collateral and must list the names and locations of 
the depositories holding such margin collateral.

[[Page 126]]

    (h) Each futures commission merchant must report the total amount of 
futures customer funds that have been used to purchase securities under 
agreements to resell the securities (reverse repurchase transactions).
    (i) Each futures commission merchant must report which, if any, of 
the depositories holding futures customer funds under paragraph (f)(1) 
of this section are affiliated with the futures commission merchant.
    (j) Each futures commission merchant shall file the detailed list of 
depositories required by paragraph (f) of this section by 11:59 p.m. the 
next business day in an electronic format using a form of user 
authentication assigned in accordance with procedures established or 
approved by the Commission.
    (k) Each futures commission merchant shall retain its daily 
segregation computation and the Statement of Segregation Requirements 
and Funds in Segregation for Customers Trading on U.S. Commodity 
Exchanges required by paragraph (c) of this section, and its detailed 
list of depositories required by paragraph (f) of this section, together 
with all supporting documentation, in accordance with the requirements 
of Sec.  1.31.

[66 FR 41133, Aug. 7, 2001, as amended at 68 FR 5551, Feb. 4, 2003; 77 
FR 66323, Nov. 2, 2012; 78 FR 68637, Nov. 14, 2013]



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 by Sec.  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 by Sec.  1.3, 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;
    (iii) All open commodity option and foreign option positions marked 
to the market and the amount each position is in the money, if any; and
    (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.
    (3) For each Cleared Swaps Customer position--
    (i) The Cleared Swaps, as Sec.  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.

[[Page 127]]

    (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 by Sec.  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) 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 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 by Sec.  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 with Sec.  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

[[Page 128]]

this section, and by Sec.  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 in Sec.  1.3, 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 with Sec.  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; 83 FR 7995, Feb. 23, 2018; 83 FR 30534, June 29, 
2018]



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 of Sec.  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 of Sec.  1.31.
    (b) With respect to commodity option transactions, each futures 
commission merchant shall prepare, and retain in accordance with the 
requirements of Sec.  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 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) Futures commission merchants, retail foreign 
exchange dealers, and certain introducing brokers. Each futures 
commission merchant, retail foreign exchange dealer, and introducing 
broker that has generated over the preceding three years more than $5 
million in aggregate gross revenues from its activities as an 
introducing broker, shall:
    (i) Keep full, complete, and systematic records (including all 
pertinent

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data and memoranda) of all transactions relating to its business of 
dealing in commodity interests and related cash or forward transactions, 
which shall include 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 (for purposes of this section, all records 
described in this paragraph (a)(1)(i) are referred to as ``commodity 
interest and related records'');
    (ii) If such person is a member of a designated contract market or 
swap execution facility, retain and produce for inspection 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, all records described 
in this paragraph (a)(1)(ii) are referred to as ``original source 
documents,'' and, together with commodity interest and related records, 
``transaction records''); and
    (iii) Keep 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 any related cash or forward transactions (but not oral 
communications that lead solely to the execution of a related cash or 
forward transaction), whether transmitted by telephone, voicemail, 
facsimile, instant messaging, chat rooms, electronic mail, mobile 
device, or other digital or electronic media (for purposes of this 
section, all communications described in this paragraph (a)(1)(iii) are 
referred to as ``oral pre-trade communications'' if transmitted orally 
or as ``written pre-trade communications'' if transmitted in writing, 
and all such communications are referred to collectively as ``pre-trade 
communications'').
    (2) Registered members of designated contract markets or swap 
execution facilities. Each introducing broker that is not subject to 
paragraph (a)(1) of this section and is a member of a designated 
contract market or swap execution facility, and each member of a 
designated contract market or swap execution facility that is registered 
or required to be registered with the Commission as a floor trader, 
commodity pool operator, commodity trading advisor, swap dealer, or 
major swap participant, shall keep:
    (i) All transaction records; and
    (ii) All written pre-trade communications.
    (3) Other introducing brokers. Each introducing broker that is not 
subject to paragraph (a)(1) or (2) of this section shall keep:
    (i) All commodity interest and related records; and
    (ii) All written pre-trade communications.
    (4) Floor broker members of designated contract markets or swap 
execution facilities. Each member of a designated contract market or 
swap execution facility that is registered or required to be registered 
with the Commission as a floor broker shall keep:
    (i) All transaction records;
    (ii) All written pre-trade communications; and
    (iii) All oral pre-trade communications that lead to the purchase or 
sale of any commodity for future delivery, security futures product, 
swap, or commodity option authorized under section 4c of the Commodity 
Exchange Act for the account of any person other than such floor broker.
    (5) Form and manner. All records required to be kept pursuant to 
paragraphs (a)(1), (a)(2), (a)(3), and (a)(4) of this section, other 
than pre-trade communications, shall be kept in a form and manner that 
allows for the identification of a particular transaction.
    (6) Unregistered members of designated contract markets or swap 
execution facilities. Each 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, shall keep all 
transaction records; provided that such records need not include 
transmissions by short message service (SMS) or multimedia messaging 
service (MMS).

[[Page 130]]

    (7) Definition of related cash or forward transaction. For purposes 
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.
    (8) Other requirements. 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 
of Sec.  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.
    (9) Alternative Compliance Schedule. (i) The Commission may in its 
discretion establish an alternative compliance schedule for the 
requirement to record oral communications under paragraph (a)(1) or (4) 
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) or (4) 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)(9)(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)(9)(i) 
of this section.
    (iv) Relief granted under paragraph (a)(9)(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:

[[Page 131]]

    (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 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

[[Page 132]]

major swap participants pursuant to Sec.  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 under Sec.  
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 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 in Sec.  
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 under Sec.  
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.

[[Page 133]]

    (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 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 of Sec.  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

[[Page 134]]

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;
    (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

[[Page 135]]

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 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

[[Page 136]]

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 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 in Sec.  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; 80 
FR 80255, Dec. 24, 2015; 82 FR 24487, May 30, 2017]



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 in Sec.  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 in Sec.  
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

[[Page 137]]

trust company acting as custodian for such derivatives clearing 
organization, shall maintain, as provided in Sec.  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 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 in Sec.  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

[[Page 138]]

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 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:

[[Page 139]]

    (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]

                              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.  1.41  Designation of hedging accounts.

    (a) A futures commission merchant must provide an opportunity to 
each customer, when it first opens a futures account, foreign futures 
account or cleared swaps account with such futures commission merchant, 
to designate such account as a hedging account. The futures commission 
merchant must indicate prominently in the accounting records in which it 
maintains open trade balances whether, for each customer account, the 
account is designated as a hedging account.
    (b) A futures commission merchant may permit the customer to open an 
account as a hedging account only if it obtains the customer's written 
representation that the customer's trading of futures or options on 
futures, foreign futures or options on foreign futures, or cleared swaps 
(as applicable) in the account constitutes hedging as such term may be 
defined under any relevant Commission regulation or rule of any clearing 
organization, designated contract market, swap execution facility or 
foreign board of trade.
    (c) The requirements set forth in paragraphs (a) and (b) of this 
section do not apply to a futures commission merchant with respect to 
any commodity contract account that the futures commission merchant 
opened prior to May 13, 2021. The futures commission merchant may 
continue to designate as a hedging account any account with respect to 
which the futures commission merchant received written hedging 
instructions from the customer in accordance with former Sec.  190.06(d) 
of this chapter.
    (d) A futures commission merchant may designate an existing futures 
account, foreign futures account or cleared swaps account of a 
particular customer as a hedging account, provided that it has obtained 
the representation set out in paragraph (b) of this section from such 
customer.

[86 FR 19419, Apr. 13, 2021]



Sec.  1.42  Delivery accounts.

    In connection with the making or taking of delivery of a commodity 
under a commodity contract whose terms require settlement via physical 
delivery, if a futures commission merchant facilitates or effects the 
transfer of the physical delivery property and

[[Page 140]]

payment therefor on behalf of the customer, and does so outside the 
futures account, foreign futures account or cleared swaps account in 
which the commodity contract was held, the futures commission merchant 
must do so in a delivery account, provided, however, that when the 
commodity subject to delivery is a security, a futures commission 
merchant may, consistent with any applicable regulatory requirements, do 
so in a securities account.

[86 FR 19419, Apr. 13, 2021]



Sec.  1.43  Letters of credit as collateral.

    A futures commission merchant shall not accept a letter of credit as 
collateral unless such letter of credit may be exercised, through its 
stated date of expiry, under the following conditions, regardless of 
whether the customer posting that letter of credit is in default in any 
obligation:
    (a) In the event that an order for relief under chapter 7 of the 
Bankruptcy Code or a protective decree pursuant to section 5(b)(1) of 
SIPA is entered with respect to the futures commission merchant, or if 
the FDIC is appointed as receiver for the futures commission merchant 
pursuant to 12 U.S.C. 5382(a), the trustee for that futures commission 
merchant (or, as applicable, FDIC) may draw upon such letter of credit, 
in full or in part, in accordance with Sec.  190.04(d)(3) of this 
chapter.
    (b) If the letter of credit is passed through to a clearing 
organization, then in the event that an order for relief under chapter 7 
of the Bankruptcy Code is entered with respect to the clearing 
organization, or if the FDIC is appointed as receiver for the clearing 
organization pursuant to 12 U.S.C. 5382(a), the trustee for that 
clearing organization (or, as applicable, FDIC) may draw upon such 
letter of credit, in full or in part, in accordance with Sec.  
190.04(d)(3) of this chapter.
    (c) A futures commission merchant shall not accept a letter of 
credit from a customer as collateral if it has any agreement with the 
customer that is inconsistent with this section.

[86 FR 19419, Apr. 13, 2021]



Sec. Sec.  1.44-1.45  [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

[[Page 141]]

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 
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:

[[Page 142]]

    (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 of Sec.  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 in Sec.  1.3; 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 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 in Sec.  1.33(d) by 
means of electronic transmission, in accordance with Sec.  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 affecting Sec.  1.46, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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

[[Page 143]]

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 
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) For purposes of this section, the following terms are defined as 
follows:
    (1) Examinations expert is defined as a Nationally recognized 
accounting and auditing firm with substantial expertise in audits of 
futures commission merchants, risk assessment and internal control 
reviews, and is an accounting and auditing firm that is acceptable to 
the Commission; and
    (2) Self-regulatory organization means a contract market (as defined 
in Sec.  1.3) or a registered futures association under section 17 of 
the Act. The term ``self-regulatory organization'' for purpose of this 
section does not include a swap execution facility (as defined in Sec.  
1.3).
    (b)(1) Each self-regulatory organization must adopt rules 
prescribing minimum financial and related reporting

[[Page 144]]

requirements for members who are registered futures commission merchants 
or registered retail foreign exchange dealers. Each self-regulatory 
organization other than a contract market must adopt rules prescribing 
minimum financial and related reporting requirements for members who are 
registered introducing brokers. The self-regulatory organization's 
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, 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, that 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 with Sec.  1.10(h)) a copy of their Financial and Operational 
Combined Uniform Single Report under the Securities Exchange Act of 1934 
(``FOCUS Report''), Part II, Part IIA, or Part II CSE, as applicable, in 
lieu of Form 1-FR; provided, further, that such self-regulatory 
organization must require such member registrants to provide all 
information in Form 1-FR that is not included in the FOCUS Report Part 
II, Part IIA, or Part CSE provided by such member registrant. The 
definition of adjusted net capital must be the same as that prescribed 
in Sec.  1.17(c) for futures commission merchants and introducing 
brokers, and Sec.  5.7(b)(2) of this chapter for futures commission 
merchants offering or engaging in retail forex transactions and for 
retail foreign exchange dealers.
    (2) In addition to the requirements set forth in paragraph (b)(1) of 
this section, each self-regulatory organization that has a futures 
commission merchant member registrant must adopt rules prescribing risk 
management requirements for futures commission merchant member 
registrants that shall be the same as, or more stringent than, the 
requirements contained in Sec.  1.11.
    (c)(1) Each self-regulatory organization must establish and operate 
a supervisory program that includes written policies and procedures 
concerning the application of such supervisory program in the 
examination of its member registrants for the purpose of assessing 
whether each member registrant is in compliance with the applicable 
self-regulatory organization and Commission regulations governing 
minimum net capital and related financial requirements, the obligation 
to segregate customer funds, risk management requirements, financial 
reporting requirements, recordkeeping requirements, and sales practice 
and other compliance requirements. The supervisory program also must 
address the following elements:
    (i) Adequate levels and independence of examination staff. A self-
regulatory organization must maintain staff of an adequate size, 
training, and experience to effectively implement a supervisory 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.
    (ii) 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.
    (iii) 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

[[Page 145]]

organization and Commission requirements.
    (iv) On-site examinations. (A) 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 shall 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, 
customer fund protection, recordkeeping, and reporting requirements.
    (B) A self-regulatory organization other than a contract market 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, which takes into consideration the time elapsed 
since the self-regulatory organization's previous examination of the 
introducing broker.
    (C) A self-regulatory organization must conduct on-site examinations 
of member registrants in accordance with uniform examination programs 
and procedures that have been submitted to the Commission.
    (v) 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.
    (2) In addition to the requirements set forth in paragraph (c)(1) of 
this section, the supervisory program of a self-regulatory organization 
that has a registered futures commission merchant member must satisfy 
the following requirements:
    (i) The supervisory program must set forth in writing the 
examination standards that the self-regulatory organization must apply 
in its examination of its registered futures commission merchant member. 
The supervisory program must be based on controls testing and 
substantive testing, and must address all areas of risk to which the 
futures commission merchant can reasonably be foreseen to be subject. 
The supervisory program must be based on an understanding of the 
internal control environment to determine the nature, timing and extent 
of the controls and substantive testing to be performed. The 
determination as to which elements of the supervisory program are to be 
performed on any examination must be based on the risk profile of each 
registered futures commission merchant member.
    (ii) The supervisory program must, at a minimum, have examination 
standards addressing the following:
    (A) The ethics of an examiner;
    (B) The independence of an examiner;
    (C) The supervision, review, and quality control of an examiner's 
work product;
    (D) The evidence and documentation to be reviewed and retained in 
connection with an examination;
    (E) The sampling size and techniques used in an examination;
    (F) The examination risk assessment process;
    (G) The examination planning process;
    (H) Materiality assessment;
    (I) Quality control procedures to ensure that the examinations 
maintain the level of quality expected;
    (J) Communications between an examiner and the regulatory oversight 
committee, or the functional equivalent of the regulatory oversight 
committee, of the self-regulatory organization of which the futures 
commission merchant is a member;
    (K) Communications between an examiner and a futures commission 
merchant's audit committee of the board of directors or other similar 
governing body;
    (L) Analytical review procedures;
    (M) Record retention; and
    (N) Required items for inclusion in the examination report, such as 
repeat violations, material items, and high risk issues. The examination 
report is

[[Page 146]]

intended solely for the information and use of the self-regulatory 
organizations and the Commission, and is not intended to be and should 
not be used by any other person or entity.
    (iii)(A) Prior to the initial implementation of the supervisory 
program, a self-regulatory organization must engage an examinations 
expert to evaluate the examination standards for consistency with 
auditing standards issued by the Public Company Accounting Oversight 
Board as such auditing standards are applicable in the context of the 
self-regulatory organization's examination of its futures commission 
merchant members. At least once every five years after the initial 
implementation of the supervisory program, a self-regulatory 
organization must engage an examinations expert to evaluate the 
examination standards for consistency with any new or amended auditing 
standards issued by the Public Company Accounting Oversight Board since 
the previous review performed by the examinations expert. At the 
conclusion of each evaluation, a self-regulatory organization must 
obtain a written report from the examinations expert in accordance with 
paragraph (c)(2)(iii)(C) of this section.
    (B) Notwithstanding paragraph (c)(2)(iii)(A) of this section, a 
self-regulatory organization must review any new or amended auditing 
standards issued by the Public Company Accounting Oversight Board, and 
must revise its examination standards promptly to reflect any changes in 
such auditing standards that are applicable in the context of the self-
regulatory organization's examination of its futures commission merchant 
members. A self-regulatory organization must engage an examinations 
expert to evaluate any material revisions that the self-regulatory 
organization makes to the examination standards to conform such 
standards with the Public Company Accounting Oversight Board's auditing 
standards, or if directed to engage an examinations expert by the 
Director of the Division of Swap Dealer and Intermediary Oversight. At 
the conclusion of each review, a self-regulatory organization must 
obtain a written report from the examinations expert in accordance with 
paragraph (c)(2)(iii)(C) of this section.
    (C) At the conclusion of the examinations expert's engagement 
pursuant to paragraph (c)(2)(iii)(A) or (B) of this section, the self-
regulatory organization must obtain from the examinations expert a 
written report on findings and recommendations issued under the 
consulting services standards of the American Institute of Certified 
Public Accountants. The self-regulatory organization must provide the 
Director of the Division of Swap Dealer and Intermediary Oversight with 
a copy of the examinations expert's written report, and the self-
regulatory organization's written responses to any of the examinations 
expert's findings and recommendations, within thirty days of the receipt 
thereof. Upon resolution of any questions or comments raised by the 
Division of Swap Dealer and Intermediary Oversight, and upon written 
notice from the Division of Swap Dealer and Intermediary Oversight that 
it has no further comments or questions on the examinations standards as 
amended (by reason of the examinations expert's proposals, consideration 
of the Division of Swap Dealer and Intermediary Oversight's questions or 
comments, or otherwise), the self-regulatory organization shall commence 
applying such examinations standards for examining its registered 
futures commission merchant members for all examinations conducted with 
an ``as of'' date later than the date of the Division of Swap Dealer and 
Intermediary's written notification.
    (iv) The supervisory program must require the self-regulatory 
organization to report to its risk and/or audit committee of the board 
of directors, or a functional equivalent committee, with timely reports 
of the activities and findings of the supervisory program to assist the 
risk and/or audit committee of the board of directors, or a functional 
equivalent committee, to fulfill its responsibility of overseeing the 
examination function.
    (v) The examinations expert's written report, the self-regulatory 
organization's response, if any, as well as any information concerning 
the supervisory program is confidential.

[[Page 147]]

    (d)(1) 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 function of:
    (i) Monitoring and examining for compliance with the minimum 
financial and related reporting requirements and risk management 
requirements, including policies and procedures relating to the receipt, 
holding, investing and disbursement of customer funds, adopted by such 
self-regulatory organizations and the Commission in accordance with 
paragraphs (b) and (c) of this section; and
    (ii) Receiving the financial reports and notices necessitated by 
such minimum financial and related reporting requirements; provided, 
however, that the self-regulatory organization that delegates the 
functions set forth in this paragraph (d)(1) shall remain responsible 
for its member registrants' compliance with the regulatory obligations, 
and if such self-regulatory organization becomes aware that a delegated 
function is not being performed as required under this section, the 
self-regulatory organization shall promptly take any necessary steps to 
address any noncompliance.
    (2) If a plan established pursuant to paragraph (d)(1) of this 
section applies to any registered futures commission merchant, then such 
plan must include the following elements:
    (i) The Joint Audit Committee. The self-regulatory organizations 
that choose to participate in the plan shall form a Joint Audit 
Committee, consisting of all self-regulatory organizations in the plan 
as members. The members of the Joint Audit Committee shall establish, 
operate and maintain a Joint Audit Program in accordance with the 
requirements of this section to ensure an effective and a high quality 
program for examining futures commission merchants, to designate the 
designated self-regulatory organizations that will be responsible for 
the examinations of futures commission merchants pursuant to the Joint 
Audit Program, and to satisfy such additional obligations set forth in 
this section in order to facilitate the examinations of futures 
commission merchants by their respective designated self-regulatory 
organizations.
    (ii) The Joint Audit Program. The Joint Audit Program must, at 
minimum, satisfy the following requirements.
    (A) The purpose of the Joint Audit Program must be to assess whether 
each registered futures commission merchant member of the Joint Audit 
Committee self-regulatory organization members is in compliance with the 
Joint Audit Program and Commission regulations governing minimum net 
capital and related financial requirements, the obligation to segregate 
customer funds, risk management requirements, including policies and 
procedures relating to the receipt, holding, investment, and 
disbursement of customer funds, financial reporting requirements, 
recordkeeping requirements, and sales practice and other compliance 
requirements.
    (B) The Joint Audit Program must include written policies and 
procedures concerning the application of the Joint Audit Program in the 
examination of the registered futures commission merchant members of the 
Joint Audit Committee self-regulatory organization members.
    (C)(1) Adequate levels and independence of examination staff. A 
designated self-regulatory organization must maintain staff of an 
adequate size, training, and experience to effectively implement the 
Joint Audit Program. Staff of the designated 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 Joint Audit Program. The designated self-regulatory 
organization must provide annual ethics training to all staff with 
responsibilities for the Joint Audit Program.
    (2) Ongoing surveillance. A designated self-regulatory 
organization's ongoing surveillance of futures commission merchant 
member registrants over which it has oversight responsibilities

[[Page 148]]

must include the review and analysis of financial reports and regulatory 
notices filed by such member registrants with the designated self-
regulatory organization.
    (3) High-risk firms. The Joint Audit Program must include procedures 
for identifying futures commission merchant member registrants over 
which it has oversight responsibilities 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. A designated self-regulatory organization 
must conduct routine periodic on-site examinations of futures commission 
merchant member registrants over which it has oversight 
responsibilities. Such member registrants must be subject to on-site 
examinations no less frequently than once every eighteen months. A 
designated self-regulatory organization shall 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 must include an assessment of whether the registrant 
is in compliance with applicable Commission and self-regulatory 
organization minimum capital, customer fund protection, recordkeeping, 
and reporting requirements. A designated self-regulatory organization 
must conduct on-site examinations of futures commission merchant 
registrants in accordance with the Joint Audit Program.
    (D) The Joint Audit Committee members must adequately document all 
aspects of the operation of the Joint Audit 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.
    (E) The Joint Audit Program must set forth in writing the 
examination standards that a designated self-regulatory organization 
must apply in its examination of a registered futures commission 
merchant. The Joint Audit Program must be based on controls testing and 
substantive testing, and must address all areas of risk to which the 
futures commission merchant can reasonably be foreseen to be subject. 
The Joint Audit Program must be based on an understanding of the 
internal control environment to determine the nature, timing and extent 
of the controls and substantive testing to be performed. The 
determination as to which elements of the Joint Audit Program are to be 
performed on any examination must be based on the risk profile of each 
registered futures commission merchant.
    (F) The Joint Audit Program must include examination standards 
addressing the items listed in paragraph (c)(2)(ii) of this section.
    (G)(1) Prior to the initial implementation of the Joint Audit 
Program, the Joint Audit Committee must engage an examinations expert to 
evaluate the examination standards for consistency with auditing 
standards issued by the Public Company Accounting Oversight Board as 
such auditing standards are applicable in the context of the Joint Audit 
Committee's examination of its futures commission merchant members. At 
least once every five years after the initial implementation of the 
Joint Audit Program, the Joint Audit Committee must engage an 
examinations expert to evaluate the examination standards for 
consistency with any new or amended auditing standards issued by the 
Public Company Accounting Oversight Board since the previous review 
performed by the examinations expert. At the conclusion of each review, 
the Joint Audit Committee must obtain a written report from the 
examinations expert in accordance with paragraph (d)(2)(ii)(G)(3) of 
this section.
    (2) Notwithstanding paragraph (d)(2)(ii)(G)(1) of this section, the 
Joint Audit Committee must review any new or amended auditing standards 
issued

[[Page 149]]

by the Public Company Accounting Oversight Board, and must revise its 
examination standards promptly to reflect any changes in such auditing 
standards that are applicable in the context of the Joint Audit 
Committee's examination of its futures commission merchant members. The 
Joint Audit Committee must engage an examinations expert to evaluate any 
material revisions that the Joint Audit Committee makes to the 
examination standards to conform such standards with the Public Company 
Accounting Oversight Board's auditing standards, or if directed to 
engage an examinations expert by the Director of the Division of Swap 
Dealer and Intermediary Oversight. The Joint Audit Committee must obtain 
a written report from the examinations expert in accordance with 
paragraph (d)(2)(ii)(G)(3) of this section.
    (3) At the conclusion of the examinations expert's engagement 
pursuant to paragraph (d)(2)(ii)(G)(1) or (2) of this section, the Joint 
Audit Committee must obtain from the examinations expert a written 
report on findings and recommendations issued under the consulting 
services standards of the American Institute of Certified Public 
Accountants. The Joint Audit Committee must provide the Director of the 
Division of Swap Dealer and Intermediary Oversight with a copy of the 
examinations expert's written report, and the Joint Audit Committee's 
written responses to any of the examinations expert's findings and 
recommendations, within thirty days of the receipt thereof. Upon 
resolution of any questions or comments raised by the Division of Swap 
Dealer and Intermediary Oversight, and upon written notice from the 
Division of Swap Dealer and Intermediary Oversight that it has no 
further comments or questions on the examinations standards as amended 
(by reason of the examinations expert's proposals, consideration of the 
Division of Swap Dealer and Intermediary Oversight's questions or 
comments, or otherwise), the Joint Audit Committee shall commence 
applying such examinations standards for examining its registered 
futures commission merchant members for all examinations conducted with 
an ``as of'' date later than the date of the Division of Swap Dealer and 
Intermediary's written notification.
    (H) The Joint Audit Program must require the Joint Audit Committee 
members to report to their respective risk and/or audit committee of 
their respective board of directors, or a functional equivalent 
committee, with timely reports of the activities and findings of the 
Joint Audit Program to assist the risk and/or audit committee of the 
board of directors, or a functional equivalent committee, to fulfill its 
responsibility of overseeing the examination function.
    (I) The examinations expert's written report, the Joint Audit 
Committee's response, if any, as well as any information concerning the 
supervisory program is confidential.
    (iii) Meetings of the Joint Audit Committee. (A) The Joint Audit 
Committee members must meet at least once each year. During such 
meetings, the Joint Audit Committee members shall consider revisions to 
the Joint Audit Program as a result of regulatory changes, revisions to 
the examination standards resulting from new or amended auditing 
standards issued by the Public Company Accounting Oversight Board, or 
the results of an examinations expert's review.
    (B) In addition to the items considered in paragraph (d)(2)(iii)(A) 
of this section, the Joint Audit Committee members must consider the 
following items during the meetings:
    (1) Coordinating and sharing information between the Joint Audit 
Committee members, including issues and industry concerns in connection 
with examinations of futures commission merchants;
    (2) Identifying industry regulatory reporting issues and financial 
and operational internal control issues and modifying the Joint Audit 
Program accordingly;
    (3) Issuing risk alerts for futures commission merchants and/or 
designated self-regulatory organization examiners on an as-needed basis;
    (4) Responding to industry issues; and
    (5) Providing industry feedback to Commission proposals.

[[Page 150]]

    (C) Minutes must be taken of all meetings and distributed to all 
members on a timely basis.
    (D) The Director of the Division of Swap Dealer and Intermediary 
Oversight must receive timely prior notice of each meeting, have the 
right to attend and participate in each meeting and receive written 
copies of the minutes required pursuant to paragraph (d)(2)(iii)(C) of 
this section, respectively.
    (3) The plan referenced in paragraph (d)(1) of this section shall 
not be effective without Commission approval pursuant to paragraph (h) 
of this section.
    (e) Any plan filed under this section may contain provisions for the 
allocation of expenses reasonably incurred by designated self-regulatory 
organizations among the self-regulatory organizations participating in 
such a plan.
    (f) A plan's designated self-regulatory organizations must report 
to:
    (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 or examine has been delegated to 
such designated self-regulatory organization under this section; and
    (2) The Director of the Division of Swap Dealer and Intermediary 
Oversight of 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.
    (g) The Joint Audit Committee members may, among themselves, 
establish programs to provide access to any necessary financial or 
related information.
    (h) 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 examining for 
compliance with the minimum financial rules of the Commission and 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.
    (i) After the Commission has approved a plan, or part thereof, under 
paragraph (h) of this section, a self-regulatory organization delegating 
the functions described in paragraph (d)(1) of this section must notify 
each of its members that are subject to such a plan:
    (1) Of the limited scope of the delegating self-regulatory 
organization's responsibility for such a member's compliance with the 
Commission's and self-regulatory organization's 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; provided, 
however, that the self-regulatory organization that delegates, pursuant 
to paragraph (d) of this section, the functions set forth in paragraphs 
(b) and (c) of this section shall remain responsible for its member 
registrants' compliance with the regulatory obligations, and if such 
self-regulatory organization becomes aware that a delegated function is 
not being performed as required under this section, the self-regulatory 
organization shall promptly take any necessary steps to address any 
noncompliance.
    (j) 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

[[Page 151]]

plan, or part thereof, ceases to adequately effectuate the purposes of 
section 4f(b) of the Act or of this section.
    (k) 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.
    (l) 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, and the risk management 
requirements, as applicable, to which such futures commission merchant, 
retail foreign exchange dealer, or introducing broker is subject.
    (m) 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 (h) of this 
section), delegating to a designated self-regulatory organization the 
responsibilities described in paragraph (d) of this section.

[78 FR 68638, Nov. 14, 2013, as amended at 83 FR 7995, Feb. 23, 2018; 84 
FR 12892, Apr. 3, 2019]



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 or Sec.  1.38(a) or Sec.  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  Public disclosures by futures commission merchants.

    (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

[[Page 152]]

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) The funds you deposit with a futures commission merchant for 
trading futures positions are not protected by insurance in the event of 
the bankruptcy or insolvency of the futures commission merchant, or in 
the event your funds are misappropriated.
    (3) The funds you deposit with a futures commission merchant for 
trading futures positions are not protected by the Securities Investor 
Protection Corporation even if the futures commission merchant is 
registered with the Securities and Exchange Commission as a broker or 
dealer.
    (4) The funds you deposit with a futures commission merchant are 
generally not guaranteed or insured by a derivatives clearing 
organization in the event of the bankruptcy or insolvency of the futures 
commission merchant, or if the futures commission merchant is otherwise 
unable to refund your funds. Certain derivatives clearing organizations, 
however, may have programs that provide limited insurance to customers. 
You should inquire of your futures commission merchant whether your 
funds will be insured by a derivatives clearing organization and you 
should understand the benefits and limitations of such insurance 
programs.
    (5) The funds you deposit with a futures commission merchant are not 
held by the futures commission merchant in a separate account for your 
individual benefit. Futures commission merchants commingle the funds 
received from customers in one or more accounts and you may be exposed 
to losses incurred by other customers if the futures commission merchant 
does not have sufficient capital to cover such other customers' trading 
losses.
    (6) The funds you deposit with a futures commission merchant may be 
invested by the futures commission merchant in certain types of 
financial instruments that have been approved by the Commission for the 
purpose of such investments. Permitted investments are listed in 
Commission Regulation 1.25 and include: U.S. government securities; 
municipal securities; money market mutual funds; and certain corporate 
notes and bonds. The futures commission merchant may retain the interest 
and other earnings realized from its investment of customer funds. You 
should be familiar with the types of financial instruments that a 
futures commission merchant may invest customer funds in.
    (7) Futures commission merchants are permitted to deposit customer 
funds with affiliated entities, such as affiliated banks, securities 
brokers or dealers, or foreign brokers. You should inquire as to whether 
your futures commission merchant deposits funds with affiliates and 
assess whether such deposits by the futures commission merchant with its 
affiliates increases the risks to your funds.
    (8) You should consult your futures commission merchant concerning 
the nature of the protections available to safeguard funds or property 
deposited for your account.
    (9) 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'').
    (10) All futures positions involve risk, and a ``spread'' position 
may not be less risky than an outright ``long'' or ``short'' position.
    (11) 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.
    (12) In addition to the risks noted in the paragraphs enumerated 
above, you should be familiar with the futures commission merchant you 
select to entrust your funds for trading futures positions. The 
Commodity Futures Trading Commission requires each futures commission 
merchant to make publicly available on its Web site firm specific 
disclosures and financial information to assist you with your assessment 
and selection of a futures commission merchant. Information regarding 
this futures commission merchant may be obtained by visiting our Web 
site, www.[Web site address].

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:

    (13) 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 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

[[Page 153]]

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.
    (14) 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; Provided, however, that an FCM also provides a customer 
with the risk disclosure statement required by paragraph (b) of this 
section and obtains the customer's acknowledgment that it has read and 
understands the disclosure document.
    (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 by Sec. Sec.  
1.33(g) and 33.7 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 and Sec.  1.33(g), and 
in Sec. Sec.  33.7, 155.3(b)(2), and 155.4(b)(2) 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.  33.7 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 with Sec.  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 in Sec.  1.3 without furnishing 
such institutional customer the disclosure statements or obtaining the 
acknowledgments required under paragraph (a) of this section, or 
Sec. Sec.  1.33(g), 1.55(p), and 1.65(a)(3), and Sec. Sec.  30.6(a), 
33.7(a), 155.3(b)(2), and 155.4(b)(2) of this chapter.
    (g) This section does not relieve a futures commission merchant or 
introducing broker from any other disclosure obligation it may have 
under applicable law.

[[Page 154]]

    (h) Notwithstanding any other provision of this section or Sec.  
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.

[[Page 155]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.028


[[Page 156]]


[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 157]]

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.

    (i) Notwithstanding any other provision of this section, no futures 
commission merchant may enter into a customer account agreement or first 
accept funds from a customer, unless the futures commission merchant 
discloses to the customer all information about the futures commission 
merchant, including its business, operations, risk profile, and 
affiliates, that would be material to the customer's decision to entrust 
such funds to and otherwise do business with the futures commission 
merchant and that is otherwise necessary for full and fair disclosure. 
In connection with the disclosure of such information, the futures 
commission merchant shall provide material information about the topics 
described in paragraph (k) of this section, expanding upon such 
information as necessary to keep such disclosure from being misleading, 
whether through omission or otherwise. The futures commission merchant 
shall also disclose the same information required by this paragraph to 
all customers existing on the effective date of this paragraph even if 
the futures commission merchant and such existing customers have 
previously entered into a customer account agreement or the futures 
commission merchant has already accepted funds from such existing 
customers. The futures commission merchant shall update the information 
required by this section as and when necessary, but at least annually, 
to keep such information accurate and complete and shall promptly 
disclose such updated information to all of its customers. In connection 
with such obligation to update information, the futures commission 
merchant shall take into account any material change to its business 
operation, financial condition and other factors material to the 
customer's decision to entrust the customer's funds and otherwise do 
business with the futures commission merchant since its most recent 
disclosure pursuant to this paragraph, and for this purpose shall 
without limitation consider events that require periodic reporting 
required to be filed pursuant to Sec.  1.12. For purposes of this 
section, the disclosures required pursuant to this paragraph will be 
referred to as the ``Disclosure Documents.'' The Disclosure Documents 
shall provide a detailed table of contents referencing and describing 
the Disclosure Documents.
    (j)(1) Each futures commission merchant shall make the Disclosure 
Documents available to each customer to whom disclosure is required 
pursuant to paragraph (i) of this section (for purposes of this section, 
its ``FCM Customers'') and to the general public.
    (2) A futures commission merchant shall make the Disclosure 
Documents available to FCM Customers and to the general public by 
posting a copy of the Disclosure Documents on the futures commission 
merchant's Web site. A futures commission merchant, however, may use an 
electronic means other than its Web site to make the Disclosure 
Documents available to its FCM Customers; provided that:
    (i) The electronic version of the Disclosure Documents shall be 
presented in a format that is readily communicated to the FCM Customers. 
Information is readily communicated to the FCM Customers if it is 
accessible to the ordinary computer 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; and
    (ii) A complete paper copy of the Disclosure Documents shall be 
provided to an FCM Customer upon request.
    (k) The futures commission merchant shall provide material 
information about the following specific topics:

[[Page 158]]

    (1) The futures commission merchant's name, address of its principal 
place of business, phone number, fax number, and email address;
    (2) The name, title, business address, business background, areas of 
responsibility, and the nature of the duties of each person that is 
defined as a principal of the futures commission merchant pursuant to 
Sec.  3.1 of this chapter;
    (3) The significant types of business activities and product lines 
engaged in by the futures commission merchant, and the approximate 
percentage of the futures commission merchant's assets and capital that 
are used in each type of activity;
    (4) The futures commission merchant's business on behalf of its 
customers, including types of customers, markets traded, international 
businesses, and clearinghouses and carrying brokers used, and the 
futures commission merchant's policies and procedures concerning the 
choice of bank depositories, custodians, and counterparties to permitted 
transactions under Sec.  1.25;
    (5) The material risks, accompanied by an explanation of how such 
risks may be material to its customers, of entrusting funds to the 
futures commission merchant, including, without limitation, the nature 
of investments made by the futures commission merchant (including credit 
quality, weighted average maturity, and weighted average coupon); the 
futures commission merchant's creditworthiness, leverage, capital, 
liquidity, principal liabilities, balance sheet leverage and other lines 
of business; risks to the futures commission merchant created by its 
affiliates and their activities, including investment of customer funds 
in an affiliated entity; and any significant liabilities, contingent or 
otherwise, and material commitments;
    (6) The name of the futures commission merchant's designated self-
regulatory organization and its Web site address and the location where 
the annual audited financial statements of the futures commission 
merchant is made available;
    (7) Any material administrative, civil, enforcement, or criminal 
complaints or actions filed against the FCM where such complaints or 
actions have not concluded, and any enforcement complaints or actions 
filed against the FCM during the last three years;
    (8) A basic overview of customer fund segregation, futures 
commission merchant collateral management and investments, futures 
commission merchants, and joint futures commission merchant/broker 
dealers;
    (9) Information on how a customer may obtain information regarding 
filing a complaint about the futures commission merchant with the 
Commission or with the firm's designated self-regulatory organization; 
and
    (10) The following financial data as of the most recent month-end 
when the Disclosure Document is prepared:
    (i) The futures commission merchant's total equity, regulatory 
capital, and net worth, all computed in accordance with U.S. Generally 
Accepted Accounting Principles and Sec.  1.17, as applicable;
    (ii) The dollar value of the futures commission merchant's 
proprietary margin requirements as a percentage of the aggregate margin 
requirement for futures customers, Cleared Swaps Customers, and 30.7 
customers;
    (iii) The smallest number of futures customers, Cleared Swaps 
Customers, and 30.7 customers that comprise 50 percent of the futures 
commission merchant's total funds held for futures customers, Cleared 
Swaps Customers, and 30.7 customers, respectively;
    (iv) The aggregate notional value, by asset class, of all non-
hedged, principal over-the-counter transactions into which the futures 
commission merchant has entered;
    (v) The amount, generic source and purpose of any committed 
unsecured lines of credit (or similar short-term funding) the futures 
commission merchant has obtained but not yet drawn upon;
    (vi) The aggregated amount of financing the futures commission 
merchant provides for customer transactions involving illiquid financial 
products for which it is difficult to obtain timely and accurate prices; 
and
    (vii) The percentage of futures customer, Cleared Swaps Customer, 
and 30.7 customer receivable balances that the futures commission 
merchant had

[[Page 159]]

to write-off as uncollectable during the past 12-month period, as 
compared to the current balance of funds held for futures customers, 
Cleared Swaps Customers, and 30.7 customers; and
    (11) A summary of the futures commission merchant's current risk 
practices, controls and procedures.
    (l) In addition to the foregoing, each futures commission merchant 
shall adopt policies and procedures reasonably designed to ensure that 
advertising and solicitation activities by each such futures commission 
merchant and any introducing brokers associated with such futures 
commission merchant are not misleading to its FCM Customers in 
connection with their decision to entrust funds to and otherwise do 
business with such futures commission merchant.
    (m) The Disclosure Document required by paragraph (i) of this 
section is in addition to the Risk Disclosure Statement required under 
paragraph (a) of this section.
    (n) All Disclosure Documents, with each Disclosure Document dated 
the date of first use, shall be maintained in accordance with Sec.  1.31 
and shall be made available promptly upon request to representatives of 
its designated self-regulatory organization, representatives of the 
Commission, and representatives of applicable prudential regulators.
    (o)(1) Each futures commission merchant shall make the following 
financial information publicly available on its Web site:
    (i) The daily Statement of Segregation Requirements and Funds in 
Segregation for Customers Trading on U.S. Exchanges for the most current 
12-month period;
    (ii) The daily Statement of Secured Amounts and Funds Held in 
Separate Accounts for 30.7 Customers Pursuant to Commission Regulation 
30.7 for the most current 12-month period;
    (iii) The daily Statement of Cleared Swaps Customer Segregation 
Requirements and Funds in Cleared Swaps Customer Accounts Under Section 
4d(f) of the Act for the most current 12-month period;
    (iv) A summary schedule of the futures commission merchant's 
adjusted net capital, net capital, and excess net capital, all computed 
in accordance with Sec.  1.17 and reflecting balances as of the month-
end for the 12 most recent months;
    (v) The Statement of Financial Condition, the Statement of 
Segregation Requirements and Funds in Segregation for Customers Trading 
on U.S. Exchanges, the Statement of Secured Amounts and Funds Held in 
Separate Accounts for 30.7 Customers Pursuant to Commission Regulation 
30.7, the Statement of Cleared Swaps Customer Segregation Requirements 
and Funds in Cleared Swaps Customer Accounts Under Section 4d(f) of the 
Act, an all related footnotes to the above schedules that are part of 
the futures commission merchant's most current certified annual report 
pursuant to Sec.  1.16; and
    (vi) The Statement of Segregation Requirements and Funds in 
Segregation for Customers Trading on U.S. Exchanges, the Statement of 
Secured Amounts and Funds Held in Separate Accounts for 30.7 Customers 
Pursuant to Commission Regulation30.7, and the Statement of Cleared 
Swaps Customer Accounts Under Section 4d(f) of the Act that are part of 
the futures commission merchant's unaudited Form 1-FR-FCM or Financial 
and Operational Combined Uniform Single Report under the Securities 
Exchange Act of 1934 (``FOCUS Report'') for the most current 12-month 
period.
    (2) To the extent any of the financial data identified in paragraph 
(1) of this section is amended, the FCM must clearly notate that the 
data has been amended.
    (3) Each futures commission merchant must include a statement on its 
Web site that is available to the public that financial information 
regarding the futures commission merchant, including how the futures 
commission merchant invests and holds customer funds, may be obtained 
from the National Futures Association and include a link to the Web site 
of the National Futures Association's Basic System where information 
regarding the futures commission merchant's investment of customer funds 
is maintained.
    (4) Each futures commission merchant must include a statement on its 
Web site that is available to the public

[[Page 160]]

that additional financial information on all futures commission 
merchants is available from the Commodity Futures Trading Commission, 
and include a link to the Commodity Futures Trading Commission's Web 
page for financial data for futures commission merchants.
    (p)(1) Except as provided in Sec.  1.65, 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 in 
paragraph (f) of this section, to margin, guarantee, or secure a 
commodity contract unless the commodity broker first furnishes the 
customer with the disclosure statement set forth in paragraph (p)(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 under paragraph 
(c) of this section and set forth in appendix A to this section which 
the Commission finds satisfies the requirement of this paragraph (p)(1).
    (2) The disclosure statement required by paragraph (p)(1) of this 
section is as follows:

    THIS STATEMENT IS FURNISHED TO YOU BECAUSE REGULATION 1.55(p) 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. 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 (p)(2) of this section need 
be furnished only once to each customer to whom it is required to be 
furnished by this section.

[43 FR 31890, July 24, 1978]

    Editorial Note: For Federal Register citations affecting Sec.  1.55, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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 of Sec.  
1.10(j) must open and carry such customer's account with such guarantor 
futures commission merchant on a fully-disclosed basis; and

[[Page 161]]

    (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 with Sec.  
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 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 with Sec.  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 with Sec.  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:

[[Page 162]]

    (1) Self-regulatory organization means a ``self-regulatory 
organization,'' as defined in Sec.  1.3.
    (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'' 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 of Sec.  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 which Sec.  4.5 of this 
chapter makes available relief

[[Page 163]]

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 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

[[Page 164]]

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; 83 FR 7995, Feb. 23, 2018; 85 FR 4850, Jan. 27, 
2020]



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 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

[[Page 165]]

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 in Sec.  1.3, 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.
    (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;

[[Page 166]]

    (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 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; 83 FR 7995, Feb. 23, 
2018; 85 FR 4850, Jan. 27, 2020]



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 in Sec.  1.3.
    (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

[[Page 167]]

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 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 and Sec.  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 
and Sec.  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

[[Page 168]]

    (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 they represent and 
how the composition of the governing board otherwise meets the 
requirements of Sec.  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, as amended at 83 
FR 7995, Feb. 23, 2018; 85 FR 4850, Jan. 27, 2020]



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 by Sec.  1.55 
(domestic futures and foreign futures and options trading) and Sec.  
33.7 of this chapter (domestic exchange-traded commodity options) and 
receive the required acknowledgments within sixty days of the transfer 
of accounts. This paragraph (a)(3) 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

[[Page 169]]

transferring futures commission merchant or introducing broker, or is at 
the time the account is being transferred, a customer listed in Sec.  
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 of Sec.  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 with Sec.  1.55(p).
    (b) Notice to the Commission. Each futures commission merchant or 
introducing broker shall file with the Commission, at least ten 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:
    (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 
considered filed when submitted to the Director of the Division of Swap 
Dealer and Intermediary Oversight, 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.
    (e) In the event that the notice required by paragraph (b) of this 
section cannot be filed with the Commission at least ten days prior to 
the account transfer, 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 accept a lesser time period for such notification at 
the Director's or designee's discretion. In any event, however, 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; 78 FR 22419, Apr. 
16, 2013; 85 FR 57547, Sept. 15, 2020; 86 FR 19420, Apr. 13, 2021]

[[Page 170]]



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 and Sec.  3.11 of this chapter, nor will the Commission commence 
an enforcement proceeding against the contract market under Sec.  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 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 with Sec.  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 in Sec.  
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

[[Page 171]]

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 with Sec.  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 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 Swap Dealer 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 of Sec.  3.50(a) of this chapter 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 (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 of Sec.  
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; 78 FR 22419, Apr. 
16, 2013]



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

[[Page 172]]

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 in Sec.  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 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 in Sec.  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 in Sec.  1.3, 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 in Sec.  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 and Sec.  
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

[[Page 173]]

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 in Sec.  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.
    (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 in Sec.  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 in Sec.  3.1(a);
    (D) Net positions held at that self-regulatory organization in 
``customer'' accounts, as defined in Sec.  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:

[[Page 174]]

    (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
    (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, as amended at 83 FR 
7995, Feb. 23, 2018; 85 FR 4850, Jan. 27, 2020]



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;

[[Page 175]]

    (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 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

[[Page 176]]

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 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

[[Page 177]]

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 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

[[Page 178]]

    (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 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

[[Page 179]]

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 broker 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.

[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 in Sec.  
1.74(b), Sec.  23.610(b), or Sec.  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

[[Page 180]]

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;
    (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

[[Page 181]]

    (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 of Sec.  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 of Sec.  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 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

[[Page 182]]

``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.
    (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]

[[Page 183]]

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 under Sec.  3.55, Sec.  
          3.56 and Sec.  3.60 of this part.
3.62 [Reserved]
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
Appendix C to Part 3--Guidance on the Application of Sec.  3.3(e), Chief 
          Compliance Officer Annual Report Form and Content

    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, and 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

[[Page 184]]

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 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 by Sec.  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.
    (j) Senior officer. Senior officer means the chief executive officer 
or other equivalent officer 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; 83 FR 43522, Aug. 27, 2018]



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

[[Page 185]]

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 registration has been granted under the Act.
    (1) If an applicant for registration as an associated person 
receives a temporary license in accordance with Sec.  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 with Sec.  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 to Sec.  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 in Sec.  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 to Sec.  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

[[Page 186]]

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 2626, Jan. 19, 
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 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 under Sec.  3.10, a swap dealer under 
Sec.  23.21, or a major swap participant under Sec.  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 each of the registrant's policies and procedures 
relating to its business as a futures commission merchant, swap dealer, 
or major swap participant that are required to be established pursuant 
to the Act and Commission regulations;
    (2) In consultation with the board of directors or the senior 
officer, taking reasonable steps to resolve material conflicts of 
interest relating to the registrant's business as a futures commission 
merchant, swap dealer, or major swap participant that may arise;
    (3) Taking reasonable steps to ensure compliance with the Act and 
Commission regulations relating to the registrant's business as a 
futures commission merchant, swap dealer or major swap participant;
    (4) Taking reasonable steps to ensure the registrant establishes, 
maintains, and reviews written policies and procedures reasonably 
designed to remediate noncompliance issues identified by the chief 
compliance officer through any means, including any compliance office 
review, look-back, internal or external audit finding, self-reporting to 
the Commission and other appropriate authorities, or complaint that can 
be validated;
    (5) Taking reasonable steps to ensure the registrant establishes 
written procedures reasonably designed for the handling, management 
response, remediation, retesting, and resolution 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. The annual report shall, at a minimum, contain a 
description of:

[[Page 187]]

    (1) The written policies and procedures of the futures commission 
merchant, swap dealer, or major swap participant described in paragraph 
(d) of this section, including the code of ethics and conflicts of 
interest policies;
    (2) The futures commission merchant's, swap dealer's, or major swap 
participant's assessment of the effectiveness of its policies and 
procedures relating to its business as a futures commission merchant, 
swap dealer or major swap participant;
    (3) Areas for improvement, and recommended potential or prospective 
changes or improvements to its compliance program and resources devoted 
to compliance;
    (4) The financial, managerial, operational, and staffing resources 
set aside for compliance with respect to the Act and Commission 
regulations relating to its business as a futures commission merchant, 
swap dealer or major swap participant, including any material 
deficiencies in such resources;
    (5) Any material noncompliance issues identified and the 
corresponding action taken; and
    (6) Any material changes to compliance policies and procedures 
during the coverage period for the report.
    (f) Furnishing the annual report and related matters--(1) Furnishing 
the annual report. (i) Prior to furnishing the annual report to the 
Commission, the chief compliance officer shall provide the annual report 
to the board of directors or senior officer of the futures commission 
merchant, swap dealer, or major swap participant for its review.
    (ii) If the futures commission merchant, swap dealer, or major swap 
participant has established an audit committee (or an equivalent body), 
then the chief compliance officer shall furnish the annual report to the 
audit committee (or equivalent body) not later than its next scheduled 
meeting after the annual report is furnished to the Commission, but in 
no event more than 90 days after the applicable date specified in 
paragraph (f)(2) of this section for furnishing the annual report to the 
Commission.
    (iii) A written record of transmittal of the annual report to the 
board of directors or the senior officer, and audit committee, if 
applicable, shall be made and maintained in accordance with Sec.  1.31 
of this chapter.
    (2) Furnishing the annual report to the Commission. (i) Except as 
provided in paragraph (f)(2)(ii) of this section, 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.
    (ii) The annual report of a swap dealer or major swap participant 
that is eligible to comply with a substituted compliance regime for 
paragraph (e) of this section pursuant to a comparability determination 
of the Commission may be furnished to the Commission electronically up 
to 15 days after the date on which the comparable annual report must be 
completed under the requirements of the applicable substituted 
compliance regime. If the substituted compliance regime does not specify 
a date by which the comparable annual report must be completed, then the 
annual report shall be furnished to the Commission by the date specified 
in paragraph (f)(2)(i) of this section.
    (3) Certification. 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 in all material respects.
    (4) Amending the annual report. 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) Extensions. 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.

[[Page 188]]

    (6) Incorporation by reference and related registrants--(i) Prior 
reports. 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.
    (ii) Dual registrants. If a futures commission merchant, swap 
dealer, or major swap participant is registered in more than one 
capacity with the Commission, 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. A dual registrant may submit one annual report 
that addresses the requirements set forth in paragraphs (e), (f)(1) and 
(f)(3) of this section with respect to each registration capacity.
    (iii) Affiliated registrants. If a futures commission merchant, swap 
dealer, or major swap participant controls, is controlled by, or is 
under common control with, one or more other futures commission 
merchants, swap dealers, or major swap participants, and each of the 
affiliated registrants must submit an annual report, an affiliated 
registrant may incorporate by reference in its annual report sections 
from an annual report prepared by any of its affiliated registrants 
furnished within the current or immediately preceding reporting period. 
Affiliated registrants may submit one annual report that addresses the 
requirements set forth in paragraphs (e), (f)(1) and (f)(3) of this 
section with respect to each affiliated 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 with Sec.  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.
    (h) Delegation of authority. 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 grant extensions of time, as set forth in 
paragraph (f)(5) of this section. 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 extension of 
time should be granted. The delegation of authority in this paragraph 
shall not prohibit the Commission, at its election, from exercising the 
authority set forth in paragraph (f)(5) of this section.

[77 FR 20200, Apr. 3, 2012, as amended at 78 FR 68645, Nov. 14, 2013; 81 
FR 80566, Nov. 16, 2016; 83 FR 43522, Aug. 27, 2018]



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

[[Page 189]]

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 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 of Sec.  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 of Sec.  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 of Sec.  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 in Sec.  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 in Sec.  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.

[[Page 190]]

    (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.
    (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 under Sec.  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 to Sec.  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

[[Page 191]]

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 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 
with Sec.  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 in Sec.  1.10(j)(8) of this chapter are followed.
    (c) Exemption from registration for certain persons--(1) 
Definitions. For purposes of this paragraph (c), the following terms 
shall have the meanings set forth below.
    (i) Covered transaction means a commodity interest transaction, as 
defined in Sec.  1.3 of this chapter, executed bilaterally or made on or 
subject to the rules of any designated contract market or registered 
swap execution facility.
    (ii) Foreign located person means a person located outside the 
United States, its territories, or possessions.
    (iii) International financial institution means the International 
Monetary Fund, the International Bank for Reconstruction and 
Development, the Inter-American Development Bank, the Asian Development 
Bank, the African Development Bank, the United Nations, the European 
Stability Mechanism, the North American Development Bank, those 
institutions defined as ``international financial institutions'' in 22 
U.S.C. 262r(c)(2), those institutions defined as ``multilateral 
development banks'' in Article 1(5(a)) of Regulation (EU) No. 648/2012 
of the European Parliament and of the Council on OTC Derivative 
Transactions, Central Counterparties and Trade Repositories, their 
agencies and pension plans, and any other similar international 
organizations, and their agencies and pension plans.
    (2) Exempt futures commission merchants--(i) Proprietary accounts. A 
person trading solely for proprietary accounts, as defined in Sec.  1.3 
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.
    (ii) Foreign located persons. (A) A foreign located person engaging 
in the activity of a futures commission merchant, as defined in Sec.  
1.3 of this chapter, in connection with any covered transaction only on 
behalf of foreign located persons or international financial 
institutions is not required to register in such capacity; provided, 
that if any such covered transaction is required or intended to be 
cleared on a registered derivatives clearing organization and the 
foreign located person or international financial institution that is 
party to the covered transaction is not a clearing member of such 
registered derivatives clearing organization, the covered transaction is 
submitted for clearing through a futures commission merchant registered 
in accordance with section 4d of the Act.
    (B) A foreign located person acting in accordance with paragraph 
(c)(2)(ii)(A) 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) Exempt introducing brokers--(i) Foreign located persons. (A) A 
foreign located person engaged in the activity of an introducing broker, 
as defined in Sec.  1.3 of this chapter, in connection with any covered 
transaction only on behalf of foreign located persons or international 
financial institutions is not required to register in such capacity; 
provided, that if any such covered transaction is required or intended 
to be cleared on a registered derivatives

[[Page 192]]

clearing organization and the foreign located person or international 
financial institution that is party to the covered transaction is not a 
clearing member of such registered derivatives clearing organization, 
the covered transaction is submitted for clearing through a futures 
commission merchant registered in accordance with section 4d of the Act.
    (B) A foreign located person acting in accordance with paragraph 
(c)(3)(i)(A) 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 introducing broker or any 
person required to be so registered.
    (ii) Exempt foreign brokers. (A) A foreign located person that is 
exempt from registration as a futures commission merchant in accordance 
with Sec.  30.10 of this chapter is not required to register as an 
introducing broker in accordance with section 4d of the Act if:
    (1) Such person is affiliated with a futures commission merchant 
registered in accordance with section 4d of the Act;
    (2) Such person introduces, on a fully-disclosed basis in accordance 
with Sec.  1.57 of this chapter, any institutional customer, as defined 
in Sec.  1.3 of this chapter, to a registered futures commission 
merchant for the purpose of trading on a designated contract market;
    (3) 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
    (4) Such person does not solicit any person located in the United 
States, its 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.
    (B) For the purposes of this paragraph, a person shall be affiliated 
with a futures commission merchant if such a person owns 50 percent or 
more of the futures commission merchant, is owned 50 percent or more by 
the futures commission merchant, or is owned 50 percent or more by a 
third person that also owns 50 percent or more of the futures commission 
merchant.
    (4) Exempt commodity trading advisors. (i) A foreign located person 
engaging in the activity of a commodity trading advisor, as defined in 
Sec.  1.3 of this chapter, in connection with any covered transaction 
only on behalf of foreign located persons or international financial 
institutions is not required to register in such capacity; provided, 
that if any such covered transaction is required or intended to be 
cleared on a registered derivatives clearing organization and the 
foreign located person or international financial institution that is 
party to the covered transaction is not a clearing member of such 
registered derivatives clearing organization, the covered transaction is 
submitted for clearing through a futures commission merchant registered 
in accordance with section 4d of the Act.
    (ii) A foreign located person acting in accordance with paragraph 
(c)(4)(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 
registered commodity trading advisor or any person required to be so 
registered.
    (5) Exempt commodity pool operators. (i) A foreign located person 
engaged in the activity of a commodity pool operator, as defined in 
Sec.  1.3 of this chapter, in connection with any covered transaction is 
not required to register in such capacity, when such covered 
transactions are executed on behalf of a commodity pool, the 
participants of which are all foreign located persons or international 
financial institutions; provided, that if any such covered transaction 
is required or intended to be cleared on a registered derivatives

[[Page 193]]

clearing organization and the commodity pool that is party to the 
covered transaction is not a clearing member of such registered 
derivatives clearing organization, the covered transaction is submitted 
for clearing through a futures commission merchant registered in 
accordance with section 4d of the Act.
    (ii) With respect to paragraph (c)(5)(i) of this section, initial 
capital contributed to a commodity pool by an affiliate, as defined by 
Sec.  4.7(a)(1)(i) of this chapter, of the pool's commodity pool 
operator shall not be considered for purposes of determining whether 
such commodity pool operator is executing commodity interest 
transactions on behalf of a commodity pool, the participants of which 
are all foreign located persons; provided, that:
    (A) The affiliate is not a natural person;
    (B) The affiliate and its principals are not barred or suspended 
from participating in commodity interest markets in the United States, 
its territories or possessions; and
    (C) Interests in the affiliate are not marketed as providing access 
to trading in commodity interest markets in the United States, its 
territories or possessions.
    (iii) A commodity pool operated by a foreign located person shall be 
considered to be operated in accordance with the terms of paragraph 
(c)(5)(i) of this section, if:
    (A) The commodity pool is organized and operated outside of the 
United States, its territories or possessions;
    (B) The commodity pool's offering materials and any underwriting or 
distribution agreements include clear, written prohibitions on the 
commodity pool's offering to participants located in the United States 
and on U.S. ownership of the commodity pool's participation units;
    (C) The commodity pool's constitutional documents and offering 
materials:
    (1) are reasonably designed to preclude persons located in the 
United States from participating therein; and
    (2) include mechanisms reasonably designed to enable its operator to 
exclude any persons located in the United States that attempt to 
participate in the offshore pool, notwithstanding those prohibitions;
    (D) The commodity pool operator exclusively uses non-U.S. 
intermediaries for the distribution of participations in the commodity 
pool;
    (E) The commodity pool operator uses reasonable investor due 
diligence methods at the time of sale to preclude persons located in the 
United States from participating in the commodity pool; and
    (F) The commodity pool's participation units are directed and 
distributed to participants outside the United States, including by 
means of listing and trading such units on secondary markets organized 
and operated outside of the United States, and in which the commodity 
pool operator has reasonably determined participation by persons located 
in the United States is unlikely.
    (iv) Utilizing the relief under paragraph (c)(5)(i) of this section 
for a qualifying commodity pool will not affect the ability of a person 
to register with the Commission as a commodity pool operator, or to 
qualify for, rely upon, or claim other relief from regulation as such by 
the Commission, with respect to the operation of commodity pools or 
trading vehicles not otherwise eligible for the relief offered in this 
section.
    (v) A person acting in accordance with paragraph (c)(5)(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.
    (6) Associated persons of swap dealers. 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

[[Page 194]]

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 of Sec.  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; 83 FR 7995, Feb. 23, 2018; 85 FR 78738, Dec. 7, 2020]



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, 
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 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,

[[Page 195]]

must provide notice in accordance with Sec.  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, as amended at 83 FR 1545, Jan. 12, 2018]



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 with Sec.  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;
    (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

[[Page 196]]

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 in Sec.  
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.  3.55, Sec.  
3.56 or Sec.  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 in Sec.  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.
    (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 in Sec.  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,

[[Page 197]]

    (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).
    (5)(i)(A) 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 of a swap 
dealer or major swap participant if the swap dealer or major swap 
participant meets the requirements set forth in Sec.  3.60(b)(2)(i)(A).
    (B) A person who is already associated as an associated person of a 
swap dealer or major swap participant may become registered as an 
associated person of a futures commission merchant, retail foreign 
exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator, or leverage transaction merchant if the futures 
commission merchant, retail foreign exchange dealer, introducing broker, 
commodity trading advisor, commodity pool operator, or leverage 
transaction merchant with which the person intends to associate meets 
the requirements set forth in Sec.  3.60(b)(2)(i)(A) and (B).
    (ii) Each sponsor and each swap dealer and/or major swap participant 
with whom the person is associated shall supervise that associated 
person, and each sponsor and each swap dealer and/or major swap 
participant is jointly and severally responsible for the conduct of the 
associated person with respect to the:
    (A) Solicitation or acceptance of customer 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,
    (E) Solicitation or acceptance of swaps, and

[[Page 198]]

    (F) 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 futures commission merchant, retail 
foreign exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator, leverage transaction merchant, swap dealer, or 
major swap participant with which the associated person is associated.
    (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 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

[[Page 199]]

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
    (iv) Engaged in any activity as an associated person, as defined in 
Sec.  1.3 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 of Sec.  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 of Sec.  
4.14(a)(1), Sec.  4.14(a)(2) or Sec.  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 of Sec.  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 of Sec.  
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

[[Page 200]]

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 or Sec.  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 in Sec.  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 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 
in Sec.  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 affecting Sec.  3.12, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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)

[[Page 201]]

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 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 of Sec.  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 in Sec.  1.3;
    (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.

[[Page 202]]

    (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 from the firm with 
respect to any outside director referred to in a Notice Pursuant to Rule 
3.21(c).
    (e) Foreign natural persons. (1) For purposes of this paragraph (e):
    (i) The term foreign natural person means any natural person who has 
not resided in the United States since reaching the age of 18 years.
    (ii) The term certifying firm means:
    (A) For any natural person that is a principal or associated person 
of a futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, introducing broker, commodity pool 
operator, commodity trading advisor, leverage transaction merchant, 
floor broker, or floor trader, such futures commission merchant, retail 
foreign exchange dealer, swap dealer, major swap participant, 
introducing broker, commodity pool operator, commodity trading advisor, 
leverage transaction merchant, floor broker, or floor trader; and
    (B) For any natural person that is responsible for, or directs, the 
entry of orders from a floor broker's or floor trader's own account, 
such floor broker or floor trader.
    (2) Any obligation in this part to provide a fingerprint card for a 
foreign natural person shall be deemed satisfied with respect to a 
certifying firm if:
    (i) Such certifying firm causes a criminal history background check 
of such foreign natural person to be performed; and
    (ii) The criminal history background check:
    (A) Is of a type that would reveal all matters listed under Sections 
8a(2)(D) or 8a(3)(D), (E), or (H) of the Act relating to such foreign 
natural person;
    (B) Does not reveal any matters that constitute a disqualification 
under Sections 8a(2) or 8a(3) of the Act, other than those disclosed to 
the National Futures Association; and
    (C) Is completed not more than one calendar year prior to the date 
that such certifying firm submits the certification described in 
paragraph (e)(2)(iii) of this section;
    (iii) A person authorized by such certifying firm submits, in 
reliance on such criminal history background check, a certification by 
such certifying firm to the National Futures Association, that:
    (A) States that the conditions of paragraphs (e)(2)(i) and (ii) of 
this section have been satisfied; and
    (B) Is signed by a person authorized by such certifying firm to make 
such certification.
    (3) The certifying firm shall maintain, in accordance with Sec.  
1.31 of this chapter, records documenting that the criminal history 
background check performed pursuant to paragraph (e)(2)(i) of this 
section was completed and the results thereof.

[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; 81 FR 18747, Apr. 1, 
2016; 83 FR 7995, Feb. 23, 2018]



Sec.  3.22  Supplemental filings.

    Notwithstanding any other provision of this chapter, the Commission, 
the Directors of the Division of Swap Dealer 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

[[Page 203]]

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 at 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; 78 FR 
22419, Apr. 16, 2013]



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.
    (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]

[[Page 204]]



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 under Sec.  3.33 or any change resulting 
from an exchange disciplinary or access denial action. Each such 
correction shall be prepared and filed in accordance with the 
instructions thereto.
    (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 with Sec.  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.
    (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.
    (c)(1) After the filing of a Form 8-R or updating a Form 8-R 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 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

[[Page 205]]

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; 
83 FR 1545, Jan. 12, 2018]



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 of Sec.  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.
    (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

[[Page 206]]

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 of Sec.  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 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 under 
Sec.  3.10(d) to treat the failure by a registrant to file an annual 
Form 7-R as a request for withdrawal, the National

[[Page 207]]

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 affecting Sec.  3.33, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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 by Sec.  3.12(c): 
Provided, however, that the fingerprints of the applicant on a 
fingerprint card provided by the 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 under Sec.  3.60(b)(2)(i), if the 
applicant is subject to an order imposing conditions on the applicant's 
registration; and

[[Page 208]]

    (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 of Sec.  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 to Sec.  3.40 shall 
terminate:
    (1) Five days after service upon the applicant of a notice by the 
Commission or the National Futures Association pursuant to Sec.  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 in Sec.  3.40;
    (3) Immediately upon the withdrawal of the registration application 
pursuant to Sec.  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 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]

[[Page 209]]



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 to Sec.  
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 under Sec.  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 to Sec.  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.
    (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 of Sec.  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

[[Page 210]]

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 or retail foreign exchange dealer other than the futures 
commission merchant or retail foreign exchange dealer which provided the 
initial guarantee agreement described in Sec.  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 of Sec.  1.10 (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 or retail foreign exchange dealer 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 to Sec.  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 with Sec.  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 to Sec.  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 to Sec.  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 under Sec.  3.1(a); 
or
    (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.

[[Page 211]]

    (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 under Sec.  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 of Sec.  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 Swap Dealer 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 under Sec.  3.51, 
any documents served upon an applicant or registrant or upon the 
Division of Swap Dealer 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 of Sec.  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; 78 FR 22419, Apr. 16, 2013]



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 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]

[[Page 212]]



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 in Sec.  
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 with Sec.  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 Proceedings Clerk shall promptly serve a copy of 
such order on the registrant, the Division of Swap Dealer 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 
of Sec.  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.

[[Page 213]]

    (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 of Sec.  
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; 78 FR 22419, Apr. 16, 2013]



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 with Sec.  3.60(b)(2)(i) and who meets the standards set 
forth in Sec.  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.
    (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.

[[Page 214]]

    (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 Swap Dealer 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 of Sec.  
3.50(a) 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) 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 or Sec.  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; 78 FR 22419, Apr. 
16, 2013]



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 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

[[Page 215]]

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 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

[[Page 216]]

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 of Sec.  1.12(b), 
Sec.  5.6(b) or Sec.  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 with Sec.  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 under Sec.  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.
    (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

[[Page 217]]

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 in Sec.  
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 with Sec.  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 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

[[Page 218]]

modify the conditions or restrictions in accordance with Sec.  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 with Sec.  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 with Sec.  10.105 of this chapter.
    (j) 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.
    (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

[[Page 219]]

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 under Sec.  3.55, 
Sec.  3.56, and Sec.  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 under Sec.  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 to Sec.  3.60 of this part shall 
be served promptly upon the applicant or registrant, the Division of 
Swap Dealer 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 of Sec.  3.50(a) of this part.

[57 FR 23154, June 2, 1992, as amended at 67 FR 62351, Oct. 7, 2002; 78 
FR 22419, Apr. 16, 2013]



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 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

[[Page 220]]

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 with Sec.  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 of Sec.  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 Swap Dealer 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, Registration and 
Compliance Branch, Division of Swap Dealer 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 to Sec.  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 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

[[Page 221]]

registrant under paragraph (a) of this section, the Commission may 
promptly issue notice under Sec.  3.55 or Sec.  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; 78 FR 22419, 
Apr. 16, 2013]



            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 to Sec.  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 to Sec.  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) acting as a futures commission 
merchant, introducing broker, floor broker, floor trader, commodity 
trading advisor, commodity pool

[[Page 222]]

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 in Sec.  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 superior is 
the sole basis for finding that the

[[Page 223]]

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:

    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 person's effort to violate his or her prior undertaking to withdraw 
from and/or not to

[[Page 224]]

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 in 
a manner consistent with Commission precedent.

[[Page 225]]

    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 decide issues relating to registration status,

[[Page 226]]

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 Swap Dealer 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 227]]

    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 228]]

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 229]]

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; 78 FR 22419, Apr. 16, 2013]



   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 230]]

    (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]



Sec. Appendix C to Part 3--Guidance on the Application of Sec.  3.3(e), 
         Chief Compliance Officer Annual Report Form and Content

        A. Description of the Registrant's WPPs (Sec.  3.3(e)(1))

    In acknowledgment of the large number of WPPs that a Registrant 
implements to comply with CFTC regulations, the Commission understands 
that for purposes of the CCO Annual Report, specific WPP descriptions 
may be appropriately brief while still identifying the basic purpose of 
the policy or procedure and how the policy or procedure operates to 
achieve that purpose. The CCO Annual Report should include a summary 
overview that describes the general forms and types of WPPs the 
Registrant has, such as a compliance manual specific to the Registrant, 
global corporate manuals or policies, and/or business-unit-specific WPPs 
that support the applicable regulatory requirements. This summary 
overview would provide a narrative of the Registrant's system or program 
of WPPs, how they work as a whole, and how the Registrant generally puts 
the WPPs into practice as part of its compliance activities. With 
respect to the COI policy, it is the Commission's view that the CCO 
should describe the COI policy specific to the Registrant, addressing 
the specific requirements of Sec.  1.71 or Sec.  23.605 of this chapter, 
as applicable.

B. Assessment of the Effectiveness of the Policies and Procedures (Sec.  
                               3.3(e)(2))

    The Commission expects a CCO Annual Report to contain a 
comprehensive discussion of: the assessment process; and the results of 
the effectiveness assessment. The regulation does not dictate the form 
or manner for the

[[Page 231]]

effectiveness assessment. Rather, the Commission would expect each 
Registrant to follow a process and present the resulting assessment in a 
form and manner that is appropriate for the size and complexity of the 
Registrant's applicable business activities and structure. While Sec.  
3.3(e)(2) no longer has a ``requirement-by-requirement'' standard, the 
CCO Annual Report should address all of the general areas of regulation 
applicable to the Registrant.

   C. Areas for Improvement and Recommended Changes (Sec.  3.3(e)(3))

    1. Section 3.3(e)(3) requires two components in the CCO Annual 
Report: an identification and discussion of each area that needs 
improvement; and a discussion of what changes are recommended to address 
each area needing improvement. In addressing these two elements, the CCO 
Annual Report should include, as applicable: A discussion of why the 
particular area needs improvement; a discussion of the proposed 
improvements and the time frame for their implementation; and a cross-
reference to the regulation that a recommended change would address.
    2. In general, identifying areas in need of improvement and 
recommending steps to effect those improvements should be a core 
function of compliance. Accordingly, a CCO Annual Report that makes no 
recommendations for changes or improvements to the compliance program 
may raise concerns about the adequacy of the compliance program review 
intended by the CCO Annual Report process. Moreover, there should be 
continuity from one reporting cycle to the next, such that where a 
previous CCO Annual Report discussed future changes or improvements that 
were being considered or planned, subsequent CCO Annual Reports should 
discuss the outcomes of the changes that were implemented during the 
most recent scope period, any monitoring or testing of those changes, 
whether any compliance issues arose from the changes and, if there were 
any issues, how those issues were handled. While this section may 
address improvements to the compliance program that have already been 
completed, the Commission believes that this section primarily should 
discuss recommended improvements in process and/or future plans to 
improve the Registrant's compliance program or resources devoted to 
compliance.

         D. Resources Set Aside for Compliance (Sec.  3.3(e)(4))

    1. The resources description required by Sec.  3.3(e)(4) should be 
appropriate for assisting the Registrant's senior management and the 
CFTC in assessing whether sufficient resources are dedicated to 
compliance. Accordingly, the description should include the following 
types of information: the budget allocated to the compliance department 
of the Registrant for compliance with the CEA and Commission 
regulations; full-time compliance staffing levels for such compliance 
activities; partially allocated staff counts (if applicable), with 
information on how much of such employees' time is devoted to the 
Registrant's compliance matters that are subject to CFTC oversight; an 
explanation of managerial resources (the explanation should clearly 
identify the division between staffing resources and management 
resources devoted to compliance); general infrastructure information 
(e.g., computers, compliance-oriented software, technology 
infrastructure, etc.); and if applicable, a description of the use of 
third party vendors or outsourcing for compliance activities. In most 
cases, to effectively inform the board of directors or senior officer 
and the Commission, the description should include quantifiable 
information for the financial, managerial, operational, and staffing 
resources allocated to compliance with the CEA and Commission 
regulations.
    2. The Commission understands that a discussion of specific 
compliance budget allocations may not be as straightforward as described 
above depending on the size and complexity of the Registrant's 
compliance program and the extent to which the Registrant's compliance 
resources may be shared for other non-CFTC regulated business 
activities. The purpose of the CCO Annual Report requirement is to 
convey to senior management and the CFTC a clear understanding of the 
resources the Registrant has set aside for compliance with the CEA and 
Commission regulations. While some of the compliance resources used in a 
Registrant's CFTC compliance-related program may be used for compliance 
activities in other parts of a larger corporate enterprise, this sharing 
of resources does not negate the Registrant's obligation to discuss how 
the Registrant's compliance program is being resourced. For those 
instances where compliance resources are shared, it is recognized that 
the description of the shared resources may reasonably be more general 
in nature, providing approximations and estimates based on expected 
needs. However, the Commission expects that the CCO Annual Report will 
still address shared resources in as much detail as is necessary to 
convey the information needed to assess the overall compliance 
activities of the Registrant.
    3. Section 3.3(e)(4) also requires that the CCO Annual Report 
include a discussion of any material deficiencies in compliance 
resources. If there have been reductions in the compliance program of 
the Registrant since the prior reporting period, for example, if there 
has been a reduction in compliance

[[Page 232]]

staff, a significant compliance budget decrease, or the Registrant 
initiated significant new business activities without a corresponding 
increase in compliance resources, the CCO Annual Report should include 
an explanation of why the compliance resources are not deficient in 
light of the changes. If there are no material deficiencies in the 
resources devoted to compliance, the Commission recommends that the CCO 
Annual Report contain an express statement to that effect so that the 
recipients of the report can see that the requirement was assessed.

           E. Material Noncompliance Issues (Sec.  3.3(e)(5))

    The CCO Annual Report should include an explanation of the standard 
the Registrant used to determine a non-compliance event's materiality. 
In addition, this section of the CCO Annual Report should contain a 
description of each material non-compliance issue identified either 
through self-assessment procedures conducted within the Registrant, or 
noted by any external entities which conducted a review of the 
Registrant (such as a designated self-regulatory organization). The 
description should also include the corresponding actions taken, 
described in reasonable detail, as well as specific references to the 
Commission regulation or regulations that are implicated by the non-
compliance event. Specifically, the Commission recommends that the CCO 
Annual Report include a discussion of the Registrant's deliberations on 
a course of remediation, how the implementation of the remediation is 
being or was executed, any follow-up testing of the remediation, and any 
noteworthy results from such testing. Additionally, the Commission 
recommends that CCOs consider including an overview of how the CCO or 
compliance department handles and tracks non-compliance events in 
general.

              F. Material Changes to WPPs (Sec.  3.3(e)(6))

    When describing any material changes to the WPPs, a description of 
the standard of materiality used should be provided. This description 
will provide meaningful context for any reported changes to the WPPs.

[83 FR 43523, Aug. 27, 2018]



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 this part.
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.
4.17 Severability.

                   Subpart B_Commodity Pool Operators

4.20 Prohibited activities.
4.21 Required delivery of pool Disclosure Document.
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 commodity pool operators and commodity 
          trading advisors.

                  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, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 
23.

[[Page 233]]


    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 of Sec.  4.24(v) in the case of pool 
Disclosure Documents, and Sec.  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 operator'' 
with respect to the operation of a qualifying entity specified in 
paragraph (b) of this section:
    (1) An investment adviser registered under the Investment Advisers 
Act of 1940, as amended;
    (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 
this Sec.  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

[[Page 234]]

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 under the Investment Company 
Act of 1940, as amended, or a business development company that elected 
an exemption from registration as an investment company 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 will operate the qualifying entity specified therein in the 
following ways, as applicable:
    (i) The person 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, 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) The person will submit to such special calls as the Commission 
may

[[Page 235]]

make to require the qualifying entity to demonstrate compliance with the 
provisions of this paragraph (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; and
    (iii) If the person is an investment adviser claiming an exclusion 
with respect to the operation of a qualifying entity under paragraph 
(b)(1) of this section, then the notice of eligibility must also contain 
representations that such person will operate that qualifying entity 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 the definition of bona fide hedging transactions and positions 
for excluded commodities in Sec. Sec.  1.3 and 151.5 of this chapter; 
Provided however, That, in addition, with respect to positions in 
commodity futures or commodity options contracts, or swaps which do not 
come within the meaning and intent of the definition of bona fide 
hedging transactions and positions for excluded commodities in 
Sec. Sec.  1.3 and 151.5 of this chapter, 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 the purchase, the in-the-money amount as 
defined in Sec.  190.01of this chapter 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 the definition of bona 
fide hedging transactions and positions for excluded commodities in 
Sec. Sec.  1.3 and 151.5 of this chapter 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 purposes 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 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

[[Page 236]]

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 under Sec.  4.13 in connection with the operation of another 
trading vehicle that is not covered under this Sec.  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; 83 FR 7995, Feb. 23, 2018; 84 FR 
67353, Dec. 10, 2019; 86 FR 19420, Apr. 13, 2021]



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'' by Sec.  4.5; Provided, however, That:
    (i) Its commodity interest advisory activities are solely incidental 
to its operation of those trading vehicles for which Sec.  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 in Sec.  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 this Sec.  4.6 
must submit 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 this Sec.  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]

[[Page 237]]



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 of Sec.  4.7; paragraph (b) contains the 
relief available to commodity pool operators under Sec.  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 
under Sec.  4.7; and paragraph (e) addresses the effect of an 
insignificant deviation from a term, condition or requirement of Sec.  
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 under Sec.  4.7.
    (iii) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption under Sec.  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 in Sec.  5.1(m) of this chapter) 
for commodity interest transactions; or
    (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),

[[Page 238]]

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 in Sec.  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 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

[[Page 239]]

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 in Sec.  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 in Sec.  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
    (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;

[[Page 240]]

    (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 to Sec.  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;
    (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

[[Page 241]]

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 in Sec.  230.501(a)(5) of this title;
    (x) A natural person who would qualify as an accredited investor as 
defined in Sec.  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--(1) Eligibility. 
Relief from specific compliance obligations is available to certain 
registered commodity pool operators with respect to the pool(s) they 
operate, provided that the registered commodity pool operator files the 
required notice under paragraph (d) of this section and otherwise 
complies with the conditions of paragraph (d) of this section in 
operating the exempt pool(s).
    (i) Types of commodity pools. (A) Regarding an offering that is 
exempt from registration under section 4(a)(2) of the Securities Act of 
1933, any registered commodity pool operator who offers or sells 
participations in such a pool solely to qualified eligible persons, 
without marketing to the public, may claim any or all of the relief 
described in this paragraph (b) with respect to such pool; Provided, 
that the prohibition on marketing to the public shall not apply to a 
registered commodity pool operator who offers or sells participations in 
a pool offered pursuant to Sec.  230.506(c) of this title.
    (B) Regarding an offering that is offered and sold pursuant to 
Regulation S, Sec.  Sec.  230.901 through 230.905 of this title, any 
registered commodity pool operator who offers or sells participations in 
such a pool solely to qualified eligible persons, without marketing to 
the public, may claim any or all of the relief described in this 
paragraph (b) with respect to such pool.
    (C) Regarding a pool that is a collective trust fund, the securities 
of which are exempt from registration pursuant to section 3(a)(2) of the 
Securities Act of 1933, any bank registered as a commodity pool operator 
that offers or sells participations in such a pool solely to qualified 
eligible persons, without marketing to the public, may claim any or all 
of the relief described in this paragraph (b) with respect to such pool.
    (ii) Resales. A registered commodity pool operator may claim any or 
all of the relief described in this paragraph (b) with respect to the 
pools described in paragraphs (b)(1)(i)(A) through (C) of this section, 
if participations in such pools are resold pursuant to Rule 144A (Sec.  
230.144A of this title).
    (2) 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

[[Page 242]]

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 
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.
    (3) Periodic reporting relief. (i) Exemption from the specific 
requirements of Sec.  4.22(a) and (b), provided, that a statement signed 
and affirmed in accordance with Sec.  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:
    (A) The net asset value of the exempt pool as of the end of the 
reporting period;
    (B) The change in net asset value from the end of the previous 
reporting period; and
    (C) Either the net asset value per outstanding participation unit in 
the exempt pool as of the end of the reporting period, or the total 
value of the participant's interest or share in the exempt pool as of 
the end of the reporting period.
    (ii) 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)(3); except that, for a pool that is a series fund 
structured with limitation on liability among the different series, the 
account statement required by this paragraph (b)(3) is not required to 
include the consolidated net asset value of all series of the pool.
    (iii) A commodity pool operator that meets the conditions specified 
in Sec.  4.22(d)(2)(i) to present and compute the pool's financial 
statements contained in the Annual Report other than in accordance with 
generally accepted accounting principles, and has filed notice pursuant 
to Sec.  4.22(d)(2)(iii), may also use the alternative accounting 
principles, standards or practices identified in that notice with 
respect to the computation and presentation of the account statement.
    (4) Annual report relief. (i) Exemption from the specific 
requirements of Sec.  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 with Sec.  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 with Sec.  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

[[Page 243]]

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;
    (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.
    (5) Recordkeeping relief. Exemption from the specific requirements 
of Sec.  4,23; Provided, That the commodity pool operator must maintain 
the reports referred to in paragraphs (b)(2) and (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). Books and records that 
are not maintained at the pool operator's main business office shall 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. Such books and 
records must be made available to any representative of the Commission, 
the National Futures Association and the United States Department of 
Justice in accordance with the provisions of Sec.  1.31.
    (6) If the pool operator does not maintain its books and records at 
its main business office, the pool operator shall:
    (i) At the time it registers with the Commission or delegates its 
recordkeeping obligations, whichever is later, file a statement that:
    (A) 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;
    (B) 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;
    (C) Specifies, by reference to the respective paragraph of this 
section, the books and records that such person will be keeping; and
    (D) Contains representations from the pool operator that:
    (1) It will promptly amend the statement if the contact information 
or location of any of the books and records required to be kept by this 
section changes, by identifying in such amendment the new location and 
any other information that has changed;
    (2) It remains responsible for ensuring that all books and records 
required by this section are kept in accordance with Sec.  1.31;
    (3) Within 48 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 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 72 hours of such a request; and
    (4) It will disclose in the pool's Disclosure Document the location 
of its books and records that are required under this section.
    (ii) The pool operator shall also file electronically with the 
National Futures Association a statement from

[[Page 244]]

each person who will be keeping required books and records in lieu of 
the pool operator wherein such person:
    (A) Acknowledges that the pool operator intends that the person keep 
and maintain required pool books and records;
    (B) Agrees to keep and maintain such records required in accordance 
with Sec.  1.31 of this chapter; and
    (C) Agrees to keep such required books and records open to 
inspection by any representative of the Commission, the National Futures 
Association, or the United States Department of Justice in accordance 
with Sec.  1.31 of this chapter.
    (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 under Sec.  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 
of Sec.  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 to any representative of the Commission, the 
National Futures Association and the United States Department of Justice 
in accordance with the provisions of Sec.  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

[[Page 245]]

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 of Sec.  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 of Sec.  4.7;
    (iv) Specify the relief claimed under Sec.  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 under Sec.  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 agreement to direct or guide the commodity interest account of a 
qualified eligible person pursuant to Sec.  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

[[Page 246]]

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 of Sec.  4.21, Sec.  
4.22, Sec.  4.23, Sec.  4.24, Sec.  4.25 or Sec.  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 of Sec.  4.31, Sec.  4.33, 
Sec.  4.34, Sec.  4.35 or Sec.  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 
of Sec.  4.7. (1) A failure to comply with a term or condition of Sec.  
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 of Sec.  4.7.
    (2) A transaction made in reliance on Sec.  4.7 must comply with all 
applicable terms, conditions and requirements of Sec.  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; 78 FR 52333, Aug. 22, 2013; 81 FR 85154, Nov. 25, 2016; 84 FR 
67367, Dec. 10, 2019]



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) of Sec.  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 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) of Sec.  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 by Sec.  4.12(b) may 
solicit, accept and receive funds, securities and other property from 
prospective participants

[[Page 247]]

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 under Sec.  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'' under Sec.  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.
    (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

[[Page 248]]

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 this part.

    (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;
    (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 in Sec.  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 in Sec.  190.01 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

[[Page 249]]

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 of Sec.  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 of Sec.  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 of Sec.  4.22 (a) and (b), 
including the references in those sections to Sec.  4.22 (g) and (h).
    (iii) In the case of Sec.  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 to Sec.  4.22(h) 
and the requirement in Sec.  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 of Sec.  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 registration under the Securities Act of 1933 or the Investment 
Company Act of 1940--(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, with respect to the pool for which 
it makes such claim:
    (i) The units of participation will be offered and sold pursuant to 
an effective registration statement under the Securities Act of 1933; or
    (ii) The pool is registered under the Investment Company Act of 
1940.
    (2) Relief available to pool operator claiming relief under 
paragraph (c)(1)(i). The commodity pool operator of a pool whose units 
of participation meet the criteria of paragraph (c)(1)(i) if this 
section may claim the following relief:
    (i) In the case of Sec.  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 of Sec.  4.26(a);

[[Page 250]]

    (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 of Sec.  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 by Sec.  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.
    (3) Relief available to pool operator claiming relief under 
paragraph (c)(1)(ii). The commodity pool operator of a pool whose units 
of participation meet the criteria of paragraph (c)(1)(ii) of this 
section may claim the following relief:
    (i) The pool operator of an offered pool will be exempt from the 
requirements of Sec. Sec.  4.21, 4.24, 4.25, and 4.26; Provided, that
    (A) The pool operator of an offered pool with less than a three-year 
operating history discloses the performance of all accounts and pools 
that are managed by the pool operator and that have investment 
objectives, policies, and strategies substantially similar to those of 
the offered pool; and,
    (B) The disclosure provided with respect to the offered pool 
complies with the provisions of the Investment Company Act of 1940, the 
Securities Act of 1933, the Securities Exchange Act of 1934, the 
regulations promulgated thereunder, and any guidance issued by the 
Securities and Exchange Commission or any division thereof.
    (ii) Exemption from the Account Statement distribution requirement 
of Sec. Sec.  4.22(a) and (b); Provided, however, that the pool 
operator:
    (A) Causes the current net asset value per share to be available to 
participants;
    (B) Causes the pool to clearly disclose:
    (1) That the information will be readily accessible on an Internet 
Web site maintained by the pool operator or its designee or otherwise 
made available to participants and the means through which the 
information will be made available; and
    (2) The Internet address of such Web site, if applicable; and
    (iii) Exemption from the provisions of Sec.  4.23 that require that 
a pool operator's books and records be made available to participants 
for inspection and/or copying at the request of the participant.
    (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:
    (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;

[[Page 251]]

    (B) The pool will be operated in compliance with paragraph (c)(1) of 
this section and the pool operator will comply with the requirements of 
paragraph (c)(2) of this section; or
    (C) The pool will be operated in compliance with paragraph (c)(1) of 
this section and the pool operator will comply with the requirements of 
paragraph (c)(3) of this section;
    (iv) Specify the relief sought under paragraph (b)(2), (c)(2), or 
(c)(3) of this section, as the case may be;
    (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 under Sec.  
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 to Sec.  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 to Sec.  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 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; 78 FR 52333, Aug. 22, 2013; 86 FR 
19420, Apr. 13, 2021]



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 on Sec.  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);

[[Page 252]]

    (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 the interests are marketed and advertised to 
the public in the United States solely, if at all, in compliance with 
Sec.  230.506(c) of this title, or with Rule 144A, Sec.  230.144A of 
this title, as applicable;
    (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 in Sec.  
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 in Sec.  190.01 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 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 in Sec.  
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 in Sec.  
270.3c-5 of this title; or
    (D) A ``qualified eligible person,'' as that term is defined in 
Sec.  4.7; and

[[Page 253]]

    (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 under Sec.  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) For each pool for which the person claims exemption under this 
paragraph (a)(6):
    (i) Interests in the pool are exempt from registration under the 
Securities Act of 1933, and such interests are offered and sold only to 
``family clients,'' as defined in Sec.  275.202(a)(11)(G)-1 of this 
title;
    (ii) The person qualifies as a ``family office,'' as defined in 
Sec.  275.202(a)(11)(G)-1 of this title; 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 this paragraph (a)(6) of this section, that each 
person who participates in the pool is a ``family client'' of the 
``family office,'' as defined in Sec.  275.202(a)(11)(G)-1 of this 
title.
    (7)(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.
    (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, except for any person claiming the exemption 
for family offices in paragraph (a)(6) of 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) Specify the paragraph number pursuant to which the person is 
filing the notice (i.e., Sec.  4.13(a)(1), (2), (3), or (5)) and 
represent that the pool will be operated in accordance with the criteria 
of that paragraph;
    (iii) Represent that neither the person nor any of its principals 
has in its background a statutory disqualification that would require 
disclosure under section 8a(2) of the Act if such person sought 
registration, unless such disqualification arises from a matter which 
was disclosed in connection with a previous application for 
registration,

[[Page 254]]

where such registration was granted; and
    (iv) 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 under Sec.  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 claimed an 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 to Sec.  1.33 of this chapter; and
    (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 by Sec.  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

[[Page 255]]

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'' under Sec.  
4.5 in connection with its operation of another trading vehicle that is 
not covered under this Sec.  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; 84 FR 67368, Dec. 10, 
2019; 85 FR 40890, July 8, 2020; 86 FR 19421, Apr. 13, 2021]



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) 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;

[[Page 256]]

    (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 in Sec.  
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'' under Sec.  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 in Sec.  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 under Sec.  4.13(a)(3), or, if registered as a commodity 
pool operator, who may treat each pool it operates that meets the 
criteria of Sec.  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 this Sec.  4.14(a)(8) must file electronically a notice of 
exemption from commodity trading advisor registration with the National 
Futures Association through 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., under Sec.  4.14(a)(8)(i)) and represent that 
it will provide commodity

[[Page 257]]

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 this Sec.  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
    (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

[[Page 258]]

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.
    (11) The person's commodity trading advice is solely directed to, 
and is for the sole use of, ``family clients,'' as defined in Sec.  
275.202(a)(11)(G)-1 of this title.
    (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 259]]

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; 84 FR 
67368, Dec. 10, 2019]



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.



Sec.  4.17  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.

[78 FR 52333, Aug. 22, 2013]



                   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 established 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

[[Page 260]]

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 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 to Sec.  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) [Reserved]

[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; 78 FR 52333, Aug. 
22, 2013]



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;
    (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,

[[Page 261]]

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 to Sec.  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)(iii) 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
    (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

[[Page 262]]

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 by Sec.  4.22(c) 
or Sec.  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
    (3) The timeframe within which the commodity pool operator will 
provide the final report.
    (iii) A report filed pursuant to paragraph (c)(7) of this section 
that would otherwise be required by paragraph (c) of this section is not 
required to be audited in accordance with paragraph (d) of this section 
if the commodity pool operator:

[[Page 263]]

    (A) Obtains a written waiver of their right to receive an audited 
Annual Report from each participant other than the pool operator, the 
pool's commodity trading advisor, any person controlling, controlled by, 
or under common control with the pool operator or trading advisor, and 
any principal of the foregoing; and
    (B) At the time of filing the Annual Report with the National 
Futures Association, certifies that it has received a written waiver 
from each participant from whom it is required to obtain a waiver to 
qualify for the relief available under this paragraph (c)(7). The 
commodity pool operator must maintain the waivers in accordance with 
Sec.  4.23 and must make the waivers available to the Commission or 
National Futures Association upon request. Notwithstanding the 
provisions of paragraph (g)(2)(ii) of this section, the relief made 
available by this paragraph (c)(7)(iii) will not be available where the 
commodity pool operator has not previously distributed an audited Annual 
Report to pool participants and submitted an audited Annual Report to 
the National Futures Association.
    (8) For the purpose of the Annual Report distribution requirement, 
including any annual report distributed pursuant to Sec.  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) Subject to the provisions of paragraphs (d)(2) and (g)(2) of 
this section, the financial statements in the Annual Report required by 
this section or by Sec.  4.7(b)(3) must be presented and computed in 
accordance with United States generally accepted accounting principles 
consistently applied and must be audited by an independent public 
accountant; Provided, however, and subject to the exception in paragraph 
(c)(7)(iii)(B) of this section, that the requirement that the Annual 
Report be audited by an independent public accountant does not apply for 
any fiscal year during which the only participants in the pool are one 
or more of the pool operator, the pool's commodity trading advisor, any 
person controlling, controlled by, or under common control with the pool 
operator or trading advisor, and any principal of the foregoing; and 
Provided further, that the CPO obtains a written waiver from each such 
pool participant of their right to receive an audited Annual Report for 
such fiscal year, maintains such waivers in accordance with Sec.  4.23, 
and makes such waivers available to the Commission or National Futures 
Association upon request. The requirements of Sec.  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 with Sec.  1.16 of this chapter, 
except that the following requirements of that section shall not apply:
    (i) The audit objectives of Sec.  1.16(d)(1) concerning the periodic 
computation of minimum capital and property in segregation;
    (ii) All other references in Sec.  1.16 to the segregation 
requirements; and
    (iii) Section 1.16(c)(5), (d)(2), (e)(2), and (f).
    (2)(i) Where a commodity pool is organized in a jurisdiction other 
than the United States, the financial statements in the Annual Report 
required by this section or by Sec.  4.7(b)(3) may be presented and 
computed in accordance with the generally accepted accounting 
principles, standards or practices followed in such other jurisdiction; 
Provided, That:
    (A) The other jurisdiction follows accounting principles, standards 
or practices set forth in paragraph (d)(2)(ii) of this section and the 
Annual Report presents and computes the financial statements of the pool 
in accordance with the applicable accounting principles, standards or 
practices followed by such other jurisdiction;
    (B) The Annual Report includes a condensed schedule of investments, 
or,

[[Page 264]]

if required by the applicable accounting principles, standards or 
practices followed by such other jurisdiction, a full schedule of 
investments;
    (C) The Annual Report reports special allocations of ownership 
equity in accordance with paragraph (e)(2) of this section;
    (D) The Disclosure Document or offering memorandum for the pool 
identifies the accounting principles, standards or practices of the 
other jurisdiction pursuant to which the Annual Report presents and 
computes the financial statements of the pool; and
    (E) Where the accounting principles, standards or practices of the 
other jurisdiction require consolidated financial statements for the 
pool, such as a feeder fund consolidating with its master fund, all 
applicable disclosures required by United States generally accepted 
accounting principles for the feeder fund must be presented with the 
reporting pool's consolidated financial statements.
    (ii) For purposes of paragraph (d)(2)(i) of this section, the 
following alternative accounting principles, standards or practices may 
be employed in the preparation and computation of the financial 
statements in the Annual Report of the commodity pool; Provided, That 
any such alternative accounting principles, standards or practices so 
employed are those followed by the jurisdiction other than the United 
States in which the commodity pool is organized:
    (A) International Financial Reporting Standards;
    (B) Generally Accepted Accounting Practice in the United Kingdom;
    (C) New Irish Generally Accepted Accounting Practice;
    (D) Luxembourg Generally Accepted Accounting Principles; or
    (E) Canadian Generally Accepted Accounting Principles.
    (iii) To claim the relief available under this paragraph (d)(2), a 
commodity pool operator must file a notice with the National Futures 
Association within 90 calendar days after the end of the pool's first 
fiscal year.
    (A) The notice must contain: The name, main business address, main 
telephone number and National Futures Association registration 
identification number of the commodity pool operator; the name and 
identification number of the commodity pool for which the pool operator 
is claiming relief; and the alternative accounting principles, standards 
or practices pursuant to which the financial statements in the Annual 
Report will be presented and computed;
    (B) The notice must include a representation that the commodity pool 
operator complies with each of the conditions specified in paragraphs 
(d)(2)(i)(A) through (D) of this section and, if applicable, paragraph 
(d)(2)(i)(E) of this section; and
    (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'

[[Page 265]]

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 the Sec.  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 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 or Sec.  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'');

[[Page 266]]

    (B) For all reports prepared under paragraph (c) of this section and 
for reports prepared under Sec.  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 under Sec.  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)(i) 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.
    (ii) For purposes of this paragraph (g)(2), the time period from the 
date on which the commodity pool operator first receives funds, 
securities or other property from a participant in the pool that is not 
a person listed in paragraphs (g)(2)(ii)(A)(1) through (g)(2)(ii)(A)(5) 
of this section to the end of the pool's first fiscal year is the stub 
period of the pool. Where the stub period is four months or less, the 
first Annual Report for the pool may be unaudited; Provided, however, 
That:
    (A) Throughout the stub period, the pool had no more than fifteen 
participants and no more than $3,000,000 in aggregate gross capital 
contributions. For the purpose of satisfying these criteria, the 
commodity pool operator may exclude the following persons and their 
contributions:
    (1) The pool operator, the pool's commodity trading advisor, any 
person controlling, controlled by, or under common control with the pool 
operator or trading advisor, and any principal of the foregoing;
    (2) A child, sibling, or parent of any of these participants;
    (3) The spouse of any participant specified in paragraph 
(g)(2)(ii)(A)(1) or (2) of this section;
    (4) Any relative of a participant specified in paragraph 
(g)(2)(ii)(A)(1), (2) or (3) of this section, their spouse or a relative 
of their spouse, who has the same principal residence as such 
participant; and
    (5) An entity that is wholly-owned by one or more participants 
specified in paragraph (g)(2)(ii)(A)(1), (2), (3) or (4) of this 
section; and

[[Page 267]]

    (B) The next Annual Report for the pool is audited and covers the 
stub period plus the pool's first 12-month fiscal year.
    (C) To claim the relief available under paragraph (g)(2)(ii) of this 
section, a commodity pool operator must:
    (1) Prior to the date upon which it is required to distribute and 
submit an audited Annual Report for the pool's first fiscal year, obtain 
a written waiver of the pool participant's right to receive an audited 
Annual Report for the pool's first fiscal year from each participant 
other than a participant who is the pool operator, the pool's commodity 
trading advisor, any person controlling, controlled by, or under common 
control with the pool operator or trading advisor, or any principal of 
the foregoing. The waiver may be included in the subscription agreement 
for the pool or other agreement with the participant; Provided, however, 
That the waiver is a separate page in the agreement and the pool 
operator requires the participant to separately sign and date it. The 
waiver must be in a form substantially as follows: ``[Name of 
participant], a participant in [Name of pool], voluntarily waives the 
right under CFTC Regulation 4.22(d) to receive an audited Annual Report 
for the fiscal year ended [end date of the pool's first fiscal year] and 
will accept in lieu thereof an unaudited Annual Report covering [the 
stub period] and an audited Annual Report covering [the start date of 
the stub period] through [the end date of the pool's first twelve-month 
fiscal year].''; and
    (2) On or before the date upon which it is required to distribute 
and submit the Annual Report for the pool's first fiscal year, file a 
notice with the National Futures Association, along with a certification 
that it has received the required written waiver from each participant 
who is not the pool operator, the pool's commodity trading advisor, any 
person controlling, controlled by, or under common control with the pool 
operator or trading advisor, or any principal of the foregoing, and who 
has been a participant in the pool for its first fiscal year.
    (i) The notice must contain: The name, main business address, main 
telephone number and National Futures Association registration 
identification number of the commodity pool operator; the name and 
identification number of the commodity pool for which the pool operator 
is claiming relief; and the beginning and end dates of the stub period 
of the pool;
    (ii) The notice must include a representation that the commodity 
pool operator meets the criteria of paragraph (g)(2)(ii)(A) of this 
section and that it will comply with the condition of paragraph 
(g)(2)(ii)(B) of this section; and
    (iii) The notice must be signed by the commodity pool operator in 
accordance with paragraph (h) of this section.
    (D)(1) Each unaudited Annual Report for which the relief available 
under paragraph (g)(2)(ii) of this section has been claimed must 
prominently disclose on the cover page thereof: ``Pursuant to an 
exemption from the Commodity Futures Trading Commission, this unaudited 
Annual Report covers the period from [beginning date of the stub period 
of the pool] to the end of the pool's first fiscal year, a period of 
[number] months.''
    (2) The next Annual Report for the pool must prominently disclose on 
the cover page thereof: ``Pursuant to an exemption from the Commodity 
Futures Trading Commission, this audited Annual Report covers the period 
from [beginning date of the stub period of the pool] to the end of the 
pool's first 12-month fiscal year, a period of [number] months.''
    (E) The commodity pool operator must maintain in accordance with 
Sec.  4.23 of this chapter each waiver it has obtained to claim the 
relief available under paragraph (g)(2)(ii) of this section.
    (3) The commodity pool operator must continue to use the elected 
fiscal 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

[[Page 268]]

pursuant to Sec.  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 with Sec.  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; 81 FR 85154, Nov. 25, 2016]



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. Books and records that are not 
maintained at the pool operator's main business office shall 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. All books and 
records shall be maintained in accordance with Sec.  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. 
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 books and records are maintained at the 
commodity pool operator's main business office that is outside 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 269]]

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 by Sec.  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. This requirement may be satisfied 
through a transfer agent's maintenance of records or through a list of 
relevant intermediaries where shares are held in an omnibus account or 
through intermediaries.
    (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 to Sec.  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 to Sec.  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

[[Page 270]]

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 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.
    (c) If the pool operator does not maintain its books and records at 
its main business office, the pool operator shall:
    (1) At the time it registers with the Commission or delegates its 
recordkeeping obligations, whichever is later, file a statement that:
    (i) 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;
    (ii) 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;
    (iii) Specifies, by reference to the respective paragraph of this 
section, the books and records that such person will be keeping; and
    (iv) Contains representations from the pool operator that:
    (A) It will promptly amend the statement if the contact information 
or location of any of the books and records required to be kept by this 
section changes, by identifying in such amendment the new location and 
any other information that has changed;
    (B) It remains responsible for ensuring that all books and records 
required by this section are kept in accordance with Sec.  1.31;
    (C) Within 48 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 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 72 hours of such a request; and
    (D) It will disclose in the pool's Disclosure Document the location 
of its books and records that are required under this section.
    (2) The pool operator shall also file 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:
    (i) Acknowledges that the pool operator intends that the person keep 
and maintain required pool books and records;
    (ii) Agrees to keep and maintain such records required in accordance 
with Sec.  1.31 of this chapter; and
    (iii) Agrees to keep such required books and records open to 
inspection by any representative of the Commission or the United States 
Department of Justice in accordance with Sec.  1.31 of this chapter and 
to make such required books and records available to pool

[[Page 271]]

participants in accordance with this section.

(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; 78 FR 52334, Aug. 22, 
2013]



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 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

[[Page 272]]

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 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.);

[[Page 273]]

    (ii) A multi-advisor pool as defined in Sec.  4.10(d)(2);
    (iii) A principal-protected pool as defined in Sec.  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 in Sec.  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 in Sec.  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 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 to Sec.  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

[[Page 274]]

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;
    (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

[[Page 275]]

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 in Sec.  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 of Sec.  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;
    (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

[[Page 276]]

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 in Sec.  4.25.
    (o) Principal-protected pools. If the pool is a principal-protected 
pool as defined in Sec.  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 by Sec.  
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 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;

[[Page 277]]

    (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 in Sec.  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 in Sec.  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 or Sec.  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, 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 in Sec.  4.10(d)(2); and
    (3) A principal-protected pool as defined in Sec.  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 
with Sec.  4.10(k));
    (G) The worst peak-to-valley draw-down during the most recent five 
calendar years and year-to-date, expressed

[[Page 278]]

as a percentage of the pool's net asset value and indicating the months 
and year of the draw-down; and
    (H) Subject to Sec.  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 this Sec.  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 with Sec.  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 in Sec.  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 in Sec.  4.25(a)(5).
    (3) Additional requirements with respect to pools other than the 
offered pool. With respect to pools other than the offered 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 of Sec.  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,

[[Page 279]]

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 in 
Sec.  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 
in Sec.  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 with Sec.  
1.31.
    (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 with Sec.  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 of Sec.  4.24(v) and this Sec.  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.

[[Page 280]]

    (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 this Sec.  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 this Sec.  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 in Sec.  4.25(a)(8), the commodity pool operator must disclose, 
for the period specified by Sec.  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 this Sec.  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 this Sec.  
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 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 this Sec.  4.25.
    (ii) If a major commodity trading advisor has not previously traded 
accounts, the pool operator must prominently display the following 
statement:

[[Page 281]]

    (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 to Sec.  
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 twelve 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 with Sec.  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:
    (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 by Sec.  4.8:

[[Page 282]]

    (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; 78 FR 
52335, Aug. 22, 2013]



Sec.  4.27  Additional reporting by commodity pool operators and commodity 
trading advisors.

    (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. (1) Except as provided in paragraph 
(b)(2) of this section, a reporting person is:
    (i) Any commodity pool operator that is registered or required to be 
registered under the Commodity Exchange Act and the Commission's 
regulations thereunder; or
    (ii) Any commodity trading advisor that is registered or required to 
be registered under the Commodity Exchange Act and the Commission's 
regulations thereunder.
    (2) The following categories of persons shall not be considered 
reporting persons, as that term is defined in paragraph (b)(1) of this 
section:
    (i) A commodity pool operator that is registered, but operates only 
pools for which it maintains an exclusion from the definition of the 
term ``commodity pool operator'' in Sec.  4.5 and/or an exemption from 
registration as a commodity pool operator in Sec.  4.13;
    (ii) A commodity trading advisor that is registered, but does not 
direct, as that term is defined in Sec.  4.10(f), the trading of any 
commodity interest accounts;
    (iii) A commodity trading advisor that is registered, but directs 
only the accounts of commodity pools for which it is registered as a 
commodity pool operator and, though registered, complies with Sec.  
4.14(a)(4); and
    (iv) A commodity trading advisor that is registered, but directs 
only the accounts of commodity pools for which it is exempt from 
registration as a commodity pool operator, and though registered, 
complies with Sec.  4.14(a)(5).
    (c) Reporting. (1) 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 a commodity pool operator 
consistent with appendix A to this part, or a commodity trading advisor 
consistent with appendix C to this part.
    (2) A reporting person required to file NFA Form PQR with the 
National Futures Association for the reporting period may make such 
filing in lieu of the report required under paragraph (c)(1) of this 
section; provided that, the Commission has determined that NFA Form PQR 
is substantively consistent with appendix A to this part.
    (3) Nothing in this provision restricts the National Futures 
Association's ability to require reporting beyond

[[Page 283]]

that required by the Commission; provided that, such additional 
requirements are consistent with the Commodity Exchange Act and 17 CFR 
chapter I.
    (4) All financial information shall be reported in accordance with 
generally accepted accounting principles consistently applied. A 
reporting person operating a pool that meets the conditions specified in 
Sec.  4.22(d)(2)(i) to present and compute the commodity pool's 
financial statements contained in the Annual Report other than in 
accordance with United States generally accepted accounting principles 
and has filed notice pursuant to Sec.  4.22(d)(2)(iii) may also use the 
alternative accounting principles, standards, or practices identified in 
that notice in reporting information required to be reported pursuant to 
paragraph (c)(1) of this section.
    (d) Investment advisers to private funds. Commodity pool operators 
and commodity trading advisors that are dually registered as investment 
advisers with the Securities and Exchange Commission, and that are 
required to file Form PF under the rules promulgated under the 
Investment Advisers Act of 1940, shall file Form PF with the Securities 
and Exchange Commission, in addition to filings made pursuant to 
paragraph (c)(1) of this section. Dually registered commodity pool 
operators and commodity trading advisors 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 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 in Sec.  145.0 of this chapter.

[77 FR 17330, Mar. 26, 2012, as amended at 81 FR 85155, Nov. 25, 2016; 
84 FR 67354, Dec. 10, 2019; 85 FR 71789, Nov. 10, 2020]



                  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

[[Page 284]]

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 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 of Sec.  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 with Sec.  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 in Sec.  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

[[Page 285]]

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, 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) of Sec.  
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

[[Page 286]]

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 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.

[[Page 287]]

    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.

    (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.

[[Page 288]]

    (2) The trading advisor must include in the description of the 
business background of each person identified in Sec.  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 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 to Sec.  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 of Sec.  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

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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;
    (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 in Sec.  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 in Sec.  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 in Sec.  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 in Sec.  4.31, Sec.  
4.34, Sec.  4.35 or Sec.  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 this Sec.  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;

[[Page 290]]

    (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 the draw-down (the capsule must include a definition of ``draw-
down'' that is consistent with Sec.  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 to Sec.  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 in Sec.  
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 in Sec.  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 in Sec.  
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 in Sec.  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 in Sec.  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 in Sec.  
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 to Sec.  
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 in Sec.  4.35(a)(1).

[[Page 291]]

    (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.
    (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 with Sec.  
1.31.
    (7) Performance of partially-funded accounts. Notwithstanding the 
foregoing, a commodity trading advisor will be deemed in compliance with 
this Sec.  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 with Sec.  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 of Sec.  4.34(n) and this Sec.  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 in Sec.  
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

[[Page 292]]

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 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 twelve 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; 78 FR 52335, Aug. 22, 2013]



                          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;

[[Page 293]]

    (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:
    (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]





                 Sec. Appendix A to Part 4--Form CPO-PQR

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[85 FR 71789, Nov. 10, 2020]



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 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]

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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.

    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 with Sec.  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;
    (2) Associated person of a commodity trading advisor, for purposes 
of this part, means any natural person associated with a commodity 
trading advisor

[[Page 320]]

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 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

[[Page 321]]

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 in Sec.  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 in Sec.  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 in Sec.  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 
in Sec.  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 in Sec.  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 in Sec.  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 
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

[[Page 322]]

    (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 in Sec.  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 in Sec.  
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 in Sec.  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 in Sec.  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 in Sec.  1.3 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.
    (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

[[Page 323]]

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 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

[[Page 324]]

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 with Sec.  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 with Sec.  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.

[75 FR 55432, Sept. 10, 2010, as amended at 83 FR 7996, Feb. 23, 2018]



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 by Sec.  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, that the applicant's or registrant's adjusted net capital is 
less than that required by Sec.  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

[[Page 325]]

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 by Sec.  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 to Sec.  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 
to Sec.  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 to Sec.  
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 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 Swap Dealer

[[Page 326]]

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 in Sec.  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 of Sec.  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 Swap 
Dealer 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.

[75 FR 55432, Sept. 10, 2010, as amended at 78 FR 22419, Apr. 16, 2013]



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 under Sec.  1.17 of this chapter, as 
applicable; or
    (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 in Sec.  1.17 for the

[[Page 327]]

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 with Sec.  240.15c3-1 of this title, unless specifically 
stated otherwise in this section or in Sec.  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 of Sec.  
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 with Sec.  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:
    (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

[[Page 328]]

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 in Sec.  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 in Sec.  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 in Sec.  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 under Sec.  1.17(c)(5)(x) of this chapter, 
net or individual positions in retail forex transactions shall not 
constitute cover under Sec.  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 with Sec.  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 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

[[Page 329]]

permissible under Sec.  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 in Sec.  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 to Sec.  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 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

[[Page 330]]

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 under Sec.  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 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

[[Page 331]]

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 under Sec.  
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 and Sec.  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 of Sec.  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 to Sec.  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
    (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.

[[Page 332]]

    (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 with Sec.  
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 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 or Sec.  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

[[Page 333]]

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 by Sec.  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 to Sec.  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 to Sec.  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 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.

[[Page 334]]

    (3) For the purposes of this section, the term Material Affiliated 
Person shall have the meaning used in Sec.  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 to Sec.  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 to Sec.  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 with Sec.  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 with Sec.  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 dealer or such 
Material Affiliated Person maintains, in addition to the annual 
statements with schedules and exhibits required to be maintained 
pursuant to Sec.  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

[[Page 335]]

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 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

[[Page 336]]

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 with Sec.  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 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 of Sec.  
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 this Sec.  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 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 to Sec.  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 this Sec.  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:

[[Page 337]]

    (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 to Sec.  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 to Sec.  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 to Sec.  5.7 of this part. 
Such reconciliation must be certified by an independent public 
accountant in accordance with Sec.  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 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

[[Page 338]]

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 under Sec.  
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 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 with Sec.  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

[[Page 339]]

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 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;

[[Page 340]]

    (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 with Sec.  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 with Sec.  1.31 of this chapter.
    (g) Combination with other statements. Any futures commission 
merchant required to deliver statements to retail forex customers in 
accordance with Sec.  1.33 of this chapter may combine into 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

[[Page 341]]

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 with Sec.  1.31 of this chapter formal computations of its 
adjusted net capital and of its minimum financial requirements pursuant 
to Sec.  1.17 or Sec.  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 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.

[[Page 342]]



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 in Sec.  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 in Sec.  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.
    (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

[[Page 343]]

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 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

[[Page 344]]

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 in Sec.  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 in Sec.  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 of Sec.  
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 with Sec.  
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 
in Sec.  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.
    (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;

[[Page 345]]

    (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 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 
in Sec.  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

[[Page 346]]

    (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 Swap 
Dealer and Intermediary Oversight and the Director of the Division of 
Enforcement. The Commission hereby delegates, until the Commission 
orders otherwise, to the Director of the Division of Swap Dealer and 
Intermediary Oversight and the Director of the Division of Enforcement, 
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

[[Page 347]]

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.

[75 FR 55432, Sept. 10, 2010, as amended at 78 FR 22419, Apr. 16, 2013; 
82 FR 28767, June 26, 2017]



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 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

[[Page 348]]

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 of Sec.  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 Swap Dealer 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 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.

[75 FR 55432, Sept. 10, 2010, as amended at 78 FR 22419, Apr. 16, 2013]



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

[[Page 349]]

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 in Sec.  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. 1a, 2, 6b-1, 6c, 7, 7a-2, 7b-3, 8, 9, 9a, 12, 
12a, 12c, 13b, 16a, 18, 19, and 21.

    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, 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 
involved a controversy between members of an exchange;
    (2) Except as provided in Sec. Sec.  9.11(a), (b)(3)(i) through (v), 
and (c), and 9.12(a)

[[Page 350]]

and 9.13 (concerning the notice, effective date and publication of a 
disciplinary or access denial action), any summary action permitted 
under the provisions of part 37, appendix B, Core Principle 2, paragraph 
(a)(13) of this chapter or part 38, appendix B, Core Principle 13, 
paragraph (a)(6) 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, a commodity option, or a 
swap.
    (4) The Commission will, upon its own motion or upon motion filed 
pursuant to Sec.  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.

[52 FR 25366, July 7, 1987, as amended at 59 FR 5701, Feb. 8, 1994; 83 
FR 1546, Jan. 12, 2018]



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 imposed on a person by an exchange for violations of rules of 
the exchange, including summary actions.
    (c) Exchange means a swap execution facility or 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:
    (1) 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; or
    (2) Any person who has trading privileges on an exchange.
    (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; 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 Swap Dealer 
and Intermediary Oversight and Division of Clearing and Risk when 
participating in a proceeding under this part pursuant to Sec.  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

[[Page 351]]

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 person for violation of rules of the 
exchange permitted under the provisions of part 37, appendix B, Core 
Principle 2, paragraph (a)(10)(vi) of this chapter or part 38, appendix 
B, Core Principle 13, paragraph (a)(4) of this chapter (penalty for 
impeding progress of hearing); part 37, appendix B, Core Principle 2, 
paragraph (a)(14) of this chapter or part 38, appendix B, Core Principle 
13, paragraph (a)(7) of this chapter (emergency disciplinary actions); 
part 37, appendix B, Core Principle 2, paragraph (a)(13) of this chapter 
(summary fines for violations of rules regarding timely submission of 
records); or part 38, appendix B, Core Principle 13, paragraph (a)(6) of 
this chapter (summary fines for violations of rules regarding timely 
submission of records, decorum, or other similar activities).

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987, as amended at 67 
FR 62352, Oct. 7, 2002; 78 FR 22419, Apr. 16, 2013; 83 FR 1546, Jan. 12, 
2018]



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 
in reparation proceedings); and Sec.  12.12 (Signature).

[83 FR 1546, Jan. 12, 2018]



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 a statement of service as provided in Sec.  10.12(a)(6) of this 
chapter.
    (b) Formalities of filing--(1) Number of copies. Unless otherwise 
specifically provided, an original and one conformed copy 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 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 or her 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

[[Page 352]]

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 or herself 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.
    (d) Official docket. Upon receipt of a notice of appeal filed in 
accordance with Sec.  9.20, or a petition for stay pending review filed 
in accordance with Sec.  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; 
83 FR 1546, Mar. 13, 2018]



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 filed in accordance with 
Sec.  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 or her 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

[[Page 353]]

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.

[52 FR 25366, July 7, 1987, as amended at 83 FR 1547, Jan. 12, 2018]



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 by Sec.  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 under Sec.  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 under Sec.  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.
    (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 or her 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 or her 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; 83 FR 1547, Jan. 12, 
2018]

[[Page 354]]



  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 notice to the National Futures Association (``NFA'') through the 
NFA's Background Affiliation Status Information Center (``BASIC'') 
system: Provided, That a designated contract market is not required to 
notify the NFA of any summary action, as permitted under the provisions 
of part 38, appendix B, Core Principle 13, paragraph (a)(6) 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 in Sec.  9.12.
    (b) Contents of notice. For purposes of this part:
    (1) The written notice of a disciplinary action or access denial 
action provided to the person against whom the action was taken by a 
designated contract market must be a copy of a written decision which 
accords with:
    (i) Part 38, appendix B, Core Principle 13, paragraph (a)(3) of this 
chapter in the case of settlement offers;
    (ii) Section 38.708 of this chapter in the case of decisions; or
    (iii) Part 38, appendix B, Core Principle 13, paragraph (a)(5)(iv) 
of this chapter in the case of appeal decisions (including copies of any 
materials incorporated by reference) or other written notice which must 
include items listed in paragraphs (b)(3)(i)--(vi) of this section.
    (2) The written notice of a disciplinary action or access denial 
action provided to the person against whom the action was taken by a 
swap execution facility must be a copy of a written decision which 
accords with:
    (i) Part 37, appendix B, Core Principle 2, paragraph (a)(9) of this 
chapter in the case of settlement offers;
    (ii) Section 37.206(d) of this chapter in the case of decisions; or
    (iii) Part 37, appendix B, Core Principle 2, paragraph (a)(11)(iv) 
of this chapter in the case of appeal decisions (including copies of any 
materials incorporated by reference) or other written notice which must 
include items listed in paragraphs (b)(3)(i) through (vi) of this 
section.
    (3) The notice of a disciplinary action or access denial action 
provided to the NFA must include only the items listed in the following 
paragraphs (b)(3)(i) through (v):
    (i) The name of the person against whom the disciplinary action or 
access denial action was taken;
    (ii) A statement of the reasons for the disciplinary action or 
access denial action, detailing the exchange product which was involved, 
as applicable, and whether the violation that resulted in the action 
also resulted in financial harm to any customers 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;
    (iii) 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;
    (iv) The terms of the disciplinary action or access denial action;
    (v) The date on which the action was taken and the date the exchange 
intends to make the disciplinary or access denial action effective; and
    (vi) Except as otherwise provided in Sec.  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.

[[Page 355]]

    (c) Delivery and filing of the notice. Delivery of the notice must 
be made personally to the person who was the subject of the disciplinary 
action or access denial action, by mail to such person at that person's 
last known address, or by email to the person's last known email 
address. Filing of the notice with the NFA is accomplished when an 
authorized exchange employee verifies the accuracy of the information 
entered into BASIC.
    (d) Effect of delivery by mail or email. Delivery by mail to the 
person disciplined or denied access will be complete upon deposit in the 
mail of a 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. Delivery by email will be complete upon 
transmission of the email.
    (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. Notice filed with the NFA is deemed certified 
when an authorized exchange employee verifies the accuracy of the 
information entered into BASIC.

[83 FR 1547, Jan. 12, 2018]



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 by Sec.  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 permitted by part 37, appendix B, Core Principle 2, paragraph 
(a)(14) of this chapter or part 38, appendix B, Core Principle 13, 
paragraph (a)(7) of this chapter (emergency disciplinary actions), 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 permitted by part 37, appendix B, Core Principle 2, paragraph 
(a)(10)(vi) of this chapter or part 38, appendix B, Core Principle 13, 
paragraph (a)(4) of this chapter (hearings), the exchange determines, 
and so states in its written decision, that the actions of a person who 
is within the exchange's jurisdiction has impeded the progress of a 
disciplinary hearing; or
    (3) As permitted by part 37, appendix B, Core Principle 2, paragraph 
(a)(13) of this chapter (summary fines for violations of rules regarding 
timely submission of records) or part 38, appendix B, Core Principle 13, 
paragraph (a)(6) of this chapter (summary fines for violations of rules 
regarding timely submission of records, decorum, or other similar 
activities), 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 email to the person's last known email 
address, stating the reasons for the determination. The exchange must 
also immediately notify the Commission by email to [email protected]. 
Where notice is delivered by email, the time within which the person so 
notified may file a petition for stay pursuant to Sec.  9.24(a)(2) will 
be increased by one day.

[83 FR 1547, Jan. 12, 2018]



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 by Sec.  9.11(b). An exchange must make such

[[Page 356]]

findings public as soon as the disciplinary action or access denial 
action becomes effective in accordance with the provisions of Sec.  9.12 
by posting a notice on its website to which its members and the public 
regularly have access. Such notice must be maintained and readily 
available on the exchange's website.

[83 FR 1548, Jan. 12, 2018]



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 in Sec.  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 with Sec.  9.11, or within 
thirty days after notice 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 of Sec.  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 in Sec.  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

[[Page 357]]

with the provisions of Sec.  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 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 
with Sec.  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 with Sec.  9.12(b) to a person who is the 
subject of a summary action permitted by part 37, appendix B, Core 
Principle 2, paragraph (a)(14) of this chapter or part 38, appendix B, 
Core Principle 13, paragraph (a)(7) of this chapter (emergency 
disciplinary actions), that person may petition the Commission to stay 
the effectiveness of the summary action pending completion of the 
exchange proceeding.
    (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 in Sec.  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

[[Page 358]]

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.

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, as amended at 52 FR 27286, July 20, 1987; 83 
FR 1548, Jan. 12, 2018]



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 Swap Dealer and 
Intermediary Oversight and Division of Clearing and Risk 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; 78 
FR 22419, Apr. 16, 2013]

[[Page 359]]



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 in Sec.  9.11, the 
Division of Market Oversight or the Division of Swap Dealer 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 
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 in the manner 
requested by the Division and, upon request, deliver that information to 
the person who is the subject of the disciplinary or access denial 
action. Delivery to the person who is the subject of the disciplinary or 
access denial action must be in the manner prescribed by Sec.  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 NFA has received the notice of 
exchange action provided for in Sec.  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.

[83 FR 1548, Jan. 12, 2018]



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 of Sec.  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

[[Page 360]]

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 with Sec.  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 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.

[[Page 361]]

          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.
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]

[[Page 362]]



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 in Sec.  
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.
    (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 in Sec.  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

[[Page 363]]

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.



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 with Sec.  10.84 of these rules;
    (10) Certify interlocutory matters to the Commission for its 
determination in accordance with Sec.  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

[[Page 364]]

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 in Sec.  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 
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

[[Page 365]]

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 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

[[Page 366]]

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.
    (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'').
    (v) Service shall be complete at the time of personal service; upon 
deposit in the mail or with a similar commercial package 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. Where a party effects service by mail or similar package delivery 
service (but not by fax or email), the time within which the party being 
served may respond shall be extended by five (5) days. Service by fax or 
email shall be permitted at the discretion of the Presiding Officer, 
with the parties' consent. Signed documents that are served by email 
must be in PDF or other non-alterable form.
    (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

[[Page 367]]

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 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]

[[Page 368]]



 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 by Sec.  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
    (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 in Sec.  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 in Sec.  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 in Sec.  10.82 and may appeal any initial decision to the 
Commission as provided in Sec.  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

[[Page 369]]

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 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

[[Page 370]]

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 to Sec.  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 to Sec.  10.93; 
or (b) the Commission accepts an offer of settlement pursuant to Sec.  
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 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 to Sec.  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 to Sec.  
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

[[Page 371]]

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 of Sec.  10.33, Sec.  10.34 or Sec.  10.35 may be 
sought in accordance with the procedures set forth in Sec.  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 to Sec.  
10.42;
    (g) Discussing adoption of shortened procedures pursuant to Sec.  
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]



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.

[[Page 372]]

    (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 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.

[[Page 373]]

    (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 by Sec.  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:
    (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

[[Page 374]]

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 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

[[Page 375]]

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 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 in Sec.  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

[[Page 376]]

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 with Sec.  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.
    (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.

[[Page 377]]



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 in Sec.  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 in Sec.  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 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.

[[Page 378]]

    (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]



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

[[Page 379]]

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 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

[[Page 380]]

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 in Sec.  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 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

[[Page 381]]

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 with Sec.  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 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

[[Page 382]]

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 to Sec.  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 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 to Sec.  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:

[[Page 383]]

    (1) The decision shall not become final as to any party who shall 
have filed a notice of appeal pursuant to Sec.  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 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 of Sec.  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

[[Page 384]]

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 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 in Sec.  10.62 of these rules or (c) failed to 
file a statement under the shortened procedures as provided in Sec.  
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.

[[Page 385]]



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 under Sec.  10.93; and (b) the Administrative Law Judge 
may set aside a default order obtained under Sec.  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 to Sec.  10.8(b) on a 
motion to disqualify an Administrative Law Judge;
    (2) Appeal from a ruling pursuant to Sec.  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 to Sec.  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 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]

[[Page 386]]



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 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

[[Page 387]]

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.
    (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

[[Page 388]]

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.



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

[[Page 389]]

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]



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

[[Page 390]]

    (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 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 to Sec.  10.93 of 
these rules and a motion to vacate the default or equivalent request has 
been directed to the Commission under Sec.  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 by Sec.  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 with Sec.  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

[[Page 391]]

filed and perfected in accordance with Sec.  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;
    (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 by Sec.  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 to Sec.  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

[[Page 392]]

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 to Sec.  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 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, 12, 12a(5) and 15.

    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

[[Page 393]]

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.
    (b) The Commission hereby delegates, until the Commission orders 
otherwise, to its Regional Directors 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; 78 FR 
22419, Apr. 16, 2013; 82 FR 28767, June 26, 2017]



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.

[[Page 394]]



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.
    (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,

[[Page 395]]

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 Commission or its staff during 
an investigation, may be accompanied, represented, and advised by 
counsel. Subject to the provisions of Sec.  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

[[Page 396]]

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 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

[[Page 397]]

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.
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 Administrative Judge.
12.102 Disqualification of Administrative Judge.
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 this subpart.
12.201 Functions and responsibilities of the Administrative Judge.
12.202 Disqualification of Administrative Judge.
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 Disposing 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.

[[Page 398]]

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 Judge means an employee of the Commission who is 
authorized to conduct all reparations proceedings. In appropriate 
circumstances, the functions of an Administrative Judge may be performed 
by an Administrative Law Judge.
    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 expected to be involved in the 
decisionmaking process in any proceeding, including, but not limited to: 
An Administrative Judge; 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 Administrative Judges; 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 this part 
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 the rules in this part 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 Judges, 
Administrative Law Judges, and the Judges' personally assigned law 
clerks. The Director shall have the authority to delegate their duties 
to administer

[[Page 399]]

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 Administrative Judges, 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 an Administrative Judge 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 this part; or
    (3) Requests made to the Office of Proceedings or the Office of the 
General Counsel for interpretation of this part.
    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 of this part.
    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.
    Office of the General Counsel refers to the members of the 
Commission's staff who provide assistance to the Commission in its 
direct review of any proceeding conducted pursuant to this part.
    Office of Proceedings means that Office within the Commission 
comprised of the Administrative Law Judges, Administrative Judges, the 
Director of that Office, the Proceedings Clerk, and members of the 
staffs of the foregoing, which administers the rules in this part, other 
than the rules in this part 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, an Administrative Judge, 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 to Sec.  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;

[[Page 400]]

    (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 by Sec.  12.208. 
A summary decisional proceeding is governed by subpart D of this part.
    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 this part, for an expeditious resolution by an 
Administrative Judge. By electing the voluntary decisional procedure, 
parties agree that a decision issued by an Administrative Judge 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 this part.

[86 FR 64350, Nov. 18, 2021]



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]



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 the 
rules in this part or allowed by the Commission, the Director of the 
Office of Proceedings, an Administrative Judge, 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 Saturdays, 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; 86 
FR 64351, Nov. 18, 2021]

[[Page 401]]



Sec.  12.6  Extensions of time; adjournments; postponements.

    (a) In general. Except as otherwise provided by law or by the rules 
in this part, for good cause shown, the Commission, or an Administrative 
Judge, 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 in this part 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; 86 FR 64352, Nov. 18, 2021]



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:
    (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 an Administrative Judge may, to 
the extent consistent with the interests of justice and the policy of 
the Act, require the parties to show cause why their claims 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

[[Page 402]]

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; 86 
FR 64352, Nov. 18, 2021]



Sec.  12.8  Separation of functions.

    (a) An Administrative Judge, 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 an 
Administrative Judge, or Administrative Law Judge, except as a witness 
in the proceeding, without the express written consent of the parties to 
the proceeding. This paragraph (b) shall not apply to the Commissioners.

[86 FR 64352, Nov. 18, 2021]



Sec.  12.9  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. Individuals may appear pro se 
(on their 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. (1) Whenever, while a proceeding is pending before them, an 
Administrative Judge 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 of Sec.  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 Administrative Judge 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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64352, Nov. 18, 2021]



Sec.  12.10  Service.

    (a) General requirements--(1) When service is required; number of 
copies.

[[Page 403]]

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 to Sec.  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, and orders of the Proceedings Clerk, the Director of the 
Office of Proceedings, an Administrative Judge, 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 is ordered by an 
Administrative Judge, 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, as amended at 86 FR 64352, Nov. 18, 2021]



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 with Sec.  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.

[[Page 404]]

    (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 of Sec.  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) Manner. The original of all papers must be signed 
in ink by persons filing the same or by their duly authorized agents or 
attorneys.
    (2) Effect. The signature on any document of persons acting either 
for themselves or as attorney or agent for another constitutes 
certification by them that:
    (i) They have read the document and know 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 their 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 
[email protected] in accordance with the conditions set forth in 
paragraph (a)(2) of this section.
    (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, as amended at 86 FR 64352, Nov. 18, 2021]



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 persons acting 
either for themselves or as attorney or agent for another constitutes 
certification by them that:
    (1) They have read the document subscribed and know 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 their 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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64352, Nov. 18, 2021]



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 in Sec.  12.2) 
may, at any time within two years after the cause of action accrues,

[[Page 405]]

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 of interest and 
costs, exceeds $30,000); and
    (ix) A filing fee in the amount prescribed by Sec.  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. Complainant's signature shall be given under oath or affirmation 
under penalty of law attesting either that complainant knows the facts 
set forth in the complaint to be true, or believes the facts set forth 
to be true, in which event the information upon which complainant 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:

[[Page 406]]

    (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; 86 FR 64353, Nov. 18, 2021]



Sec.  12.14  Withdrawal of complaint.

    At any time prior to service of notification to the complainant 
pursuant to Sec.  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 as may be available for adjudication of the 
claims.

[86 FR 64353, Nov. 18, 2021]



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 
their 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 to Sec.  
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

[[Page 407]]

complainant to seek such alternative forms of relief as may be 
available.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64353, Nov. 18, 2021]



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 with Sec.  12.17 of these 
rules; or
    (b) Answer the complaint in the manner prescribed by Sec.  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 the 
claim; and
    (b) By submitting to the Commission notice of satisfaction and 
withdrawal of the complaint, duly executed by the complainant and the 
respondent.

[86 FR 64353, Nov. 18, 2021]



Sec.  12.18  Answer; election of procedure.

    An answer filed pursuant to Sec.  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 under Sec.  
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 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 by Sec.  
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 their discretion, 
may grant by terminating the case pursuant to Sec.  12.27, or deny by 
forwarding the pleadings and matters of record for an elected decisional 
proceeding pursuant to Sec.  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 (b).
    (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 the signer has 
read the answer; that to the best of the

[[Page 408]]

signer's knowledge all of the statements in the answer, the counterclaim 
(if any), and the materials required by this part 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 the answer 
an affidavit showing that a true copy of the answer has been served 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; 86 FR 64353, Nov. 18, 2021]



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 under Sec.  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 of the 
answer by the respondent:
    (1) Satisfy the counterclaim as if it were a complaint, in the 
manner prescribed by Sec.  12.17; 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 procedure or the formal 
decisional procedure, the complainant may make such an election in the 
reply.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64353, Nov. 18, 2021]



Sec.  12.21  Voluntary dismissal.

    (a) At any time after the Director of the Office of Proceedings has 
served notification to the parties pursuant to Sec.  12.15 of the 
Director's 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

[[Page 409]]

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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64353, Nov. 18, 2021]



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, 
or timely to comply with Sec.  12.25(b) or (c), the Director of the 
Office of Proceedings shall forward the pleadings, and other materials 
then of record, to an Administrative Judge 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 Administrative Judge 
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; 86 
FR 64353, Nov. 18, 2021]



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 to Sec.  
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 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 of Sec.  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 of Sec.  12.309 of these rules.
    (b) Default order final. A default order that has become final 
pursuant to Sec.  12.22(c) shall not be set aside except upon a motion 
filed and served by the defaulted party showing that the defaulted party 
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 the defaulted party's 
claim or defense on

[[Page 410]]

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 of Sec.  12.401. A grant of a motion to set aside a final 
default order shall be treated as a nonfinal order which may be appealed 
only in accordance with the requirements of Sec.  12.309.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64354, Nov. 18, 2021]



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 
complainant's 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;
    (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 under Sec.  12.106 of the rules is entered), a

[[Page 411]]

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 to Sec.  
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) and (2) and 
(d)(1) and (2) of this section, may take such actions as, in the 
official's 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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64354, Nov. 18, 2021]



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 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 the 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 the answer, elects the formal 
decisional procedure (available only where the amount of damages claimed 
in the complaint or as counterclaims

[[Page 412]]

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 the 
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 
subpart D or E of this part.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9637, Mar. 1, 1994; 86 FR 64354, Nov. 18, 2021]



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 this part and 
the complainant has paid the filing fee required by Sec.  12.25, the 
Director of the Office of Proceedings shall, if in the Director's 
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 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 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 an Administrative Judge 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 this part, and has paid 
the filing fee required by Sec.  12.25, the Director of the Office of 
Proceedings shall, if in the Director's 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 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 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 an 
Administrative Judge 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 the formal 
decisional procedure pursuant to subpart E of this part, and has paid 
the filing fee required by Sec.  12.25, the Director of the Office of 
Proceedings shall, if in the Director's 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 an 
Administrative Judge. 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

[[Page 413]]

imposing obligations upon the Administrative Judge.

[86 FR 64354, Nov. 18, 2021]



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 in Sec.  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 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 an Administrative Judge finds that any party, without substantial 
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

[[Page 414]]

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 by Sec.  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; 86 FR 64355, Nov. 18, 2021]



Sec.  12.31  Production of documents and tangible items.

    (a) By a party. Any party, within the time prescribed in Sec.  
12.30(d) and subject to the limitations in Sec.  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 in Sec.  12.313 and within the 
time prescribed by Sec.  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 with Sec.  12.313.



Sec.  12.32  Depositions on written interrogatories.

    (a) Notice. Any party, within the time prescribed by Sec.  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.
    (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 by Sec.  12.30(d), and only pursuant to an order entered and

[[Page 415]]

subpoena issued in accordance with the provisions of Sec.  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 
by Sec.  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 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 
an answering party qualify the answer and deny only a part of the matter 
of which an admission is requested, the answering party shall specify so 
much of it as is true and qualify or deny the remainder. Answering 
parties may not give a lack of information or knowledge as a reason for 
failure to admit or deny unless they state that they have made 
reasonable inquiry and that the information known or reasonably 
available to them is insufficient to enable them to admit or deny. 
Parties who consider 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; they may deny the matter or set forth 
reasons why they 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 the 
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 section, that official may order either that the matter is 
admitted or that an amended answer be served.
    (d) Effect of admission. Any matter admitted under this section 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 them in maintaining an action or defense on the merits.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64355, Nov. 18, 2021]



Sec.  12.34  Discovery by a decisionmaking official.

    (a) Applicability. The provisions of this section shall apply to all 
decisional proceedings commenced pursuant to Sec.  12.26. For the 
purposes of this section, the term ``decisionmaking official'' shall 
mean an Administrative Judge or Administrative Law Judge assigned to 
render a decision in the proceeding.

[[Page 416]]

    (b) Production of documents and tangible things--(1) Order for 
production. A decisionmaking official may, upon the official's 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 nonparty ordered to produce documents or any of the 
items under this paragraph (b)(1) 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 paragraph (b)(2), the 
decisionmaking official may, if upon a finding 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 their 
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 the official's 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 or non-parties of such verified statements 
and written responses as are described in this paragraph (c).

[86 FR 64355, Nov. 18, 2021]



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 to Sec.  12.34, the official assigned to render 
the decision in the case may, upon motion by a party or on the 
official's 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;

[[Page 417]]

    (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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64356, Nov. 18, 2021]



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 of Sec.  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 to Sec.  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 Administrative Judge.

    The Administrative Judge 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 to Sec.  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 in Sec.  12.34;
    (c) To issue subpoenas pursuant to Sec.  12.34 and Sec.  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 with Sec.  12.106 of these 
rules; and
    (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; 86 FR 64356, Nov. 18, 2021]



Sec.  12.102  Disqualification of Administrative Judge.

    (a) At their own request. An Administrative Judge may withdraw from 
a voluntary decisional proceeding when they consider themselves to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event the Administrative Judge shall immediately 
notify the Commission and each of the parties of the withdrawal and of 
the basis for such action.
    (b) Upon the request of a party. Any party may request an 
Administrative Judge to disqualify themselves on the grounds of personal 
bias, conflict of interest, or similar bases. Interlocutory

[[Page 418]]

review of an adverse ruling by the Administrative Judge may be sought 
without certification of the matter by the Administrative Judge only in 
accordance with the procedures set forth in Sec.  12.309.

[86 FR 64356, Nov. 18, 2021]



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 with Sec.  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 Administrative Judge 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 by Sec.  12.407(c).
    (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 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).

[[Page 419]]

    (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 to Sec.  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 to Sec.  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 of Sec.  12.407(c).

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 73 
FR 70275, Nov. 20, 2008; 86 FR 64356, Nov. 18, 2021]



      Subpart D_Rules Applicable to Summary Decisional Proceedings



Sec.  12.200  Scope and applicability of this subpart.

    The rules set forth in this subpart are applicable only to 
proceedings forwarded pursuant to Sec.  12.26(b). The rules in subpart B 
of this part permitting discovery are applicable in a summary decisional 
proceeding. Unless specifically made applicable, the rules prescribed in 
subparts C and E of this part shall not apply to such proceedings. 
Parties to a proceeding forwarded pursuant to Sec.  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 
Administrative Judge shall conduct the proceeding and render a decision 
pursuant to subpart C of this part.

[86 FR 64356, Nov. 18, 2021]



Sec.  12.201  Functions and responsibilities of the Administrative Judge.

    The Administrative Judge shall be responsible for the fair and 
orderly conduct of the proceeding and shall have the authority--
    (a) In the Administrative Judge's discretion, to conduct pre-
decision conferences in accordance with Sec.  12.206;
    (b) To rule upon all discovery-related motions, and to take such 
action pursuant to Sec.  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 in Sec.  12.34 of 
these rules;
    (d) To take such action as is appropriate under Sec.  12.35, if a 
party fails to comply with an order issued by the Administrative Judge 
pursuant to Sec.  12.34;
    (e) To rule on all motions permitted pursuant to Sec.  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;
    (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 with Sec.  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; 86 FR 64356, Nov. 18, 2021]



Sec.  12.202  Disqualification of Administrative Judge.

    (a) At their own request. An Administrative Judge may withdraw from 
a summary decisional proceeding when

[[Page 420]]

they consider themselves to be disqualified on the grounds of personal 
bias, conflict of interest, or similar bases. In such event, the 
Administrative Judge shall immediately notify the Commission and each of 
the parties of the withdrawal and of the basis for such action.
    (b) Upon the request of a party. Any party may request an 
Administrative Judge to disqualify themselves 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 Administrative Judge only in accordance with the 
procedures set forth in Sec.  12.309.

[86 FR 64356, Nov. 18, 2021]



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 with Sec.  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 Administrative Judge 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 that party 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 Administrative 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 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 that party 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; 86 
FR 64356, Nov. 18, 2021]



Sec.  12.205  Motions.

    (a) In general. Motions for relief not otherwise specifically 
provided for in this subpart (Sec. Sec.  12.200 through 12.210), 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 this subpart, all motions permitted under the 
provisions of this subpart shall be directed to the Administrative Judge 
prior to the filing of the initial decision, and to 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, 
or within such longer or shorter period as is established by the 
provisions of this part, or as the Administrative Judge or the 
Commission may direct.
    (c) Dismissal--(1) By the Administrative Judge. An Administrative 
Judge, acting upon their own motion, may:
    (i) Dismiss the entire proceeding without prejudice to 
counterclaims, if the Administrative Judge finds that

[[Page 421]]

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 the Administrative Judge 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 
Administrative 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 (see Sec.  12.213(d)), and may be 
appealed to the Commission in accordance with the requirements of Sec.  
12.401 of these rules.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64357, Nov. 18, 2021]



Sec.  12.206  Pre-decision conferences.

    (a) At any time after a summary decisional proceeding has been 
commenced pursuant to Sec.  12.26(b), the Administrative Judge may, in 
their discretion, conduct one or more pre-decision conferences to be 
held in Washington, DC, or by telephone, with all parties, for the 
purposes of:
    (1) Discussing the advisability of electing the voluntary decisional 
procedure;
    (2) Encouraging settlement of the entire case, or any part thereof, 
(such discussions may be ex parte with the consent of all parties);
    (3) Simplifying or clarifying issues;
    (4) Obtaining stipulations, admissions of fact and of authenticity 
of documents;
    (5) Discussing amendments or supplements to the pleadings;
    (6) Encouraging an early settlement of disputes relating to 
discovery; and
    (7) Discussing any matters of relevance in the proceeding.
    (b) At or following the conclusion of such a conference, the 
Administrative Judge may serve a pre-decision memorandum and order 
setting forth the agreements, if any, reached by the parties, any 
procedural determinations made by the Administrative Judge, 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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64357, Nov. 18, 2021]



Sec.  12.207  Summary disposition.

    (a) Filing of motions, answers. Any parties who believe that there 
is no genuine issue of material fact to be determined and that they are 
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 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 Judge, adverse 
parties may not rest upon the mere allegations, but shall serve and file 
in response a statement setting forth those material facts as to which 
they contend a genuine issue exists, supported by affidavits and other 
verified material. They may also submit a brief of points and 
authorities.

[[Page 422]]

    (c) Summary disposition upon motion of the Administrative Judge. If 
the Administrative Judge 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, the Administrative Judge 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 Administrative Judge 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 that party's 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 (see Sec.  12.210(d)), and may be appealed to the 
Commission, in accordance with Sec.  12.401 of these rules.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64357, Nov. 18, 2021]



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 Administrative Judge 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 
Administrative Judge. An oral hearing held under this section will be 
convened by conference telephone call as provided in Sec.  12.209(b), 
except that an in-person hearing may be held in Washington, DC, under 
the circumstances set forth in Sec.  12.209(c).

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 86 
FR 64357, Nov. 18, 2021]



Sec.  12.209  Oral testimony.

    (a) Generally. When the Administrative Judge 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 in 
paragraphs (b) through (d) of this section. The Administrative Judge, in 
their 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 their discretion, the Administrative Judge 
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 an Administrative Judge 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 
Administrative Judge also may impose any appropriate sanction listed in 
Sec.  12.35. All telephonic hearings will be recorded electronically but 
will be transcribed only upon direction of the Administrative Judge (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

[[Page 423]]

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 Administrative Judge 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 Administrative Judge 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 in 
this section, an in-person hearing will be held and recorded in the 
manner prescribed in Sec.  12.312(c) through (f). 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 under Sec.  12.35 as 
the Administrative Judge may find appropriate. The Administrative Judge 
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 
Administrative Judge 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 at Sec.  12.313.

[86 FR 64358, Nov. 18, 2021]



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 Administrative Judge shall 
make the initial decision, which will be filed forthwith 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 by Sec.  12.407(c).
    (b) Content of initial decision. In the initial decision in a 
summary decisional proceeding, the Administrative Judge shall:
    (1) Include a brief statement of the findings as to the facts, with 
reference to those portions of the record which support those 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 Administrative Judge may, in 
the initial decision, award costs (including the costs of instituting 
the proceeding, and if appropriate, reasonable attorneys' 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.

[[Page 424]]

    (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 with Sec.  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; 86 
FR 64358, Nov. 18, 2021]



       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 to Sec.  12.26(c) of the Reparation Rules. The rules 
in subpart B permitting discovery are applicable in a formal decisional 
proceeding, as supplemented by Sec.  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 to Sec.  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.

    (a) During the time period permitted for discovery pursuant to Sec.  
12.30(d), and thereafter, Administrative Law Judges may, in their 
discretion, conduct one or more pre-decision conferences to be held in 
Washington, DC, or by telephone, with all parties for the purposes of:
    (1) Discussing the advisability of electing the voluntary decisional 
procedure;
    (2) Encouraging a settlement of the entire case, or any part thereof 
(such discussions may be ex parte with the consent of all parties);
    (3) Simplifying or clarifying issues;
    (4) Obtaining stipulations, admissions of fact and of authenticity 
of documents;
    (5) Discussing amendments or supplements to the pleadings;
    (6) Encouraging an early settlement of disputes relating to 
discovery; and
    (7) Discussing any matters of relevance in the proceeding.
    (b) At or following the conclusion of a pre-decision conference, 
Administrative Law Judges may serve a pre-decision memorandum and order 
setting forth the agreements reached by the parties, any procedural 
determinations made by them, 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; 86 
FR 64358, Nov. 18, 2021]



Sec.  12.304  Functions and responsibilities of the Administrative Law Judge.

    Once an Administrative Law Judge 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 in Sec.  12.34 of these 
rules;
    (b) To issue subpoenas pursuant to Sec. Sec.  12.34, 12.36, and 
12.313 of these rules;

[[Page 425]]

    (c) To take such action as is appropriate pursuant to Sec.  12.35 if 
a party fails to comply with a discovery order, or an order issued 
pursuant to Sec.  12.34 of these rules;
    (d) [Reserved]
    (e) In the Administrative Law Judge's discretion, to conduct pre-
decision conferences, for the purposes prescribed in Sec.  12.303, at 
any time after a proceeding has commenced pursuant to Sec.  12.26(c);
    (f) To issue pre-hearing orders as required by Sec.  12.312(a);
    (g) To certify interlocutory matters to the Commission for its 
determination in accordance with Sec.  12.309;
    (h) To issue orders of dismissal pursuant to Sec.  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 by Sec.  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; 86 FR 64358, 
Nov. 18, 2021]



Sec.  12.305  Disqualification of Administrative Law Judge.

    (a) At their own request. An Administrative Law Judge may withdraw 
from a formal decisional proceeding when they consider themselves to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event, they shall immediately notify the 
Commission and each of the parties of the withdrawal and of the basis 
for such action.
    (b) Upon the request of a party. Any party may request an 
Administrative Law Judge to disqualify themselves 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 in Sec.  12.309.

[86 FR 64359, Nov. 18, 2021]



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 to Sec.  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 with Sec.  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 that party 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 
within ten (10) days after the date of service upon that party 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

[[Page 426]]

treated in all respects as if they had been raised in the pleadings.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64359, Nov. 18, 2021]



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 that party, or within such longer or shorter period as established 
by this part, 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 their own motion, may, at any time 
after they have been assigned the case:
    (i) Dismiss the entire proceeding, without prejudice to 
counterclaims, if they find 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 they find 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 in Sec.  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.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64359, Nov. 18, 2021]



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 to Sec.  12.102, Sec.  
12.202, or Sec.  12.305 refusing to grant a motion to disqualify an 
Administrative Judge or Administrative Law Judge;
    (2) The appeal is from a ruling pursuant to Sec.  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

[[Page 427]]

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 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 an Administrative Judge, 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 Administrative Judge) and denied.
    (e) Interlocutory review by the Commission on its own motion. 
Nothing in this section 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 
an Administrative Judge in any proceeding commenced pursuant to Sec.  
12.26.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64359, Nov. 18, 2021]



Sec.  12.310  Summary disposition.

    (a) Filing of motions, answers. Any parties who believe that there 
is no genuine issue of material fact to be determined and that they are 
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 the adverse party contends a genuine issue exists, supported by 
affidavits and other verified material. The adverse party 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

[[Page 428]]

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 of the parties may 
be entitled to a decision as a matter of law, the Administrative Law 
Judge 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 with Sec.  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 in Sec.  12.401 of these 
rules.

[49 FR 6621, Feb. 22, 1984, as amended at 86 FR 64359, Nov. 18, 2021]



Sec.  12.311  Disposing 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, the Administrative 
Law Judge 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.

[86 FR 64359, Nov. 18, 2021]



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

[[Page 429]]

practical necessity determines otherwise, and except as provided in this 
paragraph (b), 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.; 
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 the party's principal residence, waive this 
paragraph (b) 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, the non-
appearing party 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 to Sec.  12.35 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 
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 their 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 their 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 shall be supplied by the introducing party 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, examiners may make a specific offer of what 
they expect to prove by the answer of the witness. Rejected exhibits, 
adequately

[[Page 430]]

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 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 of law; briefs. An 
Administrative Law Judge, upon their 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, as amended at 86 
FR 64360, Nov. 18, 2021]



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 they are satisfied the application complies 
with this section and the request is not unreasonable, oppressive, 
excessive in scope or unduly burdensome. In the event they determine 
that a requested subpoena or any of its terms is unreasonable, 
oppressive, excessive in scope, or unduly burdensome, the Administrative 
Law Judge may refuse to issue the subpoena, or may issue it only upon 
such conditions as they determine 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 the 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

[[Page 431]]

party shall be made in accordance with Sec.  12.10. Service of a 
subpoena upon any other person shall be made by delivering a copy of the 
subpoena to them as provided in paragraph (c)(2) or (3) of this section, 
and by tendering to them 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 them to the person;
    (ii) Leaving them at the person's 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 the person's 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 them at their 
last known address; or
    (v) Any other method whereby actual notice is given to the person 
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 the person's 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; 86 FR 64360, 
Nov. 18, 2021]



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 shall forthwith be filed 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 by Sec.  12.407(c).

[[Page 432]]

    (b) Content of initial decision. In the initial decision the 
Administrative Law Judge shall:
    (1) Include a brief statement of findings as to the facts, with 
references to those portions of the record which support those 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 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 with Sec.  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; 86 FR 64361, Nov. 18, 2021]



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 to Sec.  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 to Sec.  12.26(a) of the Reparation Rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]

[[Page 433]]



Sec.  12.401  Appeal to the Commission.

    (a) How effected. Any aggrieved party to a proceeding forwarded 
pursuant to Sec.  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 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 of Sec.  12.11 of 
these rules as to form. The content of briefs shall satisfy the 
requirements of Sec.  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 to Sec.  12.26(b) or (c), the Administrative Judge or 
Administrative Law Judge, may upon the Judge's 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

[[Page 434]]

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 by Sec.  
12.401.
    (b) When decision is not appealable. In the absence of such a 
direction by the Administrative Judge 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 
section.

[86 FR 64361, Nov. 18, 2021]



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 to Sec.  
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 to Sec.  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 to Sec.  
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 Administrative Judge or Administrative Law 
Judge to receive the additional evidence.

[86 FR 64361, Nov. 18, 2021]



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 to Sec.  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

[[Page 435]]

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 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 this Sec.  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 
in Sec.  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 to Sec.  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 to Sec.  
12.401, or unless the Commission, pursuant to Sec.  12.403(a), has 
stayed the effective date of the initial decision.
    (2) Final decision pursuant to Sec.  12.406. Any reparation award 
ordered in a final decision of the Commission issued pursuant to Sec.  
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, the 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 in Sec.  12.401.)

[[Page 436]]

    (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 the amount required has been paid 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 rules in this part.
    (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; 86 FR 64361, Nov. 
18, 2021]



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 them, or 
such person or persons under their direction as they 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, Administrative Judge, 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 their 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 their 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 Judge or Administrative Law Judge in cases 
in which the Administrative Judge or Administrative Law Judge has not 
certified the ruling to the Commission in the manner prescribed by Sec.  
12.309, and the ruling does not concern the disqualification of, or a 
motion to disqualify, an Administrative Judge or Administrative Law 
Judge, 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 
Administrative Judge), in a proceeding where such appeal is not filed or 
perfected in accordance with Sec.  12.401, and deny any application for 
interlocutory review if it is not filed in accordance with Sec.  12.309;
    (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 their judgment, will facilitate or 
expedite Commission review of an initial decision or other order 
disposing of the entire proceeding.

[[Page 437]]

    (b) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which the General Counsel believes it appropriate, the 
General Counsel or their designee may submit the matter to the 
Commission for its consideration.
    (c) Within seven (7) days after service of a ruling issued pursuant 
to this Sec.  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; 78 FR 1145, Jan. 8, 2013; 86 FR 
64361, Nov. 18, 2021]



PART 13_PROCEDURES FOR PETITIONS FOR RULEMAKING--Table of Contents



Sec.
13.1 Petition for issuance, amendment, or repeal of a rule.
13.2 [Reserved]

    Authority: 7 U.S.C. 2(a)(12).

    Source: 84 FR 68789, Dec. 17, 2019, unless otherwise noted.



Sec.  13.1  Petition for issuance, amendment, or repeal of a rule.

    Any person may file a petition with the Secretariat of the 
Commission, by mail or electronically through the Commission website, 
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 final 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.



Sec.  13.2  [Reserved]



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).

    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 of Sec.  10.11(b) of this chapter or from further 
participation in a particular investigatory proceeding in accordance 
with the provisions of Sec.  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.

[[Page 438]]

    (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 
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)

[[Page 439]]

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 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 professional conduct 
either in the course of any adjudicatory, investigative or rulemaking or 
other proceeding before the Commission or otherwise. With respect to the 
professional conduct of persons licensed to practice as accountants, 
``unethical or improper professional conduct'' means:
    (1) Intentional or knowing conduct, including reckless conduct, that 
results in a violation of applicable professional principles or 
standards; or
    (2) Either of the following two types of negligent conduct:
    (i) A single instance of highly unreasonable conduct that results in 
a violation of applicable professional principles or standards in 
circumstances in

[[Page 440]]

which an accountant knows, or should know, that heightened scrutiny is 
warranted.
    (ii) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional principles or standards, which 
indicate a lack of competence to practice before the Commission.

[41 FR 28472, July 12, 1976, as amended at 80 FR 32857, June 10, 2015]



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 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 Reportable trading volume level.
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 in Sec.  1.3 of this 
chapter) and ``options customer'' (as defined in Sec.  1.3 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

[[Page 441]]

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.
    (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 in Sec.  1.3 
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 and 18 and in Sec.  19.00(a) 
and (b) of this chapter, any open contract position that at the close of 
the market on any business day equals or exceeds the quantity specified 
in Sec.  15.03 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 the 
reporting market; or
    (ii) Long or short put or call options that exercise into the same 
futures contract 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 in Sec.  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

[[Page 442]]

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 in Sec.  150.2 of 
this chapter for the particular commodity and reporting market.
    (q) Reporting market means a designated contract market or a 
registered entity under section 1a(40) of the Act.
    (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.
    (t) Control means to actually direct, by power of attorney or 
otherwise, the trading of a special account or a consolidated account. A 
special account or a consolidated account may have more than one 
controller.
    (u) Reportable trading volume means contract trading volume that 
meets or exceeds the level specified in Sec.  15.04.
    (v) Omnibus account means any trading account that one futures 
commission merchant, clearing member or foreign broker carries for 
another and in which the transactions of multiple individual accounts 
are combined. The identities of the holders of the individual accounts 
are not generally known or disclosed to the carrying firm.
    (w) Omnibus account originator means any futures commission 
merchant, clearing member or foreign broker that executes trades for one 
or more customers via one or more accounts that are part of an omnibus 
account carried by another futures commission merchant, clearing member 
or foreign broker.
    (x) Volume threshold account means any trading account that carries 
reportable trading volume on or subject to the rules of a reporting 
market that is a board of trade designated as a contract market under 
section 5 of the Act or a swap execution facility registered under 
section 5h of the Act.
    (y) Omnibus volume threshold account means any trading account that, 
on an omnibus basis, carries reportable trading volume on or subject to 
the rules of a reporting market that is a board of trade designated as a 
contract market under section 5 of the Act or a swap execution facility 
registered under section 5h of the Act.
    (z) Omnibus reportable sub-account means any trading sub-account of 
an omnibus volume threshold account, which sub-account executes 
reportable trading volume on an omnibus basis. Omnibus reportable sub-
account also means any trading account that is itself an omnibus 
account, executes reportable trading volume, and is a sub-account of 
another omnibus reportable sub-account.
    (aa) Reportable sub-account means any trading sub-account of an 
omnibus volume threshold account or omnibus reportable sub-account, 
which sub-account executes reportable trading volume.
    (bb) Trading account controller means, for reports specified in 
Sec.  17.01(a) of this chapter, a natural person who by power of 
attorney or otherwise actually directs the trading of a trading account. 
A trading account may have more than one controller.
    (cc) Volume threshold account controller means a natural person who 
by power of attorney or otherwise actually directs the trading of a 
volume threshold account. A volume threshold account may have more than 
one controller.
    (dd) Reportable sub-account controller means a natural person who by 
power of attorney or otherwise actually directs the trading of a 
reportable sub-account. A reportable sub-account may have more than one 
controller.

[74 FR 12188, Mar. 23, 2009, as amended at 76 FR 43862, July 22, 2011; 
77 FR 66332, Nov. 2, 2012; 78 FR 69230, Nov. 18, 2013; 83 FR 7996, Feb. 
23, 2018; 86 FR 3454, Jan. 14, 2021]



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

[[Page 443]]

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 specified in parts 17 and 21 of 
this chapter.
    (c) As specified in part 18 of this chapter:
    (1) Traders who own, hold, or control reportable positions;
    (2) Volume threshold account controllers;
    (3) Persons who own volume threshold accounts;
    (4) Reportable sub-account controllers; and
    (5) Persons who own reportable sub-accounts.
    (d) Persons, as specified in part 19 of this chapter, who:
    (1) Are merchants or dealers of cotton holding or controlling 
positions for future delivery in cotton that equal or exceed the amount 
set forth in Sec.  15.03; or
    (2) Are persons who have received a special call from the Commission 
or its designee under Sec.  19.00(b) of this chapter.

(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; 78 FR 69230, Nov. 18, 2013; 83 FR 7996, Feb. 
23, 2018; 86 FR 3454, Jan. 14, 2021]



Sec.  15.02  Reporting forms.

    Forms on which to report may be obtained from any office of the 
Commission or via https://www.cftc.gov. Listed below are the forms to be 
used for the filing of reports. To determine who shall file these forms, 
refer to the Commission rule listed in the column opposite the form 
number.
[GRAPHIC] [TIFF OMITTED] TR14JA21.015


(Approved by the Office of Management and Budget under control numbers 
3038-0007, 3038-0009, and 3038-0103.)

[86 FR 3454, Jan. 14, 2021]

[[Page 444]]



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
  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  Reportable trading volume level.

    The volume quantity for the purpose of reports filed under parts 17 
and 18 of this chapter is trading volume of 50 or more contracts, during 
a single trading day, on a single reporting market that is a board of 
trade designated as a contract market under section 5 of the Act or a 
swap execution facility registered under section 5h of the Act, in all 
instruments that such reporting market designates with the same product 
identifier (including purchases and sales, and inclusive of all 
expiration months).

[78 FR 69230, Nov. 18, 2013]



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, 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

[[Page 445]]

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 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

[[Page 446]]

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 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

[[Page 447]]

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 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

[[Page 448]]

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; 80 FR 59577, Oct. 2, 2015]



Sec.  15.06  Delegations.

    (a) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to approve data processing media, as referenced 
in Sec.  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 Office of Data and 
          Technology and to the Director of the Division of Market 
          Oversight.

    Authority: 7 U.S.C. 2, 6a, 6c, 6g, 6i, 7, and 7b-3.



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;

[[Page 449]]

    (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:
    (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

[[Page 450]]

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 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

[[Page 451]]

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 Office of Data 
and Technology and to the Director of the Division of Market Oversight.

    (a) The Commission hereby delegates, until the Commission orders 
otherwise, the authority set forth in paragraphs (b) and (c) of this 
section to the Director of the Office of Data and Technology, with the 
concurrence of the Director of the Division of Market Oversight, or such 
other employee or employees as the Directors each may designate from 
time to time. The Commission hereby delegates, until the Commission 
orders otherwise, the authority set forth in paragraph (d) 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 Directors 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) Pursuant to Sec. Sec.  16.00(b) and 16.01(d), as applicable, the 
authority to, with the concurrence of the Director of the Division of 
Market Oversight or the Director's delegate, 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.
    (c) Pursuant to Sec. Sec.  16.00(b)(1), 16.01(d)(1), and 16.06, the 
authority to, with the concurrence of the Director of the Division 
Market Oversight or the Director's delegate, approve the format, coding 
structure and electronic data transmission procedures used by reporting 
markets.
    (d) Pursuant to Sec.  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

[[Page 452]]

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.

[82 FR 28767, June 26, 2017]



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 Identification of special accounts, volume threshold accounts, and 
          omnibus accounts.
17.02 Form, manner and time of filing reports.
17.03 Delegation of authority to the Director of the Office of Data and 
          Technology or the Director of the Division of Market 
          Oversight.
17.04 Reporting omnibus accounts to the carrying futures commission 
          merchant or foreign broker.

Appendix A to Part 17--Form 102
Appendix B to Part 17--Form 71

    Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 6t, 7, 7a, and 12a.



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 in Sec.  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 the purpose 
of determining special account status and for reporting purposes.
    (1) Accounts of eligible entities--Accounts of eligible entities as 
defined in Sec.  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

[[Page 453]]

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 the account 
number right-justified. Assignment of the account number is subject to 
the provisions of paragraph (b) of this section and appendix A of this 
part (Form 102).
    (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

[[Page 454]]

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 to Sec.  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 affecting Sec.  
17.00, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.govinfo.gov.



Sec.  17.01  Identification of special accounts, volume threshold accounts, 
and omnibus accounts.

    (a) Identification of special accounts. When a special account is 
reported for the first time, the futures commission merchant, clearing 
member, or foreign broker shall identify the special account to the 
Commission on Form 102, in accordance with the form instructions and as 
specified in Sec.  17.02(b).
    (b) Identification of volume threshold accounts. Each clearing 
member shall identify and report its volume threshold accounts to the 
Commission on Form 102, in accordance with the form instructions and as 
specified in Sec.  17.02(c).
    (c) Identification of omnibus accounts and sub-accounts. Each 
originator of an omnibus volume threshold account identified in Form 102 
or an omnibus reportable sub-account identified in Form 71 shall, after 
a special call upon such originator by the Commission or its designee, 
file with the Commission an ``Identification of Omnibus Accounts and 
Sub-Accounts'' on Form 71,

[[Page 455]]

to be completed in accordance with the instructions thereto, at such 
time and place as directed in the call.
    (d) 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) and (b) of this 
section, as they apply to trading in such contracts by all clearing 
members, on behalf of all clearing members.
    (e) Special call provision. Upon a call by the Commission or its 
designee, the reports required to be filed by futures commission 
merchants, clearing members, foreign brokers, and reporting markets 
under paragraphs (a) through (d) of this section shall be submitted 
within 24 hours of the Commission or its designee's request in 
accordance with the instructions accompanying the request.

[78 FR 69231, Nov. 18, 2013]



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) through (c) of 
this section.
    (a) Section 17.00(a) reports. Reports filed under Sec.  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(a) reports. For data submitted pursuant to Sec.  
17.01(a) on Form 102:
    (1) Form of submission. Form 102 must be submitted to the Commission 
in the form and manner provided on www.cftc.gov.
    (2) Time of submission. For each account that becomes reportable as 
a special account, the futures commission merchant, clearing member, or 
foreign broker, as appropriate, shall submit a Form 102 to the 
Commission, in accordance with the instructions thereto, and in the 
manner specified by the Commission or its designee. Such form shall be 
submitted in accordance with the instructions and schedule set forth in 
paragraphs (b)(2)(i) and (ii) of this section:
    (i) The applicable reporting party shall submit a completed Form 102 
to the Commission no later than 9 a.m. on the business day following the 
date on which the special account becomes reportable, or on such other 
date as directed by special call of the Commission or its designee, and 
as periodically required thereafter by paragraphs (b)(3) and (4) of this 
section. Such form shall include all required information, including the 
names of the owner(s) and controller(s) of each trading account that is 
not an omnibus account, and that comprises a special account reported on 
the form, provided that, with respect to such owners(s) and 
controller(s), information other than the names of such parties may be 
reported in accordance with the instructions and schedule set forth in 
paragraph (b)(2)(ii) of this section. 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.
    (ii) With respect to the owner(s) and controller(s) of each trading 
account that is not an omnibus account, and that comprises a special 
account reported on Form 102, information other than the names of such 
parties must be provided on Form 102 no later than 9 a.m. on the third 
business day following the date on which the special account becomes 
reportable, or on such other date as directed by special call of the 
Commission or its designee, and as periodically required thereafter by 
paragraphs (b)(3) and (4) of this section. 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.

[[Page 456]]

    (3) Change updates. If any change causes the information filed by a 
futures commission merchant, clearing member, or foreign broker on a 
Form 102 for a special account to no longer be accurate, then such 
futures commission merchant, clearing member, or foreign broker shall 
file an updated Form 102 with the Commission in accordance with the 
instructions and schedule set forth in paragraphs (b)(2)(i) and (ii) of 
this section, or on such other date as directed by special call of the 
Commission, provided that, a futures commission merchant, clearing 
member, or foreign broker may stop providing change updates for a Form 
102 that it has submitted to the Commission for any special account upon 
notifying the Commission or its designee that the account in question is 
no longer reportable as a special account and has not been reportable as 
a special account for the past six months.
    (4) Refresh updates. For Special Accounts--Starting on a date 
specified by the Commission or its designee and at the end of each 
annual increment thereafter (or such other date specified by the 
Commission or its designee that is equal to or greater than six months), 
each futures commission merchant, clearing member, or foreign broker 
shall resubmit every Form 102 that it has submitted to the Commission 
for each of its special accounts, provided that, a futures commission 
merchant, clearing member, or foreign broker may stop providing refresh 
updates for a Form 102 that it has submitted to the Commission for any 
special account upon notifying the Commission or its designee that the 
account in question is no longer reportable as a special account and has 
not been reportable as a special account for the past six months.
    (c) Section 17.01(b) reports. For data submitted pursuant to Sec.  
17.01(b) on Form 102:
    (1) Form of submission. Form 102 must be submitted to the Commission 
in the form and manner provided on www.cftc.gov.
    (2) Time of submission. For each account that becomes reportable as 
a volume threshold account, the clearing member shall submit a Form 102 
to the Commission, in accordance with the instructions thereto, and in 
the manner specified by the Commission or its designee. Such form shall 
be submitted in accordance with the instructions and schedule set forth 
in paragraphs (c)(2)(i) and (ii) of this section:
    (i) The clearing member shall submit a completed Form 102 to the 
Commission no later than 9 a.m. on the business day following the date 
on which the volume threshold account becomes reportable, or on such 
other date as directed by special call of the Commission or its 
designee, and as periodically required thereafter by paragraphs (c)(3) 
and (4) of this section. Such form shall include all required 
information, including the names of the owner(s) and controller(s) of 
each volume threshold account reported on the form that is not an 
omnibus account, provided that, with respect to such owners(s) and 
controller(s), information other than the names of such parties may be 
reported in accordance with the instructions and schedule set forth in 
paragraph (c)(2)(ii) of this section. 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.
    (ii) With respect to the owner(s) and controller(s) of each volume 
threshold account reported on Form 102 that is not an omnibus account, 
information other than the names of such parties must be provided on 
Form 102 no later than 9 a.m. on the third business day following the 
date on which the volume threshold account becomes reportable, or on 
such other date as directed by special call of the Commission or its 
designee, and as periodically required thereafter by paragraphs (c)(3) 
and (4) of this section. 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.
    (3) Change updates. If any change causes the information filed by a 
clearing member on a Form 102 for a volume threshold account to no 
longer be accurate, then such clearing member shall

[[Page 457]]

file an updated Form 102 with the Commission in accordance with the 
instructions and schedule set forth in paragraphs (c)(2)(i) and (ii) of 
this section, or on such other date as directed by special call of the 
Commission, provided that, a clearing member may stop providing Form 102 
change updates for a volume threshold account upon notifying the 
Commission or its designee that the volume threshold account executed no 
trades in any product in the past six months on the reporting market at 
which the volume threshold account reached the reportable trading volume 
level.
    (4) Refresh updates. For Volume Threshold Accounts--Starting on a 
date specified by the Commission or its designee and at the end of each 
annual increment thereafter (or such other date specified by the 
Commission or its designee that is equal to or greater than six months), 
each clearing member shall resubmit every Form 102 that it has submitted 
to the Commission for each of its volume threshold accounts, provided 
that, a clearing member may stop providing refresh updates for a Form 
102 that it has submitted to the Commission for any volume threshold 
account upon notifying the Commission or its designee that the volume 
threshold account executed no trades in any product in the past six 
months on the reporting market at which the volume threshold account 
reached the reportable trading volume level.

[71 FR 37820, July 3, 2006, as amended at 78 FR 69231, Nov. 18, 2013; 82 
FR 28767, June 26, 2017]



Sec.  17.03  Delegation of authority to the Director of the Office of Data 
and Technology or 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 either the 
Director of the Office of Data and Technology or the Director of the 
Division of Market Oversight, as indicated below, to be exercised by 
such Director or by such other employee or employees of such Director as 
designated from time to time by such Director. The Director of the 
Office of Data and Technology or the Director of the Division of Market 
Oversight may submit to the Commission for its consideration any matter 
which has been delegated to such Director 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.  17.00(a) and (h), the authority shall be 
designated to the Director of the Office of Data and Technology to 
determine whether futures commission merchants, clearing members and 
foreign brokers can report the information required under Sec.  17.00(a) 
and (h) 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 to Sec.  17.02, the authority shall be designated to 
the Director of the Office of Data and Technology to instruct or approve 
the time at which the information required under Sec. Sec.  17.00 and 
17.01(a) and (b) 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.  17.02.
    (c) Pursuant to Sec.  17.01, the authority shall be designated to 
the Director of the Office of Data and Technology to determine whether 
to permit an authorized representative of a firm filing the Form 102 or 
person filing the Form 71 to use a means of authenticating the report 
other than by signing the Form 102 or Form 71 and, if so, to determine 
the alternative means of authentication that shall be used.
    (d) Pursuant to Sec.  17.00(a), the authority shall be designated to 
the Director of the Office of Data and Technology to approve a format 
and coding structure other than that set forth in Sec.  17.00(g).
    (e) Pursuant to Sec.  17.01(c), the authority shall be designated to 
the Director of the Office of Data and Technology, in consultation with 
the Director of the Division of Market Oversight, or such other employee 
or employees as the Directors each may designate from time to time, to 
make special calls on Form 71 for omnibus volume threshold

[[Page 458]]

account originators and omnibus reportable sub-account originators 
information as set forth in Sec.  17.01(c).
    (f) Pursuant to Sec.  17.01(e), the authority shall be designated to 
the Director of the Office of Data and Technology, in consultation with 
the Director of the Division of Market Oversight, or such other employee 
or employees as the Directors each may designate from time to time, to 
request information required to be filed by futures commission 
merchants, clearing members, foreign brokers, and reporting markets as 
set forth in Sec.  17.01.
    (g) Pursuant to Sec.  17.02(b)(4), the authority shall be designated 
to the Director of the Division of Market Oversight to determine the 
date on which each futures commission merchant, clearing member, or 
foreign broker shall update or otherwise resubmit every Form 102 that it 
has submitted to the Commission for each of its special accounts.
    (h) Pursuant to Sec.  17.02(c)(4), the authority shall be designated 
to the Director of the Division of Market Oversight to determine the 
date on which each clearing member shall update or otherwise resubmit 
every Form 102 that it has submitted to the Commission for each of its 
volume threshold accounts.
    (i) Pursuant to Sec.  17.00(b), and as specifically provided in 
Sec.  150.4 of this chapter, the authority shall be designated to the 
Director of the Office of Data and Technology to instruct a futures 
commission merchant, clearing member, or foreign broker to consider 
otherwise than as a single account for the purpose of determining 
special account status and for reporting purposes all accounts one 
person holds or controls, or in which the person has a financial 
interest.

[78 FR 69232, Nov. 18, 2013, as amended at 82 FR 28768, June 26, 2017; 
86 FR 3455, Jan. 14, 2021]



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

[[Page 459]]

    (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]



                  Sec. Appendix A to Part 17--Form 102

    Note: This Appendix is a representation of the final reporting form, 
which will be submitted in an electronic format pursuant to the rules in 
part 17, either via the Commission's web portal or via XML-based, secure 
FTP transmission.
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[78 FR 69232, Nov. 18, 2013]



                   Sec. Appendix B to Part 17--Form 71

    Note: This Appendix is a representation of the final reporting form, 
which will be submitted in an electronic format pursuant to the rules in 
part 17, either via the Commission's web portal or via XML-based, secure 
FTP transmission.

[[Page 479]]

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[78 FR 69252, Nov. 18, 2013]



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.
18.04 Statement of reporting trader.
18.05 Maintenance of books and records.
18.06 [Reserved]

Appendix A to Part 18--Form 40

    Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t, 
12a, and 19.



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 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]

[[Page 486]]



Sec.  18.02  [Reserved]



Sec.  18.03  Delegation of authority.

    (a) 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 and 18.05 to the Director 
of the Division of Enforcement, or such other employee or employees as 
the Director may designate from time to time.
    (b) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls for information as set 
forth in Sec.  18.04 to the Director of the Office of Data and 
Technology to be exercised by the Director, in consultation with the 
Director of the Division of Market Oversight, or such other employee or 
employees as the Directors each may designate from time to time.
    (c) The Directors of the Division of Enforcement and Office of Data 
and Technology may submit to the Commission for its consideration any 
matter which has been delegated in this section.
    (d) Nothing in this section prohibits the Commission, at its 
election, from exercising the authority delegated in this section.

[82 FR 28768, June 26, 2017]



Sec.  18.04  Statement of reporting trader.

    (a) Every trader who owns, 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, to be completed in accordance with 
the instructions thereto, at such time and place as directed in the 
call.
    (b) Every volume threshold account controller, person who owns a 
volume threshold account, reportable sub-account controller, and person 
who owns a reportable sub-account shall after a special call upon such 
person by the Commission or its designee file with the Commission a 
``Statement of Reporting Trader'' on the Form 40, to be completed in 
accordance with the instructions thereto, at such time and place as 
directed in the call.

[78 FR 69259, Nov. 18, 2013



Sec.  18.05  Maintenance of books and records.

    (a) Every volume threshold account controller; person who owns a 
volume threshold account; reportable sub-account controller; person who 
owns a reportable sub-account; and trader who owns, 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 or swap:
    (1) On all reporting markets;
    (2) Executed over the counter or pursuant to part 35 of this 
chapter; and
    (3) On foreign boards of trade.
    (b) Every such volume threshold account controller; person who owns 
a volume threshold account; reportable sub-account controller; person 
who owns a reportable sub-account; and trader who owns, holds, or 
controls a reportable futures or option position shall also keep books 
and records showing all details concerning all positions and 
transactions in the cash commodity or swap, its products and byproducts, 
and all commercial activities that it hedges in the futures, option, or 
swap contract in which it is reportable.
    (c) Every volume threshold account controller; person who owns a 
volume threshold account; reportable sub-account controller; person who 
owns a reportable sub-account; and trader who owns, holds, or controls a 
reportable futures or option position 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; 78 FR 69259, Nov. 18, 2013; 80 FR 59577, Oct. 
2, 2015]



Sec.  18.06  [Reserved]






                   Sec. Appendix A to Part 18--Form 40

    Note: This Appendix is a representation of the final reporting form, 
which will be submitted in an electronic format pursuant to

[[Page 487]]

the rules in part 18, either via the Commission's web portal or via XML-
based, secure FTP transmission.
[GRAPHIC] [TIFF OMITTED] TR18NO13.030

                          General Instructions

    Who Must File a Form 40--17 CFR 18.04(a) requires every person who 
owns or controls a reportable position to file a Form 40--Statement of 
Reporting Trader with the Commission. 17 CFR 18.04(b) requires every 
volume threshold account controller, person who owns a volume threshold 
account, reportable sub-account controller, and person who owns a 
reportable sub-account to file a Form 40--Statement of Reporting Trader 
with the

[[Page 488]]

Commission. 17 CFR 20.5 requires every person subject to books or 
records under 17 CFR 20.6 to file a 40S filing \3\ with the Commission.
---------------------------------------------------------------------------

    \3\ As used in this document, ``Form 40'' may refer to either a Form 
40--Statement of Reporting Trader or a 40S Filing, as appropriate, and 
as the context may require.
---------------------------------------------------------------------------

    When to file--A reporting trader must file a Form 40 on call by the 
Commission or its designee.
    Where to file--The Form 40 should be submitted (a) via the CFTC's 
web-based Form 40 submission process at www.cftc.gov, (b) via a secure 
FTP data feed to the Commission, or (c) as otherwise instructed by the 
Commission or its designee. If electronic submission attempts fail, the 
reporting trader shall contact the Commission at [email protected] 
for further technical support.
    When to update--A reporting trader required to complete a Form 40 
will be under a continuing obligation, per direction in the special 
call, to update and maintain the accuracy of the information it 
provides. Reporting traders can update this information by either 
visiting the CFTC's web-based Form 40 portal to review, verify, and/or 
update their information, or by submitting updated information via FTP.
    Signature--Each Form 40 submitted to the Commission must be signed 
or otherwise authenticated by either (1) the reporting trader submitting 
the form or (2) an individual that is duly authorized by the reporting 
trader to provide the information and representations contained in the 
form.
    What to File--All reporting traders that are filing a Form 40 
pursuant to either 17 CFR 18.04(a) (i.e. reportable position reporting 
traders) or 17 CFR 20.5 (i.e. swaps books and records reporting traders) 
must complete all questions. All reporting traders that are filing a 
Form 40 pursuant to 17 CFR 18.04(b) (i.e. volume threshold account 
controllers, persons who own a volume threshold account, reportable sub-
account controllers, and persons who own a reportable sub-account 
reporting trader) must complete all questions unless they are natural 
persons. Reporting traders that are filing a Form 40 pursuant to 17 CFR 
18.04(b) who are natural persons shall mark not applicable for questions 
7 and 8.
    Please be advised that pursuant to 5 CFR 1320.5(b)(2)(i), you are 
not required to respond to this collection of information unless it 
displays a currently valid OMB control number.

                            Table of Contents

1. General information for Reporting Trader
2. Contact Information for Individual Responsible for Trading Activities
3. Contact Information for Individual Responsible for Risk Management 
          Operations
4. Contact information for Individual Responsible for Information on the 
          Form 40
5. Omnibus Account Identification
6. Foreign Government Affiliation
7. Non-Domestic Entity Indicator
8. Ownership Structure (Parent/Parents)
9. Ownership Structure (Subsidiary/Subsidiaries)
10. Control of Reporting Trader's Trading Activities by Others
11. Control of Other's Trading Activities by Reporting Trader
12. Other Parties Influencing Trading of Reporting Trader
13. Trading Subject to Express or Implied Agreement
14. Commodity Index Trading Indicator
15. Swap Dealer Identification
16. Major Swap Participant Identification
17. Business Sectors, Subsectors and Occupation
18. Commodities Being Traded in Derivative Markets
19. Business Purpose for Trading in Derivative Markets
20. Signature/Authentication, Name, and Date

                     Acknowledgement of Definitions

    Before proceeding with your submission, please check this box to 
indicate that you have read the definitions for the following terms--as 
they are used in the Form 40:
    Commodity (or commodities)--generally, all goods and articles 
(except onions 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 
(see 7 U.S.C. 1a(9)).
    Commodity Index Trading (``CIT'')--means: a. An investment strategy 
that consists of investing in an instrument (e.g., a commodity index 
fund, exchange-traded fund for commodities, or exchange-traded note for 
commodities) that enters into one or more derivative contracts to track 
the performance of a published index that is based on the price of one 
or more commodities, or commodities in combination with other 
securities; or
    b. An investment strategy that consists of entering into one or more 
derivative contracts to track the performance of a published index that 
is based on the price of one or more commodities, or commodities in 
combination with other securities.
    Control--as used in this Form, ``control'' means to actually direct, 
by power of attorney or otherwise, the trading of a special account or a 
consolidated account. A special

[[Page 489]]

account or a consolidated account may have more than one controller.
    Derivatives--futures, options on futures, and swaps.
    Omnibus volume threshold account--means any trading account that, on 
an omnibus basis, carries reportable trading volume on or subject to the 
rules of a reporting market that is a board of trade designated as a 
contract market under section 5 of the Act or a swap execution facility 
registered under section 5h of the Act.
    Parent--for purposes of Form 40, a person is a parent of a reporting 
trader if it has a direct or indirect controlling interest in the 
reporting trader; and a person has a controlling interest if such person 
has the ability to control the reporting trader through the ownership of 
voting equity, by contract, or otherwise.
    Person--an individual, association, partnership, corporation, trust, 
or government agency and/or department.
    Reportable sub-account--means any trading sub-account of an omnibus 
volume threshold account or omnibus reportable sub-account, which sub-
account executes reportable trading volume.
    Reportable sub-account controller--means a natural person who by 
power of attorney or otherwise actually directs the trading of a 
reportable sub-account. A reportable sub-account may have more than one 
controller.
    Reportable trading volume--means contract trading volume that meets 
or exceeds the level specified in 17 CFR 15.04.
    Reporting trader--a person who must file a Form 40, whether pursuant 
to 17 CFR 18.04(a), 17 CFR 18.04(b), or 17 CFR 20.05.
    Subsidiary--for purposes of Form 40, a person is a subsidiary of a 
reporting trader if the reporting trader has a direct or indirect 
controlling interest in the person; and a reporting trader has a 
controlling interest if such reporting trader has the ability to control 
the person through the ownership of voting equity, by contract, or 
otherwise.
    Volume threshold account--means any trading account that carries 
reportable trading volume on or subject to the rules of a reporting 
market that is a board of trade designated as a contract market under 
section 5 of the Act or a swap execution facility registered under 
section 5h of the Act.
    Volume threshold account controller--means a natural person who by 
power of attorney or otherwise actually directs the trading of a volume 
threshold account. A volume threshold account may have more than one 
controller.

                              CFTC Form 40

                General Information for Reporting Trader:

    For question 1, please provide the name, contact information and 
other requested information regarding the reporting trader. If the 
reporting trader is an individual, provide their full legal name and the 
name of the reporting trader's employer.
    1. Indicate whether the reporting trader is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name of Reporting Trader
Street Address
City
State
Country
Zip/Postal Code
Phone Number \4\
---------------------------------------------------------------------------

    \4\ Please provide a direct number, without any telephone extension. 
Non-U.S. respondents should also provide the applicable international 
area code.
---------------------------------------------------------------------------

Email Address
Web site
NFA ID (if any)
Legal Entity Identifier (if any)
Name of Employer
Employer NFA ID (if any)
Employer Legal Entity Identifier (if any)

                           Contact Information

    For questions 2, 3, and 4, provide the name and contact information 
as requested.
    2. Individual to contact regarding the derivatives trading of the 
reporting trader (this individual should be able to answer specific 
questions about the reporting trader's trading activity when contacted 
by Commission staff):
    Check here if this individual has the same contact information as 
that of the reporting trader.

Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \5\
---------------------------------------------------------------------------

    \5\ Please provide a direct number, without any telephone extension. 
Non-U.S. respondents should also provide the applicable international 
area code.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)

    3. Individual to contact regarding the risk management operations of 
the reporting trader (this individual should be able to answer specific 
questions about the reporting trader's risk management operations, 
including account margining, when contacted by Commission staff):
    Check here if this individual has the same contact information as 
that of the reporting trader.

Name
Street Address
City

[[Page 490]]

State
Country
Zip/Postal Code
Phone Number \6\
---------------------------------------------------------------------------

    \6\ Please provide a direct number, without any telephone extension. 
Non-U.S. respondents should also provide the applicable international 
area code.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)

    4. Individual responsible for the information on the Form 40 (this 
individual should be able to verify, clarify, and explain the answers 
submitted by a reporting trader on the Form 40):
    Check here if this individual has the same contact information as 
that of the reporting trader.

Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \7\
---------------------------------------------------------------------------

    \7\ Please provide a direct number, without any telephone extension. 
Non-U.S. respondents should also provide the applicable international 
area code.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)

                     Omnibus Account Identification

    For question 5, indicate whether the reporting trader has a customer 
omnibus account with a futures commission merchant, clearing member, or 
foreign broker (NOTE: For the purpose of this question, an omnibus 
account is an account that one futures commission merchant, clearing 
member or foreign broker carries for another in which the transactions 
of multiple individual accounts are combined. The identities of the 
holders of the individual accounts are not generally known or disclosed 
to the carrying firm. In addition, the Commission has traditionally 
identified omnibus accounts as either house or customer omnibus 
accounts. House omnibus accounts exclusively contain the proprietary 
accounts of the omnibus account originator. Customer omnibus accounts 
contain the accounts of customers of the omnibus account originator. It 
is the obligation of the omnibus account originator to correctly 
identify the omnibus account type to the reporting entity):
    5. Does the reporting trader have a customer omnibus account with a 
futures commission merchant, clearing member, or foreign broker? YES/NO
    IF YES, Give the name(s) of the futures commission merchant, 
clearing member, or foreign broker carrying the account(s) of the 
reporting trader.

                     Foreign Government Affiliation

    For question 6, please complete the following (NOTE: For the purpose 
of this question, affiliation can include, but is not limited to, a 
situation (1) where the foreign government directly or indirectly 
controls the reporting trader's assets, operations, and/or derivatives 
trading, or (2) where the reporting trader operates as a direct or 
indirect subsidiary of a foreign government, its agencies or 
departments, or any investment program of the foreign government):
    6. Is the reporting trader directly or indirectly affiliated with a 
government other than that of the United States? YES/NO
    IF YES, give the name of the government(s).
    IF YES, explain the nature of the affiliation between the reporting 
trader and the government(s) listed above.

                      Non-Domestic Entity Indicator

    For question 7, if the Reporting Trader is a legal entity, please 
complete the following.
    7. Is the reporting trader organized under the laws of a country 
other than the United States? YES/NO
    IF YES, give the name of the country or countries under whose laws 
the reporting trader is organized.

               Ownership Structure of the Reporting Trader

    For questions 8 and 9, provide the requested ownership information 
only as applicable.
    If the Reporting Trader is a commodity pool, also provide the 
requested information in questions 8i, 8ii, and 8iii. If the Reporting 
Trader is reporting commodity pools in which it has an ownership 
interest, also provide the requested information in questions 9i, 9ii, 
and 9iii.
    8. List all the parents of the reporting trader (including the 
immediate parent and any parent(s) of its parent) and, separately, all 
persons that have a 10 percent or greater ownership interest in the 
reporting trader (commodity pool investors are deemed to have an 
ownership interest in the pool). For each such parent or 10 percent or 
greater owner include the following information:
    Indicate whether the party identified below is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name
Street Address
City
State
Country
Zip/Postal Code

[[Page 491]]

Phone Number \8\
---------------------------------------------------------------------------

    \8\ Please provide a direct number, without any telephone extension. 
Non-U.S. respondents should also provide the applicable international 
area code.
---------------------------------------------------------------------------

Web site \9\
---------------------------------------------------------------------------

    \9\ The Web site and NFA ID requested in this question are only 
required to be reported to the extent the respondent has this 
information available in its records. Respondents are not required to 
poll customers or other parties for the Web site and NFA ID if this 
information has not been previously collected.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Parent Company/10% Owner/or Both Indicator

    8i. For each person identified in question 8 that is a limited 
partner, shareholder, or other similar type of pool participant, 
indicate if they are a principal or affiliate of the operator of the 
commodity pool.

                      Principal/Affiliate Indicator

    8ii. For each person identified in question 8 that is a limited 
partner, shareholder, or other similar type of pool participant, 
indicate if they are also a commodity pool operator of the pool.

                    Commodity Pool Operator Indicator

    8iii. For each person identified in question 8 that is a limited 
partner, shareholder, or other similar type of pool participant and 
where the operator of the commodity pool is exempt from registration 
under Sec.  4.13 of the Commission's regulations, indicate if that 
person has an ownership or equity interest of 25 percent or greater in 
the commodity pool.

                         25% Ownership Indicator

    9. List all the subsidiaries of the reporting trader (including the 
immediate subsidiary and any subsidiaries of those subsidiaries) and, 
separately, all persons in which the reporting trader has a 10 percent 
or greater ownership interest (including a 10 percent or greater 
interest in a commodity pool(s)). Only list subsidiaries and persons 
that engage in derivatives trading. For each such subsidiary and/or 
person include the following information:
    Indicate whether the party identified below is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \10\
---------------------------------------------------------------------------

    \10\ Please provide a direct number, without any telephone 
extension. Non-U.S. respondents should also provide the applicable 
international area code.
---------------------------------------------------------------------------

Web site \11\
---------------------------------------------------------------------------

    \11\ The Web site and NFA ID requested in this question are only 
required to be reported to the extent the respondent has this 
information available in its records. Respondents are not required to 
poll customers or other parties for the Web site and NFA ID if this 
information has not been previously collected.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Subsidiary/10% Ownership/or Both Indicator

    9i. For each person identified in question 9 that is a commodity 
pool and for which you are a limited partner, shareholder or other 
similar type of pool participant, indicate if you are a principal or 
affiliate of the operator of the commodity pool.

                      Principal/Affiliate Indicator

    9ii. For each person identified in question 9 that is a commodity 
pool and for which you are a limited partner, shareholder or other 
similar type of pool participant, indicate if you are the commodity pool 
operator for the pool.

                    Commodity Pool Operator Indicator

    9iii. For each person identified in question 9 that is a commodity 
pool and for which you are a limited partner, shareholder or other 
similar type of pool participant and for which the operator of the 
commodity pool is exempt from registration under Sec.  4.13 of the 
Commission's regulations, indicate if you have an ownership or equity 
interest of 25 percent or greater in the commodity pool.

                         25% Ownership Indicator

                           Control of Trading

    For questions 10, 11, 12, and 13 provide the requested control 
information only as applicable.
    10. List all persons outside of the reporting trader that control 
some or all of the derivatives trading of the reporting trader 
(including persons that may have been previously identified as a parent, 
above):
    Indicate whether the party identified below is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name
Street Address
City
State
Country

[[Page 492]]

Zip/Postal Code
Phone Number \12\
---------------------------------------------------------------------------

    \12\ Please provide a direct number, without any telephone 
extension. Non-U.S. respondents should also provide the applicable 
international area code.
---------------------------------------------------------------------------

Web site \13\
---------------------------------------------------------------------------

    \13\ The Web site and NFA ID requested in this question are only 
required to be reported to the extent the respondent has this 
information available in its records. Respondents are not required to 
poll customers or other parties for the Web site and NFA ID if this 
information has not been previously collected.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator

    11. List all persons for which the reporting trader controls some or 
all of the derivatives trading (including persons that may have been 
previously identified as a subsidiary, above):
    Indicate whether the party identified below is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \14\
---------------------------------------------------------------------------

    \14\ Please provide a direct number, without any telephone 
extension. Non-U.S. respondents should also provide the applicable 
international area code.
---------------------------------------------------------------------------

Web site \15\
---------------------------------------------------------------------------

    \15\ The Web site and NFA ID requested in this question are only 
required to be reported to the extent the respondent has this 
information available in its records. Respondents are not required to 
poll customers or other parties for the Web site and NFA ID if this 
information has not been previously collected.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator

    12. List any other person(s) that directly or indirectly influence, 
or exercise authority over, some or all of the trading of the reporting 
trader, but who do not exercise ``control'' as defined in this Form: 
Indicate whether the party identified below is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \16\
---------------------------------------------------------------------------

    \16\ Please provide a direct number, without any telephone 
extension. Non-U.S. respondents should also provide the applicable 
international area code.
---------------------------------------------------------------------------

Web site \17\
---------------------------------------------------------------------------

    \17\ The Web site and NFA ID requested in this question are only 
required to be reported to the extent the respondent has this 
information available in its records. Respondents are not required to 
poll customers or other parties for the Web site and NFA ID if this 
information has not been previously collected.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator

    13. Is some or all of the derivatives trading of the reporting 
trader subject to an express or implied agreement or understanding with 
any other person(s) not addressed in questions 10, 11, or 12, above? 
YES/NO
    If yes, provide the following information:
    Indicate whether the party identified below is a legal entity or a 
natural person:

Legal entity:
Natural person:

Name
Street Address
City
State
Country
Zip/Postal Code
Phone Number \18\
---------------------------------------------------------------------------

    \18\ Please provide a direct number, without any telephone 
extension. Non-U.S. respondents should also provide the applicable 
international area code.
---------------------------------------------------------------------------

Web site \19\
---------------------------------------------------------------------------

    \19\ The Web site and NFA ID requested in this question are only 
required to be reported to the extent the respondent has this 
information available in its records. Respondents are not required to 
poll customers or other parties for the Web site and NFA ID if this 
information has not been previously collected.
---------------------------------------------------------------------------

Email Address
NFA ID (if any)
Legal Entity Identifier (if any)
Some/All Indicator

                    Commodity Index Trading Indicator

    For question 14, please answer the following:
    14i. Is the reporting trader engaged in commodity index trading as 
defined in paragraph (a) of the definition of CIT above? YES/NO

[[Page 493]]

    14ii. Is the reporting trader engaged in commodity index trading as 
defined in paragraph (b) of the definition of CIT above? YES/NO
    a. If the reporting trader is engaged in CIT (as defined in 
paragraph (b)) with respect to one or more commodities or commodity 
groups appearing on Supplemental List II, indicate whether the reporting 
trader is, in the aggregate, pursuing long exposure or short exposure 
with respect to such commodities or commodity groups. It is not 
necessary to respond to this question with respect to CIT that tracks 
the performance of multiple unrelated commodities or commodity groups 
(e.g., an investment in an exchange-traded fund that tracks the 
performance of an index representing commodities spanning multiple 
commodity groups).
    14iii. If the reporting trader is currently engaged in commodity 
index trading as defined in paragraphs (a) or (b) of the CIT definition 
above, indicate the month and year on which the reporting trader first 
became engaged in commodity index trading.

                     Swaps Participation Indicators

    For questions 15 and 16, please indicate if the reporting trader 
meets the specified definition:
    15. Is the reporting trader a Swap Dealer, as defined in Sec.  1.3 
of regulations under the Commodity Exchange Act? YES/NO
    16. Is the reporting trader a Major Swap Participant, as defined in 
Sec.  1.3 of regulations under the Commodity Exchange Act? YES/NO

        Nature of Business and of Derivatives Trading Activities

    For questions 17, 18, and 19 provide the requested information only 
as applicable.
    17. Select all business sectors and subsectors that pertain to the 
business activities or occupation of the reporting trader. If more than 
one business subsector is selected, indicate which business subsector 
primarily describes the nature of the reporting trader's business.

                     Choose From Supplemental List I

    18. Select all commodity groups and individual commodities that the 
reporting trader presently trades or expects to trade in the near future 
in derivative markets.

                    Choose From Supplemental List II

    19. For each selected individual commodity identified in question 
18, indicate the business purpose(s) for which the reporting trader uses 
derivative markets. If the reporting trader has more than one business 
purpose for trading in an individual commodity, also indicate the 
predominant business purpose.

                    Choose From Supplemental List III

                Signature/Authentication, Name, and Date

    20. Please sign/authenticate the Form 40 prior to submitting.
    Signature/Electronic Authentication:
 By checking this box and submitting this form (or by clicking 
``submit,'' ``send,'' or any other analogous transmission command if 
transmitting electronically), I certify that I am duly authorized by the 
reporting trader identified below to provide the information and 
representations submitted on this Form 40, and that the information and 
representations are true and correct.
Reporting Trader Authorized Representative (Name and Position):

 ____________________ (Name)

 ____________________ (Position)

Submitted on behalf of:

 __________ (Reporting Trader Name)

Date of Submission:

 ____________________

      Supplemental List I: List of Business Sectors and Subsectors

                             Business Sector

                                Subsector

Agriculture and Forestry
    Oilseed Farming
    Grain Farming
    Fruit and Tree Nut Farming
    Other Crop Farming (Specify)
    Cattle Ranching and Farming
    Hog and Pig Farming
    Poultry and Egg Production
    Sheep and Goat Farming
    Other Animal Production
    Forestry, Logging, or Timber Production
    Cooperative
    Other (Specify)
Mining, Oil and Natural Gas Extraction
    Oil Exploration/Production
    Natural Gas Exploration/Production
    Coal Mining
    Precious Metal Mining
    Non-Precious Metal Mining
    Other (Specify)
Utilities
    Utility/Cooperative
    Electric Power Generation
    Local Distribution Company
    Natural Gas Distribution
    Other (Specify)
Construction
    Building Construction
    Heavy and Civil Engineering Construction
    Other (Specify)
Manufacturing, Refining and Processing
    Animal Food Manufacturing
    Grain Milling
    Oilseed Milling
    Sugar and Confectionery Product Manufacturing

[[Page 494]]

    Fruit and Vegetable Preserving and Specialty Food Manufacturing
    Dairy Product Manufacturing
    Animal Slaughtering and Processing
    Bakeries
    Other Food Manufacturing
    Beverage Manufacturing Textile Mills
    Textile Product Mills
    Apparel Manufacturing
    Wood Product Manufacturing
    Paper Manufacturing
    Pulp, Paper, and Paperboard Mills
    Petroleum and Coal Products Manufacturing
    Renewable Fuels Manufacturing
    Petrochemical/Chemical Manufacturing
    Plastics and Rubber Products Manufacturing
    Natural Gas Processing
    Precious Metal Processor/Smelter
    Non-Precious Metal Processor
    Metals Fabricator
    Other (Specify)
Wholesale Trade
    Lumber and Other Construction Materials Merchant Wholesalers
    Metal and Mineral Merchant Dealer
    Grocery and Related Product Merchant Wholesaler
    Farm Product Raw Material Merchant Wholesalers
    Chemical and Allied Products Merchant Wholesalers
    Petroleum and Petroleum Products Merchant Wholesalers
    Natural Gas, Power Marketer
    Importer/Exporter (specify commodities)
    Other (Specify)
Retail Trade
    Building Materials and Supplies Dealers
    Food and Beverage Stores
    Jeweler/Precious Metals Retailer
    Vehicle Fuel Retailer/Convenience Store Operator
    Fuel Dealers
    Other (Specify)
Transportation and Warehousing
    Air Transport
    Trucking
    Pipeline Transportation of Crude Oil
    Pipeline Transportation of Natural Gas
    Farm Product Warehousing and Storage
    Energy Distributor (warehousing, storage)
    Other (Specify)
End User (NOTE: May not be the only/primary subsector selected)
    Metals End User (Construction Co., Brass Mill, Steel Mill)
    Emissions End User (Factory, Industrial Cos.)
    Petroleum End User (Airline Cos. Municipalities, Industrial Cos., 
Trucking Cos.)
Information
    Other (Specify)
Financial Institutions and Investment Management
Dealers and Financial Intermediaries
    Broker/Dealer
    Bank Holding Company
    Investment/Merchant Bank
    Non-US Commercial Bank
    US Commercial Bank
    Swaps/Derivatives Dealer
    Universal Bank
Asset/Investment/Fund Management:
    Asset/Investment Manager
 Institutional Clients
 Retail Clients
    Managed Accounts and Pools (CTAs, CPOs, etc.)
 Institutional Clients
 Retail Clients
    College Endowment, Trust, Foundation
    Fund of Hedge Funds
    Hedge Fund
    Mutual Fund
    Pension Fund
    Private Wealth Management
    Private Bank
    Exchange Traded Fund Issuer
    Exchange Traded Note Issuer
Government Financial Institution:
    Central Bank
    Sovereign Wealth Fund
    Government Sponsored Enterprise (GSE)
    Other Governmental Entity (Specify)
Other Financial or Trading Entities:
    Arbitrageur
    Individual Trader/Investor
    Floor Broker
    Floor Trader
    Market Maker
    Proprietary Trader
    Corporate Treasury
    Mortgage Originator
    Savings Bank
    Credit Union
    Insurance Company
    Other (Specify)
Real Estate
    Other (Specify)
Arts, Entertainment, and Recreation
    Performing Arts Companies
    Promoters of Performing Arts
    Agents and Managers for Artists and Entertainers
    Independent Artists, Writers, Performers
    Other (Specify)
Accommodation and Food Services
    Food Services
    Other (Specify)
Public Administration
    Administration of Environmental Quality Programs
    Administration of Economic Programs
    Other (Specify)

    Supplemental List II: Commodity Groups and Individual Commodities

                             Commodity Group

                          Individual Commodity

GRAINS

[[Page 495]]

    OATS
    WHEAT
    CORN
    RICE
LIVESTOCK/MEAT PRODUCTS
    LIVE CATTLE
    PORK BELLIES
    FEEDER CATTLE
    LEAN HOGS
DAIRY PRODUCTS
    MILK
    BUTTER
    CHEESE
OILSEED AND PRODUCTS
    SOYBEAN OIL
    SOYBEAN MEAL
    SOYBEANS
FIBER
    COTTON
FOODSTUFFS/SOFTS
    COFFEE
    FROZEN CONCENTRATED ORANGE JUICE
    SUGAR
    COCOA
OTHER AGRICULTURAL
REAL ESTATE
CURRENCY
EQUITIES AND EQUITY INDICIES
INTEREST RATES
    TREASURY COMPLEX
    OTHER INTEREST RATE PRODUCTS
OTHER FINANCIAL INSTRUMENTS
PETROLEUM AND PRODUCTS
    JET FUEL
    ETHANOL
    BIODIESEL
    FUEL OIL
    HEATING OIL
    GASOLINE
    NAPHTHA
    CRUDE OIL
    DIESEL
NATURAL GAS AND PRODUCTS
    NATURAL GAS LIQUIDS
    NATURAL GAS
ELECTRICITY AND SOURCES
    COAL
ELECTRICITY
    URANIUM
PRECIOUS METALS
    PALLADIUM
    PLATINUM
    SILVER
    GOLD
BASE METALS
    STEEL
    COPPER
WOOD PRODUCTS
    LUMBER
    PULP
CHEMICALS
PLASTICS
EMISSIONS
WEATHER
OTHER (SPECIFY)

   Supplemental List III: Business Purposes of Commodity Derivatives 
                                 Trading

                            Business Purpose

                               Definition

                                 Example

             Offsetting Cash or Spot Market Input Price Risk

    Using derivative markets for commodities that are direct inputs or 
purchases for your business so as to offset price risk associated with 
your purchase of these inputs.
    E.g. You are a grain processor, so you use wheat futures to offset 
the price risk incidental to your cash purchases of wheat.

            Offsetting Cash or Spot Market Output Price Risk

    Using derivative markets for commodities that are direct outputs or 
sales of your business so as to offset price risk associated with your 
sale of these outputs.
    E.g. You are a gasoline refiner, so you use gasoline futures to 
offset price risk associated with your production of gasoline.

   Offsetting Other Cash or Spot Market Price Risks (Cross Price Risk)

    Using derivative markets for a commodity that is not a direct input 
or output of your business, but which has significant price correlations 
with the direct inputs or outputs of your business.
    E.g. You manufacture ethanol which is used as an additive in and 
competitor for gasoline as a combustive fuel. While you neither directly 
consume nor produce gasoline, you may find that the price you receive 
for your ethanol product is highly correlated with the price of 
gasoline, and therefore you reduce ethanol price risk by using gasoline 
futures contracts.

                Other Physical Risk Management Strategies

    Managing other price risks incidental to the operation of your 
business or physical assets through the use of commodity derivative 
markets.
    E.g. You are a manufacturer with significant international sales, so 
you use foreign currency futures to offset risks associated with changes 
in the competitiveness of your exports and therefore the value of your 
physical assets such as production plants, land, machinery, etc.

                Client Futures/Options on Futures Trading

    Fulfilling customer/client desire for portfolio diversification or 
exposure to various asset classes through your activity as a Commodity 
Pool Operator, Commodity Trading Advisor, or other similar role.
    E.g. You collect funds and execute trading strategies through the 
use of futures/options

[[Page 496]]

on futures markets at the expressed intent and for the sole benefit of 
clients.

                     Managing Client Swaps Exposure

    Reducing risk stemming from holding or executing swaps contracts on 
behalf of clients or customers through the use of futures/options on 
futures markets.
    E.g. You sell crude oil swaps to a client and agree to accept the 
risk inherent in the index price. You offset this risk through purchases 
of crude oil futures, in effect transferring price risk from the client 
to another market participant.

                   Making Markets/Providing Liquidity

    Engaging in derivatives transactions to assume risk and help 
transfer ownership of derivative positions from one market participant 
to another, realizing the bid-ask spread as the return.
    E.g. You accept risk by buying and selling futures/options on 
futures contracts so that other traders can move into and out of 
positions when they wish. You then find other traders willing to take 
the other side of those transactions.

                                Arbitrage

    Using derivative markets as part of a strategy designed to realize 
risk-free profit from pricing anomalies.
    E.g. You realize that the wheat futures contract is trading at a 
discount (even after considering storage, transport, etc.) relative to 
the wheat cash price, and therefore find it profitable to purchase the 
wheat futures contract, take delivery, and then resell the wheat in the 
cash market for a risk-free profit.

                       Establishing Price Exposure

    Using derivative markets as a way to express your belief in the 
future movement of market prices. This strategy does not involve 
offsetting risks incidental to your business, but instead involves 
directional trading.
    E.g. You conduct research and believe that crude oil prices are due 
to rise, so you take long futures positions in crude oil to profit from 
your predictions.

                       Financial Asset Management

    Using derivatives to diversify, rebalance, or otherwise allocate 
financial assets so that risks to the value of the investment portfolio 
are reduced. This strategy is used by entities such as pension funds and 
endowments to manage overall risk to their financial portfolios.
    E.g. You hold Treasury bonds as a component of your investment 
portfolio, and use futures contracts to reduce overall portfolio risk 
that would result from falling bond prices.

                   Managing Proprietary Swaps Exposure

    Reducing risk stemming from your proprietary holding or execution of 
swaps contracts through the use of futures/options on futures markets.
    E.g. You trade interest rate swaps as part of your business or 
investment strategy, and offset some of the risk inherent in those swaps 
through your use of Eurodollar futures markets.

                             Other: Specify

    List and explain your business purpose if the above categories do 
not adequately describe the reason you trade in a particular commodity 
derivative market.

[78 FR 69259, Nov. 18, 2013, as amended at 83 FR 7996, Feb. 23, 2018]



PART 19_REPORTS BY PERSONS HOLDING REPORTABLE POSITIONS IN EXCESS OF 
POSITION LIMITS, AND BY MERCHANTS AND DEALERS IN COTTON--Table of Contents



Sec.
19.00 Who shall furnish information.
19.01 [Reserved]
19.02 Reports pertaining to cotton on call purchases and sales.
19.03 Delegation of authority to the Director of the Division of 
          Enforcement.
19.04-19.10 [Reserved]

Appendix A to Part 19--Form 304

    Authority: 7 U.S.C. 6g, 6c(b), 6i, and 12a(5).

    Source: 86 FR 3455, Jan. 14, 2021, unless otherwise noted.



Sec.  19.00  Who shall furnish information.

    (a) Persons filing cotton-on-call reports. Merchants and dealers of 
cotton holding or controlling positions for future delivery in cotton 
that are reportable pursuant to Sec.  15.00(p)(1)(i) of this chapter 
shall file CFTC Form 304.
    (b) Persons responding to a special call. All persons: Exceeding 
speculative position limits under Sec.  150.2 of this chapter; or 
holding or controlling positions for future delivery that are reportable 
pursuant to Sec.  15.00(p)(1) of this chapter and who have received a 
special call from the Commission or its designee shall file any 
pertinent information as instructed in the special call. 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. Such 
filing shall be transmitted using the format,

[[Page 497]]

coding structure, and electronic data submission procedures approved in 
writing by the Commission.



Sec.  19.01  [Reserved]



Sec.  19.02  Reports pertaining to cotton on call purchases and sales.

    (a) Information required. Persons required to file CFTC Form 304 
reports under Sec.  19.00(a) 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 CFTC Form 304 report 
shall be made weekly, dated as of the close of business on Friday, and 
filed not later than 9 a.m. Eastern Time on the third business day 
following that Friday using the format, coding structure, and electronic 
data transmission procedures approved in writing by the Commission.



Sec.  19.03  Delegation of authority to the Director 
of the Division of Enforcement.

    (a) The Commission hereby delegates, until it orders otherwise, the 
authority in Sec.  19.00(b) to issue special calls to the Director of 
the Division of Enforcement, or such other employee or employees as the 
Director may designate from time to time.
    (b) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Enforcement, or such other employee or 
employees as the Director may designate from time to time, the authority 
in Sec.  19.00(b) to provide instructions or to determine the format, 
coding structure, and electronic data transmission procedures for 
submitting data records and any other information required under this 
part.
    (c) The Director of the Division of Enforcement may submit to the 
Commission for its consideration any matter which has been delegated in 
this section.
    (d) Nothing in this section prohibits the Commission, at its 
election, from exercising the authority delegated in this section.



Sec.  Sec.  19.04--19.10  [Reserved]



                  Sec. Appendix A to Part 19--Form 304

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[GRAPHIC] [TIFF OMITTED] TR14JA21.022



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.
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.

    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 in Sec.  
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.
    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

[[Page 505]]

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 in Sec.  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 in Sec.  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 in Sec.  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 in Sec.  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 in Sec.  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 in Sec.  
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'' under Sec.  
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.
    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:

[[Page 506]]



            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 (See Sec.   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 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

[[Page 507]]

    (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, in 
accordance with the form instructions and as specified in this section.
    (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.
    (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.
    (4) Change updates. If any change causes the information filed by a 
clearing member or swap dealer on a Form 102 for a consolidated account 
to no longer be accurate, then such clearing member or swap dealer shall 
file an updated Form 102 with the Commission no later than 9 a.m. on the 
business day after such change occurs, or on such other date as directed 
by special call of the Commission, provided that, a clearing member or 
swap dealer may stop providing change updates for a Form 102 that it has 
submitted to the Commission for any consolidated account upon notifying 
the Commission or its designee that the account in question is no longer 
reportable as a consolidated account and has not been reportable as a 
consolidated account for the past six months. 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.
    (5) Refresh updates. For Consolidated Accounts--Starting on a date 
specified by the Commission or its designee and at the end of each 
annual increment

[[Page 508]]

thereafter (or such other date specified by the Commission or its 
designee that is equal to or greater than six months), each clearing 
member or swap dealer shall resubmit every Form 102 that it has 
submitted to the Commission for each of its consolidated accounts, 
provided that, a clearing member or swap dealer may stop providing 
refresh updates for a Form 102 that it has submitted to the Commission 
for any consolidated account upon notifying the Commission or its 
designee that the account in question is no longer reportable as a 
consolidated account and has not been reportable as a consolidated 
account for the past six months.
    (b) 40S filing. Every person subject to books or records requirement 
under Sec.  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 in Sec.  20.1.

[76 FR 43862, July 22, 2011, as amended at 78 FR 69265, Nov. 18, 2013; 
82 FR 28768, June 26, 2017]



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 of Sec.  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 
of Sec.  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.

    (a) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Enforcement, or such other employee or 
employees as the Director may designate from time to time, the authority 
in Sec.  20.6(d) for issuing a special call.
    (b) The Commission hereby delegates, until it orders otherwise, to 
the

[[Page 509]]

Director of the Division of Market Oversight or such other employee or 
employees as the Director may designate from time to time, the authority 
in Sec.  20.10 for determining the described compliance schedules.
    (c) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Office of Data and Technology, in consultation with 
the Director of the Division of Market Oversight, or such other employee 
or employees as the Directors each may designate from time to time, the 
authority:
    (1) In Sec.  20.5(a)(3) for issuing a special call for a 102S 
filing; and
    (2) In Sec.  20.5(b) for issuing a special call for a 40S filing.
    (d) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Office of Data and Technology, with the concurrence 
of the Director of the Division of Market Oversight, or such other 
employee or employees as the Directors each may designate from time to 
time, the authority, in Sec.  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.
    (e) The Directors of the Division of Enforcement, Division of Market 
Oversight, and the Office of Data and Technology may submit to the 
Commission for its consideration any matter which has been delegated in 
this section.
    (f) Nothing in this section prohibits the Commission, at its 
election, from exercising the authority delegated in this section.

[82 FR 28769, June 26, 2017]



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 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 with Sec.  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

[[Page 510]]

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.
------------------------------------------------------------------------

    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

[[Page 511]]



                     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.

                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.

[[Page 512]]

 
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.
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Company A   Company B                              Company A   Company B
                                         Fraction   Applicable next to expire   position    position      Applicable deferred      position    position
          Dates swap in force             of days         futures month          (long)      (short)         futures month          (short)     (long)
                                                                                [dagger]    [dagger]                               [dagger]    [dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
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

[[Page 513]]

 
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

                                                    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                                     Mainline      NYMEX (Henry      Mainline      NYMEX (Henry
           Dates swap in force                  days           Referent futures month        Midpoint      Hub) natural      Midpoint      Hub) natural
                                                                                          (``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.

[[Page 514]]

 
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
                                                                           Fraction of    position     position
            Dates swap in force                 Referent futures month         days        (long)      (short)
                                                                                          [dagger]     [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.
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

[[Page 515]]



                                                               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 for Sec.  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 by Sec.  20.3, held by a clearing member of 
Clearing Organization One. Paragraph (a) of Sec.  20.3 broadly outlines 
the data elements that determine unique positions for reports on 
clearing member positions. Paragraphs (b) of Sec.  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) 
of Sec.  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 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.

[[Page 516]]



                                       Table 1--Data Records Reported Under Paragraphs (a) and (b) of Sec.   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.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrr--------------------------------------------------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 Under Sec.   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

[[Page 517]]

 
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 Under Sec.   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 for Sec.  20.4:

    This first example shows the data records generated under Sec.  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) of Sec.  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 518]]



                                                                 Table 4--Example of Data Records Reported Under Sec.   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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 519]]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      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......
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 for Sec.  20.4:

    In this second example, the data records generated by Sec.  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.

[[Page 520]]



                                             Table 5--Example of Data Records Reported Under Sec.   20.4(c) for January 1, 2011 (Appx A, Example 1)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Principal/
                                      Commission        counterparty        102S swap                                                        Clearing org                            Futures
          Data records             reporting entity       position       counterparty ID       Counterparty Name        Reporting day     cleared product ID   Commodity code   equivalent month
                                          ID             indicator                                                                                                                  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...........  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 521]]


 
                                    Cleared/uncleared   CFTC clearing org   Commodity reference      Execution          Long swap          Short swap
           Data records                 indicator          identifier              price              facility           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
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 522]]


 
                                                                                           Non-delta        Non-delta         Delta          Delta
                                      Put/call      Swaption expiration     Swaption     adjusted long    adjusted short  adjusted long  adjusted long      Long swap or        Short swap or
          Data records                indicator             date          strike price      swaption         swaption        swaption       swaption     swaption notional    swaption notional
                                                                                            position         position        position       position       value position       value position
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Data record 1...................  ................  ...................  .............  ...............  ...............  .............  .............  $7,300,000.........
Data record 2...................  ................  ...................  .............  ...............  ...............  .............  .............  $10,300,000........
Data record 3...................  ................  ...................  .............  ...............  ...............  .............  .............  $9,300,000.........
Data record 4...................  ................  ...................  .............  ...............  ...............  .............  .............  $10,300,000........
Data record 5...................  ................  ...................  .............  ...............  ...............  .............  .............  $9,900,000.........
Data record 6...................  ................  ...................  .............  ...............  ...............  .............  .............  $10,300,000........
Data record 7...................  ................  ...................  .............  ...............  ...............  .............  .............  $2,700,000.........
Data record 8...................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $7,300,000
Data record 9...................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $10,300,000
Data record 10..................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $9,300,000
Data record 11..................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $10,300,000
Data record 12..................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $9,900,000
Data record 13..................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $10,300,000
Data record 14..................  ................  ...................  .............  ...............  ...............  .............  .............  ...................  $2,700,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 523]]


                                             Table 6--Example of Data Records Reported Under Sec.   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 reference      Execution          Long swap
           Data records                 indicator          identifier            price              facility           position      Short swap 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
Data record 7.................  .................  .................  .................  .................  .................  .................  .................  $2,565,000
Data record 8.................  .................  .................  .................  .................  .................  .................  .................  .............  $6,650,000

[[Page 524]]

 
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.
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.

    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;
    (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;

[[Page 525]]

    (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 in Sec.  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 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.

[[Page 526]]

    (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 to Sec.  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 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

[[Page 527]]

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.

    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 Enforcement, or such other 
employee or employees as the Director may designate from time to time. 
The Director of the Division of Enforcement 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.

[82 FR 28769, June 26, 2017]



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 in Sec.  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 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.

[[Page 528]]

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.
22.17 Policies and procedures governing disbursements of Cleared Swaps 
          Customer Collateral from Cleared Swaps Customer Accounts.

    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 to Sec.  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.
    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

[[Page 529]]

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 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.

[[Page 530]]

    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 in Sec.  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 (as Sec.  30.1 of this chapter defines that 
term) of the futures commission merchant, including Futures Customer 
Funds (as Sec.  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 with Sec.  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

[[Page 531]]

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 in Sec.  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 with Sec.  1.25 of this chapter, which shall 
apply to such money, securities, or other property as if they comprised 
customer funds or customer money subject to segregation pursuant to 
section 4d(a) of the Act and the regulations thereunder; Provided, 
however, that the futures commission merchant shall bear sole 
responsibility for any losses resulting from the investment of customer 
funds in instruments described in Sec.  1.25 of this chapter. No 
investment losses shall be borne or otherwise allocated to Cleared Swaps 
Customers of the futures commission merchant.
    (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 in Sec.  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 532]]

the withdrawal does not cause its residual financial interest to become 
less than zero.
    (f) Requirements as to amount. (1) For purposes of this Sec.  
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 net liquidating equity 
for each such Cleared Swaps Customer, calculated as follows: The market 
value of any Cleared Swaps Customer Collateral that it receives from 
such customer, as adjusted by:
    (i) Any uses permitted under paragraph (d) of this section;
    (ii) Any accruals on permitted investments of such collateral under 
paragraph (e) of this section that, pursuant to the futures commission 
merchant's customer agreement with that customer, are creditable to such 
customer;
    (iii) Any gains and losses with respect to Cleared Swaps;
    (iv) Any charges lawfully accruing to the Cleared Swaps Customer, 
including any commission, brokerage fee, interest, tax, or storage fee; 
and
    (v) 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, at all times, 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. This balance may not be 
reduced by any debit balances that the Cleared Swaps Customers of the 
futures commission merchants 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). Futures commission merchants that establish and enforce 
written policies and procedures to assess the credit risk of commercial 
paper, convertible debt instruments, or nonconvertible debt instruments 
in accordance with Rule 240.15c3-1(c)(2)(vi) of the Securities and 
Exchange Commission (Sec.  240.15c3-1(c)(2)(vi) of this title) may apply 
the lower haircut percentages specified in Rule 240.15c3-1(c)(2)(vi) for 
such commercial paper, convertible debt instruments and nonconvertible 
debt instruments. The portion of the debit balance, not exceeding 100 
percent, 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.

[[Page 533]]

    (6)(i) The undermargined amount for a Cleared Swaps Customer Account 
is the amount, if any, by which:
    (A) The total amount of collateral required for that Cleared Swaps 
Customer's Cleared Swaps, at the time or times referred to in paragraph 
(f)(6)(ii) of this section, exceeds--
    (B) The value of the Cleared Swaps Customer Collateral for that 
account, as calculated in paragraph (f)(2) of this section.
    (ii) Each futures commission merchant must compute, based on the 
information available to the futures commission merchant as of the close 
of each business day,
    (A) The undermargined amounts, based on the clearing initial margin 
that will be required to be maintained by that futures commission 
merchant for its Cleared Swaps Customers, at each derivatives clearing 
organization of which the futures commission merchant is a member, at 
the point of the daily settlement (as described in Sec.  39.14 of this 
chapter) that will complete during the following business day for each 
such derivatives clearing organization less
    (B) Any debit balances referred to in paragraph (f)(4) of this 
section included in such undermargined amounts.
    (iii)(A) Prior to the time of settlement referenced in paragraph 
(f)(6)(ii)(A) of this section such futures commission merchant must 
maintain residual interest in segregated funds that is equal to or 
exceeds the portion of the computation set forth in paragraph (f)(6)(ii) 
of this section attributable to the clearing initial margin required by 
the derivatives clearing organization making such settlement.
    (B) A futures commission merchant may reduce the amount of residual 
interest required in paragraph (f)(6)(iii)(A) of this section to account 
for payments received from or on behalf of undermargined Cleared Swaps 
Customers (less the sum of any disbursements made to or on behalf of 
such customers) between the close of the previous business day and the 
time of settlement.
    (iv) For purposes of paragraph (f)(6)(ii) of this section, a 
Depositing Futures Commission Merchant should include, as clearing 
initial margin, customer initial margin that the Depositing Futures 
Commission Merchant will be required to maintain, for that Depositing 
Futures Commission Merchant's Cleared Swaps Customers, at a Collecting 
Futures Commission Merchant, and, for purposes of paragraph (f)(6)(iii) 
of this section, must do so prior to the time it must settle with that 
Collecting Futures Commission Merchant.
    (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, 
which shall equal the difference between the Collateral Value and the 
Collateral Requirement.
    (2) Each futures commission merchant is required to document its 
segregation computation required by paragraph (g)(1) of this section by 
preparing a Statement of Cleared Swaps Customer Segregation Requirements 
and Funds in Cleared Swaps Customer Accounts Under 4d(f) of the CEA 
contained in the Form 1-FR-FCM as of the close of business each business 
day.
    (3) Each futures commission merchant is required to submit to the 
Commission and to the firm's designated self-regulatory organization the 
daily Statement of Cleared Swaps Customer Segregation Requirements and 
Funds in Cleared Swaps Customer Accounts Under 4d(f) of the CEA required 
by paragraph (g)(2) of this section by noon the following business day.
    (4) Each futures commission merchant shall file the Statement of 
Cleared Swaps Customer Segregation Requirements and Funds in Cleared 
Swaps Customer Accounts Under 4d(f) of the CEA required by paragraph 
(g)(2)

[[Page 534]]

of this section in an electronic format using a form of user 
authentication assigned in accordance with procedures established or 
approved by the Commission.
    (5) Each futures commission merchant is required to submit to the 
Commission and to the firm's designated self-regulatory organization a 
report listing the names of all banks, trust companies, futures 
commission merchants, derivatives clearing organizations, or any other 
depository or custodian holding Cleared Swaps Customer Collateral as of 
the fifteenth day of the month, or the first business day thereafter, 
and the last business day of each month. This report must include:
    (i) The name and location of each entity holding Cleared Swaps 
Customer Collateral;
    (ii) The total amount of Cleared Swaps Customer Collateral held by 
each entity listed in paragraph (g)(5) of this section; and
    (iii) The total amount of cash and investments that each entity 
listed in paragraph (g)(5) of this section holds for the futures 
commission merchant. The futures commission merchant must report the 
following investments:
    (A) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States (U.S. 
government securities);
    (B) General obligations of any State or of any political subdivision 
of a State (municipal securities);
    (C) General obligation issued by any enterprise sponsored by the 
United States (government sponsored enterprise securities);
    (D) Certificates of deposit issued by a bank;
    (E) 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;
    (F) 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; 
and
    (G) Interests in money market mutual funds.
    (6) Each futures commission merchant must report the total amount of 
customer owned securities held by the futures commission merchant as 
Cleared Swaps Customer Collateral and must list the names and locations 
of the depositories holding customer owned securities.
    (7) Each futures commission merchant must report the total amount of 
Cleared Swaps Customer Collateral that has been used to purchase 
securities under agreements to resell the securities (reverse repurchase 
transactions).
    (8) Each futures commission merchant must report which, if any, of 
the depositories holding Cleared Swaps Customer Collateral under 
paragraph (g)(5) of this section are affiliated with the futures 
commission merchant.
    (9) Each futures commission merchant shall file the detailed list of 
depositories required by paragraph (g)(5) of this section by 11:59 p.m. 
the next business day in an electronic format using a form of user 
authentication assigned in accordance with procedures established or 
approved by the Commission.
    (10) Each futures commission merchant shall retain its daily 
segregation computation and the Statement of Cleared Swaps Customer 
Segregation Requirements and Funds in Cleared Swaps Customer Accounts 
under section 4d(f) of the CEA required by paragraph (g)(2) of this 
section and the detailed listing of depositories required by paragraph 
(g)(5) of this section, together with all supporting documentation, in 
accordance with Sec.  1.31 of this chapter.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012; 78 
FR 68645, Nov. 14, 2013]



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.

[[Page 535]]

    (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 in Sec.  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 (as Sec.  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 with Sec.  39.15(b)(2) 
of this chapter).
    (d) Exceptions; Permitted Investments. Notwithstanding the foregoing 
and Sec.  22.15, a derivatives clearing organization may invest the 
money, securities, or other property constituting Cleared Swaps Customer 
Collateral in accordance with Sec.  1.25 of this chapter.

[77 FR 6371, Feb. 7, 2012, as amended at 77 FR 66334, Nov. 2, 2012]



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 to Sec.  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 by Sec.  22.5 of this part.

[[Page 536]]



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;
    (b) Each ``account,'' within the meaning of Sec.  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 in Sec.  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

[[Page 537]]

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 (as Sec.  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
    (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

[[Page 538]]

    (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 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]

[[Page 539]]



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 in Sec.  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 in Sec.  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 (as Sec.  30.1 of this chapter defines that 
term).
    (b) Any collateral deposited by a futures commission merchant 
(including a Depositing Futures Commission Merchant) pursuant to Sec.  
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
    (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

[[Page 540]]

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 in Sec.  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 in Sec.  22.12(a)(2) of this part, then the amount 
of such collateral attributable to each Cleared Swaps Customer pursuant 
to Sec.  22.12(a)(1) of this part shall be reduced by the percentage 
difference between the amount specified in Sec.  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 in Sec.  22.12(c)(2) of this part, after the application of 
haircuts specified by the rules 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 in Sec.  22.12(c)(2) of 
this part, then the amount of collateral attributable to each Cleared 
Swaps Customer pursuant to Sec.  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 under Sec.  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]

[[Page 541]]



Sec.  22.15  Treatment of Cleared Swaps Customer Collateral 
on an individual basis.

    Subject to Sec.  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 (as Sec.  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]



Sec.  22.17  Policies and procedures governing disbursements of Cleared Swaps 
Customer Collateral from Cleared Swaps Customer Accounts.

    (a) The provision in section 4d(f)(2) of the Act that prohibits the 
commingling of Cleared Swaps Customer Collateral 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 
funds segregated as required by the Act and the regulations in this part 
and set apart for the benefit of Cleared Swaps Customers; nor shall such 
provisions be construed to prevent a futures commission merchant from 
adding to such segregated funds such amount or amounts of money, from 
its own funds or unencumbered securities from its own inventory, of the 
type set forth in Sec.  1.25 of this chapter, as it may deem necessary 
to ensure any and all Cleared Swaps Customer Accounts are not 
undersegregated at any time.
    (b) A futures commission merchant may not withdraw funds, except 
withdrawals that are made to or for the benefit of Cleared Swaps 
Customers, from a Cleared Swaps Customer Account unless the futures 
commission merchant has prepared the daily segregation calculation 
required by Sec.  22.2

[[Page 542]]

as of the close of business on the previous business day. A futures 
commission merchant that has completed its daily segregation calculation 
may make withdrawals, in addition to withdrawals that are made to or for 
the benefit of Cleared Swaps Customers, to the extent of its actual 
residual financial interest in funds held in segregated accounts, 
including the withdrawal of securities held in segregated safekeeping 
accounts held by a bank, trust company, derivatives clearing 
organization or other futures commission merchant. Such withdrawal(s) 
shall not result in the funds of one Cleared Swaps Customer being used 
to purchase, margin or carry the trades, contracts or swaps positions, 
or extend the credit of any other Cleared Swaps Customer or other 
person.
    (c) A futures commission merchant may not withdraw funds, in a 
single transaction or a series of transactions, that are not made to or 
for the benefit of Cleared Swaps Customers from Cleared Swaps Customer 
Accounts if such withdrawal(s) would exceed 25 percent of the futures 
commission merchant's residual interest in such accounts as reported on 
the daily segregation calculation required by Sec.  22.2 and computed as 
of the close of business on the previous business day, unless:
    (1) The futures commission merchant's chief executive officer, chief 
finance officer or other senior official that is listed as a principal 
of the futures commission merchant on its Form 7-R and is knowledgeable 
about the futures commission merchant's financial requirements and 
financial position pre-approves in writing the withdrawal, or series of 
withdrawals;
    (2) The futures commission merchant files written notice of the 
withdrawal or series of withdrawals, with the Commission and with its 
designated self-regulatory organization immediately after the chief 
executive officer, chief finance officer or other senior official pre-
approves the withdrawal or series of withdrawals. The written notice 
must:
    (i) Be signed by the chief executive officer, chief finance officer 
or other senior official that pre-approved the withdrawal, and give 
notice that the futures commission merchant has withdrawn or intends to 
withdraw more than 25 percent of its residual interest in such accounts 
holding Cleared Swaps Customer Accounts funds;
    (ii) Include a description of the reasons for the withdrawal or 
series of withdrawals;
    (iii) List the amount of funds provided to each recipient and the 
name of each recipient;
    (iv) Include the current estimate of the amount of the futures 
commission merchant's residual interest in the swaps customer funds 
after the withdrawal;
    (v) Contain a representation by the chief executive officer, chief 
finance officer or other senior official that pre-approved the 
withdrawal, or series of withdrawals, that, after due diligence, to such 
person's knowledge and reasonable belief, the futures commission 
merchant remains in compliance with the segregation requirements after 
the withdrawal. The chief executive officer, chief finance officer or 
other senior official must consider the daily segregation calculation as 
of the close of business on the previous business day and any other 
factors that may cause a material change in the futures commission's 
residual interest since the close of business the previous business day, 
including known unsecured customer debits or deficits, current day 
market activity and any other withdrawals made from the Cleared Swaps 
Customer Accounts; and
    (vi) Any such written notice filed with the Commission must 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 instruction issued by or 
approved by the Commission. Any such electronic submission must clearly 
indicate the registrant 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. Any written notice filed must be followed up with direct 
communication to the Regional office of Commission which has supervisory 
authority over the futures commission merchant

[[Page 543]]

whereby the Commission acknowledges receipt of the notice; and
    (3) After making a withdrawal requiring the approval and notice 
required in paragraphs (c)(1) and (c)(2) of this section, and before the 
next daily segregated funds calculation, no futures commission merchant 
may make any further withdrawals from accounts holding Cleared Swaps 
Customer Account funds, except to or for the benefit of Cleared Swaps 
Customers, without complying with paragraph (c)(1) of this section and 
filing a written notice with the Commission under paragraph (c)(2)(vi) 
of this section and its designated self-regulatory organization signed 
by the chief executive officer, chief finance officer, or other senior 
official. The written notice must:
    (i) List the amount of funds provided to each recipient and each 
recipient's name;
    (ii) Disclose the reason for each withdrawal;
    (iii) Confirm that the chief executive officer, chief finance 
officer, or other senior official (and identify of the person if 
different from the person who signed the notice) pre-approved the 
withdrawal in writing;
    (iv) Disclose the current estimate of the futures commission 
merchant's remaining total residual interest in the segregated accounts 
holding Cleared Swaps Customer Account funds after the withdrawal; and
    (v) Include a representation that to the best of the notice 
signatory's knowledge and reasonable belief the futures commission 
merchant remains in compliance with the segregation requirements after 
the withdrawal.
    (d) If a futures commission merchant withdraws funds that are not 
for the benefit of Cleared Swaps Customers from Cleared Swaps Customer 
Accounts, and the withdrawal causes the futures commission merchant to 
not hold sufficient funds in Cleared Swaps Customer Accounts to meet its 
targeted residual interest, as required to be computed under Sec.  1.11 
of this chapter, the futures commission merchant must deposit its own 
funds into the Cleared Swaps Customer Accounts to restore the targeted 
amount of residual interest on the next business day, or, if 
appropriate, revise the futures commission merchant's targeted amount of 
residual interest pursuant to the policies and procedures required by 
Sec.  1.11 of this chapter. Notwithstanding the foregoing, if the 
futures commission merchant's residual interest in Cleared Swaps 
Customer Accounts is less than the amount required to be maintained by 
Sec.  22.2 at any particular point in time, the futures commission 
merchant must immediately restore the residual interest to exceed the 
sum of such amounts. Any proprietary funds deposited in Cleared Swaps 
Customer Accounts must be unencumbered and otherwise compliant with 
Sec.  1.25 of this chapter, as applicable.
    (e) Notwithstanding any other provision of this part, a futures 
commission merchant may not withdraw funds that are not for the benefit 
of Cleared Swaps Customers from a Cleared Swaps Customer Account unless 
the futures commission merchant follows its policies and procedures 
required by Sec.  1.11 of this chapter.

[78 FR 68647, Nov. 14, 2013]



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 Prohibition against statutory disqualification in the case of an 
          associated person of a swap dealer or major swap participant.
23.23 Cross-border application.
23.24-23.40 [Reserved]

  Subpart E_Capital and Margin Requirements for Swap Dealers and Major 
                            Swap Participants

23.100 Definitions applicable to capital requirements.
23.101 Minimum financial requirements for swap dealers and major swap 
          participants.
23.102 Calculation of market risk exposure requirement and credit risk 
          exposure requirement using internal models.
23.103 Calculation of market risk exposure requirement and credit risk 
          requirement when models are not approved.

[[Page 544]]

23.104 Equity Withdrawal Restrictions.
23.105 Financial recordkeeping, reporting and notification requirements 
          for swap dealers and major swap participants.
23.106 Substituted compliance for swap dealer's and major swap 
          participant's capital and financial reporting.
23.107-23.149 [Reserved]
23.150 Scope.
23.151 Definitions applicable to margin requirements.
23.152 Collection and posting of initial margin.
23.153 Collection and posting of variation margin.
23.154 Calculation of initial margin.
23.155 Calculation of variation margin.
23.156 Forms of margin.
23.157 Custodial arrangements.
23.158 Margin documentation.
23.159 Special rules for affiliates.
23.160 Cross-border application.
23.161 Compliance dates.
23.162-23.199 [Reserved]

Appendix A to Subpart E--Application for Internal Models To Compute 
          Market Risk Exposure Requirement and Credit Risk Exposure 
          Requirement
Appendix B to Subpart E--Swap Dealer and Major Swap Participant Position 
          Information
Appendix C to Subpart E--Financial Reports and Specific Position 
          Information for Swap Dealers and Major Swap Participants 
          Subject to the Capital Requirements of a Prudential Regulator

     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.

Appendix A to Subpart H of Part 23--Guidance on the application of 
          Sec. Sec.  23.434 and 23.440 for swap dealers that make 
          recommendations to counterparties or Special Entities

                      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.

Appendix 1 to Subpart I of Part 23--Exhibits A-D

      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.

Subpart K [Reserved]

[[Page 545]]

  Subpart L_Segregation of Assets Held as Collateral in Uncleared Swap 
                              Transactions

23.700 Definitions.
23.701 Notification of right to segregation.
23.702 Requirements for segregated initial margin.
23.703 Investment of segregated initial margin.
23.704 Requirements for non-segregated margin.

    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.
    Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 
111-203, 124 Stat. 1641 (2010).

    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 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  Prohibition against statutory disqualification in the case of 
an associated person of a swap dealer or major swap participant.

    (a) Definition. For purposes 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 and Sec.  1.3 of 
this chapter, but does not include an individual employed in a clerical 
or ministerial capacity.
    (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.
    (c) Dual and multiple associations. (1) A person who is already 
associated as an associated person of a swap dealer or major swap 
participant may become associated as an associated person of another 
swap dealer or major swap participant if the other swap dealer or major 
swap participant meets the requirements set forth in Sec.  
3.60(b)(2)(i)(A) of this chapter.
    (2) Each swap dealer and major swap participant associated with such 
associated person shall supervise that associated person, and each swap 
dealer and major swap participant is jointly and severally responsible 
for the conduct of the associated person with respect to the:
    (i) Solicitation or acceptance of customer orders,
    (ii) Solicitation of funds, securities or property for a 
participation in a commodity pool,
    (iii) Solicitation of a client's or prospective client's 
discretionary account,
    (iv) Solicitation or acceptance of leverage customers' orders for 
leverage transactions,
    (v) Solicitation or acceptance of swaps, and

[[Page 546]]

    (vi) 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 swap dealer or major 
swap participant.

[77 FR 2628, Jan. 19, 2012, as amended at 78 FR 20792, Apr. 8, 2013; 78 
FR 64175, Oct. 28, 2013; 83 FR 7996, Feb. 23, 2018]



Sec.  23.23  Cross-border application.

    (a) Definitions. Solely for purposes of this section the terms 
listed in this paragraph (a) have the meanings set forth in paragraphs 
(a)(1) through (24) of this section. A person may rely on a written 
representation from its counterparty that the counterparty does or does 
not satisfy the criteria for one or more of the definitions listed in 
paragraphs (a)(1) through (24) of this section, unless such person knows 
or has reason to know that the representation is not accurate; for the 
purposes of this rule a person would have reason to know the 
representation is not accurate if a reasonable person should know, under 
all of the facts of which the person is aware, that it is not accurate.
    (1) An affiliate of, or a person affiliated with a specific person, 
means a person that directly, or indirectly through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with, the person specified.
    (2) Control including the terms controlling, 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 shares, by 
contract, or otherwise.
    (3) Foreign branch means any office of a U.S. bank that:
    (i) Is located outside the United States;
    (ii) Operates for valid business reasons;
    (iii) Maintains accounts independently of the home office and of the 
accounts of other foreign branches, with the profit or loss accrued at 
each branch determined as a separate item for each foreign branch; and
    (iv) Is engaged in the business of banking and is subject to 
substantive regulation in banking or financing in the jurisdiction where 
it is located.
    (4) Foreign-based swap means:
    (i) A swap by a non-U.S. swap entity, except for a swap booked in a 
U.S. branch; or
    (ii) A swap conducted through a foreign branch.
    (5) Foreign counterparty means:
    (i) A non-U.S. person, except with respect to a swap booked in a 
U.S. branch of that non-U.S. person; or
    (ii) A foreign branch where it enters into a swap in a manner that 
satisfies the definition of a swap conducted through a foreign branch.
    (6) Group A requirements mean the requirements set forth in Sec.  
3.3 of this chapter, Sec. Sec.  23.201, 23.203, 23.600, 23.601, 23.602, 
23.603, 23.605, 23.606, 23.607, 23.609 and, to the extent it duplicates 
Sec.  23.201, Sec.  45.2(a) of this chapter.
    (7) Group B requirements mean the requirements set forth in 
Sec. Sec.  23.202 and 23.501 through 23.504.
    (8) Group C requirements mean the requirements set forth in 
Sec. Sec.  23.400 through 23.451 and 23.700 through 23.704.
    (9) Guarantee means an arrangement pursuant to which one party to a 
swap has rights of recourse against a guarantor, with respect to its 
counterparty's obligations under the swap. For these purposes, a party 
to a swap has rights of recourse against a guarantor if the party has a 
conditional or unconditional legally enforceable right to receive or 
otherwise collect, in whole or in part, payments from the guarantor with 
respect to its counterparty's obligations under the swap. In addition, 
in the case of any arrangement pursuant to which the guarantor has a 
conditional or unconditional legally enforceable right to receive or 
otherwise collect, in whole or in part, payments from any other 
guarantor with respect to the counterparty's obligations under the swap, 
such arrangement will be deemed a guarantee of the counterparty's 
obligations under the swap by the other guarantor. Notwithstanding the 
foregoing, until December 31, 2027, a person may continue to classify 
counterparties based on:
    (i) Representations that were made pursuant to the ``guarantee'' 
definition in Sec.  23.160(a)(2) prior to the effective date of this 
section; or

[[Page 547]]

    (ii) Representations made pursuant to the interpretation of the term 
``guarantee'' in the Interpretive Guidance and Policy Statement 
Regarding Compliance With Certain Swap Regulations, 78 FR 45292 (Jul. 
26, 2013), prior to the effective date of this section.
    (10) Non-U.S. person means any person that is not a U.S. person.
    (11) Non-U.S. swap entity means a swap entity that is not a U.S. 
swap entity.
    (12) Parent entity means any entity in a consolidated group that has 
one or more subsidiaries in which the entity has a controlling interest, 
as determined in accordance with U.S. GAAP.
    (13) Significant risk subsidiary means any non-U.S. significant 
subsidiary of an ultimate U.S. parent entity where the ultimate U.S. 
parent entity has more than $50 billion in global consolidated assets, 
as determined in accordance with U.S. GAAP at the end of the most 
recently completed fiscal year, but excluding non-U.S. subsidiaries that 
are:
    (i) Subject to consolidated supervision and regulation by the Board 
of Governors of the Federal Reserve System as a subsidiary of a U.S. 
bank holding company or an intermediate holding company; or
    (ii) Subject to capital standards and oversight by the subsidiary's 
home country supervisor that are consistent with the Basel Committee on 
Banking Supervision's ``International Regulatory Framework for Banks'' 
and subject to margin requirements for uncleared swaps in a jurisdiction 
that the Commission has found comparable pursuant to a published 
comparability determination with respect to uncleared swap margin 
requirements.
    (14) Significant subsidiary means a subsidiary, including its 
subsidiaries, which meets any of the following conditions:
    (i) The three year rolling average of the subsidiary's equity 
capital is equal to or greater than five percent of the three year 
rolling average of the ultimate U.S. parent entity's consolidated equity 
capital, as determined in accordance with U.S. GAAP as of the end of the 
most recently completed fiscal year;
    (ii) The three year rolling average of the subsidiary's total 
revenue is equal to or greater than ten percent of the three year 
rolling average of the ultimate U.S. parent entity's total consolidated 
revenue, as determined in accordance with U.S. GAAP as of the end of the 
most recently completed fiscal year; or
    (iii) The three year rolling average of the subsidiary's total 
assets is equal to or greater than ten percent of the three year rolling 
average of the ultimate U.S. parent entity's total consolidated assets, 
as determined in accordance with U.S. GAAP as of the end of the most 
recently completed fiscal year.
    (15) Subsidiary means an affiliate of a person controlled by such 
person directly, or indirectly through one or more intermediaries.
    (16) Swap booked in a U.S. branch means a swap entered into by a 
U.S. branch where the swap is reflected in the local accounts of the 
U.S. branch.
    (17) Swap conducted through a foreign branch means a swap entered 
into by a foreign branch where:
    (i) The foreign branch or another foreign branch is the office 
through which the U.S. person makes and receives payments and deliveries 
under the swap pursuant to a master netting or similar trading 
agreement, and the documentation of the swap specifies that the office 
for the U.S. person is such foreign branch;
    (ii) The swap is entered into by such foreign branch in its normal 
course of business; and
    (iii) The swap is reflected in the local accounts of the foreign 
branch.
    (18) Swap entity means a person that is registered with the 
Commission as a swap dealer or major swap participant pursuant to the 
Act.
    (19) Ultimate U.S. parent entity means the U.S. parent entity that 
is not a subsidiary of any other U.S. parent entity.
    (20) United States and U.S. means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (21) U.S. branch means a branch or agency of a non-U.S. banking 
organization where such branch or agency:
    (i) Is located in the United States;

[[Page 548]]

    (ii) Maintains accounts independently of the home office and other 
U.S. branches, with the profit or loss accrued at each branch determined 
as a separate item for each U.S. branch; and
    (iii) Engages in the business of banking and is subject to 
substantive banking regulation in the state or district where located.
    (22) U.S. GAAP means U.S. generally accepted accounting principles.
    (23) U.S. person:
    (i) Except as provided in paragraph (a)(23)(iii) of this section, 
U.S. person means any person that is:
    (A) A natural person resident in the United States;
    (B) A partnership, corporation, trust, investment vehicle, or other 
legal person organized, incorporated, or established under the laws of 
the United States or having its principal place of business in the 
United States;
    (C) An account (whether discretionary or non-discretionary) of a 
U.S. person; or
    (D) An estate of a decedent who was a resident of the United States 
at the time of death.
    (ii) For purposes of this section, principal place of business means 
the location from which the officers, partners, or managers of the legal 
person primarily direct, control, and coordinate the activities of the 
legal person. With respect to an externally managed investment vehicle, 
this location is the office from which the manager of the vehicle 
primarily directs, controls, and coordinates the investment activities 
of the vehicle.
    (iii) The term U.S. person does not include the International 
Monetary Fund, the International Bank for Reconstruction and 
Development, the Inter-American Development Bank, the Asian Development 
Bank, the African Development Bank, the United Nations, and their 
agencies and pension plans, and any other similar international 
organizations, and their agencies and pension plans.
    (iv) Notwithstanding paragraph (a)(23)(i) of this section, until 
December 31, 2027, a person may continue to classify counterparties as 
U.S. persons based on:
    (A) Representations made pursuant to the ``U.S. person'' definition 
in Sec.  23.160(a)(10) prior to the effective date of this section; or
    (B) Representations made pursuant to the interpretation of the term 
``U.S. person'' in the Interpretive Guidance and Policy Statement 
Regarding Compliance With Certain Swap Regulations, 78 FR 45292 (Jul. 
26, 2013), prior to the effective date of this section.
    (24) U.S. swap entity means a swap entity that is a U.S. person.
    (b) Cross-border application of swap dealer de minimis registration 
threshold calculation. For purposes of determining whether an entity 
engages in more than a de minimis quantity of swap dealing activity 
under paragraph (4)(i) of the swap dealer definition in Sec.  1.3 of 
this chapter, a person shall include the following swaps (subject to 
paragraph (d) of this section and paragraph (6) of the swap dealer 
definition in Sec.  1.3 of this chapter):
    (1) If such person is a U.S. person or a significant risk 
subsidiary, all swaps connected with the dealing activity in which such 
person engages.
    (2) If such person is a non-U.S. person (other than a significant 
risk subsidiary), all of the following swaps connected with the dealing 
activity in which such person engages:
    (i) Swaps with a counterparty that is a U.S. person, other than 
swaps conducted through a foreign branch of a registered swap dealer.
    (ii) Swaps where the obligations of such person under the swaps are 
subject to a guarantee by a U.S. person.
    (iii) Swaps with a counterparty that is a non-U.S. person where the 
counterparty's obligations under the swaps are subject to a guarantee by 
a U.S. person, except when:
    (A) The counterparty is registered as a swap dealer; or
    (B) The counterparty's swaps are subject to a guarantee by a U.S. 
person that is a non-financial entity; or
    (C) The counterparty is itself below the swap dealer de minimis 
threshold under paragraph (4)(i) of the swap dealer definition in Sec.  
1.3, and is affiliated with a registered swap dealer.
    (c) Cross-border application of major swap participant tests. For 
purposes of determining a person's status as a major swap participant, 
as defined in

[[Page 549]]

Sec.  1.3 of this chapter, a person shall include the following swap 
positions (subject to paragraph (d) of this section and the major swap 
participant definition in Sec.  1.3 of this chapter):
    (1) If such person is a U.S. person or a significant risk 
subsidiary, all swap positions that are entered into by the person.
    (2) If such person is a non-U.S. person (other than a significant 
risk subsidiary), all of the following swap positions of such person:
    (i) Swap positions where the counterparty is a U.S. person, other 
than swaps conducted through a foreign branch of a registered swap 
dealer.
    (ii) Swap positions where the obligations of such person under the 
swaps are subject to a guarantee by a U.S. person.
    (iii) Swap positions with a counterparty that is a non-U.S. person 
where the counterparty's obligations under the swaps are subject to a 
guarantee by a U.S. person, except when the counterparty is registered 
as a swap dealer.
    (d) Exception from counting for certain exchange-traded and cleared 
swaps. Notwithstanding any other provision of Sec.  23.23, for purposes 
of determining whether a non-U.S. person (other than a significant risk 
subsidiary or a non-U.S. person whose performance under the swap is 
subject to a guarantee by a U.S. person) engages in more than a de 
minimis quantity of swap dealing activity under paragraph (4)(i) of the 
swap dealer definition in Sec.  1.3 of this chapter or for determining 
the non-U.S. person's status as a major swap participant as defined in 
Sec.  1.3 of this chapter, such non-U.S. person does not need to count 
any swaps or swap positions, as applicable, that are entered into by 
such non-U.S. person on a designated contract market, a registered swap 
execution facility or a swap execution facility exempted from 
registration by the Commission pursuant to section 5h(g) of the Act, or 
a registered foreign board of trade, and cleared through a registered 
derivatives clearing organization or a clearing organization that has 
been exempted from registration by the Commission pursuant to section 
5b(h) of the Act, where the non-U.S. person does not know the identity 
of the counterparty to the swap prior to execution.
    (e) Exceptions from certain swap requirements for certain foreign 
swaps. (1) With respect to its foreign-based swaps, each non-U.S. swap 
entity and foreign branch of a U.S. swap entity shall be excepted from:
    (i) The group B requirements (other than Sec.  23.202(a) 
introductory text and (a)(1)) and the group C requirements with respect 
to any swap--
    (A) Entered into on a designated contract market, a registered swap 
execution facility or a swap execution facility exempted from 
registration by the Commission pursuant to section 5h(g) of the Act, or 
a registered foreign board of trade;
    (B) Cleared through a registered derivatives clearing organization 
or a clearing organization that has been exempted from registration by 
the Commission pursuant to section 5b(h) of the Act; and
    (C) Where the swap entity does not know the identity of the 
counterparty to the swap prior to execution; and
    (ii) The group C requirements with respect to any swap with a 
foreign counterparty.
    (2) A non-U.S. swap entity shall be excepted from the group C 
requirements with respect to any swap booked in a U.S. branch with a 
foreign counterparty that is neither a foreign branch nor a person whose 
performance under the swap is subject to a guarantee by a U.S. person.
    (3) With respect to its foreign-based swaps, each non-U.S. swap 
entity that is neither a significant risk subsidiary nor a person whose 
performance under the swap is subject to a guarantee by a U.S. person 
shall be excepted from the group B requirements with respect to any swap 
with a foreign counterparty (other than a foreign branch) that is 
neither--
    (i) A significant risk subsidiary that is a swap entity nor
    (ii) A person whose performance under the swap is subject to a 
guarantee by a U.S. person.
    (4) With respect to its foreign-based swaps, each foreign branch of 
a U.S. swap entity shall be excepted from the group B requirements with 
respect to any swap with a foreign counterparty

[[Page 550]]

(other than a foreign branch) that is neither a swap entity nor a person 
whose performance under the swap is subject to a guarantee by a U.S. 
person, subject to the following conditions:
    (i) A group B requirement is not eligible for the exception if the 
requirement, as applicable to the swap, is eligible for substituted 
compliance pursuant to a comparability determination issued by the 
Commission prior to the execution of the swap; and
    (ii) In any calendar quarter, the aggregate gross notional amount of 
swaps conducted by a swap entity in reliance on this exception does not 
exceed five percent (5%) of the aggregate gross notional amount of all 
its swaps.
    (5) With respect to its foreign-based swaps, each non-U.S. swap 
entity that is a significant risk subsidiary (an ``SRS SE'') or a person 
whose performance under the swap is subject to a guarantee by a U.S. 
person (a ``Guaranteed SE'') shall be excepted from the group B 
requirements with respect to any swap with a foreign counterparty (other 
than a foreign branch) that is neither a swap entity nor a person whose 
performance under the swap is subject to a guarantee by a U.S. person, 
subject to the following conditions:
    (i) A group B requirement is not eligible for the exception if the 
requirement, as applicable to the swap, is eligible for substituted 
compliance pursuant to a comparability determination issued by the 
Commission prior to the execution of the swap; and
    (ii) In any calendar quarter, the aggregate gross notional amount of 
swaps conducted by an SRS SE or a Guaranteed SE in reliance on this 
exception aggregated with the gross notional amount of swaps conducted 
by all affiliated SRS SEs and Guaranteed SEs in reliance on this 
exception does not exceed five percent (5%) of the aggregate gross 
notional amount of all swaps entered into by the SRS SE or Guaranteed SE 
and all affiliated swap entities.
    (f) Substituted Compliance. (1) A non-U.S. swap entity may satisfy 
any applicable group A requirement by complying with the applicable 
standards of a foreign jurisdiction to the extent permitted by, and 
subject to any conditions specified in, a comparability determination 
issued by the Commission under paragraph (g) of this section;
    (2) With respect to its foreign-based swaps, a non-U.S. swap entity 
or foreign branch of a U.S. swap entity may satisfy any applicable group 
B requirement for a swap with a foreign counterparty by complying with 
the applicable standards of a foreign jurisdiction to the extent 
permitted by, and subject to any conditions specified in, a 
comparability determination issued by the Commission under paragraph (g) 
of this section; and
    (3) A non-U.S. swap entity may satisfy any applicable group B 
requirement for any swap booked in a U.S. branch with a foreign 
counterparty that is neither a foreign branch nor a person whose 
performance under the swap is subject to a guarantee by a U.S. person by 
complying with the applicable standards of a foreign jurisdiction to the 
extent permitted by, and subject to any conditions specified in, a 
comparability determination issued by the Commission under paragraph (g) 
of this section.
    (g) Comparability determinations. (1) The Commission may issue 
comparability determinations under this section on its own initiative.
    (2) Eligibility requirements. The following persons may, either 
individually or collectively, request a comparability determination with 
respect to some or all of the group A requirements and group B 
requirements:
    (i) A swap entity that is eligible, in whole or in part, for 
substituted compliance under this section or a trade association or 
other similar group on behalf of its members who are such swap entities; 
or
    (ii) A foreign regulatory authority that has direct supervisory 
authority over one or more swap entities subject to the group A 
requirements and/or group B requirements and that is responsible for 
administering the relevant foreign jurisdiction's swap standards.
    (3) Submission requirements. Persons requesting a comparability 
determination pursuant to this section shall electronically provide the 
Commission:

[[Page 551]]

    (i) A description of the objectives of the relevant foreign 
jurisdiction's standards and the products and entities subject to such 
standards;
    (ii) A description of how the relevant foreign jurisdiction's 
standards address, at minimum, the elements or goals of the Commission's 
corresponding requirements or group of requirements. Such description 
should identify the specific legal and regulatory provisions that 
correspond to each element or goal and, if necessary, whether the 
relevant foreign jurisdiction's standards do not address a particular 
element or goal;
    (iii) A description of the differences between the relevant foreign 
jurisdiction's standards and the Commission's corresponding 
requirements, and an explanation regarding how such differing approaches 
achieve comparable outcomes;
    (iv) A description of the ability of the relevant foreign regulatory 
authority or authorities to supervise and enforce compliance with the 
relevant foreign jurisdiction's standards. Such description should 
discuss the powers of the foreign regulatory authority or authorities to 
supervise, investigate, and discipline entities for compliance with the 
standards and the ongoing efforts of the regulatory authority or 
authorities to detect and deter violations of, and ensure compliance 
with, the standards;
    (v) Copies of the foreign jurisdiction's relevant standards 
(including an English translation of any foreign language document); and
    (vi) Any other information and documentation that the Commission 
deems appropriate.
    (4) Standard of review. The Commission may issue a comparability 
determination pursuant to this section to the extent that it determines 
that some or all of the relevant foreign jurisdiction's standards are 
comparable to the Commission's corresponding requirements or group of 
requirements, or would result in comparable outcomes as the Commission's 
corresponding requirements or group of requirements, after taking into 
account such factors as the Commission determines are appropriate, which 
may include:
    (i) The scope and objectives of the relevant foreign jurisdiction's 
standards;
    (ii) Whether the relevant foreign jurisdiction's standards achieve 
comparable outcomes to the Commission's corresponding requirements;
    (iii) The ability of the relevant regulatory authority or 
authorities to supervise and enforce compliance with the relevant 
foreign jurisdiction's standards; and
    (iv) Whether the relevant regulatory authority or authorities has 
entered into a memorandum of understanding or other arrangement with the 
Commission addressing information sharing, oversight, examination, and 
supervision of swap entities relying on such comparability 
determination.
    (5) Reliance. Any swap entity that, in accordance with a 
comparability determination issued under this section, complies with a 
foreign jurisdiction's standards, would be deemed to be in compliance 
with the Commission's corresponding requirements. Accordingly, if a swap 
entity has failed to comply with the foreign jurisdiction's standards or 
a comparability determination, the Commission may initiate an action for 
a violation of the Commission's corresponding requirements. All swap 
entities, regardless of whether they rely on a comparability 
determination, remain subject to the Commission's examination and 
enforcement authority.
    (6) Discretion and Conditions. The Commission may issue or decline 
to issue comparability determinations under this section in its sole 
discretion. In issuing such a comparability determination, the 
Commission may impose any terms and conditions it deems appropriate.
    (7) Modifications. The Commission reserves the right to further 
condition, modify, suspend, terminate, or otherwise restrict a 
comparability determination issued under this section in the 
Commission's discretion.
    (8) Delegation of authority. 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 request information and/or documentation in 
connection with

[[Page 552]]

the Commission's issuance of a comparability determination under this 
section.
    (h) Records, scope of application, effective and compliance dates--
(1) Records. Swap dealers and major swap participants shall create a 
record of their compliance with this section and shall retain records in 
accordance with Sec.  23.203.
    (2) Scope of Application. The requirements of this section shall not 
apply to swaps executed prior to September 14, 2021.
    (3) Effective date and compliance date. (i) This section shall be 
effective on November 13, 2020.
    (ii) Provided that swap dealers and major swap participants comply 
with the recordkeeping requirements in paragraph (h)(1) of this section, 
the exceptions in paragraph (e) of this section are effective upon the 
effective date of the rule.
    (iii) Swap dealers and major swap participants must comply with the 
requirements of this section no later than September 14, 2021.

[85 FR 56997, Sept. 14, 2020, as amended at 85 FR 69499, Nov. 3, 2020]



Sec. Sec.  23.24-23.40  [Reserved]



  Subpart E_Capital and Margin Requirements for Swap Dealers and Major 
                            Swap Participants

    Source: 81 FR 695, Jan. 6, 2016, unless otherwise noted.



Sec.  23.100  Definitions applicable to capital requirements.

    For purposes of Sec. Sec.  23.101 through 23.106 of subpart E, the 
following terms are defined as follows:
    Actual daily net trading profit and loss. This term is used in 
assessing the performance of a swap dealer's VaR measure and refers to 
changes in the swap dealer's portfolio value that would have occurred 
were end-of-day positions to remain unchanged (therefore, excluding 
fees, commissions, reserves, net interest income, and intraday trading).
    Advanced approaches Board-regulated institution. The term shall have 
the meaning ascribed to it in 12 CFR part 217.
    BHC equivalent risk-weighted assets. This term means the risk-
weighted assets of a swap dealer that elects to meet the capital 
requirements in Sec.  23.101(a)(1)(i) calculated as follows:
    (1) If the swap dealer is not approved to use internal models to 
calculate credit risk exposure under Sec.  23.102, it shall calculate 
its credit risk-weighted assets using the bank holding company 
regulations in subpart D of 12 CFR part 217, as if the swap dealer 
itself were a bank holding company, with the swap dealer permitted to 
calculate its exposure amount for OTC derivative contracts using either 
the current exposure method or the standardized approach for 
counterparty credit risk, without regard to the status of any affiliate 
of the swap dealer as an advanced approaches Board-regulated 
institution;
    (2) If the swap dealer is approved to use internal models to 
calculate credit risk exposure under Sec.  23.102, it shall calculate 
its credit risk-weighted assets using the bank holding company 
regulations in subpart E of 12 CFR part 217, as if the swap dealer 
itself were a bank holding company, with the swap dealer permitted to 
calculate its exposure amount for OTC derivative contracts using either 
the internal models methodology or the standardized approach for 
counterparty credit risk, without regard to the status of any affiliate 
of the swap dealer as an advanced approaches Board-regulated 
institution;
    (3) If the swap dealer is not approved to use internal models to 
calculate market risk exposure under Sec.  23.102, it shall compute a 
market risk capital charge for the positions that the swap dealer holds 
in its proprietary accounts using the applicable standardized market 
risk charges set forth in Sec.  240.18a-1 of this title and Sec.  1.17 
of this chapter for such positions, and multiplying that amount by a 
factor of 12.5;
    (4) If the swap dealer is approved to use internal models to 
calculate market risk exposure under Sec.  23.102, it shall calculate 
its market risk-weighted assets using subpart F of 12 CFR part 217; 
Provided, however, that the swap dealer

[[Page 553]]

may elect to apply either the provisions of such sections that are 
applicable to advanced approaches Board-regulated institutions or those 
that are applicable to Board-regulated institutions that are not 
advanced approaches Board-regulated institutions.
    Credit risk. This term refers to the risk that the counterparty to 
an uncleared swap transaction could default before the final settlement 
of the transaction's cash flows.
    Credit risk exposure requirement. This term refers to the amount 
that the swap dealer (other than a swap dealer subject to the minimum 
capital requirements of Sec.  23.101(a)(1)(i)) is required to compute 
under Sec.  23.102 if approved to use internal credit risk models, or to 
compute under Sec.  23.103 if not approved to use internal credit risk 
models.
    Exempt foreign exchange swaps and foreign exchange forwards are 
those foreign exchange swaps and foreign exchange forwards that were 
exempted from the definition of a swap by the U.S. Department of the 
Treasury.
    Market risk exposure. This term means the risk of loss in a position 
or portfolio of positions resulting from movements in market prices and 
other factors. Market risk exposure is the sum of:
    (1) General market risks including changes in the market value of a 
particular assets that result from broad market movements, such as a 
changes in market interest rates, foreign exchange rates, equity prices, 
and commodity prices;
    (2) Specific risk, which includes risks that affect the market value 
of a specific instrument, such as the credit risk of the issuer of the 
particular instrument, but do not materially alter broad market 
conditions;
    (3) Incremental risk, which means the risk of loss on a position 
that could result from the failure of an obligor to make timely payments 
of principal and interest; and
    (4) Comprehensive risk, which is the measure of all material price 
risks of one or more portfolios of correlation trading positions.
    Market risk exposure requirement. This term refers to the amount 
that the swap dealer (other than a swap dealer subject to the minimum 
capital requirements of Sec.  23.101(a)(1)(i)) is required to compute 
under Sec.  23.102 if approved to use internal market risk models, or 
Sec.  23.103 if not approved to use internal market risk models.
    OTC derivative contract. This term shall have the meaning ascribed 
to it in 12 CFR part 217.
    Predominantly engaged in non-financial activities. A swap dealer is 
predominantly engaged in non-financial activities if: (1) The swap 
dealer's consolidated annual gross financial revenues, or if the swap 
dealer is a wholly owned subsidiary, then the swap dealer's consolidated 
parent's annual gross financial revenues, in either of its two most 
recently completed fiscal years represents less than 15 percent of the 
swap dealer's consolidated gross revenue in that fiscal year (``15% 
revenue test''), and (2) the consolidated total financial assets of the 
swap dealer, or if the swap dealer is wholly owned subsidiary, the 
consolidated total financial assets of the swap dealer's parent, at the 
end of its two most recently completed fiscal years represents less than 
15 percent of the swap dealer's consolidated total assets as of the end 
of the fiscal year (``15% asset test''). For purpose of computing the 
15% revenue test or the 15% asset test, a swap dealer's activities or 
swap dealer's parent's activities shall be deemed financial activities 
if such activities are defined as financial activities under 12 CFR 
242.3 and Appendix A to 12 CFR 242, including lending, investing for 
others, safeguarding money or securities for others, providing financial 
or investment advisory services, underwriting or making markets in 
securities, providing securities brokerage services, and engaging as 
principal in investing and trading activities; Provided, however, a swap 
dealer may exclude from its financial activities accounts receivable 
resulting from non-financial activities.
    Prudential regulator. This term has the same meaning as set forth in 
section 1a(39) of the 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

[[Page 554]]

to a swap dealer or major swap participant.
    Regulatory capital. This term shall mean:
    (1) With respect to the capital requirement under Sec.  
23.101(a)(1)(i), the amount of common equity tier 1 capital, additional 
tier 1 capital, and tier 2 capital maintained by a covered SD, computed 
in accordance with Sec.  23.101(a)(1)(i);
    (2) With respect to the capital requirement under Sec.  
23.101(a)(1)(ii), the amount of tentative net capital and net capital 
maintained by a covered SD, computed in accordance with Sec.  
23.101(a)(1)(ii);
    (3) With respect to the capital requirement under Sec.  
23.101(a)(2)(i), the amount of tangible net worth as defined in this 
section and maintained by a covered SD; and
    (4) With respect to the capital requirement under 23.101(b), the 
amount of tangible net worth as defined in this section and maintained 
by a major swap participant.
    Regulatory capital requirement. This term refers to each of the 
capital requirements that Sec.  23.101 applies to a swap dealer or major 
swap participant.
    Tangible net worth. This term means the net worth of a swap dealer 
or major swap participant as determined in accordance with generally 
accepted accounting principles in the United States, excluding goodwill 
and other intangible assets. In determining net worth, all long and 
short positions in swaps, security-based swaps and related positions 
must be marked to their market value. A swap dealer or major swap 
participant must include in its computation of tangible net worth all 
liabilities or obligations of a subsidiary or affiliate that the swap 
dealer or major swap participant guarantees, endorses, or assumes either 
directly or indirectly.
    Uncleared swap margin. This term means the amount of initial margin, 
computed in accordance with Sec.  23.154, that a swap dealer would be 
required to collect from each counterparty for each outstanding swap 
position of the swap dealer. A swap dealer must include all swap 
positions in the calculation of the uncleared swap margin amount, 
including swaps that are exempt or excluded from the scope of the 
Commission's margin regulations for uncleared swaps pursuant to Sec.  
23.150, exempt foreign exchange swaps or foreign exchange forwards, or 
netting set of swaps or foreign exchange swaps, for each counterparty, 
as if that counterparty was an unaffiliated swap dealer. Furthermore, in 
computing the uncleared swap margin amount, a swap dealer may not 
exclude the initial margin threshold amount or minimum transfer amount 
as such terms are defined in Sec.  23.151.

[85 FR 57547, Sept. 15, 2020]



Sec.  23.101  Minimum financial requirements for swap dealers 
and major swap participants.

    (a)(1) Except as provided in paragraphs (a)(2) through (a)(5) of 
this section, each swap dealer must elect to be subject to the minimum 
capital requirements set forth in either paragraphs (a)(1)(i) or 
(a)(1)(ii) of this section:
    (i) A swap dealer that elects to meet the capital requirements in 
this paragraph (a)(1)(i) must at all times maintain regulatory capital 
that meets the following:
    (A) $20 million of common equity tier 1 capital, as defined under 
the bank holding company regulations in 12 CFR 217.20, as if the swap 
dealer itself were a bank holding company subject to 12 CFR part 217;
    (B) An aggregate of common equity tier 1 capital, additional tier 1 
capital, and tier 2 capital, all as defined under the bank holding 
company regulations in 12 CFR 217.20, equal to or greater than eight 
percent of the swap dealer's BHC equivalent risk-weighted assets; 
provided, however, that the swap dealer must maintain a minimum of 
common equity tier 1 capital equal to six point five percent of its BHC 
equivalent risk-weighted assets; provided further, that any capital that 
is subordinated debt under 12 CFR 217.20 and that is included in the 
swap dealer's capital for purposes of this paragraph (a)(1)(i)(B) must 
qualify as subordinated debt under Sec.  240.18a-1d of this title;
    (C) An aggregate of common equity tier 1 capital, additional tier 1 
capital, and tier 2 capital, all as defined under the bank holding 
company regulations

[[Page 555]]

in 12 CFR 217.20, equal to or greater than eight percent of the amount 
of uncleared swap margin, as that term is defined in Sec.  23.100 of 
this part, for each uncleared swap position open on the books of the 
swap dealer, computed on a counterparty by counterparty basis pursuant 
to Sec.  23.154 of this part; and
    (D) The amount of capital required by a registered futures 
association of which the swap dealer is a member.
    (ii)(A) A swap dealer that elects to meet the capital requirements 
in this paragraph (a)(1)(ii) must at all times maintain net capital, as 
defined and computed in accordance with Sec.  240.18a-1 of this title as 
if the swap dealer were a security-based swap dealer registered with the 
Securities and Exchange Commission and subject to Sec.  240.18a-1 of 
this title, that equals or exceeds the greater of:
    (1) $20 million; provided however, that if the swap dealer is 
approved under Sec.  23.102 of this part to use internal models to 
compute market risk capital charges or credit risk capital charges it 
must maintain tentative net capital, as defined and computed in 
accordance with Sec.  240.18a-1 of this title as if the swap dealer were 
a security-based swap dealer registered with the Securities and Exchange 
Commission and subject to Sec.  240.18a-1 of this title, of not less 
than $100 million and net capital of $20 million;
    (2) Two percent of the uncleared swap margin, as defined in Sec.  
23.100 of this part; or
    (3) The amount of capital required by a registered futures 
association of which the swap dealer is a member.
    (B) A swap dealer that uses internal models to compute market risk 
for its proprietary positions under Sec.  240.18a-1(d) of this title 
must calculate the total market risk as the sum of the VaR measure, 
stressed VaR measure, specific risk measure, comprehensive risk measure, 
and incremental risk measure of the portfolio of proprietary positions 
in accordance with Sec.  23.102 of this part and Appendix A to Subpart E 
of Part 23; and
    (C) A swap dealer may recognize as a current asset, receivables from 
third-party custodians that maintain the swap dealer's initial margin 
deposits associated with uncleared swap and security-based swap 
transactions pursuant to the margin rules of the Commission, the 
Securities and Exchange Commission, a prudential regulator, as defined 
in section 1a(39) of the Act, or a foreign jurisdiction that has 
received a margin Comparability Determination under Sec.  23.160 of this 
chapter.
    (2)(i) A swap dealer that is ``predominantly engaged in non-
financial activities'' as defined in Sec.  23.100 of this part may elect 
to meet the minimum capital requirements in this paragraph (a)(2) in 
lieu of the capital requirements in paragraph (a)(1) of this section.
    (ii) A swap dealer that satisfies the requirements of paragraph 
(a)(2)(i) of this section and elects to meet the requirements of this 
paragraph (a)(2) must maintain tangible net worth, as defined in Sec.  
23.100 of this part, equal to or in excess of the greatest of the 
following:
    (A) $20 million plus the amount of the swap dealer's market risk 
exposure requirement (as defined in Sec.  23.100 of this part) and its 
credit risk exposure requirement (as defined in Sec.  23.100 of this 
part) associated with the swap dealer's swap and related hedge positions 
that are part of the swap dealer's swap dealing activities. The swap 
dealer shall compute its market risk exposure requirement and credit 
risk exposure requirement for its swap positions in accordance with 
Sec.  23.102 of this part if the swap dealer has obtained approval to 
use internal capital models. The swap dealer shall compute its market 
risk exposure requirement and credit risk exposure requirement in 
accordance with the standardized approach of paragraphs (b)(1) and 
(c)(1) of Sec.  23.103 of this part if it has not been approved to use 
internal capital models;
    (B) Eight percent of the amount of uncleared swap margin, as that 
term is defined in Sec.  23.100 of this part, for each uncleared swap 
positions open on the books of the swap dealer, computed on a 
counterparty by counterparty basis pursuant to Sec.  23.154 of this 
part; or
    (C) The amount of capital required by a registered futures 
association of which the swap dealer is a member.
    (3) A swap dealer that is subject to minimum capital requirements 
established by the rules or regulations of a

[[Page 556]]

prudential regulator pursuant to section 4s(e) of the Act is not subject 
to the regulatory capital requirements set forth in paragraph (a)(1) or 
(2) of this section.
    (4) A swap dealer that is a futures commission merchant is subject 
to the minimum capital requirements of Sec.  1.17 of this title, and is 
not subject to the regulatory capital requirements set forth in 
paragraph (a)(1) or (2) of this section.
    (5) A swap dealer that is organized and domiciled outside of the 
United States, including a swap dealer that is an affiliate of a person 
organized and domiciled in the United States, may satisfy its 
requirements for capital adequacy under paragraphs (a)(1) or (2) of this 
section by substituted compliance with the capital adequacy requirement 
of its home country jurisdiction. In order to qualify for substituted 
compliance, a swap dealer's home country jurisdiction must receive from 
the Commission a Capital Comparability Determination under Sec.  23.106 
of this part. A swap dealer that is a registered futures commission 
merchant may not apply for a Capital Comparability Determination and 
must comply with the minimum capital requirements set forth in Sec.  
1.17 of this chapter.
    (6) A swap dealer that elects to meet the capital requirements of 
paragraph (a)(1)(i), (a)(1)(ii), or (a)(2) of this section may not 
subsequently change its election without the prior written approval of 
the Commission. A swap dealer that wishes to change its election must 
submit a written request to the Commission and must provide any 
additional information and documentation requested by the Commission.
    (b)(1) Every major swap participant for which there is not a 
prudential regulator must at all time have and maintain positive 
tangible net worth.
    (2) Notwithstanding paragraph (b)(1) of this section, each major 
swap participant for which there is no prudential regulator must meet 
the minimum capital requirements established by a registered futures 
association of which the major swap participant is a member.
    (3) Notwithstanding paragraphs (b)(1) and (2) of this section, a 
major swap participant that is a futures commission merchant is subject 
to the minimum capital requirements of Sec.  1.17 of this chapter, and 
is not subject to the regulatory capital requirements set forth in 
paragraph (b)(1) and (2) of this section.
    (4) A major swap participant that is organized and domiciled outside 
of the United States, including a major swap participant that is an 
affiliate of a person organized and domiciled in the United States, may 
satisfy its requirements for capital adequacy under paragraphs (b)(1) 
and (2) of this section by substituted compliance with the capital 
adequacy requirement of its home country jurisdiction. In order to 
qualify for substituted compliance, a major swap participant's home 
country jurisdiction must receive from the Commission a Capital 
Comparability Determination under Sec.  23.106 of this part. A major 
swap participant that is a registered futures commission merchant may 
not apply for a Capital Comparability Determination and must comply with 
the minimum capital requirements set forth in Sec.  1.17 of this 
chapter.
    (c)(1) Before any applicant may be registered as a swap dealer or 
major swap participant, the applicant must demonstrate to the 
satisfaction of a registered futures association of which it is a 
member, or applying for membership, one of the following:
    (i) That the applicant complies with the applicable regulatory 
capital requirements in paragraphs (a)(1), (a)(2), (b)(1), or (b)(2) of 
this section;
    (ii) That the applicant is a futures commission merchant that 
complies with Sec.  1.17 of this chapter;
    (iii) That the applicant is subject to minimum capital requirements 
established by the rules or regulations of a prudential regulator under 
paragraph (a)(3) of this section;
    (iv) That the applicant is organized and domiciled in a non-U.S. 
jurisdiction and is regulated in a jurisdiction for which the Commission 
has issued a Capital Comparability Determination under Sec.  23.106 of 
this part, and the non-U.S. person has obtained confirmation from the 
Commission that it may rely upon the Commission's Comparability 
Determination under Sec.  23.106 of this part.

[[Page 557]]

    (2) Each swap dealer and major swap participant subject to the 
minimum capital requirements set forth in paragraphs (a) and (b) of this 
section must be in compliance with such requirements at all times, and 
must be able to demonstrate such compliance to the satisfaction of the 
Commission and to the registered futures association of which the swap 
dealer or major swap participant is a member.

[85 FR 57548, Sept. 15, 2020]



Sec.  23.102  Calculation of market risk exposure requirement 
and credit risk exposure requirement using internal models

    (a) A swap dealer may apply to the Commission or to a registered 
futures association of which the swap dealer is a member to obtain 
approval to use internal models under terms and conditions required by 
the Commission or the registered futures association and by these 
regulations, when calculating the swap dealer's market risk exposure and 
credit risk exposure under Sec. Sec.  23.101(a)(1)(i)(B), 
23.101(a)(1)(ii)(A), or 23.101(a)(2)(ii)(A); Provided however, that the 
Commission must issue a determination that the registered futures 
association's model requirements and review process are comparable to 
the Commission's requirements and review process in order for the 
registered futures association's model approval to be accepted as an 
alternative means of compliance with this section.
    (b) The swap dealer's application to use internal models to compute 
market risk exposure and credit risk exposure must be in writing and 
must be filed with the Commission and with a registered futures 
association of which the swap dealer is a member. The swap dealer must 
file the application in accordance with instructions established by the 
Commission and the registered futures association.
    (c) A swap dealer's application must include the following:
    (1) In the case of a swap dealer subject to the minimum capital 
requirements in Sec.  23.101(a)(1)(i) applying to use internal models to 
compute market risk exposure, the information required under subpart F 
of 12 CFR part 217, as if the swap dealer were itself a bank holding 
company subject to 12 CFR part 217.
    (2) In the case of a swap dealer subject to the minimum capital 
requirements in Sec.  23.101(a)(1)(i) applying to use internal models to 
compute credit risk exposure, the information required under subpart E 
of 12 CFR part 217 in order to calculate credit risk-weighted assets in 
accordance with sections 217.131 through 217.155 of that subpart, as if 
the swap dealer were itself a bank holding company subject to 12 CFR 
part 217.
    (3) In the case of a swap dealer subject to the minimum capital 
requirements in Sec.  23.101(a)(ii) or Sec.  23.101(a)(2), the 
information set forth in Appendix A to Subpart E of Part 23.
    (d) The Commission, or registered futures association upon obtaining 
the Commission's determination that its requirements and model approval 
process are comparable to the Commission's requirements and process, may 
approve or deny the application, or approve or deny an amendment to the 
application, in whole or in part, subject to any conditions or 
limitations the Commission or registered futures association may 
require, if the Commission or registered futures association finds the 
approval to be appropriate in the public interest, after determining, 
among other things, whether the applicant has met the requirements of 
this section. A swap dealer that has received Commission or registered 
futures association approval to compute market risk exposure 
requirements and credit risk exposure requirements pursuant to internal 
models must compute such charges in accordance with Appendix A to 
Subpart E of Part 23.
    (e) A swap dealer must cease using internal models to compute its 
market risk exposure requirement and credit risk exposure requirement, 
upon the occurrence of any of the following:
    (1) The swap dealer has materially changed a mathematical model 
described in the application or materially changed its internal risk 
management control system without first submitting amendments 
identifying such changes and obtaining the approval of the Commission or 
the registered futures association for such changes;

[[Page 558]]

    (2) The Commission or the registered futures association of which 
the swap dealer is a member determines that the internal models are no 
longer sufficient for purposes of the capital calculations of the swap 
dealer as a result of changes in the operations of the swap dealer;
    (3) The swap dealer fails to come into compliance with its 
requirements under this section, after having received from the Director 
of the Commission's Division of Swap Dealer and Intermediary Oversight, 
or from the registered futures association of which the swap dealer is a 
member, written notification that the swap dealer is not in compliance 
with its requirements, and must come into compliance by a date specified 
in the notice; or
    (4) The Commission by written order finds that permitting the swap 
dealer to continue to use the internal models is no longer appropriate.
    (f)(1) Notwithstanding paragraphs (a) through (d) of this section, a 
swap dealer may use internal market risk or credit risk models upon the 
submission to the Commission and the registered futures association of 
which the swap dealer is a member a certification, signed by the Chief 
Executive Officer, Chief Financial Officer, or other appropriate 
official with knowledge of the swap dealer's capital requirements and 
the capital models, that such models are in substantial compliance with 
Commission's model requirements and have been approved for use in 
computing capital by the swap dealer, or an affiliate of the swap 
dealer, by the Securities and Exchange Commission, a prudential 
regulator (as defined in Sec.  1.3 of this chapter), a foreign 
regulatory authority in a jurisdiction that the Commission has found to 
be eligible for substituted compliance under Sec.  23.106, or a foreign 
regulatory authority whose capital adequacy requirements are consistent 
with the capital requirements issued by the Basel Committee on Banking 
Supervision. A swap dealer also must file an application containing the 
information required under paragraph (c) of this section with the 
Commission with its certification. A swap dealer may use such models 
pending the subsequent approval or denial of the swap dealer's capital 
model application by the Commission or the registered futures 
association of which the swap dealer is a member.
    (2) A swap dealer shall revise the certification required under 
paragraph (f)(1) of this section to address any material changes or 
revisions to the models, or to reflect any regulatory restrictions 
placed on the models since the certification was submitted.
    (3) A swap dealer shall cease using capital models subject to the 
certification under paragraph (f)(1) of this section if the regulatory 
authority that previously approved the models for use by the swap 
dealer, or by the swap dealer's affiliate, has withdrawn its approval 
and the Commission or a registered futures association has not approved 
the models.

[85 FR 57550, Sept. 15, 2020]



Sec.  23.103  Calculation of market risk exposure requirement 
and credit risk requirement when models are not approved.

    (a) Non-model approach. A swap dealer that:
    (1) Does not compute its regulatory capital requirements under Sec.  
23.101(a)(1)(i), and
    (2) Either:
    (A) has not received approval from the Commission or from a 
registered futures association of which the swap dealer is a member to 
compute its market risk exposure requirement and/or credit risk exposure 
requirement pursuant to internal models under Sec.  23.102, or
    (B) has had its approval to compute its market risk exposure 
requirement and/or credit risk exposure requirement pursuant to internal 
models under Sec.  23.102 revoked by the Commission or registered 
futures association must compute its market risk exposure requirement 
and/or credit risk exposure requirement pursuant to paragraphs (b) and/
or (c) of this section.
    (b) Market risk exposure requirements. (1) A swap dealer that 
computes its regulatory capital under Sec.  23.101(a)(1)(ii) or (a)(2) 
shall compute a market risk capital charge for the positions that the 
swap dealer holds in its proprietary accounts using the applicable 
standardized market risk charges

[[Page 559]]

set forth in Sec.  240.18a-1 of this title and Sec.  1.17 of this 
chapter for such positions.
    (2) In computing its net capital under Sec.  23.101(a)(1)(ii), a 
swap dealer shall deduct from its tentative net capital the sum of the 
market risk capital charges computed under paragraph (b)(1) of this 
section.
    (3) In computing its minimum capital requirement under Sec.  
23.101(a)(2), a swap dealer must add the amount of the market risk 
capital charge computed under this section to the $20 million minimum 
capital requirement.
    (c) Credit risk charges. (1) A swap dealer that computes regulatory 
capital under Sec.  23.101(a)(1)(ii) shall compute counterparty credit 
risk charges using the applicable standardized credit risk charges set 
forth in Sec.  240.18a-1 of this title and Sec.  1.17 of this chapter 
for such positions.
    (2) In computing its net capital under Sec.  23.101(a)(1)(ii), a 
swap dealer shall reduce its tentative net capital by the sum of the 
counterparty credit risk charges computed under paragraph (c)(1) of this 
section.
    (3) In computing its minimum capital requirement under Sec.  
23.101(a)(2), a swap dealer must add the amount of the credit risk 
charge computed under this section to the $20 million minimum capital 
requirement.

[85 FR 57551, Sept. 15, 2020]



Sec.  23.104  Equity Withdrawal Restrictions.

    (a) Equity withdrawal restrictions. The capital of a swap dealer, 
including the capital of any affiliate or subsidiary whose liabilities 
or obligations are guaranteed, endorsed, or assumed by the swap dealer 
may not be withdrawn by action of the swap dealer or its equity holders, 
or by redemption of shares of stock by the swap dealer or by such 
affiliates or subsidiaries, or through the payment of dividends or any 
similar distribution, nor may any unsecured advance or loan be made to 
an equity holder or employee if, after giving effect thereto and to any 
other such withdrawals, advances, or loans which are scheduled to occur 
within six months following such withdrawal, advance or loan, the swap 
dealer's regulatory capital is less than 120 percent of the minimum 
regulatory capital required under Sec.  23.101 of this part. The equity 
withdrawal restrictions, however, do not preclude a swap dealer from 
making required tax payments or from paying reasonable compensation to 
equity holders. The Commission may, upon application by the swap dealer, 
grant relief from this paragraph (a) if the Commission deems such relief 
to be in the public interest.
    (b) Temporary equity withdrawal restrictions by Commission order. 
(1) The Commission may by order restrict, for a period of up to twenty 
business days, any withdrawal by a swap dealer of capital or any 
unsecured loan or advance to a stockholder, partner, member, employee or 
affiliate under such terms and conditions as the Commission deems 
appropriate in the public interest if the Commission, based on the 
information available, concludes that such withdrawal, loan or advance 
may be detrimental to the financial integrity of the swap dealer, or may 
unduly jeopardize the swap dealer's ability to meet its financial 
obligations to counterparties or to pay other liabilities which may 
cause a significant impact on the markets or expose the counterparties 
and creditors of the swap dealer to loss.
    (2) An order temporarily prohibiting the withdrawal of capital shall 
be rescinded if the Commission determines that the restriction on 
capital withdrawal should not remain in effect. A hearing on an order 
temporarily prohibiting withdrawal of capital will be held within two 
business days from the date of the request in writing by the swap 
dealer.

[85 FR 57551, Sept. 15, 2020]



Sec.  23.105  Financial recordkeeping, reporting and notification requirements 
for swap dealers and major swap participants.

    (a) Scope. (1) Except as provided in paragraphs (a)(2) and (a)(3) of 
this section, a swap dealer or major swap participant must comply with 
the applicable requirements set forth in paragraphs (b) through (p) of 
this section.
    (2) The requirements in paragraphs (b) through (o) of this section 
do not apply to any swap dealer or major swap

[[Page 560]]

participant that is subject to the capital requirements of a prudential 
regulator.
    (3) The requirements in paragraph (p) of this section do not apply 
to any swap dealer or major swap participant that is subject to the 
capital requirements of the Commission.
    (b) Current books and records. A swap dealer or major swap 
participant shall prepare and keep current ledgers or other similar 
records which show or summarize, with appropriate references to 
supporting documents, each transaction affecting its asset, liability, 
income, expense, and capital accounts, and in which all its asset, 
liability, and capital accounts are classified in accordance with U.S. 
generally accepted accounting principles, and as otherwise may be 
necessary for the capital calculations required under Sec.  23.101 of 
this part: Provided, however, that a swap dealer or major swap 
participant that is not otherwise required to prepare financial 
statements in accordance with U.S. generally accepted accounting 
principles, may prepare and keep records required by this section in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board. Such records must be 
maintained in accordance with Sec.  1.31 of this chapter.
    (c) Notices. (1) A swap dealer or major swap participant who knows 
or should have known that its regulatory capital at any time is less 
than the minimum required by Sec.  23.101 of this part, must:
    (i) Provide immediate written notice to the Commission and to the 
registered futures association of which it is a member that the swap 
dealer's or major swap participant's regulatory capital is less than 
that required by Sec.  23.101 of this part; and
    (ii) Provide together with such notice, documentation in such form 
as necessary to adequately reflect the swap dealer's or major swap 
participant's regulatory capital condition as of any date such person's 
regulatory capital is less than the minimum required. The swap dealer or 
major swap participant must provide similar documentation for other days 
as the Commission or registered futures association may request.
    (2) A swap dealer or major swap participant who knows or should have 
known that its regulatory capital at any time is less than 120 percent 
of its minimum regulatory capital requirement as determined under Sec.  
23.101 of this part, must provide written notice to the Commission and 
to the registered futures association of which it is a member to that 
effect within 24 hours of such event.
    (3) If a swap dealer or major swap participant at any time fails to 
make or to keep current the books and records required by these 
regulations, such swap dealer or major swap participant must, on the 
same day such event occurs, provide written notice to the Commission and 
to the registered futures association of which it is a member 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.
    (4) A swap dealer or major swap participant must provide written 
notice to the Commission and to the registered futures association of 
which it is a member of a substantial reduction in capital as compared 
to that last reported in a financial report filed with the Commission 
pursuant to this section. The notice shall be provided if the swap 
dealer or major swap participant experiences a 30 percent or more 
decrease in the amount of capital that the swap dealer or major swap 
participant holds in excess of its regulatory capital requirement as 
computed under Sec.  23.101 of this part.
    (5) A swap dealer or major swap participant must provide written 
notice to the Commission and to the registered futures association of 
which it is a member two business days prior to the withdrawal of 
capital by action of the equity holders of the swap dealer or major swap 
participant where the withdrawal exceeds 30 percent of the swap dealer's 
or major swap participant's excess regulatory capital as computed under 
Sec.  23.101 of this part.
    (6) A swap dealer or major swap participant that is registered with 
the Securities and Exchange Commission as a security-based swap dealer 
or as a

[[Page 561]]

major security-based swap participant and files a notice with the 
Securities and Exchange Commission under 17 CFR 240.18a-8 or 17 CFR 
240.17a-11, as applicable, must file a copy of such notice with the 
Commission and with the registered futures association of which it is a 
member at the time the security-based swap dealer or major security-
based swap participant files the notice with the Securities and Exchange 
Commission.
    (7) A swap dealer or major swap participant must submit a written 
notice to the Commission and to the registered futures association of 
which it is a member within 24 hours of the occurrence of any of the 
following events:
    (i) A single counterparty, or group of counterparties that are under 
common ownership or control, fails to post initial margin or pay 
variation margin to the swap dealer or major swap participant for swap 
positions in compliance with Sec.  23.152 and Sec.  23.153 of this part 
and security-based swap positions in compliance with 17 CFR 240.18a-
3(c)(1)(ii) and 17 CFR 240.18a-3(c)(2)(ii), and such initial margin and 
variation margin, in the aggregate, is equal to or greater than 25 
percent of the swap dealer's minimum capital requirement or 25 percent 
of the major swap participant's tangible net worth;
    (ii) Counterparties fail to post initial margin or pay variation 
margin to the swap dealer or major swap participant for swap positions 
in compliance with Sec.  23.152 and Sec.  23.153 of this part and 
security-based swap positions in compliance with 17 CFR 240.18a-
3(c)(1)(ii) and 17 CFR 240.18a-3(c)(2)(ii) in an amount that, in the 
aggregate, exceeds 50 percent of the swap dealer's minimum capital 
requirement or 50 percent of the major swap participant's tangible net 
worth;
    (iii) A swap dealer or major swap participant fails to post initial 
margin or pay variation margin to a single counterparty or group of 
counterparties under common ownership and control for swap positions in 
compliance with Sec.  23.152 and Sec.  23.153 of this part and security-
based swap positions in compliance with 17 CFR 240.18a-3(c)(1)(ii) and 
17 CFR 240.18a-3(c)(2)(ii), and such initial margin and variation 
margin, in the aggregate, exceeds 25 percent of the swap dealer's 
minimum capital requirement or 25 percent of the major swap 
participant's tangible net worth; or
    (iv) A swap dealer or major swap participant fails to post initial 
margin or pay variation margin to counterparties for swap positions in 
compliance with Sec.  23.152 and Sec.  23.153 of this part and security-
based swap positions in compliance with 17 CFR 240.18a-3(c)(1)(ii) and 
17 CFR 240.18a-3(c)(2)(ii) in an amount that, in the aggregate, exceeds 
50 percent of the swap dealer's s minimum capital requirement or 50 
percent of the major swap participants tangible net worth.
    (d) Unaudited financial reports. (1) A swap dealer or major swap 
participant shall file with the Commission and with a registered futures 
association of which it is a member monthly financial reports meeting 
the requirements in paragraph (d)(2) of this section as of the close of 
business each month; Provided, however, that a swap dealer or major swap 
participant who is subject to the minimum capital requirements of Sec.  
23.101(a)(2) or (b), respectively, may file quarterly financial reports 
meeting the requirements of paragraph (d)(2) of this section as of the 
close of business each quarter end. Such financial reports must be filed 
no later than 17 business days after the date for which the report is 
made.
    (2) The financial reports required by this section must be prepared 
in the English language and be denominated in United States dollars. The 
financial reports shall include a statement of financial condition, a 
statement of income/loss, a statement of changes in liabilities 
subordinated to the claims of general creditors, a statement of changes 
in ownership equity, a statement demonstrating compliance with and 
calculation of the applicable regulatory capital requirement under Sec.  
23.101, and such further material information as may be necessary to 
make the required statements not misleading. The monthly report and 
schedules must be prepared in accordance with generally accepted 
accounting principles as established in the United States; Provided, 
however, that a swap dealer or major swap participant that

[[Page 562]]

is not otherwise required to prepare financial statements in accordance 
with U.S. generally accepted accounting principles, may prepare the 
monthly report and schedules required by this section in accordance with 
International Financial Reporting Standards issued by the International 
Accounting Standards Board.
    (3) A swap dealer or major swap participant that is also registered 
with the Securities and Exchange Commission as a broker or dealer, 
security-based swap dealer, or a major security-based swap participant 
and files a monthly Form X-17A-5 FOCUS Report Part II with the 
Securities and Exchange Commission pursuant to 17 CFR 240.18a-7 or 17 
CFR 240.17a-5, as applicable, may file such Form X-17A-5 FOCUS Report 
Part II with the Commission and with the registered futures association 
in lieu of the financial reports required under paragraphs (d)(1) and 
(2) of the section. The swap dealer or major swap participant must file 
the form with the Commission and registered futures association when it 
files the Form X-17A-5 FOCUS Report Part II with the Securities and 
Exchange Commission, provided, however, that the swap dealer or major 
swap participant must file the Form X-17A-5 FOCUS Report Part II with 
the Commission and registered futures association no later than 17 
business days after the end of each month.
    (4) A swap dealer or major swap participant that is also registered 
with the Commission as a futures commission merchant may file a Form 1-
FR-FCM in lieu of the monthly financial reports required under 
paragraphs (d)(1) and (2) of the section.
    (e) Annual audited financial report. (1) A swap dealer or major swap 
participant shall file with the Commission and with a registered futures 
association of which it is a member an annual financial report as of the 
close of its fiscal year, certified in accordance with paragraph (e)(2) 
of this section, and including the information specified in paragraph 
(e)(3) of this section no later than 60 days after the close of the swap 
dealer's or major swap participant's fiscal year-end: Provided, however, 
that a swap dealer or major swap participant who is subject to the 
minimum capital requirements of Sec.  23.101(a)(2) or (b), respectively, 
of this part may file an annual financial report no later than 90 days 
after the close of the swap dealer's and major swap participant's fiscal 
year-end.
    (2) The annual financial report shall be audited and reported upon 
with an opinion expressed by an independent certified public accountant 
or independent licensed accountant that is in good standing in the 
accountant's home jurisdiction.
    (3) The annual financial reports shall be prepared in accordance 
with generally accepted accounting principles as established in the 
United States, be prepared in the English language, and denominated in 
United States dollars: Provided, however, that a swap dealer or major 
swap participant that does not otherwise prepare financial statements in 
accordance with U.S. generally accepted accounting principles, may 
prepare the annual financial report required by this section in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board.
    (4) The annual financial report must include the following:
    (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 for the period between the date of the most recent certified 
statement of financial condition filed with the Commission and 
registered futures association and the date for which the report is 
made, and changes in liabilities subordinated to claims of general 
creditors;
    (iii) Appropriate footnote disclosures;
    (iv) A statement demonstrating the swap dealer's or major swap 
participant's compliance with and calculation of the applicable 
regulatory capital requirement under Sec.  23.101 of this part;
    (v) A reconciliation of any material differences from the unaudited 
financial report prepared as of the swap dealer's or major swap 
participant's year-end date under paragraph (d) of this section and the 
swap dealer's or major swap participant's annual financial report 
prepared under this paragraph (e); and

[[Page 563]]

    (vi) Such further material information as may be necessary to make 
the required statements not misleading.
    (5) A swap dealer or major swap participant that is also registered 
with the Securities and Exchange Commission as a broker or dealer, 
security-based swap dealer, or a major security-based swap participant 
and files an annual financial report with the Securities and Exchange 
Commission pursuant to 17 CFR 240.18a-7 or 17 CFR 240.17a-5, as 
applicable, may file such annual financial report with the Commission 
and the registered futures association in lieu of the annual financial 
report required under this paragraph (e). The swap dealer or major swap 
participant must file its annual financial report with the Commission 
and the registered futures association at the same time that it files 
the annual financial report with the Securities and Exchange Commission, 
provided that the annual financial report is filed with the Commission 
and registered futures association no later than 60 days from the swap 
dealer's or major swap participant's fiscal year-end date.
    (6) A swap dealer or major swap participant that is also registered 
with the Commission as a futures commission merchant may file an audited 
Form 1-FR-FCM in lieu of the annual financial report required under this 
paragraph (e).
    (f) Oath or affirmation. Attached to each unaudited and audited 
financial report 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 financial report is true and correct. 
The individual making such oath or affirmation must be: If the swap 
dealer or major swap participant is a sole proprietorship, the 
proprietor; if a partnership, any general partner; if a corporation, the 
duly authorized 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.
    (g) Change of fiscal year-end. A swap dealer or major swap 
participant may not change the date of its fiscal year-end from that 
used in its most recent annual financial report filed under paragraph 
(e) of this section unless the swap dealer or major swap participant has 
requested and received written approval for the change from a registered 
futures association of which it is a member.
    (h) Additional information requirements. From time to time the 
Commission or a registered futures association, may, by written notice, 
require any swap dealer or major swap participant to file financial or 
operational information on a daily basis or at such other times as may 
be specified by the Commission or registered futures association. Such 
information must be furnished in accordance with the requirements 
included in the written Commission or registered futures association 
notice.
    (i) Public disclosure and nonpublic treatment of reports. (1) A swap 
dealer or major swap participant must no less than six months after the 
date of the most recent annual audited financial report make publicly 
available on its website the following unaudited information:
    (i) The statement of financial condition; and
    (ii) A statement disclosing the amount of the swap dealer's or major 
swap participant's regulatory capital as of the end of the quarter and 
the amount of its minimum regulatory capital requirement, computed in 
accordance with Sec.  23.101.
    (2) A swap dealer or major swap participant must no less than 
annually make publicly available on its website the following 
information:
    (i) The statement of financial condition from the swap dealer or 
major swap participant's audited annual financial report including 
applicable footnotes; and
    (ii) A statement disclosing the amount of the swap dealer's or major 
swap participant's regulatory capital as of the fiscal year end and its 
minimum regulatory capital requirement, computed in accordance with 
Sec.  23.101.
    (3) Financial information required to be made publicly available 
pursuant to paragraph (i)(2) of this section must be posted within 10 
business days after the

[[Page 564]]

firm is required to file with the Commission the reports required under 
paragraph (e)(1).
    (4) Financial information required to be made publicly available 
pursuant to paragraph (i)(1) of this section must be posted within 30 
calendar days of the date of the statements required under paragraph 
(d)(1).
    (5) Financial information required to be filed with the Commission 
pursuant to this section, and not otherwise publicly available, 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; Provided, however, that all 
information that is exempt from mandatory public disclosure will be 
available for official use by any official or employee of the United 
States or any State, by the National Futures Association and by any 
other person to whom the Commission believes disclosure of such 
information is in the public interest.
    (j) Extension of time to file financial reports. A swap dealer or 
major swap participant may file a request with the registered futures 
association of which it is a member for an extension of time to file a 
monthly unaudited financial report or an annual audited financial report 
required under paragraphs (d) and (e) of this section. Such request will 
be approved, conditionally or unconditionally, or disapproved by the 
registered futures association.
    (k) Additional reporting requirements for swap dealers approved to 
use models to calculate market risk and credit risk for computing 
capital requirements. (1) A swap dealer that has received approval or 
filed an application for provisional approval under Sec.  23.102(d) from 
the Commission, or from a registered futures association of which the 
swap dealer is a member, to use internal models to compute its market 
risk exposure requirement and credit risk exposure requirement in 
computing its regulatory capital under Sec.  23.101 must file with the 
Commission and with the registered futures association of which the swap 
dealer is a member the following information within 17 business days of 
the end of each month:
    (i) For each product for which the swap dealer calculates a 
deduction for market risk other than in accordance with a model approved 
or for which an application of provisional approval has been filed 
pursuant to Sec.  23.102(d), the product category and the amount of the 
deduction for market risk;
    (ii) A graph reflecting, for each business line, the daily intra-
month VaR;
    (iii) The aggregate VaR for the swap dealer;
    (iv) For each product for which the swap dealer uses scenario 
analysis, the product category and the deduction for market risk;
    (v) Credit risk information on swap, mixed swap and security-based 
swap exposures including:
    (A) Overall current exposure;
    (B) Current exposure (including commitments) listed by counterparty 
for the 15 largest exposures;
    (C) The 10 largest commitments listed by counterparty;
    (D) The swap dealer's maximum potential exposure listed by 
counterparty for the 15 largest exposures;
    (E) The swap dealer's aggregate maximum potential exposure;
    (F) A summary report reflecting the swap dealer's current and 
maximum potential exposures by credit rating category; and
    (G) A summary report reflecting the swap dealer's current exposure 
for each of the top ten countries to which the swap dealer is exposed 
(by residence of the main operating group of the counterparty).
    (2) A swap dealer that has received approval or filed an application 
of provisional approval under Sec.  23.102(d) from the Commission or 
from a registered futures association of which the swap dealer is a 
member to use internal models to compute its market risk exposure 
requirement and credit risk exposure requirement in computing its 
regulatory capital under Sec.  23.101 must file with the Commission and 
with the registered futures association of which the swap dealer is 
member the following information within 17 business days of the end of 
each calendar quarter:
    (i) A report identifying the number of business days for which the 
actual

[[Page 565]]

daily net trading loss exceeded the corresponding daily VaR; and
    (ii) The results of back-testing of all internal models used to 
compute allowable capital, including VaR, and credit risk models, 
indicating the number of back-testing exceptions.
    (l) Additional position and counterparty reporting requirements. A 
swap dealer or major swap participant must provide on a monthly basis to 
the Commission and to the registered futures association of which the 
swap dealer or major swap participant is a member the specific 
information required in Appendix B to Subpart E of this part.
    (m) Margin reporting. A swap dealer or major swap participant must 
file with the Commission and with the registered futures association of 
which the swap dealer or major swap participant is a member the 
following information as of the end of each month within 17 business 
days of the end of each month:
    (1) The name and address of each custodian holding initial margin or 
variation margin collected by the swap dealer or major swap participant 
for uncleared swap transactions pursuant to Sec. Sec.  23.152 and 
23.153;
    (2) The amount of initial margin and variation margin collected by 
the swap dealer or major swap participant that is held by each custodian 
listed in paragraph (m)(1) of this section;
    (3) The aggregate amount of initial margin that the swap dealer or 
major swap participant is required to collect from swap counterparties 
pursuant to Sec.  23.152(a);
    (4) The name and address of each custodian holding initial margin or 
variation margin posted by the swap dealer or major swap participant for 
uncleared swap transaction pursuant to Sec. Sec.  23.152 and 23.153;
    (5) The amount of initial margin and variation margin posted by the 
swap dealer or major swap participant that is held by each custodian 
listed in paragraph (m)(4) of this section; and
    (6) The aggregate amount of initial margin that the swap dealer or 
majors swap participant is required to post to its swap counterparties 
pursuant to Sec.  23.152(b).
    (n) Electronic filing. All filings of financial reports, notices and 
other information required to be submitted to the Commission or 
registered futures association under paragraphs (b) through (m) of this 
section must be filed in electronic form using a form of user 
authentication assigned in accordance with procedures established by or 
approved by the Commission or registered futures association, and 
otherwise in accordance with instructions issued by or approved by the 
Commission or registered futures association.
    A swap dealer or major swap participant must provide the Commission 
or registered futures association with the means necessary to read and 
to process the information contained in such report. Any such electronic 
submission must clearly indicate the swap dealer or major swap 
participant 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 financial report required under paragraphs (d), (e), or (h) of 
this section and filed via electronic transmission in accordance with 
procedures established by or approved by the Commission or registered 
futures association, 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 (f) 
of this section.
    (o) Comparability determination for certain financial reporting. A 
swap dealer or major swap participant that is subject to the monthly 
financial reporting requirements of paragraph (d) of this section and 
the annual financial reporting requirements of paragraph (e) of this 
section may petition the Commission for a Capital Comparability 
Determination under Sec.  23.106 to file monthly financial reports and/
or annual financial reports prepared in accordance with the rules a 
foreign regulatory authority in lieu of the requirements contained in 
this section.
    (p) Quarterly financial reporting and notification provisions for 
swap dealers

[[Page 566]]

and major swap participants that are subject to the capital requirements 
of a prudential regulator. (1) Scope. A swap dealer or major swap 
participant that is subject to the capital requirements of a prudential 
regulator must comply with the requirements of this paragraph.
    (2) Financial report and position information. A swap dealer or 
major swap participant that is subject to the capital requirements of a 
prudential regulator shall file on a quarterly basis with the Commission 
the financial reports and specific position information set forth in 
Appendix C to subpart E of this part. The swap dealer or major swap 
participant must file Appendix B to subpart E of this part with the 
Commission within 30 calendar days of the date of the end of the swap 
dealer's or major swap participant's fiscal quarter.
    (3) Notices. A swap dealer or major swap participant that is subject 
to the capital requirements of a prudential regulator must comply with 
the following written notice provisions:
    (i) A swap dealer or major swap participant that files a notice of 
adjustment of its reported capital category with the Federal Reserve 
Board, the Office of the Comptroller of the Currency, or the Federal 
Deposit Insurance Corporation, or files a similar notice with its home 
country supervisor(s), must give written notice of this fact that same 
day by transmitting a copy of the notice of the adjustment of reported 
capital category, or the similar notice provided to its home country 
supervisor(s), to the Commission and with a registered futures 
association of which it is a member.
    (ii) A swap dealer or major swap participant must provide immediate 
written notice to the Commission and with a registered futures 
association of which it is a member that the swap dealer's or major swap 
participant's regulatory capital is less than the applicable minimum 
capital requirements set forth in 12 CFR 217.10, 12 CFR 3.10, or 12 CFR 
324.10, or the minimum capital requirements established by its home 
country supervisor(s).
    (iii) If a swap dealer or major swap participant at any time fails 
to make or to keep current the books and records necessary to produce 
reports required under paragraph (p)(2) of this section, such swap 
dealer or major swap participant must, on the same day such event 
occurs, provide written notice to the Commission and with a registered 
futures association of which it is a member 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.
    (4) Additional information. From time to time the Commission may, by 
written notice, require a swap dealer or major swap participant that is 
subject to the capital rules of a prudential regulator to file financial 
or operational information on a daily basis or at such other times as 
may be specified by the Commission. Such information must be furnished 
in accordance with the requirements included in the written Commission 
notice.
    (5) Oath or affirmation. Attached to each financial report, 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 filing is true and correct. The individual making such oath or 
affirmation must be: If the swap dealer or major swap participant is a 
sole proprietorship, the proprietor; if a partnership, any general 
partner; if a corporation, the duly authorized 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.
    (6) Electronic filing. All filings of financial reports, notices, 
and other information made pursuant to this paragraph (p) must 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. Each swap dealer 
and major swap participant must provide the Commission with the means 
necessary to read and to process the information contained in such 
report. Any

[[Page 567]]

such electronic submission must clearly indicate the swap dealer or 
major swap participant 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 financial report required under this paragraph 
(p) and 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 (p)(5) of this paragraph. Every notice or 
report required to be transmitted to the Commission pursuant to this 
paragraph (p) must also be filed with the Securities and Exchange 
Commission if the swap dealer or major swap participant also is 
registered with the Securities and Exchange Commission.
    (7) A swap dealer or major swap participant that is subject to rules 
of a prudential regulator and is also registered with the Securities and 
Exchange Commission as a security-based swap dealer or a major security-
based swap participant and files a quarterly Form X-17A-5 FOCUS Report 
Part IIC with the Securities and Exchange Commission pursuant to 17 CFR 
240.18a-7, may file such Form X-17A-5 FOCUS Report Part IIC with the 
Commission in lieu of the financial reports required under paragraphs 
(p)(2) of this section. The swap dealer or major swap participant must 
file the form with the Commission when it files the Form X-17A-5 FOCUS 
Report Part IIC with the Securities and Exchange Commission, provided, 
however, that the swap dealer or major swap participant must file the 
Form X-17A-5 FOCUS Report Part IIC with the Commission no later than 30 
calendar days from the date the report is made.

[85 FR 57551, Sept. 15, 2020]



Sec.  23.106  Substituted compliance for swap dealer's and major swap 
participant's capital and financial reporting.

    (a)(1) Eligibility requirements. The following persons may, either 
individually or collectively, request a Capital Comparability 
Determination with respect to the Commission's capital adequacy and 
financial reporting requirements for swap dealers or major swap 
participants:
    (i) A swap dealer or major swap participant that is eligible for 
substituted compliance under Sec.  23.101 or a trade association or 
other similar group on behalf of its members who are swap dealers or 
major swap participants; or
    (ii) A foreign regulatory authority that has direct supervisory 
authority over one or more swap dealers or major swap participants that 
are eligible for substituted compliance under Sec.  23.101, and such 
foreign regulatory authority is responsible for administering the 
relevant foreign jurisdiction's capital adequacy and financial reporting 
requirements over the swap dealer or major swap participant.
    (2) Submission requirements. A person requesting a Capital 
Comparability Determination must electronically submit to the 
Commission:
    (i) A description of the objectives of the relevant foreign 
jurisdiction's capital adequacy and financial reporting requirements 
over entities that are subject to the Commission's capital adequacy and 
financial reporting requirements in this part;
    (ii) A description (including specific legal and regulatory 
provisions) of how the relevant foreign jurisdiction's capital adequacy 
and financial reporting requirements address the elements of the 
Commission's capital adequacy and financial reporting requirements for 
swap dealers and major swap participants, including, at a minimum, the 
methodologies for establishing and calculating capital adequacy 
requirements and whether such methodologies comport with any 
international standards, including Basel-based capital requirements for 
banking institutions; and

[[Page 568]]

    (iii) A description of the ability of the relevant foreign 
regulatory authority or authorities to supervise and enforce compliance 
with the relevant foreign jurisdiction's capital adequacy and financial 
reporting requirements. Such description should discuss the powers of 
the foreign regulatory authority or authorities to supervise, 
investigate, and discipline entities for compliance with capital 
adequacy and financial reporting requirements, and the ongoing efforts 
of the regulatory authority or authorities to detect and deter 
violations, and ensure compliance with capital adequacy and financial 
reporting requirements. The description should address how foreign 
authorities and foreign laws and regulations address situations where a 
swap dealer or major swap participant is unable to comply with the 
foreign jurisdictions capital adequacy or financial reporting 
requirements.
    (iv) Upon request, such other information and documentation that the 
Commission deems necessary to evaluate the comparability of the capital 
adequacy and financial reporting requirements of the foreign 
jurisdiction.
    (v) All supplied documents shall be provided in English, or provided 
translated to the English language, with currency amounts stated in or 
converted to USD (conversions to be noted with applicable date).
    (3) Standard of Review. The Commission will issue a Capital 
Comparability Determination to the extent that it determines that some 
or all of the relevant foreign jurisdiction's capital adequacy and 
financial reporting requirements and related financial recordkeeping and 
reporting requirements for swap dealing financial intermediaries are 
comparable to the Commission's corresponding capital adequacy and 
financial recordkeeping and reporting requirements. In determining 
whether the requirements are comparable, the Commission may consider all 
relevant factors, including:
    (i) The scope and objectives of the foreign jurisdiction's capital 
adequacy and financial reporting requirements;
    (ii) Whether the relevant foreign jurisdiction's capital adequacy 
and financial reporting requirements achieve comparable outcomes to the 
Commission's corresponding capital adequacy and financial reporting 
requirements for swap dealers and major swap participants;
    (iii) The ability of the relevant regulatory authority or 
authorities to supervise and enforce compliance with the relevant 
foreign jurisdiction's capital adequacy and financial reporting 
requirements; and
    (iv) Any other facts or circumstances the Commission deems relevant.
    (4) Reliance. (i) A swap dealer or major swap participant that is 
subject to the supervision of a foreign jurisdiction that has received a 
Capital Comparability Determination from the Commission must file a 
notice of its intent to comply with the capital adequacy and financial 
reporting requirements of the foreign jurisdiction with the Commission.
    (ii) Any swap dealer or major swap participant that has filed the 
notice set forth in paragraph (a)(4)(i) of this section and has received 
confirmation from the Commission that it may comply with a foreign 
jurisdiction's capital adequacy and financial reporting requirements 
will be deemed to be in compliance with the Commission's corresponding 
capital adequacy and financial reporting requirements. Accordingly, if a 
swap dealer or major swap participant has failed to comply with the 
foreign jurisdiction's capital adequacy and financial reporting 
requirements, the Commission may initiate an action for a violation of 
the Commission's corresponding requirements. All swap dealers and major 
swap participants, regardless of whether they rely on a Capital 
Comparability Determination, remain subject to the Commission's 
examination and enforcement authority.
    (5) Conditions. In issuing a Capital Comparability Determination, 
the Commission may impose any terms and conditions it deems appropriate, 
including certain capital adequacy and financial reporting requirements 
on swap dealers or major swap participants. The violation of such terms 
and conditions may constitute a violation of the Commission's capital 
adequacy or financial reporting requirements and/or result in the 
modification or

[[Page 569]]

revocation of the Capital Comparability Determination.
    (6) Modifications. The Commission reserves the right to further 
condition, modify, suspend or terminate or otherwise restrict a Capital 
Comparability Determination in the Commission's discretion.

[85 FR 57556, Sept. 15, 2020]



Sec. Sec.  23.107-23.149  [Reserved]



Sec.  23.150  Scope.

    (a) The margin requirements set forth in Sec. Sec.  23.150 through 
23.161 shall apply to uncleared swaps, as defined in Sec.  23.151, that 
are executed after the applicable compliance dates set forth in Sec.  
23.161.
    (b) The requirements set forth in Sec. Sec.  23.150 through 23.161 
shall not apply to a swap if the counterparty:
    (1) Qualifies for an exception from clearing under section 
2(h)(7)(A) of the Act and implementing regulations;
    (2) Qualifies for an exemption from clearing under a rule, 
regulation, or order issued by the Commission pursuant to section 
4(c)(1) of the Act concerning cooperative entities that would otherwise 
be subject to the requirements of section 2(h)(1)(A) of the Act; or
    (3) Satisfies the criteria in section 2(h)(7)(D) of the Act and 
implementing regulations.



Sec.  23.151  Definitions applicable to margin requirements.

    For the purposes of Sec. Sec.  23.150 through 23.161:
    Bank holding company has the meaning specified in section 2 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    Broker has the meaning specified in section 3(a)(4) the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).
    Business day means any day other than a Saturday, Sunday, or legal 
holiday.
    Company means a corporation, partnership, limited liability company, 
business trust, special purpose entity, association, or similar 
organization.
    Counterparty means the other party to a swap to which a covered swap 
entity is a party.
    Covered counterparty means a financial end user with material swaps 
exposure or a swap entity that enters into a swap with a covered swap 
entity.
    Covered swap entity means a swap dealer or major swap participant 
for which there is no prudential regulator.
    Cross-currency swap means a swap in which one party exchanges with 
another party principal and interest rate payments in one currency for 
principal and interest rate payments in another currency, and the 
exchange of principal occurs on the date the swap is entered into, with 
a reversal of the exchange of principal at a later date that is agreed 
upon when the swap is entered into.
    Currency of Settlement means a currency in which a party has agreed 
to discharge payment obligations related to an uncleared swap or a group 
of uncleared swaps subject to a master netting agreement at the 
regularly occurring dates on which such payments are due in the ordinary 
course.
    Data source means an entity and/or method from which or by which a 
covered swap entity obtains prices for swaps or values for other inputs 
used in a margin calculation.
    Day of execution means the calendar day at the time the parties 
enter into an uncleared swap, provided:
    (1) If each party is in a different calendar day at the time the 
parties enter into the uncleared swap, the day of execution is deemed 
the latter of the two dates; and
    (2) If an uncleared swap is--
    (i) Entered into after 4:00 p.m. in the location of a party; or
    (ii) Entered into on a day that is not a business day in the 
location of a party, then the uncleared swap is deemed to have been 
entered into on the immediately succeeding day that is a business day 
for both parties, and both parties shall determine the day of execution 
with reference to that business day.
    Dealer has the meaning specified in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)).
    Depository institution has the meaning specified in section 3(c) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    Eligible collateral means collateral described in Sec.  23.156.

[[Page 570]]

    Eligible master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly upon 
an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case,
    (i) Any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions, other than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws referenced 
in this paragraph in order to facilitate the orderly resolution of the 
defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or incorporates, 
any of the laws referenced in paragraph (2)(i)(A) of this definition; 
and
    (ii) The agreement may limit the right to accelerate, terminate, and 
close-out on a net basis all transactions under the agreement and to 
liquidate or set-off collateral promptly upon an event of default of the 
counterparty to the extent necessary for the counterparty to comply with 
the requirements of 12 CFR part 47; 12 CFR part 252, subpart I; or 12 
CFR part 382, as applicable;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) A covered swap entity that relies on the agreement for purposes 
of calculating the margin required by this part must:
    (i) Conduct sufficient legal review to conclude with a well-founded 
basis (and maintain sufficient written documentation of that legal 
review) that:
    (A) The agreement meets the requirements of paragraph (2) of this 
definition; and
    (B) In the event of a legal challenge (including one resulting from 
default or from receivership, conservatorship, insolvency, liquidation, 
or similar proceeding) the relevant court and administrative authorities 
would find the agreement to be legal, valid, binding, and enforceable 
under the law of the relevant jurisdictions; and
    (ii) Establish and maintain written procedures to monitor possible 
changes in relevant law and to ensure that the agreement continues to 
satisfy the requirements of this definition.
    Financial end user means--
    (1) A counterparty that is not a swap entity and that is:
    (i) A bank holding company or a margin affiliate thereof; a savings 
and loan holding company; a U.S. intermediate holding company 
established or designated for purposes of compliance with 12 CFR 
252.153; or a nonbank financial institution supervised by the Board of 
Governors of the Federal Reserve System under Title I of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323);
    (ii) A depository institution; a foreign bank; a Federal credit 
union or State credit union as defined in section 2 of the Federal 
Credit Union Act (12 U.S.C. 1752(1) and (6)); an institution that 
functions solely in a trust or fiduciary capacity as described in 
section 2(c)(2)(D) of the Bank Holding Company Act (12 U.S.C. 
1841(c)(2)(D)); an industrial loan company, an industrial

[[Page 571]]

bank, or other similar institution described in section 2(c)(2)(H) of 
the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(H));
    (iii) An entity that is state-licensed or registered as:
    (A) A credit or lending entity, including a finance company; money 
lender; installment lender; consumer lender or lending company; mortgage 
lender, broker, or bank; motor vehicle title pledge lender; payday or 
deferred deposit lender; premium finance company; commercial finance or 
lending company; or commercial mortgage company; except entities 
registered or licensed solely on account of financing the entity's 
direct sales of goods or services to customers;
    (B) A money services business, including a check casher; money 
transmitter; currency dealer or exchange; or money order or traveler's 
check issuer;
    (iv) A regulated entity as defined in section 1303(20) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(12 U.S.C. 4502(20)) or any entity for which the Federal Housing Finance 
Agency or its successor is the primary federal regulator;
    (v) Any institution chartered in accordance with the Farm Credit Act 
of 1971, as amended, 12 U.S.C. 2001 et seq. that is regulated by the 
Farm Credit Administration;
    (vi) A securities holding company; a broker or dealer; an investment 
adviser as defined in section 202(a) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-2(a)); an investment company registered with the 
Securities and Exchange Commission under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.), a company that has elected to be 
regulated as a business development company pursuant to section 54(a) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-53(a)), or a person 
that is registered with the U.S. Securities and Exchange Commission as a 
security-based swap dealer or a major security-based swap participant 
pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).
    (vii) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80-b-2(a)); an entity that would be an 
investment company under section 3 of the Investment Company Act of 1940 
(15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is 
deemed not to be an investment company under section 3 of the Investment 
Company Act of 1940 pursuant to Investment Company Act Rule 3a-7 (Sec.  
270.3a-7 of this title) of the Securities and Exchange Commission;
    (viii) A commodity pool, a commodity pool operator, a commodity 
trading advisor, a floor broker, a floor trader, an introducing broker 
or a futures commission merchant;
    (ix) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income and Security Act of 1974 
(29 U.S.C. 1002);
    (x) An entity that is organized as an insurance company, primarily 
engaged in writing insurance or reinsuring risks underwritten by 
insurance companies, or is subject to supervision as such by a State 
insurance regulator or foreign insurance regulator;
    (xi) An entity, person, or arrangement that is, or holds itself out 
as being, an entity, person, or arrangement that raises money from 
investors, accepts money from clients, or uses its own money primarily 
for investing or trading or facilitating the investing or trading in 
loans, securities, swaps, funds, or other assets; or
    (xii) An entity that would be a financial end user described in 
paragraph (1) of this definition or a swap entity if it were organized 
under the laws of the United States or any State thereof.
    (2) The term ``financial end user'' does not include any 
counterparty that is:
    (i) A sovereign entity;
    (ii) A multilateral development bank;
    (iii) The Bank for International Settlements and the European 
Stability Mechanism;
    (iv) An entity that is exempt from the definition of financial 
entity pursuant to section 2(h)(7)(C)(iii) of the Act and implementing 
regulations;
    (v) An affiliate that qualifies for the exemption from clearing 
pursuant to section 2(h)(7)(D) of the Act; or

[[Page 572]]

    (vi) An eligible treasury affiliate that the Commission exempts from 
the requirements of Sec. Sec.  23.150 through 23.161 by rule.
    Foreign bank means an organization that is organized under the laws 
of a foreign country and that engages directly in the business of 
banking outside the United States.
    Foreign exchange forward has the meaning specified in section 1a(24) 
of the Act.
    Foreign exchange swap has the meaning specified in section 1a(25) of 
the Act.
    Initial margin means the collateral, as calculated in accordance 
with Sec.  23.154 that is collected or posted in connection with one or 
more uncleared swaps.
    Initial margin model means an internal risk management model that:
    (1) Has been developed and designed to identify an appropriate, 
risk-based amount of initial margin that the covered swap entity must 
collect with respect to one or more non-cleared swaps to which the 
covered swap entity is a party; and
    (2) Has been approved by the Commission or a registered futures 
association pursuant to Sec.  23.154(b).
    Initial margin threshold amount means an aggregate credit exposure 
of $50 million resulting from all uncleared swaps between a covered swap 
entity and its margin affiliates on the one hand, and a covered 
counterparty and its margin affiliates on the other. For purposes of 
this calculation, an entity shall not count a swap that is exempt 
pursuant to Sec.  23.150(b).
    Major currencies means--
    (1) United States Dollar (USD);
    (2) Canadian Dollar (CAD);
    (3) Euro (EUR);
    (4) United Kingdom Pound (GBP);
    (5) Japanese Yen (JPY);
    (6) Swiss Franc (CHF);
    (7) New Zealand Dollar (NZD);
    (8) Australian Dollar (AUD);
    (9) Swedish Kronor (SEK);
    (10) Danish Kroner (DKK);
    (11) Norwegian Krone (NOK); and
    (12) Any other currency designated by the Commission.
    Margin affiliate. A company is a margin affiliate of another company 
if:
    (1) Either company consolidates the other on a financial statement 
prepared in accordance with U.S. Generally Accepted Accounting 
Principles, the International Financial Reporting Standards, or other 
similar standards,
    (2) Both companies are consolidated with a third company on a 
financial statement prepared in accordance with such principles or 
standards, or
    (3) For a company that is not subject to such principles or 
standards, if consolidation as described in paragraph (1) or (2) of this 
definition would have occurred if such principles or standards had 
applied.
    Market intermediary means--
    (1) A securities holding company;
    (2) A broker or dealer;
    (3) A futures commission merchant;
    (4) A swap dealer; or
    (5) A security-based swap dealer.
    Material swaps exposure for an entity means that, as of September 1 
of any year, the entity and its margin affiliates have an average month-
end aggregate notional amount of uncleared swaps, uncleared security-
based swaps, foreign exchange forwards, and foreign exchange swaps with 
all counterparties for March, April, and May of that year that exceeds 
$8 billion, where such amount is calculated only for the last business 
day of the month. Activities not carried out in the regular course of 
business and willfully designed to circumvent calculation at month-end 
to evade meeting the definition of material swaps exposure shall be 
prohibited. An entity shall count the average month-end aggregate 
notional amount of an uncleared swap, an uncleared security-based swap, 
a foreign exchange forward, or a foreign exchange swap between the 
entity and a margin affiliate only one time. For purposes of this 
calculation, an entity shall not count a swap that is exempt pursuant to 
Sec.  23.150(b) or a security-based swap that qualifies for an exemption 
under section 3C(g)(10) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c-3(g)(4)) and implementing regulations or that satisfies the 
criteria in section 3C(g)(1) of the Securities Exchange Act of 1934 (15 
U.S.C. 78-c3(g)(4)) and implementing regulations.
    Minimum transfer amount means a combined initial and variation 
margin amount under which no actual transfer of funds is required. The 
minimum

[[Page 573]]

transfer amount shall be $500,000. Where a counterparty to a covered 
swap entity owns two or more separately managed accounts, a minimum 
transfer amount of up to $50,000 may be applied for each separately 
managed account.
    Multilateral development bank means:
    (1) The International Bank for Reconstruction and Development;
    (2) The Multilateral Investment Guarantee Agency;
    (3) The International Finance Corporation;
    (4) The Inter-American Development Bank;
    (5) The Asian Development Bank;
    (6) The African Development Bank;
    (7) The European Bank for Reconstruction and Development;
    (8) The European Investment Bank;
    (9) The European Investment Fund;
    (10) The Nordic Investment Bank;
    (11) The Caribbean Development Bank;
    (12) The Islamic Development Bank;
    (13) The Council of Europe Development Bank; and
    (14) Any other entity that provides financing for national or 
regional development in which the U.S. government is a shareholder or 
contributing member or which the Commission determines poses comparable 
credit risk.
    Non-financial end user means a counterparty that is not a swap 
dealer, a major swap participant, or a financial end user.
    Prudential regulator has the meaning specified in section 1a(39) of 
the Act.
    Savings and loan holding company has the meaning specified in 
section 10(n) of the Home Owners' Loan Act (12 U.S.C. 1467a(n)).
    Securities holding company has the meaning specified in section 618 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 1850a).
    Security-based swap has the meaning specified in section 3(a)(68) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)).
    Separately managed account means an account of a counterparty to a 
covered swap entity that meets the following requirements:
    (1) The account is managed by an asset manager and governed by an 
investment management agreement, pursuant to which the counterparty 
grants the asset manager authority with respect to a specified amount of 
the counterparty's assets;
    (2) Swaps are entered into between the counterparty and the covered 
swap entity by the asset manager on behalf of the account pursuant to 
authority granted by the counterparty through an investment management 
agreement; and
    (3) The swaps of such account are subject to a master netting 
agreement that does not provide for the netting of initial or variation 
margin obligations across all such accounts of the counterparty that 
have swaps outstanding with the covered swap entity.
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    State means any State, commonwealth, territory, or possession of the 
United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.
    Swap entity means a person that is registered with the Commission as 
a swap dealer or major swap participant pursuant to the Act.
    Uncleared security-based swap means a security-based swap that is 
not, directly or indirectly, submitted to and cleared by a clearing 
agency registered with the Securities and Exchange Commission pursuant 
to section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78a-1) 
or by a clearing agency that the U.S. Securities and Exchange Commission 
has exempted from registration by rule or order pursuant to section 17A 
of the Securities Exchange Act of 1934 (15 U.S.C. 78a-1).
    Uncleared swap means a swap that is not cleared by a registered 
derivatives clearing organization, or by a clearing organization that 
the Commission has exempted from registration by rule or order pursuant 
to section 5b(h) of the Act.
    U.S. Government-sponsored enterprise means an entity established or 
chartered by the U.S. government to serve

[[Page 574]]

public purposes specified by federal statute but whose debt obligations 
are not explicitly guaranteed by the full faith and credit of the U.S. 
government.
    Variation margin means collateral provided by a party to its 
counterparty to meet the performance of its obligation under one or more 
uncleared swaps between the parties as a result of a change in value of 
such obligations since the trade was executed or the last time such 
collateral was provided.
    Variation margin amount means the cumulative mark-to-market change 
in value to a covered swap entity of an uncleared swap, as measured from 
the date it is entered into (or in the case of an uncleared swap that 
has a positive or negative value to a covered swap entity on the date it 
is entered into, such positive or negative value plus any cumulative 
mark-to-market change in value to the covered swap entity of an 
uncleared swap after such date), less the value of all variation margin 
previously collected, plus the value of all variation margin previously 
posted with respect to such uncleared swap.

[81 FR 695, Jan. 6, 2016, as amended at 83 FR 60346, Nov. 26, 2018; 85 
FR 27678, May 11, 2020; 86 FR 246, Jan. 5, 2021; 86 FR 6857, Jan. 25, 
2021]



Sec.  23.152  Collection and posting of initial margin.

    (a) Collection--(1) Initial obligation. On or before the business 
day after execution of an uncleared swap between a covered swap entity 
and a covered counterparty, the covered swap entity shall collect 
initial margin from the covered counterparty in an amount equal to or 
greater than an amount calculated pursuant to Sec.  23.154, in a form 
that complies with Sec.  23.156, and pursuant to custodial arrangements 
that comply with Sec.  23.157.
    (2) Continuing obligation. The covered swap entity shall continue to 
hold initial margin from the covered counterparty in an amount equal to 
or greater than an amount calculated each business day pursuant to Sec.  
23.154, in a form that complies with Sec.  23.156, and pursuant to 
custodial arrangements that comply with Sec.  23.157, until such 
uncleared swap is terminated or expires.
    (b) Posting--(1) Initial obligation. On or before the business day 
after execution of an uncleared swap between a covered swap entity and a 
financial end user with material swaps exposure, the covered swap entity 
shall post initial margin with the counterparty in an amount equal to or 
greater than an amount calculated pursuant to Sec.  23.154, in a form 
that complies with Sec.  23.156, and pursuant to custodial arrangements 
that comply with Sec.  23.157.
    (2) Continuing obligation. The covered swap entity shall continue to 
post initial margin with the counterparty in an amount equal to or 
greater than an amount calculated each business day pursuant to Sec.  
23.154, in a form that complies with Sec.  23.156, and pursuant to 
custodial arrangements that comply with Sec.  23.157, until such 
uncleared swap is terminated or expires.
    (3) Minimum transfer amount. A covered swap entity is not required 
to collect or to post initial margin pursuant to Sec. Sec.  23.150 
through 23.161 with respect to a particular counterparty unless and 
until the combined amount of initial margin and variation margin that is 
required pursuant to Sec. Sec.  23.150 through 23.161 to be collected or 
posted and that has not been collected or posted with respect to the 
counterparty is greater than the minimum transfer amount, as the term is 
defined in Sec.  23.151.
    (c) Netting. (1) To the extent that one or more uncleared swaps are 
executed pursuant to an eligible master netting agreement between a 
covered swap entity and covered counterparty, a covered swap entity may 
calculate and comply with the applicable initial margin requirements of 
Sec. Sec.  23.150 through 23.161 on an aggregate net basis with respect 
to all uncleared swaps governed by such agreement, subject to paragraph 
(c)(2) of this section.
    (2)(i) Except as permitted in paragraph (c)(2)(ii) of this section, 
if an eligible master netting agreement covers uncleared swaps entered 
into on or after the applicable compliance date set forth in Sec.  
23.161, all the uncleared swaps covered by that agreement are subject to 
the requirements of Sec. Sec.  23.150 through 23.161 and included in the 
aggregate netting portfolio for the purposes of calculating and 
complying

[[Page 575]]

with the margin requirements of Sec. Sec.  23.150 through 23.161.
    (ii) An eligible master netting agreement may identify one or more 
separate netting portfolios that independently meet the requirements in 
paragraph (1) of the definition of ``eligible master netting agreement'' 
in Sec.  23.151 and to which collection and posting of margin applies on 
an aggregate net basis separate from and exclusive of any other 
uncleared swaps covered by the eligible master netting agreement. Any 
such netting portfolio that contains any uncleared swap entered into on 
or after the applicable compliance date set forth in Sec.  23.161 is 
subject to the requirements of Sec. Sec.  23.150 through 23.161. Any 
such netting portfolio that contains only uncleared swaps entered into 
before the applicable compliance date is not subject to the requirements 
of Sec. Sec.  23.150 through 23.161.
    (d) Satisfaction of collection and posting requirements. A covered 
swap entity shall not be deemed to have violated its obligation to 
collect or to post initial margin from a covered counterparty if:
    (1) The covered counterparty has refused or otherwise failed to 
provide, or to accept, the required initial margin to, or from, the 
covered swap entity; and
    (2) The covered swap entity has:
    (i) Made the necessary efforts to collect or to post the required 
initial margin, including the timely initiation and continued pursuit of 
formal dispute resolution mechanisms, including pursuant to Sec.  
23.504(b)(4), if applicable, or has otherwise demonstrated upon request 
to the satisfaction of the Commission that it has made appropriate 
efforts to collect or to post the required initial margin; or
    (ii) Commenced termination of the uncleared swap with the covered 
counterparty promptly following the applicable cure period and 
notification requirements.

[81 FR 695, Jan. 6, 2016, as amended at 86 FR 6857, Jan. 25, 2021]



Sec.  23.153  Collection and posting of variation margin.

    (a) Initial obligation. On or before the business day after the day 
of execution of an uncleared swap between a covered swap entity and a 
counterparty that is a swap entity or a financial end user, the covered 
swap entity shall collect the variation margin amount from the 
counterparty when the amount is positive, or post the variation margin 
amount with the counterparty when the amount is negative as calculated 
pursuant to Sec.  23.155 and in a form that complies with Sec.  23.156.
    (b) Continuing obligation. The covered swap entity shall continue to 
collect the variation margin amount from, or to post the variation 
margin amount with, the counterparty as calculated each business day 
pursuant to Sec.  23.155 and in a form that complies with Sec.  23.156 
each business day until such uncleared swap is terminated or expires.
    (c) Minimum transfer amount. A covered swap entity is not required 
to collect or to post variation margin pursuant to Sec. Sec.  23.150 
through 23.161 with respect to a particular counterparty unless and 
until the combined amount of initial margin and variation margin that is 
required pursuant to Sec. Sec.  23.150 through 23.161 to be collected or 
posted and that has not been collected or posted with respect to the 
counterparty is greater than the minimum transfer amount, as the term is 
defined in Sec.  23.151.
    (d) Netting. (1) To the extent that more than one uncleared swap is 
executed pursuant to an eligible master netting agreement between a 
covered swap entity and a counterparty, a covered swap entity may 
calculate and comply with the applicable variation margin requirements 
of this section on an aggregate basis with respect to all uncleared 
swaps governed by such agreement subject to paragraph (d)(2) of this 
section.
    (2)(i) Except as permitted in paragraph (d)(2)(ii) of this section, 
if an eligible master netting agreement covers uncleared swaps entered 
into on or after the applicable compliance date set forth in Sec.  
23.161, all the uncleared swaps covered by that agreement are subject to 
the requirements of Sec. Sec.  23.150 through 23.161 and included in the 
aggregate netting portfolio for the purposes of calculating and 
complying with the margin requirements of Sec. Sec.  23.150 through 
23.161.

[[Page 576]]

    (ii) An eligible master netting agreement may identify one or more 
separate netting portfolios that independently meet the requirements in 
paragraph (1) of the definition of ``eligible master netting agreement'' 
in Sec.  23.151 and to which collection and posting of margin applies on 
an aggregate net basis separate from and exclusive of any other 
uncleared swaps covered by the eligible master netting agreement. Any 
such netting portfolio that contains any uncleared swap entered into on 
or after the applicable compliance date set forth in Sec.  23.161 is 
subject to the requirements of Sec. Sec.  23.150 through 23.161. Any 
such netting portfolio that contains only uncleared swaps entered into 
before the applicable compliance date is not subject to the requirements 
of Sec. Sec.  23.150 through 23.161.
    (e) Satisfaction of collection and payment requirements. A covered 
swap entity shall not be deemed to have violated its obligation to 
collect or to pay variation margin from a counterparty if:
    (1) The counterparty has refused or otherwise failed to provide or 
to accept the required variation margin to or from the covered swap 
entity; and
    (2) The covered swap entity has:
    (i) Made the necessary efforts to collect or to post the required 
variation margin, including the timely initiation and continued pursuit 
of formal dispute resolution mechanisms, including pursuant to Sec.  
23.504(b)(4), if applicable, or has otherwise demonstrated upon request 
to the satisfaction of the Commission that it has made appropriate 
efforts to collect or to post the required variation margin; or
    (ii) Commenced termination of the uncleared swap with the 
counterparty promptly following the applicable cure period and 
notification requirements.

[81 FR 695, Jan. 6, 2016, as amended at 86 FR 6857, Jan. 25, 2021]



Sec.  23.154  Calculation of initial margin.

    (a) Means of calculation. (1) Each business day each covered swap 
entity shall calculate an initial margin amount to be collected from 
each covered counterparty using:
    (i) A risk-based model that meets the requirements of paragraph (b) 
of this section; or
    (ii) The table-based method set forth in paragraph (c) of this 
section.
    (2) Each business day each covered swap entity shall calculate an 
initial margin amount to be posted with each financial end user with 
material swaps exposure using:
    (i) A risk-based model that meets the requirements of paragraph (b) 
of this section; or
    (ii) The table-based method set forth in paragraph (c) of this 
section.
    (3) Each covered swap entity may reduce the amounts calculated 
pursuant to paragraphs (a)(1) and (2) of this section by the initial 
margin threshold amount provided that the reduction does not include any 
portion of the initial margin threshold amount already applied by the 
covered swap entity or its margin affiliates in connection with other 
uncleared swaps with the counterparty or its margin affiliates.
    (4) The amounts calculated pursuant to paragraph (a)(3) of this 
section shall not be less than zero.
    (5) A covered swap entity would be deemed to calculate initial 
margin as required by paragraph (a)(1) of this section if it uses the 
amount of initial margin calculated by a counterparty that is a swap 
entity and the initial margin amount is calculated using the swap 
entity's risk-based model that meets the requirements of paragraph (b) 
of this section or is approved by a prudential regulator, provided that 
initial margin calculated in such manner is used only with respect to 
uncleared swaps entered into by the covered swap entity and the swap 
entity for the purpose of hedging the covered swap entity's swaps with 
non-swap entity counterparties.
    (b) Risk-based models--(1) Commission or registered futures 
association approval. (i) A covered swap entity shall obtain the written 
approval of the Commission or a registered futures association to use a 
model to calculate the initial margin required in Sec. Sec.  23.150 
through 23.161.
    (ii) A covered swap entity shall demonstrate that the model 
satisfies all of the requirements of this section on an ongoing basis.
    (iii) A covered swap entity shall notify the Commission and the 
registered

[[Page 577]]

futures association in writing 60 days prior to:
    (A) Extending the use of an initial margin model that has been 
approved to an additional product type;
    (B) Making any change to any initial margin model that has been 
approved that would result in a material change in the covered swap 
entity's assessment of initial margin requirements; or
    (C) Making any material change to modeling assumptions used by the 
initial margin model.
    (iv) The Commission or the registered futures association may 
rescind approval of the use of any initial margin model, in whole or in 
part, or may impose additional conditions or requirements if the 
Commission or the registered futures association determines, in its 
discretion, that the model no longer complies with this section.
    (2) Elements of the model. (i) The initial margin model shall 
calculate an amount of initial margin that is equal to the potential 
future exposure of the uncleared swap or netting portfolio of uncleared 
swaps covered by an eligible master netting agreement. Potential future 
exposure is an estimate of the one-tailed 99 percent confidence interval 
for an increase in the value of the uncleared swap or netting portfolio 
of uncleared swaps due to an instantaneous price shock that is 
equivalent to a movement in all material underlying risk factors, 
including prices, rates, and spreads, over a holding period equal to the 
shorter of ten business days or the maturity of the swap or netting 
portfolio.
    (ii) All data used to calibrate the initial margin model shall be 
based on an equally weighted historical observation period of at least 
one year and not more than five years and must incorporate a period of 
significant financial stress for each broad asset class that is 
appropriate to the uncleared swaps to which the initial margin model is 
applied.
    (iii) The initial margin model shall use risk factors sufficient to 
measure all material price risks inherent in the transactions for which 
initial margin is being calculated. The risk categories shall include, 
but should not be limited to, foreign exchange or interest rate risk, 
credit risk, equity risk, and commodity risk, as appropriate. For 
material exposures in significant currencies and markets, modeling 
techniques shall capture spread and basis risk and shall incorporate a 
sufficient number of segments of the yield curve to capture differences 
in volatility and imperfect correlation of rates along the yield curve.
    (iv) In the case of an uncleared cross-currency swap, the initial 
margin model need not recognize any risks or risk factors associated 
with the fixed, physically-settled foreign exchange transactions 
associated with the exchange of principal embedded in the uncleared 
cross-currency swap. The initial margin model must recognize all 
material risks and risk factors associated with all other payments and 
cash flows that occur during the life of the uncleared cross-currency 
swap.
    (v) The initial margin model may calculate initial margin for an 
uncleared swap or netting portfolio of uncleared swaps covered by an 
eligible master netting agreement. It may reflect offsetting exposures, 
diversification, and other hedging benefits for uncleared swaps that are 
governed by the same eligible master netting agreement by incorporating 
empirical correlations within the following broad risk categories, 
provided the covered swap entity validates and demonstrates the 
reasonableness of its process for modeling and measuring hedging 
benefits: Commodity, credit, equity, and foreign exchange or interest 
rate. Empirical correlations under an eligible master netting agreement 
may be recognized by the model within each broad risk category, but not 
across broad risk categories.
    (vi) If the initial margin model does not explicitly reflect 
offsetting exposures, diversification, and hedging benefits between 
subsets of uncleared swaps within a broad risk category, the covered 
swap entity shall calculate an amount of initial margin separately for 
each subset of uncleared swaps for which such relationships are 
explicitly recognized by the model. The sum of the initial margin 
amounts calculated for each subset of uncleared swaps within a broad 
risk category will be used to determine the aggregate initial

[[Page 578]]

margin due from the counterparty for the portfolio of uncleared swaps 
within the broad risk category.
    (vii) The sum of the initial margin calculated for each broad risk 
category shall be used to determine the aggregate initial margin due 
from the counterparty.
    (viii) The initial margin model shall not permit the calculation of 
any initial margin to be offset by, or otherwise take into account, any 
initial margin that may be owed or otherwise payable by the covered swap 
entity to the counterparty.
    (ix) The initial margin model shall include all material risks 
arising from the nonlinear price characteristics of option positions or 
positions with embedded optionality and the sensitivity of the market 
value of the positions to changes in the volatility of the underlying 
rates, prices, or other material risk factors.
    (x) The covered swap entity shall not omit any risk factor from the 
calculation of its initial margin that the covered swap entity uses in 
its model unless it has first demonstrated to the satisfaction of the 
Commission or the registered futures association that such omission is 
appropriate.
    (xi) The covered swap entity shall not incorporate any proxy or 
approximation used to capture the risks of the covered swap entity's 
uncleared swaps unless it has first demonstrated to the satisfaction of 
the Commission or the registered futures association that such proxy or 
approximation is appropriate.
    (xii) The covered swap entity shall have a rigorous and well-defined 
process for re-estimating, re-evaluating, and updating its internal 
margin models to ensure continued applicability and relevance.
    (xiii) The covered swap entity shall review and, as necessary, 
revise the data used to calibrate the initial margin model at least 
annually, and more frequently as market conditions warrant, to ensure 
that the data incorporate a period of significant financial stress 
appropriate to the uncleared swaps to which the initial margin model is 
applied.
    (xiv) The level of sophistication of the initial margin model shall 
be commensurate with the complexity of the swaps to which it is applied. 
In calculating an initial margin amount, the initial margin model may 
make use of any of the generally accepted approaches for modeling the 
risk of a single instrument or portfolio of instruments.
    (xv) The Commission or the registered futures association may in its 
discretion require a covered swap entity using an initial margin model 
to collect a greater amount of initial margin than that determined by 
the covered swap entity's initial margin model if the Commission or the 
registered futures association determines that the additional collateral 
is appropriate due to the nature, structure, or characteristics of the 
covered swap entity's transaction(s) or is commensurate with the risks 
associated with the transaction(s).
    (3) [Reserved]
    (4) Periodic review. A covered swap entity shall periodically, but 
no less frequently than annually, review its initial margin model in 
light of developments in financial markets and modeling technologies, 
and enhance the initial margin model as appropriate to ensure that it 
continues to meet the requirements for approval in this section.
    (5) Control, oversight, and validation mechanisms. (i) The covered 
swap entity shall maintain a risk management unit in accordance with 
Sec.  23.600(c)(4)(i) that is independent from the business trading unit 
(as defined in Sec.  23.600).
    (ii) The covered swap entity's risk control unit shall validate its 
initial margin model prior to implementation and on an ongoing basis. 
The covered swap entity's validation process shall be independent of the 
development, implementation, and operation of the initial margin model, 
or the validation process shall be subject to an independent review of 
its adequacy and effectiveness. The validation process shall include:
    (A) An evaluation of the conceptual soundness of (including 
developmental evidence supporting) the initial margin model;
    (B) An ongoing monitoring process that includes verification of 
processes and benchmarking by comparing the

[[Page 579]]

covered swap entity's initial margin model outputs (estimation of 
initial margin) with relevant alternative internal and external data 
sources or estimation techniques. The benchmark(s) must address the 
model's limitations. When applicable the covered swap entity should 
consider benchmarks that allow for non-normal distributions such as 
historical and Monte Carlo simulations. When applicable validation shall 
include benchmarking against observable margin standards to ensure that 
the initial margin required is not less than what a derivatives clearing 
organization would require for similar cleared transactions; and
    (C) An outcomes analysis process that includes back testing the 
model. This analysis shall recognize and compensate for the challenges 
inherent in back testing over periods that do not contain significant 
financial stress.
    (iii) If the validation process reveals any material problems with 
the model, the covered swap entity must promptly notify the Commission 
and the registered futures association of the problems, describe to the 
Commission and the registered futures association any remedial actions 
being taken, and adjust the model to ensure an appropriately 
conservative amount of required initial margin is being calculated.
    (iv) In accordance with Sec.  23.600(e)(2), the covered swap entity 
shall have an internal audit function independent of the business 
trading unit and the risk management unit that at least annually 
assesses the effectiveness of the controls supporting the initial margin 
model measurement systems, including the activities of the business 
trading units and risk control unit, compliance with policies and 
procedures, and calculation of the covered swap entity's initial margin 
requirements under this part. At least annually, the internal audit 
function shall report its findings to the covered swap entity's 
governing body, senior management, and chief compliance officer.
    (6) Documentation. The covered swap entity shall adequately document 
all material aspects of its model, including management and valuation of 
uncleared swaps to which it applies, the control, oversight, and 
validation of the initial margin model, any review processes and the 
results of such processes.
    (7) Escalation procedures. The covered swap entity must adequately 
document--
    (i) Internal authorization procedures, including escalation 
procedures, that require review and approval of any change to the 
initial margin calculation under the initial margin model;
    (ii) Demonstrable analysis that any basis for any such change is 
consistent with the requirements of this section; and
    (iii) Independent review of such demonstrable analysis and approval.
    (c) Table-based method. If a model meeting the standards set forth 
in paragraph (b) of this section is not used, initial margin shall be 
calculated in accordance with this paragraph.
    (1) Standardized initial margin schedule.

------------------------------------------------------------------------
                                                           Gross initial
                                                           margin (% of
                       Asset class                           notional
                                                             exposure)
------------------------------------------------------------------------
Credit: 0-2 year duration...............................               2
Credit: 2-5 year duration...............................               5
Credit: 5+ year duration................................              10
Commodity...............................................              15
Equity..................................................              15
Foreign Exchange/Currency...............................               6
Cross Currency Swaps: 0-2 year duration.................               1
Cross Currency Swaps: 2-5 year duration.................               2
Cross Currency Swaps: 5+ year duration..................               4
Interest Rate: 0-2 year duration........................               1
Interest Rate: 2-5 year duration........................               2
Interest Rate: 5+ year duration.........................               4
Other...................................................              15
------------------------------------------------------------------------

    (2) Net to gross ratio adjustment. (i) For multiple uncleared swaps 
subject to an eligible master netting agreement, the initial margin 
amount under the standardized table shall be computed according to this 
paragraph.
    (ii) Initial Margin = 0.4 x Gross Initial Margin + 0.6 x Net-to-
Gross Ratio x Gross Initial Margin, where:
    (A) Gross Initial Margin = the sum of the product of each uncleared 
swap's effective notional amount and the gross initial margin 
requirement for all uncleared swaps subject to the eligible master 
netting agreement;
    (B) Net-to-Gross Ratio = the ratio of the net current replacement 
cost to the gross current replacement cost;
    (C) Gross Current Replacement cost = the sum of the replacement cost 
for

[[Page 580]]

each uncleared swap subject to the eligible master netting agreement for 
which the cost is positive; and
    (D) Net Current Replacement Cost = the total replacement cost for 
all uncleared swaps subject to the eligible master netting agreement.
    (E) In cases where the gross replacement cost is zero, the Net-to-
Gross Ratio shall be set to 1.0.

[81 FR 695, Jan. 6, 2016, as amended at 86 FR 246, Jan. 5, 2021]



Sec.  23.155  Calculation of variation margin.

    (a) Means of calculation. (1) Each business day each covered swap 
entity shall calculate variation margin for itself and for each 
counterparty that is a swap entity or a financial end user using 
methods, procedures, rules, and inputs that to the maximum extent 
practicable rely on recently-executed transactions, valuations provided 
by independent third parties, or other objective criteria.
    (2) Each covered swap entity shall have in place alternative methods 
for determining the value of an uncleared swap in the event of the 
unavailability or other failure of any input required to value a swap.
    (b) Control mechanisms. (1) Each covered swap entity shall create 
and maintain documentation setting forth the variation methodology with 
sufficient specificity to allow the counterparty, the Commission, the 
registered futures association, and any applicable prudential regulator 
to calculate a reasonable approximation of the margin requirement 
independently.
    (2) Each covered swap entity shall evaluate the reliability of its 
data sources at least annually, and make adjustments, as appropriate.
    (3) The Commission or the registered futures association at any time 
may require a covered swap entity to provide further data or analysis 
concerning the methodology or a data source, including:
    (i) An explanation of the manner in which the methodology meets the 
requirements of this section;
    (ii) A description of the mechanics of the methodology;
    (iii) The conceptual basis of the methodology;
    (iv) The empirical support for the methodology; and
    (v) The empirical support for the assessment of the data sources.



Sec.  23.156  Forms of margin.

    (a) Initial margin--(1) Eligible collateral. A covered swap entity 
shall collect and post as initial margin for trades with a covered 
counterparty only the following types of collateral:
    (i) Immediately available cash funds denominated in:
    (A) U.S. dollars;
    (B) A major currency;
    (C) A currency of settlement for the uncleared swap;
    (ii) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of Treasury;
    (iii) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a U.S. government 
agency (other than the U.S. Department of Treasury) whose obligations 
are fully guaranteed by the full faith and credit of the U.S. 
government;
    (iv) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the European Central Bank or a 
sovereign entity that is assigned no higher than a 20 percent risk 
weight under the capital rules applicable to swap dealers subject to 
regulation by a prudential regulator;
    (v) A publicly traded debt security issued by, or an asset-backed 
security fully guaranteed as to the timely payment of principal and 
interest by, a U.S. Government-sponsored enterprise that is operating 
with capital support or another form of direct financial assistance 
received from the U.S. government that enables the repayments of the 
U.S. Government-sponsored enterprise's eligible securities;
    (vi) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the Bank for International 
Settlements, the International Monetary Fund, or a multilateral 
development bank;
    (vii) Other publicly-traded debt that has been deemed acceptable as 
initial margin by a prudential regulator;

[[Page 581]]

    (viii) A publicly traded common equity security that is included in:
    (A) The Standard & Poor's Composite 1500 Index or any other similar 
index of liquid and readily marketable equity securities as determined 
by the Commission; or
    (B) An index that a covered swap entity's supervisor in a foreign 
jurisdiction recognizes for purposes of including publicly traded common 
equity as initial margin under applicable regulatory policy, if held in 
that foreign jurisdiction;
    (ix) Securities in the form of redeemable securities in a pooled 
investment fund representing the security-holder's proportional interest 
in the fund's net assets and that are issued and redeemed only on the 
basis of the market value of the fund's net assets prepared each 
business day after the security-holder makes its investment commitment 
or redemption request to the fund, if the fund's investments are limited 
to the following:
    (A) Securities that are issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury, and immediately-available cash funds denominated in 
U.S. dollars; or
    (B) Securities denominated in a common currency and issued by, or 
fully guaranteed as to the payment of principal and interest by, the 
European Central Bank or a sovereign entity that is assigned no higher 
than a 20 percent risk weight under the capital rules applicable to swap 
dealers subject to regulation by a prudential regulator, and 
immediately-available cash funds denominated in the same currency; and
    (C) Assets of the fund may not be transferred through securities 
lending, securities borrowing, repurchase agreements, reverse repurchase 
agreements, or other means that involve the fund having rights to 
acquire the same or similar assets from the transferee, or
    (x) Gold.
    (2) Prohibition of certain assets. A covered swap entity may not 
collect or post as initial margin any asset that is a security issued 
by:
    (i) The covered swap entity or a margin affiliate of the covered 
swap entity (in the case of posting) or the counterparty or any margin 
affiliate of the counterparty (in the case of collection);
    (ii) A bank holding company, a savings and loan holding company, a 
U.S. intermediate holding company established or designated for purposes 
of compliance with 12 CFR 252.153, a foreign bank, a depository 
institution, a market intermediary, a company that would be any of the 
foregoing if it were organized under the laws of the United States or 
any State, or a margin affiliate of any of the foregoing institutions, 
or
    (iii) A nonbank financial institution supervised by the Board of 
Governors of the Federal Reserve System under Title I of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323).
    (3) Haircuts. (i) The value of any eligible collateral collected or 
posted to satisfy initial margin requirements shall be subject to the 
sum of the following discounts, as applicable:
    (A) An 8 percent discount for initial margin collateral denominated 
in a currency that is not the currency of settlement for the uncleared 
swap, except for eligible types of collateral denominated in a single 
termination currency designated as payable to the non-posting 
counterparty as part of the eligible master netting agreement; and
    (B) The discounts set forth in the following table:

                      Standardized Haircut Schedule
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cash in same currency as swap obligation................             0.0
Eligible government and related debt (e.g., central                  0.5
 bank, multilateral development bank, GSE securities
 identified in paragraph (a)(1)(v) of this section):
 Residual maturity less than one-year...................
Eligible government and related debt (e.g., central                  2.0
 bank, multilateral development bank, GSE securities
 identified in paragraph (a)(1)(v) of this section):
 Residual maturity between one and five years...........

[[Page 582]]

 
Eligible government and related debt (e.g., central                  4.0
 bank, multilateral development bank, GSE securities
 identified in paragraph (a)(1)(v) of this section):
 Residual maturity greater than five years..............
Eligible corporate debt (including eligible GSE debt                 1.0
 securities not identified in paragraph (a)(1)(v) of
 this section): Residual maturity less than one-year....
Eligible corporate debt (including eligible GSE debt                 4.0
 securities not identified in paragraph (a)(1)(v) of
 this section): Residual maturity between one and five
 years..................................................
Eligible corporate debt (including eligible GSE debt                 8.0
 securities not identified in paragraph (a)(1)(v) of
 this section): Residual maturity greater than five
 years..................................................
Equities included in S&P 500 or related index...........            15.0
Equities included in S&P 1500 Composite or related index            25.0
 but not S&P 500 or related index.......................
Gold....................................................            15.0
Additional (additive) haircut on asset in which the                  8.0
 currency of the swap obligation differs from that of
 the collateral asset...................................
------------------------------------------------------------------------

    (ii) The value of initial margin collateral shall be computed as the 
product of the cash or market value of the eligible collateral asset 
times one minus the applicable haircut expressed in percentage terms. 
The total value of all initial margin collateral is calculated as the 
sum of those values for each eligible collateral asset.
    (b) Variation margin--(1) Eligible collateral--(i) Swaps with a swap 
entity. (A) A covered swap entity shall post and collect as variation 
margin to or from a counterparty that is a swap entity only immediately 
available cash funds that are denominated in: U.S. dollars;
    (B) Another major currency; or
    (C) The currency of settlement of the uncleared swap.
    (ii) Swaps with a financial end user. A covered swap entity may post 
and collect as variation margin to or from a counterparty that is a 
financial end user any asset that is eligible to be posted or collected 
as initial margin under paragraphs (a)(1) and (2) of this section.
    (2) Haircuts. (i) The value of any eligible collateral collected or 
posted to satisfy variation margin requirements shall be subject to the 
sum of the following discounts, as applicable:
    (A) An 8% discount for variation margin collateral denominated in a 
currency that is not the currency of settlement for the uncleared swap 
except for immediately available cash funds denominated in U.S. cash 
funds or another major currency; and
    (B) The discounts for initial margin set forth in the table in 
paragraph (a)(3)(i)(B) of this section.
    (ii) The value of variation margin collateral shall be computed as 
the product of the cash or market value of the eligible collateral asset 
times one minus the applicable haircut expressed in percentage terms. 
The total value of all variation margin collateral shall be calculated 
as the sum of those values of each eligible collateral asset.
    (c) Monitoring obligation. A covered swap entity shall monitor the 
market value and eligibility of all collateral collected and posted to 
satisfy the margin requirements of Sec. Sec.  23.150 through 23.161. To 
the extent that the market value of such collateral has declined, the 
covered swap entity shall promptly collect or post such additional 
eligible collateral as is necessary to maintain compliance with the 
margin requirements of Sec. Sec.  23.150 through 23.161. To the extent 
that the collateral is no longer eligible, the covered swap entity shall 
promptly collect or post sufficient eligible replacement collateral to 
comply with the margin requirements of Sec. Sec.  23.150 through 23.161.
    (d) Excess margin. A covered swap entity may collect or post initial 
margin or variation margin that is not required pursuant to Sec. Sec.  
23.150 through 23.161 in any form of collateral.

[81 FR 695, Jan. 6, 2016, as amended at 82 FR 56169, Nov. 28, 2017]



Sec.  23.157  Custodial arrangements.

    (a) Initial margin posted by covered swap entities. Each covered 
swap entity that posts initial margin with respect to an uncleared swap 
shall require that all funds or other property that the covered swap 
entity provides as initial

[[Page 583]]

margin be held by one or more custodians that are not the covered swap 
entity, the counterparty, or margin affiliates of the covered swap 
entity or the counterparty.
    (b) Initial margin collected by covered swap entities. Each covered 
swap entity that collects initial margin required by Sec.  23.152 with 
respect to an uncleared swap shall require that such initial margin be 
held by one or more custodians that are not the covered swap entity, the 
counterparty, or margin affiliates of the covered swap entity or the 
counterparty.
    (c) Custodial agreement. Each covered swap entity shall enter into 
an agreement with each custodian that holds funds pursuant to paragraphs 
(a) or (b) of this section that:
    (1) Prohibits the custodian from rehypothecating, repledging, 
reusing, or otherwise transferring (through securities lending, 
securities borrowing, repurchase agreement, reverse repurchase agreement 
or other means) the collateral held by the custodian except that cash 
collateral may be held in a general deposit account with the custodian 
if the funds in the account are used to purchase an asset described in 
Sec.  23.156(a)(1)(ii) through (x), such asset is held in compliance 
with this section, and such purchase takes place within a time period 
reasonably necessary to consummate such purchase after the cash 
collateral is posted as initial margin; and
    (2) Is a legal, valid, binding, and enforceable agreement under the 
laws of all relevant jurisdictions including in the event of bankruptcy, 
insolvency, or a similar proceeding.
    (3) Notwithstanding paragraph (c)(1) of this section, a custody 
agreement may permit the posting party to substitute or direct any 
reinvestment of posted collateral held by the custodian, provided that, 
with respect to collateral posted or collected pursuant to Sec.  23.152, 
the agreement requires the posting party, when it substitutes or directs 
the reinvestment of posted collateral held by the custodian.
    (i) To substitute only funds or other property that would qualify as 
eligible collateral under Sec.  23.156, and for which the amount net of 
applicable discounts described in Sec.  23.156 would be sufficient to 
meet the requirements of Sec.  23.152; and
    (ii) To direct reinvestment of funds only in assets that would 
qualify as eligible collateral under Sec.  23.156, and for which the 
amount net of applicable discounts described in Sec.  23.156 would be 
sufficient to meet the requirements of Sec.  23.152.

[81 FR 695, Jan. 6, 2016, as amended at 85 FR 27678, May 11, 2020]



Sec.  23.158  Margin documentation.

    (a) General requirement. Each covered swap entity shall execute 
documentation with each counterparty that complies with the requirements 
of Sec.  23.504 and that complies with this section, as applicable. For 
uncleared swaps between a covered swap entity and a counterparty that is 
a swap entity or a financial end user, the documentation shall provide 
the covered swap entity with the contractual right and obligation to 
exchange initial margin and variation margin in such amounts, in such 
form, and under such circumstances as are required by Sec. Sec.  23.150 
through 23.161. With respect to the minimum transfer amount, if a 
covered swap entity and a counterparty that is a swap entity or a 
financial end user agree to have separate minimum transfer amounts for 
initial and variation margin, the documentation shall specify the 
amounts to be allocated for initial margin and variation margin. Such 
amounts, on a combined basis, must not exceed the minimum transfer 
amount, as the term is defined in Sec.  23.151.
    (b) Contents of the documentation. The margin documentation shall:
    (1) Specify the methods, procedures, rules, inputs, and data sources 
to be used for determining the value of uncleared swaps for purposes of 
calculating variation margin;
    (2) Describe the methods, procedures, rules, inputs, and data 
sources to be used to calculate initial margin for uncleared swaps 
entered into between the covered swap entity and the counterparty; and
    (3) Specify the procedures by which any disputes concerning the 
valuation of uncleared swaps, or the valuation of assets collected or 
posted as initial

[[Page 584]]

margin or variation margin may be resolved.

[81 FR 695, Jan. 6, 2016, as amended at 86 FR 6858, Jan. 25, 2021]



Sec.  23.159  Special rules for affiliates.

    (a) Initial margin. (1) Except as provided in paragraph (c) of this 
section, a covered swap entity shall not be required to collect initial 
margin from a margin affiliate provided that the covered swap entity 
meets the following conditions:
    (i) The swaps are subject to a centralized risk management program 
that is reasonably designed to monitor and to manage the risks 
associated with the inter-affiliate swaps; and
    (ii) The covered swap entity exchanges variation margin with the 
margin affiliate in accordance with paragraph (b) of this section.
    (2)(i) A covered swap entity shall post initial margin to any margin 
affiliate that is a swap entity subject to the rules of a Prudential 
Regulator in an amount equal to the amount that the swap entity is 
required to collect from the covered swap entity pursuant to the rules 
of the Prudential Regulator.
    (ii) A covered swap entity shall not be required to post initial 
margin to any other margin affiliate pursuant to Sec. Sec.  23.150 
through 23.161.
    (b) Variation margin. Each covered swap entity shall post and 
collect variation margin with each margin affiliate that is a swap 
entity or a financial end user in accordance with all applicable 
provisions of Sec. Sec.  23.150 through 23.161.
    (c) Foreign margin affiliates. (1) For purposes of this section, the 
term outward facing margin affiliate means a margin affiliate that 
enters into swaps with third parties.
    (2) Except as provided in paragraph (c)(3) of this section, each 
covered swap entity shall collect initial margin in accordance with all 
applicable provisions of Sec. Sec.  23.150 through 23.161 from each 
margin affiliate that meets the following criteria:
    (i) The margin affiliate is a financial end user;
    (ii) The margin affiliate enters into swaps with third parties, or 
enters into swaps with any other margin affiliate that, directly or 
indirectly (including through a series of transactions), enters into 
swaps with third parties, for which the provisions of Sec. Sec.  23.150 
through 23.161 would apply if any such margin affiliate were a swap 
entity; and
    (iii) Any such outward facing margin affiliate is located in a 
jurisdiction that the Commission has not found to be eligible for 
substituted compliance with regard to the provisions of Sec. Sec.  
23.150 through 23.161 and does not collect initial margin for such swaps 
in a manner that would comply with the provisions of Sec. Sec.  23.150 
through 23.161.
    (3) The custodian for initial margin collected pursuant to paragraph 
(c)(1) of this section may be the covered swap entity or a margin 
affiliate of the covered swap entity.



Sec.  23.160  Cross-border application.

    (a) Definitions. For purposes of this section only:
    (1) Foreign Consolidated Subsidiary means a non-U.S. CSE in which an 
ultimate parent entity that is a U.S. person has a controlling financial 
interest, in accordance with U.S. GAAP, such that the U.S. ultimate 
parent entity includes the non-U.S. CSE's operating results, financial 
position and statement of cash flows in the U.S. ultimate parent 
entity's consolidated financial statements, in accordance with U.S. 
GAAP.
    (2) Guarantee means an arrangement pursuant to which one party to an 
uncleared swap has rights of recourse against a guarantor, with respect 
to its counterparty's obligations under the uncleared swap. For these 
purposes, a party to an uncleared swap has rights of recourse against a 
guarantor if the party has a conditional or unconditional legally 
enforceable right to receive or otherwise collect, in whole or in part, 
payments from the guarantor with respect to its counterparty's 
obligations under the uncleared swap. In addition, in the case of any 
arrangement pursuant to which the guarantor has a conditional or 
unconditional legally enforceable right to receive or otherwise collect, 
in whole or in part, payments from any other guarantor with respect to 
the counterparty's obligations under the uncleared swap, such

[[Page 585]]

arrangement will be deemed a guarantee of the counterparty's obligations 
under the uncleared swap by the other guarantor.
    (3) International standards mean the margin policy framework for 
non-cleared, bilateral derivatives issued by the Basel Committee on 
Banking Supervision and the International Organization of Securities in 
September 2013, as subsequently updated, revised, or otherwise amended, 
or any other international standards, principles or guidance relating to 
margin requirements for non-cleared, bilateral derivatives that the 
Commission may in the future recognize, to the extent that they are 
consistent with United States law (including the margin requirements in 
the Commodity Exchange Act).
    (4) Non-U.S. CSE means a covered swap entity that is not a U.S. 
person. The term ``non-U.S. CSE'' includes a ``Foreign Consolidated 
Subsidiary'' or a U.S. branch of a non-U.S. CSE.
    (5) Non-U.S. person means any person that is not a U.S. person.
    (6) Ultimate parent entity means the parent entity in a consolidated 
group in which none of the other entities in the consolidated group has 
a controlling interest, in accordance with U.S. GAAP.
    (7) United States means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (8) U.S. CSE means a covered swap entity that is a U.S. person.
    (9) U.S. GAAP means U.S. generally accepted accounting principles.
    (10) U.S. person means:
    (i) A natural person who is a resident of the United States;
    (ii) An estate of a decedent who was a resident of the United States 
at the time of death;
    (iii) A corporation, partnership, limited liability company, 
business or other trust, association, joint-stock company, fund or any 
form of entity similar to any of the foregoing (other than an entity 
described in paragraph (a)(10)(iv) or (v) of this section) (a ``legal 
entity''), in each case that is organized or incorporated under the laws 
of the United States or that has its principal place of business in the 
United States, including any branch of such legal entity;
    (iv) A pension plan for the employees, officers or principals of a 
legal entity described in paragraph (a)(10)(iii) of this section, unless 
the pension plan is primarily for foreign employees of such entity;
    (v) A trust governed by the laws of a state or other jurisdiction in 
the United States, if a court within the United States is able to 
exercise primary supervision over the administration of the trust;
    (vi) A legal entity (other than a limited liability company, limited 
liability partnership or similar entity where all of the owners of the 
entity have limited liability) that is owned by one or more persons 
described in paragraphs (a)(10)(i) through (v) of this section and for 
which such person(s) bears unlimited responsibility for the obligations 
and liabilities of the legal entity, including any branch of the legal 
entity; or
    (vii) An individual account or joint account (discretionary or not) 
where the beneficial owner (or one of the beneficial owners in the case 
of a joint account) is a person described in paragraphs (a)(10)(i) 
through (vi) of this section.
    (b) Applicability of margin requirements. The requirements of 
Sec. Sec.  23.150 through 23.161 apply as follows.
    (1) Uncleared swaps of U.S. CSEs or Non-U.S. CSEs whose obligations 
under the relevant swap are guaranteed by a U.S. person--(i) 
Applicability of U.S. margin requirements; availability of substituted 
compliance for requirement to post initial margin. With respect to each 
uncleared swap entered into by a U.S. CSE or a non-U.S. CSE whose 
obligations under the swap are guaranteed by a U.S. person, the U.S. CSE 
or non-U.S. CSE whose obligations under the swap are guaranteed by a 
U.S. person shall comply with the requirements of Sec. Sec.  23.150 
through 23.161 of this part, provided that the U.S. CSE or non-U.S. CSE 
whose obligations under the swap are guaranteed by a U.S. person may 
satisfy its requirement to post initial margin to certain counterparties 
to the extent provided in paragraph (b)(1)(ii) of this section.

[[Page 586]]

    (ii) Compliance with foreign initial margin collection requirement. 
A covered swap entity that is covered by paragraph (b)(1)(i) of this 
section may satisfy its requirement to post initial margin under this 
part by posting initial margin in the form and amount, and at such 
times, that its counterparty is required to collect initial margin 
pursuant to a foreign jurisdiction's margin requirements, but only to 
the extent that:
    (A) The counterparty is neither a U.S. person nor a non-U.S. person 
whose obligations under the relevant swap are guaranteed by a U.S. 
person;
    (B) The counterparty is subject to such foreign jurisdiction's 
margin requirements; and
    (C) The Commission has issued a comparability determination under 
paragraph (c) of this section (``Comparability Determination'') with 
respect to such foreign jurisdiction's requirements regarding the 
posting of initial margin by the covered swap entity (that is covered in 
paragraph (b)(1) of this section).
    (2) Uncleared swaps of Non-U.S. CSEs whose obligations under the 
relevant swap are not guaranteed by a U.S. person--(i) Applicability of 
U.S. Margin requirements except where an exclusion applies; Availability 
of substituted compliance. With respect to each uncleared swap entered 
into by a non-U.S. CSE whose obligations under the relevant swap are not 
guaranteed by a U.S. person, the non-U.S. CSE shall comply with the 
requirements of Sec. Sec.  23.150 through 23.161 except to the extent 
that an exclusion is available under paragraph (b)(2)(ii) of this 
section, provided that a non-U.S. CSE whose obligations under the 
relevant swap are not guaranteed by a U.S. person may satisfy its margin 
requirements under this part to the extent provided in paragraphs 
(b)(2)(iii) and (b)(2)(iv) of this section.
    (ii) Exclusion. (A) Except as provided in paragraph (b)(2)(ii)(B) of 
this section, a non-U.S. CSE shall not be required to comply with the 
requirements of Sec. Sec.  23.150 through 23.161 with respect to each 
uncleared swap it enters into to the extent that the following 
conditions are met:
    (1) The non-U.S. CSE's obligations under the relevant swap are not 
guaranteed by a U.S. person;
    (2) The non-U.S. CSE is not a U.S. branch of a non-U.S. CSE;
    (3) The non-U.S. CSE is not a Foreign Consolidated Subsidiary; and
    (4) The counterparty to the uncleared swap is a non-U.S. person 
(excluding a Foreign Consolidated Subsidiary or the U.S. branch of a 
non-U.S. CSE), whose obligations under the relevant swap are not 
guaranteed by a U.S. person.
    (B) Notwithstanding paragraph (b)(2)(ii)(A) of this section, any 
uncleared swap of a non-U.S. CSE that meets the conditions for the 
Exclusion set forth in paragraph (b)(2)(ii)(A) must nevertheless comply 
with Sec. Sec.  23.150 through 23.161 if:
    (1) The uncleared swap of the non-U.S. CSE is not covered by a 
Comparability Determination with respect to the initial margin 
collection requirements in the relevant foreign jurisdiction in 
accordance with paragraph (c) of this section; and
    (2) The non-U.S. CSE enters into an inter-affiliate swap(s), 
transferring any risk arising out of the uncleared swap described in 
paragraph (b)(2)(ii)(B)(1) of this section directly or indirectly, to a 
margin affiliate (as the term ``margin affiliate'' is defined in Sec.  
23.151 of this part) that is a U.S. CSE or a U.S. Guaranteed CSE.
    (iii) Availability of substituted compliance where the counterparty 
is not a U.S. CSE or a non-U.S. CSE whose obligations under the relevant 
swap are guaranteed by a U.S. person. Except to the extent that an 
exclusion is available under paragraph (b)(2)(ii) of this section, with 
respect to each uncleared swap entered into by a non-U.S. CSE whose 
obligations under the relevant swap are not guaranteed by a U.S. person 
with a counterparty (except where the counterparty is either a U.S. CSE 
or a non-U.S. CSE whose obligations under the relevant swap are 
guaranteed by a U.S. person), the non-U.S. CSE whose obligations under 
the relevant swap are not guaranteed by a U.S. person may satisfy margin 
requirements under this part by complying with the margin requirements 
of a foreign jurisdiction to which such non-U.S. CSE (whose obligations 
under the relevant swap are

[[Page 587]]

not guaranteed by a U.S. person) is subject, but only to the extent that 
the Commission has issued a Comparability Determination under paragraph 
(c) of this section for such foreign jurisdiction.
    (iv) Availability of substituted compliance where the counterparty 
is a U.S. CSE or a non-U.S. CSE whose obligations under the relevant 
swap are guaranteed by a U.S. person. With respect to each uncleared 
swap entered into by a non-U.S. CSE whose obligations under the relevant 
swap are not guaranteed by a U.S. person with a counterparty that is a 
U.S. CSE or a non-U.S. CSE whose obligations under the relevant swap are 
guaranteed by a U.S. person, the non-U.S. CSE (whose obligations under 
the relevant swap are not guaranteed by a U.S. person) may satisfy its 
requirement to collect initial margin under this part by collecting 
initial margin in the form and amount, and at such times and under such 
arrangements, that the non-U.S. CSE (whose obligations under the 
relevant swap are not guaranteed by a U.S. Person) is required to 
collect initial margin pursuant to a foreign jurisdiction's margin 
requirements, provided that:
    (A) The non-U.S. CSE (whose obligations under the relevant swap are 
not guaranteed by a U.S. person) is subject to the foreign 
jurisdiction's regulatory requirements; and
    (B) The Commission has issued a Comparability Determination with 
respect to such foreign jurisdiction's margin requirements.
    (c) Comparability determinations--(1) Eligibility requirements. The 
following persons may, either individually or collectively, request a 
Comparability Determination with respect to some or all of the 
Commission's margin requirements:
    (i) A covered swap entity that is eligible for substituted 
compliance under this section; or
    (ii) A foreign regulatory authority that has direct supervisory 
authority over one or more covered swap entities and that is responsible 
for administering the relevant foreign jurisdiction's margin 
requirements.
    (2) Submission requirements. Persons requesting a Comparability 
Determination should provide the Commission (either by hard copy or 
electronically):
    (i) A description of the objectives of the relevant foreign 
jurisdiction's margin requirements;
    (ii) A description of how the relevant foreign jurisdiction's margin 
requirements address, at minimum, each of the following elements of the 
Commission's margin requirements. Such description should identify the 
specific legal and regulatory provisions that correspond to each element 
and, if necessary, whether the relevant foreign jurisdiction's margin 
requirements do not address a particular element:
    (A) The products subject to the foreign jurisdiction's margin 
requirements;
    (B) The entities subject to the foreign jurisdiction's margin 
requirements;
    (C) The treatment of inter-affiliate derivative transactions;
    (D) The methodologies for calculating the amounts of initial and 
variation margin;
    (E) The process and standards for approving models for calculating 
initial and variation margin models;
    (F) The timing and manner in which initial and variation margin must 
be collected and/or paid;
    (G) Any threshold levels or amounts;
    (H) Risk management controls for the calculation of initial and 
variation margin;
    (I) Eligible collateral for initial and variation margin;
    (J) The requirements of custodial arrangements, including 
segregation of margin and rehypothecation;
    (K) Margin documentation requirements; and
    (L) The cross-border application of the foreign jurisdiction's 
margin regime.
    (iii) A description of the differences between the relevant foreign 
jurisdiction's margin requirements and the International Standards;
    (iv) A description of the ability of the relevant foreign regulatory 
authority or authorities to supervise and enforce compliance with the 
relevant foreign jurisdiction's margin requirements. Such description 
should discuss the

[[Page 588]]

powers of the foreign regulatory authority or authorities to supervise, 
investigate, and discipline entities for compliance with the margin 
requirements and the ongoing efforts of the regulatory authority or 
authorities to detect and deter violations of, and ensure compliance 
with, the margin requirements; and
    (v) Copies of the foreign jurisdiction's margin requirements 
(including an English translation of any foreign language document);
    (vi) Any other information and documentation that the Commission 
deems appropriate.
    (3) Standard of review. The Commission will issue a Comparability 
Determination to the extent that it determines that some or all of the 
relevant foreign jurisdiction's margin requirements are comparable to 
the Commission's corresponding margin requirements. In determining 
whether the requirements are comparable, the Commission will consider 
all relevant factors, including:
    (i) The scope and objectives of the relevant foreign jurisdiction's 
margin requirements;
    (ii) Whether the relevant foreign jurisdiction's margin requirements 
achieve comparable outcomes to the Commission's corresponding margin 
requirements;
    (iii) The ability of the relevant regulatory authority or 
authorities to supervise and enforce compliance with the relevant 
foreign jurisdiction's margin requirements; and
    (iv) Any other facts and circumstances the Commission deems 
relevant.
    (4) Reliance. Any covered swap entity that, in accordance with a 
Comparability Determination, complies with a foreign jurisdiction's 
margin requirements, would be deemed to be in compliance with the 
Commission's corresponding margin requirements. Accordingly, if the 
Commission determines that a covered swap entity has failed to comply 
with the foreign jurisdiction's margin requirements, it could initiate 
an action for a violation of the Commission's margin requirements. All 
covered swap entities, regardless of whether they rely on a 
Comparability Determination, remain subject to the Commission's 
examination and enforcement authority.
    (5) Conditions. In issuing a Comparability Determination, the 
Commission may impose any terms and conditions it deems appropriate.
    (6) Modifications. The Commission reserves the right to further 
condition, modify, suspend, terminate or otherwise restrict a 
Comparability Determination in the Commission's discretion.
    (7) Delegation of authority. 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 request information and/or documentation in 
connection with the Commission's issuance of a Comparability 
Determination.
    (d) Non-netting jurisdiction requirements. Except as provided in 
paragraph (e) of this section, if a CSE cannot conclude after sufficient 
legal review with a well-founded basis that the netting agreement 
described in Sec.  23.152(c) meets the definition of ``eligible master 
netting agreement'' set forth in Sec.  23.151, the CSE must treat the 
uncleared swaps covered by the agreement on a gross basis for the 
purposes of calculating and complying with the requirements of Sec.  
23.152(a) and Sec.  23.153(a) to collect margin, but the CSE may net 
those uncleared swaps in accordance with Sec.  23.152(c) and Sec.  
23.153(d) for the purposes of calculating and complying with the 
requirements of this part to post margin. A CSE that relies on this 
paragraph (d) must have policies and procedures ensuring that it is in 
compliance with the requirements of this paragraph, and maintain books 
and records properly documenting that all of the requirements of this 
paragraph (d) are satisfied.
    (e) Jurisdictions Where Compliance with Custodial Arrangement 
Requirements is Unavailable. Sections 23.152(b), 23.157(b), and 
paragraph (d) of this section do not apply to an uncleared swap entered 
into by a Foreign Consolidated Subsidiary or a foreign branch of a U.S. 
CSE if:
    (1) Inherent limitations in the legal or operational infrastructure 
in the applicable foreign jurisdiction make it

[[Page 589]]

impracticable for the CSE and its counterparty to post any form of 
eligible initial margin collateral recognized pursuant to Sec.  23.156 
in compliance with the custodial arrangement requirements of Sec.  
23.157;
    (2) The CSE is subject to foreign regulatory restrictions that 
require the CSE to transact in uncleared swaps with the counterparty 
through an establishment within the foreign jurisdiction and do not 
accommodate the posting of collateral for the uncleared swap in 
compliance with the custodial arrangements of Sec.  23.157 in the United 
States or a jurisdiction for which the Commission has issued a 
comparability determination under paragraph (c) of this section with 
respect to Sec.  23.157;
    (3) The counterparty to the uncleared swap is a non-U.S. person that 
is not a CSE, and the counterparty's obligations under the uncleared 
swap are not guaranteed by a U.S. person;
    (4) The CSE collects initial margin for the uncleared swap in 
accordance with Sec.  23.152(a) in the form of cash pursuant to Sec.  
23.156(a)(1)(i), and posts and collects variation margin in accordance 
with Sec.  23.153(a) in the form of cash pursuant to Sec.  
23.156(a)(1)(i);
    (5) For each broad risk category, as set out in Sec.  
23.154(b)(2)(v), the total outstanding notional value of all uncleared 
swaps in that broad risk category, as to which the CSE is relying on 
this paragraph (e), may not exceed 5% of the CSE's total outstanding 
notional value for all uncleared swaps in the same broad risk category;
    (6) The CSE has policies and procedures ensuring that it is in 
compliance with the requirements of this paragraph (e); and
    (7) The CSE maintains books and records properly documenting that 
all of the requirements of this paragraph (e) are satisfied.

[81 FR 34847, May 31, 2016]



Sec.  23.161  Compliance dates.

    (a) Covered swap entities shall comply with the minimum margin 
requirements for uncleared swaps on or before the following dates for 
uncleared swaps entered into on or after the following dates:
    (1) September 1, 2016 for the requirements in Sec.  23.152 for 
initial margin and in Sec.  23.153 for variation margin for any 
uncleared swaps where both--
    (i) The covered swap entity combined with all its margin affiliates; 
and
    (ii) Its counterparty combined with all its margin affiliates, have 
an average daily aggregate notional amount of uncleared swaps, uncleared 
security-based swaps, foreign exchange forwards, and foreign exchange 
swaps in March, April, and May 2016 that exceeds $3 trillion, where such 
amounts are calculated only for business days; and where
    (iii) In calculating the amounts in paragraphs (a)(1)(i) and (ii) of 
this section, an entity shall count the average daily notional amount of 
an uncleared swap, an uncleared security-based swap, a foreign-exchange 
forward, or a foreign exchange swap between the entity and a margin 
affiliate only one time and shall not count a swap that is exempt 
pursuant to Sec.  23.150(b) or a security-based swap that is exempt 
pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10(e)).
    (2) March 1, 2017 for the requirements in Sec.  23.153 for variation 
margin for any other covered swap entity for uncleared swaps entered 
into with any other counterparty.
    (3) September 1, 2017 for the requirements in Sec.  23.152 for 
initial margin for any uncleared swaps where both--
    (i) The covered swap entity combined with all its margin affiliates; 
and
    (ii) Its counterparty combined with all its margin affiliates, have 
an average daily aggregate notional amount of uncleared swaps, uncleared 
security-based swaps, foreign exchange forwards, and foreign exchange 
swaps in March, April, and May 2017 that exceeds $2.25 trillion, where 
such amounts are calculated only for business days; and where
    (iii) In calculating the amounts in paragraphs (a)(3)(i) and (ii) of 
this section, an entity shall count the average daily notional amount of 
an uncleared swap, an uncleared security-based swap, a foreign-exchange 
forward, or a foreign exchange swap between the entity and a margin 
affiliate only one time and shall not count a swap that is

[[Page 590]]

exempt pursuant to Sec.  23.150(b) or a security-based swap that is 
exempt pursuant to section 15F(e) of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-10(e)).
    (4) September 1, 2018, for the requirements in Sec.  23.152 for 
initial margin for any uncleared swaps where both--
    (i) The covered swap entity combined with all its margin affiliates; 
and
    (ii) Its counterparty combined with all its margin affiliates have 
an average daily aggregate notional amount of uncleared swaps, uncleared 
security-based swaps, foreign exchange forwards, and foreign exchange 
swaps in March, April, and May 2018 that exceeds $1.5 trillion, where 
such amounts are calculated only for business days; and where
    (iii) In calculating the amounts in paragraphs (a)(4)(i) and (ii) of 
this section, an entity shall count the average daily notional amount of 
an uncleared swap, an uncleared security-based swap, a foreign-exchange 
forward, or a foreign exchange swap between the entity and a margin 
affiliate only one time and shall not count a swap that is exempt 
pursuant to Sec.  23.150(b) or a security-based swap that is exempt 
pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10(e)).
    (5) September 1, 2019 for the requirements in Sec.  23.152 for 
initial margin for any uncleared swaps where both--
    (i) The covered swap entity combined with all its margin affiliates; 
and
    (ii) Its counterparty combined with all its margin affiliates have 
an average daily aggregate notional amount of uncleared swaps, uncleared 
security-based swaps, foreign exchange forwards, and foreign exchange 
swaps in March, April, and May 2019 that exceeds $0.75 trillion, where 
such amounts are calculated only for business days; and where
    (iii) In calculating the amounts in paragraphs (a)(5)(i) and (ii) of 
this section, an entity shall count the average daily notional amount of 
an uncleared swap, an uncleared security-based swap, a foreign-exchange 
forward, or a foreign exchange swap between the entity and a margin 
affiliate only one time and shall not count a swap that is exempt 
pursuant to Sec.  23.150(b) or a security-based swap that is exempt 
pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10(e)).
    (6) September 1, 2021 for the requirements in Sec.  23.152 for 
initial margin for any uncleared swaps where both--
    (i) The covered swap entity combined with all its margin affiliates; 
and
    (ii) Its counterparty combined with all its margin affiliates have 
an average daily aggregate notional amount of uncleared swaps, uncleared 
security-based swaps, foreign exchange forwards, and foreign exchange 
swaps in March, April, and May 2021 that exceeds $50 billion, where such 
amounts are calculated only for business days; and where
    (iii) In calculating the amounts in paragraphs (a)(6)(i) and (ii) of 
this section, an entity shall count the average daily notional amount of 
an uncleared swap, an uncleared security-based swap, a foreign exchange 
forward, or a foreign exchange swap between the entity and a margin 
affiliate only one time and shall not count a swap that is exempt 
pursuant to Sec.  23.150(b) or a security-based swap that is exempt 
pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o.10(e)).
    (7) September 1, 2022 for the requirements in Sec.  23.152 for 
initial margin for any other covered swap entity for uncleared swaps 
entered into with any other counterparty.
    (b) Once a covered swap entity and its counterparty must comply with 
the margin requirements for uncleared swaps based on the compliance 
dates in paragraph (a) of this section, the covered swap entity and its 
counterparty shall remain subject to the requirements of Sec. Sec.  
23.150 through 23.161 with respect to that counterparty.
    (c)(1) If a covered swap entity's counterparty changes its status 
such that an uncleared swap with that counterparty becomes subject to a 
stricter margin requirement under Sec. Sec.  23.150 through 23.161 (for 
example, if the counterparty's status changes from a financial end user 
without material swaps exposure to a financial end user with material 
swaps exposure), then the covered swap entity shall comply with the 
stricter margin requirements

[[Page 591]]

for any uncleared swaps entered into with that counterparty after the 
counterparty changes its status.
    (2) If a covered swap entity's counterparty changes its status such 
that an uncleared swap with that counterparty becomes subject to less 
strict margin requirement under Sec. Sec.  23.150 through 23.161 (for 
example, if the counterparty's status changes from a financial end user 
with material swaps exposure to a financial end user without material 
swaps exposure), then the covered swap entity may comply with the less 
strict margin requirements for any uncleared swaps entered into with 
that counterparty after the counterparty changes its status as well as 
for any outstanding uncleared swap entered into after the applicable 
compliance date under paragraph (a) of this section and before the 
counterparty changed its status.
    (d) For purposes of determining whether an uncleared swap was 
entered into prior to the applicable compliance date under this section, 
a covered swap entity may disregard:
    (1) Amendments to the uncleared swap that were entered into solely 
to comply with the requirements of 12 CFR part 47; 12 CFR part 252, 
subpart I; or 12 CFR part 382, as applicable; or
    (2) Amendments to the uncleared swap that were entered into in 
compliance with each of the following conditions:
    (i) The law of the European Union ceases to apply to the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a withdrawal agreement between the United Kingdom 
and the European Union pursuant to Article 50(2) thereof; and
    (ii) Solely in connection with a party to the swap's planning for or 
response to the event described in paragraph (d)(2)(i) of this section, 
one or both parties to the swap transfers the swap to its margin 
affiliate, or a branch or other authorized form of establishment of the 
transferor, and the parties make no other transfers of the swap; and
    (A) A covered swap entity is a transferee from a party to the swap; 
or
    (B) A covered swap entity is a remaining party to the swap, and the 
transferor represents to the covered swap entity that the transferee is 
a margin affiliate, or a branch or other authorized form of 
establishment of the transferor, and the transfer was made solely in 
connection with the transferor's planning for or response to the event 
described in paragraph (d)(2)(i) of this section; and
    (iii) The amendments do not modify any of the following: the payment 
amount calculation methods, the maturity date, or the notional amount of 
the swap; and
    (iv) The amendments take effect no earlier than the date of the 
event described in paragraph (d)(2)(i) of this section transpires; and
    (v) The amendments take effect no later than:
    (A) The date that is one year after the date of the event described 
in paragraph (d)(2)(i) of this section; or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (EU) No. 2016/2251, as 
amended.

[81 FR 695, Jan. 6, 2016, as amended at 83 FR 60346, Nov. 26, 2018; 84 
FR 12071, Apr. 1, 2019; 85 FR 19882, Apr. 9, 2020; 85 FR 41352, July 10, 
2020; 85 FR 71251, Nov. 9, 2020]



Sec. Sec.  23.162-23.199  [Reserved]



Sec. Appendix A to Subpart E of Part 23--Application for Internal Models 
  To Compute Market Risk Exposure Requirement and Credit Risk Exposure 
                               Requirement

    (a) A swap dealer that is requesting the approval of the Commission 
or the approval of a registered futures association of which the swap 
dealer is a member to use internal models to compute its market risk 
exposure requirement and credit risk exposure requirement under Sec.  
23.102 must include the following information as part of its 
application:
    (1) An executive summary of the information within its application 
and, if applicable, an identification of the ultimate holding company of 
the swap dealer;
    (2) A list of the categories of positions that the swap dealer holds 
in its proprietary accounts and a brief description of the methods that 
the swap dealer will use to calculate deductions for market risk and 
credit risk on those categories of positions;
    (3) A description of the mathematical models used by the swap dealer 
under this Appendix A to compute the VaR of the swap dealer's positions; 
the stressed VaR of the swap dealer's positions; the specific risk of

[[Page 592]]

the swap dealer's positions subject to specific risk; comprehensive risk 
of the swap dealer's positions; and the incremental risk of the swap 
dealer's positions, and deductions for credit risk exposure. The 
description should encompass the creation, use, and maintenance of the 
mathematical models; a description of the swap dealer's internal risk 
management controls over the models, including a description of each 
category of persons who may input data into the models; if a 
mathematical model incorporates empirical correlations across risk 
categories, a description of the process for measuring correlations; a 
description of the back-testing procedures the swap dealer will use to 
back-test the mathematical models; a description of how each 
mathematical model satisfies the applicable qualitative and quantitative 
requirements set forth in this Appendix A and a statement describing the 
extent to which each mathematical model used to compute deductions for 
market risk exposures and credit risk exposures will be used as part of 
the risk analyses and reports presented to senior management;
    (4) If the swap dealer is applying to the Commission for approval or 
a registered futures association to use scenario analysis to calculate 
deductions for market risk for certain positions, a list of those types 
of positions, a description of how those deductions will be calculated 
using scenario analysis, and an explanation of why each scenario 
analysis is appropriate to calculate deductions for market risk on those 
types of positions;
    (5) A description of how the swap dealer will calculate current 
exposure;
    (6) A description of how the swap dealer will determine internal 
credit ratings of counterparties and internal credit risk-weights of 
counterparties, if applicable;
    (7) For each instance in which a mathematical model to be used by 
the swap dealer to calculate a deduction for market risk exposure or to 
calculate maximum potential exposure for a particular product or 
counterparty differs from the mathematical model used by the swap 
dealer's ultimate holding company or the swap dealer's affiliates (if 
applicable) to calculate an allowance for market risk exposure or to 
calculate maximum potential exposure for that same product or 
counterparty, a description of the difference(s) between the 
mathematical models;
    (8) A description of the swap dealer's process of re-estimating, re-
evaluating, and updating internal models to ensure continued 
applicability and relevance; and
    (9) Sample risk reports that are provided to management at the swap 
dealer who are responsible for managing the swap dealer's risk.
    (b) The application of the swap dealer shall be supplemented by 
other information relating to the internal risk management control 
system, mathematical models, and financial position of the swap dealer 
that the Commission or a registered futures association may request to 
complete its review of the application.
    (c) A person who files an application with the Commission pursuant 
to this appendix for which it seeks confidential treatment may clearly 
mark each page or segregable portion of each page with the words 
``Confidential Treatment Requested.'' All information submitted in 
connection with the application will be accorded confidential treatment 
by the Commission, to the extent permitted by law.
    (d) If any of the information filed with the Commission or a 
registered futures association as part of the application of the swap 
dealer is found to be or becomes inaccurate before the Commission or a 
registered futures association approves the application, the swap dealer 
must notify the Commission or the registered futures association 
promptly and provide the Commission or the registered futures 
association with a description of the circumstances in which the 
information was found to be or has become inaccurate along with updated, 
accurate information.
    (e) The Commission or the registered futures association may approve 
the application or an amendment to the application, in whole or in part, 
subject to any conditions or limitations the Commission or the 
registered futures association may require if the Commission or the 
registered futures association finds the approval to be appropriate in 
the public interest, after determining, among other things, whether the 
swap dealer has met all the requirements of this Appendix A.
    (f) A swap dealer shall amend its application under this Appendix A 
and submit the amendment to the Commission and the registered futures 
association for approval before it may materially change a mathematical 
model used to calculate market risk exposure requirements or credit risk 
exposure requirements or before it may materially change its internal 
risk management control system with respect to such model.
    (g) As a condition for a swap dealer to use internal models to 
compute deductions for market risk exposure and credit risk exposure 
under this Appendix A, the swap dealer agrees that:
    (1) It will notify the Commission and the registered futures 
association 45 days before it ceases to use internal models to compute 
deductions for market risk exposure and credit risk exposure under this 
Appendix A; and
    (2) The Commission or the registered futures association may 
determine that the notice will become effective after a shorter or 
longer period of time if the swap dealer consents or if the Commission 
determines

[[Page 593]]

that a shorter or longer period of time is appropriate in the public 
interest.
    (h) The Commission or the registered futures association may by 
written order revoke a swap dealer's approval to use internal models to 
compute market risk exposures and credit risk exposures on certain 
credit exposures arising from transactions in derivatives instruments if 
the Commission or the registered futures association finds that such 
approval is no longer appropriate in the public interest. In making its 
finding, the Commission or the registered futures association will 
consider the compliance history of the swap dealer related to its use of 
models and the swap dealer's compliance with its internal risk 
management controls. If the Commission or the registered futures 
association withdraws all or part of a swap dealer's approval to use 
internal models, the swap dealer shall compute market risk exposure 
requirements and credit risk exposure requirements in accordance with 
Sec.  23.103.
    (i) VaR models. A value-at-risk (``VaR'') model must meet the 
following minimum requirements in order to be approved:
    (1) Qualitative requirements. (i) The VaR model used to calculate 
market risk exposure or credit risk exposure for a position must be 
integrated into the daily internal risk management system of the swap 
dealer;
    (ii) The VaR model must be reviewed both periodically and annually. 
The periodic review may be conducted by personnel of the swap dealer 
that are independent from the personnel that perform the VaR model 
calculations. The annual review must be conducted by a qualified third 
party service. The review must include:
    (A) An evaluation of the conceptual soundness of, and empirical 
support for, the internal models;
    (B) An ongoing monitoring process that includes verification of 
processes and the comparison of the swap dealer's model outputs with 
relevant internal and external data sources or estimation techniques; 
and
    (C) An outcomes analysis process that includes back-testing. This 
process must include a comparison of the changes in the swap dealer's 
portfolio value that would have occurred were end-of-day positions to 
remain unchanged (therefore, excluding fees, commissions, reserves, net 
interest income, and intraday trading) with VaR-based measures during a 
sample period not used in model development.
    (iii) For purposes of computing market risk, the swap dealer must 
determine the appropriate multiplication factor as follows:
    (A) Beginning three months after the swap dealer begins using the 
VaR model to calculate the market risk exposure, the swap dealer must 
conduct monthly back-testing of the model by comparing its actual daily 
net trading profit or loss with the corresponding VaR measure generated 
by the VaR model, using a 99 percent, one-tailed confidence level with 
price changes equivalent to a one business-day movement in rates and 
prices, for each of the past 250 business days, or other period as may 
be appropriate for the first year of its use;
    (B) On the last business day of each quarter, the swap dealer must 
identify the number of back-testing exceptions of the VaR model using 
actual daily net trading profit and loss, as that term is defined in 
Sec. Sec.  23.100. An exception has occurred when for a business day the 
actual net trading loss, if any, exceeds the corresponding VaR measure. 
The counting period shall be for the prior 250 business days except that 
during the first year of use of the model another appropriate period may 
be used; and
    (C) The swap dealer must use the multiplication factor indicated in 
Table 1 of this Appendix A in determining its market risk until it 
obtains the next quarter's back-testing results;

   Table 1--Multiplication Factor Based on the Number of Back-Testing
                       Exceptions of the VaR Model
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
4 or fewer..............................................            3.00
5.......................................................            3.40
6.......................................................            3.50
7.......................................................            3.65
8.......................................................            3.75
9.......................................................            3.85
10 or more..............................................            4.00
------------------------------------------------------------------------

    (iv) For purposes of computing the credit equivalent amount of the 
swap dealer's exposures to a counterparty, the swap dealer must 
determine the appropriate multiplication factor as follows:
    (A) Beginning three months after it begins using the VaR model to 
calculate maximum potential exposure, the swap dealer must conduct back-
testing of the model by comparing, for at least 80 counterparties (or 
the actual number of counterparties if the swap dealer does not have 80 
counterparties) with widely varying types and sizes of positions with 
the firm, the ten business day change in its current exposure to the 
counterparty based on its positions held at the beginning of the ten-
business day period with the corresponding ten-business day maximum 
potential exposure for the counterparty generated by the VaR model;
    (B) As of the last business day of each quarter, the swap dealer 
must identify the number of back-testing exceptions of the VaR model, 
that is, the number of ten-business day periods in the past 250 business 
days, or other period as may be appropriate for the first year of its 
use, for which the change in current exposure to a

[[Page 594]]

counterparty, assuming the portfolio remains static for the ten-business 
day period, exceeds the corresponding maximum potential exposure; and
    (C) The swap dealer will propose, as part of its application, a 
schedule of multiplication factors, which must be approved by the 
Commission, or a registered futures association of which the swap dealer 
is a member, based on the number of back-testing exceptions of the VaR 
model. The swap dealer must use the multiplication factor indicated in 
the approved schedule in determining the credit equivalent amount of its 
exposures to a counterparty until it obtains the next quarter's back-
testing results, unless the Commission or the registered futures 
association determines, based on, among other relevant factors, a review 
of the swap dealer's internal risk management control system, including 
a review of the VaR model, that a different adjustment or other action 
is appropriate.
    (2) Quantitative requirements. (i) For purposes of determining 
market risk exposure, the VaR model must use a 99 percent, one-tailed 
confidence level with price changes equivalent to a ten business-day 
movement in rates and prices;
    (ii) For purposes of determining maximum potential exposure, the VaR 
model must use a 99 percent, one-tailed confidence level with price 
changes equivalent to a one-year movement in rates and prices; or based 
on a review of the swap dealer's procedures for managing collateral and 
if the collateral is marked to market daily and the swap dealer has the 
ability to call for additional collateral daily, the Commission, or the 
registered futures association of which the swap dealer is a member, may 
approve a time horizon of not less than ten business days;
    (iii) The VaR model must use an effective historical observation 
period of at least one year. The swap dealer must consider the effects 
of market stress in its construction of the model. Historical data sets 
must be updated at least monthly and reassessed whenever market prices 
or volatilities change significantly or portfolio composition warrant; 
and
    (iv) The VaR model must take into account and incorporate all 
significant, identifiable market risk factors applicable to positions in 
the accounts of the swap dealer, including:
    (A) Risks arising from the non-linear price characteristics of 
derivatives and the sensitivity of the fair value of those positions to 
changes in the volatility of the derivatives' underlying rates, prices, 
or other material risk factors. A swap dealer with a large or complex 
portfolio with non-linear derivatives (such as options or positions with 
embedded optionality) must measure the volatility of these positions at 
different maturities and/or strike prices, where material;
    (B) Empirical correlations within and across risk factors provided 
that the swap dealer validates and demonstrates the reasonableness of 
its process for measuring correlations, if the VaR-based measure does 
not incorporate empirical correlations across risk categories, the swap 
dealer must add the separate measures from its internal models used to 
calculate the VaR-based measure for the appropriate risk categories 
(interest rate risk, credit spread risk, equity price risk, foreign 
exchange rate risk, and/or commodity price risk) to determine its 
aggregate VaR-based measure, or, alternatively, risk factors sufficient 
to cover all the market risk inherent in the positions in the 
proprietary or other trading accounts of the swap dealer, including 
interest rate risk, equity price risk, foreign exchange risk, and 
commodity price risk; and
    (C) Spread risk, where applicable, and segments of the yield curve 
sufficient to capture differences in volatility and imperfect 
correlation of rates along the yield curve for securities and 
derivatives that are sensitive to different interest rates. For material 
positions in major currencies and markets, modeling techniques must 
incorporate enough segments of the yield curve--in no case less than 
six--to capture differences in volatility and less than perfect 
correlation of rates along the yield curve.
    (j) Stressed VaR-based Measure. A stressed VaR model must meet the 
following minimum requirements in order to be approved:
    (1) Requirements for stressed VaR-based measure. (i) A swap dealer 
must calculate a stressed VaR-based measure for its positions using the 
same model(s) used to calculate the VaR-based measure under paragraph 
(i) of this appendix, subject to the same confidence level and holding 
period applicable to the VaR-based measure, but with model inputs 
calibrated to historical data from a continuous 12-month period that 
reflects a period of significant financial stress appropriate to the 
swap dealer's current portfolio.
    (ii) The stressed VaR-based measure must be calculated at least 
weekly and be no less than the swap dealer's VaR-based measure.
    (iii) A swap dealer must have policies and procedures that describe 
how it determines the period of significant financial stress used to 
calculate the swap dealer's stressed VaR-based measure under this 
appendix and must be able to provide empirical support for the period 
used. The swap dealer must obtain the prior approval of the Commission, 
or a registered futures association of which the swap dealer is a 
member, if the swap dealer makes any material changes to these policies 
and procedures. The policies and procedures must address:
    (A) How the swap dealer links the period of significant financial 
stress used to calculate

[[Page 595]]

the stressed VaR-based measure to the composition and directional bias 
of its current portfolio; and
    (B) The swap dealer's process for selecting, reviewing, and updating 
the period of significant financial stress used to calculate the 
stressed VaR-based measure and for monitoring the appropriateness of the 
period to the swap dealer's current portfolio.
    (iv) Nothing in this appendix prevents the Commission or the 
registered futures association of which the swap dealer is a member from 
requiring a swap dealer to use a different period of significant 
financial stress in the calculation of the stressed VaR-based measure.
    (k) Specific Risk. A specific risk model must meet the following 
minimum requirements in order to be approved:
    (1) General requirement. A swap dealer must use one of the methods 
in this paragraph (k) to measure the specific risk for each of its debt, 
equity, and securitization positions with specific risk.
    (2) Modeled specific risk. A swap dealer may use models to measure 
the specific risk of its proprietary positions. A swap dealer must use 
models to measure the specific risk of correlation trading positions 
that are modeled under paragraph (m) of this appendix.
    (i) Requirements for specific risk modeling. (A) If a swap dealer 
uses internal models to measure the specific risk of a portfolio, the 
internal models must:
    (1) Explain the historical price variation in the portfolio;
    (2) Be responsive to changes in market conditions;
    (3) Be robust to an adverse environment, including signaling rising 
risk in an adverse environment; and
    (4) Capture all material components of specific risk for the debt 
and equity positions in the portfolio. Specifically, the internal models 
must:
    (i) Capture name-related basis risk;
    (ii) Capture event risk and idiosyncratic risk; and
    (iii) Capture and demonstrate sensitivity to material differences 
between positions that are similar but not identical and to changes in 
portfolio composition and concentrations.
    (B) If a swap dealer calculates an incremental risk measure for a 
portfolio of debt or equity positions under paragraph (l) of this 
appendix, the swap dealer is not required to capture default and credit 
migration risks in its internal models used to measure the specific risk 
of those portfolios.
    (C) A swap dealer shall validate a specific risk model through back-
testing.
    (ii) Specific risk fully modeled for one or more portfolios. If the 
swap dealer's VaR-based measure captures all material aspects of 
specific risk for one or more of its portfolios of debt, equity, or 
correlation trading positions, the swap dealer has no specific risk add-
on for those portfolios.
    (3) Specific risk not modeled. (i) If the swap dealer's VaR-based 
measure does not capture all material aspects of specific risk for a 
portfolio of debt, equity, or correlation trading positions, the swap 
dealer must calculate a specific-risk add-on for the portfolio under the 
standardized measurement method as described in 12 CFR 217.210.
    (ii) A swap dealer must calculate a specific risk add-on under the 
standardized measurement method as described in 12 CFR 217.200 for all 
of its securitization positions that are not modeled under this 
paragraph (k).
    (l) Incremental Risk. An incremental risk model must meet the 
following minimum requirements in order to be approved:
    (1) General requirement. A swap dealer that measures the specific 
risk of a portfolio of debt positions under paragraph (k) of this 
appendix using internal models must calculate at least weekly an 
incremental risk measure for that portfolio according to the 
requirements in this appendix. The incremental risk measure is the swap 
dealer's measure of potential losses due to incremental risk over a one-
year time horizon at a one-tail, 99.9 percent confidence level, either 
under the assumption of a constant level of risk, or under the 
assumption of constant positions. With the prior approval of the 
Commission or a registered futures association of which the swap dealer 
is a member, a swap dealer may choose to include portfolios of equity 
positions in its incremental risk model, provided that it consistently 
includes such equity positions in a manner that is consistent with how 
the swap dealer internally measures and manages the incremental risk of 
such positions at the portfolio level. If equity positions are included 
in the model, for modeling purposes default is considered to have 
occurred upon the default of any debt of the issuer of the equity 
position. A swap dealer may not include correlation trading positions or 
securitization positions in its incremental risk measure.
    (2) Requirements for incremental risk modeling. For purposes of 
calculating the incremental risk measure, the incremental risk model 
must:
    (i) Measure incremental risk over a one-year time horizon and at a 
one-tail, 99.9 percent confidence level, either under the assumption of 
a constant level of risk, or under the assumption of constant positions.
    (A) A constant level of risk assumption means that the swap dealer 
rebalances, or rolls over, the swap dealer's trading positions at the 
beginning of each liquidity horizon over the one-year horizon in a 
manner that maintains the swap dealer's initial risk level. The swap 
dealer must determine the frequency of rebalancing in a manner 
consistent with the liquidity horizons of the positions in the 
portfolio. The liquidity horizon

[[Page 596]]

of a position or set of positions is the time required for a swap dealer 
to reduce its exposure to, or hedge all of its material risks of, the 
position(s) in a stressed market. The liquidity horizon for a position 
or set of positions may not be less than the shorter of three months or 
the contractual maturity of the position.
    (B) A constant position assumption means that the swap dealer 
maintains the same set of positions throughout the one-year horizon. If 
a swap dealer uses this assumption, it must do so consistently across 
all portfolios.
    (C) A swap dealer's selection of a constant position or a constant 
risk assumption must be consistent between the swap dealer's incremental 
risk model and its comprehensive risk model described in paragraph (m) 
of this appendix, if applicable.
    (D) A swap dealer's treatment of liquidity horizons must be 
consistent between the swap dealer's incremental risk model and its 
comprehensive risk model described in paragraph (m) of this appendix, if 
applicable.
    (ii) Recognize the impact of correlations between default and 
migration events among obligors.
    (iii) Reflect the effect of issuer and market concentrations, as 
well as concentrations that can arise within and across product classes 
during stressed conditions.
    (iv) Reflect netting only of long and short positions that reference 
the same financial instrument.
    (v) Reflect any material mismatch between a position and its hedge.
    (vi) Recognize the effect that liquidity horizons have on dynamic 
hedging strategies. In such cases, a swap dealer must:
    (A) Choose to model the rebalancing of the hedge consistently over 
the relevant set of trading positions;
    (B) Demonstrate that including rebalancing results in a more 
appropriate risk measurement;
    (C) Demonstrate that the market for the hedge is sufficiently liquid 
to permit rebalancing during periods of stress; and
    (D) Capture in the incremental risk model any residual risks arising 
from such hedging strategies.
    (vii) Reflect the nonlinear impact of options and other positions 
with material nonlinear behavior with respect to default and migration 
changes.
    (viii) Maintain consistency with the swap dealer's internal risk 
management methodologies for identifying, measuring, and managing risk.
    (m) Comprehensive Risk. A comprehensive risk model must meet the 
following minimum requirements in order to be approved:
    (1) General requirement. (i) Subject to the prior approval of the 
Commission or a registered futures association of which the swap dealer 
is a member, a swap dealer may use the method in this paragraph to 
measure comprehensive risk, that is, all price risk, for one or more 
portfolios of correlation trading positions.
    (ii) A swap dealer that measures the price risk of a portfolio of 
correlation trading positions using internal models must calculate at 
least weekly a comprehensive risk measure that captures all price risk 
according to the requirements of this paragraph (m). The comprehensive 
risk measure is either:
    (A) The sum of:
    (1) The swap dealer's modeled measure of all price risk determined 
according to the requirements in paragraph (m)(2) of this appendix; and
    (2) A surcharge for the swap dealer's modeled correlation trading 
positions equal to the total specific risk add-on for such positions as 
calculated under paragraph (k) of this appendix multiplied by 8.0 
percent; or
    (B) With approval of the Commission, or the registered futures 
association of which the swap dealer is a member, and provided the swap 
dealer has met the requirements of this paragraph (m) for a period of at 
least one year and can demonstrate the effectiveness of the model 
through the results of ongoing model validation efforts including robust 
benchmarking, the greater of:
    (1) The swap dealer's modeled measure of all price risk determined 
according to the requirements in paragraph (b) of this appendix; or
    (2) The total specific risk add-on that would apply to the swap 
dealer's modeled correlation trading positions as calculated under 
paragraph (k) of this appendix multiplied by 8.0 percent.
    (2) Requirements for modeling all price risk. If a swap dealer uses 
an internal model to measure the price risk of a portfolio of 
correlation trading positions:
    (i) The internal model must measure comprehensive risk over a one-
year time horizon at a one-tail, 99.9 percent confidence level, either 
under the assumption of a constant level of risk, or under the 
assumption of constant positions.
    (ii) The model must capture all material price risk, including but 
not limited to the following:
    (A) The risks associated with the contractual structure of cash 
flows of the position, its issuer, and its underlying exposures;
    (B) Credit spread risk, including nonlinear price risks;
    (C) The volatility of implied correlations, including nonlinear 
price risks such as the cross-effect between spreads and correlations;
    (D) Basis risk;
    (E) Recovery rate volatility as it relates to the propensity for 
recovery rates to affect tranche prices; and
    (F) To the extent the comprehensive risk measure incorporates the 
benefits of dynamic hedging, the static nature of the

[[Page 597]]

hedge over the liquidity horizon must be recognized. In such cases, a 
swap dealer must:
    (1) Choose to model the rebalancing of the hedge consistently over 
the relevant set of trading positions;
    (2) Demonstrate that including rebalancing results in a more 
appropriate risk measurement;
    (3) Demonstrate that the market for the hedge is sufficiently liquid 
to permit rebalancing during periods of stress; and
    (4) Capture in the comprehensive risk model any residual risks 
arising from such hedging strategies;
    (iii) The swap dealer must use market data that are relevant in 
representing the risk profile of the swap dealer's correlation trading 
positions in order to ensure that the swap dealer fully captures the 
material risks of the correlation trading positions in its comprehensive 
risk measure in accordance with this appendix; and
    (iv) The swap dealer must be able to demonstrate that its model is 
an appropriate representation of comprehensive risk in light of the 
historical price variation of its correlation trading positions.
    (3) Requirements for stress testing. (i) A swap dealer must at least 
weekly apply specific, supervisory stress scenarios to its portfolio of 
correlation trading positions that capture changes in:
    (A) Default rates;
    (B) Recovery rates;
    (C) Credit spreads;
    (D) Correlations of underlying exposures; and
    (E) Correlations of a correlation trading position and its hedge.
    (ii) Other requirements. (A) A swap dealer must retain and make 
available to the Commission and to the registered futures association of 
which the swap dealer is a member the results and all assumptions and 
parameters of the supervisory stress testing, including comparisons with 
the capital requirements generated by the swap dealer's comprehensive 
risk model.
    (B) A swap dealer must report promptly to the Commission and to the 
registered futures association of which it is a member any instances 
where the stress tests indicate any material deficiencies in the 
comprehensive risk model.
    (n) Securitization Exposures. (1) To use the simplified supervisory 
formula approach (SSFA) to determine the specific risk-weighting factor 
for a securitization position, a swap dealer must have data that enables 
it to assign accurately the parameters described in paragraph (n)(2) of 
this appendix. Data used to assign the parameters described in paragraph 
(n)(2) of this appendix must be the most currently available data; if 
the contracts governing the underlying exposures of the securitization 
require payments on a monthly or quarterly basis, the data used to 
assign the parameters described in paragraph (n)(2) of this appendix 
must be no more than 91 calendar days old. A swap dealer that does not 
have the appropriate data to assign the parameters described in 
paragraph (n)(2) of this appendix must assign a specific risk-weighting 
of 100 percent to the position.
    (2) SSFA parameters. To calculate the specific risk-weighting factor 
for a securitization position using the SSFA, a swap dealer must have 
accurate information on the five inputs to the SSFA calculation 
described in paragraphs (n)(2)(i) through (n)(2)(v) of this appendix.
    (i) KG is the weighted-average (with unpaid principal 
used as the weight for each exposure) total capital requirement of the 
underlying exposures calculated for a swap dealer's credit risk. 
KG is expressed as a decimal value between zero and one (that 
is, an average risk weight of 100 percent presents a value of 
KG equal to 0.08).
    (ii) Parameter W is expressed as a decimal value between zero and 
one. Parameter W is the ratio of the sum of the dollar amounts of any 
underlying exposures of the securitization that meet any of the criteria 
as set forth in paragraphs (n)(2)(ii)(A) through (F) of this appendix to 
the balance, measured in dollars, of underlying exposures:
    (A) Ninety days or more past due;
    (B) Subject to a bankruptcy or insolvency proceeding;
    (C) In the process of foreclosure;
    (D) Held as real estate owned;
    (E) Has contractually deferred payments for 90 days or more, other 
than principal or interest payments deferred on;
    (1) Federally-guaranteed student loans, in accordance with the terms 
of those guarantee programs; or
    (2) Consumer loans, including non-federally guaranteed student 
loans, provided that such payments are deferred pursuant to provisions 
included in the contract at the time funds are disbursed that provide 
for period(s) of deferral that are not initiated based on changes in the 
creditworthiness of the borrower; or
    (F) Is in default.
    (iii) Parameter A is the attachment point for the position, which 
represents the threshold at which credit losses will first be allocated 
to the position. Except as provided in 12 CFR 217.210(b)(2)(vii)(D) for 
nth to default derivatives, parameter A equals the ratio of the current 
dollar amount of underlying exposures that are subordinated to the 
position of the swap dealer to the current dollar amount of underlying 
exposures. Any reserve account funded by the accumulated cash flows from 
the underlying exposures that is subordinated to the position that 
contains the swap dealer's securitization exposure may be included in 
the calculation of parameter A to the extent that cash is present in

[[Page 598]]

the account. Parameter A is expressed as a decimal value between zero 
and one.
    (iv) Parameter D is the detachment point for the position, which 
represents the threshold at which credit losses of principal allocated 
to the position would result in a total loss of principal. Except as 
provided in 12 CFR 210(b)(2)(vii)(D) for nth-to-default credit 
derivatives, parameter D equals parameter A plus the ratio of the 
current dollar amount of the securitization positions that are pari 
passu with the position (that is, have equal seniority with respect to 
credit risk) to the current dollar amount of the underlying exposures. 
Parameter D is expressed as a decimal value between zero and one.
    (v) A supervisory calibration parameter, p, is equal to 0.5 for 
securitization positions that are not resecuritization positions and 
equal to 1.5 for resecuritization positions.
    (3) Mechanics of the SSFA. KG and W are used to calculate 
KA, the augmented value of KG, which reflects the 
observed credit quality of the underlying exposures. KA is 
defined in paragraph (n)(4) of this appendix. The values of parameters A 
and D, relative to KA determine the specific risk-weighting 
factor assigned to a securitization position, or portion of a position, 
as appropriate, is the larger of the specific risk-weighting factor 
determined in accordance with this paragraph (n)(3), paragraph (n)(4) of 
this appendix, and a specific risk-weighting factor of 1.6 percent.
    (i) When the detachment point, parameter D, for a securitization 
position is less than or equal to KA, the position must be 
assigned a specific risk-weighting factor of 100 percent.
    (ii) When the attachment point, parameter A, for a securitization 
position is greater than or equal to KA, the swap dealer must 
calculate the specific risk-weighting factor in accordance with 
paragraph (n)(4) of this appendix.
    (iii) When A is less than KA and D is greater than 
KA, the specific risk-weighting factor is a weighted-average 
of 1.00 and KSSFA calculated under paragraphs (n)(3)(iii)(A) 
and (3)(iii)(B) of this appendix. For the purpose of this calculation:
    (A) The weight assigned to 1.00 equals
    [GRAPHIC] [TIFF OMITTED] TR15SE20.014
    
    (iii) The specific risk-weighting factor for the position (expressed 
as a percent) is equal to KSSFA x 100.
    (o) Additional conditions. As a condition for the swap dealer to use 
this Appendix A to calculate certain of its capital charges, the

[[Page 599]]

Commission, or registered futures association of which the swap dealer 
is a member, may impose additional conditions on the swap dealer, which 
may include, but are not limited to restricting the swap dealer's 
business on a product-specific, category-specific, or general basis; 
submitting to the Commission or the registered futures association a 
plan to increase the swap dealer's regulatory capital; filing more 
frequent reports with the Commission or the registered futures 
association; modifying the swap dealer's internal risk management 
control procedures; or computing the swap dealer's deductions for market 
and credit risk in accordance with Sec. Sec.  23.102 as appropriate. If 
the Commission or registered futures association finds it is necessary 
or appropriate in the public interest, the Commission or registered 
futures association may impose additional conditions on the swap dealer, 
if:
    (1) The swap dealer is required to provide notice to the Commission 
or the registered futures association that the swap dealer's regulatory 
capital is less than $100 million;
    (2) The swap dealer fails to meet the reporting requirements set 
forth in Sec.  23.105;
    (3) Any event specified in Sec.  23.105 occurs;
    (4) There is a material deficiency in the internal risk management 
control system or in the mathematical models used to price securities or 
to calculate deductions for market and credit risk or allowances for 
market and credit risk, as applicable, of the swap dealer;
    (5) The swap dealer fails to comply with this Appendix A; or
    (6) The Commission finds that imposition of other conditions is 
necessary or appropriate in the public interest.

[85 FR 57556, Sept. 15, 2020]

[[Page 600]]



  Sec. Appendix B to Subpart E of Part 23--Swap Dealer and Major Swap 
                    Participant Position Information
[GRAPHIC] [TIFF OMITTED] TR15SE20.015


[[Page 601]]


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[[Page 602]]


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[[Page 603]]


[GRAPHIC] [TIFF OMITTED] TR15SE20.018


[85 FR 57561, Sept. 15, 2020]

[[Page 604]]



Sec. Appendix C to Subpart E of Part 23--Financial Reports and Specific 
   Position Information for Swap Dealers and Major Swap Participants 
      Subject to the Capital Requirements of a Prudential Regulator
[GRAPHIC] [TIFF OMITTED] TR15SE20.019


[[Page 605]]


[GRAPHIC] [TIFF OMITTED] TR15SE20.020


[[Page 606]]


[GRAPHIC] [TIFF OMITTED] TR15SE20.021


[[Page 607]]


[GRAPHIC] [TIFF OMITTED] TR15SE20.022


[[Page 608]]



[85 FR 57565, Sept. 15, 2020]



     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 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

[[Page 609]]

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 
with Sec.  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;
    (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

[[Page 610]]

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 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 transaction identifier, as required by Sec.  45.5 
of this chapter, 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 legal entity identifier or alternate identifier, 
as required by Sec.  45.6 of this chapter;
    (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 and description using the product classification system, as 
required by Sec.  45.7 of this chapter;
    (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.

[[Page 611]]

    (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;
    (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,

[[Page 612]]

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.

[77 FR 20202, Apr. 3, 2012, as amended at 88 FR 8753, Feb. 10, 2023]



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 of this chapter, except as provided in paragraph (b)(3) of 
this section. 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) [Reserved]
    (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.

[77 FR 20202, Apr. 3, 2012, as amended at 82 FR 24487, May 30, 2017]



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 reporting requirements in part 43 
of this chapter.
    (b) Electronic reporting of swap transaction data. Each swap dealer 
and major swap participant shall have the

[[Page 613]]

electronic systems and procedures necessary to transmit electronically 
all information and data required to be reported in accordance with part 
43 of this chapter.

[77 FR 20202, Apr. 3, 2012, as amended at 88 FR 8753, Feb. 10, 2023]



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 of Sec.  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 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 and Sec.  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);

[[Page 614]]

    (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 and Sec.  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 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.

[[Page 615]]

    (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 and Sec.  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:
    (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 
and Sec.  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 under Sec.  23.401(c)(6) and, if so, 
notify such counterparty of its right to make such an election.

[[Page 616]]

    (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 in Sec.  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) of Sec.  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 in Sec.  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 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 in Sec.  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:

[[Page 617]]

    (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
    (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

[[Page 618]]

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 with Sec.  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).
    (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
    (2) In the case of a counterparty that is a Special Entity, satisfy 
the terms of the safe harbor in Sec.  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 in Sec.  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 of Sec.  23.450; and
    (iii) The swap dealer discloses to the Special Entity that it is not 
undertaking to act in the best interests of

[[Page 619]]

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 in Sec.  23.402(d), the swap dealer may rely 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 in Sec.  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 in Sec.  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 in Sec.  
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.

[[Page 620]]

    (2) Any swap dealer or major swap participant that offers to enter 
or enters into a swap with a Special Entity as defined in Sec.  
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 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 in Sec.  
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 in Sec.  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

[[Page 621]]

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, 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 in Sec.  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

[[Page 622]]

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
    (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

[[Page 623]]

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.



Sec. Appendix A to Subpart H of Part 23-- 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 
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 
of Sec.  23.434(b) to fulfill its counterparty-specific suitability duty 
under Sec.  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 with Sec.  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 in Sec.  23.434(c). Section 23.434(c)(1) provides that a swap 
dealer will satisfy Sec.  23.434(b)(1)'s requirement with respect to a 
counterparty

[[Page 624]]

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 satisfy Sec.  
23.434(b)(1)'s requirement with respect to a Special Entity if it 
receives representations that satisfy the terms of Sec.  23.450(d) 
regarding a Special Entity's qualified independent representative.
    Prong (4) of the safe harbor clarifies that Sec.  23.434's 
application is broader than Sec.  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 in Sec.  23.434(b); however, the swap dealer must also 
comply with Sec.  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'' under Sec.  
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 ``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. Under Sec.  23.440(b)(2), when dealing with a Special 
Entity (including a Special Entity that is an employee benefit plan as 
defined in Sec.  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 with Sec.  
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 of Sec.  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 to Sec.  
23.440 is limited to the safe harbor for any Special Entity under Sec.  
23.440(b)(2). A swap dealer may separately comply with the safe harbor 
under Sec.  23.440(b)(1) for its communications to a Special Entity that 
is an employee benefit plan as defined in Sec.  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,

[[Page 625]]

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 of Sec.  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 of Sec.  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 in Sec.  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 
in Sec.  23.440, provided that the parties comply with the other 
requirements of Sec.  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 
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.



                      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 (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.

[[Page 626]]

    (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 the minimum primary economic terms as 
defined in appendix 1 of subpart I of part 23 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 material 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, as amended at 81 FR 27314, May 6, 2016; 86 
FR 225, Jan. 5, 2021]



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.
    (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.

[[Page 627]]

    (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.
    (2) All records required to be maintained pursuant to this section 
shall be maintained in accordance with Sec.  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,

[[Page 628]]

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 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:

[[Page 629]]

    (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 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.

[[Page 630]]

    (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 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.

[[Page 631]]

    (e) Recordkeeping. A record of each swap portfolio reconciliation 
consistent with Sec.  23.202(a)(3)(iii) shall be maintained in 
accordance with Sec.  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 with Sec.  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 and Sec.  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 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

[[Page 632]]

record of the approval shall be retained. Other than confirmations of 
swap transactions under Sec.  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 under Sec.  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 with Sec.  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;
    (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

[[Page 633]]

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 with Sec.  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 and Sec.  50.50 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 and Sec.  50.50 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 in Sec.  
50.50(b)(1)(iii) in accordance with Sec.  50.50(b)(2) 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 with Sec.  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,

[[Page 634]]

the Securities and Exchange Commission, or any applicable prudential 
regulator.

[77 FR 55960, Sep. 11, 2012, as amended at 78 FR 21046, Apr. 9, 2013]



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 of Sec.  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.



            Sec. Part 23, Subpart I, Appendix 1--Exhibits A-D

 Exhibit A--Minimum Primary Economic Terms Data--Credit Swaps and Equity
                                  Swaps
------------------------------------------------------------------------
   Data categories and fields for all
                 swaps                               Comment
------------------------------------------------------------------------
Asset Class............................  Field values: Credit, equity,
                                          FX, interest rates, other
                                          commodities.
The Unique Transaction Identifier for    The UTI is a unique identifier
 the swap.                                assigned to all swap
                                          transactions which identifies
                                          the transaction (the swap and
                                          its counterparties) uniquely
                                          throughout its duration.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the reporting    this chapter.
 counterparty.
An indication of whether the reporting   Yes/No.
 counterparty is a derivatives clearing
 organization with respect to the swap.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the non-         this chapter.
 reporting party.
The Unique Product Identifier assigned   As provided in Sec.   45.7.
 to the swap.
If no Unique Product Identifier is
 available for the swap because the
 swap is not sufficiently standardized,
 the taxonomic description of the swap
 pursuant to the CFTC-approved product
 classification system.
If no CFTC-approved UPI and product
 classification system is yet
 available, the internal product
 identifier or product description used
 by the swap data repository.
An indication of the counterparty        Field values: LEI, or alternate
 purchasing protection.                   identifier.
An indication of the counterparty        Field values: LEI, or alternate
 selling protection.                      identifier.
Information identifying the reference    The entity that is the subject
 entity.                                  of the protection being
                                          purchased and sold in the
                                          swap. Field values: LEI, or
                                          alternate identifier.
Contract type..........................  E.g., swap, swaption, forward,
                                          option, basis swap, index
                                          swap, basket swap.
Execution venue........................  The swap execution facility or
                                          designated contract market on
                                          or pursuant to the rules of
                                          which the swap was executed.
                                          Field values: LEI of the swap
                                          execution facility or
                                          designated contract market, or
                                          ``off-facility'' if not so
                                          executed.
Start date.............................  The date on which the swap
                                          starts or goes into effect.
Maturity, termination or end date......  The date on which the swap
                                          expires.
The price..............................  E.g., strike price, initial
                                          price, spread.

[[Page 635]]

 
The notional amount, and the currency
 in which the notional amount is
 expressed.
The amount and currency (or currencies)
 of any up-front payment.
Payment frequency of the reporting       A description of the payment
 counterparty.                            stream of the reporting
                                          counterparty, e.g., coupon.
Payment frequency of the non-reporting   A description of the payment
 counterparty.                            stream of the non-reporting
                                          counterparty, e.g., coupon.
Clearing exception or exemption type...  The type of clearing exception
                                          or exemption being claimed.
                                          Field values: End user, Inter-
                                          affiliate or Cooperative.
Indication of collateralization........  Is the swap collateralized, and
                                          if so to what extent? Field
                                          values: Uncollateralized,
                                          partially collateralized, one-
                                          way collateralized, fully
                                          collateralized.
Any other term(s) of the swap matched    Use as many fields as required
 or affirmed by the counterparties in     to report each such term.
 verifying the swap.
------------------------------------------------------------------------


    Exhibit B--Minimum Primary Economic Terms Data--Foreign Exchange
                              Transactions
                    [Other than cross-currency swaps]
------------------------------------------------------------------------
       Data fields for all swaps                     Comment
------------------------------------------------------------------------
Asset Class............................  Field values: Credit, equity,
                                          FX, interest rates, other
                                          commodities.
The Unique Transaction Identifier for    The UTI is a unique identifier
 the swap.                                assigned to all swap
                                          transactions which identifies
                                          the transaction (the swap and
                                          its counterparties) uniquely
                                          throughout its duration.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the reporting    this chapter.
 counterparty.
An indication of whether the reporting   Yes/No.
 counterparty is a derivatives clearing
 organization with respect to the swap.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the non-         this chapter.
 reporting party.
The Unique Product Identifier assigned   As provided in Sec.   45.7.
 to the swap.
If no Unique Product Identifier is
 available for the swap because the
 swap is not sufficiently standardized,
 the taxonomic description of the swap
 pursuant to the CFTC-approved product
 classification system.
If no CFTC-approved UPI and product
 classification system is yet
 available, the internal product
 identifier or product description used
 by the swap data repository.
Contract type..........................  E.g., forward, non-deliverable
                                          forward (NDF), non-deliverable
                                          option (NDO), vanilla option,
                                          simple exotic option, complex
                                          exotic option.
Execution venue........................  The swap execution facility or
                                          designated contract market on
                                          or pursuant to the rules of
                                          which the swap was executed.
                                          Field values: LEI of the swap
                                          execution facility or
                                          designated contract market, or
                                          ``off-facility'' if not so
                                          executed.
Currency 1.............................  ISO code.
Currency 2.............................  ISO code.
Notional amount 1......................  For currency 1.
Notional amount 2......................  For currency 2.
Exchange rate..........................  Contractual rate of exchange of
                                          the currencies.
Delivery type..........................  Physical (deliverable) or cash
                                          (non-deliverable).
Settlement or expiration date..........  Settlement date, or for an
                                          option the contract expiration
                                          date.
Clearing exception or exemption type...  The type of clearing exception
                                          or exemption being claimed.
                                          Field values: End user, Inter-
                                          affiliate or Cooperative.
Indication of collateralization........  Is the trade collateralized,
                                          and if so to what extent?
                                          Field values:
                                          Uncollateralized, partially
                                          collateralized, one-way
                                          collateralized, fully
                                          collateralized.
Any other term(s) of the trade matched   E.g., for options, premium,
 or affirmed by the counterparties in     premium currency, premium
 verifying the trade.                     payment date; for non-
                                          deliverable trades, settlement
                                          currency, valuation (fixing)
                                          date; indication of the
                                          economic obligations of the
                                          counterparties. Use as many
                                          fields as required to report
                                          each such term.
------------------------------------------------------------------------


[[Page 636]]


   Exhibit C--Minimum Primary Economic Terms Data--Interest Rate Swaps
                    [Including cross-currency swaps]
------------------------------------------------------------------------
       Data fields for all swaps                     Comment
------------------------------------------------------------------------
Asset Class............................  Field values: Credit, equity,
                                          FX, interest rates, other
                                          commodities.
The Unique Transaction Identifier for    The UTI is a unique identifier
 the swap.                                assigned to all swap
                                          transactions which identifies
                                          the transaction (the swap and
                                          its counterparties) uniquely
                                          throughout its duration.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the reporting    this chapter.
 counterparty.
An indication of whether the reporting   Yes/No.
 counterparty is a derivatives clearing
 organization with respect to the swap.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the non-         this chapter.
 reporting counterparty.
The Unique Product Identifier assigned   As provided in Sec.   45.7.
 to the swap.
If no Unique Product Identifier is
 available for the swap because the
 swap is not sufficiently standardized,
 the taxonomic description of the swap
 pursuant to the CFTC-approved product
 classification system.
If no CFTC-approved UPI and product
 classification system is yet
 available, the internal product
 identifier or product description used
 by the swap data repository.
Contract type..........................  E.g., swap, swaption, option,
                                          basis swap, index swap.
Execution venue........................  The swap execution facility or
                                          designated contract market on
                                          or pursuant to the rules of
                                          which the swap was executed.
                                          Field values: LEI of the swap
                                          execution facility or
                                          designated contract market, or
                                          ``off-facility'' if not so
                                          executed.
Start date.............................  The date on which the swap
                                          starts or goes into effect.
Maturity, termination or end date......  The date on which the swap
                                          expires or ends.
Day count convention...................
Notional amount (leg 1)................  The current active notional
                                          amount.
Notional currency (leg 1)..............  ISO code.
Notional amount (leg 2)................  The current active notional
                                          amount.
Notional currency (leg 2)..............  ISO code.
Payer (fixed rate).....................  Is the reporting party a fixed
                                          rate payer? Yes/No/Not
                                          applicable.
Payer (floating rate leg 1)............  If two floating legs, the payer
                                          for leg 1.
Payer (floating rate leg 2)............  If two floating legs, the payer
                                          for leg 2.
Direction..............................  For swaps: Whether the
                                          principal is paying or
                                          receiving the fixed rate. For
                                          float-to-float and fixed-to-
                                          fixed swaps: Indicate N/A.
                                         For non-swap instruments and
                                          swaptions: Indicate the
                                          instrument that was bought or
                                          sold.
Option type............................  E.g., put, call, straddle.
Fixed rate.............................
Fixed rate day count fraction..........  E.g., actual 360.
Floating rate payment frequency........
Floating rate reset frequency..........
Floating rate index name/rate period...  E.g., Fed Funds.
Clearing exception or exemption type...  The type of clearing exception
                                          or exemption being claimed.
                                          Field values: End user, Inter-
                                          affiliate or Cooperative.
Indication of collateralization........  Is the swap collateralized, and
                                          if so to what extent? Field
                                          values: Uncollateralized,
                                          partially collateralized, one-
                                          way collateralized, fully
                                          collateralized.
Any other term(s) of the swap matched    E.g., early termination option
 or affirmed by the counterparties in     clause. Use as many fields as
 verifying the swap.                      required to report each such
                                          term.
------------------------------------------------------------------------


  Exhibit D--Minimum Primary Economic Terms Data--Other Commodity Swaps
------------------------------------------------------------------------
        Data field for all swaps                     Comment
------------------------------------------------------------------------
Asset Class............................  Field values: Credit, equity,
                                          FX, interest rates, other
                                          commodities.
The Unique Transaction Identifier for    The UTI is a unique identifier
 the swap.                                assigned to all swap
                                          transactions which identifies
                                          the transaction (the swap and
                                          its counterparties) uniquely
                                          throughout its duration.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the reporting    this chapter.
 counterparty.
An indication of whether the reporting   Yes/No.
 counterparty is a derivatives clearing
 organization with respect to the swap.
The Legal Entity Identifier or           As provided in Sec.   45.6 of
 alternate identifier of the non-         this chapter.
 reporting party.
The Unique Product Identifier assigned   As provided in Sec.   45.7.
 to the swap.

[[Page 637]]

 
If no Unique Product Identifier is
 available for the swap because the
 swap is not sufficiently standardized,
 the taxonomic description of the swap
 pursuant to the CFTC-approved product
 classification system.
If no CFTC-approved UPI and product
 classification system is yet
 available, the internal product
 identifier or product description used
 by the swap data repository.
Contract type..........................  E.g., swap, swaption, option,
                                          basis swap, index swap.
Execution venue........................  The swap execution facility or
                                          designated contract market on
                                          or pursuant to the rules of
                                          which the swap was executed.
                                          Field values: LEI of the swap
                                          execution facility or
                                          designated contract market, or
                                          ``off-facility'' if not so
                                          executed.
Start date.............................  The date on which the swap
                                          commences or goes into effect
                                          (e.g., in physical oil, the
                                          pricing start date).
Maturity, termination, or end date.....  The date on which the swap
                                          expires or ends (e.g., in
                                          physical oil, the pricing end
                                          date).
Buyer..................................  The counterparty purchasing the
                                          product: (E.g., the payer of
                                          the fixed price (for a swap),
                                          or the payer of the floating
                                          price on the underlying swap
                                          (for a put swaption), or the
                                          payer of the fixed price on
                                          the underlying swap (for a
                                          call swaption). Field values:
                                          LEI, if available, or
                                          alternate identifier.
Seller.................................  The counterparty offering the
                                          product: (E.g., the payer of
                                          the floating price (for a
                                          swap), the payer of the fixed
                                          price on the underlying swap
                                          (for a put swaption), or the
                                          payer of the floating price on
                                          the underlying swap (for a
                                          call swaption). Field values:
                                          LEI, or alternate identifier.
Quantity unit..........................  The unit of measure applicable
                                          for the quantity on the swap.
                                          E.g., barrels, bushels,
                                          gallons, pounds, tons.
Quantity...............................  The amount of the commodity
                                          (the number of quantity units)
                                          quoted on the swap.
Quantity frequency.....................  The rate at which the quantity
                                          is quoted on the swap. E.g.,
                                          hourly, daily, weekly,
                                          monthly.
Total quantity.........................  The quantity of the commodity
                                          for the entire term of the
                                          swap.
Settlement method......................  Physical delivery or cash.
Price..................................  The price of the swap. For
                                          options, the strike price.
Price unit.............................  The unit of measure applicable
                                          for the price of the swap.
Price currency.........................  ISO code.
Buyer pay index........................  The published price as paid by
                                          the buyer (if applicable). For
                                          swaptions, applies to the
                                          underlying swap.
Buyer pay averaging method.............  The averaging method used to
                                          calculate the index of the
                                          buyer pay index. For
                                          swaptions, applies to the
                                          underlying swap.
Seller pay index.......................  The published price as paid by
                                          the seller (if applicable).
                                          For swaptions, applies to the
                                          underlying swap.
Seller pay averaging method............  The averaging method used to
                                          calculate the index of the
                                          seller pay index. For
                                          swaptions, applies to the
                                          underlying swap.
Grade..................................  If applicable, the grade of the
                                          commodity to be delivered,
                                          e.g., the grade of oil or
                                          refined product.
Option type............................  Descriptor for the type of
                                          option transaction. E.g., put,
                                          call, straddle.
Option style...........................  E.g., American, European,
                                          European Daily, European
                                          Monthly, Asian.
Option premium.........................  The total amount paid by the
                                          option buyer.
Hours from through.....................  For electric power, the hours
                                          of the day for which the swap
                                          is effective.
Hours from through time zone...........  For electric power, the time
                                          zone prevailing for the hours
                                          during which electricity is
                                          transmitted.
Days of week...........................  For electric power, the profile
                                          applicable for the delivery of
                                          power.
Load type..............................  For electric power, the load
                                          profile for the delivery of
                                          power.
Clearing exception or exemption type...  The type of clearing exception
                                          or exemption being claimed.
                                          Field values: End user, Inter-
                                          affiliate or Cooperative.
Indication of collateralization........  Is the swap collateralized, and
                                          if so to what extent? Field
                                          values: Uncollateralized,
                                          partially collateralized, one-
                                          way collateralized, fully
                                          collateralized.
Any other term(s) of the swap matched    Use as many fields as required
 or affirmed by the counterparties in     to report each such term.
 verifying the swap.
------------------------------------------------------------------------


[[Page 638]]


[86 FR 225, Jan. 5, 2021, as amended at 88 FR 8753, Feb. 10, 2023]



      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, 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

[[Page 639]]

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 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

[[Page 640]]

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;
    (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

[[Page 641]]

    (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:
    (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

[[Page 642]]

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 annual review 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 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 20205, Apr. 3, 2012, as amended at 79 FR 41126, July 15, 2014]



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, 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

[[Page 643]]

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 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.

[[Page 644]]

    (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 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.

[[Page 645]]

    (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 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.  23.604  [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, 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

[[Page 646]]

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
    (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

[[Page 647]]

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.
    (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

[[Page 648]]

    (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 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 Regulation Sec.  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.

[[Page 649]]

    (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, 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 in Sec.  
1.74(b), Sec.  23.610(b), or Sec.  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

[[Page 650]]

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 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 of Sec.  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 of Sec.  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.

[[Page 651]]

    (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]

Subpart K [Reserved]



  Subpart L_Segregation of Assets Held as Collateral in Uncleared Swap 
                              Transactions

    Source: 84 FR 12905, Apr. 3, 2019, unless otherwise noted.



Sec.  23.700  Definitions.

    As used in this subpart:
    Initial Margin means money, securities, or property posted by a 
party to a swap as performance bond to cover potential future exposures 
arising from changes in the market value of the position.
    Segregate means to keep two or more items in separate accounts, and 
to avoid combining them in the same transfer between two accounts.
    Variation Margin means a payment made by or collateral posted by a 
party to a 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.



Sec.  23.701  Notification of right to segregation.

    (a) At the beginning of the first swap transaction that provides for 
the exchange of Initial Margin, a swap dealer or major swap participant 
must notify the counterparty that the counterparty has the right to 
require that any Initial Margin the counterparty provides in connection 
with such transaction be segregated in accordance with Sec. Sec.  23.702 
and 23.703, except in those circumstances where segregation is mandatory 
pursuant to Sec.  23.157 or rules adopted by the prudential regulators 
pursuant to section 4s(e)(2)(A) of the Act.
    (b) The right referred to in paragraph (a) of this section does not 
extend to Variation Margin.
    (c) If the counterparty elects to segregate Initial Margin, the 
terms of segregation shall be established by written agreement.
    (d) A counterparty's election, if applicable, to require segregation 
of Initial Margin or not to require such segregation, may be changed at 
the discretion of the counterparty upon written notice delivered to the 
swap dealer or major swap participant, which changed election shall be 
applicable to all swaps entered into between the parties after such 
delivery.



Sec.  23.702  Requirements for segregated initial margin.

    (a) The custodian of Initial Margin, segregated pursuant to an 
election under Sec.  23.701, must be a legal entity independent of both 
the swap dealer or major swap participant and the counterparty.
    (b) Initial Margin that is segregated pursuant to an election under 
Sec.  23.701 must be held in an account segregated for, and on behalf 
of, the counterparty, and designated as such. Such an account may, if 
the swap dealer or major swap participant and the counterparty agree, 
also hold Variation Margin.
    (c) Any agreement for the segregation of Initial Margin pursuant to 
this section shall be in writing, shall include the custodian as a 
party, and shall provide that any instruction to withdraw Initial Margin 
shall be in writing and that notification of the withdrawal shall be 
given immediately to the non-withdrawing party.



Sec.  23.703  Investment of segregated initial margin.

    The swap dealer or major swap participant and the counterparty may

[[Page 652]]

enter into any commercial arrangement, in writing, regarding the 
investment of Initial Margin segregated pursuant to Sec.  23.701 and the 
related allocation of gains and losses resulting from such investment.



Sec.  23.704  Requirements for non-segregated margin.

    (a) Each swap dealer or major swap participant shall report to each 
counterparty that does not choose to require segregation of Initial 
Margin pursuant to Sec.  23.701(a), on a quarterly basis, no later than 
the fifteenth business day after the end of the quarter, that the back 
office procedures of the swap dealer or major swap participant relating 
to margin and collateral requirements are in compliance with the 
agreement of the counterparties.
    (b) The obligation specified in paragraph (a) of this section shall 
apply no earlier than the 90th calendar day after the date on which the 
first swap is transacted between the counterparty and the swap dealer or 
major swap participant.



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 Under Sec.  30.10 of Its 
          Rules
Appendix B to Part 30--Interpretative Statement With Respect to the 
          Secured Amount Requirement Set Forth in Sec.  30.7
Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
          Application of Certain of the Part 30 Rules Pursuant to Sec.  
          30.10
Appendix D to Part 30--Commission Certification With Respect to Foreign 
          Futures and Options Contracts on a Non-Narrow-Based Security 
          Index
Appendix E to Part 30--Acknowledgment Letter for CFTC Regulation 30.7 
          Customer Secured Account
Appendix F to Part 30--Acknowledgment Letter for CFTC Regulation 30.7 
          Customer Secured Money Market Mutual Fund Account

    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 Sec.  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 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,

[[Page 653]]

authorized or otherwise subject to regulation in the jurisdiction in 
which the affiliate is located.
    (f) 30.7 customer means any foreign futures or foreign options 
customer as defined in paragraph (c) of this section as well as any 
foreign-domiciled person who trades in foreign futures or foreign 
options through a futures commission merchant; Provided, however, that 
an owner or holder of a proprietary account as defined in Sec.  1.3 of 
this chapter shall not be deemed to be a 30.7 customer.
    (g) 30.7 account means any account maintained by a futures 
commission merchant for or on behalf of 30.7 customers to hold money, 
securities, or other property to margin, guarantee, or secure foreign 
futures or foreign option positions.
    (h) 30.7 customer funds means any money, securities, or other 
property received by a futures commission merchant from, for, or on 
behalf of 30.7 customers to margin, guarantee, or secure foreign futures 
or foreign option positions, or money, securities, or other property 
accruing to 30.7 customers as a result of foreign futures and foreign 
option positions.

[52 FR 28998, Aug. 5, 1987, as amended at 65 FR 47280, Aug. 2, 2000; 78 
FR 68648, Nov. 14, 2013; 83 FR 7996, Feb. 23, 2018]



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, 
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 in Sec.  30.4 of this part or 
pursuant to an exemption granted under Sec.  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 in Sec.  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

[[Page 654]]

nor revoked; provided that, a foreign futures and options broker (as 
defined in Sec.  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 in Sec.  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) of Sec.  
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 
Sec.  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 
in Sec.  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, 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,

[[Page 655]]

    (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; 83 
FR 7996, Feb. 23, 2018]



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 to Sec.  30.10 in accordance with the provisions 
of Sec.  30.3(b).
    (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 to Sec.  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

[[Page 656]]

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 of Sec.  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 in Sec.  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 option 
customer, other than for a customer specified in Sec.  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 in Sec.  1.55(b) of 
this chapter or as otherwise approved under Sec.  155(c) of this chapter 
(except for nonsubstantive additions such as captions), which has been 
acknowledged in accordance with Sec.  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 in Sec.  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 in Sec.  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 in Sec.  4.24(b)(2) of this chapter and the statement in Sec.  
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 in Sec.  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 
in Sec.  4.34(b)(2) of this chapter and the statement in Sec.  
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 in Sec.  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 in Sec.  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 to Sec.  4.21 of 
this chapter and files the Disclosure Document in accordance with Sec.  
4.26 of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered

[[Page 657]]

under this part, or exempt from registration pursuant to Sec.  30.5, may 
not, directly or indirectly, engage in any of the activities described 
in Sec.  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 to Sec.  4.31 of this chapter and files the 
Disclosure Document in accordance with Sec.  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 with Sec.  1.31 of this chapter.
    (d) This section does not relieve a futures commission merchant or 
introducing broker from its obligations under Sec.  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) General. Except as provided in this section, a futures 
commission merchant must at all times maintain in a separate account or 
accounts money, securities and property in an amount at least sufficient 
to cover or satisfy all of its obligations to 30.7 customers denominated 
as the foreign futures or foreign options secured amount. In computing 
the foreign futures or foreign options secured amount, a futures 
commission merchant may offset any net deficit in a particular 30.7 
customer's account against the current market value of readily 
marketable securities held for the same particular 30.7 customer's 
account as provided for in paragraph (l) of this section. The amount 
that must be deposited in such separate account or accounts for 30.7 
customers must be no less than the amount required to be held in a 
separate account or accounts for or on behalf of 30.7 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 30.7 customer, as appropriate, is 
located.
    (b) Location of 30.7 customer funds. A futures commission merchant 
shall deposit the foreign futures or foreign options secured amount 
under an account name that clearly identifies the funds as belonging to 
30.7 customers and shows that the foreign futures or foreign options 
secured amount is set aside as required by this part. A futures 
commission merchant may deposit funds set aside as the foreign futures 
or foreign options secured amount with the following depositories:
    (1) A bank or trust company located in the United States;
    (2) A bank or trust company located outside the United States that 
has in excess of $1 billion of regulatory capital;
    (3) A futures commission merchant registered as such with the 
Commission;
    (4) A derivatives clearing organization;
    (5) The clearing organization of any foreign board of trade;
    (6) A member of any foreign board of trade; or
    (7) Such member's or clearing organization's designated 
depositories.
    (c) Limitation on holding foreign futures or foreign options secured 
amount outside of the United States. A futures commission merchant may 
not deposit or hold the foreign futures or foreign options secured 
amount in accounts maintained outside of the United States with any of 
the depositories listed in paragraph (b) of this section except to meet 
margin requirements,

[[Page 658]]

including prefunding margin requirements, established by rule, 
regulation, or order of foreign boards of trade or foreign clearing 
organizations, or to meet margin calls issued by foreign brokers 
carrying the 30.7 customers' foreign futures and foreign option 
positions; Provided, however, that a futures commission merchant may 
deposit an additional amount of up to 20 percent of the total amount of 
funds necessary to meet margin and prefunding margin requirements to 
avoid daily transfers of funds between the futures commission merchant's 
30.7 accounts maintained in the United States and those maintained 
outside of the United States. A futures commission merchant must deposit 
30.7 customer funds under the laws and regulations of the foreign 
jurisdiction that provide the greatest degree of protection to such 
funds. A futures commission merchant may not by contract or otherwise 
waive any of the protections afforded customer funds under the laws of 
the foreign jurisdiction.
    (d) Written acknowledgment from depositories. (1) A futures 
commission merchant must obtain a written acknowledgment from each 
depository prior to or contemporaneously with the opening of an account 
by the futures commission merchant with such depository; Provided, 
however, that a written acknowledgment need not be obtained from a 
derivatives clearing organization that has adopted and submitted to the 
Commission rules that provide for the separate holding of foreign 
futures or foreign options secured amount, in accordance with all 
relevant provisions of the Act, this part and the regulations and orders 
promulgated thereunder, of all funds held on behalf of 30.7 customers 
and all instruments purchased with funds set aside as the foreign 
futures or foreign options secured amount as provided for under 
paragraph (h) of this section.
    (2) The written acknowledgment must be in the form as set out in 
appendix E to this part; Provided, however, that if the futures 
commission merchant invests funds set aside as the foreign futures or 
foreign options secured amount in money market mutual funds as a 
permitted investment under paragraph (h) of this section and in 
accordance with the terms and conditions of Sec.  1.25(c) of this 
chapter, the written acknowledgment with respect to such investment must 
be in the form as set out in appendix F to this part.
    (3)(i) A futures commission merchant shall deposit 30.7 customer 
funds only with a depository that agrees to provide the director of the 
Division of Swap Dealer and Intermediary Oversight, or any successor 
division, or such director's designees, with direct, read-only 
electronic access to transaction and account balance information for 
30.7 customer accounts.
    (ii) The written acknowledgment must contain the futures commission 
merchant's authorization to the depository to provide direct, read-only 
electronic access to 30.7 customer account transaction and account 
balance information to the director of the Division of Swap Dealer and 
Intermediary Oversight, or any successor division, or such director's 
designees, without further notice to or consent from the futures 
commission merchant.
    (4) A futures commission merchant shall deposit 30.7 customer funds 
only with a depository that agrees to provide the Commission and the 
futures commission merchant's designated self-regulatory organization 
with a copy of the executed written acknowledgment no later than three 
business days after the opening of the account or the execution of a new 
written acknowledgment for an existing account, as applicable. The 
Commission must receive the written acknowledgment from the depository 
via electronic means, in a format and manner determined by the 
Commission. The written acknowledgment must contain the futures 
commission merchant's authorization to the depository to provide the 
written acknowledgment to the Commission and to the futures commission 
merchant's designated self-regulatory organization without further 
notice to or consent from the futures commission merchant.
    (5) A futures commission merchant shall deposit 30.7 customer funds 
only with a depository that agrees that accounts containing 30.7 
customer funds may be examined at any reasonable time by the director of 
the Division of

[[Page 659]]

Swap Dealer and Intermediary Oversight or the director of the Division 
of Clearing and Risk, or any successor divisions, or such directors' 
designees, or an appropriate officer, agent or employee of the futures 
commission merchant's designated self-regulatory organization. The 
written acknowledgment must contain the futures commission merchant's 
authorization to the depository to permit any such examination to take 
place without further notice to or consent from the futures commission 
merchant.
    (6) A futures commission merchant shall deposit 30.7 customer funds 
only with a depository that agrees to reply promptly and directly to any 
request from the director of the Division of Swap Dealer and 
Intermediary Oversight or the director of the Division of Clearing and 
Risk, or any successor divisions, or such directors' designees, or an 
appropriate officer, agent or employee of the futures commission 
merchant's designated self-regulatory organization for confirmation of 
account balances or provision of any other information regarding or 
related to an account. The written acknowledgment must contain the 
futures commission merchant's authorization to the depository to reply 
promptly and directly as required by this paragraph without further 
notice to or consent from the futures commission merchant.
    (7) A futures commission merchant shall promptly file a copy of the 
written acknowledgment with the Commission in the format and manner 
specified by the Commission no later than three business days after the 
opening of the account or the execution of a new written acknowledgment 
for an existing account, as applicable.
    (8) A futures commission merchant shall obtain a new written 
acknowledgment within 120 days of any changes in the following:
    (i) The name or business address of the futures commission merchant;
    (ii) The name or business address of the depository; or
    (iii) The account number(s) under which the foreign futures or 
foreign options secured amount are held.
    (9) A futures commission merchant shall maintain each written 
acknowledgment readily accessible in its files in accordance with Sec.  
1.31 of this chapter, for as long as the account remains open, and 
thereafter for the period provided in Sec.  1.31 of this chapter.
    (e) Commingling. (1) A futures commission merchant may commingle the 
funds set aside as the foreign futures or foreign options secured amount 
that it receives from, or on behalf of, multiple 30.7 customers in a 
single account or multiple accounts with one or more of the depositories 
listed in paragraph (b) of this section.
    (2) A futures commission merchant may not commingle the funds set 
aside as the foreign futures or foreign options secured amount held for 
30.7 customers with the money, securities or property of such futures 
commission merchant, with any proprietary account of such futures 
commission merchant, or use such funds to secure or guarantee the 
obligations of, or extend credit to, such futures commission merchant or 
any proprietary account of such futures commission merchant; Provided, 
however, a futures commission merchant may deposit proprietary funds 
into 30.7 customer accounts as permitted under paragraph (g) of this 
section.
    (3) A futures commission merchant may not commingle 30.7 customer 
funds with funds deposited by futures customers as defined in Sec.  1.3 
of this chapter and held in segregated accounts pursuant to section 
4d(a) and 4d(b) of the Act or with funds deposited by Cleared Swap 
Customers as defined in Sec.  22.1 of this chapter and held in 
segregated accounts pursuant to section 4d(f) of the Act, or with funds 
of any account holders of the futures commission merchant unrelated to 
trading foreign futures or foreign options; Provided, however, that a 
futures commission merchant may commingle 30.7 customer funds with funds 
deposited by futures customers or Cleared Swaps Customers pursuant to 
the terms of a Commission regulation or order authorizing such 
commingling.
    (f) Limitations on use of 30.7 customer funds. (1)(i) A futures 
commission merchant shall not use, or permit the use of, the funds of 
one 30.7 customer to purchase, margin or settle the trades, contracts, 
or commodity options of, or

[[Page 660]]

to secure or extend credit to, any person other than such 30.7 customer.
    (ii)(A) The undermargined amount for a 30.7 customer's account is 
the amount, if any, by which
    (1) The total amount of collateral required for that 30.7 customer's 
positions in that account, at the time or times referred to in paragraph 
(f)(1)(ii)(B) of this section, exceeds
    (2) The value of the 30.7 customer funds for that account, as 
calculated in paragraph (f)(2)(ii) of this section.
    (B) Each futures commission merchant must compute, based on the 
information available to the futures commission merchant as of the close 
of each business day,
    (1) The undermargined amounts, based on the clearing initial margin 
that will be required to be maintained by that futures commission 
merchant for its 30.7 customers, at each clearing organization of which 
the futures commission merchant is a member, at 6:00 p.m. Eastern on the 
following business day for each such clearing organization less
    (2) Any debit balances referred to in paragraph (f)(2)(iv) of this 
section included in such undermargined amounts.
    (C)(1) Prior to 6:00 p.m. Eastern Time on the date of the settlement 
referenced in paragraph (f)(1)(ii)(B)(1) of this section, such futures 
commission merchant must maintain residual interest in segregated funds 
that is at least equal to the computation set forth in paragraph 
(f)(1)(ii)(B) of this section.
    (2) A futures commission merchant may reduce the amount of residual 
interest required in paragraph (f)(1)(ii)(C)(1) of this section to 
account for payments received from or on behalf of undermargined 30.7 
customers (less the sum of any disbursements made to or on behalf of 
such customers) between the close of the previous business day and 6:00 
p.m. Eastern Time on the following business day.
    (D) For purposes of paragraph (f)(1)(ii)(B) of this section, a 
futures commission merchant should include, as clearing initial margin, 
customer initial margin that the futures commission merchant will be 
required to maintain, for that futures commission merchant's 30.7 
customers, at a foreign broker, and, for purposes of paragraph 
(f)(1)(ii)(C) of this section, must do so prior to 6:00 p.m. Eastern 
Time on the date referenced in paragraph (f)(1)(ii)(B)(1) of this 
section.
    (2) Requirements as to amount. (i) For purposes of this paragraph 
(f)(2), the term ``account'' shall mean the entries on the books and 
records of a futures commission merchant pertaining to the 30.7 customer 
funds of a particular 30.7 customer.
    (ii) The futures commission merchant must reflect in the account 
that it maintains for each 30.7 customer the net liquidating equity for 
each such customer, calculated as follows: The market value of any 30.7 
customer funds it receives from such customer, as adjusted by:
    (A) Any uses permitted under paragraph (e) of this section;
    (B) Any accruals on permitted investments of such collateral under 
Sec.  1.25 of this chapter that, pursuant to the futures commission 
merchant's customer agreement with that customer, are creditable to such 
customer;
    (C) Any gains and losses with respect to contracts for the purchase 
or sale of foreign futures or foreign option positions;
    (D) Any charges lawfully accruing to the 30.7 customer, including 
any commission, brokerage fee, interest, tax, or storage fee; and
    (E) Any appropriately authorized distribution or transfer of such 
collateral.
    (iii) If the market value of 30.7 customer funds in the account of a 
30.7 customer is positive after adjustments, then that account has a 
credit balance. If the market value of 30.7 customer funds in the 
account of a 30.7 customer is negative after adjustments, then that 
account has a debit balance.
    (iv) The futures commission merchant must maintain in segregation an 
amount equal to the sum of any credit balances that 30.7 customers of 
the futures commission merchant have in their accounts. This balance may 
not be reduced by any debit balances that the 30.7 customers of the 
futures commission merchants have in their accounts.

[[Page 661]]

    (3) A futures commission merchant may not impose or permit the 
imposition of a lien on any funds set aside as the foreign futures or 
foreign options secured amount, including any residual financial 
interest of the futures commission merchant in such funds.
    (4) A futures commission merchant may not include in funds set aside 
as the foreign futures or foreign options secured amount any money 
invested in securities, memberships, or obligations of any clearing 
organization or board of trade. A futures commission merchant may not 
include in funds set aside as the foreign futures or foreign options 
secured amount any other money, securities, or property held by a member 
of a foreign board of trade, board of trade, or clearing organization, 
except if the funds are deposited to margin, secure, or guarantee 30.7 
customers' foreign futures or foreign options positions and the futures 
commission merchant obtains the written acknowledgment from the member 
of the foreign board of trade, board of trade, or clearing organization 
as required by paragraph (d) of this section.
    (g) Futures commission merchant's residual financial interest and 
withdrawal of funds. (1) The provision in paragraph (e) of this section, 
which prohibits the commingling of funds set aside as the foreign 
futures or foreign options secured amount 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 
funds set aside as required by the regulations in this part for the 
benefit of 30.7 customers; nor shall such provisions be construed to 
prevent a futures commission merchant from adding to such set aside 
funds such amount or amounts of money, from its own funds or 
unencumbered securities from its own inventory, of the type set forth in 
Sec.  1.25 of this chapter, as it may deem necessary to ensure any and 
all 30.7 accounts from becoming undersecured at any time.
    (2) A futures commission merchant may not withdraw funds, except 
withdrawals that are made to or for the benefit of 30.7 customers, from 
an account or accounts holding the foreign futures and foreign options 
secured amount unless the futures commission merchant has prepared the 
daily 30.7 calculation required by paragraph (l) of this section as of 
the close of business on the previous business day. A futures commission 
merchant that has completed its daily 30.7 calculation may make 
withdrawals, in addition to withdrawals that are made to or for the 
benefit of 30.7 customers, to the extent of its actual residual 
financial interest in funds held in 30.7 accounts, including the 
withdrawal of securities held in secured amount safekeeping accounts 
held by a bank, trust company, contract market, clearing organization, 
member of a foreign board of trade, or other futures commission 
merchant. Such withdrawal(s) shall not result in the funds of one 30.7 
customer being used to purchase, margin or guarantee the foreign futures 
or foreign options positions, or extend the credit of any other 30.7 
customer or other person.
    (3) A futures commission merchant may not withdraw funds, in a 
single transaction or a series of transactions, that are not made for 
the benefit of 30.7 customers from an account or accounts holding 30.7 
customer funds if such withdrawal(s) would exceed 25 percent of the 
futures commission merchant's residual interest in such accounts as 
reported on the daily secured amount calculation required by paragraph 
(l) of this section and computed as of the close of business on the 
previous business day, unless the futures commission merchant's chief 
executive officer, chief finance officer or other senior official that 
is listed as a principal of the futures commission merchant on its Form 
7-R and is knowledgeable about the futures commission merchant's 
financial requirements and financial position pre-approves in writing 
the withdrawal, or series of withdrawals.
    (4) A futures commission merchant must file written notice of the 
withdrawal or series of withdrawals that exceed 25 percent of the 
futures commission merchant's residual interest in 30.7 customer funds 
as computed under paragraph (l) of this section with the Commission and 
with its designated self-regulatory organization immediately after the 
chief executive officer, chief finance officer or other senior official 
as described in paragraph

[[Page 662]]

(g)(3) of this section pre-approves the withdrawal or series of 
withdrawals. The written notice must:
    (i) Be signed by the chief executive officer, chief finance officer 
or other senior official that pre-approved the withdrawal, and give 
notice that the futures commission merchant has withdrawn or intends to 
withdraw more than 25 percent of its residual interest in accounts 
holding 30.7 customer funds;
    (ii) Include a description of the reasons for the withdrawal or 
series of withdrawals;
    (iii) List the amount of funds provided to each recipient and the 
name of each recipient;
    (iv) Include the current estimate of the amount of the futures 
commission merchant's residual interest in the 30.7 customer funds after 
the withdrawal;
    (v) Contain a representation by the chief executive officer, chief 
finance officer or other senior official as described in paragraph 
(g)(3) of this section that pre-approved the withdrawal, or series of 
withdrawals, that to such person's knowledge and reasonable belief, the 
futures commission merchant remains in compliance with the secured 
amount requirements after the withdrawal. The chief executive officer, 
chief finance officer or other appropriate senior official as described 
in paragraph (g)(3) of this section must consider the daily 30.7 
calculation as of the close of business on the previous business day and 
any other factors that may cause a material change in the futures 
commission's residual interest since the close of business the previous 
business day, including known unsecured customer debits or deficits, 
current day market activity and any other withdrawals made from the 30.7 
customer accounts; and
    (vi) Any such written notice filed with the Commission must 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 instruction issued by or 
approved by the Commission. Any such electronic submission must clearly 
indicate the registrant 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. Any written notice filed must be followed up with direct 
communication to the regional office of Commission which has supervisory 
authority over the futures commission merchant whereby the Commission 
acknowledges receipt of the notice.
    (5) After making a withdrawal requiring the approval and notice 
required in paragraphs (g)(3) and (4) of this section, and before the 
next daily secured amount calculation, no futures commission merchant 
may make any further withdrawals from accounts holding 30.7 customer 
funds, except to or for the benefit of 30.7 customers, without, for each 
withdrawal, obtaining the approval required under paragraph (g)(3) of 
this section and filing a written notice with the Commission under 
paragraph (g)(4)(vi) of this section and its designated self-regulatory 
organization signed by the chief executive officer, chief finance 
officer, or other senior official. The written notice must:
    (i) List the amount of funds provided to each recipient and each 
recipient's name;
    (ii) Disclose the reason for each withdrawal;
    (iii) Confirm that the chief executive officer, chief finance 
officer, or other senior official (and the identity of the person if 
different from the person who signed the notice) pre-approved the 
withdrawal in writing;
    (iv) Disclose the current estimate of the futures commission 
merchant's remaining total residual interest in the secured accounts 
holding 30.7 customer funds after the withdrawal; and
    (v) Include a representation that to the best of the notice 
signatory's knowledge and reasonable belief the futures commission 
merchant remains in compliance with the secured amount requirements 
after the withdrawal.
    (6) If a futures commission merchant withdraws funds that are not 
for the benefit of 30.7 customers from the separate accounts holding 
30.7 customer funds, and the withdrawal causes the futures commission 
merchant to not

[[Page 663]]

hold sufficient funds in the separate accounts for the benefit of the 
30.7 customers to meet its targeted residual interest, as required to be 
computed under Sec.  1.11 of this chapter, the futures commission 
merchant must deposit its own funds into the separate accounts for the 
benefit of 30.7 customers to restore the account balance to the targeted 
residual interest amount on the next business day, or, if appropriate, 
revise the futures commission merchant's targeted amount of residual 
interest pursuant to the policies and procedures required by Sec.  1.11 
of this chapter. Notwithstanding the foregoing, if the futures 
commission merchant's residual interest in separate accounts for the 
benefit of 30.7 customers is less than the amount required to be 
maintained by paragraph (f) of this section at any particular point in 
time, the futures commission merchant must immediately restore the 
residual interest to exceed the sum of such amounts. Any proprietary 
funds deposited in the 30.7 customer accounts must be unencumbered and 
otherwise compliant with Sec.  1.25 of this chapter, as applicable.
    (7) Notwithstanding any other provision of this part, a futures 
commission merchant may not withdraw funds from 30.7 accounts, except 
withdrawals that are made for the benefit of 30.7 customers, unless the 
futures commission merchant follows its policies and procedures required 
by Sec.  1.11 of this chapter.
    (h) Permitted investments and deposits of 30.7 customer funds. (1) A 
futures commission merchant may invest 30.7 customer funds subject to, 
and in compliance with, the terms and conditions of Sec.  1.25 of this 
chapter. Regulation 1.25 of this chapter shall apply to the investment 
of 30.7 customer funds as if such funds comprised customer funds or 
customer money subject to segregation pursuant to section 4d of the Act 
and the regulations thereunder.
    (2) Each futures commission merchant that invests money, securities 
or property on behalf of 30.7 customers must keep a record showing the 
following:
    (i) The date on which such investments were made;
    (ii) The name of the person through whom such investments were made;
    (iii) The amount of money or current market value of securities so 
invested;
    (iv) A description of the obligations in which such investments were 
made, including CUSIP or ISIN numbers;
    (v) The identity of the depositories or other places where such 
investments are maintained;
    (vi) The date on which such investments were liquidated or otherwise 
disposed of and the amount of money received or current market value of 
securities received as a result of such disposition;
    (vii) The name of the person to or through whom such investments 
were disposed of; and
    (viii) A daily valuation for each instrument and readily available 
documentation supporting the daily valuation for each instrument. Such 
supporting documentation must be sufficient to enable third parties to 
verify the valuations and the accuracy of any information from external 
sources used in those valuations.
    (3) Any 30.7 customer funds deposited in a bank or trust company 
located in the United States or in a foreign jurisdiction must be 
available for immediate withdrawal upon the demand of the futures 
commission merchant.
    (4) Futures commission merchants that invest 30.7 customer funds in 
instruments described in Sec.  1.25 of this chapter shall include such 
instruments in the computation of its secured amount requirements, 
required under paragraph (l) of this section, at values that at no time 
exceed current market value, determined as of the close of the market on 
the date for which such computation is made.
    (i) Responsibility for Sec.  1.25 investment losses. A futures 
commission merchant shall bear sole financial responsibility for any 
losses resulting from the investment of 30.7 customer funds in 
instruments described in Sec.  1.25 of this chapter. No investment 
losses shall be borne or otherwise allocated to the 30.7 customers of 
the futures commission merchant.
    (j) Loans by futures commission merchants; treatment of proceeds. A 
futures commission merchant may lend its

[[Page 664]]

own funds to 30.7 customers on securities and property pledged, or from 
repledging or selling such securities and property pursuant to specific 
written agreement with such 30.7 customers. The proceeds of such loans 
used to purchase, margin, guarantee, or secure the trades, contracts, or 
commodity options of 30.7 customers shall be treated and dealt with by a 
futures commission merchant as belonging to such 30.7 customers. A 
futures commission merchant may not loan funds on an unsecured basis to 
finance a 30.7 customer's foreign futures and foreign options trading, 
nor may a futures commission merchant loan funds to a 30.7 customer 
secured by the 30.7 customer's trading account.
    (k) Permitted withdrawals. A futures commission merchant may 
withdraw funds from 30.7 customer accounts in an amount necessary in the 
normal course of business to margin, guarantee, secure, transfer, or 
settle 30.7 customers' foreign futures or foreign option positions with 
a foreign broker or clearing organization. A futures commission merchant 
also may withdraw funds from 30.7 customer accounts to pay commissions, 
brokerage, interest, taxes, storage, and other charges lawfully accruing 
in connection with the 30.7 customers' foreign futures and foreign 
options positions.
    (l) Daily computation of 30.7 customer secured amount requirement 
and details regarding the holding and investing of 30.7 customer funds. 
(1) Each futures commission merchant is required to prepare a Statement 
of Secured Amounts and Funds Held in Separate Accounts for 30.7 
Customers Pursuant to Commission Regulation 30.7 contained in the Form 
1-FR-FCM as of the close of each business day. Futures commission 
merchants that invest funds set aside as the foreign futures or foreign 
options secured amount in instruments described in Sec.  1.25 of this 
chapter shall include such instruments in the computation of its secured 
amount requirements at values that at no time exceed current market 
value, determined as of the close of the market on the date for which 
such computation is made. Nothing in this paragraph shall affect the 
requirement that a futures commission merchant at all times maintain 
sufficient money, securities and property to cover its total obligations 
to all 30.7 customers, in accordance with paragraph (a) of this section.
    (2) A futures commission merchant may offset any net deficit in a 
particular 30.7 customer's account against the current market value of 
readily marketable securities, less 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 
particular 30.7 customer's account in computing the daily Foreign 
Futures and Foreign Options Secured Amount. Futures commission merchants 
that establish and enforce written policies and procedures to assess the 
credit risk of commercial paper, convertible debt instruments, or 
nonconvertible debt instruments in accordance with Rule 240.15c3-
1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR 240.15c3-
1(c)(2)(vi)) may apply the lower haircut percentages specified in Rule 
240.15c3-1(c)(2)(vi) for such commercial paper, convertible debt 
instruments and nonconvertible debt instruments. 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 set aside the securities in a 
safekeeping account compliant with paragraph (c) of this section. 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)).
    (3) Each futures commission merchant is required to submit to the 
Commission and to the firm's designated self-regulatory organization the 
daily Statement of Secured Amounts and Funds Held in Separate Accounts 
for 30.7 Customers pursuant to Commission Regulation 30.7 required by 
paragraph (l)(1) of this section by noon the following business day.
    (4) Each futures commission merchant shall file the Statement of 
Secured Amounts and Funds Held in Separate Accounts for 30.7 Customers 
pursuant to Commission Regulation 30.7

[[Page 665]]

required by paragraph (l)(1) of this section in an electronic format 
using a form of user authentication assigned in accordance with 
procedures established or approved by the Commission.
    (5) Each futures commission merchant is required to submit to the 
Commission and to the firm's designated self-regulatory organization a 
report listing the names of all banks, trust companies, futures 
commission merchants, derivatives clearing organizations, foreign 
brokers, foreign clearing organizations, or any other depository or 
custodian holding 30.7 customer funds as of the fifteenth day of the 
month, or the first business day thereafter, and the last business day 
of each month. This report must include:
    (i) The name and location of each depository holding 30.7 customer 
funds;
    (ii) The total amount of 30.7 customer funds held by each depository 
listed in paragraph (l)(5) of this section; and
    (iii) The total amount of cash and investments that each depository 
listed in paragraph (l)(5) of this section holds for the futures 
commission merchant. The futures commission merchant must report the 
following investments:
    (A) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States (U.S. 
government securities);
    (B) General obligations of any State or of any political subdivision 
of a State (municipal securities);
    (C) General obligation issued by any enterprise sponsored by the 
United States (government sponsored enterprise securities);
    (D) Certificates of deposit issued by a bank;
    (E) 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;
    (F) 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; 
and
    (G) Interests in money market mutual funds.
    (6) Each futures commission merchant must report the total amount of 
customer-owned securities held by the futures commission merchant as 
30.7 customer funds and must list the names and locations of the 
depositories holding customer-owned securities.
    (7) Each futures commission merchant must report the total amount of 
30.7 customer funds that have been used to purchase securities under 
agreements to resell the securities (reverse repurchase transactions).
    (8) Each futures commission merchant must report which, if any, of 
the depositories holding 30.7 customer funds under paragraph (l)(5) of 
this section are affiliated with the futures commission merchant.
    (9) Each futures commission merchant shall file the detailed list of 
depositories required by paragraph (l)(5) of this section by 11:59 p.m. 
the next business day in an electronic format using a form of user 
authentication assigned in accordance with procedures established or 
approved by the Commission.
    (10) Each futures commission merchant shall retain its daily secured 
amount computation, the Statement of Secured Amounts and Funds Held in 
Separate Accounts for 30.7 Customers pursuant to Commission Regulation 
30.7 required by paragraph (l)(1) of this section, and the detailed list 
of depositories required by paragraph (l)(5) of this section, together 
with all supporting documentation, in accordance with the requirements 
of Sec.  1.31 of this chapter.

[78 FR 68648, Nov. 14, 2013, as amended at 79 FR 44126, July 30, 2014]



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;

[[Page 666]]

    (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;
    (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.
    (c)(1) The Commission may, in its discretion and upon its own 
initiative, terminate the exemptive relief granted to any person 
pursuant to paragraph (a) of this section, after appropriate notice and 
an opportunity to respond, if the Commission determines that:
    (i) There is a material change or omission in the facts and 
circumstances pursuant to which relief was granted that demonstrate that 
the standards set forth in appendix A to

[[Page 667]]

this part forming the basis for granting such relief are no longer met; 
or
    (ii) The continued effectiveness of any such exemptive relief would 
be contrary to the public interest or inconsistent with the purposes of 
the exemption under paragraph (a) of this section; or
    (iii) The arrangements in place for the sharing of information with 
the Commission do not warrant continuation of the exemptive relief 
granted.
    (2) The Commission shall provide written notification to the 
affected party of its intention to terminate an exemption pursuant to 
paragraph (a) of this section and the basis for that intention. Such 
written notification also shall be published prominently on the 
Commission's website.
    (3) The affected party may respond to the notification in writing no 
later than 30 business days following the receipt of the notification, 
or at such time as the Commission permits in writing. Any other person 
may respond to the notification in writing no later than 30 business 
days following the publication on the Commission's website of the 
written notice issued to the affected party, or at such time as the 
Commission permits in writing.
    (4) If, after providing any affected person appropriate notice and 
opportunity to respond, the Commission determines that relief pursuant 
to paragraph (a) of this section is no longer warranted, the Commission 
shall notify the person of such determination in writing, including the 
particular reasons why relief is no longer warranted, and issue an Order 
Terminating Exemptive Relief. Any Order Terminating Exemptive Relief 
shall provide an appropriate timeframe for the orderly transfer or close 
out of any accounts held by U.S. customers impacted by such an Order.
    (5) Any person whose relief has been terminated may apply for 
exemptive relief 360 days after the issuance of the Order Terminating 
Exemptive Relief if the deficiency causing the revocation has been cured 
or relevant facts and circumstances have changed.

[52 FR 28998, Aug. 5, 1987, as amended at 69 FR 49803, Aug. 12, 2004; 85 
FR 15363, Mar. 18, 2020]



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 of Sec.  30.4, Sec.  
30.5 or Sec.  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 in Sec.  
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 in Sec.  
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

[[Page 668]]

(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 by Sec.  1.17(a)(1)(i)(A) of this chapter or three 
times the amount of adjusted net capital required by Sec.  
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 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

[[Page 669]]

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 
by Sec.  30.1(e).
    (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 
by Sec.  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

[[Page 670]]

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 to Sec.  
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;
    (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

[[Page 671]]

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 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

[[Page 672]]

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.
    (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]

[[Page 673]]



Sec. Appendix A to Part 30--Interpretative Statement With Respect to the 
     Commission's Exemptive Authority Under Sec.  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.
    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.

[[Page 674]]

    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.
    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

[[Page 675]]

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.
    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 in Sec.  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 Sec.  1.3. 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 Sec.  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

[[Page 676]]

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 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

[[Page 677]]

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 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.

[[Page 678]]

    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, as amended at 83 FR 7996, Feb. 23, 2018]



Sec. Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
   Application of Certain of the Part 30 Rules Pursuant to Sec.  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.
    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.govinfo.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 to Sec.  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

[[Page 679]]

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:
    (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]



 Sec. Appendix E to Part 30--Acknowledgment Letter for CFTC Regulation 
                      30.7 Customer Secured Account

    [Date]

[Name and Address of Depository]

    We refer to the Secured Amount Account(s) which [Name of Futures 
Commission Merchant] (``we'' or ``our'') have opened or will open with 
[Name of Depository] (``you'' or ``your'') entitled:
    [Name of Futures Commission Merchant] [if applicable, add ``FCM 
Customer Omnibus Account''] CFTC Regulation 30.7 Customer Secured 
Account under Section 4(b) of the Commodity Exchange Act [and, if 
applicable, ``, Abbreviated as [short title reflected in the 
depository's electronic system]'']
    Account Number(s): [ ] (collectively, the ``Account(s)'').
    You acknowledge that we have opened or will open the above-
referenced Account(s) for the purpose of depositing, as applicable, 
money, securities and other property (collectively ``Funds'') of 
customers who trade foreign futures and/or foreign options (as such 
terms are defined in U.S. Commodity Futures Trading Commission 
(``CFTC'') Regulation 30.1, as amended); that the Funds held by you, 
hereafter deposited in the Account(s) or accruing to the credit of the 
Account(s), will be kept separate and apart and separately accounted for 
on your books from our own funds and from any other funds or accounts 
held by us, in accordance with the provisions of the Commodity Exchange 
Act, as amended (the ``Act''), and part 30 of the CFTC's regulations, as 
amended; that the Funds may not be commingled with our own funds in any 
proprietary account we maintain with you; and that the Funds must 
otherwise be treated in accordance with the provisions of Section 4(b) 
of the Act and CFTC Regulation 30.7.
    Furthermore, you acknowledge and agree that such Funds may not be 
used by you or by us to secure or guarantee any obligations that we 
might owe to you, and they may not be used by us to secure or obtain 
credit from you. You further acknowledge and agree that the Funds in the 
Account(s) shall not be subject to any right of offset or lien for or on 
account of any indebtedness, obligations or liabilities we may now or in 
the future have owing to you. This prohibition does not affect your 
right to recover funds advanced in the form of cash transfers, lines of 
credit, repurchase agreements or other similar liquidity arrangements 
you make in lieu of liquidating non-cash assets held in the Account(s) 
or in lieu of converting cash held in the Account(s) to cash in a 
different currency.
    In addition, you agree that the Account(s) may be examined at any 
reasonable time by the director of the Division of Swap Dealer and 
Intermediary Oversight of the CFTC or the director of the Division of 
Clearing and Risk of the CFTC, or any successor divisions, or such 
directors' designees, or an appropriate officer, agent or employee of 
our designated self-regulatory organization (``DSRO''), [Name of DSRO], 
and this letter constitutes the authorization and direction of the 
undersigned on our behalf to permit any such examination to take place 
without further notice or consent from us.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other information 
regarding or related to the Account(s) from the director of the Division 
of Swap Dealer and Intermediary Oversight of the CFTC or the director of 
the Division of Clearing and Risk of the CFTC, or any successor 
divisions, or such directors' designees, or an appropriate officer, 
agent, or employee of [Name of DSRO], acting in its capacity as

[[Page 680]]

our DSRO, and this letter constitutes the authorization and direction of 
the undersigned on our behalf to release the requested information 
without further notice to or consent from us.
    You further acknowledge and agree that, pursuant to authorization 
granted by us to you previously or herein, you have provided, or will 
promptly provide following the opening of the Account(s), the director 
of the Division of Swap Dealer and Intermediary Oversight of the CFTC, 
or any successor division, or such director's designees, with 
technological connectivity, which may include provision of hardware, 
software, and related technology and protocol support, to facilitate 
direct, read-only electronic access to transaction and account balance 
information for the Account(s). This letter constitutes the 
authorization and direction of the undersigned on our behalf for you to 
establish this connectivity and access if not previously established, 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to the 
above information and access requests will be made in accordance with, 
and subject to, such usual and customary authorization verification and 
authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information or access request, in order to 
provide for the secure transmission and delivery of the requested 
information or access to the appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information or access request from the director of the Division of Swap 
Dealer and Intermediary Oversight of the CFTC or the director of the 
Division of Clearing and Risk of the CFTC, or any successor divisions, 
or such directors' designees, or an appropriate officer, agent, or 
employee of [Name of DSRO], acting in its capacity as our DSRO, upon 
which you have relied after having taken measures in accordance with 
your applicable policies and procedures to assure that such request was 
provided to you by an individual authorized to make such a request.
    In the event we become subject to either a voluntary or involuntary 
petition for relief under the U.S. Bankruptcy Code, we acknowledge that 
you will have no obligation to release the Funds held in the Account(s), 
except upon instruction of the Trustee in Bankruptcy or pursuant to the 
Order of the respective U.S. Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, nothing 
contained herein shall be construed as limiting your right to assert any 
right of offset or lien on assets that are not 30.7 customer funds 
maintained in the Account(s), or to impose such charges against us or 
any proprietary account maintained by us with you. Further, it is 
understood that amounts represented by checks, drafts or other items 
shall not be considered to be part of the Account(s) until finally 
collected. Accordingly, checks, drafts and other items credited to the 
Account(s) and subsequently dishonored or otherwise returned to you or 
reversed, for any reason, and any claims relating thereto, including but 
not limited to claims of alteration or forgery, may be charged back to 
the Account(s), and we shall be responsible to you as a general endorser 
of all such items whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the Account(s) 
and the balances maintained therein are in conformity with the Act and 
CFTC regulations without any further inquiry, provided that, in the 
ordinary course of your business as a depository, you have no notice of 
or actual knowledge of a potential violation by us of any provision of 
the Act or part 30 of the CFTC regulations that relates to the holding 
of customer funds; and you shall not in any manner not expressly agreed 
to herein be responsible to us for ensuring compliance by us with such 
provisions of the Act and CFTC regulations; however, the aforementioned 
presumption does not affect any obligation you may otherwise have under 
the Act or CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree or 
levy relates in whole or in part to the Account(s). In any event, you 
shall not be liable by reason of any action or omission to act pursuant 
to any such order, judgment, decree or levy, to us or to any other 
person, firm, association or corporation even if thereafter any such 
order, decree, judgment or levy shall be reversed, modified, set aside 
or vacated.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of doubt, 
regardless of a change in the name of either party. This letter 
agreement supersedes and replaces any prior agreement between the 
parties in connection with the Account(s), including but not limited to 
any prior acknowledgment letter agreement, to the extent that such prior 
agreement is inconsistent with the terms hereof. In the event of any 
conflict between this letter agreement and any other agreement between 
the parties in connection with the Account(s), this letter agreement 
shall govern with respect to matters specific to Section 4(b) of the Act 
and the CFTC's regulations thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of [Insert governing law] without regard to the 
principles of choice of law.

[[Page 681]]

    Please acknowledge that you agree to abide by the requirements and 
conditions set forth above by signing and returning to us the enclosed 
copy of this letter agreement, and that you further agree to provide a 
copy of this fully executed letter agreement directly to the CFTC (via 
electronic means in a format and manner determined by the CFTC) and to 
[Name of DSRO], acting in its capacity as our DSRO. We hereby authorize 
and direct you to provide such copies without further notice to or 
consent from us, no later than three business days after opening the 
Account(s) or revising this letter agreement, as applicable.

[Name of Futures Commission Merchant]

By:

Print Name:

Title:

ACKNOWLEDGED AND AGREED:

[Name of Depository]

By:

Print Name:

Title:

Contact Information: [Insert phone number and email address]

DATE:

[79 FR 14174, Mar. 13, 2014]



 Sec. Appendix F to Part 30--Acknowledgment Letter for CFTC Regulation 
         30.7 Customer Secured Money Market Mutual Fund Account

[Date]
[Name and Address of Money Market Mutual Fund]

    We propose to invest funds held by [Name of Futures Commission 
Merchant] (``we'' or ``our'') on behalf of our customers in shares of 
[Name of Money Market Mutual Fund] (``you'' or ``your'') under 
account(s) entitled (or shares issued to):

[Name of Futures Commission Merchant] [if applicable, add ``FCM Customer 
Omnibus Account''] CFTC Regulation 30.7 Customer Secured Money Market 
Mutual Fund Account under Section 4(b) of the Commodity Exchange Act 
[and, if applicable, ``, Abbreviated as [short title reflected in the 
depository's electronic system]'']
Account Number(s): [ ]
(collectively, the ``Account(s)'').
    You acknowledge that we are holding these funds, including any 
shares issued and amounts accruing in connection therewith 
(collectively, the ``Shares''), for the benefit of customers who trade 
foreign futures and/or foreign options (as such terms are defined in 
U.S. Commodity Futures Trading Commission (``CFTC'') Regulation 30.1, as 
amended); that the Shares held by you, hereafter deposited in the 
Account(s) or accruing to the credit of the Account(s), will be kept 
separate and apart and separately accounted for on your books from our 
own funds and from any other funds or accounts held by us in accordance 
with the provisions of the Commodity Exchange Act, as amended (the 
``Act''), and part 30 of the CFTC's regulations, as amended; and that 
the Shares must otherwise be treated in accordance with the provisions 
of Section 4(b) of the Act and CFTC Regulations 1.25 and 30.7.
    Furthermore, you acknowledge and agree that such Shares may not be 
used by you or by us to secure or guarantee any obligations that we 
might owe to you, and they may not be used by us to secure or obtain 
credit from you. You further acknowledge and agree that the Shares in 
the Account(s) shall not be subject to any right of offset or lien for 
or on account of any indebtedness, obligations or liabilities we may now 
or in the future have owing to you.
    In addition, you agree that the Account(s) may be examined at any 
reasonable time by the director of the Division of Swap Dealer and 
Intermediary Oversight of the CFTC or the director of the Division of 
Clearing and Risk of the CFTC, or any successor divisions, or such 
directors' designees, or an appropriate officer, agent or employee of 
our designated self-regulatory organization (``DSRO''), [Name of DSRO], 
and this letter constitutes the authorization and direction of the 
undersigned on our behalf to permit any such examination to take place 
without further notice to or consent from us.
    You agree to reply promptly and directly to any request for 
confirmation of account balances or provision of any other information 
regarding or related to the Account(s) from the director of the Division 
of Swap Dealer and Intermediary Oversight of the CFTC or the director of 
the Division of Clearing and Risk of the CFTC, or any successor 
divisions, or such directors' designees, or an appropriate officer, 
agent, or employee of [Name of DSRO], acting in its capacity as our 
DSRO, and this letter constitutes the authorization and direction of the 
undersigned on our behalf to release the requested information, without 
further notice to or consent from us.
    You further acknowledge and agree that, pursuant to authorization 
granted by us to you previously or herein, you have provided, or will 
promptly provide following the opening of the Account(s), the director 
of the Division of Swap Dealer and Intermediary Oversight of the CFTC, 
or any successor division, or such director's designees, with 
technological connectivity, which may include provision of hardware, 
software, and related technology and protocol support, to facilitate 
direct, read-only electronic access to transaction and account balance 
information for the Account(s). This letter constitutes

[[Page 682]]

the authorization and direction of the undersigned on our behalf for you 
to establish this connectivity and access if not previously established, 
without further notice to or consent from us.
    The parties agree that all actions on your part to respond to the 
above information and access requests will be made in accordance with, 
and subject to, such reasonable and customary authorization verification 
and authentication policies and procedures as may be employed by you to 
verify the authority of, and authenticate the identity of, the 
individual making any such information or access request, in order to 
provide for the secure transmission and delivery of the requested 
information or access to the appropriate recipient(s).
    We will not hold you responsible for acting pursuant to any 
information or access request from the director of the Division of Swap 
Dealer and Intermediary Oversight of the CFTC or the director of the 
Division of Clearing and Risk of the CFTC, or any successor divisions, 
or such directors' designees, or an appropriate officer, agent, or 
employee of [Name of DSRO], acting in its capacity as our DSRO, upon 
which you have relied after having taken measures in accordance with 
your applicable policies and procedures to assure that such request was 
provided to you by an individual authorized to make such a request.
    In the event we become subject to either a voluntary or involuntary 
petition for relief under the U.S. Bankruptcy Code, we acknowledge that 
you will have no obligation to release the Shares held in the 
Account(s), except upon instruction of the Trustee in Bankruptcy or 
pursuant to the Order of the respective U.S. Bankruptcy Court.
    Notwithstanding anything in the foregoing to the contrary, nothing 
contained herein shall be construed as limiting your right to assert any 
right of offset or lien on assets that are not Shares maintained in the 
Account(s), or to impose such charges against us or any proprietary 
account maintained by us with you. Further, it is understood that 
amounts represented by checks, drafts or other items shall not be 
considered to be part of the Account(s) until finally collected. 
Accordingly, checks, drafts and other items credited to the Account(s) 
and subsequently dishonored or otherwise returned to you or reversed, 
for any reason and any claims relating thereto, including but not 
limited to claims of alteration or forgery, may be charged back to the 
Account(s), and we shall be responsible to you as a general endorser of 
all such items whether or not actually so endorsed.
    You may conclusively presume that any withdrawal from the Account(s) 
and the balances maintained therein are in conformity with the Act and 
CFTC regulations without any further inquiry, provided that, in the 
ordinary course of your business as a depository, you have no notice of 
or actual knowledge of a potential violation by us of any provision of 
the Act or part 30 of the CFTC regulations that relates to the holding 
of customer funds; and you shall not in any manner not expressly agreed 
to herein be responsible to us for ensuring compliance by us with such 
provisions of the Act and CFTC regulations; however, the aforementioned 
presumption does not affect any obligation you may otherwise have under 
the Act or CFTC regulations.
    You may, and are hereby authorized to, obey the order, judgment, 
decree or levy of any court of competent jurisdiction or any 
governmental agency with jurisdiction, which order, judgment, decree or 
levy relates in whole or in part to the Account(s). In any event, you 
shall not be liable by reason of any action or omission to act pursuant 
to any such order, judgment, decree or levy, to us or to any other 
person, firm, association or corporation even if thereafter any such 
order, decree, judgment or levy shall be reversed, modified, set aside 
or vacated.
    We are permitted to invest customers' funds in money market mutual 
funds pursuant to CFTC Regulation 1.25. That rule sets forth the 
following conditions, among others, with respect to any investment in a 
money market mutual fund:
    (1) The net asset value of the fund must be computed by 9:00 a.m. of 
the business day following each business day and be made available to us 
by that time;
    (2) The fund must be legally obligated to redeem an interest in the 
fund and make payment in satisfaction thereof by the close of the 
business day following the day on which we make a redemption request 
except as otherwise specified in CFTC Regulation 1.25(c)(5)(ii); and,
    (3) The agreement under which we invest customers' funds must not 
contain any provision that would prevent us from pledging or 
transferring fund shares.
    The terms of this letter agreement shall remain binding upon the 
parties, their successors and assigns and, for the avoidance of doubt, 
regardless of a change in the name of either party. This letter 
agreement supersedes and replaces any prior agreement between the 
parties in connection with the Account(s), including but not limited to 
any prior acknowledgment letter agreement, to the extent that such prior 
agreement is inconsistent with the terms hereof. In the event of any 
conflict between this letter agreement and any other agreement between 
the parties in connection with the Account(s), this letter agreement 
shall govern with respect to matters specific to Section 4(b) of the Act 
and the CFTC's regulations thereunder, as amended.
    This letter agreement shall be governed by and construed in 
accordance with the laws of

[[Page 683]]

[Insert governing law] without regard to the principles of choice of 
law.
    Please acknowledge that you agree to abide by the requirements and 
conditions set forth above by signing and returning to us the enclosed 
copy of this letter agreement, and that you further agree to provide a 
copy of this fully executed letter agreement directly to the CFTC (via 
electronic means in a format and manner determined by the CFTC) and to 
[Name of DSRO], acting in its capacity as our DSRO. We hereby authorize 
and direct you to provide such copies without further notice to or 
consent from us, no later than three business days after opening the 
Account(s) or revising this letter agreement, as applicable.
[Name of Futures Commission Merchant]
By:
Print Name:
Title:
ACKNOWLEDGED AND AGREED:
[Name of Money Market Mutual Fund]
By:
Print Name:
Title:
Contact Information: [Insert phone number and email address]
DATE:

[78 FR 68654, Nov. 14, 2013]



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.

[[Page 684]]


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 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.

[[Page 685]]

    (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 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 under Sec.  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;

[[Page 686]]

    (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 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 with Sec.  31.6;
    (2) Except as provided in paragraph (a)(3) of this section, to offer 
to enter

[[Page 687]]

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 with 
Sec.  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 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 with Sec.  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 with Sec.  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 with Sec.  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 in Sec.  31.4(g);
    (3) There exists a widely accepted and broadly disseminated 
commercial or

[[Page 688]]

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, 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

[[Page 689]]

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 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 by Sec.  31.9, or that its 
cover at any time is less than the minimum required by Sec.  31.8, or 
that the amount of leverage customer funds in segregation is less than 
is required by Sec.  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 in Sec.  1.12(g) of this 
chapter that such applicant's or registrant's adjusted net capital is 
less than is required by Sec.  31.9, or its cover is less than is 
required by Sec.  31.8, or the amount of leverage customer funds in 
segregation is less than is required by Sec.  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 to Sec.  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

[[Page 690]]

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 by Sec.  
31.9 must file written notice to that effect as set forth in Sec.  
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 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 under Sec.  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

[[Page 691]]

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 with Sec.  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 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 
with Sec.  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

[[Page 692]]

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 of Sec.  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 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 
of Sec.  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 and Sec.  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 with Sec.  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

[[Page 693]]

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 and Sec.  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 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 with Sec.  240.15c3-1 of this title, unless specifically 
stated otherwise in this section;
    (2)(i) The term ``customer'' means customer as defined in Sec.  
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 in Sec.  1.17 
of this chapter: Provided, however, That the term ``leverage transaction 
merchant'' shall be substituted for the term ``futures commission 
merchant'' in Sec.  1.17 of this chapter. In determining net capital, 
the provisions set forth in Sec.  1.17(c)(1) of this chapter shall 
apply;
    (5) The term ``current assets'' has the same meaning as in Sec.  
1.17(c)(2) of this chapter: Provided, That the provisions of Sec.  
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 in Sec.  1.17(c)(3) of this chapter 
shall apply;
    (7) The term ``liabilities'' has the same meaning as in Sec.  
1.17(c)(4) of this chapter;
    (8) In computing adjusted net capital, the safety factors set forth 
in Sec.  1.17(c)(5) of this chapter shall apply: Provided, however, That 
the safety factors set forth in Sec.  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 in Sec.  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 in Sec.  1.17(c)(5) (viii) and (ix) 
of this chapter for undermargined commodity futures and commodity option 
customer and

[[Page 694]]

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 in Sec.  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 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 with Sec.  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:


[[Page 695]]


    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 
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

[[Page 696]]

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 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 in Sec.  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 with Sec.  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

[[Page 697]]

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
    (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

[[Page 698]]

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 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

[[Page 699]]

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;
    (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 
with Sec.  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

[[Page 700]]

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 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 
with Sec.  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 to Sec.  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

[[Page 701]]

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 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 in Sec.  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

[[Page 702]]

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 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 in Sec.  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 in Sec.  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

[[Page 703]]

section. Each person so depositing any leverage customer funds shall 
obtain and retain in its files for the period provided in Sec.  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
    (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 
with Sec.  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 with Sec.  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 of Sec.  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 
in Sec.  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

[[Page 704]]

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 
section 19 of the Act and Sec.  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 under Sec.  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 and Sec.  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 of Sec.  
1.16 (except paragraph (f)) of this chapter: Provided, however, That the 
term ``Form 2-FR'' shall be substituted for ``Form 1-FR'' in Sec.  
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 of Sec.  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

[[Page 705]]

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 Commission with 
jurisdiction over the state wherein the principal place of business of 
the leverage transaction merchant is located, in accordance with Sec.  
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 to Sec.  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 this Sec.  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 to Sec.  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 to Sec.  31.9. Such reconciliation must be 
certified by an independent public accountant in accordance with Sec.  
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

[[Page 706]]

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 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 with Sec.  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 to Sec.  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 to Sec.  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

[[Page 707]]

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 in Sec.  31.9 or the 
cover or segregation requirements of these regulations, or has any 
significant financial or recordkeeping problems?
    (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 to Sec.  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 Swap 
Dealer 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 Swap Dealer 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; 78 FR 22419, Apr. 16, 2013]



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 of Sec.  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 Swap Dealer 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

[[Page 708]]

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 in Sec.  31.11; promotional material, circulars, 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 in Sec.  31.11(a).
    (5) A record of all notifications under Sec.  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

[[Page 709]]

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;
    (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; 78 FR 22419, Apr. 16, 2013]



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

[[Page 710]]

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 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

[[Page 711]]

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 
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 of Sec.  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.

[[Page 712]]

    (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 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]

[[Page 713]]



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 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 in Sec.  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

[[Page 714]]

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 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 in Sec.  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;

[[Page 715]]

    (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
    (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

[[Page 716]]

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 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.

    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 to Sec.  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;

[[Page 717]]

    (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 that is 
not a swap dealer or major swap participant shall obtain a legal entity 
identifier pursuant to Sec.  45.6 of this chapter if the counterparty to 
the transaction involved is a swap dealer or major swap participant, and 
provide such legal entity identifier to the swap dealer or major swap 
participant counterparty.
    (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) Subpart J of part 23 (Duties of Swap Dealers and Major Swap 
Participants) of this chapter;
    (3) 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
    (4) Section 4s(e) of the Act (Capital and Margin Requirements for 
Swap Dealers and Major Swap Participants).
    (d) 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) and Sec.  
23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) 
of this chapter and the antifraud, anti-manipulation, and enforcement 
provisions of sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 
6d, 9, and 13 of the Act.
    (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), and Sec.  
23.410 (Prohibition on Fraud, Manipulation, and other Abusive Practices) 
of this chapter, and the antifraud, anti-manipulation, and enforcement 
provisions of sections 2, 4b, 4c, 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 
6d, 9, and 13 of the Act, if it finds, in its discretion, that it would 
not be contrary to the public interest to grant such exemption.

[81 FR 14974, Mar. 21, 2016]



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.



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 718]]



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.
    (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 by Sec.  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

[[Page 719]]

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 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 in Sec.  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:

[[Page 720]]

    (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 by Sec.  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.
    (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 in Sec.  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

[[Page 721]]

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;
    (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 affecting Sec.  33.4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.govinfo.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.

[[Page 722]]

    (b) Cause exists which, under Sec.  33.2 or Sec.  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 in Sec.  1.65 of this chapter, no futures 
commission merchant, or in the case of an introduced account no 
introducing broker, may open or cause the opening of a commodity option 
account for an option customer, other than for a customer specified in 
Sec.  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 
under Sec.  1.55(c) of this chapter and set forth in appendix A to Sec.  
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 in Sec.  33.7 is used 
it must follow the statement required by Sec.  1.55; and
    (ii) Subject to the provisions of Sec.  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 with Sec.  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

[[Page 723]]

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 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

[[Page 724]]

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.);
    (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 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

[[Page 725]]

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.

    (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.

[[Page 726]]

    (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 with Sec.  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, 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]

[[Page 727]]



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 in Sec.  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 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:

[[Page 728]]

    (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_TRADE EXECUTION REQUIREMENT--Table of Contents



    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, and 7b-3, as amended 
by Titles VII and VIII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 85 FR 82328, Dec. 18, 2020, unless otherwise noted.



Sec.  36.1  Exemptions to trade execution requirement.

    (a) A swap transaction that is executed as a component of a package 
transaction that also includes a component transaction that is the 
issuance of a bond in a primary market is exempt from the trade 
execution requirement in section 2(h)(8) of the Act.
    (1) For purposes of paragraph (a) of this section, a package 
transaction consists of two or more component transactions executed 
between two or more counterparties where:
    (i) At least one component transaction is subject to the trade 
execution requirement in section 2(h)(8) of the Act;
    (ii) Execution of each component transaction is contingent upon the 
execution of all other component transactions; and
    (iii) The component transactions are priced or quoted together as 
one economic transaction with simultaneous or near-simultaneous 
execution of all components.
    (2) [Reserved]
    (b) Section 2(h)(8) of the Act does not apply to a swap transaction 
that qualifies for the exception under section 2(h)(7) of the Act or an 
exception or exemption under part 50 of this chapter, and for which the 
associated requirements are met.
    (c) Section 2(h)(8) of the Act does not apply to a swap transaction 
that is executed between counterparties that have eligible affiliate 
counterparty status pursuant to Sec.  50.52(a) of this chapter

[[Page 729]]

even if the eligible affiliate counterparties clear the swap 
transaction.

[85 FR 82328, Dec. 18, 2020, as amended at 86 FR 9001, Feb. 11, 2021]



PART 37_SWAP EXECUTION FACILITIES--Table of Contents



                      Subpart A_General Provisions

Sec.
37.1 Scope.
37.2 Applicable provisions.
37.3 Requirements and procedures for registration.
37.4 Procedures for listing products and implementing rules.
37.5 Information relating to swap execution facility compliance.
37.6 Enforceability.
37.7 Prohibited use of data collected for regulatory purposes.
37.8 Boards of trade operating both a designated contract market and a 
          swap execution facility.
37.9 Methods of execution for required and permitted transactions.
37.10 Process for a swap execution facility to make a swap available to 
          trade.
37.11 [Reserved]
37.12 Trade execution compliance schedule.

                Subpart B_Compliance with Core Principles

37.100 Core Principle 1--Compliance with core principles.

                     Subpart C_Compliance with Rules

37.200 Core Principle 2--Compliance with rules.
37.201 Operation of swap execution facility and compliance with rules.
37.202 Access requirements.
37.203 Rule enforcement program.
37.204 Regulatory services provided by a third party.
37.205 Audit trail.
37.206 Disciplinary procedures and sanctions.

         Subpart D_Swaps Not Readily Susceptible to Manipulation

37.300 Core Principle 3--Swaps not readily susceptible to manipulation.
37.301 General requirements.

          Subpart E_Monitoring of Trading and Trade Processing

37.400 Core Principle 4--Monitoring of trading and trade processing.
37.401 General requirements.
37.402 Additional requirements for physical-delivery swaps.
37.403 Additional requirements for cash-settled swaps.
37.404 Ability to obtain information.
37.405 Risk controls for trading.
37.406 Trade reconstruction.
37.407 Regulatory service provider.
37.408 Additional sources for compliance.

                 Subpart F_Ability to Obtain Information

37.500 Core Principle 5--Ability to obtain information.
37.501 Establish and enforce rules.
37.502 Collection of information.
37.503 Provide information to the Commission.
37.504 Information-sharing agreements.

               Subpart G_Position Limits or Accountability

37.600 Core Principle 6--Position limits or accountability.
37.601 Additional sources for compliance.

              Subpart H_Financial Integrity of Transactions

37.700 Core Principle 7--Financial integrity of transactions.
37.701 Required clearing.
37.702 General financial integrity.
37.703 Monitoring for financial soundness.

                      Subpart I_Emergency Authority

37.800 Core Principle 8--Emergency authority.
37.801 Additional sources for compliance.

           Subpart J_Timely Publication of Trading Information

37.900 Core Principle 9--Timely publication of trading information.
37.901 General requirements.

                  Subpart K_Recordkeeping and Reporting

37.1000 Core Principle 10--Recordkeeping and reporting.
37.1001 Recordkeeping.

                   Subpart L_Antitrust Considerations

37.1100 Core Principle 11--Antitrust considerations.
37.1101 Additional sources for compliance.

                     Subpart M_Conflicts of Interest

37.1200 Core Principle 12--Conflicts of interest.

[[Page 730]]

                      Subpart N_Financial Resources

37.1300 Core Principle 13--Financial resources.
37.1301 General requirements.
37.1302 Types of financial resources.
37.1303 Liquidity of financial resources.
37.1304 Computation of costs to meet financial resources requirement.
37.1305 Valuation of financial resources.
37.1306 Reporting to the Commission.
37.1307 Delegation of authority.

                       Subpart O_System Safeguards

37.1400 Core Principle 14--System safeguards.
37.1401 Requirements.

            Subpart P_Designation of Chief Compliance Officer

37.1500 Core Principle 15--Designation of chief compliance officer.
37.1501 Chief compliance officer.

Appendix A to Part 37--Form SEF
Appendix B to Part 37--Guidance on, and Acceptable Practices in, 
          Compliance with Core Principles

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a, as 
amended by Titles VII and VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376.

    Source: 78 FR 33582, June 4, 2013, unless otherwise noted.



                      Subpart A_General Provisions



Sec.  37.1  Scope.

    The provisions of this part shall apply to every swap execution 
facility that is registered or is applying to become registered as a 
swap execution facility under section 5h of the Commodity Exchange Act 
(``the Act''); provided, however, nothing in this provision affects the 
eligibility of swap execution facilities to operate under the provisions 
of parts 38 or 49 of this chapter.



Sec.  37.2  Applicable provisions.

    A swap execution facility shall comply with the requirements of this 
part and all other applicable Commission regulations, including Sec.  
1.60 and part 9 of this chapter, and including any related definitions 
and cross-referenced sections.



Sec.  37.3  Requirements and procedures for registration.

    (a) Requirements for registration. (1) Any person operating a 
facility that offers a trading system or platform in which more than one 
market participant has the ability to execute or trade swaps with more 
than one other market participant on the system or platform shall 
register the facility as a swap execution facility under this part or as 
a designated contract market under part 38 of this chapter.
    (2) Minimum trading functionality. A swap execution facility shall, 
at a minimum, offer an Order Book as defined in paragraph (a)(3) of this 
section.
    (3) Order book means:
    (i) An electronic trading facility, as that term is defined in 
section 1a(16) of the Act;
    (ii) A trading facility, as that term is defined in section 1a(51) 
of the Act; or
    (iii) A trading system or platform in which all market participants 
in the trading system or platform have the ability to enter multiple 
bids and offers, observe or receive bids and offers entered by other 
market participants, and transact on such bids and offers.
    (4) A swap execution facility is not required to provide an order 
book under this section for transactions defined in Sec.  37.9(d)(2), 
(3), and (4), except that a swap execution facility must provide an 
order book under this section for Required Transactions that are 
components of transactions defined in Sec.  37.9(d)(2), (3), and (4) of 
this part when such Required Transactions are not executed as components 
of transactions defined in Sec.  37.9(d)(2), (3), and (4).
    (b) Procedures for full registration. (1) An applicant requesting 
registration as a swap execution facility shall:
    (i) File electronically a complete Form SEF as set forth in appendix 
A to this part, or any successor forms, and all information and 
documentation described in such forms with the Secretary of the 
Commission in the form and manner specified by the Commission;
    (ii) Provide to the Commission, upon the Commission's request, any 
additional information and documentation necessary to review an 
application; and
    (iii) Request from the Commission a unique, extensible, alphanumeric 
code

[[Page 731]]

for the purpose of identifying the swap execution facility pursuant to 
part 45 of this chapter.
    (2) Request for confidential treatment. (i) An applicant requesting 
registration as a swap execution facility shall identify with 
particularity any information in the application that will be subject to 
a request for confidential treatment pursuant to Sec.  145.9 of this 
chapter.
    (ii) 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 to Sec.  145.9 of this 
chapter.
    (3) Amendment of application prior or subsequent to full 
registration. An applicant amending a pending application for 
registration as a swap execution facility or requesting an amendment to 
an order of registration shall file an amended application 
electronically with the Secretary of the Commission in the manner 
specified by the Commission. A swap execution facility shall file any 
amendment to an application subsequent to registration as a submission 
under part 40 of this chapter or as specified by the Commission.
    (4) Effect of incomplete application. If an application is 
incomplete pursuant to paragraph (b)(1) of this section, the Commission 
shall notify the applicant that its application will not be deemed to 
have been submitted for purposes of the Commission's review.
    (5) Commission review period. For an applicant who submits its 
application for registration as a swap execution facility on or after 
August 5, 2015 the Commission shall review such application pursuant to 
the 180-day timeframe and procedures specified in section 6(a) of the 
Act.
    (6) Commission determination. (i) The Commission shall issue an 
order granting registration upon a Commission determination, in its own 
discretion, that the applicant has demonstrated compliance with the Act 
and the Commission's regulations applicable to swap execution 
facilities. If deemed appropriate, the Commission may issue an order 
granting registration subject to conditions.
    (ii) The Commission may issue an order denying registration upon a 
Commission determination, in its own discretion, that the applicant has 
not demonstrated compliance with the Act and the Commission's 
regulations applicable to swap execution facilities.
    (c) Temporary registration. An applicant seeking registration as a 
swap execution facility may request that the Commission grant the 
applicant temporary registration by complying with the requirements in 
paragraph (c)(1) of this section.
    (1) Requirements for temporary registration. The Commission shall 
grant a request for temporary registration upon a Commission 
determination that the applicant has:
    (i) Completed all of the requirements under paragraph (b)(1)(i) of 
this section; and
    (ii) Submitted a notice to the Commission, concurrent with the 
filing of the application under paragraph (b)(1)(i) of this section, 
requesting that the Commission grant the applicant temporary 
registration. An applicant that is currently operating a swaps-trading 
platform in reliance upon either an exemption granted by the Commission 
or some form of no-action relief granted by the Commission staff shall 
include in such notice a certification that the applicant is operating 
pursuant to such exemption or no-action relief.
    (iii) The Commission may deny a request for temporary registration 
upon a Commission determination that the applicant has not met the 
requirements under paragraphs (c)(1)(i) and (c)(1)(ii) of this section.
    (2) Operation pursuant to a grant of temporary registration. An 
applicant may operate as a swap execution facility under temporary 
registration upon receipt of a notice from the Commission granting such 
temporary registration, but in no case may begin operating as a 
temporarily registered swap execution facility before August 5, 2013.
    (3) Expiration of temporary registration. The temporary registration 
for a swap execution facility shall expire on the earlier of the date 
that:
    (i) The Commission grants or denies registration of the swap 
execution facility as provided under paragraph (b) of this section;
    (ii) The swap execution facility withdraws its application for 
registration

[[Page 732]]

pursuant to paragraph (f) of this section; or
    (iii) Temporary registration terminates pursuant to paragraph (c)(5) 
of this section.
    (4) Effect of temporary registration. A grant of temporary 
registration by the Commission does not affect the right of the 
Commission to grant or deny registration as provided under paragraph (b) 
of this section.
    (5) Termination of temporary registration. Paragraph (c) of this 
section shall terminate two years from the effective date of this 
regulation except as provided for under paragraph (c)(6) of this section 
and except for an applicant who requested that the Commission grant the 
applicant temporary registration by complying with the requirements in 
paragraph (c)(1) of this section before the termination of paragraph (c) 
of this section and has not been granted or denied registration under 
paragraph (b)(6) of this section by the time of the termination of 
paragraph (c) of this section. Such an applicant may operate as a swap 
execution facility under temporary registration upon receipt of a notice 
from the Commission granting such temporary registration until the 
Commission grants or denies registration pursuant to paragraph (b)(6) of 
this section. On the termination date of paragraph (c) of this section, 
the Commission shall review such applicant's application pursuant to the 
time period and procedures in paragraph (b)(5) of this section.
    (6) Temporary registration for applicants that are operational 
designated contract markets. An applicant that is an operational 
designated contract market and is also seeking to register as a swap 
execution facility in order to transfer one or more of its contracts may 
request that the Commission grant the applicant temporary registration 
by complying with the requirements in paragraph (c)(1) of this section. 
The termination of temporary registration provision in paragraph (c)(5) 
of this section shall not apply to an applicant that is a non-dormant 
designated contract market as described in this paragraph.
    (d) Reinstatement of dormant registration. A dormant swap execution 
facility as defined in section 40.1 of this chapter may reinstate its 
registration under the procedures of paragraph (b) of this section. The 
applicant may rely upon previously submitted materials if such materials 
accurately describe the dormant swap execution facility's conditions at 
the time that it applies for reinstatement of its registration.
    (e) Request for transfer of registration. (1) A swap execution 
facility seeking to transfer its registration from its current legal 
entity to a new legal entity as a result of a corporate change shall 
file a request for approval to transfer such registration with the 
Secretary of the Commission in the form and manner specified by the 
Commission.
    (2) Timeline for filing a request for transfer of registration. A 
request for transfer of registration shall be filed no later than three 
months prior to the anticipated corporate change; or in the event that 
the swap execution facility could not have known of the anticipated 
change three months prior to the anticipated change, as soon as it knows 
of such change.
    (3) Required information. The request for transfer of registration 
shall include the following:
    (i) The underlying agreement that governs the corporate change;
    (ii) A description of the corporate change, including the reason for 
the change and its impact on the swap execution facility, including its 
governance and operations, and its impact on the rights and obligations 
of market participants;
    (iii) A discussion of the transferee's ability to comply with the 
Act, including the core principles applicable to swap execution 
facilities, 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 swap execution facility;
    (vi) A representation by the transferee that it:
    (A) Will be the surviving entity and successor-in-interest to the 
transferor swap execution facility and will retain and assume, without 
limitation, all of the assets and liabilities of the transferor;

[[Page 733]]

    (B) Will assume responsibility for complying with all applicable 
provisions of the Act and the Commission's regulations promulgated 
thereunder, including this part and appendices thereto;
    (C) Will assume, maintain, and enforce all rules implementing and 
complying with the core principles applicable to swap execution 
facilities, 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 
this chapter;
    (D) Will comply with all self-regulatory responsibilities except if 
otherwise indicated in the request, and will maintain and enforce all 
self-regulatory programs; and
    (E) Will notify market participants of all changes to the 
transferor's rulebook prior to the transfer and will further notify 
market participants of the concurrent transfer of the registration to 
the transferee upon Commission approval and issuance of an order 
permitting this transfer.
    (vii) A representation by the transferee that upon the transfer:
    (A) It will assume responsibility for and maintain compliance with 
core principles for all swaps previously made available for trading 
through the transferor, whether by certification or approval; and
    (B) None of the proposed rule changes will affect the rights and 
obligations of any market participant.
    (4) Commission determination. Upon review of a request for transfer 
of registration, the Commission, as soon as practicable, shall issue an 
order either approving or denying the request.
    (f) Request for withdrawal of application for registration. An 
applicant for registration as a swap execution facility may withdraw its 
application submitted pursuant to paragraph (b) of this section by 
filing a withdrawal request electronically with the Secretary of 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 was pending with the Commission.
    (g) Request for vacation of registration. A swap execution facility 
may request that its registration be vacated under section 7 of the Act 
by filing a vacation request electronically with the Secretary of 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 swap execution facility was 
registered by the Commission.
    (h) Delegation of authority. 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 delegate, authority to notify an applicant seeking 
registration that its application is incomplete and that it will not be 
deemed to have been submitted for purposes of the Commission's review, 
to notify an applicant seeking registration under section 6(a) of the 
Act that its application is materially incomplete and the running of the 
180-day period is stayed, and to notify an applicant seeking temporary 
registration that its request is granted or denied. 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.

[78 FR 33582, June 4, 2013, as amended at 85 FR 82329, Dec. 18, 2020]



Sec.  37.4  Procedures for listing products and implementing rules.

    (a) An applicant for registration as a swap execution facility may 
submit a swap's terms and conditions prior to listing the product as 
part of its application for registration.
    (b) Any swap terms and conditions or rules submitted as part of a 
swap execution facility's application for registration shall be 
considered for approval by the Commission at the time the Commission 
issues the swap execution facility's order of registration.
    (c) After the Commission issues the order of registration, a swap 
execution facility shall submit a swap's terms

[[Page 734]]

and conditions, including amendments to such terms and conditions, new 
rules, or rule amendments pursuant to the procedures under part 40 of 
this chapter.
    (d) Any swap terms and conditions or rules submitted as part of an 
application to reinstate the registration of a dormant swap execution 
facility, as defined in Sec.  40.1 of this chapter, shall be considered 
for approval by the Commission at the time the Commission approves the 
dormant swap execution facility's reinstatement of registration.



Sec.  37.5  Information relating to swap execution facility compliance.

    (a) Request for information. Upon the Commission's request, a swap 
execution facility shall file with the Commission information related to 
its business as a swap execution facility in the form and manner and 
within the time period as the Commission specifies in its request.
    (b) Demonstration of compliance. Upon the Commission's request, a 
swap execution facility shall file with the Commission a written 
demonstration, containing supporting data, information, and documents 
that it is in compliance with one or more core principles or with its 
other obligations under the Act or the Commission's regulations as the 
Commission specifies in its request. The swap execution facility shall 
file such written demonstration in the form and manner and within the 
time period as the Commission specifies in its request.
    (c) Equity interest transfer--(1) Equity interest transfer 
notification. A swap execution facility shall file with the Commission a 
notification of each transaction that the swap execution facility enters 
into involving the transfer of fifty percent or more of the equity 
interest in the swap execution facility. The Commission may, upon 
receiving such notification, request supporting documentation of the 
transaction.
    (2) Timing of notification. The equity interest transfer notice 
described in paragraph (c)(1) of this section shall be filed 
electronically with the Secretary of the Commission at its Washington, 
DC headquarters at submissions @cftc.gov and the Division of Market 
Oversight at DMOSub [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 swap execution facility enters into a firm 
obligation to transfer the equity interest.
    (3) Rule filing. Notwithstanding the foregoing, if any aspect of an 
equity interest transfer described in paragraph (c)(1) of this section 
requires a swap execution facility to file a rule as defined in part 40 
of this chapter, then the swap execution facility shall comply with the 
requirements of section 5c(c) of the Act and part 40 of this chapter, 
and all other applicable Commission regulations.
    (4) Certification. Upon a transfer of an equity interest of fifty 
percent or more in a swap execution facility, the swap execution 
facility shall file electronically with the Secretary of the Commission 
at its Washington, DC headquarters at [email protected] and the 
Division of Market Oversight at DMOSub [email protected], a 
certification that the swap execution facility meets all of the 
requirements of section 5h of the Act and the Commission regulations 
adopted thereunder, no later than two business days following the date 
on which the equity interest of fifty percent or more was acquired.
    (d) Delegation of authority. The Commission hereby delegates, until 
it orders otherwise, the authority set forth in 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.



Sec.  37.6  Enforceability.

    (a) A transaction entered into on or pursuant to the rules of a swap 
execution facility shall not be void, voidable, subject to rescission, 
otherwise invalidated, or rendered unenforceable as a result of:
    (1) A violation by the swap execution facility of the provisions of 
section 5h of the Act or this part;

[[Page 735]]

    (2) Any Commission proceeding to alter or supplement a rule, term, 
or condition under section 8a(7) of the Act or to declare an emergency 
under section 8a(9) of the Act; or
    (3) Any other proceeding the effect of which is to:
    (i) Alter or supplement a specific term or condition or trading rule 
or procedure; or
    (ii) Require a swap execution facility to adopt a specific term or 
condition, trading rule or procedure, or to take or refrain from taking 
a specific action.
    (b) A swap execution facility shall provide each counterparty to a 
transaction that is entered into on or pursuant to the rules of the swap 
execution facility with a written record of all of the terms of the 
transaction which shall legally supersede any previous agreement and 
serve as a confirmation of the transaction. The confirmation of all 
terms of the transaction shall take place at the same time as execution; 
provided that specific customer identifiers for accounts included in 
bunched orders involving swaps need not be included in confirmations 
provided by a swap execution facility if the applicable requirements of 
Sec.  1.35(b)(5) of this chapter are met.



Sec.  37.7  Prohibited use of data collected for regulatory purposes.

    A swap execution facility shall 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 swap execution 
facility 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 swap execution facility's use of 
such data or information in such manner. A swap execution facility shall 
not condition access to its market(s) or market services on a person's 
consent to the swap execution facility's use of proprietary data or 
personal information for business or marketing purposes. A swap 
execution facility, where necessary for regulatory purposes, may share 
such data or information with one or more swap execution facilities or 
designated contract markets registered with the Commission.



Sec.  37.8  Boards of trade operating both a designated contract market 
and a swap execution facility.

    (a) An entity that intends to operate both a designated contract 
market and a swap execution facility shall separately register the two 
entities pursuant to the designated contract market designation 
procedures set forth in part 38 of this chapter and the swap execution 
facility registration procedures set forth in this part. On an ongoing 
basis, the entity shall comply with the core principles for designated 
contract markets under section 5(d) of the Act and the regulations under 
part 38 of this chapter and the core principles for swap execution 
facilities under section 5h of the Act and the regulations under this 
part.
    (b) A board of trade, as defined in section 1a(6) of the Act, 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 on the designated contract market and on the swap 
execution facility shall clearly identify to market participants for 
each swap whether the execution or trading of such swaps is taking place 
on the designated contract market or on the swap execution facility.



Sec.  37.9  Methods of execution for required and permitted transactions.

    (a) Execution methods for required transactions. (1) Required 
transaction means any transaction involving a swap that is subject to 
the trade execution requirement in section 2(h)(8) of the Act.
    (2) Execution methods. (i) Each Required Transaction that is not a 
block trade as defined in Sec.  43.2 of this chapter shall be executed 
on a swap execution facility in accordance with one of the following 
methods of execution except as provided in paragraph (d) or (e) of this 
section:
    (A) An Order Book as defined in Sec.  37.3(a)(3); or
    (B) A Request for Quote System, as defined in paragraph (a)(3) of 
this section, that operates in conjunction with an Order Book as defined 
in Sec.  37.3(a)(3).

[[Page 736]]

    (ii) In providing either one of the execution methods set forth in 
paragraph (a)(2)(i)(A) or (B) of this section, a swap execution facility 
may for purposes of execution and communication use any means of 
interstate commerce, including, but not limited to, the mail, internet, 
email, and telephone, provided that the chosen execution method 
satisfies the requirements provided in Sec.  37.3(a)(3) for Order Books 
or in paragraph (a)(3) of this section for Request for Quote Systems.
    (3) Request for quote system means a trading system or platform in 
which a market participant transmits a request for a quote to buy or 
sell a specific instrument to no less than three market participants in 
the trading system or platform, to which all such market participants 
may respond. The three market participants shall not be affiliates of or 
controlled by the requester and shall not be affiliates of or controlled 
by each other. A swap execution facility that offers a request for quote 
system in connection with Required Transactions shall provide the 
following functionality:
    (i) At the same time that the requester receives the first 
responsive bid or offer, the swap execution facility shall communicate 
to the requester any firm bid or offer pertaining to the same instrument 
resting on any of the swap execution facility's Order Books, as defined 
in Sec.  37.3(a)(3);
    (ii) The swap execution facility shall provide the requester with 
the ability to execute against such firm resting bids or offers along 
with any responsive orders; and
    (iii) The swap execution facility shall ensure that its trading 
protocols provide each of its market participants with equal priority in 
receiving requests for quotes and in transmitting and displaying for 
execution responsive orders.
    (b) Time delay requirement for required transactions on an order 
book--(1) Time delay requirement. A swap execution facility shall 
require that a broker or dealer who seeks to either execute against its 
customer's order or execute two of its customers' orders against each 
other through the swap execution facility's Order Book, following some 
form of pre-arrangement or pre-negotiation of such orders, be subject to 
at least a 15 second time delay between the entry of those two orders 
into the Order Book, such that one side of the potential transaction is 
disclosed and made available to other market participants before the 
second side of the potential transaction, whether for the broker's or 
dealer's own account or for a second customer, is submitted for 
execution.
    (2) Adjustment of time delay requirement. A swap execution facility 
may adjust the time period of the 15 second time delay requirement 
described in paragraph (b)(1) of this section, based upon a swap's 
liquidity or other product-specific considerations; however, the time 
delay shall be set for a sufficient period of time so that an order is 
exposed to the market and other market participants have a meaningful 
opportunity to execute against such order.
    (c) Execution methods for permitted transactions. (1) Permitted 
transaction means any transaction not involving a swap that is subject 
to the trade execution requirement in section 2(h)(8) of the Act.
    (2) Execution methods. A swap execution facility may offer any 
method of execution for each Permitted Transaction.
    (d) Exceptions to required methods of execution for package 
transactions. (1) For purposes of this paragraph, a package transaction 
consists of two or more component transactions executed between two or 
more counterparties where:
    (i) At least one component transaction is a Required Transaction;
    (ii) Execution of each component transaction is contingent upon the 
execution of all other component transactions; and
    (iii) The component transactions are priced or quoted together as 
one economic transaction with simultaneous or near-simultaneous 
execution of all components.
    (2) A Required Transaction that is executed as a component of a 
package transaction that includes a component swap that is subject 
exclusively to the Commission's jurisdiction, but is not subject to the 
clearing requirement under section 2(h)(1)(A) of the Act, may

[[Page 737]]

be executed on a swap execution facility in accordance with paragraph 
(c)(2) of this section as if it were a Permitted Transaction;
    (3) A Required Transaction that is executed as a component of a 
package transaction that includes a component that is not a swap, as 
defined under section 1a(47) of the Act, may be executed on a swap 
execution facility in accordance with paragraph (c)(2) of this section 
as if it were a Permitted Transaction. This provision shall not apply 
to:
    (i) A Required Transaction that is executed as a component of a 
package transaction in which all other non-swap components are U.S. 
Treasury securities;
    (ii) A Required Transaction that is executed as a component of a 
package transaction in which all other non-swap components are contracts 
for the purchase or sale of a commodity for future delivery;
    (iii) A Required Transaction that is executed as a component of a 
package transaction in which all other non-swap components are agency 
mortgage-backed securities; and
    (iv) A Required Transaction that is executed as a component of a 
package transaction that includes a component transaction that is the 
issuance of a bond in a primary market.
    (4) A Required Transaction that is executed as a component of a 
package transaction that includes a component swap that is not 
exclusively subject to the Commission's jurisdiction may be executed on 
a swap execution facility in accordance with paragraph (c)(2) of this 
section as if it were a Permitted Transaction.
    (e) Resolution of operational and clerical error trades. (1) As used 
in this paragraph:
    (i) Correcting trade means a trade executed and submitted for 
clearing to a registered derivatives clearing organization, or a 
derivatives clearing organization that the Commission has determined is 
exempt from registration, with the same terms and conditions as an error 
trade other than any corrections to any operational or clerical error 
and the time of execution.
    (ii) Error trade means any trade executed on or subject to the rules 
of a swap execution facility that contains an operational or clerical 
error.
    (iii) Offsetting trade means a trade executed and submitted for 
clearing to a registered derivatives clearing organization, or a 
derivatives clearing organization that the Commission has determined is 
exempt from registration, with terms and conditions that economically 
reverse an error trade that was accepted for clearing.
    (2) Execution of correcting trades and offsetting trades. (i) A swap 
execution facility shall maintain rules and procedures that facilitate 
the resolution of error trades. Such rules shall be fair, transparent, 
and consistent; allow for timely resolution; require market participants 
to provide prompt notice of an error trade--and, as applicable, 
offsetting and correcting trades--to the swap execution facility; and 
permit market participants to:
    (A) Execute a correcting trade, in accordance with paragraph (c)(2) 
of this section, regardless of whether it is a Required or Permitted 
Transaction, for an error trade that has been rejected from clearing as 
soon as technologically practicable, but no later than one hour after a 
registered derivatives clearing organization, or a derivatives clearing 
organization that the Commission has determined is exempt from 
registration, provides notice of the rejection; or
    (B) Execute an offsetting trade and a correcting trade, in 
accordance with paragraph (c)(2) of this section, regardless of whether 
it is a Required or Permitted Transaction, for an error trade that was 
accepted for clearing as soon as technologically practicable, but no 
later than three days after the error trade was accepted for clearing at 
a derivatives clearing organization or a derivatives clearing 
organization that the Commission has determined is exempt from 
registration.
    (ii) If a correcting trade is rejected from clearing, then a swap 
execution facility shall not allow the counterparties to execute another 
correcting trade.
    (f) Counterparty anonymity. (1) Except as otherwise required under 
the Act or the Commission's regulations, a swap execution facility shall 
not directly or indirectly, including through a third-

[[Page 738]]

party service provider, disclose the identity of a counterparty to a 
swap that is executed anonymously and intended to be cleared.
    (2) A swap execution facility shall establish and enforce rules that 
prohibit any person from directly or indirectly, including through a 
third-party service provider, disclosing the identity of a counterparty 
to a swap that is executed anonymously and intended to be cleared.
    (3) For purposes of paragraphs (f)(1) and (2) of this section, 
``executed anonymously'' shall include a swap that is pre-arranged or 
pre-negotiated anonymously, including by a participant of the swap 
execution facility.
    (4) For a package transaction that includes a component transaction 
that is not a swap intended to be cleared, disclosing the identity of a 
counterparty shall not violate paragraph (f)(1) or (2) of this section. 
For purposes of this paragraph, a ``package transaction'' consists of 
two or more component transactions executed between two or more 
counterparties where:
    (i) Execution of each component transaction is contingent upon the 
execution of all other component transactions; and
    (ii) The component transactions are priced or quoted together as one 
economic transaction with simultaneous or near-simultaneous execution of 
all components.

[78 FR 33582, June 4, 2013, as amended at 85 FR 44707, July 24, 2020; 85 
FR 82329, Dec. 18, 2020]



Sec.  37.10  Process for a swap execution facility to make a swap 
available to trade.

    (a)(1) Required submission. A swap execution facility that makes a 
swap available to trade in accordance with paragraph (b) of this 
section, shall submit to the Commission its determination with respect 
to such swap as a rule, as that term is defined by Sec.  40.1 of this 
chapter, pursuant to the procedures under part 40 of this chapter.
    (2) Listing requirement. A swap execution facility that makes a swap 
available to trade must demonstrate that it lists or offers that swap 
for trading on its trading system or platform.
    (b) Factors to consider. To make a swap available to trade, for 
purposes of section 2(h)(8) of the Act, a swap execution facility shall 
consider, as appropriate, the following factors with respect to such 
swap:
    (1) Whether there are ready and willing buyers and sellers;
    (2) The frequency or size of transactions;
    (3) The trading volume;
    (4) The number and types of market participants;
    (5) The bid/ask spread; or
    (6) The usual number of resting firm or indicative bids and offers.
    (c) Applicability. Upon a determination that a swap is available to 
trade on any swap execution facility or designated contract market 
pursuant to part 40 of this chapter, all other swap execution facilities 
and designated contract markets shall comply with the requirements of 
section 2(h)(8)(A) of the Act in listing or offering such swap for 
trading.
    (d) Removal--(1) Determination. The Commission may issue a 
determination that a swap is no longer available to trade upon 
determining that no swap execution facility or designated contract 
market lists such swap for trading.
    (2) Delegation of Authority. (i) 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 to issue a determination that 
a swap is no longer available to trade.
    (ii) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this section. Nothing in this 
section prohibits the Commission, at its election, from exercising the 
authority delegated in this section.

[78 FR 33630, June 4, 2013]



Sec.  37.11  [Reserved]



Sec.  37.12  Trade execution compliance schedule.

    (a) A swap transaction shall be subject to the requirements of 
section 2(h)(8) of the Act upon the later of:

[[Page 739]]

    (1) The applicable deadline established under the compliance 
schedule provided under Sec.  50.25(b) of this chapter; or
    (2) Thirty days after the available-to-trade determination 
submission or certification for that swap is, respectively, deemed 
approved under Sec.  40.5 of this chapter or deemed certified under 
Sec.  40.6 of this chapter.
    (b) Nothing in this section shall prohibit any counterparty from 
complying voluntarily with the requirements of section 2(h)(8) of the 
Act sooner than as provided in paragraph (a) of this section.

[78 FR 33630, June 4, 2013]



                Subpart B_Compliance With Core Principles



Sec.  37.100  Core Principle 1--Compliance with core principles.

    (a) In general. To be registered, and maintain registration, as a 
swap execution facility, the swap execution facility shall comply with--
    (1) The core principles described in section 5h 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 a swap execution facility. Unless 
otherwise determined by the Commission by rule or regulation, a swap 
execution facility described in paragraph (a) of this section shall have 
reasonable discretion in establishing the manner in which the swap 
execution facility complies with the core principles described in 
section 5h of the Act.



                     Subpart C_Compliance With Rules



Sec.  37.200  Core Principle 2--Compliance with rules.

    A swap execution facility shall:
    (a) Establish and enforce compliance with any rule of the swap 
execution facility, including the terms and conditions of the swaps 
traded or processed on or through the swap execution facility and any 
limitation on access to the swap execution facility;
    (b) Establish and enforce trading, trade processing, and 
participation rules that will deter abuses and have the capacity to 
detect, investigate, and enforce those rules, including means to provide 
market participants with impartial access to the market and to capture 
information that may be used in establishing whether rule violations 
have occurred;
    (c) Establish rules governing the operation of the facility, 
including rules specifying trading procedures to be used in entering and 
executing orders traded or posted on the facility, including block 
trades; and
    (d) Provide by its rules that when a swap dealer or major swap 
participant enters into or facilitates a swap that is subject to the 
mandatory clearing requirement of section 2(h) of the Act, the swap 
dealer or major swap participant shall be responsible for compliance 
with the mandatory trading requirement under section 2(h)(8) of the Act.



Sec.  37.201  Operation of swap execution facility and compliance with rules.

    (a) A swap execution facility shall establish rules governing the 
operation of the swap execution facility, including, but not limited to, 
rules specifying trading procedures to be followed by members and market 
participants when entering and executing orders traded or posted on the 
swap execution facility, including block trades, as defined in part 43 
of this chapter, if offered.
    (b) A swap execution facility shall establish and impartially 
enforce compliance with the rules of the swap execution facility, 
including, but not limited to--
    (1) The terms and conditions of any swaps traded or processed on or 
through the swap execution facility;
    (2) Access to the swap execution facility;
    (3) Trade practice rules;
    (4) Audit trail requirements;
    (5) Disciplinary rules; and
    (6) Mandatory trading requirements.



Sec.  37.202  Access requirements.

    (a) Impartial access to markets and market services. A swap 
execution facility shall provide any eligible contract

[[Page 740]]

participant and any independent software vendor with impartial access to 
its market(s) and market services, including any indicative quote 
screens or any similar pricing data displays, provided that the facility 
has:
    (1) Criteria governing such access that are impartial, transparent, 
and applied in a fair and nondiscriminatory manner;
    (2) Procedures whereby eligible contract participants provide the 
swap execution facility with written or electronic confirmation of their 
status as eligible contract participants, as defined by the Act and 
Commission regulations, prior to obtaining access; and
    (3) Comparable fee structures for eligible contract participants and 
independent software vendors receiving comparable access to, or services 
from, the swap execution facility.
    (b) Jurisdiction. Prior to granting any eligible contract 
participant access to its facilities, a swap execution facility shall 
require that the eligible contract participant consent to its 
jurisdiction.
    (c) Limitations on access. A swap execution facility shall establish 
and impartially enforce rules governing any decision to allow, deny, 
suspend, or permanently bar eligible contract participants' access to 
the swap execution facility, including when such decisions are made as 
part of a disciplinary or emergency action taken by the swap execution 
facility.



Sec.  37.203  Rule enforcement program.

    A swap execution facility shall establish and enforce trading, trade 
processing, and participation rules that will deter abuses and it shall 
have the capacity to detect, investigate, and enforce those rules.
    (a) Abusive trading practices prohibited. A swap execution facility 
shall prohibit abusive trading practices on its markets by members and 
market participants. Swap execution facilities that permit 
intermediation shall 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 shall be prohibited include front-running, wash 
trading, pre-arranged trading (except for block trades permitted by part 
43 of this chapter or other types of transactions certified to or 
approved by the Commission pursuant to the procedures under part 40 of 
this chapter), fraudulent trading, money passes, and any other trading 
practices that a swap execution facility deems to be abusive. A swap 
execution facility shall also prohibit any other manipulative or 
disruptive trading practices prohibited by the Act or by the Commission 
pursuant to Commission regulation.
    (b) Capacity to detect and investigate rule violations. A swap 
execution facility shall have arrangements and resources for effective 
enforcement of its rules. Such arrangements shall 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 
swap execution facility's members and by persons under investigation. A 
swap execution facility's arrangements and resources shall also 
facilitate the direct supervision of the market and the analysis of data 
collected to determine whether a rule violation has occurred.
    (c) Compliance staff and resources. A swap execution facility shall 
establish and maintain sufficient compliance staff and resources to 
ensure that it can conduct effective audit trail reviews, trade practice 
surveillance, market surveillance, and real-time market monitoring. The 
swap execution facility's compliance staff shall also 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 in Sec.  
37.203(f).
    (d) Automated trade surveillance system. A swap execution facility 
shall maintain an automated trade surveillance system capable of 
detecting potential trade practice violations. The automated trade 
surveillance system shall load and process daily orders and trades no 
later than 24 hours after the completion of the trading day. The 
automated trade surveillance system shall 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 
swap-

[[Page 741]]

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.
    (e) Real-time market monitoring. A swap execution facility shall 
conduct real-time market monitoring of all trading activity on its 
system(s) or platform(s) to identify disorderly trading and any market 
or system anomalies. A swap execution facility shall have the authority 
to adjust trade prices or cancel trades when necessary to mitigate 
market disrupting events caused by malfunctions in its system(s) or 
platform(s) or errors in orders submitted by members and market 
participants. Any trade price adjustments or trade cancellations shall 
be transparent to the market and subject to standards that are clear, 
fair, and publicly available.
    (f) Investigations and investigation reports--(1) Procedures. A swap 
execution facility shall establish and maintain procedures that require 
its compliance staff to conduct investigations of possible rule 
violations. An investigation shall be commenced upon the receipt of a 
request from Commission staff or upon the discovery or receipt of 
information by the swap execution facility that indicates a reasonable 
basis for finding that a violation may have occurred or will occur.
    (2) Timeliness. Each compliance staff investigation shall 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.
    (3) Investigation reports when a reasonable basis exists for finding 
a violation. Compliance staff shall 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 shall 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.
    (4) 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 rule 
violation, it shall prepare a written report including the reason the 
investigation was initiated; a summary of the complaint, if any; the 
relevant facts; and compliance staff's analysis and conclusions.
    (5) 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.
    (g) Additional sources for compliance. A swap execution facility may 
refer to the guidance and/or acceptable practices in appendix B of this 
part to demonstrate to the Commission compliance with the requirements 
of Sec.  37.203.



Sec.  37.204  Regulatory services provided by a third party.

    (a) Use of regulatory service provider permitted. A swap execution 
facility may choose to contract with a registered futures association or 
another registered entity, as such terms are defined under the Act, or 
the Financial Industry Regulatory Authority (collectively, ``regulatory 
service providers''), for the provision of services to assist in 
complying with the Act and Commission regulations thereunder, as 
approved by the Commission. Any swap execution facility that chooses to 
contract with a regulatory service provider shall ensure that such 
provider has the capacity and resources necessary to provide timely and 
effective regulatory services, including adequate staff and automated 
surveillance systems. A swap execution facility shall at all times 
remain responsible for the performance of any regulatory services 
received, for compliance with the swap execution facility's obligations 
under the Act and Commission regulations,

[[Page 742]]

and for the regulatory service provider's performance on its behalf.
    (b) Duty to supervise regulatory service provider. A swap execution 
facility that elects to use the service of a regulatory service provider 
shall retain sufficient compliance staff to supervise the quality and 
effectiveness of the regulatory services provided on its behalf. 
Compliance staff of the swap execution facility shall hold regular 
meetings with the regulatory service provider to discuss ongoing 
investigations, trading patterns, market participants, and any other 
matters of regulatory concern. A swap execution facility shall also 
conduct periodic reviews of the adequacy and effectiveness of services 
provided on its behalf. Such reviews shall be documented carefully and 
made available to the Commission upon request.
    (c) Regulatory decisions required from the swap execution facility. 
A swap execution facility that elects to use the service of a regulatory 
service provider shall retain exclusive authority in all substantive 
decisions made by its regulatory service provider, including, but not 
limited to, decisions involving the cancellation of trades, the issuance 
of disciplinary charges against members or market participants, and 
denials of access to the trading platform for disciplinary reasons. A 
swap execution facility shall 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 swap execution 
facility chose a different course of action.



Sec.  37.205  Audit trail.

    A swap execution facility shall establish procedures to capture and 
retain information that may be used in establishing whether rule 
violations have occurred.
    (a) Audit trail required. A swap execution facility shall capture 
and retain all audit trail data necessary to detect, investigate, and 
prevent customer and market abuses. Such data shall be sufficient to 
reconstruct all indications of interest, requests for quotes, orders, 
and trades within a reasonable period of time and to provide evidence of 
any violations of the rules of the swap execution facility. An 
acceptable audit trail shall also permit the swap execution facility to 
track a customer order from the time of receipt through execution on the 
swap execution facility.
    (b) Elements of an acceptable audit trail program--(1) Original 
source documents. A swap execution facility's audit trail shall 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) shall reflect the terms of the order, an account identifier 
that relates back to the account(s) owner(s), the time of order entry, 
and the time of trade execution. Swap execution facilities shall require 
that all orders, indications of interest, and requests for quotes be 
immediately captured in the audit trail.
    (2) Transaction history database. A swap execution facility's audit 
trail program shall include an electronic transaction history database. 
An adequate transaction history database includes a history of all 
indications of interest, requests for quotes, orders, and trades entered 
into a swap execution facility's trading system or platform, including 
all order modifications and cancellations. An adequate transaction 
history database also includes:
    (i) All data that are input into the trade entry or matching system 
for the transaction to match and clear;
    (ii) The customer type indicator code;
    (iii) Timing and sequencing data adequate to reconstruct trading; 
and
    (3) Electronic analysis capability. A swap execution facility's 
audit trail program shall include electronic analysis capability with 
respect to all audit trail data in the transaction history database. 
Such electronic analysis capability shall ensure that the swap execution 
facility has the ability to reconstruct indications of interest, 
requests for quotes, orders, and trades, and identify possible trading 
violations with respect to both customer and market abuse.

[[Page 743]]

    (4) Safe storage capability. A swap execution facility's audit trail 
program shall include the capability to safely store all audit trail 
data retained in its transaction history database. Such safe storage 
capability shall 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 shall be retained in 
accordance with the recordkeeping requirements of Core Principle 10 for 
swap execution facilities and the associated regulations in subpart K of 
this part.
    (c) Enforcement of audit trail requirements--(1) Annual audit trail 
and recordkeeping reviews. A swap execution facility shall enforce its 
audit trail and recordkeeping requirements through at least annual 
reviews of all members and persons and firms subject to the swap 
execution facility's recordkeeping rules to verify their compliance with 
the swap execution facility's audit trail and recordkeeping 
requirements. Such reviews shall include, but are not limited to, 
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) Enforcement program required. A swap execution facility shall 
establish a program for effective enforcement of its audit trail and 
recordkeeping requirements. An effective program shall identify members 
and persons and firms subject to the swap execution facility's 
recordkeeping rules that have failed to maintain high levels of 
compliance with such requirements, and impose meaningful sanctions when 
deficiencies are found. Sanctions shall be sufficient to deter 
recidivist behavior. No more than one warning letter shall be issued to 
the same person or entity found to have committed the same violation of 
audit trail or recordkeeping requirements within a rolling twelve month 
period.

[78 FR 33582, June 4, 2013, as amended at 86 FR 9247, Feb. 11, 2021]



Sec.  37.206  Disciplinary procedures and sanctions.

    A swap execution facility shall establish trading, trade processing, 
and participation rules that will deter abuses and have the capacity to 
enforce such rules through prompt and effective disciplinary action, 
including suspension or expulsion of members or market participants that 
violate the rules of the swap execution facility.
    (a) Enforcement staff. A swap execution facility shall establish and 
maintain sufficient enforcement staff and resources to effectively and 
promptly prosecute possible rule violations within the disciplinary 
jurisdiction of the swap execution facility.
    (b) Disciplinary panels. A swap execution facility shall establish 
one or more disciplinary panels that are authorized to fulfill their 
obligations under the rules of this subpart. Disciplinary panels shall 
meet the composition requirements of part 40 of this chapter, and shall 
not include any members of the swap execution facility's compliance 
staff or any person involved in adjudicating any other stage of the same 
proceeding.
    (c) Hearings. A swap execution facility shall adopt rules that 
provide for the following minimum requirements for any hearing:
    (1) The hearing shall be fair, shall be conducted before members of 
the disciplinary panel, and shall be promptly convened after reasonable 
notice to the respondent; and
    (2) If the respondent has requested a hearing, a copy of the hearing 
shall be made and shall become a part of the record of the proceeding. 
The record shall not be required to be transcribed unless:
    (i) The transcript is requested by Commission staff or the 
respondent;
    (ii) The decision is appealed pursuant to the rules of the swap 
execution facility; or
    (iii) The decision is reviewed by the Commission pursuant to section 
8c of the Act or part 9 of this chapter. In all

[[Page 744]]

other instances, a summary record of a hearing is permitted.
    (d) Decisions. Promptly following a hearing conducted in accordance 
with the rules of the swap execution facility, the disciplinary panel 
shall render a written decision based upon the weight of the evidence 
contained in the record of the proceeding and shall provide a copy to 
the respondent. The decision shall include:
    (1) The notice of charges or a summary of the charges;
    (2) The answer, if any, or a summary of the answer;
    (3) A summary of the evidence produced at the hearing or, where 
appropriate, incorporation by reference of the investigation report;
    (4) A statement of findings and conclusions with respect to each 
charge, and a complete explanation of the evidentiary and other basis 
for such findings and conclusions with respect to each charge;
    (5) An indication of each specific rule that the respondent was 
found to have violated; and
    (6) A declaration of all sanctions imposed against the respondent, 
including the basis for such sanctions and the effective date of such 
sanctions.
    (e) Disciplinary sanctions. All disciplinary sanctions imposed by a 
swap execution facility or its disciplinary panels shall be commensurate 
with the violations committed and shall 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, shall take into account the respondent's 
disciplinary history. In the event of demonstrated customer harm, any 
disciplinary sanction shall also include full customer restitution, 
except where the amount of restitution or to whom it should be provided 
cannot be reasonably determined.
    (f) Warning letters. Where a rule violation is found to have 
occurred, no more than one warning letter may be issued per rolling 
twelve month period for the same violation.
    (g) Additional sources for compliance. A swap execution facility may 
refer to the guidance and/or acceptable practices in appendix B of this 
part to demonstrate to the Commission compliance with the requirements 
of Sec.  37.206.



         Subpart D_Swaps Not Readily Susceptible to Manipulation



Sec.  37.300  Core Principle 3--Swaps not readily susceptible to manipulation.

    The swap execution facility shall permit trading only in swaps that 
are not readily susceptible to manipulation.



Sec.  37.301  General requirements.

    To demonstrate to the Commission compliance with the requirements of 
Sec.  37.300, a swap execution facility shall, at the time it submits a 
new swap contract in advance to the Commission pursuant to part 40 of 
this chapter, provide the applicable information as set forth in 
appendix C to part 38 of this chapter--Demonstration of Compliance That 
a Contract is not Readily Susceptible to Manipulation. A swap execution 
facility may also refer to the guidance and/or acceptable practices in 
appendix B of this part.



          Subpart E_Monitoring of Trading and Trade Processing



Sec.  37.400  Core Principle 4--Monitoring of trading and trade processing.

    The swap execution facility shall:
    (a) Establish and enforce rules or terms and conditions defining, or 
specifications detailing:
    (1) Trading procedures to be used in entering and executing orders 
traded on or through the facilities of the swap execution facility; and
    (2) Procedures for trade processing of swaps on or through the 
facilities of the swap execution facility; and
    (b) Monitor trading in swaps to prevent manipulation, price 
distortion, and disruptions of the delivery or cash settlement process 
through surveillance, compliance, and disciplinary practices and 
procedures, including methods for conducting real-time monitoring of 
trading and comprehensive and accurate trade reconstructions.



Sec.  37.401  General requirements.

    A swap execution facility shall:
    (a) Collect and evaluate data on its market participants' market 
activity

[[Page 745]]

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 trading for the purpose of detecting and resolving 
abnormalities; and
    (d) Demonstrate the ability to comprehensively and accurately 
reconstruct daily trading activity for the purpose of detecting 
instances or threats of manipulation, price distortion, and disruptions.



Sec.  37.402  Additional requirements for physical-delivery swaps.

    For physical-delivery swaps, the swap execution facility shall 
demonstrate that it:
    (a) Monitors a swap's terms and conditions as they relate to the 
underlying commodity market; and
    (b) Monitors the availability of the supply of the commodity 
specified by the delivery requirements of the swap.



Sec.  37.403  Additional requirements for cash-settled swaps.

    (a) For cash-settled swaps, the swap execution facility shall 
demonstrate that it monitors the pricing of the reference price used to 
determine cash flows or settlement;
    (b) For cash-settled swaps listed on the swap execution facility 
where the reference price is formulated and computed by the swap 
execution facility, the swap execution facility shall demonstrate that 
it monitors the continued appropriateness of its methodology for 
deriving that price; and
    (c) For cash-settled swaps listed on the swap execution facility 
where the reference price relies on a third-party index or instrument, 
including an index or instrument traded on another venue, the swap 
execution facility shall demonstrate that it monitors the continued 
appropriateness of the index or instrument.



Sec.  37.404  Ability to obtain information.

    (a) A swap execution facility shall demonstrate that it has access 
to sufficient information to assess whether trading in swaps listed on 
its market, in the index or instrument used as a reference price, or in 
the underlying commodity for its listed swaps is being used to affect 
prices on its market.
    (b) A swap execution facility shall have rules that require its 
market participants to keep records of their trading, including records 
of their activity in the index or instrument used as a reference price, 
the underlying commodity, and related derivatives markets, and make such 
records available, upon request, to the swap execution facility or, if 
applicable, to its regulatory service provider, and the Commission.



Sec.  37.405  Risk controls for trading.

    The swap execution facility shall establish and maintain risk 
control mechanisms to prevent and reduce the potential risk of market 
disruptions, including, but not limited to, market restrictions that 
pause or halt trading under market conditions prescribed by the swap 
execution facility.



Sec.  37.406  Trade reconstruction.

    The swap execution facility shall have the ability to 
comprehensively and accurately reconstruct all trading on its facility. 
All audit-trail data and reconstructions shall be made available to the 
Commission in a form, manner, and time that is acceptable to the 
Commission.



Sec.  37.407  Regulatory service provider.

    A swap execution facility shall comply with the regulations in this 
subpart through a dedicated regulatory department or by contracting with 
a regulatory service provider pursuant to Sec.  37.204.



Sec.  37.408  Additional sources for compliance.

    A swap execution facility may refer to the guidance and/or 
acceptable practices in appendix B of this part to demonstrate to the 
Commission compliance with the requirements of Sec.  37.400.

[[Page 746]]



                 Subpart F_Ability to Obtain Information



Sec.  37.500  Core Principle 5--Ability to obtain information.

    The swap execution facility shall:
    (a) Establish and enforce rules that will allow the facility to 
obtain any necessary information to perform any of the functions 
described in section 5h of the Act;
    (b) Provide the information to the Commission on request; and
    (c) Have the capacity to carry out such international information-
sharing agreements as the Commission may require.



Sec.  37.501  Establish and enforce rules.

    A swap execution facility shall establish and enforce rules that 
will allow the swap execution facility to have the ability and authority 
to obtain sufficient information to allow it to fully perform its 
operational, risk management, governance, and regulatory functions and 
any requirements under this part, including the capacity to carry out 
international information-sharing agreements as the Commission may 
require.



Sec.  37.502  Collection of information.

    A swap execution facility shall have rules that allow it to collect 
information on a routine basis, allow for the collection of non-routine 
data from its market participants, and allow for its examination of 
books and records kept by the market participants on its facility.



Sec.  37.503  Provide information to the Commission.

    A swap execution facility shall provide information in its 
possession to the Commission upon request, in a form and manner that the 
Commission approves.



Sec.  37.504  Information-sharing agreements.

    A swap execution facility shall share information with other 
regulatory organizations, data repositories, and third-party data 
reporting services as required by the Commission or as otherwise 
necessary and appropriate to fulfill its self-regulatory and reporting 
responsibilities. Appropriate information-sharing agreements can be 
established with such entities or the Commission can act in conjunction 
with the swap execution facility to carry out such information sharing.



               Subpart G_Position Limits or Accountability



Sec.  37.600  Core Principle 6--Position limits or accountability.

    (a) In general. To reduce the potential threat of market 
manipulation or congestion, especially during trading in the delivery 
month, a swap execution facility that is a trading facility shall adopt 
for each of the contracts of the facility, as is necessary and 
appropriate, position limitations or position accountability for 
speculators.
    (b) Position limits. For any contract that is subject to a position 
limitation established by the Commission pursuant to section 4a(a) of 
the Act, the swap execution facility shall:
    (1) Set its position limitation at a level no higher than the 
Commission limitation; and
    (2) Monitor positions established on or through the swap execution 
facility for compliance with the limit set by the Commission and the 
limit, if any, set by the swap execution facility.



Sec.  37.601  Additional sources for compliance.

    Until such time that compliance is required under part 151 of this 
chapter, a swap execution facility may refer to the guidance and/or 
acceptable practices in appendix B of this part to demonstrate to the 
Commission compliance with the requirements of Sec.  37.600.



              Subpart H_Financial Integrity of Transactions



Sec.  37.700  Core Principle 7--Financial integrity of transactions.

    The swap execution facility shall establish and enforce rules and 
procedures for ensuring the financial integrity of swaps entered on or 
through the facilities of the swap execution facility, including the 
clearance and settlement of the swaps pursuant to section 2(h)(1) of the 
Act.

[[Page 747]]



Sec.  37.701  Required clearing.

    Transactions executed on or through the swap execution facility that 
are required to be cleared under section 2(h)(1)(A) of the Act or are 
voluntarily cleared by the counterparties shall be cleared through a 
Commission-registered derivatives clearing organization, or a 
derivatives clearing organization that the Commission has determined is 
exempt from registration.



Sec.  37.702  General financial integrity.

    A swap execution facility shall provide for the financial integrity 
of its transactions:
    (a) By establishing minimum financial standards for its members, 
which shall, at a minimum, require that members qualify as an eligible 
contract participant as defined in section 1a(18) of the Act;
    (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 of Sec.  39.12(b)(7) of this 
chapter.



Sec.  37.703  Monitoring for financial soundness.

    A swap execution facility shall monitor its members to ensure that 
they continue to qualify as eligible contract participants as defined in 
section 1a(18) of the Act.



                      Subpart I_Emergency Authority



Sec.  37.800  Core Principle 8--Emergency authority.

    The swap execution facility shall adopt rules to provide for the 
exercise of emergency authority, in consultation or cooperation with the 
Commission, as is necessary and appropriate, including the authority to 
liquidate or transfer open positions in any swap or to suspend or 
curtail trading in a swap.



Sec.  37.801  Additional sources for compliance.

    A swap execution facility may refer to the guidance and/or 
acceptable practices in appendix B of this part to demonstrate to the 
Commission compliance with the requirements of Sec.  37.800.



           Subpart J_Timely Publication of Trading Information



Sec.  37.900  Core Principle 9--Timely publication of trading information.

    (a) In general. The swap execution facility shall make public timely 
information on price, trading volume, and other trading data on swaps to 
the extent prescribed by the Commission.
    (b) Capacity of swap execution facility. The swap execution facility 
shall be required to have the capacity to electronically capture and 
transmit trade information with respect to transactions executed on the 
facility.



Sec.  37.901  General requirements.

    With respect to swaps traded on or through a swap execution 
facility, each swap execution facility shall:
    (a) Report specified swap data as provided under part 43 and part 45 
of this chapter; and
    (b) Meet the requirements of part 16 of this chapter.



                  Subpart K_Recordkeeping and Reporting



Sec.  37.1000  Core Principle 10--Recordkeeping and reporting.

    (a) In general. A swap execution facility shall:
    (1) Maintain records of all activities relating to the business of 
the facility, including a complete audit trail, in a form and manner 
acceptable to the Commission for a period of five years;
    (2) Report to the Commission, in a form and manner acceptable to the 
Commission, such information as the Commission determines to be 
necessary or appropriate for the Commission to perform the duties of the 
Commission under the Act; and

[[Page 748]]

    (3) 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.
    (b) Requirements. The Commission shall adopt data collection and 
reporting requirements for swap execution facilities that are comparable 
to corresponding requirements for derivatives clearing organizations and 
swap data repositories.



Sec.  37.1001  Recordkeeping.

    A swap execution facility shall maintain records of all activities 
relating to the business of the facility, in a form and manner 
acceptable to the Commission, for a period of at least five years. A 
swap execution facility shall maintain such records, including a 
complete audit trail for all swaps executed on or subject to the rules 
of the swap execution facility, investigatory files, and disciplinary 
files, in accordance with the requirements of Sec.  1.31 and part 45 of 
this chapter.



                   Subpart L_Antitrust Considerations



Sec.  37.1100  Core Principle 11--Antitrust considerations.

    Unless necessary or appropriate to achieve the purposes of the Act, 
the swap execution facility shall not:
    (a) Adopt any rules or take any actions that result in any 
unreasonable restraint of trade; or
    (b) Impose any material anticompetitive burden on trading or 
clearing.



Sec.  37.1101  Additional sources for compliance.

    A swap execution facility may refer to the guidance and/or 
acceptable practices in appendix B of this part to demonstrate to the 
Commission compliance with the requirements of Sec.  37.1100.



                     Subpart M_Conflicts of Interest



Sec.  37.1200  Core Principle 12--Conflicts of interest.

    The swap execution facility shall:
    (a) Establish and enforce rules to minimize conflicts of interest in 
its decision-making process; and
    (b) Establish a process for resolving the conflicts of interest.



                      Subpart N_Financial Resources

    Source: 86 FR 9247, Feb. 11, 2021, unless otherwise noted.



Sec.  37.1300  Core Principle 13--Financial resources.

    (a) In general. The swap execution facility shall have adequate 
financial, operational, and managerial resources to discharge each 
responsibility of the swap execution facility.
    (b) Determination of resource adequacy. The financial resources of a 
swap execution facility shall be considered to be adequate if the value 
of the financial resources exceeds the total amount that would enable 
the swap execution facility to cover the operating costs of the swap 
execution facility for a one-year period, as calculated on a rolling 
basis.



Sec.  37.1301  General requirements.

    (a) A swap execution facility shall maintain financial resources on 
an ongoing basis that are adequate to enable it to comply with the core 
principles set forth in section 5h of the Act and any applicable 
Commission regulations. Financial resources shall be considered adequate 
if their value exceeds the total amount that would enable the swap 
execution facility to cover its projected operating costs necessary for 
the swap execution facility to comply with section 5h of the Act and 
applicable Commission regulations for a one-year period, as calculated 
on a rolling basis pursuant to Sec.  37.1304.
    (b) An entity that operates as both a swap execution facility and a 
derivatives clearing organization shall also comply with the financial 
resource requirements of Sec.  39.11 of this chapter.



Sec.  37.1302  Types of financial resources.

    Financial resources available to satisfy the requirements of Sec.  
37.1301 may include:
    (a) The swap execution facility's own capital, meaning its assets 
minus its liabilities calculated in accordance with generally accepted 
accounting principles in the United States; and

[[Page 749]]

    (b) Any other financial resource deemed acceptable by the 
Commission.



Sec.  37.1303  Liquidity of financial resources.

    The financial resources allocated by the swap execution facility to 
meet the ongoing requirements of Sec.  37.1301 shall include 
unencumbered, liquid financial assets (i.e., cash and/or highly liquid 
securities) equal to at least the greater of three months of projected 
operating costs, as calculated on a rolling basis, or the projected 
costs needed to wind down the swap execution facility's operations, in 
each case as determined under Sec.  37.1304. If a swap execution 
facility lacks sufficient unencumbered, liquid financial assets to 
satisfy its obligations under this section, the swap execution facility 
may satisfy this requirement by obtaining a committed line of credit or 
similar facility in an amount at least equal to such deficiency.



Sec.  37.1304  Computation of costs to meet financial resources requirement.

    A swap execution facility shall each fiscal quarter, make a 
reasonable calculation of its projected operating costs and wind-down 
costs in order to determine its applicable obligations under Sec. Sec.  
37.1301 and 37.1303. The swap execution facility shall have reasonable 
discretion in determining the methodologies used to compute such 
amounts. The Commission may review the methodologies and require changes 
as appropriate.



Sec.  37.1305  Valuation of financial resources.

    No less than each fiscal quarter, a swap execution facility shall 
compute the current market value of each financial resource used to meet 
its obligations under Sec. Sec.  37.1301 and 37.1303. Reductions in 
value to reflect market and credit risk (``haircuts'') shall be applied 
as appropriate.



Sec.  37.1306  Reporting to the Commission.

    (a) Each fiscal quarter, or at any time upon Commission request, a 
swap execution facility shall provide a report to the Commission that 
includes:
    (1) The amount of financial resources necessary to meet the 
requirements of Sec. Sec.  37.1301 and 37.1303, computed in accordance 
with the requirements of Sec.  37.1304, and the market value of each 
available financial resource, computed in accordance with the 
requirements of Sec.  37.1305; and
    (2) Financial statements, including the balance sheet, income 
statement, and statement of cash flows of the swap execution facility.
    (i) The financial statements shall be prepared in accordance with 
generally accepted accounting principles in the United States, prepared 
in English, and denominated in U.S. dollars.
    (ii) The financial statements of a swap execution facility that is 
not domiciled in the United States, and is not otherwise required to 
prepare financial statements in accordance with generally accepted 
accounting principles in the United States, may satisfy the requirement 
in paragraph (a)(2)(i) of this section if such financial statements are 
prepared in accordance with either International Financial Reporting 
Standards issued by the International Accounting Standards Board, or a 
comparable international standard as the Commission may otherwise accept 
in its discretion.
    (b) The calculations required by paragraph (a) of this section shall 
be made as of the last business day of the swap execution facility's 
applicable fiscal quarter.
    (c) With each report required under paragraph (a) of this section, 
the swap execution facility shall also provide the Commission with 
sufficient documentation explaining the methodology used to compute its 
financial requirements under Sec. Sec.  37.1301 and 37.1303. Such 
documentation shall:
    (1) Allow the Commission to reliably determine, without additional 
requests for information, that the swap execution facility has made 
reasonable calculations pursuant to Sec.  37.1304; and
    (2) Include, at a minimum:
    (i) A total list of all expenses, without any exclusion;
    (ii) All expenses and the corresponding amounts, if any, that the 
swap execution facility excluded or prorated when determining its 
operating costs, calculated on a rolling

[[Page 750]]

basis, required under Sec. Sec.  37.1301 and 37.1303, and the basis for 
any determination to exclude or prorate any such expenses;
    (iii) Documentation demonstrating the existence of any committed 
line of credit or similar facility relied upon for the purpose of 
meeting the requirements of Sec.  37.1303 (e.g., copies of agreements 
establishing or amending a credit facility or similar facility); and
    (iv) All costs that a swap execution facility would incur to wind 
down the swap execution facility's operations, the projected amount of 
time for any such wind-down period, and the basis of its determination 
for the estimation of its costs and timing.
    (d) The reports and supporting documentation required by this 
section shall be filed not later than 40 calendar days after the end of 
the swap execution facility's first three fiscal quarters, and not later 
than 90 calendar days after the end of the swap execution facility's 
fourth fiscal quarter, or at such later time as the Commission may 
permit, in its discretion, upon request by the swap execution facility.
    (e) A swap execution facility shall provide notice to the Commission 
no later than 48 hours after it knows or reasonably should know that it 
no longer meets its obligations under Sec.  37.1301 or 37.1303.



Sec.  37.1307  Delegation of authority.

    (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, authority 
to:
    (1) Determine whether a particular financial resource under Sec.  
37.1302 may be used to satisfy the requirements of Sec.  37.1301;
    (2) Review and make changes to the methodology used to compute 
projected operating costs and wind-down costs under Sec.  37.1304 and 
the valuation of financial resources under Sec.  37.1305;
    (3) Request reports, in addition to those required in Sec.  37.1306, 
or additional documentation or information under Sec.  37.1306(a), (c), 
and (e); and
    (4) Grant an extension of time to file fiscal quarter reports under 
Sec.  37.1306(d).
    (b) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this section. Nothing in this 
section prohibits the Commission, at its election, from exercising the 
authority delegated in this section.



                       Subpart O_System Safeguards



Sec.  37.1400  Core Principle 14--System safeguards.

    The swap execution facility 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 automated 
systems, that:
    (1) Are reliable and secure; and
    (2) Have adequate scalable capacity;
    (b) Establish and maintain emergency procedures, backup facilities, 
and a plan for disaster recovery that allow for:
    (1) The timely recovery and resumption of operations; and
    (2) The fulfillment of the responsibilities and obligations of the 
swap execution facility; and
    (c) Periodically conduct tests to verify that the backup resources 
of the swap execution facility are sufficient to ensure continued:
    (1) Order processing and trade matching;
    (2) Price reporting;
    (3) Market surveillance; and
    (4) Maintenance of a comprehensive and accurate audit trail.



Sec.  37.1401  Requirements.

    (a) A swap execution facility'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) Enterprise risk management and governance. This category 
includes, but is not limited to: Assessment, mitigation, and monitoring 
of security and technology risk; security and technology capital 
planning and investment; board of directors and management oversight of 
technology and security; information technology audit and controls 
assessments; remediation of deficiencies; and any other elements of

[[Page 751]]

enterprise risk management and governance included in generally accepted 
best practices.
    (2) Information security. This category includes, but is not limited 
to, controls relating to: Access to systems and data (including least 
privilege, separation of duties, account monitoring and control); user 
and device identification and authentication; security awareness 
training; audit log maintenance, monitoring, and analysis; media 
protection; personnel security and screening; automated system and 
communications protection (including network port control, boundary 
defenses, encryption); system and information integrity (including 
malware defenses, software integrity monitoring); vulnerability 
management; penetration testing; security incident response and 
management; and any other elements of information security included in 
generally accepted best practices.
    (3) Business continuity-disaster recovery planning and resources. 
This category includes, but is not limited to: Regular, periodic testing 
and review of business continuity-disaster recovery capabilities, the 
controls and capabilities described in paragraph (c), (d), (j), and (k) 
of this section; and any other elements of business continuity-disaster 
recovery planning and resources included in generally accepted best 
practices.
    (4) Capacity and performance planning. This category includes, but 
is not limited to: Controls for monitoring the swap execution facility's 
systems to ensure adequate scalable capacity (including testing, 
monitoring, and analysis of current and projected future capacity and 
performance, and of possible capacity degradation due to planned 
automated system changes); and any other elements of capacity and 
performance planning included in generally accepted best practices.
    (5) Systems operations. This category includes, but is not limited 
to: System maintenance; configuration management (including baseline 
configuration, configuration change and patch management, least 
functionality, inventory of authorized and unauthorized devices and 
software); event and problem response and management; and any other 
elements of system operations included in generally accepted best 
practices.
    (6) Systems development and quality assurance. This category 
includes, but is not limited to: Requirements development; pre-
production and regression testing; change management procedures and 
approvals; outsourcing and vendor management; training in secure coding 
practices; and any other elements of systems development and quality 
assurance included in generally accepted best practices.
    (7) Physical security and environmental controls. This category 
includes, but is not limited to: Physical access and monitoring; power, 
telecommunication, and environmental controls; fire protection; and any 
other elements of physical security and environmental controls included 
in generally accepted best practices.
    (b) In addressing the categories of risk analysis and oversight 
required under paragraph (a) of this section, a swap execution facility 
shall follow generally accepted standards and best practices with 
respect to the development, operation, reliability, security, and 
capacity of automated systems.
    (c) A swap execution facility 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 responsibilities and obligations as a 
swap execution facility 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, where appropriate; price 
reporting; market surveillance; and maintenance of a comprehensive audit 
trail. A swap execution facility's business continuity-disaster recovery 
plan and resources generally should enable resumption of trading and 
clearing of swaps executed on or pursuant to the rules of the swap 
execution facility during the next business day following the 
disruption. Swap execution facilities determined by the Commission to

[[Page 752]]

be critical financial markets are subject to more stringent requirements 
in this regard, set forth in Sec.  40.9 of this chapter. A swap 
execution facility shall update its business continuity-disaster 
recovery plan and emergency procedures at a frequency determined by an 
appropriate risk analysis, but at a minimum no less frequently than 
annually.
    (d) A swap execution facility that is not determined by the 
Commission to be a critical financial market satisfies the requirement 
to be able to resume its operations and resume its ongoing fulfillment 
of its responsibilities and obligations during the next business day 
following any disruption of its operations 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 swap execution facility following any disruption of its 
operations; or
    (2) Contractual arrangements with other swap execution facilities or 
disaster recovery service providers, as appropriate, that are sufficient 
to ensure continued trading and clearing of swaps executed on the swap 
execution facility, and ongoing fulfillment of all of the swap execution 
facility's responsibilities and obligations with respect to such swaps, 
in the event that a disruption renders the swap execution facility 
temporarily or permanently unable to satisfy this requirement on its own 
behalf.
    (e) A swap execution facility shall notify Commission staff promptly 
of all:
    (1) Electronic trading halts and material system malfunctions;
    (2) Cyber security incidents or targeted threats that actually or 
potentially jeopardize automated system operation, reliability, 
security, or capacity; and
    (3) Activations of the swap execution facility's business 
continuity-disaster recovery plan.
    (f) A swap execution facility shall provide 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 swap execution facility's program of risk 
analysis and oversight.
    (g) As part of a swap execution facility's obligation to produce 
books and records in accordance with Sec.  1.31 of this chapter, Core 
Principle 10 (Recordkeeping and Reporting), and Sec. Sec.  37.1000 and 
37.1001, a swap execution facility shall provide to the Commission the 
following system safeguards-related books and records, promptly upon the 
request of any Commission representative:
    (1) Current copies of its business continuity-disaster recovery 
plans and other emergency procedures;
    (2) All assessments of its operational risks or system safeguards-
related controls;
    (3) All reports concerning system safeguards testing and assessment 
required by this chapter, whether performed by independent contractors 
or by employees of the swap execution facility; and
    (4) All other books and records requested by Commission staff in 
connection with Commission oversight of system safeguards pursuant to 
the Act or Commission regulations, or in connection with Commission 
maintenance of a current profile of the swap execution facility's 
automated systems.
    (5) Nothing in Sec.  37.1401(g) shall be interpreted as reducing or 
limiting in any way a swap execution facility's obligation to comply 
with Core Principle 10 (Recordkeeping and Reporting) or with Sec.  1.31 
of this chapter or with Sec.  37.1000 or Sec.  37.1001.
    (h) A swap execution facility 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. Such testing and review shall 
include, without limitation, all of the types of testing set forth in 
paragraph (h) of this section.
    (1) Definitions. As used in this paragraph (h):
    Controls means the safeguards or countermeasures employed by the 
swap

[[Page 753]]

execution facility in order to protect the reliability, security, or 
capacity of its automated systems or the confidentiality, integrity, and 
availability of its data and information, and in order to enable the 
swap execution facility to fulfill its statutory and regulatory 
responsibilities.
    Controls testing means assessment of the swap execution facility's 
controls to determine whether such controls are implemented correctly, 
are operating as intended, and are enabling the swap execution facility 
to meet the requirements established by this section.
    Enterprise technology risk assessment means a written assessment 
that includes, but is not limited to, an analysis of threats and 
vulnerabilities in the context of mitigating controls. An enterprise 
technology risk assessment identifies, estimates, and prioritizes risks 
to swap execution facility operations or assets, or to market 
participants, individuals, or other entities, resulting from impairment 
of the confidentiality, integrity, and availability of data and 
information or the reliability, security, or capacity of automated 
systems.
    External penetration testing means attempts to penetrate the swap 
execution facility's automated systems from outside the systems' 
boundaries to identify and exploit vulnerabilities. Methods of 
conducting external penetration testing include, but are not limited to, 
methods for circumventing the security features of an automated system.
    Internal penetration testing means attempts to penetrate the swap 
execution facility's automated systems from inside the systems' 
boundaries, to identify and exploit vulnerabilities. Methods of 
conducting internal penetration testing include, but are not limited to, 
methods for circumventing the security features of an automated system.
    Key controls means those controls that an appropriate risk analysis 
determines are either critically important for effective system 
safeguards or intended to address risks that evolve or change more 
frequently and therefore require more frequent review to ensure their 
continuing effectiveness in addressing such risks.
    Security incident means a cyber security or physical security event 
that actually jeopardizes or has a significant likelihood of 
jeopardizing automated system operation, reliability, security, or 
capacity, or the availability, confidentiality or integrity of data.
    Security incident response plan means a written plan documenting the 
swap execution facility's policies, controls, procedures, and resources 
for identifying, responding to, mitigating, and recovering from security 
incidents, and the roles and responsibilities of its management, staff 
and independent contractors in responding to security incidents. A 
security incident response plan may be a separate document or a business 
continuity-disaster recovery plan section or appendix dedicated to 
security incident response.
    Security incident response plan testing means testing of a swap 
execution facility's security incident response plan to determine the 
plan's effectiveness, identify its potential weaknesses or deficiencies, 
enable regular plan updating and improvement, and maintain 
organizational preparedness and resiliency with respect to security 
incidents. Methods of conducting security incident response plan testing 
may include, but are not limited to, checklist completion, walk-through 
or table-top exercises, simulations, and comprehensive exercises.
    Vulnerability testing means testing of a swap execution facility's 
automated systems to determine what information may be discoverable 
through a reconnaissance analysis of those systems and what 
vulnerabilities may be present on those systems.
    (2) Vulnerability testing. A swap execution facility shall conduct 
vulnerability testing of a scope sufficient to satisfy the requirements 
set forth in paragraph (k) of this section.
    (i) A swap execution facility shall conduct such vulnerability 
testing at a frequency determined by an appropriate risk analysis.
    (ii) Such vulnerability testing shall include automated 
vulnerability scanning, which shall follow generally accepted best 
practices.
    (iii) A swap execution facility shall conduct vulnerability testing 
by engaging independent contractors or by using employees of the swap 
execution

[[Page 754]]

facility who are not responsible for development or operation of the 
systems or capabilities being tested.
    (3) External penetration testing. A swap execution facility shall 
conduct external penetration testing of a scope sufficient to satisfy 
the requirements set forth in paragraph (k) of this section.
    (i) A swap execution facility shall conduct such external 
penetration testing at a frequency determined by an appropriate risk 
analysis.
    (ii) A swap execution facility shall conduct external penetration 
testing by engaging independent contractors or by using employees of the 
swap execution facility who are not responsible for development or 
operation of the systems or capabilities being tested.
    (4) Internal penetration testing. A swap execution facility shall 
conduct internal penetration testing of a scope sufficient to satisfy 
the requirements set forth in paragraph (k) of this section.
    (i) A swap execution facility shall conduct such internal 
penetration testing at a frequency determined by an appropriate risk 
analysis.
    (ii) A swap execution facility shall conduct internal penetration 
testing by engaging independent contractors, or by using employees of 
the swap execution facility who are not responsible for development or 
operation of the systems or capabilities being tested.
    (5) Controls testing. A swap execution facility shall conduct 
controls testing of a scope sufficient to satisfy the requirements set 
forth in paragraph (k) of this section.
    (i) A swap execution facility shall conduct controls testing, which 
includes testing of each control included in its program of risk 
analysis and oversight, at a frequency determined by an appropriate risk 
analysis. Such testing may be conducted on a rolling basis.
    (ii) A swap execution facility shall conduct controls testing by 
engaging independent contractors or by using employees of the swap 
execution facility who are not responsible for development or operation 
of the systems or capabilities being tested.
    (6) Security incident response plan testing. A swap execution 
facility shall conduct security incident response plan testing 
sufficient to satisfy the requirements set forth in paragraph (k) of 
this section.
    (i) A swap execution facility shall conduct such security incident 
response plan testing at a frequency determined by an appropriate risk 
analysis.
    (ii) A swap execution facility's security incident response plan 
shall include, without limitation, the swap execution facility's 
definition and classification of security incidents, its policies and 
procedures for reporting security incidents and for internal and 
external communication and information sharing regarding security 
incidents, and the hand-off and escalation points in its security 
incident response process.
    (iii) A swap execution facility may coordinate its security incident 
response plan testing with other testing required by this section or 
with testing of its other business continuity-disaster recovery and 
crisis management plans.
    (iv) A swap execution facility may conduct security incident 
response plan testing by engaging independent contractors or by using 
employees of the swap execution facility.
    (7) Enterprise technology risk assessment. A swap execution facility 
shall conduct enterprise technology risk assessment of a scope 
sufficient to satisfy the requirements set forth in paragraph (k) of 
this section.
    (i) A swap execution facility shall conduct enterprise technology 
risk assessment at a frequency determined by an appropriate risk 
analysis. A swap execution facility that has conducted an enterprise 
technology risk assessment that complies with this section may conduct 
subsequent assessments by updating the previous assessment.
    (ii) A swap execution facility may conduct enterprise technology 
risk assessments by using independent contractors or employees of the 
swap execution facility who are not responsible for development or 
operation of the systems or capabilities being assessed.
    (i) To the extent practicable, a swap execution facility shall:
    (1) Coordinate its business continuity-disaster recovery plan with 
those of the market participants it depends upon to provide liquidity, 
in a

[[Page 755]]

manner adequate to enable effective resumption of activity in its 
markets following a disruption causing activation of the swap execution 
facility's business continuity-disaster recovery plan;
    (2) Initiate and coordinate periodic, synchronized testing of its 
business continuity-disaster recovery plan with those of the market 
participants it depends upon 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 40 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 
establishes the requirements for core principle compliance in that 
respect.
    (k) Scope of testing and assessment. The scope for all system 
safeguards testing and assessment required by this part shall be broad 
enough to include the testing of automated systems and controls that the 
swap execution facility's required program of risk analysis and 
oversight and its current cybersecurity threat analysis indicate is 
necessary to identify risks and vulnerabilities that could enable an 
intruder or unauthorized user or insider to:
    (1) Interfere with the swap execution facility's operations or with 
fulfillment of its statutory and regulatory responsibilities;
    (2) Impair or degrade the reliability, security, or adequate 
scalable capacity of the swap execution facility's automated systems;
    (3) Add to, delete, modify, exfiltrate, or compromise the integrity 
of any data related to the swap execution facility's regulated 
activities; or
    (4) Undertake any other unauthorized action affecting the swap 
execution facility's regulated activities or the hardware or software 
used in connection with those activities.
    (l) Internal reporting and review. Both the senior management and 
the Board of Directors of a swap execution facility shall receive and 
review reports setting forth the results of the testing and assessment 
required by this section. A swap execution facility shall establish and 
follow appropriate procedures for the remediation of issues identified 
through such review, as provided in paragraph (m) of this section, and 
for evaluation of the effectiveness of testing and assessment protocols.
    (m) Remediation. A swap execution facility shall identify and 
document the vulnerabilities and deficiencies in its systems revealed by 
the testing and assessment required by this section. The swap execution 
facility shall conduct and document an appropriate analysis of the risks 
presented by such vulnerabilities and deficiencies, to determine and 
document whether to remediate or accept the associated risk. When the 
swap execution facility determines to remediate a vulnerability or 
deficiency, it must remediate in a timely manner given the nature and 
magnitude of the associated risk.

[78 FR 33582, June 4, 2013, as amended at 81 FR 64310, Sept. 19, 2016]



            Subpart P_Designation of Chief Compliance Officer



Sec.  37.1500  Core Principle 15--Designation of chief compliance officer.

    (a) In general. Each swap execution facility shall designate an 
individual to serve as a chief compliance officer.
    (b) Duties. The chief compliance officer shall:
    (1) Report directly to the board or to the senior officer of the 
facility;
    (2) Review compliance with the core principles in this subsection;
    (3) In consultation with the board of the facility, a body 
performing a function similar to that of a board, or the senior officer 
of the facility, resolve any conflicts of interest that may arise;
    (4) Be responsible for establishing and administering the policies 
and procedures required to be established pursuant to this section;
    (5) Ensure compliance with the Act and the rules and regulations 
issued under the Act, including rules prescribed by the Commission 
pursuant to section 5h of the Act; and

[[Page 756]]

    (6) Establish procedures for the remediation of noncompliance issues 
found during compliance office reviews, look backs, internal or external 
audit findings, self-reported errors, or through validated complaints.
    (c) Requirements for procedures. In establishing procedures under 
paragraph (b)(6) of this section, the chief compliance officer shall 
design the procedures to establish the handling, management response, 
remediation, retesting, and closing of noncompliance issues.
    (d) Annual reports--(1) In general. In accordance with rules 
prescribed by the Commission, the chief compliance officer shall 
annually prepare and sign a report that contains a description of:
    (i) The compliance of the swap execution facility with the Act; and
    (ii) The policies and procedures, including the code of ethics and 
conflict of interest policies, of the swap execution facility.
    (2) Requirements. The chief compliance officer shall:
    (i) Submit each report described in paragraph (d)(1) of this section 
with the appropriate financial report of the swap execution facility 
that is required to be submitted to the Commission pursuant to section 
5h of the Act; and
    (ii) Include in the report a certification that, under penalty of 
law, the report is accurate and complete.



Sec.  37.1501  Chief compliance officer.

    (a) Definitions. For purposes of this part, the term--
    Board of directors means the board of directors of a swap execution 
facility, or for those swap execution facilities whose organizational 
structure does not include a board of directors, a body performing a 
function similar to a board of directors.
    Senior officer means the chief executive officer or other equivalent 
officer of the swap execution facility.
    (b) Chief compliance officer--(1) Authority of chief compliance 
officer. (i) The position of chief compliance officer shall carry with 
it the authority and resources to develop, in consultation with the 
board of directors or senior officer, the policies and procedures of the 
swap execution facility and enforce such policies and procedures 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. (i) The individual 
designated to serve as chief compliance officer shall have the 
background and skills appropriate for fulfilling the responsibilities of 
the position.
    (ii) No individual disqualified from registration pursuant to 
sections 8a(2) or 8a(3) of the Act may serve as a chief compliance 
officer.
    (3) Appointment and removal of chief compliance officer. (i) Only 
the board of directors or the senior officer may appoint or remove the 
chief compliance officer.
    (ii) The swap execution facility shall notify the Commission within 
two business days of the appointment or removal, whether interim or 
permanent, of a chief compliance officer.
    (4) Compensation of the chief compliance officer. The board of 
directors or the senior officer shall approve the compensation of the 
chief compliance officer.
    (5) Annual meeting with the chief compliance officer. The chief 
compliance officer shall meet with the board of directors or senior 
officer of the swap execution facility at least annually.
    (6) Information requested of the chief compliance officer. The chief 
compliance officer shall provide any information regarding the self-
regulatory program of the swap execution facility as requested by the 
board of directors or the senior officer.
    (c) Duties of chief compliance officer. The duties of the chief 
compliance officer shall include, but are not limited to, the following:
    (1) Overseeing and reviewing compliance of the swap execution 
facility with section 5h of the Act and any related rules adopted by the 
Commission;
    (2) Taking reasonable steps, in consultation with the board of 
directors or the senior officer of the swap execution facility, to 
resolve any material conflicts of interest that may arise, including, 
but not limited to:
    (i) Conflicts between business considerations and compliance 
requirements;

[[Page 757]]

    (ii) Conflicts between business considerations and the requirement 
that the swap execution facility provide fair, open, and impartial 
access as set forth in Sec.  37.202; and;
    (iii) Conflicts between a swap execution facility's management and 
members of the board of directors;
    (3) Establishing and administering written policies and procedures 
reasonably designed to prevent violations of the Act and the rules of 
the Commission;
    (4) Taking reasonable steps to ensure compliance with the Act and 
the rules of the Commission;
    (5) Establishing procedures reasonably designed to handle, respond, 
remediate, retest, and resolve noncompliance issues identified by the 
chief compliance officer through any means, including any compliance 
office review, look-back, internal or external audit finding, self-
reported error, or validated complaint;
    (6) Establishing and administering a compliance manual designed to 
promote compliance with the applicable laws, rules, and regulations and 
a written code of ethics for the swap execution facility designed to 
prevent ethical violations and to promote honesty and ethical conduct by 
personnel of the swap execution facility;
    (7) Supervising the self-regulatory program of the swap execution 
facility with respect to trade practice surveillance; market 
surveillance; real time market monitoring; compliance with audit trail 
requirements; enforcement and disciplinary proceedings; audits, 
examinations, and other regulatory responsibilities (including taking 
reasonable steps to ensure compliance with, if applicable, financial 
integrity, financial reporting, sales practice, recordkeeping, and other 
requirements); and
    (8) Supervising the effectiveness and sufficiency of any regulatory 
services provided to the swap execution facility by a regulatory service 
provider in accordance with Sec.  37.204.
    (d) Preparation of annual compliance report. The chief compliance 
officer shall, not less than annually, prepare and sign an annual 
compliance report that covers the prior fiscal year. The report shall, 
at a minimum, contain:
    (1) A description and self-assessment of the effectiveness of the 
written policies and procedures of the swap execution facility, 
including the code of ethics and conflict of interest policies, to 
reasonably ensure compliance with the Act and applicable Commission 
regulations;
    (2) Any material changes made to compliance policies and procedures 
during the coverage period for the report and any areas of improvement 
or recommended changes to the compliance program;
    (3) A description of the financial, managerial, and operational 
resources set aside for compliance with the Act and applicable 
Commission regulations;
    (4) Any material non-compliance matters identified and an 
explanation of the corresponding action taken to resolve such non-
compliance matters; and
    (5) 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 in all 
material respects.
    (e) Submission of annual compliance report and related matters--(1) 
Furnishing the annual compliance report prior to submission to the 
Commission. Prior to submission to the Commission, the chief compliance 
officer shall provide the annual compliance report for review to the 
board of directors of the swap execution facility or, in the absence of 
a board of directors, to the senior officer of the swap execution 
facility. Members of the board of directors and the senior officer shall 
not require the chief compliance officer to make any changes to the 
report.
    (2) Submission of annual compliance report to the Commission. The 
annual compliance report shall be submitted electronically to the 
Commission not later than 90 calendar days after the end of the swap 
execution facility's fiscal year. The swap execution facility shall 
concurrently file the annual compliance report with the fourth-quarter 
financial report pursuant to Sec.  37.1306.
    (3) Amendments to annual compliance report. (i) Promptly upon 
discovery of any material error or omission made in a previously filed 
annual compliance

[[Page 758]]

report, the chief compliance officer shall file an amendment with the 
Commission to correct the material error or omission. The chief 
compliance officer shall submit the amended annual compliance report to 
the board of directors, or in the absence of a board of directors, to 
the senior officer of the swap execution facility, pursuant to paragraph 
(e)(1) of this section.
    (ii) An amendment shall contain the certification required under 
paragraph (d)(5) of this section.
    (4) Request for extension. A swap execution facility may request an 
extension of time to file its annual compliance report from the 
Commission. Reasonable and valid requests for extensions of the filing 
deadline may be granted at the discretion of the Commission.
    (f) Recordkeeping. The swap execution facility shall maintain all 
records demonstrating compliance with the duties of the chief compliance 
officer and the preparation and submission of annual compliance reports 
consistent with Sec. Sec.  37.1000 and 37.1001.
    (g) Delegation of authority. 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 to grant or deny a request for an extension 
of time for a swap execution facility to file its annual compliance 
report under paragraph (e)(4) of this section. 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.

[86 FR 9248, Feb. 11, 2021]



                  Sec. Appendix A to Part 37--Form SEF

                  COMMODITY FUTURES TRADING COMMISSION

                                FORM SEF

  SWAP EXECUTION FACILITY 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 
SEF have the same meaning as in the Commodity Exchange Act, as amended 
(``Act''), and in the General Rules and Regulations of the Commodity 
Futures Trading Commission (``Commission'') thereunder.
    For the purposes of this Form SEF, the term ``Applicant'' shall 
include any applicant for registration as a swap execution facility, any 
applicant amending a pending application, or any registered swap 
execution facility that is applying for an amendment to its order of 
registration.

                          GENERAL INSTRUCTIONS

    1. This Form SEF, which includes instructions, a Cover Sheet, and 
required Exhibits (together, ``Form SEF''), is to be filed with the 
Commission by all Applicants, pursuant to section 5h of the Act and the 
Commission's regulations thereunder. Applicants may prepare their own 
Form SEF but must follow the format prescribed herein. Upon the filing 
of an application for registration or a registration amendment in 
accordance with the instructions provided herein, 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 or registration amendment 
shall be effective unless the Commission, by order, grants such 
registration or amended registration.
    2. Individuals' names, except the executing signature, shall be 
given in full (Last Name, First Name, Middle Name).
    3. Signatures on all copies of the Form SEF filed with the 
Commission can be executed electronically. If this Form SEF is filed by 
a corporation, it shall be signed in the name of the corporation by a 
principal officer duly authorized; if filed by a limited liability 
company, it shall be signed in the name of the limited liability company 
by a manager or member duly authorized to sign on the limited liability 
company's behalf; if

[[Page 759]]

filed by a partnership, it shall be signed in the name of the 
partnership by a general partner duly authorized; if filed by an 
unincorporated organization or association which is not a partnership, 
it shall be signed in the name of such organization or association by 
the managing agent, i.e., a duly authorized person who directs or 
manages or who participates in the directing or managing of its affairs.
    4. If this Form SEF is being filed as an application for 
registration, all applicable items must be answered in full. If any item 
is inapplicable, indicate by ``none,'' ``not applicable,'' or ``N/A,'' 
as appropriate.
    5. Under section 5h of the Act and the Commission's regulations 
thereunder, the Commission is authorized to solicit the information 
required to be supplied by this Form SEF from any Applicant seeking 
registration as a swap execution facility and from any registered swap 
execution facility. Disclosure by the Applicant of the information 
specified on this Form SEF is mandatory prior to the start of the 
processing of an application for, or an amendment to, registration as a 
swap execution facility. The information provided in this Form SEF 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. A Form SEF 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 SEF, 
however, shall not constitute a finding that the Form SEF 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 the rules of the Commission thereunder, information 
supplied on this Form SEF will be included routinely in the public files 
of the Commission and will be available for inspection by any interested 
person.

                         APPLICATION AMENDMENTS

    1. An Applicant amending a pending application for registration as a 
swap execution facility or requesting an amendment to an order of 
registration shall file an amended Form SEF electronically with the 
Secretary of the Commission in the manner specified by the Commission. 
Otherwise, a swap execution facility shall file any amendment to this 
Form SEF as a submission under part 40 of the Commission's regulations 
or as specified by the Commission.
    2. When filing this Form SEF for purposes of amending a pending 
application or requesting an amendment to an order of registration, 
Applicants must re-file the Cover Sheet, amended if necessary and 
including an executing signature, and attach thereto revised Exhibits or 
other materials marked to show changes, as applicable. The submission of 
an amendment represents that the remaining items and Exhibits that are 
not amended remain true, current, and complete as previously filed.

                              WHERE TO FILE

    This Form SEF must be filed electronically with the Secretary of the 
Commission in the manner specified by the Commission.

                  COMMODITY FUTURES TRADING COMMISSION

                                FORM SEF

  SWAP EXECUTION FACILITY APPLICATION OR AMENDMENT TO APPLICATION FOR 
                              REGISTRATION

                               Cover Sheet

________________________________________________________________________
Exact name of Applicant as specified in charter
________________________________________________________________________
Address of principal executive offices

    If this is an APPLICATION for registration, complete in full and 
check here.
    If this is an AMENDMENT to an application, or to an existing order 
of registration, list all items that are amended and check here.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

                           GENERAL INFORMATION

    1. Name under which the business of the swap execution facility is 
or will be conducted, if different than name specified above (include 
acronyms, if any):
________________________________________________________________________
    2. If name of swap execution facility is being amended, state 
previous swap execution facility name:
________________________________________________________________________
    3. Contact information, including mailing address if different than 
address specified above:
________________________________________________________________________
Number and Street
________________________________________________________________________
City State Country Zip Code
________________________________________________________________________
Main Phone Number Fax
________________________________________________________________________
Web site URL Email Address

    4. List of principal office(s) and address(es) where swap execution 
facility activities are/will be conducted:

Office

[[Page 760]]

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Address
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

    5. If the Applicant is a successor to a previously registered swap 
execution facility, please complete the following:
    a. Date of succession
________________________________________________________________________
    b. Full name and address of predecessor registrant

________________________________________________________________________
Name
________________________________________________________________________
Number and Street
________________________________________________________________________
City State Country Zip Code
________________________________________________________________________
Main Phone Number Web site URL

                          BUSINESS ORGANIZATION

    6. Applicant is a:

 Corporation
 Partnership
 Limited Liability Company
 Other form of organization (specify)
________________________________________________________________________

    7. Date of incorporation or formation:
________________________________________________________________________
    8. State of incorporation or jurisdiction of organization:
________________________________________________________________________
    9. The Applicant agrees and consents that the notice of any 
proceeding before the Commission in connection with this application may 
be given by sending such notice by certified mail to the person named 
below at the address given.
________________________________________________________________________
Print Name and Title
________________________________________________________________________
Name of Applicant
________________________________________________________________________
Number and Street
________________________________________________________________________
City State Zip Code

                               SIGNATURES

    10. The Applicant has duly caused this application or amendment to 
be signed on its behalf by the undersigned, hereunto duly authorized, 
this ______ day of ____________, 20____. The Applicant and the 
undersigned represent hereby that all information contained herein is 
true, current, and complete. It is understood that all required items 
and Exhibits are considered integral parts of this Form SEF and that the 
submission of any amendment represents that all unamended items and 
Exhibits remain true, current, and complete as previously filed.

________________________________________________________________________
Name of Applicant
________________________________________________________________________
Signature of Duly Authorized Person
________________________________________________________________________
Print Name and Title of Signatory

                  COMMODITY FUTURES TRADING COMMISSION

                                FORM SEF

  SWAP EXECUTION FACILITY APPLICATION OR AMENDMENT TO APPLICATION FOR 
                              REGISTRATION

                          Exhibits Instructions

    The following Exhibits must be filed with the Commission by each 
Applicant applying for registration as a swap execution facility, or by 
a registered swap execution facility amending its registration, pursuant 
to section 5h of the Act and the Commission's regulations thereunder. 
The Exhibits must be labeled according to the items specified in this 
Form SEF.
    The application must include a Table of Contents listing each 
Exhibit required by this Form SEF and indicating which, if any, Exhibits 
are inapplicable. For any Exhibit that is inapplicable, next to the 
Exhibit letter specify ``none,'' ``not applicable,'' or ``N/A,'' as 
appropriate.
    If the Applicant is a newly formed enterprise and does not have the 
financial statements required pursuant to Items 9 and 10 (Exhibits I and 
J) of this Form SEF, the Applicant should provide pro forma financial 
statements for the most recent six months or since inception, whichever 
is less.

                            List of Exhibits

                     EXHIBITS--BUSINESS ORGANIZATION

    1. Attach as Exhibit A, the name of any person who owns ten percent 
(10%) or more of the Applicant's stock or who, either directly or 
indirectly, through agreement or otherwise, in any other manner, may 
control or direct the management or policies of the Applicant.
    Provide as part of Exhibit A the full name and address of each such 
person and attach a copy of the agreement or, if there is none written, 
describe the agreement or basis upon which such person exercises or may 
exercise such control or direction.
    2. Attach as Exhibit B, a list of the present officers, directors, 
governors (and, in the case of an Applicant that is not a corporation, 
the members of all standing committees, grouped by committee), or 
persons performing functions similar to any of the foregoing, of the 
swap execution facility or of any entity that performs the regulatory 
activities of the Applicant, indicating for each:
a. Name
b. Title

[[Page 761]]

c. Dates of commencement and termination of present term of office or 
position
d. Length of time each present officer, director, or governor has held 
the same office or position
e. Brief account of the business experience of each officer and director 
over the last five (5) years
f. Any other business affiliations in the derivatives and securities 
industry
g. For directors, list any committees on which they serve and any 
compensation received by virtue of their directorship
h. A description of:
    (1) Any order of the Commission with respect to such person pursuant 
to section 5e of the Act;
    (2) Any conviction or injunction against such person within the past 
ten (10) years;
    (3) Any disciplinary action with respect to such person within the 
last five (5) years;
    (4) Any disqualification under sections 8b and 8d of the Act;
    (5) Any disciplinary action under section 8c of the Act; and
    (6) Any violation pursuant to section 9 of the Act.
    3. Attach as Exhibit C, a narrative that sets forth the fitness 
standards for the Board of Directors and its composition including the 
number and percentage of public directors.
    4. Attach as Exhibit D, a narrative or graphic description of the 
organizational structure of the Applicant. Include a list of all 
affiliates of the Applicant and indicate the general nature of the 
affiliation. Note: If the swap execution facility activities of the 
Applicant are or will be conducted primarily by a division, subdivision, 
or other separate entity within the Applicant, corporation, or 
organization, describe the relationship of such entity within the 
overall organizational structure and attach as Exhibit D a description 
only as it applies to the division, subdivision, or separate entity, as 
applicable. Additionally, provide any relevant jurisdictional 
information, including any and all jurisdictions in which the Applicant 
or any affiliated entity are doing business, and registration status, 
including pending applications (e.g., country, regulator, registration 
category, date of registration). Provide the address for legal service 
of process for each jurisdiction, which cannot be a post office box.
    5. Attach as Exhibit E, a description of the personnel 
qualifications for each category of professional employees employed by 
the Applicant or the division, subdivision, or other separate entity 
within the Applicant as described in Item 4.
    6. Attach as Exhibit F, an analysis of staffing requirements 
necessary to carry out the operations of the Applicant as a swap 
execution facility and the name and qualifications of each key staff 
person.
    7. Attach as Exhibit G, a copy of the constitution, articles of 
incorporation, formation, or association with all amendments thereto, 
partnership or limited liability agreements, and existing by-laws, 
operating agreement, rules or instruments corresponding thereto, of the 
Applicant. Include any additional governance fitness information not 
included in Exhibit C. Provide a certificate of good standing dated 
within one week of the date of this Form SEF.
    8. Attach as Exhibit H, a brief description of any material pending 
legal proceeding(s), other than ordinary and routine litigation 
incidental to the business, to which the Applicant or any of its 
affiliates is a party or to which any of its or their property is the 
subject. Include the name of the court or agency where the proceeding(s) 
are pending, the date(s) instituted, the principal parties involved, a 
description of the factual basis alleged to underlie the proceeding(s), 
and the relief sought. Include similar information as to any 
proceeding(s) known to be contemplated by the governmental agencies.

                     EXHIBITS--FINANCIAL INFORMATION

    9. Attach as Exhibit I:
    a. (i) Balance sheet, (ii) Statement of income and expenses, (iii) 
Statement of cash flows, and (iv) Statement of sources and application 
of revenues and all notes or schedules thereto, as of the most recent 
fiscal year of the Applicant, or of its parent company, if applicable. 
If a balance sheet and any statement(s) certified by an independent 
public accountant are available, that balance sheet and statement(s) 
should be submitted as Exhibit I.
    b. Provide a narrative of how the value of the financial resources 
of the Applicant is at least equal to a total amount that would enable 
the Applicant to cover its operating costs for a period of at least one 
year, calculated on a rolling basis, and whether such financial 
resources include unencumbered, liquid financial assets (i.e., cash and/
or highly liquid securities) equal to at least six months' operating 
costs.
    c. Attach copies of any agreements establishing or amending a credit 
facility, insurance coverage, or other arrangement evidencing or 
otherwise supporting the Applicant's conclusions regarding the liquidity 
of its financial assets.
    d. Representations regarding sources and estimates for future 
ongoing operational resources.
    10. Attach as Exhibit J, a balance sheet and an income and expense 
statement for each affiliate of the swap execution facility that also 
engages in swap execution facility activities or that engages in 
designated contract market activities as of the end of the most recent 
fiscal year of each such affiliate.
    11. Attach as Exhibit K, the following:

[[Page 762]]

    a. A complete list of all dues, fees, and other charges imposed, or 
to be imposed, by or on behalf of the Applicant for its swap execution 
facility services that are provided on an exclusive basis and identify 
the service or services provided for each such due, fee, or other 
charge.
    b. A description of the basis and methods used in determining the 
level and structure of the dues, fees, and other charges listed in 
paragraph (a) of this item.
    c. If the Applicant differentiates, or proposes to differentiate, 
among its customers or classes of customers in the amount of any dues, 
fees, or other charges imposed for the same or similar exclusive 
services, describe and indicate the amount of each differential. In 
addition, identify and describe any differences in the cost of providing 
such services and any other factors that account for such 
differentiations.

                          EXHIBITS--COMPLIANCE

    12. Attach as Exhibit L, a narrative and any other form of 
documentation that may be provided under other Exhibits herein, that 
describes the manner in which the Applicant is able to comply with each 
core principle. Such documentation must include a regulatory compliance 
chart setting forth each core principle and providing citations to the 
Applicant's relevant rules, policies, and procedures that address each 
core principle. To the extent that the application raises issues that 
are novel or for which compliance with a core principle is not self-
evident, include an explanation of how that item and the application 
satisfy the core principles.
    13. Attach as Exhibit M, a copy of the Applicant's rules (as defined 
in Sec.  40.1 of the Commission's regulations) 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. Include rules citing applicable federal position limits 
and aggregation standards in part 151 of the Commission's regulations 
and any facility set position limit rules. Include rules on publication 
of daily trading information with regards to the requirements of part 16 
of the Commission's regulations. The Applicant should include an 
explanation and any other form of documentation that the Applicant 
thinks will be helpful to its explanation, demonstrating how its rules, 
technical manuals, other guides, or instructions for users of, or 
participants in, the market, or minimum financial standards for members 
or market participants as provided in this Exhibit M help support the 
swap execution facility's compliance with the core principles.
    14. Attach as Exhibit N, executed or executable copies of any 
agreements or contracts entered into or to be entered into by the 
Applicant, including third party regulatory service provider or member 
or user agreements that enable or empower the Applicant to comply with 
applicable core principles. Identify: (1) the services that will be 
provided; and (2) the core principles addressed by such agreement.
    15. Attach as Exhibit O, a copy of any compliance manual and any 
other documents that describe with specificity the manner in which the 
Applicant will conduct trade practice, market, and financial 
surveillance.
    16. Attach as Exhibit P, a description of the Applicant's 
disciplinary and enforcement protocols, tools, and procedures and, if 
applicable, the arrangements for alternative dispute resolution.
    17. Attach as Exhibit Q, an explanation regarding the operation of 
the Applicant's trading system(s) or platform(s) and the manner in which 
the system(s) or platform(s) satisfy any Commission rules, 
interpretations, or guidelines regarding a swap execution facility's 
execution methods, including the minimum trading functionality 
requirement in Sec.  37.3(a)(2) of the Commission's regulations. This 
explanation should include, as applicable, the following:
    a. For trading systems or platforms that enable market participants 
to engage in transactions through an order book:
    (1) How the trading system or platform displays all orders and 
trades in an electronic or other form, and the timeliness in which the 
trading system or platform does so;
    (2) How all market participants have the ability to see and have the 
ability to transact on all bids and offers; and
    (3) An explanation of the trade matching algorithm, if applicable, 
and examples of how that algorithm works in various trading scenarios 
involving various types of orders.
    b. For trading systems or platforms that enable market participants 
to engage in transactions through a request for quote system:
    (1) How a market participant transmits a request for a quote to buy 
or sell a specific instrument to no less than three market participants 
in the trading system or platform, to which all such market participants 
may respond;
    (2) How resting bids or offers from the Applicant's Order Book are 
communicated to the requester; and
    (3) How a requester may transact on resting bids or offers along 
with the responsive orders.
    c. How the timing delay described under Sec.  37.9 of the 
Commission's regulations is incorporated into the trading system or 
platform.
    18. Attach as Exhibit R, a list of rules prohibiting specific trade 
practice violations.
    19. Attach as Exhibit S, a discussion of how trading data will be 
maintained by the swap execution facility.

[[Page 763]]

    20. Attach as Exhibit T, a list of the name of the clearing 
organization(s) that will be clearing the Applicant's trades, and a 
representation that clearing members of that organization will be 
guaranteeing such trades.
    21. Attach as Exhibit U, any information (described with 
particularity) included in the application that will be subject to a 
request for confidential treatment pursuant to Sec.  145.9 of the 
Commission's regulations.

                    EXHIBITS--OPERATIONAL CAPABILITY

    22. Attach as Exhibit V, information responsive to the Technology 
Questionnaire. This questionnaire focuses on information pertaining to 
the Applicant's program of risk analysis and oversight. Main topic areas 
include: information security; business continuity-disaster recovery 
planning and resources; capacity and performance planning; systems 
operations; systems development and quality assurance; and physical 
security and environmental controls. The questionnaire will be provided 
to Applicants on the Commission's Web site.



 Sec. Appendix B to Part 37--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 maintain 
registration under section 5h of the Act and this part 37. 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 of this part 37. The 
guidance for the core principle is illustrative only of the types of 
matters a swap execution facility 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 swap execution facility 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 swap execution facilities to comply with 
the regulations provided under this part 37.
    2. Where provided, acceptable practices meeting selected 
requirements of core principles are set forth in paragraph (b) following 
the guidance. Swap execution facilities 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 swap execution facilities to comply with 
the regulations provided under this part 37. 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 5h of the Act--Compliance With Core 
                               Principles

    (A) In general. To be registered, and maintain registration, as a 
swap execution facility, the swap execution facility shall comply with--
the core principles described in section 5h of the Act; and any 
requirement that the Commission may impose by rule or regulation 
pursuant to section 8a(5) of the Act.
    (B) Reasonable discretion of swap execution facility. Unless 
otherwise determined by the Commission by rule or regulation, a swap 
execution facility described in paragraph (A) shall have reasonable 
discretion in establishing the manner in which the swap execution 
facility complies with the core principles described in section 5h of 
the Act.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices. [Reserved]

    Core Principle 2 of Section 5h of the Act--Compliance With Rules

    A swap execution facility shall:
    (A) Establish and enforce compliance with any rule of the swap 
execution facility, including the terms and conditions of the swaps 
traded or processed on or through the swap execution facility and any 
limitation on access to the swap execution facility;
    (B) Establish and enforce trading, trade processing, and 
participation rules that will deter abuses and have the capacity to 
detect, investigate, and enforce those rules, including means to provide 
market participants with impartial access to the market and to capture 
information that may be used in establishing whether rule violations 
have occurred;
    (C) Establish rules governing the operation of the facility, 
including rules specifying trading procedures to be used in entering and 
executing orders traded or posted on the facility, including block 
trades; and
    (D) Provide by its rules that when a swap dealer or major swap 
participant enters into or facilitates a swap that is subject to the 
mandatory clearing requirement of section 2(h) of the Act, the swap 
dealer or major swap participant shall be responsible for compliance 
with the mandatory trading requirement under section 2(h)(8) of the Act.
    (a) Guidance. (1) Investigations and investigation reports--Warning 
letters. The rules of a swap execution facility may authorize its 
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.

[[Page 764]]

    (2) Additional rules required. A swap execution facility should 
adopt and enforce any additional rules that it believes are necessary to 
comply with the requirements of Sec.  37.203.
    (3) Enforcement staff. A swap execution facility's enforcement staff 
should not include either members of the swap execution facility or 
persons whose interests conflict with their enforcement duties. A member 
of the enforcement staff should not operate under the direction or 
control of any person or persons with trading privileges at the swap 
execution facility. A swap execution facility's enforcement staff may 
operate as part of the swap execution facility's compliance department.
    (4) Notice of charges. If compliance staff authorized by a swap 
execution facility or a swap execution facility disciplinary panel 
determines, based upon reviewing an investigation report pursuant to 
Sec.  37.203(f)(3), that a reasonable basis exists for finding a 
violation and adjudication is warranted, it should direct that the 
person or entity alleged to have committed the violation be served with 
a notice of charges and should proceed in accordance with this guidance. 
A notice of charges should 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); 
advise the respondent that it is entitled, upon request, to a hearing on 
the charges; and prescribe the period within which a hearing on the 
charges may be requested. If the rules of the swap execution facility 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.
    (5) Right to representation. Upon being served with a notice of 
charges, a respondent should 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 by any member of the swap 
execution facility's board of directors or disciplinary panel, any 
employee of the swap execution facility, or any person substantially 
related to the underlying investigations, such as a material witness or 
respondent.
    (6) Answer to charges. A respondent should be given a reasonable 
period of time to file an answer to a notice of charges. The rules of a 
swap execution facility governing the requirements and timeliness of a 
respondent's answer to a notice of charges should be fair, equitable, 
and publicly available.
    (7) Admission or failure to deny charges. The rules of a swap 
execution facility 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 swap execution facility'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 (7)(i) of 
this guidance 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 swap execution facility 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.
    (8) 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 should be given 
an opportunity for a hearing in accordance with the rules of the swap 
execution facility.
    (9) Settlement offers. (i) The rules of a swap execution facility 
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 swap execution facility 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 or 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

[[Page 765]]

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.
    (10) Hearings. (i) The swap execution facility need not apply the 
formal rules of evidence for a hearing; 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.
    (ii) In advance of the hearing, the respondent should be entitled to 
examine all books, documents, or other evidence in the possession or 
under the control of the swap execution facility. The swap execution 
facility may withhold documents that: Are privileged or constitute 
attorney work product; were prepared by an employee of the swap 
execution facility but will not be offered in evidence in the 
disciplinary proceedings; may disclose a technique or guideline used in 
examinations, investigations, or enforcement proceedings; or disclose 
the identity of a confidential source.
    (iii) The swap execution facility's enforcement and compliance 
staffs should be parties to the hearing, and the enforcement staff 
should present their case on those charges and sanctions that are the 
subject of the hearing.
    (iv) The respondent should be entitled to appear personally at the 
hearing, should be entitled to cross-examine any persons appearing as 
witnesses at the hearing, and should be entitled to call witnesses and 
to present such evidence as may be relevant to the charges.
    (v) The swap execution facility should require persons within its 
jurisdiction who are called as witnesses to participate in the hearing 
and produce evidence. The swap execution facility should make reasonable 
efforts to secure the presence of all other persons called as witnesses 
whose testimony would be relevant.
    (vi) The rules of a swap execution facility may provide that a 
sanction may be summarily imposed upon any person within its 
jurisdiction whose actions impede the progress of a hearing.
    (11) Right to appeal. The rules of a swap execution facility 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 swap execution facility permit appeals, 
then both the respondent and the enforcement staff should have the 
opportunity to appeal and the swap execution facility should provide for 
the following:
    (i) The swap execution facility should establish an appellate panel 
that should be authorized to hear appeals of respondents. In addition, 
the rules of a swap execution facility 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 part 40 of this chapter, and should not include any members of the 
swap execution facility's compliance staff or any person involved in 
adjudicating any other stage of the same proceeding. The rules of a swap 
execution facility 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 of Sec.  37.206(d) to the extent 
that a different conclusion is reached from that issued by the 
disciplinary panel.
    (12) Final decisions. Each swap execution facility should establish 
rules setting forth when a decision rendered pursuant to its rules will 
become the final decision of such swap execution facility.
    (13) Summary fines for violations of rules regarding timely 
submission of records. A swap execution facility may adopt a summary 
fine schedule for violations of rules relating to the failure to timely 
submit accurate records required for clearing or verifying each day's 
transactions. A swap execution facility may permit its compliance staff, 
or a designated panel of swap execution facility officials, to summarily 
impose minor sanctions against persons within the swap execution 
facility's jurisdiction for violating such rules. A swap execution 
facility'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.
    (14) Emergency disciplinary actions. (i) A swap execution facility 
may impose a sanction, including suspension, or take other summary 
action against a person or entity subject to its jurisdiction upon a 
reasonable 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 swap execution facility's procedures that provide for the 
following:

[[Page 766]]

    (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 rules of the swap execution facility.
    (C) Promptly following the hearing provided for in paragraph 
(14)(ii)(B) of this guidance, the swap execution facility 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 3 of Section 5h of the Act--Swaps Not Readily Susceptible 
                             to Manipulation

    The swap execution facility shall permit trading only in swaps that 
are not readily susceptible to manipulation.
    (a) Guidance. (1) In general, a swap contract is an agreement to 
exchange a series of cash flows over a period of time based on some 
reference price, which could be a single price, such as an absolute 
level or a differential, or a price index calculated based on multiple 
observations. Moreover, such a reference price may be reported by the 
swap execution facility itself or by an independent third party. When 
listing a swap for trading, a swap execution facility shall ensure a 
swap's compliance with Core Principle 3, paying special attention to the 
reference price used to determine the cash flow exchanges. Specifically, 
Core Principle 3 requires that the reference price used by a swap not be 
readily susceptible to manipulation. As a result, when identifying a 
reference price, a swap execution facility should either: Calculate its 
own reference price using suitable and well-established acceptable 
methods or carefully select a reliable third-party index.
    (2) The importance of the reference price's suitability for a given 
swap is similar to that of the final settlement price for a cash-settled 
futures contract. If the final settlement price is manipulated, then the 
futures contract does not serve its intended price discovery and risk 
management functions. Similarly, inappropriate reference prices cause 
the cash flows between the buyer and seller to differ from the proper 
amounts, thus benefitting one party and disadvantaging the other. Thus, 
careful consideration should be given to the potential for manipulation 
or distortion of the reference price.
    (3) For swaps that are settled by physical delivery or by cash 
settlement refer to the guidance in appendix C to part 38 of this 
chapter--Demonstration of Compliance That a Contract is not Readily 
Susceptible to Manipulation, section b(2) and section c(4), 
respectively.
    (b) Acceptable Practices. [Reserved]

  Core Principle 4 of Section 5h of the Act--Monitoring of Trading and 
                            Trade Processing

    The swap execution facility shall:
    (A) Establish and enforce rules or terms and conditions defining, or 
specifications detailing:
    (1) Trading procedures to be used in entering and executing orders 
traded on or through the facilities of the swap execution facility; and
    (2) Procedures for trade processing of swaps on or through the 
facilities of the swap execution facility; and
    (B) Monitor trading in swaps to prevent manipulation, price 
distortion, and disruptions of the delivery or cash settlement process 
through surveillance, compliance, and disciplinary practices and 
procedures, including methods for conducting real-time monitoring of 
trading and comprehensive and accurate trade reconstructions.
    (a) Guidance. The monitoring of trading activity in listed swaps 
should be designed to prevent manipulation, price distortion, and 
disruptions of the physical-delivery and cash settlement processes. The 
swap execution facility should have rules in place that allow it to 
intervene to prevent or reduce such market disruptions. Once a 
threatened or actual disruption is detected, the swap execution facility 
should take steps to prevent the market disruption or reduce its 
severity.
    (1) General requirements. Real-time monitoring for market anomalies 
is the most effective, but the swap execution facility may also 
demonstrate that it has an acceptable program if some of the monitoring 
is accomplished on a T+1 basis. The monitoring of trading should use 
automated alerts to detect abnormal price movements and unusual trading 
volumes in real-time and instances or threats of manipulation, price 
distortion, and disruptions on at least a T+1 basis. The

[[Page 767]]

T+1 detection and analysis should incorporate any additional data that 
becomes available on a T+1 basis, including the trade reconstruction 
data. In some cases, a swap execution facility may demonstrate that its 
manual processes are effective. The swap execution facility should 
continually monitor the appropriateness of its swaps' terms and 
conditions, including the physical-delivery requirements or reference 
prices used to determine cash flows or settlement. The swap execution 
facility should act promptly to address the conditions that are causing 
price distortions or market disruptions, including, when appropriate, 
changes to contract terms. The swap execution facility should be mindful 
that changes to contract terms may affect whether a product is subject 
to the trade execution and clearing requirements of the Act.
    (2) Physical-delivery swaps. For physical-delivery swaps, the swap 
execution facility should monitor for conditions that may cause the swap 
to become susceptible to price manipulation or distortion, including: 
The general availability of the commodity specified by the swap, the 
commodity's characteristics, and the delivery locations; and if 
available, information related to the size and ownership of deliverable 
supplies.
    (3) Cash-settled swaps. For cash-settled swaps, the swap execution 
facility should monitor for pricing abnormalities in the index or 
instrument used to calculate the reference price. If the swap execution 
facility computes its own reference price used for cash flows or 
settlement, it should promptly amend any methodologies that result, or 
are likely to result, in manipulation, price distortions, or market 
disruptions, or impose new methodologies to resolve the threat of 
disruptions or distortions. If the swap execution facility relies upon a 
third-party index or instrument, including an index or instrument traded 
on another venue for the swap reference price, it should conduct due 
diligence to ensure that the reference price is not susceptible to 
manipulation and that the terms and conditions of the swap continue to 
comply with Sec.  37.300.
    (4) Ability to obtain information. The swap execution facility shall 
demonstrate that it has access to sufficient information to assess 
whether trading in swaps listed on its market, in the index or 
instrument used as a reference price, or the underlying commodity for 
its listed swaps is being used to affect prices on its market. The swap 
execution facility should demonstrate that it can obtain position and 
trading information directly from the market participants that conduct 
substantial trading on its facility or through an information sharing 
agreement with other venues or a third-party regulatory service 
provider. If the position and trading information is not available 
directly from the market participants in its markets, but is available 
through information sharing agreements with other trading venues or a 
third-party regulatory service provider, the swap execution facility 
should cooperate in such information sharing agreements. The swap 
execution facility may limit the application of the requirement for 
market participants to keep and provide records of their activity in the 
index or instrument used as a reference price, the underlying commodity, 
and related derivatives markets, to only those market participants that 
conduct substantial trading on its facility.
    (5) Risk controls for trading. An acceptable program for preventing 
market disruptions shall demonstrate appropriate trading risk controls, 
in addition to pauses and halts. Risk controls should be adapted to the 
unique characteristics of the trading platform and of the markets to 
which they apply and should be designed to avoid market disruptions 
without unduly interfering with that market's price discovery function. 
The swap execution facility may choose from among controls that include: 
pre-trade limits on order size, price collars or bands around the 
current price, message throttles, daily price limits, and intraday 
position limits related to financial risk to the clearing member, or 
design other types of controls, as well as clear error-trade and order-
cancellation policies. Within the specific array of controls that are 
selected, the swap execution facility should set the parameters for 
those controls, so that the specific parameters are reasonably likely to 
serve the purpose of preventing market disruptions and price 
distortions. If a swap is fungible with, linked to, or a substitute for 
other swaps on the swap execution facility or on other trading venues, 
such risk controls should, to the extent practicable, be coordinated 
with any similar controls placed on those other swaps. If a swap is 
based on the level of an equity index, such risk controls should, to the 
extent practicable, be coordinated with any similar controls placed on 
national security exchanges.
    (b) Acceptable practices. [Reserved]

Core Principle 5 of Section 5h of the Act--Ability To Obtain Information

    The swap execution facility shall:
    (A) Establish and enforce rules that will allow the facility to 
obtain any necessary information to perform any of the functions 
described in section 5h of the Act;
    (B) Provide the information to the Commission on request; and
    (C) Have the capacity to carry out such international information-
sharing agreements as the Commission may require.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices. [Reserved]

[[Page 768]]

     Core Principle 6 of Section 5h of the Act--Position Limits or 
                             Accountability

    (A) In general. To reduce the potential threat of market 
manipulation or congestion, especially during trading in the delivery 
month, a swap execution facility that is a trading facility shall adopt 
for each of the contracts of the facility, as is necessary and 
appropriate, position limitations or position accountability for 
speculators.
    (B) Position limits. For any contract that is subject to a position 
limitation established by the Commission pursuant to section 4a(a) of 
the Act, the swap execution facility shall:
    (1) Set its position limitation at a level no higher than the 
Commission limitation; and
    (2) Monitor positions established on or through the swap execution 
facility for compliance with the limit set by the Commission and the 
limit, if any, set by the swap execution facility.
    (a) Guidance. Until such time that compliance is required under part 
151 of this chapter, a swap execution facility should have reasonable 
discretion to comply with Sec.  37.600, including considering part 150 
of this chapter. For Required Transactions as defined in Sec.  37.9, a 
swap execution facility may demonstrate compliance with Sec.  37.600 by 
setting and enforcing position limitations or position accountability 
levels only with respect to trading on the swap execution facility's own 
market. For Permitted Transactions as defined in Sec.  37.9, a swap 
execution facility may demonstrate compliance with Sec.  37.600 by 
setting and enforcing position accountability levels or sending the 
Commission a list of Permitted Transactions traded on the swap execution 
facility.
    (b) Acceptable Practices. [Reserved]

   Core Principle 7 of Section 5h of the Act--Financial Integrity of 
                              Transactions

    The swap execution facility shall establish and enforce rules and 
procedures for ensuring the financial integrity of swaps entered on or 
through the facilities of the swap execution facility, including the 
clearance and settlement of the swaps pursuant to section 2(h)(1) of the 
Act.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices. [Reserved]

     Core Principle 8 of Section 5h of the Act--Emergency Authority

    The swap execution facility shall adopt rules to provide for the 
exercise of emergency authority, in consultation or cooperation with the 
Commission, as is necessary and appropriate, including the authority to 
liquidate or transfer open positions in any swap or to suspend or 
curtail trading in a swap.
    (a) Guidance. (1) A swap execution facility should have rules that 
authorize it to take certain actions in the event of an emergency, as 
defined in Sec.  40.1(h) of this chapter. A swap execution facility 
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 swap execution facility's market or as part of a 
coordinated, cross-market intervention. A swap execution facility should 
have the flexibility and independence to address market emergencies in 
an effective and timely manner consistent with the nature of the 
emergency, as long as all such actions taken by the swap execution 
facility are made in good faith to protect the integrity of the markets. 
However, the swap execution facility should also have rules that allow 
it to take market actions as may be directed by the Commission. 
Additionally, in situations where a swap is traded on more than one 
platform, emergency action to liquidate or transfer open interest shall 
be as directed, or agreed to, by the Commission or the Commission's 
staff. Swap execution facility rules should include procedures and 
guidelines for decision-making and implementation of emergency 
intervention that avoid conflicts of interest in accordance with the 
provisions of section 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 swap execution facility should have rules that allow it to take 
emergency actions, including imposing or modifying position limits, 
imposing or modifying price limits, imposing or modifying 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, or, if applicable, 
providing for the carrying out of such actions through its agreements 
with its third-party provider of clearing or regulatory services.
    (2) A swap execution facility should promptly notify the Commission 
of its exercise of emergency action, explaining its decision-making 
process, the reasons for using its emergency authority, and how 
conflicts of interest were minimized, including the extent to which the 
swap execution facility considered the effect of its emergency action on 
the underlying markets and on markets that are linked or referenced to 
the contracts traded on its facility, including similar markets on other 
trading venues. Information on all regulatory actions carried out 
pursuant to a swap execution facility's emergency authority should be 
included in a

[[Page 769]]

timely submission of a certified rule pursuant to part 40 of this 
chapter.
    (b) Acceptable Practices. [Reserved]

Core Principle 9 of Section 5h of the Act--Timely Publication of Trading 
                               Information

    (A) In general. The swap execution facility shall make public timely 
information on price, trading volume, and other trading data on swaps to 
the extent prescribed by the Commission.
    (B) Capacity of swap execution facility. The swap execution facility 
shall be required to have the capacity to electronically capture and 
transmit trade information with respect to transactions executed on the 
facility.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices. [Reserved]

 Core Principle 10 of Section 5h of the Act--Recordkeeping and Reporting

    (A) In general. A swap execution facility shall:
    (1) Maintain records of all activities relating to the business of 
the facility, including a complete audit trail, in a form and manner 
acceptable to the Commission for a period of five years;
    (2) Report to the Commission, in a form and manner acceptable to the 
Commission, such information as the Commission determines to be 
necessary or appropriate for the Commission to perform the duties of the 
Commission under the Act; and
    (3) 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.
    (B) Requirements. The Commission shall adopt data collection and 
reporting requirements for swap execution facilities that are comparable 
to corresponding requirements for derivatives clearing organizations and 
swap data repositories.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices. [Reserved]

  Core Principle 11 of Section 5h of the Act--Antitrust Considerations

    Unless necessary or appropriate to achieve the purposes of the Act, 
the swap execution facility shall not:
    (A) Adopt any rules or take any actions that result in any 
unreasonable restraint of trade; or
    (B) Impose any material anticompetitive burden on trading or 
clearing.
    (a) Guidance. An entity seeking registration as a swap execution 
facility 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 
registration 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 12 of Section 5h of the Act--Conflicts of Interest:

    The swap execution facility shall:
    (A) Establish and enforce rules to minimize conflicts of interest in 
its decision-making process; and
    (B) Establish a process for resolving the conflicts of interest.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices. [Reserved]

     Core Principle 13 of Section 5h of the Act--Financial Resources

    (A) In general. The swap execution facility shall have adequate 
financial, operational, and managerial resources to discharge each 
responsibility of the swap execution facility.
    (B) Determination of resource adequacy. The financial resources of a 
swap execution facility shall be considered to be adequate if the value 
of the financial resources exceeds the total amount that would enable 
the swap execution facility to cover the operating costs of the swap 
execution facility for a one-year period, as calculated on a rolling 
basis.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices--(1) Reasonable calculation of projected 
operating costs. In connection with a swap execution facility 
calculating its projected operating costs, the Commission has determined 
that a reasonable calculation should include all expenses necessary for 
the swap execution facility to comply with the core principles set forth 
in section 5h of the Act and any applicable Commission regulations. This 
calculation should be based on the swap execution facility's current 
level of business and business model, and should take into account any 
projected modification to its business model (e.g., the addition or 
subtraction of business lines or operations or other changes), and any 
projected increase or decrease in its level of business over the next 12 
months. The Commission believes, however, that it may be reasonable for 
a swap execution facility to exclude the following expenses 
(``excludable expenses'') from its projected operating cost 
calculations:
    (i) Costs attributable solely to sales, marketing, business 
development, product development, or recruitment and any related travel, 
entertainment, event, or conference costs;
    (ii) Compensation and related taxes and benefits for swap execution 
facility personnel who are not necessary to ensure that the swap 
execution facility is able to comply

[[Page 770]]

with the core principles set forth in section 5h of the Act and any 
applicable Commission regulations;
    (iii) Costs for acquiring and defending patents and trademarks for 
swap execution facility products and related intellectual property;
    (iv) Magazine, newspaper, and online periodical subscription fees;
    (v) Tax preparation and audit fees;
    (vi) To the extent not covered by paragraphs (b)(1)(ii) or (iii) of 
this Core Principle 13 of Section 5h of the Act--Financial Resources, 
the variable commissions that a voice-based swap execution facility may 
pay to its SEF trading specialists (as defined under Sec.  37.201(c)), 
calculated as a percentage of transaction revenue generated by the 
voice-based swap execution facility. Unlike fixed salaries or 
compensation, such variable commissions are not payable unless and until 
revenue is collected by the swap execution facility; and
    (vii) Any non-cash costs, including depreciation and amortization.
    (2) Prorated expenses. The Commission recognizes that, in the normal 
course of a swap execution facility's business, there may be an expense 
(e.g., typically related to overhead) that is only partially 
attributable to a swap execution facility's ability to comply with the 
core principles set forth in section 5h of the Act and any applicable 
Commission regulations; accordingly, such expense may need to be only 
partially attributed to the swap execution facility's projected 
operating costs. For example, if a swap execution facility's office 
rental space includes marketing personnel and compliance personnel, the 
swap execution facility may exclude the prorated office rental expense 
attributable to the marketing personnel. In order to prorate an expense, 
a swap execution facility should:
    (i) Maintain sufficient documentation that reasonably shows the 
extent to which an expense is partially attributable to an excludable 
expense;
    (ii) Identify any prorated expense in the financial reports that it 
submits to the Commission pursuant to Sec.  37.1306; and
    (iii) Sufficiently explain why it prorated any expense. Common 
allocation methodologies that can be used include actual use, headcount, 
or square footage. A swap execution facility may provide documentation, 
such as copies of service agreements, other legal documents, firm 
policies, audit statements, or allocation methodologies to support its 
determination to prorate an expense.
    (3) Expenses allocated among affiliates. The Commission recognizes 
that a swap execution facility may share certain expenses with 
affiliated entities, such as parent entities or other subsidiaries of 
the parent. For example, a swap execution facility may share employees 
(including employees on secondment from an affiliate) that perform 
similar tasks for the affiliated entities or may share office space with 
its affiliated entities. Accordingly, the Commission believes that it 
would be reasonable, for purposes of calculating its projected operating 
costs, for a swap execution facility to prorate any shared expense that 
the swap execution facility pays for, but only to the extent that such 
shared expense is actually attributable to the affiliate and for which 
the swap execution facility is reimbursed. Similarly, a reasonable 
calculation of a swap execution facility's projected operating costs 
must include the prorated amount of any expense paid for by an 
affiliated entity to the extent that the shared expense is attributable 
to the swap execution facility. In order to prorate a shared expense, 
the swap execution facility should:
    (i) Maintain sufficient documentation that reasonably shows the 
extent to which the shared expense is attributable to and paid for by 
the swap execution facility and/or affiliated entity;
    (ii) Identify any shared expense in the financial reports that it 
submits to the Commission; and
    (iii) Sufficiently explain why it prorated any shared expense. A 
swap execution facility may provide documentation, such as copies of 
service agreements, other legal documents, firm policies, audit 
statements, or allocation methodologies, that reasonably shows how 
expenses are attributable to, and paid for by, the swap execution 
facility and/or its affiliated entities to support its determination to 
prorate an expense.

Core Principle 14 of Section 5h of the Act--System Safeguards [Reserved]

    Core Principle 15 of Section 5h of the Act--Designation of Chief 
                           Compliance Officer

    (A) In general. Each swap execution facility shall designate an 
individual to serve as a chief compliance officer.
    (B) Duties. The chief compliance officer shall:
    (1) Report directly to the board or to the senior officer of the 
facility;
    (2) Review compliance with the core principles in this subsection;
    (3) In consultation with the board of the facility, a body 
performing a function similar to that of a board, or the senior officer 
of the facility, resolve any conflicts of interest that may arise;
    (4) Be responsible for establishing and administering the policies 
and procedures required to be established pursuant to this section;
    (5) Ensure compliance with the Act and the rules and regulations 
issued under the Act, including rules prescribed by the Commission 
pursuant to section 5h of the Act; and

[[Page 771]]

    (6) Establish procedures for the remediation of noncompliance issues 
found during compliance office reviews, look backs, internal or external 
audit findings, self-reported errors, or through validated complaints.
    (C) Requirements for procedures. In establishing procedures under 
paragraph (B)(6) of this section, the chief compliance officer shall 
design the procedures to establish the handling, management response, 
remediation, retesting, and closing of noncompliance issues.
    (D) Annual reports--(1) In general. In accordance with rules 
prescribed by the Commission, the chief compliance officer shall 
annually prepare and sign a report that contains a description of:
    (i) The compliance of the swap execution facility with the Act; and
    (ii) The policies and procedures, including the code of ethics and 
conflict of interest policies, of the swap execution facility.
    (2) Requirements. The chief compliance officer shall:
    (i) Submit each report described in clause (1) with the appropriate 
financial report of the swap execution facility that is required to be 
submitted to the Commission pursuant to section 5h of the Act; and
    (ii) Include in the report a certification that, under penalty of 
law, the report is accurate and complete.
    (a) Guidance. [Reserved]
    (b) Acceptable Practices--(1) Qualifications of chief compliance 
officer. In determining whether the background and skills of a potential 
chief compliance officer are appropriate for fulfilling the 
responsibilities of the role of the chief compliance officer, the swap 
execution facility has the discretion to base its determination on the 
totality of the qualifications of the potential chief compliance 
officer, including, but not limited to, compliance experience, related 
career experience, training, and any other relevant factors to the 
position. A swap execution facility should be especially vigilant 
regarding potential conflicts of interest when appointing a chief 
compliance officer.
    (2) [Reserved]

[78 FR 33582, June 4, 2013, as amended at 78 FR 47154, Aug. 5, 2013; 81 
FR 64312, Sept. 19, 2016; 86 FR 9249, Feb. 11, 2021]



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.
38.11 Trade execution compliance schedule.
38.12 Process for a designated contract market to make a swap available 
          to trade.

                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.

[[Page 772]]

                      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.
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
Appendix C to Part 38--Demonstration of Compliance That a Contract Is 
          Not Readily Susceptible to Manipulation

    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.

[[Page 773]]



                      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.  1.39(b), Sec.  1.44, Sec.  1.53, Sec.  
1.54, Sec.  1.59(b) and (c), Sec.  1.62, Sec.  1.63(a) and (b) and (d) 
through (f), Sec.  1.64, Sec.  1.69, part 8, Sec.  100.1, Sec.  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) 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 to Sec.  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 to Sec.  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 in Sec.  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.

[[Page 774]]

    (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;
    (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

[[Page 775]]

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 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 of Sec.  40.3 or Sec.  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 under Sec.  38.3(b) of this part to 
reinstate the designation of a dormant designated contract market, as 
defined in Sec.  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

[[Page 776]]

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 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 36698, 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

[[Page 777]]

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 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]



Sec.  38.11  Trade execution compliance schedule.

    (a) A swap transaction shall be subject to the requirements of 
section 2(h)(8) of the Act upon the later of:
    (1) The applicable deadline established under the compliance 
schedule provided under Sec.  50.25(b) of this chapter; or

[[Page 778]]

    (2) Thirty days after the available-to-trade determination 
submission or certification for that swap is, respectively, deemed 
approved under Sec.  40.5 of this chapter or deemed certified under 
Sec.  40.6 of this chapter.
    (b) Nothing in this section shall prohibit any counterparty from 
complying voluntarily with the requirements of section 2(h)(8) of the 
Act sooner than as provided in paragraph (a) of this section.

[78 FR 33630, June 4, 2013]



Sec.  38.12  Process for a designated contract market to make a swap 
available to trade.

    (a)(1) Required submission. A designated contract market that makes 
a swap available to trade in accordance with paragraph (b) of this 
section, shall submit to the Commission its determination with respect 
to such swap as a rule, as that term is defined by Sec.  40.1 of this 
chapter, pursuant to the procedures under part 40 of this chapter.
    (2) Listing requirement. A designated contract market that makes a 
swap available to trade must demonstrate that it lists or offers that 
swap for trading on its trading system or platform.
    (b) Factors to consider. To make a swap available to trade, for 
purposes of section 2(h)(8) of the Act, a designated contract market 
shall consider, as appropriate, the following factors with respect to 
such swap:
    (1) Whether there are ready and willing buyers and sellers;
    (2) The frequency or size of transactions;
    (3) The trading volume;
    (4) The number and types of market participants;
    (5) The bid/ask spread; or
    (6) The usual number of resting firm or indicative bids and offers.
    (c) Applicability. (1) Upon a determination that a swap is available 
to trade on any designated contract market or swap execution facility 
pursuant to part 40 of this chapter, all other designated contract 
markets and swap execution facilities shall comply with the requirements 
of section 2(h)(8)(A) of the Act in listing or offering such swap for 
trading.
    (d) Removal--(1) Determination. The Commission may issue a 
determination that a swap is no longer available to trade upon 
determining that no swap execution facility or designated contract 
market lists such swap for trading.
    (2) Delegation of Authority. (i) 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 to issue a determination that 
a swap is no longer available to trade.
    (ii) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this section. Nothing in this 
section prohibits the Commission, at its election, from exercising the 
authority delegated in this section.

[78 FR 33631, June 4, 2013]



                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.

[[Page 779]]



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 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

[[Page 780]]

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 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 in Sec.  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

[[Page 781]]

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 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 of Sec.  38.150 of this part.



         Subpart D_Contracts Not Readily Subject to Manipulation

    Source: 77 FR 36700, June 19, 2012, unless otherwise noted.

[[Page 782]]



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 of Sec.  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.



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.
    (e) Adopt and implement rules governing market participants subject 
to its jurisdiction to prevent, detect, and mitigate market disruptions 
or system anomalies associated with electronic trading;
    (f) Subject all electronic orders to exchange-based pre-trade risk 
controls to prevent, detect, and mitigate market disruptions or system 
anomalies associated with electronic trading; and
    (g) Promptly notify Commission staff of any significant market 
disruptions on its electronic trading platform(s) and provide timely 
information on the causes and remediation.

[77 FR 36700, June 19, 2012, as amended at 86 FR 2071, Jan. 11, 2021]



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

[[Page 783]]

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 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 of Sec.  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:

[[Page 784]]

    (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 of Sec.  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
    (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.

[[Page 785]]



           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.



                       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

[[Page 786]]

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:
    (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.

[[Page 787]]



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 of Sec.  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, 
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 of Sec.  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) and Sec.  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

[[Page 788]]

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.



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.

[[Page 789]]



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, 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 of Sec.  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

[[Page 790]]

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 with Sec.  
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, 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 of Sec.  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

[[Page 791]]

this part to demonstrate to the Commission compliance with the 
requirements of Sec.  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 of Sec.  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.



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 of Sec.  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 of Sec.  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 of Sec.  38.1000 of this 
part.

[[Page 792]]



                       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 shall 
address each of the following categories of risk analysis and oversight:
    (1) Enterprise risk management and governance. This category 
includes, but is not limited to: Assessment, mitigation, and monitoring 
of security and technology risk; security and technology capital 
planning and investment; board of directors and management oversight of 
technology and security; information technology audit and controls 
assessments; remediation of deficiencies; and any other elements of 
enterprise risk management and governance included in generally accepted 
best practices.
    (2) Information security. This category includes, but is not limited 
to, controls relating to: Access to systems and data (including least 
privilege, separation of duties, account monitoring and control); user 
and device identification and authentication; security awareness 
training; audit log maintenance, monitoring, and analysis; media 
protection; personnel security and screening; automated system and 
communications protection (including network port control, boundary 
defenses, encryption); system and information integrity (including 
malware defenses, software integrity monitoring); vulnerability 
management; penetration testing; security incident response and 
management; and any other elements of information security included in 
generally accepted best practices.
    (3) Business continuity-disaster recovery planning and resources. 
This category includes, but is not limited to: Regular, periodic testing 
and review of business continuity-disaster recovery capabilities, the 
controls and capabilities described in paragraphs (c), (d), (j), and (k) 
of this section; and any other elements of business continuity-disaster 
recovery planning and resources included in generally accepted best 
practices.
    (4) Capacity and performance planning. This category includes, but 
is not limited to: Controls for monitoring the designated contract 
market's systems to ensure adequate scalable capacity (including 
testing, monitoring, and analysis of current and projected future 
capacity and performance, and of possible capacity degradation due to 
planned automated system changes); and any other elements of capacity 
and performance planning included in generally accepted best practices.
    (5) Systems operations. This category includes, but is not limited 
to: System maintenance; configuration management (including baseline 
configuration, configuration change and patch management, least 
functionality, inventory of authorized and unauthorized devices and 
software); event and problem response and management; and any other 
elements of system operations included in generally accepted best 
practices.
    (6) Systems development and quality assurance. This category 
includes, but is not limited to: Requirements development; pre-
production and regression testing; change management procedures and 
approvals; outsourcing and vendor management; training in secure

[[Page 793]]

coding practices; and any other elements of systems development and 
quality assurance included in generally accepted best practices.
    (7) Physical security and environmental controls. This category 
includes, but is not limited to: Physical access and monitoring; power, 
telecommunication, and environmental controls; fire protection; and any 
other elements of physical security and environmental controls included 
in generally accepted best practices.
    (b) In addressing the categories of risk analysis and oversight 
required under paragraph (a) of this section, a designated contract 
market shall 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 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 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. A designated 
contract market shall update its business continuity-disaster recovery 
plan and emergency procedures at a frequency determined by an 
appropriate risk analysis, but at a minimum no less frequently than 
annually.
    (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) As part of a designated contract market's obligation to produce 
books and records in accordance with Sec.  1.31 of

[[Page 794]]

this chapter, Core Principle 18 (Recordkeeping), and Sec. Sec.  38.950 
and 38.951, a designated contract market shall provide to the Commission 
the following system safeguards-related books and records, promptly upon 
the request of any Commission representative:
    (1) Current copies of its business continuity-disaster recovery 
plans and other emergency procedures;
    (2) All assessments of its operational risks or system safeguards-
related controls;
    (3) All reports concerning system safeguards testing and assessment 
required by this chapter, whether performed by independent contractors 
or by employees of the designated contract market; and
    (4) All other books and records requested by Commission staff in 
connection with Commission oversight of system safeguards pursuant to 
the Act or Commission regulations, or in connection with Commission 
maintenance of a current profile of the designated contract market's 
automated systems.
    (5) Nothing in this paragraph (g) shall be interpreted as reducing 
or limiting in any way a designated contract market's obligation to 
comply with Core Principle 18 (Recordkeeping) or with Sec.  1.31 of this 
chapter, or with Sec.  38.950 or Sec.  38.951.
    (h) A designated contract market 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. Such testing and review shall 
include, without limitation, all of the types of testing set forth in 
this paragraph (h). A covered designated contract market, as defined in 
this section, shall be subject to the additional requirements regarding 
minimum testing frequency and independent contractor testing set forth 
in this paragraph (h).
    (1) Definitions. As used in paragraph (h) of this section:
    Controls means the safeguards or countermeasures employed by the 
designated contract market in order to protect the reliability, 
security, or capacity of its automated systems or the confidentiality, 
integrity, and availability of its data and information, and in order to 
enable the designated contract market to fulfill its statutory and 
regulatory responsibilities.
    Controls testing means assessment of the designated contract 
market's controls to determine whether such controls are implemented 
correctly, are operating as intended, and are enabling the designated 
contract market to meet the requirements established by this section.
    Covered designated contract market means a designated contract 
market whose annual total trading volume in calendar year 2015, or in 
any subsequent calendar year, is five percent (5%) or more of the 
combined annual total trading volume of all designated contract markets 
regulated by the Commission for the year in question, based on annual 
total trading volume information provided to the Commission by each 
designated contract market pursuant to the procedure set forth in this 
chapter. A covered designated contract market that has annual total 
trading volume of less than five percent (5%) of the combined annual 
total trading volume of all designated contract markets regulated by the 
Commission for three consecutive calendar years ceases to be a covered 
designated contract market as of March 1 of the calendar year following 
such three consecutive calendar years.
    Enterprise technology risk assessment means a written assessment 
that includes, but is not limited to, an analysis of threats and 
vulnerabilities in the context of mitigating controls. An enterprise 
technology risk assessment identifies, estimates, and prioritizes risks 
to designated contract market operations or assets, or to market 
participants, individuals, or other entities, resulting from impairment 
of the confidentiality, integrity, and availability of data and 
information or the reliability, security, or capacity of automated 
systems.
    External penetration testing means attempts to penetrate the 
designated contract market's automated systems from outside the systems' 
boundaries to identify and exploit vulnerabilities. Methods of 
conducting external penetration testing include, but are not

[[Page 795]]

limited to, methods for circumventing the security features of an 
automated system.
    Internal penetration testing means attempts to penetrate the 
designated contract market's automated systems from inside the systems' 
boundaries, to identify and exploit vulnerabilities. Methods of 
conducting internal penetration testing include, but are not limited to, 
methods for circumventing the security features of an automated system.
    Key controls means those controls that an appropriate risk analysis 
determines are either critically important for effective system 
safeguards or intended to address risks that evolve or change more 
frequently and therefore require more frequent review to ensure their 
continuing effectiveness in addressing such risks.
    Security incident means a cyber security or physical security event 
that actually jeopardizes or has a significant likelihood of 
jeopardizing automated system operation, reliability, security, or 
capacity, or the availability, confidentiality or integrity of data.
    Security incident response plan means a written plan documenting the 
designated contract market's policies, controls, procedures, and 
resources for identifying, responding to, mitigating, and recovering 
from security incidents, and the roles and responsibilities of its 
management, staff and independent contractors in responding to security 
incidents. A security incident response plan may be a separate document 
or a business continuity-disaster recovery plan section or appendix 
dedicated to security incident response.
    Security incident response plan testing means testing of a 
designated contract market's security incident response plan to 
determine the plan's effectiveness, identify its potential weaknesses or 
deficiencies, enable regular plan updating and improvement, and maintain 
organizational preparedness and resiliency with respect to security 
incidents. Methods of conducting security incident response plan testing 
may include, but are not limited to, checklist completion, walk-through 
or table-top exercises, simulations, and comprehensive exercises.
    Vulnerability testing means testing of a designated contract 
market's automated systems to determine what information may be 
discoverable through a reconnaissance analysis of those systems and what 
vulnerabilities may be present on those systems.
    (2) Vulnerability testing. A designated contract market shall 
conduct vulnerability testing of a scope sufficient to satisfy the 
requirements set forth in paragraph (k) of this section.
    (i) A designated contract market shall conduct such vulnerability 
testing at a frequency determined by an appropriate risk analysis. At a 
minimum, a covered designated contract market shall conduct such 
vulnerability testing no less frequently than quarterly.
    (ii) Such vulnerability testing shall include automated 
vulnerability scanning, which shall follow generally accepted best 
practices.
    (iii) A designated contract market shall conduct vulnerability 
testing by engaging independent contractors or by using employees of the 
designated contract market who are not responsible for development or 
operation of the systems or capabilities being tested.
    (3) External penetration testing. A designated contract market shall 
conduct external penetration testing of a scope sufficient to satisfy 
the requirements set forth in paragraph (k) of this section.
    (i) A designated contract market shall conduct such external 
penetration testing at a frequency determined by an appropriate risk 
analysis. At a minimum, a covered designated contract market shall 
conduct such external penetration testing no less frequently than 
annually.
    (ii) A covered designated contract market shall engage independent 
contractors to conduct the required annual external penetration test. 
The covered designated contract market may conduct other external 
penetration testing by using employees of the covered designated 
contract market who are not responsible for development or operation of 
the systems or capabilities being tested.

[[Page 796]]

    (iii) A designated contract market which is not a covered designated 
contract market shall conduct external penetration testing by engaging 
independent contractors or by using employees of the designated contract 
market who are not responsible for development or operation of the 
systems or capabilities being tested.
    (4) Internal penetration testing. A designated contract market shall 
conduct internal penetration testing of a scope sufficient to satisfy 
the requirements set forth in paragraph (k) of this section.
    (i) A designated contract market shall conduct such internal 
penetration testing at a frequency determined by an appropriate risk 
analysis. At a minimum, a covered designated contract market shall 
conduct such internal penetration testing no less frequently than 
annually.
    (ii) A designated contract market shall conduct internal penetration 
testing by engaging independent contractors, or by using employees of 
the designated contract market who are not responsible for development 
or operation of the systems or capabilities being tested.
    (5) Controls testing. A designated contract market shall conduct 
controls testing of a scope sufficient to satisfy the requirements set 
forth in paragraph (k) of this section.
    (i) A designated contract market shall conduct controls testing, 
which includes testing of each control included in its program of risk 
analysis and oversight, at a frequency determined by an appropriate risk 
analysis. Such testing may be conducted on a rolling basis. At a 
minimum, a covered designated contract market shall conduct testing of 
its key controls no less frequently than every three years. The covered 
designated contract market may conduct testing of its key controls on a 
rolling basis over the course of three years or the period determined by 
such risk analysis, whichever is shorter.
    (ii) A covered designated contract market shall engage independent 
contractors to test and assess the key controls included in its program 
of risk analysis and oversight no less frequently than every three 
years. The covered designated contract market may conduct any other 
controls testing required by this section by using independent 
contractors or employees of the covered designated contract market who 
are not responsible for development or operation of the systems or 
capabilities being tested.
    (iii) A designated contract market which is not a covered designated 
contract market shall conduct controls testing by engaging independent 
contractors or by using employees of the designated contract market who 
are not responsible for development or operation of the systems or 
capabilities being tested.
    (6) Security incident response plan testing. A designated contract 
market shall conduct security incident response plan testing sufficient 
to satisfy the requirements set forth in paragraph (k) of this section.
    (i) A designated contract market shall conduct such security 
incident response plan testing at a frequency determined by an 
appropriate risk analysis. At a minimum, a covered designated contract 
market shall conduct such security incident response plan testing no 
less frequently than annually.
    (ii) A designated contract market's security incident response plan 
shall include, without limitation, the designated contract market's 
definition and classification of security incidents, its policies and 
procedures for reporting security incidents and for internal and 
external communication and information sharing regarding security 
incidents, and the hand-off and escalation points in its security 
incident response process.
    (iii) A designated contract market may coordinate its security 
incident response plan testing with other testing required by this 
section or with testing of its other business continuity-disaster 
recovery and crisis management plans.
    (iv) A designated contract market may conduct security incident 
response plan testing by engaging independent contractors or by using 
employees of the designated contract market.
    (7) Enterprise technology risk assessment. A designated contract 
market

[[Page 797]]

shall conduct enterprise technology risk assessment of a scope 
sufficient to satisfy the requirements set forth in paragraph (k) of 
this section.
    (i) A designated contract market shall conduct an enterprise 
technology risk assessment at a frequency determined by an appropriate 
risk analysis. At a minimum, a covered designated contract market shall 
conduct an enterprise technology risk assessment no less frequently than 
annually. A designated contract market that has conducted an enterprise 
technology risk assessment that complies with this section may conduct 
subsequent assessments by updating the previous assessment.
    (ii) A designated contract market may conduct enterprise technology 
risk assessments by using independent contractors or employees of the 
designated contract market who are not responsible for development or 
operation of the systems or capabilities being assessed.
    (i) To the extent practicable, a designated contract market shall:
    (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.
    (k) Scope of testing and assessment. The scope for all system 
safeguards testing and assessment required by this part shall be broad 
enough to include the testing of automated systems and controls that the 
designated contract market's required program of risk analysis and 
oversight and its current cybersecurity threat analysis indicate is 
necessary to identify risks and vulnerabilities that could enable an 
intruder or unauthorized user or insider to:
    (1) Interfere with the designated contract market's operations or 
with fulfillment of its statutory and regulatory responsibilities;
    (2) Impair or degrade the reliability, security, or adequate 
scalable capacity of the designated contract market's automated systems;
    (3) Add to, delete, modify, exfiltrate, or compromise the integrity 
of any data related to the designated contract market's regulated 
activities; or
    (4) Undertake any other unauthorized action affecting the designated 
contract market's regulated activities or the hardware or software used 
in connection with those activities.
    (l) Internal reporting and review. Both the senior management and 
the Board of Directors of a designated contract market shall receive and 
review reports setting forth the results of the testing and assessment 
required by this section. A designated contract market shall establish 
and follow appropriate procedures for the remediation of issues 
identified through such review, as provided in paragraph (m) of this 
section, and for evaluation of the effectiveness of testing and 
assessment protocols.
    (m) Remediation. A designated contract market shall identify and 
document the vulnerabilities and deficiencies in its systems revealed by 
the testing and assessment required by this section. The designated 
contract market shall conduct and document an appropriate analysis of 
the risks presented by such vulnerabilities and deficiencies, to 
determine and document

[[Page 798]]

whether to remediate or accept the associated risk. When the designated 
contract market determines to remediate a vulnerability or deficiency, 
it must remediate in a timely manner given the nature and magnitude of 
the associated risk.
    (n) Required production of annual total trading volume. (1) As used 
in this paragraph, annual total trading volume means the total number of 
all contracts traded on or pursuant to the rules of a designated 
contract market during a calendar year.
    (2) Each designated contract market shall provide to the Commission 
for calendar year 2015 and each calendar year thereafter its annual 
total trading volume, providing this information for 2015 within 30 
calendar days of the effective date of the final version of this rule, 
and for 2016 and subsequent years by January 31 of the following 
calendar year. For calendar year 2015 and each calendar year thereafter, 
the Commission shall provide to each designated contract market the 
percentage of the combined annual total trading volume of all designated 
contract markets regulated by the Commission which is constituted by 
that designated contract market's annual total trading volume, providing 
this information for 2015 within 60 calendar days of the effective date 
of the final version of this rule, and for 2016 and subsequent years by 
February 28 of the following calendar year.
    (3) Delegation of authority. 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 to provide each designated contract market 
with its percentage of the total annual trading volume of all designated 
contract markets regulated by the Commission, as set forth in paragraph 
(n)(2) of this section. 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. Nothing in this section 
prohibits the Commission, at its election, from exercising the authority 
delegated in this section.

[77 FR 36700, June 19, 2012, as amended at 81 FR 64312, Sept. 19, 2016; 
82 FR 45434, Sept. 29, 2017]



                      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 of Sec.  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

[[Page 799]]

single quarterly reports in accordance with Sec.  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.
    (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;

[[Page 800]]

    (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 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 of Sec.  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 out such international 
information-sharing agreements as the Commission may require.

[[Page 809]]

    (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 under Sec.  40.2 of this chapter or 
may submit products for Commission approval under Sec.  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, and daily price limits, or design other types

[[Page 810]]

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.
    (6) Market disruptions and system anomalies associated with 
electronic trading. To comply with Sec.  38.251(e), the contract market 
must adopt and implement rules that are reasonably designed to prevent, 
detect, and mitigate market disruptions or system anomalies associated 
with electronic trading. To comply with Sec.  38.251(f), the contract 
market must subject all electronic orders to exchange-based pre-trade 
risk controls that are reasonably designed to prevent, detect, and 
mitigate market disruptions or system anomalies.
    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 of Sec.  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 in Sec.  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

[[Page 811]]

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 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

[[Page 812]]

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 (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 of Sec.  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

[[Page 813]]

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 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 of Sec.  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 in Sec.  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

[[Page 814]]

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 those that would be 
disqualifying under Sec.  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;
    (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;

[[Page 815]]

    (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
    (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

[[Page 816]]

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]
    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, as amended at 83 FR 7996, Feb. 23, 2018; 86 
FR 2072, Jan. 11, 2021]



Sec. Appendix C to Part 38--Demonstration of Compliance That a Contract 
               Is Not Readily Susceptible to Manipulation

    (a) Futures Contracts--General Information. When a designated 
contract market certifies or submits for approval contract terms and 
conditions for a new futures contract, that submission should include 
the following information:
    (1) A narrative describing the contract, including data and 
information to support the contract's terms and conditions, as set by 
the designated contract market. When designing a futures contract, the 
designated contract market should conduct market research so that the 
contract design meets the risk management needs of prospective users and 
promotes price discovery of the underlying commodity. The designated 
contract market should consult with market users to obtain their views 
and opinions during the contract design process to ensure the contract's 
term and conditions reflect the underlying cash market and that the 
futures contract will perform the intended risk management and/or price 
discovery functions. A designated contract market should provide a 
statement indicating that it took such steps to ensure the usefulness of 
the submitted contract.
    (2) A detailed cash market description for physical and cash-settled 
contracts. Such descriptions should be based on government and/or other 
publicly-available data whenever possible and be formulated for both the 
national and regional/local market relevant to the underlying commodity. 
For tangible commodities, the cash market descriptions for the relevant 
market (i.e., national and regional/local) should incorporate at least 
three full years of data that may include, among other factors, 
production, consumption, stocks, imports, exports, and prices. Each of 
those cash market variables should be fully defined and the data sources 
should be fully specified and documented to permit Commission staff to 
replicate the estimates of deliverable supply (defined in paragraph 
(b)(1)(A) of this appendix C). Whenever possible, the Commission 
requests that monthly or daily prices (depending on the contract) 
underlying the cash settlement index be submitted for the most recent 
three full calendar years and for as many of the current year's months 
for which data are available. For contracts that are cash settled to an 
index, the index's methodology should be provided along with supporting 
information showing how the index is reflective of the underlying cash 
market, is not readily subject to manipulation or distortion, and is 
based on a cash price series that is reliable, acceptable, publicly 
available and timely (defined in paragraphs (c)(2) and (c)(3) of this

[[Page 817]]

appendix C). The Commission recognizes that the data necessary for 
accurate and cogent cash market analyses for an underlying commodity 
vary with the nature of the underlying commodity. The Commission may 
require that the designated contract market submit a detailed report on 
commodity definitions and uses.
    (b) Futures Contracts Settled by Physical Delivery. (1) For listed 
contracts that are settled by physical delivery, the terms and 
conditions of the contract should conform to the most common commercial 
practices and conditions in the cash market for the commodity underlying 
the futures contract. The terms and conditions should be designed to 
avoid any impediments to the delivery of the commodity so as to promote 
convergence between the price of the futures contract and the cash 
market value of the commodity at the expiration of a futures contract.
    (i) Estimating Deliverable Supplies.
    (A) General definition. The specified terms and conditions, 
considered as a whole, should result in a ``deliverable supply'' that is 
sufficient to ensure that the contract is not susceptible to price 
manipulation or distortion. In general, the term ``deliverable supply'' 
means the quantity of the commodity meeting the contract's delivery 
specifications that reasonably can be expected to be readily available 
to short traders and salable by long traders at its market value in 
normal cash marketing channels at the contract's delivery points during 
the specified delivery period, barring abnormal movement in interstate 
commerce. Typically, deliverable supply reflects the quantity of the 
commodity that potentially could be made available for sale on a spot 
basis at current prices at the contract's delivery points. For a non-
financial physical-delivery commodity contract, this estimate might 
represent product which is in storage at the delivery point(s) specified 
in the futures contract or can be moved economically into or through 
such points consistent with the delivery procedures set forth in the 
contract and which is available for sale on a spot basis within the 
marketing channels that normally are tributary to the delivery point(s). 
Furthermore, an estimate of deliverable supply would not include supply 
that is committed for long-term agreements (i.e., the amount of 
deliverable supply that would not be available to fulfill the delivery 
obligations arising from current trading). The size of commodity 
supplies that are committed to long-term agreements may be estimated by 
consulting with market participants. However, if the estimated 
deliverable supply that is committed for long-term agreements, or 
significant portion thereof, can be demonstrated by the designated 
contract market to be consistently and regularly made available to the 
spot market for shorts to acquire at prevailing economic values, then 
those ``available'' supplies committed for long-term contracts may be 
included in the designated contract market's estimate of deliverable 
supply for that commodity. An adequate measure of deliverable supply 
would be an amount of the commodity that would meet the normal or 
expected range of delivery demand without causing futures prices to 
become distorted relative to cash market prices. Given the availability 
of acceptable data, deliverable supply should be estimated on a monthly 
basis for at least the most recent three years for which data are 
available. To the extent possible and that data resources permit, 
deliverable supply estimates should be constructed such that the data 
reflect, as close as possible, the market defined by the contract's 
terms and conditions, and should be formulated, whenever possible, with 
government or publicly available data. All deliverable supply estimates 
should be fully defined, have all underlying assumptions explicitly 
stated, and have documentation of all data/information sources in order 
to permit estimate replication by Commission staff.
    (B) Accounting for variations in deliverable supplies. To assure the 
availability of adequate deliverable supplies and acceptable levels of 
commercial risk management utility, contract terms and conditions should 
account for variations in the patterns of production, consumption and 
supply over a period of years of sufficient length to assess adequately 
the potential range of deliverable supplies. This assessment also should 
consider seasonality, growth, and market concentration in the 
production/consumption of the underlying cash commodity. Deliverable 
supply implications of seasonal effects are more straightforwardly 
delineated when deliverable supply estimates are calculated on a monthly 
basis and when such monthly estimates are provided for at least the most 
recent three years for which data resources permit. In addition, 
consideration should be given to the relative roles of producers, 
merchants, and consumers in the production, distribution, and 
consumption of the cash commodity and whether the underlying commodity 
exhibits a domestic or international export focus. Careful consideration 
also should be given to the quality of the cash commodity and to the 
movement or flow of the cash commodity in normal commercial channels and 
whether there exist external factors or regulatory controls that could 
affect the price or supply of the cash commodity.
    (C) Calculation of deliverable supplies. Designated contract markets 
should derive a quantitative estimate of the deliverable supplies for 
the delivery period specified in the proposed contract. For commodities 
with seasonal supply or demand characteristics, the deliverable supply 
analysis should include that period when potential supplies

[[Page 818]]

typically are at their lowest levels. The estimate should be based on 
statistical data, when reasonably available, covering a period of time 
that is representative of the underlying commodity's actual patterns of 
production, patterns of consumption, and patterns of seasonal effects 
(if relevant). Often, such a relevant time period should include at 
least three years of monthly deliverable supply estimates permitted by 
available data resources. Deliverable supply estimates should also 
exclude the amount of the commodity that would not be otherwise 
deliverable on the futures contract. For example, deliverable supplies 
should exclude quantities that at current price levels are not 
economically obtainable or deliverable or were previously committed for 
long-term agreements.
    (2) Contract terms and conditions requirements for futures contracts 
settled by physical delivery.
    (i) For physical delivery contracts, an acceptable specification of 
terms and conditions would include, but may not be limited to, rules 
that address, as appropriate, the following criteria and comply with the 
associated standards:
    (A) Quality Standards. The terms and conditions of a commodity 
contract should describe or define all of the economically significant 
characteristics or attributes of the commodity underlying the contract. 
In particular, the quality standards should be described or defined so 
that such standards reflect those used in transactions in the commodity 
in normal cash marketing channels. Documentation establishing that the 
quality standards of the contract's underlying commodity comply with 
those accepted/established by the industry, by government regulations, 
and/or by relevant laws should also be submitted. For any particular 
commodity contract, the specific attributes that should be enumerated 
depend upon the individual characteristics of the underlying commodity. 
These may include, for example, the following items: grade, quality, 
purity, weight, class, origin, growth, issuer, originator, maturity 
window, coupon rate, source, hours of trading, etc. If the terms of the 
contract provide for the delivery of multiple qualities of a specific 
attribute of the commodity having different cash market values, then a 
``par'' quality should be specified with price differentials applicable 
to the ``non-par'' qualities that reflect discounts or premiums commonly 
observed or expected to occur in the cash market for that commodity.
    (B) Delivery Points and Facilities. Delivery point/area 
specifications should provide for futures delivery at a single location 
or at multiple locations where the underlying cash commodity is normally 
transacted or stored and where there exists a viable cash market(s). If 
multiple delivery points are specified and the value of the commodity 
differs between these locations, contract terms should include price 
differentials that reflect usual differences in value between the 
different delivery locations. If the price relationships among the 
delivery points are unstable and a designated contract market chooses to 
adopt fixed locational price differentials, such differentials should 
fall within the range of commonly observed or expected commercial price 
differences. In this regard, any price differentials should be supported 
with cash price data for the delivery location(s). The terms and 
conditions of the contracts also should specify, as appropriate, any 
conditions the delivery facilities and/or delivery facility operators 
should meet in order to be eligible for delivery. Specification of any 
requirements for delivery facilities also should consider the extent to 
which ownership of such facilities is concentrated and whether the level 
of concentration would be susceptible to manipulation of the futures 
contract's prices. Commodity contracts also should specify appropriately 
detailed delivery procedures that describe the responsibilities of 
deliverers, receivers and any required third parties in carrying out the 
delivery process. Such responsibilities could include allocation between 
buyer and seller of all associated costs such as load-out, document 
preparation, sampling, grading, weighing, storage, taxes, duties, fees, 
drayage, stevedoring, demurrage, dispatch, etc. Required accreditation 
for third-parties also should be detailed. These procedures should seek 
to minimize or eliminate any impediments to making or taking delivery by 
both deliverers and takers of delivery to help ensure convergence of 
cash and futures at the expiration of a futures delivery month.
    (C) Delivery Period and Last Trading Day. An acceptable 
specification of the delivery period would allow for sufficient time for 
deliverers to acquire the deliverable commodity and make it available 
for delivery, considering any restrictions or requirements imposed by 
the designated contract market. Specification of the last trading day 
for expiring contracts should consider whether adequate time remains 
after the last trading day to allow for delivery on the contract.
    (D) Contract Size and Trading Unit. An acceptable specification of 
the delivery unit and/or trading unit would be a contract size that is 
consistent with customary transactions, transportation or storage 
amounts in the cash market (e.g., the contract size may be reflective of 
the amount of the commodity that represents a pipeline, truckload or 
railcar shipment). For purposes of increasing market liquidity, a 
designated contract market may elect to specify a contract size that is 
smaller than the typical commercial transaction size, storage unit or 
transportation size. In such cases, the commodity contract should 
include procedures that

[[Page 819]]

allow futures traders to easily take or make delivery on such a contract 
with a smaller size, or, alternatively, the designated contract market 
may adopt special provisions requiring that delivery be made only in 
multiple contracts to accommodate reselling the commodity in the cash 
market. If the latter provision is adopted, contract terms should be 
adopted to minimize the potential for default in the delivery process by 
ensuring that all contracts remaining open at the close of trading in 
expiring delivery months can be combined to meet the required delivery 
unit size. Generally, contract sizes and trading units should be 
determined after a careful analysis of relevant cash market trading 
practices, conditions and deliverable supply estimates, so as to ensure 
that the underlying market commodity market and available supply sources 
are able to support the contract sizes and trading units at all times.
    (E) Delivery Pack. The term ``delivery pack'' refers to the 
packaging standards (e.g., product may be delivered in burlap or 
polyethylene bags stacked on wooden pallets) or non-quality related 
standards regarding the composition of commodity within a delivery unit 
(e.g., product must all be imported from the same country or origin). An 
acceptable specification of the delivery pack or composition of a 
contract's delivery unit should reflect, to the extent possible, 
specifications commonly applied to the commodity traded or transacted in 
the cash market.
    (F) Delivery Instrument. An acceptable specification of the delivery 
instrument (e.g., warehouse receipt, depository certificate or receipt, 
shipping certificate, bill of lading, in-line transfer, book transfer of 
securities, etc.) would provide for its conversion into the cash 
commodity at a commercially-reasonable cost. Transportation terms (e.g., 
FOB, CIF, freight prepaid to destination) as well as any limits on 
storage or certificate daily premium fees should be specified. These 
terms should reflect cash market practices and the customary provision 
for allocating delivery costs between buyer and seller.
    (G) Inspection Provisions. Any inspection/certification procedures 
for verifying compliance with quality requirements or any other related 
delivery requirements (e.g., discounts relating to the age of the 
commodity, etc.) should be specified in the contract rules. An 
acceptable specification of inspection procedures would include the 
establishment of formal procedures that are consistent with procedures 
used in the cash market. To the extent that formal inspection procedures 
are not used in the cash market, an acceptable specification would 
contain provisions that assure accuracy in assessing the commodity, that 
are available at a low cost, that do not pose an obstacle to delivery on 
the contract and that are performed by a reputable, disinterested third 
party or by qualified designated contract market employees. Inspection 
terms also should detail which party pays for the service, particularly 
in light of the possibility of varying inspection results.
    (H) Delivery (Trading) Months. Delivery months should be established 
based on the risk management needs of commercial entities as well as the 
availability of deliverable supplies in the specified months.
    (I) Minimum Price Fluctuation (Minimum Tick). The minimum price 
increment (tick) should be set at a level that is equal to, or less 
than, the minimum price increment commonly observed in cash market 
transactions for the underlying commodity. Specifying a futures' minimum 
tick that is greater than the minimum price increment in the cash market 
can undermine the risk management utility of the futures contract by 
preventing hedgers from efficiently establishing and liquidating futures 
positions that are used to hedge anticipated cash market transactions or 
cash market positions.
    (J) Maximum Price Fluctuation Limits. Designated contract markets 
may adopt price limits to: (1) Reduce or constrain price movements in a 
trading day that may not be reflective of true market conditions but 
might be caused by traders overreacting to news; (2) Allow additional 
time for the collection of margins in times of large price movements; 
and (3) Provide a ``cooling-off'' period for futures market participants 
to respond to bona fide changes in market supply and demand fundamentals 
that would lead to large cash and futures price changes. If price limit 
provisions are adopted, the limits should be set at levels that are not 
overly restrictive in relation to price movements in the cash market for 
the commodity underlying the futures contract.
    (K) Speculative Limits. Specific information regarding the 
establishment of speculative position limits are set forth in part 150, 
and/or part 151, as applicable, of the Commission's regulations.
    (L) Reportable Levels. Refer to Sec.  15.03 of the Commission's 
regulations.
    (M) Trading Hours. Should be set by the designated contract market 
to delineate each trading day.
    (c) Futures Contracts Settled by Cash Settlement. (1) Cash 
settlement is a method of settling certain futures or option contracts 
whereby, at contract expiration, the contract is settled by cash payment 
in lieu of physical delivery of the commodity or instrument underlying 
the contract. An acceptable specification of the cash settlement price 
for commodity futures and option contracts would include rules that 
fully describe the essential economic characteristics of the underlying 
commodity (e.g., grade, quality, weight, class, growth, issuer, 
maturity, source, rating, description of the underlying

[[Page 820]]

index and index's calculation methodology, etc.), as well as how the 
final settlement price is calculated. In addition, the rules should 
clearly specify the trading months and hours of trading, the last 
trading day, contract size, minimum price change (tick size) and any 
limitations on price movements (e.g., price limits or trading halts).
    (2) Cash settled contracts may be susceptible to manipulation or 
price distortion. In evaluating the susceptibility of a cash-settled 
contract to manipulation, a designated contract market should consider 
the size and liquidity of the cash market that underlies the listed 
contract in a manner that follows the determination of deliverable 
supply as noted above in (b)(1). In particular, situations susceptible 
to manipulation include those in which the volume of cash market 
transactions and/or the number of participants contacted in determining 
the cash-settlement price are very low. Cash-settled contracts may 
create an incentive to manipulate or artificially influence the data 
from which the cash-settlement price is derived or to exert undue 
influence on the cash-settlement price's computation in order to profit 
on a futures position in that commodity. The utility of a cash-settled 
contract for risk management and price discovery would be significantly 
impaired if the cash settlement price is not a reliable or robust 
indicator of the value of the underlying commodity or instrument. 
Accordingly, careful consideration should be given to the potential for 
manipulation or distortion of the cash settlement price, as well as the 
reliability of that price as an indicator of cash market values. 
Appropriate consideration also should be given to the commercial 
acceptability, public availability, and timeliness of the price series 
that is used to calculate the cash settlement price. Documentation 
demonstrating that the settlement price index is a reliable indicator of 
market values and conditions and is commonly used as a reference index 
by industry/market agents should be provided. Such documentation may 
take on various forms, including carefully documented interview results 
with knowledgeable agents.
    (3) Where an independent, private-sector third party calculates the 
cash settlement price series, a designated contract market should 
consider the need for a licensing agreement that will ensure the 
designated contract market's rights to the use of the price series to 
settle the listed contract.
    (i) Where an independent, private-sector third party calculates the 
cash settlement price series, the designated contract market should 
verify that the third party utilizes business practices that minimize 
the opportunity or incentive to manipulate the cash-settlement price 
series. Such safeguards may include lock-downs, prohibitions against 
derivatives trading by employees, or public dissemination of the names 
of sources and the price quotes they provide. Because a cash-settled 
contract may create an incentive to manipulate or artificially influence 
the underlying market from which the cash-settlement price is derived or 
to exert undue influence on the cash-settlement computation in order to 
profit on a futures position in that commodity, a designated contract 
market should, whenever practicable, enter into an information-sharing 
agreement with the third-party provider which would enable the 
designated contract market to better detect and prevent manipulative 
behavior.
    (ii) Where a designated contract market itself generates the cash 
settlement price series, the designated contract market should establish 
calculation procedures that safeguard against potential attempts to 
artificially influence the price. For example, if the cash settlement 
price is derived by the designated contract market based on a survey of 
cash market sources, the designated contract market should maintain a 
list of such entities which all should be reputable sources with 
knowledge of the cash market. In addition, the sample of sources polled 
should be representative of the cash market, and the poll should be 
conducted at a time when trading in the cash market is active.
    (iii) The cash-settlement calculation should involve computational 
procedures that eliminate or reduce the impact of potentially 
unrepresentative data.
    (iv) The cash settlement price should be an accurate and reliable 
indicator of prices in the underlying cash market. The cash settlement 
price also should be acceptable to commercial users of the commodity 
contract. The registered entity should fully document that the 
settlement price is accurate, reliable, highly regarded by industry/
market agents, and fully reflects the economic and commercial conditions 
of the relevant designated contract market.
    (v) To the extent possible, the cash settlement price should be 
based on cash price series that are publicly available and available on 
a timely basis for purposes of calculating the cash settlement price at 
the expiration of a commodity contract. A designated contract market 
should make the final cash settlement price and any other supporting 
information that is appropriate for release to the public, available to 
the public when cash settlement is accomplished by the derivatives 
clearing organization. If the cash settlement price is based on cash 
prices that are obtained from non-public sources (e.g., cash market 
surveys conducted by the designated contract market or by third parties 
on behalf of the designated contract market), a designated contract 
market should make available to the public as soon as possible after a 
contract month's expiration the final cash settlement price as well as 
any other supporting information that is appropriate or feasible to make 
available to the public.

[[Page 821]]

    (4) Contract terms and conditions requirements for futures contracts 
settled by cash settlement.
    (i) An acceptable specification of the terms and conditions of a 
cash-settled commodity contract will also set forth the trading months, 
last trading day, contract size, minimum price change (tick size) and 
daily price limits, if any.
    (A) Commodity Characteristics: The terms and conditions of a 
commodity contract should describe the commodity underlying the 
contract.
    (B) Contract Size and Trading Unit: An acceptable specification of 
the trading unit would be a contract size that is consistent with 
customary transactions in the cash market. A designated contract market 
may opt to set the contract size smaller than that of standard cash 
market transactions.
    (C) Cash Settlement Procedure: The cash settlement price should be 
reliable, acceptable, publicly available, and reported in a timely 
manner as described in paragraphs (c)(3)(iv) and (c)(3)(v) of this 
appendix C.
    (D) Pricing Basis and Minimum Price Fluctuation (Minimum Tick): The 
minimum price increment (tick) should be set a level that is equal to, 
or less than, the minimum price increment commonly observed in cash 
market transactions for the underlying commodity. Specifying a futures' 
minimum tick that is greater than the minimum price increment in the 
cash market can undermine the risk management utility of the futures 
contract by preventing hedgers from efficiently establishing and 
liquidating futures positions that are used to hedge anticipated cash 
market transactions or cash market positions.
    (E) Maximum Price Fluctuation Limits: Designated contract markets 
may adopt price limits to: (1) Reduce or constrain price movements in a 
trading day that may not be reflective of true market conditions but 
might be caused by traders overreacting to news; (2) Allow additional 
time for the collection of margins in times of large price movements; 
and (3) Provide a ``cooling-off'' period for futures market participants 
to respond to bona fide changes in market supply and demand fundamentals 
that would lead to large cash and futures price changes. If price-limit 
provisions are adopted, the limits should be set at levels that are not 
overly restrictive in relation to price movements in the cash market for 
the commodity underlying the futures contract. For broad-based stock 
index futures contracts, rules should be adopted that coordinate with 
New York Stock Exchange (``NYSE'') declared Circuit Breaker Trading 
Halts (or other market coordinated Circuit Breaker mechanism) and would 
recommence trading in the futures contract only after trading in the 
majority of the stocks underlying the index has recommenced.
    (F) Last Trading Day: Specification of the last trading day for 
expiring contracts should be established such that it occurs before 
publication of the underlying third-party price index or determination 
of the final settlement price. If the designated contract market chooses 
to allow trading to occur through the determination of the final 
settlement price, then the designated contract market should show that 
futures trading would not distort the final settlement price 
calculation.
    (G) Trading Months: Trading months should be established based on 
the risk management needs of commercial entities as well as the 
availability of price and other data needed to calculate the cash 
settlement price in the specified months. Specification of the last 
trading day should take into consideration whether the volume of 
transactions underlying the cash settlement price would be unduly 
limited by occurrence of holidays or traditional holiday periods in the 
cash market. Moreover, a contract should not be listed past the date for 
which the designated contract market has access to use a proprietary 
price index for cash settlement.
    (H) Speculative Limits: Specific rules and policies for speculative 
position limits are set forth in part 150 and/or part 151, as 
applicable, of the Commission's regulations.
    (I) Reportable Levels: Refer to Sec.  15.03 of the Commission's 
regulations.
    (J) Trading Hours: Should be set by the designated contract market 
to delineate each trading day.
    (d) Options on a Futures Contract. (1) The Commission's experience 
with the oversight of trading in futures option contracts indicates that 
most of the terms and conditions associated with such trading do not 
raise any regulatory concerns or issues. The Commission has found that 
the following terms do not affect an option contract's susceptible to 
manipulation or its utility for risk management. Thus, the Commission 
believes that, in most cases, any specification of the following terms 
would be acceptable; the only requirement is that such terms be 
specified in an automatic and objective manner in the option contract's 
rules:
    [cir] Exercise method;
    [cir] Exercise procedure (if positions in the underlying futures 
contract are established via book entry);
    [cir] Strike price listing provisions, including provisions for 
listing strike prices on a discretionary basis;
    [cir] Strike price intervals;
    [cir] Automatic exercise provisions;
    [cir] Contract size (unless not set equal to the size of the 
underlying futures contract); and
    [cir] Option minimum tick should be equal to or smaller than that of 
the underlying futures contract.

[[Page 822]]

    (2) Option Expiration & Last Trading Day. For options on futures 
contracts, specification of expiration dates should consider the 
relationship of the option expiration date to the delivery period for 
the underlying futures contract. In particular, an assessment should be 
made of liquidity in the underlying futures market to assure that any 
futures contracts acquired through exercise can be liquidated without 
adversely affecting the orderly liquidation of futures positions or 
increasing the underlying futures contract's susceptibility to 
manipulation. When the underlying futures contract exhibits a very low 
trading activity during an expiring delivery month's final trading days 
or has a greater risk of price manipulation than other contracts, the 
last trading day and expiration day of the option should occur prior to 
the delivery period or the settlement date of the underlying future. For 
example, the last trading day and option expiration day might 
appropriately be established prior to first delivery notice day for 
option contracts with underlying futures contracts that have very 
limited deliverable supplies. Similarly, if the futures contract 
underlying an option contract is cash settled using cash prices from a 
very limited number of underlying cash market transactions, the last 
trading and option expiration days for the option contract might 
appropriately be established prior to the last trading day for the 
futures contract.
    (3) Speculative Limits. In cases where the terms of an underlying 
futures contract specify a spot-month speculative position limit and the 
option contract expires during, or at the close of, the futures 
contract's delivery period, the option contract should include a spot-
month speculative position limit provision that requires traders to 
combine their futures and option position and be subject to the limit 
established for the futures contract. Specific rules and policies for 
speculative position limits are set forth in part 150 and/or part 151, 
as applicable, of the Commission's regulations.
    (4) Options on Physicals Contracts.
    (i) Under the Commission's regulations, the term ``option on 
physicals'' refers to option contracts that do not provide for exercise 
into an underlying futures contract. Upon exercise, options on physicals 
can be settled via physical delivery of the underlying commodity or by a 
cash payment. Thus, options on physicals raise many of the same issues 
associated with trading in futures contracts regarding adequacy of 
deliverable supplies or acceptability of the cash settlement price 
series. In this regard, an option that is cash settled based on the 
settlement price of a futures contract would be considered an ``option 
on physicals'' and the futures settlement price would be considered the 
cash price series.
    (ii) In view of the above, acceptable practices for the terms and 
conditions of options on physicals contracts include, as appropriate, 
those practices set forth above for physical-delivery or cash-settled 
futures contracts plus the practices set forth for options on futures 
contracts.
    (e) Security Futures Products. The listing of security futures 
products are governed by the special requirements of part 41 of the 
Commission's regulations.
    (f) Non-Price Based Futures Contracts. (1) Non-price based contracts 
are typically construed as binary options, but also may be designed to 
function similar to traditional futures or option contracts.
    (2) Where the contract is settled to a third party cash-settlement 
series, the designated contract market should consider the nature and 
sources of the data comprising the cash-settlement calculation, the 
computational procedures, and the mechanisms in place to ensure the 
accuracy and reliability of the index value. The evaluation also 
considers the extent to which the third party has, or will adopt, 
safeguards against unauthorized or premature release of the index value 
itself or any key data used in deriving the index value.
    (3) The designated contract market should follow the guidance in 
paragraph (c)(4) (Contract Terms and Conditions Requirements for Futures 
Contracts Settled by Cash Settlement) of this appendix C to meet 
compliance.
    (g) Swap Contracts. (1) In general, swap contracts are an agreement 
to exchange a series of cash flows over a period of time based on 
reference price indices. When listing a swap for trading, a swap 
execution facility or designated contract market should determine that 
the reference price indices used for its contracts are not readily 
susceptible to manipulation. Accordingly, careful consideration should 
be given to the potential for manipulation or distortion of the cash 
settlement price, as well as the reliability of that price as an 
indicator of cash market values. Appropriate consideration also should 
be given to the commercial acceptability, public availability, and 
timeliness of the price series that is used to calculate the cash 
settlement price. Documentation demonstrating that the settlement price 
index is a reliable indicator of market values and conditions and is 
highly regarded by industry/market agents should be provided. Such 
documentation may take on various forms, including carefully documented 
interviews with principal market trading agents, pricing experts, 
marketing agents, etc. Appropriate consideration also should be given to 
the commercial acceptability, public availability, and timeliness of the 
price series that is used to calculate the cash flows of the swap.
    (i) Where an independent, private-sector third party calculates the 
referenced price index, the designated contract market

[[Page 823]]

should verify that the third party utilizes business practices that 
minimize the opportunity or incentive to manipulate the cash-settlement 
price series. Such safeguards may include lock-downs, prohibitions 
against derivatives trading by employees, or public dissemination of the 
names of sources and the price quotes they provide. Because a cash-
settled contract may create an incentive to manipulate or artificially 
influence the underlying market from which the cash-settlement price is 
derived or to exert undue influence on the cash-settlement computation 
in order to profit on a futures position in that commodity, a designated 
contract market should, whenever practicable, enter into an information-
sharing agreement with the third-party provider which would enable the 
designated contract market to better detect and prevent manipulative 
behavior.
    (ii) Where a designated contract market itself generates the cash 
settlement price series, the designated contract market should establish 
calculation procedures that safeguard against potential attempts to 
artificially influence the price. For example, if the cash settlement 
price is derived by the designated contract market based on a survey of 
cash market sources, the designated contract market should maintain a 
list of such entities which all should be reputable sources with 
knowledge of the cash market. In addition, the sample of sources polled 
should be representative of the cash market, and the poll should be 
conducted at a time when trading in the cash market is active.
    (iii) The cash-settlement calculation should involve appropriate 
computational procedures that eliminate or reduce the impact of 
potentially unrepresentative data.
    (2) Speculative Limits: Specific rules and policies for speculative 
position limits are set forth in part 151 and/or part 151, as 
applicable, of the Commission's regulations.
    (3) Intraday Market Restrictions: Designated contract markets or 
swap execution facilities should have in place intraday market 
restrictions that pause or halt trading in the event of extraordinary 
price moves that may result in distorted prices. Such restrictions need 
to be coordinated with other markets that may be a proxy or a substitute 
for the contracts traded on their facility. For example, coordination 
with NYSE rule 80.B Circuit Breaker Trading Halts. The designated 
contract market or swap execution facility should adopt rules to 
specifically address who is authorized to declare an emergency; how the 
designated contract market or swap execution facility will notify the 
Commission of its decision that an emergency exists; how it will address 
conflicts of interest in the exercise of emergency authority; and how it 
will coordinate trading halts with markets that trade the underlying 
price reference index or product.
    (4) Settlement Method. The designated contract market or swap 
execution facility should follow the guidance in paragraph (c)(4) 
(Contract Terms and Conditions Requirements for Futures Contracts 
Settled by Cash Settlement) of this appendix C to meet compliance, or 
paragraph (b)(2) (Contract Terms and Conditions Requirements for Futures 
Contracts Settled by Physical Delivery) of this appendix C, as 
appropriate.

[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 Exemption from derivatives clearing organization registration.
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 Governance.
39.25 Conflicts of interest.
39.26 Composition of governing boards.
39.27 Legal risk considerations.
39.28-29.29 [Reserved]

 Subpart C_Provisions Applicable to Systemically Important Derivatives 
Clearing Organizations and Derivatives Clearing Organizations That Elect 
             To Be Subject to the Provisions of This Subpart

39.30 Scope.

[[Page 824]]

39.31 Election to become subject to the provisions of this subpart.
39.32 [Reserved]
39.33 Financial resources for systemically important derivatives 
          clearing organizations and subpart C derivatives clearing 
          organizations.
39.34 System safeguards for systemically important derivatives clearing 
          organizations and subpart C derivatives clearing 
          organizations.
39.35 Default rules and procedures for uncovered credit losses or 
          liquidity shortfalls (recovery) for systemically important 
          derivatives clearing organizations and subpart C derivatives 
          clearing organizations.
39.36 Risk management for systemically important derivatives clearing 
          organizations and subpart C derivatives clearing 
          organizations.
39.37 Additional disclosure for systemically important derivatives 
          clearing organizations and subpart C derivatives clearing 
          organizations.
39.38 Efficiency for systemically important derivatives clearing 
          organizations and subpart C derivatives clearing 
          organizations.
39.39 Recovery and wind-down for systemically important derivatives 
          clearing organizations and subpart C derivatives clearing 
          organizations.
39.40 Consistency with the Principles for Financial Market 
          Infrastructures.
39.41 Special enforcement authority for systemically important 
          derivatives clearing organizations.
39.42 Advance notice of material risk-related rule changes by 
          systemically important derivatives clearing organizations.
39.43-39.49 [Reserved]

 Subpart D_Provisions Applicable to Derivatives Clearing Organizations 
Subject to Compliance with Core Principles Through Compliance with Home 
                        Country Regulatory Regime

39.50 Scope.
39.51 Compliance with the core principles through compliance with home 
          country regulatory regime.

Appendix A to Part 39--Form DCO Derivatives Clearing Organization 
          Application for Registration
Appendix B to Part 39--Subpart C Election Form

    Authority: 7 U.S.C. 2, 6(c), 7a-1, and 12a(5); 12 U.S.C. 5464; 15 
U.S.C. 8325; Section 752 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, title VII, sec. 752, July 21, 
2010, 124 Stat. 1749.

    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 and Sec.  1.3 
of this chapter, that is registered or is required to register with the 
Commission as a derivatives clearing organization pursuant to section 
5b(a) of the Act, or that is applying for an exemption from registration 
pursuant to section 5b(h) of the Act.

[86 FR 965, Jan. 7, 2021]



Sec.  39.2  Definitions.

    For the purposes of this part:
    Activity with a more complex risk profile includes:
    (1) Clearing credit default swaps, credit default futures, or 
derivatives that reference either credit default swaps or credit default 
futures and
    (2) Any other activity designated as such by the Commission pursuant 
to Sec.  39.33(a)(3).
    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.
    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 any holiday on which a 
derivatives clearing organization and its domestic financial markets are 
closed, including a Federal holiday in the United States, as established 
under 5 U.S.C. 6103.
    Customer account or customer origin means ``customer account'' as 
defined in Sec.  1.3 of this chapter.
    Depository institution has the meaning set forth in section 
19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)).
    Enterprise risk management means an enterprise-wide strategic 
business process intended to identify potential events that may affect 
the enterprise

[[Page 825]]

and to manage the probability or impact of those events on the 
enterprise as a whole, such that the overall risk remains within the 
enterprise's risk appetite and provides reasonable assurance that the 
derivatives clearing organization can continue to achieve its 
objectives.
    Exempt derivatives clearing organization means a derivatives 
clearing organization that the Commission has exempted from registration 
under section 5b(a) of the Act, pursuant to section 5b(h) of the Act and 
Sec.  39.6.
    Fully collateralized position means a contract cleared by a 
derivatives clearing organization that requires the derivatives clearing 
organization to hold, at all times, funds in the form of the required 
payment sufficient to cover the maximum possible loss that a party or 
counterparty could incur upon liquidation or expiration of the contract.
    Good regulatory standing means, with respect to a derivatives 
clearing organization that is organized outside of the United States, 
and is licensed, registered, or otherwise authorized to act as a 
clearing organization in its home country, that:
    (1) In the case of an exempt derivatives clearing organization, 
either there has been no finding by the home country regulator of 
material non-observance of the Principles for Financial Market 
Infrastructures or other relevant home country legal requirements, or 
there has been a finding by the home country regulator of material non-
observance of the Principles for Financial Market Infrastructures or 
other relevant home country legal requirements but any such finding has 
been or is being resolved to the satisfaction of the home country 
regulator by means of corrective action taken by the derivatives 
clearing organization; or
    (2) In the case of a derivatives clearing organization registered 
subject to compliance with subpart D of this part, either there has been 
no finding by the home country regulator of material non-observance of 
the relevant home country legal requirements, or there has been a 
finding by the home country regulator of material non-observance of the 
relevant home country legal requirements but any such finding has been 
or is being resolved to the satisfaction of the home country regulator 
by means of corrective action taken by the derivatives clearing 
organization.
    Home country means, with respect to a derivatives clearing 
organization that is organized outside of the United States, the 
jurisdiction in which the derivatives clearing organization is 
organized.
    Home country regulator means, with respect to a derivatives clearing 
organization that is organized outside of the United States, an 
appropriate government authority which licenses, regulates, supervises, 
or oversees the derivatives clearing organization's clearing activities 
in the home country.
    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 in this chapter, and orders promulgated thereunder. 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; chief 
information security officer; and emergency contacts or persons who are 
responsible for business continuity or disaster recovery planning or 
program execution.
    Principles for Financial Market Infrastructures means the Principles 
for Financial Market Infrastructures jointly published by the Committee 
on Payment and Settlement Systems and the Technical Committee of the 
International Organization of Securities Commissions in April 2012.
    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

[[Page 826]]

clearing organization, clearing member, or large trader, to determine 
the adequacy of the financial resources of such entities.
    Subpart C derivatives clearing organization means any derivatives 
clearing organization, as defined in section 1a(15) of the Act and Sec.  
1.3 of this chapter, which:
    (1) Is registered as a derivatives clearing organization under 
section 5b of the Act;
    (2) Is not a systemically important derivatives clearing 
organization; and
    (3) Has become subject to the provisions of subpart C of this part, 
pursuant to Sec.  39.31.
    Substantial risk to the U.S. financial system means, with respect to 
a derivatives clearing organization organized outside of the United 
States, that--
    (1) The derivatives clearing organization holds 20% or more of the 
required initial margin of U.S. clearing members for swaps across all 
registered and exempt derivatives clearing organizations; and
    (2) Twenty percent or more of the initial margin requirements for 
swaps at that derivatives clearing organization is attributable to U.S. 
clearing members; provided, however, where one or both of these 
thresholds are identified as being close to 20%, the Commission may 
exercise discretion in determining whether an identified threshold is 
satisfied for the purpose of determining whether the derivatives 
clearing organization poses substantial risk to the U.S. financial 
system. For purposes of this definition and Sec.  39.51, U.S. clearing 
member means a clearing member organized in the United States, a 
clearing member whose ultimate parent company is organized in the United 
States, or a futures commission merchant.
    Systemically important derivatives clearing organization means a 
financial market utility that is a derivatives clearing organization 
registered under section 5b of the Act, which is currently designated by 
the Financial Stability Oversight Council to be systemically important 
and for which the Commission acts as the Supervisory Agency pursuant to 
12 U.S.C. 5462(8).
    Trust company means a trust company that is a member of the Federal 
Reserve System, under section 1 of the Federal Reserve Act (12 U.S.C. 
221), but that does not meet the definition of depository institution as 
set out in this section.
    U.S. branch or agency of a foreign banking organization means the 
U.S. branch or agency of a foreign banking organization as defined in 
section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

[85 FR 4850, Jan. 27, 2020, as amended at 85 FR 67186, Oct. 21, 2020; 86 
FR 965, Jan. 7, 2021]



Sec.  39.3  Procedures for registration.

    (a) Application for registration--(1) General procedure. An entity 
seeking to register as a derivatives clearing organization shall file 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, and may approve or deny the application. If 
the Commission approves the application, the Commission will register 
the applicant as a derivatives clearing organization subject to 
conditions as appropriate.
    (2) Application. Any entity seeking to register as a derivatives 
clearing organization shall submit to the Commission a completed Form 
DCO, which shall include a cover sheet, all applicable exhibits, and any 
supplemental materials, as provided in appendix A to this part 
(application). 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.
    (3) Alternative application procedures. An entity that is organized 
outside of the United States, is seeking to register as a derivatives 
clearing organization for the clearing of swaps, and does

[[Page 827]]

not pose substantial risk to the U.S. financial system may apply for 
registration in accordance with the terms of this paragraph in lieu of 
filing the application described in paragraph (a)(2) of this section. If 
the application is approved by the Commission, the derivatives clearing 
organization's compliance with its home country regulatory regime would 
satisfy the core principles set forth in section 5b(c)(2) of the Act, 
subject to the requirements of subpart D of this part. The applicant 
shall submit to the Commission the following sections of Form DCO, as 
provided in appendix A to this part: Cover sheet, Exhibit A-1 
(regulatory compliance chart), Exhibit A-2 (proposed rulebook), Exhibit 
A-3 (narrative summary of proposed clearing activities), Exhibit A-4 
(detailed business plan), Exhibit A-7 (documents setting forth the 
applicant's corporate organizational structure), Exhibit A-8 (documents 
establishing the applicant's legal status and certificate(s) of good 
standing or its equivalent), Exhibit A-9 (description of pending legal 
proceedings or governmental investigations), Exhibit A-10 (agreements 
with outside service providers with respect to the treatment of customer 
funds), Exhibits F-1 through F-3 (documents that demonstrate compliance 
with the treatment of funds requirements with respect to customers of 
futures commission merchants), and Exhibit R (ring-fencing memorandum). 
For purposes of this paragraph, the applicant must demonstrate to the 
Commission, in Exhibit A-1, the extent to which compliance with the 
applicable legal requirements in its home country would constitute 
compliance with the core principles set forth in section 5b(c)(2) of the 
Act. To satisfy this requirement, the applicant shall provide in Exhibit 
A-1 the citation and full text of each applicable legal requirement in 
its home country that corresponds with each core principle and an 
explanation of how the applicant satisfies those requirements. If there 
is no applicable legal requirement for a particular core principle, the 
applicant shall provide an explanation of how it would satisfy the core 
principle.
    (4) 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 provide supplemental information in order for the Commission 
to process the application. The applicant shall provide supplemental 
information in the format and manner specified by the Commission.
    (5) 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. An applicant is only required to submit exhibits and other 
information that are relevant to the application amendment.
    (6) Public information. The following sections of an application for 
registration as a derivatives clearing organization will be public: 
First page of the Form DCO cover sheet (up to and including the General 
Information section), Exhibit A-1 (regulatory compliance chart), Exhibit 
A-2 (proposed rulebook), Exhibit A-3 (narrative summary of proposed 
clearing activities), Exhibit A-7 (documents setting forth the 
applicant's corporate organizational structure), Exhibit A-8 (documents 
establishing the applicant's legal status and certificate(s) of good 
standing or its equivalent), and any other part of the application not 
covered by a request for confidential treatment, subject to Sec.  145.9 
of this chapter.
    (7) Extension of time for review. The Commission may further extend 
the review period in paragraph (a)(1) of this section for any period of 
time to which the applicant agrees in writing.
    (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

[[Page 828]]

General Counsel's designee, the authority to notify an applicant seeking 
registration as a derivatives clearing organization that the application 
is materially incomplete and the running of the 180-day period under 
section 6(a) of the Act 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 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) Amendment of an order of registration. (1) A derivatives 
clearing organization requesting an amendment to an order of 
registration shall file the request with the Secretary of the Commission 
in the form and manner specified by the Commission.
    (2) A derivatives clearing organization shall provide to the 
Commission, upon the Commission's request, any additional information 
and documentation necessary to review a request to amend an order of 
registration.
    (3) The Commission shall issue an amended order of registration upon 
a Commission determination, in its own discretion, that the derivatives 
clearing organization would maintain compliance with the Act and the 
Commission's regulations in this chapter upon amendment to the order. If 
deemed appropriate, the Commission may issue an amended order of 
registration subject to conditions.
    (4) The Commission may decline to issue an amended order based upon 
a Commission determination, in its own discretion, that the derivatives 
clearing organization would not continue to maintain compliance with the 
Act and the Commission's regulations in this chapter upon amendment to 
the order.
    (e) Reinstatement of dormant registration. Before accepting products 
for clearing, a dormant derivatives clearing organization as defined in 
Sec.  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.
    (f) Vacation of registration--(1) Request. A derivatives clearing 
organization may have its registration vacated pursuant to section 7 of 
the Act by submitting a request to the Secretary of the Commission in 
the format and manner specified by the Commission. A 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 derivatives clearing organization was registered with the 
Commission. The request shall include:
    (i) The date that the vacation should take effect, which must be at 
least ninety days after the request was submitted;
    (ii) A description of how the derivatives clearing organization 
intends to transfer or otherwise unwind all open positions at the 
derivatives clearing organization and how such actions reflect the 
interests of affected clearing members and their customers;
    (iii) A statement that the derivatives clearing organization will 
continue to maintain its books and records for the requisite statutory 
and regulatory retention periods after its registration has been 
vacated; and
    (iv) A statement that the derivatives clearing organization will 
continue to make its books and records available for inspection by any 
representative of the Commission or the United States Department of 
Justice after its registration has been vacated, as required by Sec.  
1.31 of this chapter.
    (2) Notice to registered entities. The Commission shall fulfill its 
obligation to send a copy of the request and the

[[Page 829]]

order of vacation to all other registered entities by posting the 
documents on the Commission website.
    (g) Request for transfer of open interest--(1) Submission. A 
derivatives clearing organization seeking to transfer its positions 
comprising open interest for clearing and settlement to another clearing 
organization shall submit rules for Commission approval pursuant to 
Sec.  40.5 of this chapter.
    (2) Required information. The rule submission shall include, at a 
minimum, the following:
    (i) The underlying agreement that governs the transfer;
    (ii) A description of the transfer, including the reason for the 
transfer and the impact of the transfer 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 in this chapter, as 
applicable;
    (iv) The transferee's rules marked to show changes that would result 
from acceptance of the transferred positions;
    (v) A list of products for which the derivatives clearing 
organization requests transfer of open interest; and
    (vi) A representation by the transferee that it is in and will 
maintain compliance with any applicable provisions of the Act, including 
the core principles applicable to derivatives clearing organizations, 
and the Commission's regulations upon the transfer of the open interest.
    (3) Commission action. The Commission may request additional 
information in support of a rule submission filed under paragraph (g)(1) 
of this section, and may grant approval of the rules in accordance with 
Sec.  40.5 of this chapter.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4851, Jan. 27, 2020; 85 
FR 67186, Oct. 21, 2020]



Sec.  39.4  Procedures for implementing derivatives clearing 
organization rules and clearing new products.

    (a) Request for approval of rules. A registered derivatives clearing 
organization may request, pursuant to the procedures of Sec.  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 of 
Sec.  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 of Sec.  40.6 of this chapter.
    (c) Exemption from self-certification of rules. Notwithstanding the 
rule certification requirements of section 5c(c)(1) of the Act and Sec.  
40.6 of this chapter, a derivatives clearing organization that is 
subject to subpart D of this part is not required to certify a rule 
unless the rule relates to the requirements under section 4d(f) of the 
Act, parts 1, 22, or 45 of this chapter, or Sec.  39.15.
    (d) Acceptance of new products for clearing. (1) A dormant 
derivatives clearing organization within the meaning of Sec.  40.1 of 
this chapter may not accept for clearing a new product until its 
registration as a derivatives clearing organization is reinstated under 
the procedures of Sec.  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 of Sec.  
39.5 of this part.
    (e) 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

[[Page 830]]

achieving the objectives, purposes, and policies of the Act.
    (f) 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 in Sec.  1.3 of this chapter, shall submit rules to 
implement such portfolio margining program for Commission approval in 
accordance with Sec.  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(a) of the Act.

[76 FR 69430, Nov. 8, 2011, as amended at 83 FR 7996, Feb. 23, 2018; 85 
FR 4852, Jan. 27, 2020; 85 FR 67187, Oct. 21, 2020]



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;
    (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;

[[Page 831]]

    (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 in Sec.  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 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;

[[Page 832]]

    (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  Exemption from derivatives clearing organization registration.

    (a) Eligibility for exemption. A derivatives clearing organization 
that is organized outside of the United States shall be eligible for an 
exemption from registration as a derivatives clearing organization for 
the clearing of swaps for U.S. persons, and thereby exempt from 
compliance with provisions of the Act and Commission regulations 
applicable to derivatives clearing organizations, if:
    (1) The derivatives clearing organization is subject to comparable, 
comprehensive supervision and regulation by a home country regulator as 
demonstrated by the following:
    (i) The derivatives clearing organization is organized in a 
jurisdiction in which a home country regulator applies to the 
derivatives clearing organization, on an ongoing basis, statutes, rules, 
regulations, policies, or a combination thereof that, taken together, 
are consistent with the Principles for Financial Market Infrastructures;
    (ii) The derivatives clearing organization observes the Principles 
for Financial Market Infrastructures in all material respects; and
    (iii) The derivatives clearing organization is in good regulatory 
standing in its home country; and
    (2) A memorandum of understanding or similar arrangement 
satisfactory to the Commission is in effect between the Commission and 
the derivatives clearing organization's home country regulator, pursuant 
to which, among other things, the home country regulator agrees to 
provide to the Commission any information that the Commission deems 
necessary to evaluate the initial and continued eligibility of the 
derivatives clearing organization for exemption from registration or to 
review its compliance with any conditions of such exemption.
    (b) Conditions of exemption. An exemption from registration as a 
derivatives

[[Page 833]]

clearing organization shall be subject to any conditions the Commission 
may prescribe including, but not limited to:
    (1) Clearing by or for U.S. persons and futures commission 
merchants. The exempt derivatives clearing organization shall have rules 
that limit swaps clearing services for U.S. persons and futures 
commission merchants to the following circumstances:
    (i) A U.S. person that is a clearing member of the exempt 
derivatives clearing organization may clear swaps for itself and those 
persons identified in the definition of ``proprietary account'' set 
forth in Sec.  1.3 of this chapter;
    (ii) A non-U.S. person that is a clearing member of the exempt 
derivatives clearing organization may clear swaps for any affiliated 
U.S. person identified in the definition of ``proprietary'' account set 
forth in Sec.  1.3 of this chapter; and
    (iii) An entity that is registered with the Commission as a futures 
commission merchant may be a clearing member of the exempt derivatives 
clearing organization, or otherwise maintain an account with an 
affiliated broker that is a clearing member, for the purpose of clearing 
swaps only for itself and those persons identified in the definition of 
``proprietary account'' set forth in Sec.  1.3 of this chapter; and
    (2) Open access. The exempt derivatives clearing organization shall 
have rules with respect to swaps to which one or more of the 
counterparties is a U.S. person that shall:
    (i) Provide that all swaps with the same terms and conditions, as 
defined by product specifications established under the exempt 
derivatives clearing organization's rules, submitted to the exempt 
derivatives clearing organization for clearing are economically 
equivalent within the exempt derivatives clearing organization and may 
be offset with each other within the exempt derivatives clearing 
organization, to the extent offsetting is permitted by the exempt 
derivatives clearing organization's rules; and
    (ii) Provide that there shall be non-discriminatory clearing of a 
swap executed bilaterally or on or subject to the rules of an 
unaffiliated electronic matching platform or trade execution facility.
    (3) Consent to jurisdiction; designation of agent for service of 
process. The exempt derivatives clearing organization shall:
    (i) Consent to jurisdiction in the United States;
    (ii) Designate, authorize, and identify to the Commission, an agent 
in the United States who shall accept any notice or service of process, 
pleadings, or other documents, including any summons, complaint, order, 
subpoena, request for information, or any other written or electronic 
documentation or correspondence issued by or on behalf of the Commission 
or the United States Department of Justice to the exempt derivatives 
clearing organization, in connection with any actions or proceedings 
brought against, or investigations relating to, the exempt derivatives 
clearing organization or any U.S. person or futures commission merchant 
that is a clearing member, or that clears swaps through a clearing 
member, of the exempt derivatives clearing organization; and
    (iii) Promptly inform the Commission of any change in its designated 
and authorized agent.
    (4) Compliance. The exempt derivatives clearing organization shall 
comply, and shall demonstrate compliance as requested by the Commission, 
with any condition of its exemption.
    (5) Inspection of books and records. The exempt derivatives clearing 
organization shall make all documents, books, records, reports, and 
other information related to its operation as an exempt derivatives 
clearing organization open to inspection and copying by any 
representative of the Commission; and in response to a request by any 
representative of the Commission, the exempt derivatives clearing 
organization shall, promptly and in the form specified, make the 
requested books and records available and provide them directly to 
Commission representatives.
    (6) Observance of the Principles for Financial Market 
Infrastructures. On an annual basis, within 60 days following the end of 
its fiscal year, the exempt derivatives clearing organization shall 
provide to the Commission a certification that it continues to observe 
the Principles for Financial Market Infrastructures in all material 
respects. To

[[Page 834]]

the extent the exempt derivatives clearing organization is unable to 
provide to the Commission an unconditional certification, it must 
identify the underlying material non-observance of the Principles for 
Financial Market Infrastructures and identify whether and how such non-
observance has been or is being resolved by means of corrective action 
taken by the exempt derivatives clearing organization.
    (7) Representation of good regulatory standing. On an annual basis, 
within 60 days following the end of its fiscal year, an exempt 
derivatives clearing organization shall request and the Commission must 
receive from a home country regulator a written representation that the 
exempt derivatives clearing organization is in good regulatory standing.
    (8) Other conditions. The Commission may condition an exemption on 
any other facts and circumstances it deems relevant.
    (c) General reporting requirements. (1) An exempt derivatives 
clearing organization shall provide to the Commission the information 
specified in this paragraph and any other information that the 
Commission deems necessary, including, but not limited to, information 
for the purpose of the Commission evaluating the continued eligibility 
of the exempt derivatives clearing organization for exemption from 
registration, reviewing compliance by the exempt derivatives clearing 
organization with any conditions of the exemption, or conducting 
oversight of U.S. persons and their affiliates, and the swaps that are 
cleared by such persons through the exempt derivatives clearing 
organization. Information provided to the Commission under this 
paragraph shall be submitted in accordance with Sec.  39.19(b).
    (2) Each exempt derivatives clearing organization shall provide to 
the Commission the following information:
    (i) A report compiled as of the end of each trading day and 
submitted to the Commission by 10:00 a.m. U.S. Central time on the 
following business day, containing:
    (A) Initial margin requirements and initial margin on deposit for 
each U.S. person, with respect to swaps, provided however if a clearing 
member margins on a portfolio basis its own positions and the positions 
of its affiliates, and either the clearing member or any of its 
affiliates is a U.S. person, the exempt derivatives clearing 
organization shall report initial margin on deposit for all such 
positions on a combined basis for each such clearing member; and
    (B) Daily variation margin, separately listing the mark-to-market 
amount collected from or paid to each U.S. person, with respect to 
swaps; provided, however, if a clearing member margins on a portfolio 
basis its own positions and the positions of its affiliates, and either 
the clearing member or any of its affiliates is a U.S. person, the 
exempt derivatives clearing organization shall separately list the mark-
to-market amount collected from or paid to each such clearing member, on 
a combined basis.
    (ii) A report compiled as of the last day of each fiscal quarter of 
the exempt derivatives clearing organization and submitted to the 
Commission no later than 17 business days after the end of the exempt 
derivatives clearing organization's fiscal quarter, containing:
    (A) The aggregate clearing volume of U.S. persons during the fiscal 
quarter, with respect to swaps. If a clearing member is a U.S. person, 
the volume figure shall include the transactions of the clearing member 
and all affiliates. If a clearing member is not a U.S. person, the 
volume figure shall include only transactions of affiliates that are 
U.S. persons.
    (B) The average open interest of U.S. persons during the fiscal 
quarter, with respect to swaps. If a clearing member is a U.S. person, 
the open interest figure shall include the positions of the clearing 
member and all affiliates. If a clearing member is not a U.S. person, 
the open interest figure shall include only positions of affiliates that 
are U.S. persons.
    (C) A list of U.S. persons and futures commission merchants that are 
either clearing members or affiliates of any clearing member, with 
respect to the clearing of swaps, as of the last day of the fiscal 
quarter.
    (iii) Prompt notice regarding any change in the home country 
regulatory

[[Page 835]]

regime that is material to the exempt derivatives clearing 
organization's continuing observance of the Principles for Financial 
Market Infrastructures or compliance with any of the requirements set 
forth in this section or in the order of exemption issued by the 
Commission;
    (iv) As available to the exempt derivatives clearing organization, 
any assessment of the exempt derivatives clearing organization's or the 
home country regulator's observance of the Principles for Financial 
Market Infrastructures, or any portion thereof, by a home country 
regulator or other national authority, or an international financial 
institution or international organization;
    (v) As available to the exempt derivatives clearing organization, 
any examination report, examination findings, or notification of the 
commencement of any enforcement or disciplinary action by a home country 
regulator;
    (vi) Immediate notice of any change with respect to the exempt 
derivatives clearing organization's licensure, registration, or other 
authorization to act as a derivatives clearing organization in its home 
country;
    (vii) In the event of a default by a U.S. person or futures 
commission merchant clearing swaps, with such event of default 
determined in accordance with the rules of the exempt derivatives 
clearing organization, immediate notice of the default including the 
name of the U.S. person or futures commission merchant clearing swaps, a 
list of the positions held by the U.S. person or futures commission 
merchant, and the amount of the U.S. person's or futures commission 
merchant's financial obligation; and
    (viii) Notice of action taken against a U.S. person or futures 
commission merchant clearing swaps by an exempt derivatives clearing 
organization, no later than two business days after the exempt 
derivatives clearing organization takes such action against a U.S. 
person or futures commission merchant.
    (d) Swap data reporting requirements. If an exempt derivatives 
clearing organization accepts for clearing a swap that has been reported 
to a swap data repository pursuant to part 45 of this chapter, the 
exempt derivatives clearing organization shall report to a swap data 
repository data regarding the two swaps resulting from the novation of 
the original swap. The exempt derivatives clearing organization shall 
also report the termination of the original swap to the swap data 
repository to which the original swap was reported. In order to avoid 
duplicative reporting for such transactions, the exempt derivatives 
clearing organization shall have rules that prohibit the reporting, 
pursuant to part 45 of this chapter, of the two new swaps by the 
counterparties to the original swap.
    (e) Application procedures. (1) An entity seeking to be exempt from 
registration as a derivatives clearing organization shall file an 
application for exemption with the Secretary of the Commission in the 
format and manner specified by the Commission. The Commission will 
review the application for exemption and may approve or deny the 
application or, if deemed appropriate, exempt the applicant from 
registration as a derivatives clearing organization subject to 
conditions in addition to those set forth in paragraph (b) of this 
section.
    (2) Application. An applicant for exemption from registration as a 
derivatives clearing organization shall submit to the Commission the 
information and documentation described in this section. Such 
information and documentation shall be clearly labeled as outlined in 
this section. The Commission will not commence processing an application 
unless the applicant has filed a complete application. Upon its own 
initiative, an applicant may file with its completed application for 
exemption additional information that may be necessary or helpful to the 
Commission in processing the application. The application shall include:
    (i) A cover letter containing the following information:
    (A) Exact name of applicant as specified in its charter, and the 
name under which business will be conducted (including acronyms);
    (B) Address of applicant's principal office;
    (C) List of principal office(s) and address(es) where clearing 
activities are/will be conducted;

[[Page 836]]

    (D) A list of all regulatory licenses or registrations of the 
applicant (or exemptions from any licensing requirement) and the 
regulator granting such license or registration;
    (E) Date of the applicant's fiscal year end;
    (F) Contact information for the person or persons to whom the 
Commission should address questions and correspondence regarding the 
application; and
    (G) A signature and date by a duly authorized representative of the 
applicant.
    (ii) A description of the applicant's business plan for providing 
clearing services as an exempt derivatives clearing organization, 
including information as to the classes of swaps that will be cleared 
and whether the swaps are subject to a clearing requirement issued by 
the Commission or the applicant's home country regulator;
    (iii) Documents that demonstrate that the applicant is organized in 
a jurisdiction in which its home country regulator applies to the 
applicant, on an ongoing basis, statutes, rules, regulations, policies, 
or a combination thereof that, taken together, are consistent with the 
Principles for Financial Market Infrastructures;
    (iv) A written representation from the applicant's home country 
regulator that the applicant is in good regulatory standing;
    (v) Copies of the applicant's most recent disclosures that are 
necessary to observe the Principles for Financial Market 
Infrastructures, including the financial market infrastructure 
disclosure template set forth in Annex A to the Disclosure Framework and 
Assessment Methodology for the Principles for Financial Market 
Infrastructures, any other such disclosure framework issued under the 
authority of the International Organization of Securities Commissions 
that is required for observance of the Principles for Financial Market 
Infrastructures, and the URL to the specific page(s) on the applicant's 
website where such disclosures may be found;
    (vi) A representation that the applicant will comply with each of 
the requirements and conditions of exemption set forth in paragraphs 
(b), (c), and (d) of this section, and the terms and conditions of its 
order of exemption as issued by the Commission;
    (vii) A copy of the applicant's rules that meet the requirements of 
paragraphs (b)(2) and (d) of this section, as applicable; and
    (viii) The applicant's consent to jurisdiction in the United States, 
and the name and address of the applicant's designated agent in the 
United States, pursuant to paragraph (b)(3) of this section.
    (3) Submission of supplemental information. At any time during its 
review of the application for exemption from registration as a 
derivatives clearing organization, the Commission may request that the 
applicant submit supplemental information in order for the Commission to 
process the application, and the applicant shall file such supplemental 
information in the format and manner specified by the Commission.
    (4) Amendments to pending application. An applicant for exemption 
from registration as a derivatives clearing organization 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 an application for 
exemption from registration as a derivatives clearing organization will 
be public: The cover letter set forth in paragraph (e)(2)(i) of this 
section; the documentation required in paragraphs (e)(2)(iii) and 
(e)(2)(v) of this section; rules that meet the requirements of 
paragraphs (b)(2) and (d) of this section, as applicable; and any other 
part of the application not covered by a request for confidential 
treatment, subject to Sec.  145.9 of this chapter.
    (f) Modification or termination of exemption upon Commission 
initiative. (1) The Commission may, in its discretion and upon its own 
initiative, terminate or modify the terms and conditions of an order of 
exemption from derivatives clearing organization registration if the 
Commission determines that there are changes to or omissions in material 
facts or circumstances pursuant to

[[Page 837]]

which the order of exemption was issued, or that any of the terms and 
conditions of its order of exemption have not been met, including, but 
not limited to, the requirement that:
    (i) The exempt derivatives clearing organization observes the 
Principles for Financial Market Infrastructures in all material 
respects; or
    (ii) The exempt derivatives clearing organization is subject to 
comparable, comprehensive supervision and regulation by its home country 
regulator.
    (2) The Commission shall provide written notification to an exempt 
derivatives clearing organization that it is considering whether to 
terminate or modify an exemption pursuant to this paragraph and the 
basis for that consideration.
    (3) The exempt derivatives clearing organization may respond to the 
notification in writing no later than 30 business days following receipt 
of the notification, or at such later time as the Commission permits in 
writing.
    (4) Following receipt of a response from the exempt derivatives 
clearing organization, or after expiration of the time permitted for a 
response, the Commission may:
    (i) Issue an order of termination, effective as of a date to be 
specified therein. Such specified date shall be intended to provide the 
exempt derivatives clearing organization with a reasonable amount of 
time to wind down its swap clearing services for U.S. persons;
    (ii) Issue an amended order of exemption that modifies the terms and 
conditions of the exemption; or
    (iii) Provide written notification to the exempt derivatives 
clearing organization that the exemption will remain in effect without 
modification to the terms and conditions of the exemption.
    (g) Termination of exemption upon request by an exempt derivatives 
clearing organization. (1) An exempt derivatives clearing organization 
may petition the Commission to terminate its exemption if:
    (i) Changed circumstances result in the exempt derivatives clearing 
organization no longer qualifying for an exemption;
    (ii) The exempt derivatives clearing organization intends to cease 
clearing swaps for U.S. persons; or
    (iii) In conjunction with the petition, the exempt derivatives 
clearing organization submits an application for registration in 
accordance with Sec.  39.3(a)(2) or Sec.  39.3(a)(3), as applicable, to 
become a registered derivatives clearing organization pursuant to 
section 5b(a) of the Act.
    (2) The petition for termination of exemption shall include a 
detailed explanation of the facts and circumstances supporting the 
request and the exempt derivatives clearing organization's plans for, as 
may be applicable, the liquidation or transfer of the swaps positions 
and related collateral of U.S. persons.
    (3) The Commission shall issue an order of termination within a 
reasonable time appropriate to the circumstances or, as applicable, in 
conjunction with the issuance of an order of registration.
    (h) Notice to clearing members of termination of exemption. 
Following the Commission's issuance of an order of termination (unless 
issued in conjunction with the issuance of an order of registration), 
the exempt derivatives clearing organization shall provide immediate 
notice of such termination to its clearing members. Such notice shall 
include:
    (1) A copy of the Commission's order of termination;
    (2) A description of the procedures for orderly disposition of any 
open swaps positions that were cleared for U.S. persons; and
    (3) An instruction to clearing members, requiring that they provide 
the exempt derivatives clearing organization's notice of such 
termination to all U.S. persons clearing swaps through such clearing 
members.

[86 FR 965, Jan. 7, 2021]



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

[[Page 838]]

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.



                Subpart B_Compliance with Core Principles



Sec.  39.9  Scope.

    Except as otherwise provided by Commission order, the provisions of 
this subpart B apply to any derivatives clearing organization, as 
defined under section 1a(15) of the Act and Sec.  1.3 of this chapter, 
that is registered with the Commission as a derivatives clearing 
organization pursuant to section 5b of the Act. The provisions of this 
subpart B do not apply to any exempt derivatives clearing organization, 
as defined under Sec.  39.2.

[86 FR 968, Jan. 7, 2021]



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 
or, if the derivatives clearing organization engages in substantial 
activities not related to clearing, the senior officer responsible for 
the derivatives clearing organization's clearing activities. 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)(x).
    (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;

[[Page 839]]

    (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. 
The annual report shall, at a minimum:
    (i) Contain a description of the derivatives clearing organization's 
written policies and procedures, including the code of ethics and 
conflict of interest policies; provided that, to the extent that the 
derivatives clearing organization's written policies and procedures have 
not materially changed since they were most recently described in an 
annual report to the Commission, and if the annual report containing the 
most recent description was submitted within the last five years, the 
annual report may instead incorporate by reference the relevant 
descriptions from the most recent annual report containing the 
description;
    (ii) Review each core principle and applicable Commission regulation 
in this chapter including, in the case of systemically important 
derivatives clearing organizations and subpart C derivatives clearing 
organizations, regulations in subpart C of this part, and with respect 
to each:
    (A) Identify, by name, rule number, or other identifier, the 
compliance policies and procedures that are designed to ensure 
compliance with each core principle and applicable regulation in this 
chapter;
    (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 or, if the 
derivatives clearing organization engages in substantial activities not 
related to clearing, the senior officer responsible for the derivatives 
clearing organization's clearing activities, 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 the requirement in this paragraph (c)(4)(i). The annual report 
shall describe the process by which it was submitted to the board of 
directors or the senior officer. When submitted to the Commission, the 
annual report shall be accompanied by a cover letter, notice, or other 
document that specifies the date on which it was submitted to the board 
of directors or the senior officer.
    (ii) The annual report shall be submitted 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

[[Page 840]]

year. 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 with Sec.  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 with Sec.  1.31 of this chapter and Sec.  39.20 of this part.
    (d) Enterprise risk management--(1) General. A derivatives clearing 
organization shall have an enterprise risk management program that 
identifies and assesses sources of risk and their potential impact on 
the operations and services of the derivatives clearing organization. 
The derivatives clearing organization shall measure, monitor, and manage 
identified sources of risk on an ongoing basis, including through the 
development and use of appropriate information systems. The derivatives 
clearing organization shall test the effectiveness of any mitigating 
controls employed to reduce identified sources of risk to ensure that 
the risks are properly mitigated.
    (2) Enterprise risk management framework. A derivatives clearing 
organization shall establish and maintain written policies and 
procedures, approved by its board of directors or a committee of the 
board of directors that establish an appropriate enterprise risk 
management framework. The framework shall be reviewed at least annually 
by the board of directors or committee of the board of directors and 
updated as necessary.
    (3) Standards for enterprise risk management framework. A 
derivatives clearing organization shall follow generally accepted 
standards and industry best practices in the development and review of 
its enterprise risk management framework, assessment of the performance 
of its enterprise risk management program, and management and mitigation 
of risk to the derivatives clearing organization.
    (4) Enterprise risk officer. A derivatives clearing organization 
shall identify as its enterprise risk officer an appropriate individual 
that exercises the full responsibility and authority to manage the 
enterprise risk management program of the derivatives clearing 
organization. The enterprise risk officer shall have the authority, 
independence, resources, expertise, and access to relevant information 
necessary to fulfill the responsibilities of the position, including 
access to the board of directors of the organization for which the 
enterprise risk officer is responsible for managing the risks or an 
appropriate committee thereof, consistent with the requirements of this 
section.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4852, Jan. 27, 2020]



Sec.  39.11  Financial resources.

    (a) General. A derivatives clearing organization shall have adequate 
financial, operational, and managerial resources, as determined by the 
Commission, to discharge each responsibility

[[Page 841]]

of the derivatives clearing organization. A derivatives clearing 
organization shall maintain sufficient financial resources to cover its 
exposures with a high degree of confidence. At a minimum, each 
derivatives clearing organization shall possess financial resources that 
exceed 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. 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 the derivatives clearing 
organization can continue to provide services as a going concern.
    (b) Types of financial resources. (1) Financial resources available 
to satisfy the requirements of paragraph (a)(1) of this section may 
include:
    (i) The derivatives clearing organization's own capital;
    (ii) Guaranty fund deposits;
    (iii) Default insurance;
    (iv) Potential assessments for additional guaranty fund 
contributions, if permitted by the derivatives clearing organization's 
rules; and
    (v) 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) Calculation of financial resources requirements. (1) A 
derivatives clearing organization shall, on a monthly basis, perform 
stress tests 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 calculate 
the requirements, subject to the limitations identified in paragraph 
(c)(2) of this section, and 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. The 
requirements of this paragraph (c) do not apply to fully collateralized 
positions.
    (2) When calculating its largest financial exposure, a derivatives 
clearing organization:
    (i) In netting its exposure against the clearing member's initial 
margin, shall:
    (A) Use only that portion of the margin amount on deposit (including 
initial margin and any add-ons) that is required; and
    (B) Use customer margin (including initial margin and any add-ons) 
only to the extent permitted by parts 1 and 22 of this chapter, as 
applicable;
    (ii) Shall combine the customer and house stress test losses of each 
clearing member using the same stress test scenarios;
    (iii) May net any gains in the house account with losses in the 
customer account, if permitted by the derivatives clearing 
organization's rules, but shall not net losses in the house account with 
gains in the customer account; and
    (iv) With respect to a clearing member's cleared swaps customer 
account,

[[Page 842]]

may net customer gains against customer losses only to the extent 
permitted by the derivatives clearing organization's rules.
    (3) 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 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 the 
total amount required under paragraph (a)(1) of this section. The value 
of the assessments may be determined by using the largest financial 
exposure in extreme but plausible market conditions prior to netting 
against required initial margin on deposit.
    (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 variation pay for each 
clearing member over the last fiscal quarter;
    (B) Calculate the sum of those average daily settlement variation 
pays; and
    (C) Using that sum, calculate the average of its clearing members' 
average daily settlement variation pays.
    (iii) If the total amount of the financial resources required 
pursuant to the calculation set forth in paragraph (e)(1)(ii) of this 
section is insufficient to enable the derivatives clearing organization 
to fulfill its obligations during a one-day settlement cycle, 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 of this paragraph (e) (subject to the limitation in 
paragraph (e)(3) of this section).
    (iv) A derivatives clearing organization is not subject to paragraph 
(e)(1)(ii) of this section for fully collateralized positions.
    (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

[[Page 843]]

assets (i.e., cash and/or highly liquid securities) sufficient to enable 
the derivatives clearing organization to cover its operating costs for a 
period of at least six months. If the financial resources allocated to 
meet the requirements of paragraph (a)(2) of this section do not include 
such assets in a sufficient amount, the derivatives clearing 
organization may take into account a committed line of credit or similar 
facility for the purpose of meeting the requirements of this paragraph 
(subject to the limitation in paragraph (e)(3) of this section).
    (3) A committed line of credit or similar facility may be allocated, 
in whole or in part, to satisfy the requirements of either paragraph 
(e)(1)(ii) or (e)(2) of this section, but not both paragraphs.
    (4)(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) Quarterly reporting. 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) of this section and Sec. Sec.  39.33(a) 
and 39.39(d), if applicable;
    (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, 
prepared in accordance with U.S. generally accepted accounting 
principles, of the derivatives clearing organization; provided, however, 
that for a derivatives clearing organization that is incorporated or 
organized under the laws of any foreign country, the financial statement 
may be prepared in accordance with either U.S. generally accepted 
accounting principles or the International Financial Reporting Standards 
issued by the International Accounting Standards Board; 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 fund deposits as a financial resource available 
to satisfy the requirements of paragraph (a)(1) of this section and 
Sec. Sec.  39.33(a) and 39.39(d), if applicable.
    (iv) The calculations required by this paragraph (f) shall be made 
as of the last business day of the derivatives clearing organization's 
fiscal quarter. The report shall be submitted 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.
    (2) Annual reporting. (i) A derivatives clearing organization shall 
submit to the Commission an audited year-end financial statement of the 
derivatives clearing organization calculated in accordance with U.S. 
generally accepted accounting principles; provided, however, that for a 
derivatives clearing organization that is incorporated or organized 
under the laws of any foreign country, the financial statement may be 
prepared in accordance with either U.S. generally accepted accounting 
principles or the International Financial Reporting Standards issued by 
the International Accounting Standards Board.
    (ii) The report required by paragraph (f)(2)(i) of this section 
shall be submitted not later than 90 days after the end of the 
derivatives clearing organization's fiscal year, or at such later time 
as the Commission may permit, in its discretion, upon request by the 
derivatives clearing organization.
    (iii) A derivatives clearing organization shall submit concurrently 
with the audited year-end financial statement required by paragraph 
(f)(2)(i) of this section:
    (A) A reconciliation, including appropriate explanations, of its 
balance sheet in the audited year-end financial

[[Page 844]]

statement with the balance sheet in the derivatives clearing 
organization's financial statement for the last quarter of the fiscal 
year when material differences exist or, if no material differences 
exist, a statement so indicating; and
    (B) Such further information as may be necessary to make the 
statements not misleading.
    (3) Other reporting. (i) A derivatives clearing organization shall 
provide to the Commission as part of its first report under paragraph 
(f)(1) of this section, and in the event of any change thereafter:
    (A) Sufficient documentation explaining the methodology used to 
compute its financial resources requirements under paragraph (a) of this 
section and Sec. Sec.  39.33(a) and 39.39(d), if applicable; and
    (B) Sufficient documentation explaining the basis for its 
determinations regarding the valuation and liquidity requirements set 
forth in paragraphs (d) and (e) of this section.
    (ii) A derivatives clearing organization shall provide to the 
Commission 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 
regarding its:
    (A) Financial resources available to satisfy the requirements of 
paragraph (a) of this section and Sec. Sec.  39.33(a) and 39.39(d), if 
applicable; and
    (B) Liquidity resources available to satisfy the requirements of 
paragraph (e) of this section and Sec.  39.33(c), if applicable.
    (4) Certification. A derivatives clearing organization shall provide 
with each report submitted pursuant to this section a certification by 
the person responsible for the accuracy and completeness of the report 
that, to the best of his or her knowledge and reasonable belief, and 
under penalty of law, the information contained in the report is 
accurate and complete.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4852, Jan. 27, 2020; 85 
FR 35805, June 12, 2020]



Sec.  39.12  Participant and product eligibility.

    (a) Participant eligibility. A derivatives clearing organization 
shall have 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 have 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;

[[Page 845]]

    (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 in Sec.  
1.74(b), Sec.  23.610(b), or Sec.  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 in Sec.  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 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 with Sec.  39.16 of this part.
    (4) Monitoring. A derivatives clearing organization shall have 
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.
    (ii) A derivatives clearing organization shall require clearing 
members that are futures commission merchants to provide the financial 
reports that are specified in Sec.  1.10 of this chapter to the 
derivatives clearing organization.
    (iii) 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 the requirement in this paragraph (a)(5)(iii), a 
derivatives clearing organization may provide such financial reports 
directly to the Commission upon the Commission's request.
    (iv) A derivatives clearing organization shall have 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 under this section.
    (v) The requirements in paragraphs (a)(5)(i) and (iii) of this 
section shall not apply with respect to non-futures

[[Page 846]]

commission merchant clearing members of a derivatives clearing 
organization that only clear fully collateralized positions.
    (6) Enforcement. A derivatives clearing organization shall have the 
ability to enforce compliance with its participation requirements and 
shall have 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 have 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 that clears swaps shall have 
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 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.

[[Page 847]]

    (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 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 with Sec.  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; 85 
FR 4855, Jan. 27, 2020]



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) Risk management framework. A derivatives clearing organization 
shall have and implement written policies, procedures, and controls, 
approved by

[[Page 848]]

its board of directors, that 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 shall limit its exposure to potential 
losses from defaults by its clearing members through margin requirements 
and other risk control mechanisms reasonably designed 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.
    (2) Methodology and coverage. (i) A derivatives clearing 
organization shall have 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.
    (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 to Sec.  
39.15(b)(2) of this part, by beneficial owner.

[[Page 849]]

    (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 
shall have its systems for generating initial margin requirements, 
including its theoretical models, reviewed and validated by a qualified 
and independent party on an annual basis. Where no material changes to 
the margin model have occurred, previous validations can be reviewed and 
affirmed as part of the annual review process. Qualified and independent 
parties may be independent contractors or employees of the derivatives 
clearing organization, or of an affiliate 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 conceptual basis for the correlation in addition to an exhibited 
statistical correlation. That conceptual 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 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 in Sec.  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.
    (iii) In conducting back tests of initial margin requirements, a 
derivatives clearing organization shall compare

[[Page 850]]

portfolio losses only to those components of initial margin that capture 
changes in market risk factors.
    (8) Customer margin--(i) Gross margin. (A) During the end-of-day 
settlement cycle, 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), a derivatives clearing 
organization shall have rules that require its clearing members to 
provide to the derivatives clearing organization reports each day 
setting forth end-of-day gross positions of each individual customer 
account within each customer origin of the clearing member.
    (C) A derivatives clearing organization may not, and may not permit 
its clearing members to, net positions of different customers against 
one another.
    (D) 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 at a level that is not less than 100 percent of the 
derivatives clearing organization's clearing initial margin requirements 
with respect to each product and portfolio and commensurate with the 
risk presented by each customer account. The derivatives clearing 
organization shall have reasonable discretion in determining clearing 
initial margin requirements for products or portfolios. The derivatives 
clearing organization shall also have reasonable discretion in 
determining whether and by how much customer initial margin requirements 
shall, at a minimum, exceed clearing initial margin requirements for 
categories of customers determined by the clearing member to have 
heightened risk profiles. The Commission may review such customer 
initial margin levels and require different levels if the Commission 
deems the levels insufficient to protect the financial integrity of the 
derivatives clearing organization or its clearing members.
    (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 the haircuts on at 
least a monthly basis.
    (13) Concentration limits or charges. A derivatives clearing 
organization shall apply appropriate limitations or charges on the 
concentration of assets

[[Page 851]]

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 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 in Sec.  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 to Sec.  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

[[Page 852]]

conduct such stress tests. The Commission may review the methodology and 
require changes, as appropriate.
    (iii) The requirements in paragraphs (h)(3)(i) and (ii) of this 
section do not apply with respect to clearing member accounts that hold 
only fully collateralized positions.
    (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 have 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, take 
appropriate action to address concerns identified in such reviews, and 
document such reviews and the basis for determining what action was 
appropriate to take.
    (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;
    (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.
    (i) Cross-margining. (1) A derivatives clearing organization that 
seeks to implement or modify a cross-margining program with one or more 
clearing organizations shall submit rules for Commission approval 
pursuant to Sec.  40.5 of this chapter. The submission shall include 
information sufficient for the Commission to understand the risks that 
would be posed by the program and the means by which the derivatives 
clearing organization would address and mitigate those risks.
    (2) The Commission may request additional information in support of 
a rule submission filed under this paragraph (i), and may approve such 
rules in accordance with Sec.  40.5 of this chapter.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4855, Jan. 27, 2020; 85 
FR 35805, June 12, 2020]



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

[[Page 853]]

    (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 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

[[Page 854]]

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) Customer funds-- (1) Segregation. A derivatives clearing 
organization shall comply with the applicable segregation requirements 
of section 4d of the Act and Commission regulations in this part, or any 
other applicable Commission regulation in this chapter or order 
requiring that customer funds and assets, including money, securities, 
and property, be segregated, set aside, or held in a separate account.
    (2) Commingling--(i) Cleared swaps account. In order for a 
derivatives clearing organization and its clearing members to commingle 
customer positions in futures, options, foreign futures, foreign 
options, and swaps, or any combination thereof, 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 to Sec.  40.5 of this chapter. Such rule 
submission shall include, at a minimum, the following:
    (A) Identification of the products that would be commingled, 
including product specifications or the criteria that would be used to 
define eligible products;
    (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 
eligible products, the ability of clearing members and the derivatives 
clearing organization to offset or mitigate the risk of such eligible 
products 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 eligible products;
    (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 eligible products that would be 
commingled;
    (I) A description and analysis of the margin methodology that would 
be applied to the commingled eligible products, including any margin 
reduction applied to correlated positions, and any applicable margin 
rules with respect to both clearing members and customers;
    (J) An analysis of the ability of the derivatives clearing 
organization to manage a potential default with respect to any of the 
eligible products 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 eligible products in the account; 
and
    (L) A description of the arrangements for obtaining daily position 
data with respect to eligible products in the account.
    (ii) Futures account. In order for a derivatives clearing 
organization and its clearing members to commingle customer positions in 
futures, options, foreign futures, foreign options, and swaps, or any 
combination thereof, 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

[[Page 855]]

Act, the derivatives clearing organization shall file rules for 
Commission approval pursuant to Sec.  40.5 of this chapter. Such rule 
submission shall include, at a minimum, the information required under 
paragraph (b)(2)(i) of this section.
    (iii) Commission action. The Commission may request additional 
information in support of a rule submission filed under paragraph 
(b)(2)(i) or (ii) of this section, and may approve such rules in 
accordance with Sec.  40.5 of this chapter.
    (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 as necessary, 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, 
including cleared swaps customer collateral, as defined in Sec.  22.1 of 
this chapter, by a derivatives clearing organization shall comply with 
Sec.  1.25 of this chapter.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4856, Jan. 27, 2020]



Sec.  39.16  Default rules and procedures.

    (a) General. A derivatives clearing organization shall have 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 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. The 
derivatives clearing organization shall include clearing members and 
participants in a test of its default management plan at least on an 
annual basis to the extent the plan relies on their participation.
    (c) Default procedures.(1) A derivatives clearing organization shall 
have 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 have 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

[[Page 856]]

default, which shall include public notice of a declaration of default 
on its website and 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) The derivatives clearing organization shall not require a 
clearing member to bid for a portion of, or accept an allocation of, the 
defaulting clearing member's positions that is not proportional to the 
size of the bidding 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 in Sec.  39.21 of this part.
    (d) Insolvency of a clearing member. (1) A derivatives clearing 
organization shall have 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.
    (e) Fully collateralized positions. A derivatives clearing 
organization may satisfy the requirements of paragraphs (a), (b), and 
(c) of this section by having rules that permit it to clear only fully 
collateralized positions.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4857, Jan. 27, 2020]



Sec.  39.17  Rule enforcement.

    (a) General. A derivatives clearing organization shall:
    (1) Maintain adequate arrangements and resources for the effective 
monitoring and enforcement of compliance (by itself and its clearing 
members) 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 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 with Sec.  39.19(c)(4)(xvi).
    (b) Authority to enforce rules. The board of directors of the 
derivatives

[[Page 857]]

clearing organization may delegate responsibility for compliance with 
the requirements of paragraph (a) of this section to an appropriate 
committee, unless the responsibilities are otherwise required to be 
carried out by the chief compliance officer pursuant to the Act or this 
part.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4858, Jan. 27, 2020]



Sec.  39.18  System safeguards.

    (a) Definitions. For purposes of this section and Sec.  39.34:
    Controls mean the safeguards or countermeasures employed by the 
derivatives clearing organization in order to protect the reliability, 
security, or capacity of its automated systems or the confidentiality, 
integrity, or availability of its data and information, and in order to 
enable the derivatives clearing organization to fulfill its statutory 
and regulatory responsibilities.
    Controls testing means assessment of the derivatives clearing 
organization's controls to determine whether such controls are 
implemented correctly, are operating as intended, and are enabling the 
derivatives clearing organization to meet the requirements established 
by this section.
    Enterprise technology risk assessment means a written assessment 
that includes, but is not limited to, an analysis of threats and 
vulnerabilities in the context of mitigating controls. An enterprise 
technology risk assessment identifies, estimates, and prioritizes risks 
to a derivatives clearing organization's operations or assets, or to 
market participants, individuals, or other entities, resulting from 
impairment of the confidentiality, integrity, or availability of data 
and information or the reliability, security, or capacity of automated 
systems.
    External penetration testing means attempts to penetrate a 
derivatives clearing organization's automated systems from outside the 
systems' boundaries to identify and exploit vulnerabilities. Methods of 
conducting external penetration testing include, but are not limited to, 
methods for circumventing the security features of an automated system.
    Internal penetration testing means attempts to penetrate a 
derivatives clearing organization's automated systems from inside the 
systems' boundaries to identify and exploit vulnerabilities. Methods of 
conducting internal penetration testing include, but are not limited to, 
methods for circumventing the security features of an automated system.
    Key controls means those controls that an appropriate risk analysis 
determines are either critically important for effective system 
safeguards or intended to address risks that evolve or change more 
frequently and therefore require more frequent review to ensure their 
continuing effectiveness in addressing such risks.
    Recovery time objective means the time period within which a 
derivatives clearing organization should be able to achieve recovery and 
resumption of processing, clearing, and settlement of transactions, 
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 
processing, clearing, and settlement of transactions. The term 
``relevant area'' also includes communities economically integrated 
with, adjacent to, or within normal commuting distance of that 
metropolitan or other geographic area.
    Security incident means a cybersecurity or physical security event 
that actually jeopardizes or has a significant likelihood of 
jeopardizing automated system operation, reliability, security, or 
capacity, or the availability, confidentiality or integrity of data.
    Security incident response plan means a written plan documenting the 
derivatives clearing organization's policies, controls, procedures, and 
resources for identifying, responding to, mitigating, and recovering 
from security incidents, and the roles and responsibilities of its 
management, staff, and independent contractors in responding to security 
incidents. A security incident response plan may be a separate document 
or a business continuity-disaster recovery plan section or appendix 
dedicated to security incident response.

[[Page 858]]

    Security incident response plan testing means testing of a 
derivatives clearing organization's security incident response plan to 
determine the plan's effectiveness, identify its potential weaknesses or 
deficiencies, enable regular plan updating and improvement, and maintain 
organizational preparedness and resiliency with respect to security 
incidents. Methods of conducting security incident response plan testing 
may include, but are not limited to, checklist completion, walk-through 
or table-top exercises, simulations, and comprehensive exercises.
    Vulnerability testing means testing of a derivatives clearing 
organization's automated systems to determine what information may be 
discoverable through a reconnaissance analysis of those systems and what 
vulnerabilities may be present on those systems.
    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) Program of risk analysis and oversight--(1) General. A 
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) 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)(1) of this section, 
shall address each of the following elements:
    (i) Information security, including, but not limited to, controls 
relating to: Access to systems and data (including, least privilege, 
separation of duties, account monitoring and control); user and device 
identification and authentication; security awareness training; audit 
log maintenance, monitoring, and analysis; media protection; personnel 
security and screening; automated system and communications protection 
(including, network port control, boundary defenses, encryption); system 
and information integrity (including, malware defenses, software 
integrity monitoring); vulnerability management; penetration testing; 
security incident response and management; and any other elements of 
information security included in generally accepted best practices;
    (ii) Business continuity and disaster recovery planning and 
resources, including, but not limited to the controls and capabilities 
described in paragraph (c) of this section; and any other elements of 
business continuity and disaster recovery planning and resources 
included in generally accepted best practices;
    (iii) Capacity and performance planning, including, but not limited 
to, controls for monitoring the derivatives clearing organization's 
systems to ensure adequate scalable capacity (including, testing, 
monitoring, and analysis of current and projected future capacity and 
performance, and of possible capacity degradation due to planned 
automated system changes); and any other elements of capacity and 
performance planning included in generally accepted best practices;
    (iv) Systems operations, including, but not limited to, system 
maintenance; configuration management (including, baseline 
configuration, configuration change and patch management, least 
functionality, inventory of authorized and unauthorized devices and 
software); event and problem response and management; and any other 
elements of system operations included in generally accepted best 
practices;
    (v) Systems development and quality assurance, including, but not 
limited to, requirements development; pre-production and regression 
testing; change management procedures and approvals; outsourcing and 
vendor management; training in secure coding practices; and any other 
elements of systems development and quality assurance included in 
generally accepted best practices; and
    (vi) Physical security and environmental controls, including, but 
not

[[Page 859]]

limited to, physical access and monitoring; power, telecommunication, 
and environmental controls; fire protection; and any other elements of 
physical security and environmental controls included in generally 
accepted best practices.
    (3) Standards for program. In addressing the elements listed under 
paragraph (b)(2) 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.
    (4) Resources. A derivatives clearing organization shall establish 
and maintain resources that allow for the fulfillment of each obligation 
and responsibility of the derivatives clearing organization, including 
the daily processing, clearing, and settlement of transactions, in light 
of any risk to its operations and automated systems. The derivatives 
clearing organization shall periodically verify the adequacy of such 
resources.
    (c) Business continuity and disaster recovery--(1) General. A 
derivatives clearing organization shall establish and 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 obligation and responsibility of the derivatives 
clearing organization, including, but not limited to, the daily 
processing, clearing, and settlement of transactions, following any 
disruption of its operations.
    (2) Recovery time objective. A derivatives clearing organization's 
business continuity and disaster recovery plan, as described in 
paragraph (c)(1) of this section, shall have, and the derivatives 
clearing organization shall maintain physical, technological, and 
personnel resources sufficient to meet, a recovery time objective of no 
later than the next business day following a disruption.
    (3) Coordination of plans. A derivatives clearing organization 
shall, to the extent practicable:
    (i) 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 of 
transactions following a disruption;
    (ii) Initiate and coordinate periodic, synchronized testing of its 
business continuity and disaster recovery plan with those of its 
clearing members; and
    (iii) 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.
    (d) Outsourcing. (1) A derivatives clearing organization shall 
maintain the resources required under paragraphs (b)(4) and (c)(1) of 
this section either:
    (i) Using its own employees as personnel, and property that it owns, 
licenses, or leases; or
    (ii) Through written contractual arrangements with another 
derivatives clearing organization or other service provider.
    (2) Retention of responsibility. A derivatives clearing organization 
that enters into a contractual outsourcing arrangement shall retain 
complete responsibility for any failure to meet the requirements 
specified in paragraphs (b) and (c) of this section. The derivatives 
clearing organization must employ personnel with the expertise necessary 
to enable it to supervise the service provider's delivery of the 
services.
    (3) Testing of resources. The testing referred to in paragraph (e) 
of this section shall apply to all of the derivatives clearing 
organization's own and outsourced resources, and shall verify that all 
such resources will work together effectively. Where testing is required 
to be conducted by an independent contractor, the derivatives clearing 
organization shall engage a contractor that is independent from both the 
derivatives clearing organization and any outside service provider used 
to design, develop, or maintain the resources being tested.
    (e) Testing--(1) General. 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

[[Page 860]]

    (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 (c) of this section.
    (2) Vulnerability testing. A derivatives clearing organization shall 
conduct vulnerability testing of a scope sufficient to satisfy the 
requirements set forth in paragraph (e)(8) of this section.
    (i) A derivatives clearing organization shall conduct such 
vulnerability testing at a frequency determined by an appropriate risk 
analysis, but no less frequently than quarterly.
    (ii) Such vulnerability testing shall include automated 
vulnerability scanning, which shall follow generally accepted best 
practices.
    (iii) A derivatives clearing organization shall conduct 
vulnerability testing by engaging independent contractors or by using 
employees of the derivatives clearing organization who are not 
responsible for development or operation of the systems or capabilities 
being tested.
    (3) External penetration testing. A derivatives clearing 
organization shall conduct external penetration testing of a scope 
sufficient to satisfy the requirements set forth in paragraph (e)(8) of 
this section.
    (i) A derivatives clearing organization shall conduct such external 
penetration testing at a frequency determined by an appropriate risk 
analysis, but no less frequently than annually.
    (ii) A derivatives clearing organization shall engage independent 
contractors to conduct the required annual external penetration test. A 
derivatives clearing organization may conduct other external penetration 
testing by using employees of the derivatives clearing organization who 
are not responsible for development or operation of the systems or 
capabilities being tested.
    (4) Internal penetration testing. A derivatives clearing 
organization shall conduct internal penetration testing of a scope 
sufficient to satisfy the requirements set forth in paragraph (e)(8) of 
this section.
    (i) A derivatives clearing organization shall conduct such internal 
penetration testing at a frequency determined by an appropriate risk 
analysis, but no less frequently than annually.
    (ii) A derivatives clearing organization shall conduct internal 
penetration testing by engaging independent contractors, or by using 
employees of the derivatives clearing organization who are not 
responsible for development or operation of the systems or capabilities 
being tested.
    (5) Controls testing. A derivatives clearing organization shall 
conduct controls testing of a scope sufficient to satisfy the 
requirements set forth in paragraph (e)(8) of this section.
    (i) A derivatives clearing organization shall conduct controls 
testing, which includes testing of each control included in its program 
of risk analysis and oversight, at a frequency determined by an 
appropriate risk analysis, but shall test and assess key controls no 
less frequently than every three years. A derivatives clearing 
organization may conduct such testing on a rolling basis over the course 
of the required period.
    (ii) A derivatives clearing organization shall engage independent 
contractors to test and assess the key controls included in the 
derivatives clearing organization's program of risk analysis and 
oversight no less frequently than every three years. A derivatives 
clearing organization may conduct any other controls testing required by 
this section by using independent contractors or employees of the 
derivatives clearing organization who are not responsible for 
development or operation of the systems or capabilities being tested.
    (6) Security incident response plan testing. A derivatives clearing 
organization shall conduct security incident response plan testing 
sufficient to satisfy the requirements set forth in paragraph (e)(8) of 
this section.
    (i) The derivatives clearing organization shall conduct such 
security incident response plan testing at a frequency determined by an 
appropriate risk analysis, but no less frequently than annually.
    (ii) The derivatives clearing organization's security incident 
response plan shall include, without limitation, the

[[Page 861]]

derivatives clearing organization's definition and classification of 
security incidents, its policies and procedures for reporting security 
incidents and for internal and external communication and information 
sharing regarding security incidents, and the hand-off and escalation 
points in its security incident response process.
    (iii) The derivatives clearing organization may coordinate its 
security incident response plan testing with other testing required by 
this section or with testing of its other business continuity-disaster 
recovery and crisis management plans.
    (iv) The derivatives clearing organization may conduct security 
incident response plan testing by engaging independent contractors or by 
using employees of the derivatives clearing organization.
    (7) Enterprise technology risk assessment. A derivatives clearing 
organization shall conduct enterprise technology risk assessments of a 
scope sufficient to satisfy the requirements set forth in paragraph 
(e)(8) of this section.
    (i) A derivatives clearing organization shall conduct an enterprise 
technology risk assessment at a frequency determined by an appropriate 
risk analysis, but no less frequently than annually. A derivatives 
clearing organization that has conducted an enterprise technology risk 
assessment that complies with this section may conduct subsequent 
assessments by updating the previous assessment.
    (ii) A derivatives clearing organization may conduct enterprise 
technology risk assessments by using independent contractors or 
employees of the derivatives clearing organization who are not 
responsible for development or operation of the systems or capabilities 
being assessed.
    (8) Scope of testing and assessment. The scope of testing and 
assessment required by this section shall be broad enough to include the 
testing of automated systems and controls that a derivatives clearing 
organization's required program of risk analysis and oversight and its 
current cybersecurity threat analysis indicate is necessary to identify 
risks and vulnerabilities that could enable an intruder or unauthorized 
user or insider to:
    (i) Interfere with the derivatives clearing organization's 
operations or with fulfillment of its statutory and regulatory 
responsibilities;
    (ii) Impair or degrade the reliability, security, or capacity of the 
derivatives clearing organization's automated systems;
    (iii) Add to, delete, modify, exfiltrate, or compromise the 
integrity of any data related to the derivatives clearing organization's 
regulated activities; or
    (iv) Undertake any other unauthorized action affecting the 
derivatives clearing organization's regulated activities or the hardware 
or software used in connection with those activities.
    (9) Internal reporting and review. Both the senior management and 
the board of directors of the derivatives clearing organization shall 
receive and review reports setting forth the results of the testing and 
assessment required by this section. The derivatives clearing 
organization shall establish and follow appropriate procedures for the 
remediation of issues identified through such review, as provided in 
paragraph (e)(10) of this section, and for evaluation of the 
effectiveness of testing and assessment protocols.
    (10) Remediation. A derivatives clearing organization shall identify 
and document the vulnerabilities and deficiencies in its systems 
revealed by the testing and assessment required by this section. The 
derivatives clearing organization shall conduct and document an 
appropriate analysis of the risks presented by each vulnerability or 
deficiency to determine and document whether to remediate the 
vulnerability or deficiency or accept the associated risk. When a 
derivatives clearing organization determines to remediate a 
vulnerability or deficiency, it must remediate in a timely manner given 
the nature and magnitude of the associated risk.
    (f) Recordkeeping. A derivatives clearing organization shall 
maintain, and provide to staff of the Division of Clearing and Risk, or 
any successor division, promptly upon request, pursuant to Sec.  1.31 of 
this chapter:

[[Page 862]]

    (1) Current copies of the derivatives clearing organization's 
business continuity and disaster recovery plan and other emergency 
procedures. Such plan and procedures shall be updated at a frequency 
determined by an appropriate risk analysis, but no less frequently than 
annually;
    (2) All assessments of the derivatives clearing organization's 
operational risks or system safeguards-related controls;
    (3) All reports concerning testing and assessment required by this 
section, whether conducted by independent contractors or by employees of 
the derivatives clearing organization; and
    (4) All other documents requested by staff of the Division of 
Clearing and Risk, or any successor division, in connection with 
Commission oversight of system safeguards pursuant to the Act or 
Commission regulations, or in connection with Commission maintenance of 
a current profile of the derivatives clearing organization's automated 
systems.
    (5) Nothing in paragraph (f) of this section shall be interpreted as 
reducing or limiting in any way a derivatives clearing organization's 
obligation to comply with Sec.  1.31 of this chapter.
    (g) Notice of exceptional events. A derivatives clearing 
organization shall notify staff of the Division of Clearing and Risk, or 
any successor division, promptly of:
    (1) Any hardware or software malfunction, 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 provide staff of the Division of Clearing and Risk, or any 
successor division, timely advance notice of all material:
    (1) Planned changes to the derivatives clearing organization's 
automated systems that may impact the reliability, security, or capacity 
of such systems; and
    (2) Planned changes to the derivatives clearing organization's 
program of risk analysis and oversight.

[81 FR 64336, Sept. 19, 2016]



Sec.  39.19  Reporting.

    (a) General. A derivatives clearing organization shall provide to 
the Commission the information specified in this section and any other 
information that the Commission determines to be necessary to conduct 
oversight of the derivatives clearing organization.
    (b) Submission of reports--(1) General requirement. A derivatives 
clearing organization shall submit the information required by this 
section to the Commission in a format and manner specified by the 
Commission.
    (2) Certification. When making a submission pursuant to this 
section, an employee of the derivatives clearing organization must 
certify that he or she is duly authorized to make such a submission on 
behalf of the derivatives clearing organization.
    (3) 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.
    (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 (c) the information specified as 
follows:
    (1) Daily reporting. (i) A derivatives clearing organization shall 
compile as of the end of each trading day, and submit to the Commission 
by 10:00 a.m. on the next business day, a report containing the 
following information related to all positions other than fully 
collateralized positions:
    (A) Initial margin requirements and initial margin on deposit for 
each clearing member, by house origin and by each customer origin, and 
by each individual customer account;
    (B) Daily variation margin, separately listing the mark-to-market 
amount collected from or paid to each clearing member, by house origin 
and

[[Page 863]]

by each customer origin, and by each individual customer account;
    (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 by each 
individual customer account; and
    (D) End-of-day positions, including as appropriate the risk 
sensitivities and valuation data that the derivatives clearing 
organization generates, creates, or calculates in connection with 
managing the risks associated with such positions, for each clearing 
member, by house origin and by each customer origin, and by each 
individual customer account. The derivatives clearing organization shall 
identify each individual customer account using both a legal entity 
identifier and any internally-generated identifier, where available, 
within each customer origin for each clearing member.
    (ii) The report shall contain the information required by paragraphs 
(c)(1)(i)(A) through (D) of this section for:
    (A) All futures positions, and options positions, as applicable;
    (B) All swaps positions; and
    (C) All securities positions that are:
    (1) Held in a customer account subject to section 4d of the Act; or
    (2) Subject to a cross-margining agreement.
    (2) Quarterly reporting. A derivatives clearing organization shall 
provide to the Commission each fiscal quarter, or at any time upon 
Commission request, a report of the derivatives clearing organization's 
financial resources as required by Sec.  39.11(f)(1).
    (3) Annual reporting. A derivatives clearing organization shall 
provide to the Commission each year:
    (i) The annual report of the chief compliance officer required by 
Sec.  39.10; and
    (ii) Audited year-end financial statements of the derivatives 
clearing organization as required by Sec.  39.11(f)(2).
    (iii) [Reserved]
    (iv) The reports required by this paragraph (c)(3) shall be filed 
not later than 90 days after the end of the derivatives clearing 
organization's fiscal year, or at such later time as the Commission may 
permit, in its discretion, upon request by the derivatives clearing 
organization.
    (4) Event-specific reporting--(i) Decrease in financial resources. 
If there is a decrease of 25 percent or more in the total value of the 
financial resources available to satisfy the requirements under Sec.  
39.11(a)(1) or Sec.  39.33(a), as applicable, either from the last 
quarterly report submitted under Sec.  39.11(f) or from the value as of 
the close of the previous business day, a 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 as of the close of 
business the day the 25 percent threshold was reached;
    (B) 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;
    (C) A breakdown of the value of each financial resource reported in 
each of paragraphs (c)(4)(i)(A) and (B) of this section, calculated in 
accordance with the requirements of Sec.  39.11(d) or Sec.  39.33(b), as 
applicable, 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
    (D) A detailed explanation for the decrease.
    (ii) Decrease in liquidity resources. If there is a decrease of 25 
percent or more in the total value of the liquidity resources available 
to satisfy the requirements under Sec.  39.11(e) or Sec.  39.33(c), as 
applicable, either from the last quarterly report submitted under Sec.  
39.11(f) or from the value as of the close of the previous business day, 
a 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 liquidity resources as of the close of 
business the

[[Page 864]]

day the 25 percent threshold was reached;
    (B) If reporting a decrease in value from the previous business day, 
the total value of the liquidity resources immediately prior to the 25 
percent decline;
    (C) A breakdown of the value of each liquidity resource reported in 
each of paragraphs (c)(4)(ii)(A) and (B) of this section, calculated in 
accordance with the requirements of Sec.  39.11(e) or Sec.  39.33(c), as 
applicable, including the value of each individual clearing member's 
guaranty fund deposit if the derivatives clearing organization reports 
guaranty fund deposits as a liquidity resource; and
    (D) A detailed explanation for the decrease.
    (iii) Decrease in ownership equity. A derivatives clearing 
organization shall report to the Commission 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) A detailed explanation for the decrease or anticipated decrease 
in the balance.
    (iv) Six-month liquid asset requirement. A derivatives clearing 
organization shall notify the Commission immediately when the 
derivatives clearing organization knows or reasonably should know of a 
deficit in the six-month liquid asset requirement of Sec.  39.11(e)(2).
    (v) Change in current assets. A derivatives clearing organization 
shall notify the Commission no later than two business days after the 
derivatives clearing organization's current liabilities exceed its 
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.
    (vi) Request to clearing member to reduce its positions. A 
derivatives clearing organization shall notify the Commission 
immediately of a request by the derivatives clearing organization to one 
of its clearing members to reduce the clearing member's positions. The 
notice shall include:
    (A) The name of the clearing member;
    (B) The time the clearing member was contacted;
    (C) The number of positions for futures and options, and for swaps, 
the number of outstanding trades and notional amount, 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.
    (vii) Determination to transfer or liquidate positions. A 
derivatives clearing organization shall notify the Commission 
immediately of a determination by the derivatives clearing organization 
that a position it 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 for futures and options, and for swaps, 
the

[[Page 865]]

number of outstanding trades and notional amount, that are subject to 
the determination; and
    (E) The reason for the determination.
    (viii) Default of a clearing member. A derivatives clearing 
organization shall notify the Commission immediately of 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 for futures and options, and for swaps, 
the number of outstanding trades and notional amount, the clearing 
member defaulted upon; and
    (D) The amount of the financial obligation.
    (ix) Change in ownership or corporate or organizational structure--
(A) Reporting requirement. A derivatives clearing organization shall 
report to the Commission 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 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.
    (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.
    (x) Change in key personnel. A derivatives clearing organization 
shall report to the Commission no later than two business days following 
the departure or addition of persons who are key personnel as defined in 
Sec.  39.2. The report shall include, as applicable, the name and 
contact information of the person who will assume the duties of the 
position permanently or the person who will assume the duties on a 
temporary basis until a permanent replacement fills the position.
    (xi) Change in legal name. A derivatives clearing organization shall 
report to the Commission no later than two business days following a 
legal name change of the derivatives clearing organization.
    (xii) Change in credit facility funding arrangement. A derivatives 
clearing organization shall report to the Commission no later than one 
business day after the derivatives clearing organization changes a 
credit facility funding arrangement it has 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.
    (xiii) Change in liquidity funding arrangement. A derivatives 
clearing organization shall report to the Commission no later than one 
business day after the derivatives clearing organization changes a 
liquidity funding arrangement it has in place, or is notified that such 
arrangement has changed, including but not limited to a change in 
provider, change in the size of the facility, change in expiration date, 
or

[[Page 866]]

any other material changes or conditions.
    (xiv) Change in settlement bank arrangements. A derivatives clearing 
organization shall report to the Commission no later than three business 
days after the derivatives clearing organization enters into a new 
relationship with, or terminates a relationship with, any settlement 
bank used by the derivatives clearing organization or approved for use 
by the derivatives clearing organization's clearing members.
    (xv) Settlement bank issues. A derivatives clearing organization 
shall report to the Commission no later than one business day after any 
material issues or concerns arise regarding the performance, stability, 
liquidity, or financial resources of any settlement bank used by the 
derivatives clearing organization or approved for use by the derivatives 
clearing organization's clearing members.
    (xvi) Sanctions against a clearing member. A derivatives clearing 
organization shall provide notice to the Commission no later than two 
business days after the derivatives clearing organization imposes 
sanctions against a clearing member.
    (xvii) Financial condition and events. A derivatives clearing 
organization shall provide to the Commission 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.
    (xviii) Financial statements material inadequacies. A derivatives 
clearing organization shall provide notice to the Commission within 24 
hours if the derivatives clearing organization discovers or is notified 
by an independent public accountant of the existence of any material 
inadequacy in a financial statement, and within 48 hours after giving 
such notice provide a written report stating what steps have been and 
are being taken to correct the material inadequacy.
    (xix) Change in fiscal year. A derivatives clearing organization 
shall report to the Commission no later than two business days after any 
change to the start and end dates of its fiscal year.
    (xx) Change in independent accounting firm. A derivatives clearing 
organization shall report to the Commission no later than 15 days after 
any change in the derivatives clearing organization's independent public 
accounting firm. The report shall include the date of such change, the 
name and contact information of the new firm, and the reason for the 
change.
    (xxi) Major decision of the board of directors. A derivatives 
clearing organization shall report to the Commission any major decision 
of the derivatives clearing organization's board of directors as 
required by Sec.  39.24(a)(3)(i).
    (xxii) System safeguards. A derivatives clearing organization shall 
report to the Commission:
    (A) Exceptional events as required by Sec.  39.18(g); or
    (B) Planned changes as required by Sec.  39.18(h).
    (xxiii) Margin model issues. A derivatives clearing organization 
shall report to the Commission no later than one business day after any 
issue occurs with a DCO's margin model, including margin models for 
cross-margined portfolios, that materially affects the DCO's ability to 
calculate or collect initial margin or variation margin.
    (xxiv) Recovery and wind-down plans. A derivatives clearing 
organization that is required to maintain recovery and wind-down plans 
pursuant to Sec.  39.39(b) shall submit its plans to the Commission no 
later than the date on which the derivatives clearing organization is 
required to have the plans. A derivatives clearing organization that is 
not required to maintain recovery and wind-down plans pursuant to Sec.  
39.39(b), but which nonetheless maintains such plans, may choose to 
submit its plans to the Commission. A derivatives clearing organization 
that has submitted its recovery and wind-down plans to the Commission 
shall, upon

[[Page 867]]

making any revisions to the plans, submit the revised plans to the 
Commission along with a description of the changes and the reason for 
those changes.
    (5) Requested reporting. A derivatives clearing organization shall 
provide upon request by the Commission and within the time specified in 
the request:
    (i) Any information related to its business as a clearing 
organization, including information relating to trade and clearing 
details.
    (ii) A written demonstration, containing 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.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4858, Jan. 27, 2020]



Sec.  39.20  Recordkeeping.

    (a) Requirement to maintain information. A 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 to Sec.  40.10 of this 
chapter; and
    (5) Any data or documentation required by the Commission or by the 
derivatives clearing organization to be 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 of Sec.  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. A derivatives clearing organization 
that clears swaps must maintain swap data in accordance with the 
requirements of part 45 of this chapter.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4860, Jan. 27, 2020]



Sec.  39.21  Public information.

    (a) General. A 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 the objective in this paragraph (a), a 
derivatives clearing organization shall have clear and comprehensive 
rules and procedures.
    (b) Availability of information. A 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. A derivatives clearing organization shall 
make the following information readily available to the general public, 
in a timely manner, by posting such information on the derivatives 
clearing organization's website, unless otherwise permitted by the 
Commission:
    (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) Information concerning its margin-setting methodology;
    (4) The size and composition of the financial resource package 
available in the event of a clearing member default,

[[Page 868]]

updated as of the end of the most recent fiscal quarter or upon 
Commission request and posted as promptly as practicable after 
submission of the report to the Commission under Sec.  
39.11(f)(1)(i)(A);
    (5) Daily settlement prices, volume, and open interest for each 
contract, agreement, or transaction cleared or settled by the 
derivatives clearing organization, posted no later than the business day 
following the day to which the information pertains;
    (6) The derivatives clearing organization's rulebook, including 
rules and procedures for defaults in accordance with Sec.  39.16;
    (7) A current list of all clearing members;
    (8) A list of all swaps that the derivatives clearing organization 
will accept for clearing that identifies which swaps on the list are 
required to be cleared, in accordance with Sec.  50.3(a) of this 
chapter; and
    (9) Any other information that is relevant to participation in the 
clearing and settlement activities of the derivatives clearing 
organization.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4861, Jan. 27, 2020]



Sec.  39.22  Information sharing.

    A 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.

[85 FR 4861, Jan. 27, 2020]



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  Governance.

    (a) General. (1) A derivatives clearing organization shall have 
governance arrangements that:
    (i) Are written;
    (ii) Are clear and transparent;
    (iii) Place a high priority on the safety and efficiency of the 
derivatives clearing organization; and
    (iv) Explicitly support the stability of the broader financial 
system and other relevant public interest considerations of clearing 
members, customers of clearing members, and other relevant stakeholders.
    (2) The board of directors shall make certain that the derivatives 
clearing organization's design, rules, overall strategy, and major 
decisions appropriately reflect the legitimate interests of clearing 
members, customers of clearing members, and other relevant stakeholders.
    (3) To the extent consistent with other statutory and regulatory 
requirements on confidentiality and disclosure:
    (i) Major decisions of the board of directors shall be clearly 
disclosed to clearing members, other relevant stakeholders, and to the 
Commission; and
    (ii) Major decisions of the board of directors having a broad market 
impact shall be clearly disclosed to the public.
    (b) Governance arrangement requirements. A derivatives clearing 
organization shall have governance arrangements that:
    (1) Are clear and documented;
    (2) To an extent consistent with other statutory and regulatory 
requirements on confidentiality and disclosure, are disclosed, as 
appropriate, to the Commission, other relevant authorities, clearing 
members, customers of clearing members, owners of the derivatives 
clearing organization, and to the public;
    (3) Describe the structure pursuant to which the board of directors, 
committees, and management operate;
    (4) Include clear and direct lines of responsibility and 
accountability;
    (5) Clearly specify the roles and responsibilities of the board of 
directors and its committees, including the establishment of a clear and 
documented risk management framework;
    (6) Clearly specify the roles and responsibilities of management;
    (7) Describe procedures pursuant to which the board of directors 
oversees the chief risk officer, risk management

[[Page 869]]

committee, and material risk decisions;
    (8) Provide risk management and internal control personnel with 
sufficient independence, authority, resources, and access to the board 
of directors so that the operations of the derivatives clearing 
organization are consistent with the risk management framework 
established by the board of directors;
    (9) Assign responsibility and accountability for risk decisions, 
including in crises and emergencies; and
    (10) Assign responsibility for implementing the:
    (i) Default rules and procedures required by Sec. Sec.  39.16 and 
39.35, as applicable;
    (ii) System safeguard rules and procedures required by Sec. Sec.  
39.18 and 39.34, as applicable; and
    (iii) Recovery and wind-down plans required by Sec.  39.39, as 
applicable.
    (c) Fitness standards. (1) A derivatives clearing organization shall 
establish and enforce appropriate fitness standards for:
    (i) Directors;
    (ii) Members of any disciplinary committee;
    (iii) Members of the derivatives clearing organization;
    (iv) Any other individual or entity with direct access to the 
settlement or clearing activities of the derivatives clearing 
organization; and
    (v) Any other party affiliated with any individual or entity 
described in this paragraph.
    (2) A derivatives clearing organization shall maintain policies to 
make certain that:
    (i) The board of directors consists of suitable individuals having 
appropriate skills and incentives;
    (ii) The performance of the board of directors and the performance 
of individual directors is reviewed on a regular basis; and
    (iii) Managers have the appropriate experience, skills, and 
integrity necessary to discharge operational and risk management 
responsibilities.

[85 FR 4861, Jan. 27, 2020]



Sec.  39.25  Conflicts of interest.

    A derivatives clearing organization shall:
    (a) Establish and enforce rules to minimize conflicts of interest in 
the decision-making process of the derivatives clearing organization;
    (b) Establish a process for resolving such conflicts of interest; 
and
    (c) Describe procedures for identifying, addressing, and managing 
conflicts of interest involving members of the board of directors.

[85 FR 4862, Jan. 27, 2020]



Sec.  39.26  Composition of governing boards.

    A derivatives clearing organization shall ensure that the 
composition of the governing board or board-level committee of the 
derivatives clearing organization includes market participants and 
individuals who are not executives, officers, or employees of the 
derivatives clearing organization or an affiliate thereof.

[85 FR 4862, Jan. 27, 2020]



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 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

[[Page 870]]

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.
    (3) The derivatives clearing organization shall ensure on an ongoing 
basis that the memorandum required in paragraph (b) of Exhibit R to 
appendix A to this part is accurate and up to date and shall submit an 
updated memorandum to the Commission promptly following all material 
changes to the analysis or content contained in the memorandum.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4862, Jan. 27, 2020]



Sec. Sec.  39.28-39.29  [Reserved]



 Subpart C_Provisions Applicable to Systemically Important Derivatives 
Clearing Organizations and Derivatives Clearing Organizations That Elect 
             To Be Subject to the Provisions of This Subpart

    Source: 78 FR 72514, Dec. 2, 2013, unless otherwise noted.



Sec.  39.30  Scope.

    (a) The provisions of this subpart apply to each of the following: a 
subpart C derivatives clearing organization, a systemically important 
derivatives clearing organization, and any derivatives clearing 
organization, as defined under section 1a(15) of the Act and Sec.  1.3 
of this chapter, seeking to become a subpart C derivatives clearing 
organization pursuant to Sec.  39.31.
    (b) A systemically important derivatives clearing organization is 
subject to the provisions of subparts A and B of this part in addition 
to the provisions of this subpart.
    (c) A subpart C derivatives clearing organization is subject to the 
provisions of subparts A and B of this part in addition to the 
provisions of this subpart except for Sec. Sec.  39.41 and 39.42.

[78 FR 72514, Dec. 2, 2013, as amended at 83 FR 7996, Feb. 23, 2018]



Sec.  39.31  Election to become subject to the provisions of this subpart.

    (a) Election eligibility. (1) A derivatives clearing organization 
that is registered with the Commission and that is not a systemically 
important derivatives clearing organization may elect to become a 
subpart C derivatives clearing organization subject to the provisions of 
this subpart, using the procedures set forth in paragraph (b) of this 
section.
    (2) An applicant for registration as a derivatives clearing 
organization pursuant to Sec.  39.3 may elect to become a subpart C 
derivatives clearing organization subject to the provisions of this 
subpart as part of its application for registration using the procedures 
set forth in paragraph (c) of this section.
    (b) Election and withdrawal procedures applicable to registered 
derivatives clearing organizations--(1) Election. A derivatives clearing 
organization that is registered with the Commission and that is not a 
systemically important derivatives clearing organization may request 
that the Commission accept its election to become a subpart C 
derivatives clearing organization by filing with the Commission a 
completed Subpart C Election Form. The Subpart C Election Form shall 
include the election and all certifications, disclosures and exhibits, 
as provided in appendix B to this part and any amendments or supplements 
thereto filed with the Commission pursuant to paragraphs (b)(2) and (3) 
of this section.

[[Page 871]]

    (2) Submission of supplemental information. The filing of a Subpart 
C Election Form does not create a presumption that the Subpart C 
Election Form is materially complete or that supplemental information 
will not be required. The Commission, at any time prior to the effective 
date, as provided in paragraph (b)(4) of this section, may request that 
the derivatives clearing organization submit supplemental information in 
order for the Commission to process the Subpart C Election Form, and the 
derivatives clearing organization shall file such supplemental 
information with the Commission.
    (3) Amendments. A derivatives clearing organization shall promptly 
amend its Subpart C Election Form if it discovers a material omission or 
error in, or if there is a material change in, the information provided 
to the Commission in the Subpart C Election Form or other information 
provided in connection with the Subpart C Election Form.
    (4) Effective date. A derivatives clearing organization's election 
to become a subpart C derivatives clearing organization shall become 
effective:
    (i) Upon the later of the following, provided the Commission has 
neither stayed nor denied such election as set forth in paragraph (b)(5) 
of this section.
    (A) The effective date specified by the derivatives clearing 
organization in its Subpart C Election Form; or
    (B) Ten business days after the derivatives clearing organization 
files its Subpart C Election Form with the Commission;
    (ii) Or upon the effective date set forth in written notification 
from the Commission that it shall permit the election to take effect 
after a stay issued pursuant to paragraph (b)(5) of this section.
    (5) Stay or denial of election. Prior to the effective date set 
forth in paragraph (b)(4)(i) of this section, the Commission may stay or 
deny a derivatives clearing organization's election to become a subpart 
C derivatives clearing organization by issuing a written notification 
thereof to the derivatives clearing organization.
    (6) Commission acknowledgement. The Commission may acknowledge, in 
writing, that it has received a Subpart C Election Form filed by a 
derivatives clearing organization and that it has permitted the 
derivatives clearing organization's election to become subject to the 
provisions of this subpart to take effect, and the effective date of 
such election.
    (7) Withdrawal of election. A derivatives clearing organization that 
has filed a Subpart C Election Form may withdraw an election to become 
subject to the provisions of this subpart at any time prior to the date 
that the election is permitted to take effect by filing with the 
Commission a notice of the withdrawal of election.
    (c) Election and withdrawal procedures applicable to applicants for 
registration as derivatives clearing organization--(1) Election. An 
applicant for registration as a derivatives clearing organization that 
requests an election to become subject to the provisions of this subpart 
may make that request by attaching a completed Subpart C Election Form 
to the Form DCO that it files pursuant to Sec.  39.3. The Subpart C 
Election Form shall include the election and all certifications, 
disclosures and exhibits, as provided in appendix B of this part, and 
any amendments or supplements thereto filed with the Commission pursuant 
to paragraphs (c)(3) or (4) of this section.
    (2) Election review and effective date. The Commission shall review 
the applicant's Subpart C Election Form as part of the Commission's 
review of its application for registration pursuant to Sec.  39.3(a). 
The Commission may permit the applicant's election to take effect at the 
time it approves the applicant's application for registration by 
providing written notice thereof to the applicant. The Commission shall 
not approve any application for registration filed pursuant to Sec.  
39.3(a) for which a Subpart C Election Form is pending, if the 
Commission determines that the applicant's election to become subject to 
this subpart should not become effective because the applicant has not 
demonstrated its ability to comply with the applicable provisions of 
this subpart.
    (3) Submission of supplemental information. The filing of a Subpart 
C Election Form does not create a presumption that the Subpart C 
Election Form is

[[Page 872]]

materially complete or that supplemental information will not be 
required. At any time during the Commission's review of the Subpart C 
Election Form, the Commission may request that the applicant submit 
supplemental information in order for the Commission to process the 
Subpart C Election Form and the applicant shall file such supplemental 
information with the Commission.
    (4) Amendments. An applicant for registration as a derivatives 
clearing organization shall promptly amend its Subpart C Election Form 
if it discovers a material omission or error in, or if there is a 
material change in, the information provided to the Commission in the 
Subpart C Election Form or other information provided in connection with 
the Subpart C Election Form.
    (5) Withdrawal of election. An applicant for registration as a 
derivatives clearing organization may withdraw an election to become 
subject to the provisions of this subpart by filing with the Commission 
a notice of the withdrawal of its Subpart C Election Form at any time 
prior to the date that the Commission approves its application for 
registration as a derivatives clearing organization. The applicant may 
withdraw its Subpart C Election Form without withdrawing its Form DCO.
    (d) Public information. The following portions of the Subpart C 
Election Form will be public: The Elections and Certifications and 
Disclosures in the Subpart C Election Form, the rules of the derivatives 
clearing organization, the regulatory compliance chart, and any other 
portion of the Subpart C Election Form not covered by a request for 
confidential treatment complying with the requirements of Sec.  145.9 of 
this chapter.
    (e) Rescission of election. (1) Notice of intent to rescind. A 
subpart C derivatives clearing organization may rescind its election to 
be subject to the provisions of this subpart and terminate its status as 
a subpart C derivatives clearing organization by filing with the 
Commission a notice of its intent to rescind such election. The notice 
of intent to rescind the election shall include:
    (i) The effective date of the rescission; and
    (ii) A certification signed by the relevant duly authorized 
representative of the subpart C derivatives clearing organization, as 
specified in paragraph three of the General Instructions to the Subpart 
C Election Form, stating that the subpart C derivatives clearing 
organization:
    (A) Has provided the notice to its clearing members required by 
paragraph (e)(3)(i)(A) of this section;
    (B) Will provide the notice to its clearing members required by 
paragraph (e)(3)(i)(B) of this section;
    (C) Has provided the notice to the general public required by 
paragraph (e)(3)(ii)(A) of this section;
    (D) Will provide notice to the general public required by paragraph 
(e)(3)(ii)(B) of this section; and
    (E) Has removed all references to the organization as a subpart C 
derivatives clearing organization and a qualifying central counterparty 
on its Web site and in all other material that it provides to its 
clearing members and customers, other market participants or members of 
the public, as required by paragraph (e)(3)(ii)(C) of this section.
    (2) Effective date. The rescission of the election to be subject to 
the provisions of this subpart shall become effective on the date set 
forth in the notice of intent to rescind the election filed by the 
subpart C derivatives clearing organization pursuant to paragraph (e)(1) 
of this section, provided that the rescission may become effective no 
earlier than 180 days after the notice of intent to rescind the election 
is filed with the Commission. The subpart C derivatives clearing 
organization shall continue to comply with all of the provisions of this 
subpart until such effective date.
    (3) Additional notice requirements. (i) A subpart C derivatives 
clearing organization shall provide the following notices, at the 
following times, to each of its clearing members and shall have rules in 
place requiring each of its clearing members to provide the following 
notices to each of the clearing member's customers:
    (A) No later than the filing of a notice of its intent to rescind 
its election to be subject to the provisions of this subpart, written 
notice that it intends

[[Page 873]]

to file such notice with the Commission and the effective date thereof; 
and
    (B) On the effective date of the rescission of its election to be 
subject to the provisions of this subpart, written notice that the 
rescission has become effective.
    (ii) A subpart C derivatives clearing organization shall:
    (A) No later than the filing of a notice of its intent to rescind 
its election to be subject to the provisions of this subpart, provide 
notice to the general public, displayed prominently on its Web site, of 
its intent to rescind its election to be subject to the provisions of 
this subpart;
    (B) On and after the effective date of the rescission of its 
election to be subject to the provisions of this subpart, provide notice 
to the general public, displayed prominently on its Web site, that the 
rescission has become effective; and
    (C) Prior to the filing of a notice of its intent to rescind its 
election to become subject to the provisions of this subpart, remove all 
references to the derivatives clearing organization's status as a 
subpart C derivatives clearing organization and a qualifying central 
counterparty on its Web site and in all other materials that it provides 
to its clearing members and customers, other market participants, or the 
general public.
    (iii) The employees and representatives of a derivatives clearing 
organization that has filed a notice of its intent to rescind its 
election to be subject to the provisions of this subpart shall refrain 
from referring to the organization as a subpart C derivatives clearing 
organization and a qualifying central counterparty on and after the date 
that the notice of intent to rescind the election is filed.
    (4) Effect of rescission. The rescission of a subpart C derivatives 
clearing organization's election to be subject to the provisions of this 
subpart shall not affect the authority of the Commission concerning any 
activities or events occurring during the time that the derivatives 
clearing organization maintained its status as a subpart C derivatives 
clearing organization.
    (f) Loss of designation as a systemically important derivatives 
clearing organization. A systemically important derivatives clearing 
organization whose designation of systemic importance is rescinded by 
the Financial Stability Oversight Council, shall immediately be deemed 
to be a subpart C derivatives clearing organization and shall continue 
to comply with the provisions of this subpart unless such derivatives 
clearing organization elects to rescind its status as a subpart C 
derivatives clearing organization in accordance with the requirements of 
paragraph (e) of this section.
    (g) All forms and notices required by this section shall be filed 
electronically with the Secretary of the Commission in the format and 
manner specified by the Commission.



Sec.  39.32  [Reserved]



Sec.  39.33  Financial resources requirements for systemically important 
derivatives clearing organizations and subpart C derivatives 
clearing organizations.

    (a) General rule. (1) Notwithstanding the requirements of Sec.  
39.11(a)(1), each systemically important derivatives clearing 
organization and subpart C derivatives clearing organization that, in 
either case, is systemically important in multiple jurisdictions or is 
involved in activities with a more complex risk profile shall maintain 
financial resources sufficient to enable it to meet its financial 
obligations to its clearing members notwithstanding a default by the two 
clearing members creating the largest combined financial exposure to the 
derivatives clearing organization in extreme but plausible market 
conditions.
    (2) The Commission shall, if it deems appropriate, determine whether 
a systemically important derivatives clearing organization or subpart C 
derivatives clearing organization is systemically important in multiple 
jurisdictions. In determining whether a systemically important 
derivatives clearing organization or subpart C derivatives clearing 
organization is systemically important in multiple jurisdictions, the 
Commission shall consider whether the derivatives clearing organization:

[[Page 874]]

    (i) Is a systemically important derivatives clearing organization, 
as defined by Sec.  39.2; or
    (ii) Has been determined to be systemically important by one or more 
jurisdictions other than the United States pursuant to a designation 
process that considers whether the foreseeable effects of a failure or 
disruption of the derivatives clearing organization could threaten the 
stability of each relevant jurisdiction's financial system.
    (3) The Commission shall, if it deems appropriate, determine whether 
any of the activities of a systemically important derivatives clearing 
organization or a subpart C derivatives clearing organization, in 
addition to clearing credit default swaps, credit default futures, and 
any derivatives that reference either credit default swaps or credit 
default futures, has a more complex risk profile. In determining whether 
an activity has a more complex risk profile, the Commission will 
consider characteristics such as discrete jump-to-default price changes 
or high correlations with potential participant defaults as factors 
supporting (though not necessary for) a finding of a more complex risk 
profile.
    (4) For purposes of this section, if a clearing member controls 
another clearing member or is under common control with another clearing 
member, such affiliated clearing members shall be deemed to be a single 
clearing member.
    (b) Valuation of financial resources. Notwithstanding the provisions 
of Sec.  39.11(d)(2), assessments for additional guaranty fund 
contributions (i.e., guaranty fund contributions that are not pre-
funded) shall not be included in calculating the financial resources 
available to meet a systemically important derivatives clearing 
organization's or subpart C derivatives clearing organization's 
obligations under paragraph (a) of this section or Sec.  39.11(a)(1).
    (c) Liquidity resources--(1) Minimum amount of liquidity resources. 
(i) Notwithstanding the provisions of Sec.  39.11(e)(1)(ii), each 
systemically important derivatives clearing organization and subpart C 
derivatives clearing organization shall maintain eligible liquidity 
resources, in all relevant currencies, that, at a minimum, will enable 
it to meet its intraday, same-day, and multiday obligations to perform 
settlements, as defined in Sec.  39.14(a)(1), with a high degree of 
confidence under a wide range of stress scenarios that should include, 
but not be limited to, a default by the clearing member creating the 
largest aggregate liquidity obligation for the systemically important 
derivatives clearing organization or subpart C derivatives clearing 
organization in extreme but plausible market conditions.
    (ii) A systemically important derivatives clearing organization and 
subpart C derivatives clearing organization that is subject to Sec.  
39.33(a)(1) shall consider maintaining eligible liquidity resources 
that, at a minimum, will enable it to meet its intraday, same-day, and 
multiday obligations to perform settlements, as defined in Sec.  
39.14(a)(1), with a high degree of confidence under a wide range of 
stress scenarios that should include, but not be limited to, a default 
of the two clearing members creating the largest aggregate liquidity 
obligation for the systemically important derivatives clearing 
organization or subpart C derivatives clearing organization in extreme 
but plausible market conditions.
    (2) Satisfaction of settlement in all relevant currencies. Each 
systemically important derivatives clearing organization and subpart C 
derivatives clearing organization shall maintain liquidity resources 
that are sufficient to satisfy the obligations required by paragraph 
(c)(1) of this section in all relevant currencies for which the 
systemically important derivatives clearing organization or subpart C 
derivatives clearing organization has obligations to perform 
settlements, as defined in Sec.  39.14(a)(1), to its clearing members.
    (3) Qualifying liquidity resources. (i) Only the following liquidity 
resources are eligible for the purpose of meeting the requirement of 
paragraph (c)(1) of this section:
    (A) Cash in the currency of the requisite obligations, held either 
at the central bank of issue or at a creditworthy commercial bank;
    (B) Committed lines of credit;
    (C) Committed foreign exchange swaps;

[[Page 875]]

    (D) Committed repurchase agreements; or
    (E) (1) Highly marketable collateral, including high quality, 
liquid, general obligations of a sovereign nation.
    (2) The assets described in paragraph (c)(3)(i)(E)(1) of this 
section must be readily available and convertible into cash pursuant to 
prearranged and highly reliable funding arrangements, even in extreme 
but plausible market conditions.
    (ii) With respect to the arrangements described in paragraph 
(c)(3)(i) of this section, the systemically important derivatives 
clearing organization or subpart C derivatives clearing organization 
must take appropriate steps to verify that such arrangements do not 
include material adverse change conditions and are enforceable, and will 
be highly reliable, in extreme but plausible market conditions.
    (4) Additional liquidity resources. If a systemically important 
derivatives clearing organization or subpart C derivatives clearing 
organization maintains financial resources in addition to those required 
to satisfy paragraph (c)(1) of this section, then those resources should 
be in the form of assets that are likely to be saleable with proceeds 
available promptly or acceptable as collateral for lines of credit, 
swaps, or repurchase agreements on an ad hoc basis. A systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization should consider maintaining collateral with low 
credit, liquidity, and market risks that is typically accepted by a 
central bank of issue for any currency in which it may have settlement 
obligations, but shall not assume the availability of emergency central 
bank credit as a part of its liquidity plan.
    (d) Liquidity providers. (1) For the purposes of this paragraph, a 
liquidity provider means:
    (i) A depository institution, a U.S. branch or agency of a foreign 
banking organization, a trust company, or a syndicate of depository 
institutions, U.S. branches or agencies of foreign banking 
organizations, or trust companies providing a line of credit, foreign 
exchange swap facility or repurchase facility to a systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization;
    (ii) Any other counterparty relied upon by a systemically important 
derivatives clearing organization or subpart C derivatives clearing 
organization to meet its minimum liquidity resources requirement under 
paragraph (c) of this section.
    (2) In fulfilling its obligations under paragraph (c) of this 
section, each systemically important derivatives clearing organization 
and subpart C derivatives clearing organization shall undertake due 
diligence to confirm that each of its liquidity providers, whether or 
not such liquidity provider is a clearing member, has:
    (i) Sufficient information to understand and manage the liquidity 
provider's liquidity risks; and
    (ii) The capacity to perform as required under its commitments to 
provide liquidity to the systemically important derivatives clearing 
organization or subpart C derivatives clearing organization.
    (3) Where relevant to a liquidity provider's ability reliably to 
perform its commitments with respect to a particular currency, the 
systemically important derivatives clearing organization or subpart C 
derivatives clearing organization may take into account the liquidity 
provider's access to the central bank of issue of that currency.
    (4) Each systemically important derivatives clearing organization 
and subpart C derivatives clearing organization shall regularly test its 
procedures for accessing its liquidity resources under paragraph 
(c)(3)(i) of this section, including testing its arrangements under 
paragraph (c)(3)(ii) and its relevant liquidity provider(s) under 
paragraph (d)(1) of this section.
    (5) A systemically important derivatives clearing organization with 
access to accounts and services at a Federal Reserve Bank, pursuant to 
section 806(a) of the Dodd-Frank Act, 12 U.S.C. 5465(a), shall use such 
accounts and services where practical.
    (e) Documentation of financial resources and liquidity resources. 
Each systemically important derivatives clearing organization and 
subpart C derivatives clearing organization shall document its 
supporting rationale for, and

[[Page 876]]

have appropriate governance arrangements relating to, the amount of 
total financial resources it maintains pursuant to paragraph (a) of this 
section and the amount of total liquidity resources it maintains 
pursuant to paragraph (c) of this section.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4862, Jan. 27, 2020]



Sec.  39.34  System safeguards for systemically important derivatives 
clearing organizations and subpart C derivatives clearing organizations.

    (a) Notwithstanding Sec.  39.18(c)(2), the business continuity and 
disaster recovery plan described in Sec.  39.18(c)(1) for each 
systemically important derivatives clearing organization and subpart C 
derivatives clearing organization shall have the objective of enabling, 
and the physical, technological, and personnel resources described in 
Sec.  39.18(c)(1) shall be sufficient to enable, the systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization to recover its operations and resume daily 
processing, clearing, and settlement no later than two hours following 
the disruption, for any disruption including a wide-scale disruption.
    (b) To facilitate its ability to achieve the recovery time objective 
specified in paragraph (a) of this section in the event of a wide-scale 
disruption, each systemically important derivatives clearing 
organization and subpart C derivatives clearing organization must 
maintain a degree of geographic dispersal of physical, technological and 
personnel resources consistent with the following for each activity 
necessary for the daily processing, clearing, and settlement of existing 
and new contracts:
    (1) Physical and technological resources (including a secondary 
site), sufficient to enable the entity to meet the recovery time 
objective after interruption of normal clearing by a wide-scale 
disruption, must be located outside the relevant area of the physical 
and technological resources the systemically important derivatives 
clearing organization or subpart C derivatives clearing organization 
normally relies upon to conduct that activity, and must not rely on the 
same critical transportation, telecommunications, power, water, or other 
critical infrastructure components the entity normally relies upon for 
such activities;
    (2) Personnel, who live and work outside that relevant area, 
sufficient to enable the entity to meet the recovery time objective 
after interruption of normal clearing 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;
    (3) The provisions of Sec.  39.18(d) shall apply to these resource 
requirements.
    (c) Each systemically important derivatives clearing organization 
and subpart C derivatives clearing organization must conduct regular, 
periodic tests of its business continuity and disaster recovery plans 
and resources and its capacity to achieve the required recovery time 
objective in the event of a wide-scale disruption. The provisions of 
Sec.  39.18(e) shall apply to such testing.
    (d) The Commission may, upon request, grant an entity, which has 
been designated as a systemically important derivatives clearing 
organization or that has elected to become subject to subpart C, up to 
one year to comply with any provision of this section.

[78 FR 72514, Dec. 2, 2013, as amended at 81 FR 64339, Sept. 19, 2016]



Sec.  39.35  Default rules and procedures for uncovered credit losses 
or liquidity shortfalls (recovery) for systemically important derivatives 
clearing organizations and subpart C derivatives clearing organizations.

    (a) Allocation of uncovered credit losses. Each systemically 
important derivatives clearing organization and subpart C derivatives 
clearing organization shall adopt explicit rules and procedures that 
address fully any loss arising from any individual or combined default 
relating to any clearing members' obligations to the systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization. Such rules and procedures shall address how the 
systemically important derivatives clearing organization or subpart C 
derivatives clearing organization would:

[[Page 877]]

    (1) Allocate losses exceeding the financial resources available to 
the systemically important derivatives clearing organization or subpart 
C derivatives clearing organization;
    (2) Repay any funds it may borrow; and
    (3) Replenish any financial resources it may employ during such a 
stress event, so that the systemically important derivatives clearing 
organization or subpart C derivatives clearing organization can continue 
to operate in a safe and sound manner.
    (b) Allocation of uncovered liquidity shortfalls. (1) Each 
systemically important derivatives clearing organization and subpart C 
derivatives clearing organization shall establish rules and/or 
procedures that enable it promptly to meet all of its settlement 
obligations, on a same day and, as appropriate, intraday and multiday 
basis, in the context of the occurrence of either or both of the 
following scenarios:
    (i) An individual or combined default involving one or more clearing 
members' obligations to the systemically important derivatives clearing 
organization or subpart C derivatives clearing organization; or
    (ii) A liquidity shortfall exceeding the financial resources of the 
systemically important derivatives clearing organization or subpart C 
derivatives clearing organization.
    (2) The rules and procedures described in paragraph (b)(1) of this 
section shall:
    (i) Enable the systemically important derivatives clearing 
organization or subpart C derivatives clearing organization promptly to 
meet its payment obligations in all relevant currencies;
    (ii) Be designed to enable the systemically important derivatives 
clearing organization or subpart C derivatives clearing organization to 
avoid unwinding, revoking, or delaying the same-day settlement of 
payment obligations; and
    (iii) Address the systemically important derivatives clearing 
organization's or subpart C derivatives clearing organization's process 
to replenish any liquidity resources it may employ during a stress event 
so that it can continue to operate in a safe and sound manner.



Sec.  39.36  Risk management for systemically important derivatives 
clearing organizations and subpart C derivatives clearing organizations.

    (a) Stress tests of financial resources. In addition to conducting 
stress tests pursuant to Sec.  39.13(h)(3), each systemically important 
derivatives clearing organization and subpart C derivatives clearing 
organization shall conduct stress tests of its financial resources in 
accordance with the following standards and practices:
    (1) Perform, on a daily basis, stress testing of its financial 
resources using predetermined parameters and assumptions;
    (2) Perform comprehensive analyses of stress testing scenarios and 
underlying parameters to ascertain their appropriateness for determining 
the systemically important derivatives clearing organization's or 
subpart C derivatives clearing organization's required level of 
financial resources in current and evolving market conditions;
    (3) Perform the analyses required by paragraph (a)(2) of this 
section at least monthly and when products cleared or markets served 
display high volatility or become less liquid, when the size or 
concentration of positions held by clearing members increases 
significantly, or as otherwise appropriate, evaluate the stress testing 
scenarios, models, and underlying parameters more frequently than once a 
month;
    (4) For the analyses required by paragraphs (a)(1) and (2) of this 
section, include a range of relevant stress scenarios, in terms of both 
defaulting clearing members' positions and possible price changes in 
liquidation periods. The scenarios considered shall include, but are not 
limited to, the following:
    (i) Relevant peak historic price volatilities;
    (ii) Shifts in other market factors including, as appropriate, price 
determinants and yield curves;
    (iii) Multiple defaults over various time horizons;
    (iv) Simultaneous pressures in funding and asset markets; and
    (v) A range of forward-looking stress scenarios in a variety of 
extreme but plausible market conditions.
    (5) Establish procedures for:

[[Page 878]]

    (i) Reporting stress test results to its risk management committee 
or board of directors, as applicable; and
    (ii) Using the results to assess the adequacy of, and to adjust, its 
total amount of financial resources; and
    (6) Use the results of stress tests to support compliance with the 
minimum financial resources requirement set forth in Sec.  39.11(a)(1) 
or Sec.  39.33(a), as applicable.
    (b) Sensitivity analysis of margin model. (1) Each systemically 
important derivatives clearing organization and subpart C derivatives 
clearing organization shall, at least monthly and more frequently as 
appropriate, conduct a sensitivity analysis of its margin models to 
analyze and monitor model performance and overall margin coverage. 
Sensitivity analysis shall be conducted on both actual and hypothetical 
positions.
    (2) For the purposes of this paragraph (b), a sensitivity analysis 
of a margin model includes:
    (i) Reviewing a wide range of parameter settings and assumptions 
that reflect possible market conditions in order to understand how the 
level of margin coverage might be affected by highly stressed market 
conditions. The range of parameters and assumptions should capture a 
variety of historical and hypothetical conditions, including the most 
volatile periods that have been experienced by the markets served by the 
systemically important derivatives clearing organization or subpart C 
derivatives clearing organization and extreme changes in the 
correlations between prices. The parameters and assumptions should be 
appropriate in light of the specific characteristics, considered on a 
current basis, of particular products and portfolios cleared.
    (ii) Testing of the ability of the models or model components to 
react appropriately using actual or hypothetical datasets and assessing 
the impact of different model parameter settings.
    (iii) Evaluating potential losses in clearing members' proprietary 
positions and, where appropriate, customer positions.
    (3) A systemically important derivatives clearing organization or 
subpart C derivatives clearing organization involved in activities with 
a more complex risk profile shall take into consideration parameter 
settings that reflect the potential impact of the simultaneous default 
of clearing members and, where applicable, the underlying credit 
instruments.
    (c) Stress tests of liquidity resources. Each systemically important 
derivatives clearing organization and subpart C derivatives clearing 
organization shall conduct stress tests of its liquidity resources in 
accordance with the following standards and practices:
    (1) Perform, on a daily basis, stress testing of its liquidity 
resources using predetermined parameters and assumptions;
    (2) Perform comprehensive analyses of stress testing scenarios and 
underlying parameters to ascertain their appropriateness for determining 
the systemically important derivatives clearing organization's or 
subpart C derivatives clearing organization's required level of 
liquidity resources in current and evolving market conditions;
    (3) Perform the analyses required by paragraph (c)(2) of this 
section at least monthly and when products cleared or markets served 
display high volatility or become less liquid, when the size or 
concentration of positions held by clearing members increases 
significantly, or as otherwise appropriate, evaluate its stress testing 
scenarios, models, and underlying parameters more frequently than once a 
month;
    (4) For the analyses required by paragraphs (c)(1) and (2) of this 
section, include a range of relevant stress scenarios, in terms of both 
defaulting clearing members' positions and possible price changes in 
liquidation periods. The scenarios considered shall include, but are not 
limited to, the following:
    (i) Relevant peak historic price volatilities;
    (ii) Shifts in other market factors including, as appropriate, price 
determinants and yield curves;
    (iii) Multiple defaults over various time horizons;
    (iv) Simultaneous pressures in funding and asset markets; and

[[Page 879]]

    (v) A range of forward-looking stress scenarios in a variety of 
extreme but plausible market conditions.
    (5) For the scenarios enumerated in paragraph (c)(4) of this 
section, consider the following:
    (i) All entities that might pose material liquidity risks to the 
systemically important derivatives clearing organization or subpart C 
derivatives clearing organization, including settlement banks, permitted 
depositories, liquidity providers, and other entities,
    (ii) Multiday scenarios as appropriate,
    (iii) Inter-linkages between its clearing members and the multiple 
roles that they may play in the systemically important derivatives 
clearing organization's or subpart C derivatives clearing organization's 
risk management; and
    (iv) The probability of multiple failures and contagion effect among 
clearing members.
    (6) Establish procedures for:
    (i) Reporting stress test results to its risk management committee 
or board of directors, as applicable; and
    (ii) Using the results to assess the adequacy of, and to adjust its 
total amount of liquidity resources.
    (7) Use the results of stress tests to support compliance with the 
liquidity resources requirement set forth in Sec.  39.33(c).
    (d) Margin model assessment. Each systemically important derivatives 
clearing organization and subpart C derivatives clearing organization 
shall conduct, on at least an annual basis (or more frequently if there 
are material relevant market developments), an assessment of the 
theoretical and empirical properties of its margin model for all 
products it clears.
    (e) Independent validation. Each systemically important derivatives 
clearing organization and subpart C derivatives clearing organization 
shall perform, on an annual basis, a full validation of its financial 
risk management model and its liquidity risk management model.
    (f) Custody and investment risk. Custody and investment arrangements 
of a systemically important derivatives clearing organization's and 
subpart C derivatives clearing organization's own funds and assets shall 
be subject to the same requirements as those specified in Sec.  39.15 
for the funds and assets of clearing members, and shall apply to the 
derivatives clearing organization's own funds and assets to the same 
extent as if such funds and assets belonged to clearing members.
    (g) Settlement banks. Each systemically important derivatives 
clearing organization and subpart C derivatives clearing organization 
shall:
    (1) Monitor, manage, and limit its credit and liquidity risks 
arising from its settlement banks;
    (2) Establish, and monitor adherence to, strict criteria for its 
settlement banks that take account of, among other things, their 
regulation and supervision, creditworthiness, capitalization, access to 
liquidity, and operational reliability; and
    (3) Monitor and manage the concentration of credit and liquidity 
exposures to its settlement banks.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4862, Jan. 27, 2020]



Sec.  39.37  Additional disclosure for systemically important derivatives 
clearing organizations and subpart C derivatives clearing organizations.

    In addition to the requirements of Sec.  39.21, each systemically 
important derivatives clearing organization and subpart C derivatives 
clearing organization shall:
    (a) Complete and publicly disclose its responses to the Disclosure 
Framework for Financial Market Infrastructures published by the 
Committee on Payment and Settlement Systems and the Board of the 
International Organization of Securities Commissions;
    (b)(1) Review and update its responses disclosed as required by 
paragraph (a) of this section at least every two years and following 
material changes to the systemically important derivatives clearing 
organization's or subpart C derivatives clearing organization's system 
or the environment in which it operates. A material change to the 
systemically important derivatives clearing organization's or subpart C 
derivatives clearing organization's system or the environment in which 
it

[[Page 880]]

operates is a change that would significantly change the accuracy and 
usefulness of the existing responses; and
    (2) Provide notice to the Commission of updates to its responses 
required by paragraph (b)(1) of this section following material changes 
no later than ten business days after the updates are made. Such notice 
shall be accompanied by a copy of the text of the responses that shows 
all deletions and additions made to the immediately preceding version of 
the responses;
    (c) Disclose, publicly and to the Commission, relevant basic data on 
transaction volume and values consistent with the standards set forth in 
the Public Quantitative Disclosure Standards for Central Counterparties 
published by the Committee on Payments and Market Infrastructures and 
the International Organization of Securities Commissions;
    (d) Disclose, publicly and to the Commission, rules, policies, and 
procedures concerning segregation and portability of customers' 
positions and funds, including whether each of:
    (1) Futures customer funds, as defined in Sec.  1.3 of this chapter;
    (2) Cleared Swaps Customer Collateral, as defined in Sec.  22.1 of 
this chapter; or
    (3) Foreign futures or foreign options secured amount, as defined in 
Sec.  1.3 of this chapter is:
    (i) Protected on an individual or omnibus basis or
    (ii) Subject to any constraints, including any legal or operational 
constraints that may impair the ability of the systemically important 
derivatives clearing organization or subpart C derivatives clearing 
organization to segregate or transfer the positions and related 
collateral of a clearing member's customers.

[78 FR 72514, Dec. 2, 2013, as amended at 83 FR 7996, Feb. 23, 2018; 85 
FR 4862, Jan. 27, 2020]



Sec.  39.38  Efficiency for systemically important derivatives clearing 
organizations and subpart C derivatives clearing organizations.

    (a) General rule. In order to meet the needs of clearing members and 
markets, each systemically important derivatives clearing organization 
and subpart C derivatives clearing organization should efficiently and 
effectively design its:
    (1) Clearing and settlement arrangements;
    (2) Operating structure and procedures;
    (3) Scope of products cleared; and
    (4) Use of technology.
    (b) Review of efficiency. Each systemically important derivatives 
clearing organization and subpart C derivatives clearing organization 
should establish a mechanism to review, on a regular basis, its 
compliance with paragraph (a) of this section.
    (c) Clear goals and objectives. Each systemically important 
derivatives clearing organization and subpart C derivatives clearing 
organization should have clearly defined goals and objectives that are 
measurable and achievable, including in the areas of minimum service 
levels, risk management expectations, and business priorities.
    (d) Each systemically important derivatives clearing organization 
and subpart C derivatives clearing organization shall facilitate 
efficient payment, clearing and settlement by accommodating 
internationally accepted communication procedures and standards.



Sec.  39.39  Recovery and wind-down for systemically important derivatives 
clearing organizations and subpart C derivatives clearing organizations.

    (a) Definitions. For purposes of this section:
    (1) General business risk means any potential impairment of a 
systemically important derivatives clearing organization's or subpart C 
derivatives clearing organization's financial position, as a business 
concern, as a consequence of a decline in its revenues or an increase in 
its expenses, such that expenses exceed revenues and result in a loss 
that the derivatives clearing organization must charge against capital.
    (2) Wind-down means the actions of a systemically important 
derivatives clearing organization or subpart C derivatives clearing 
organization to effect the permanent cessation or sale or transfer of 
one or more services.
    (3) Recovery means the actions of a systemically important 
derivatives

[[Page 881]]

clearing organization or subpart C derivatives clearing organization, 
consistent with its rules, procedures, and other ex-ante contractual 
arrangements, to address any uncovered credit loss, liquidity shortfall, 
capital inadequacy, or business, operational or other structural 
weakness, including the replenishment of any depleted pre-funded 
financial resources and liquidity arrangements, as necessary to maintain 
the systemically important derivatives clearing organization's or 
subpart C derivatives clearing organization's viability as a going 
concern.
    (4) Operational risk means the risk that deficiencies in information 
systems or internal processes, human errors, management failures or 
disruptions from external events will result in the reduction, 
deterioration, or breakdown of services provided by a systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization.
    (5) Unencumbered liquid financial assets include cash and highly 
liquid securities.
    (b) Recovery and wind-down plan. Each systemically important 
derivatives clearing organization and subpart C derivatives clearing 
organization shall maintain viable plans for:
    (1) Recovery or orderly wind-down, necessitated by uncovered credit 
losses or liquidity shortfalls; and, separately,
    (2) Recovery or orderly wind-down necessitated by general business 
risk, operational risk, or any other risk that threatens the derivatives 
clearing organization's viability as a going concern.
    (c)(1) In developing the plans specified in paragraph (b) of this 
section, the systemically important derivatives clearing organization or 
subpart C derivatives clearing organization shall identify scenarios 
that may potentially prevent it from being able to meet its obligations, 
provide its critical operations and services as a going concern and 
assess the effectiveness of a full range of options for recovery or 
orderly wind-down. The plans shall include procedures for informing the 
Commission, as soon as practicable, when the recovery plan is initiated 
or wind-down is pending.
    (2) A systemically important derivatives clearing organization or 
subpart C derivatives clearing organization shall have procedures for 
providing the Commission and the Federal Deposit Insurance Corporation 
with information needed for purposes of resolution planning.
    (d) Financial resources to support the recovery and wind-down plan. 
(1) In evaluating the resources available to cover an uncovered credit 
loss or liquidity shortfall as part of its recovery plans pursuant to 
paragraph (b)(1) of this section, a systemically important derivatives 
clearing organization or subpart C derivatives clearing organization may 
consider, among other things, assessments of additional resources 
provided for under its rules that it reasonably expects to collect from 
non-defaulting clearing members.
    (2) Each systemically important derivatives clearing organization 
and subpart C derivatives clearing organization shall maintain 
sufficient unencumbered liquid financial assets, funded by the equity of 
its owners, to implement its recovery or wind-down plans pursuant to 
paragraph (b)(2) of this section. In general, the financial resources 
required by Sec.  39.11(a)(2) may be sufficient, but the systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization shall analyze its particular circumstances and 
risks and maintain any additional resources that may be necessary to 
implement the plans. In allocating sufficient financial resources to 
implement the plans, the systemically important derivatives clearing 
organization or subpart C derivatives clearing organization shall comply 
with Sec.  39.11(e)(2). The plan shall include evidence and analysis to 
support the conclusion that the amount considered necessary is, in fact, 
sufficient to implement the plans.
    (3) Resources counted in meeting the requirements of Sec. Sec.  
39.11(a)(1) and 39.33 may not be allocated, in whole or in part, to the 
recovery plans required by paragraph (b)(2) of this section. Other 
resources may be allocated, in whole or in part, to the recovery plans 
required by either paragraphs (b)(1) or (2) of this section, but not 
both paragraphs, and

[[Page 882]]

only to the extent the use of such resources is not otherwise limited by 
the Act, Commission regulations, the systemically important derivatives 
clearing organization's or subpart C derivatives clearing organization's 
rules, or any contractual arrangements to which the systemically 
important derivatives clearing organization or subpart C derivatives 
clearing organization is a party.
    (e) Plan for raising additional financial resources. All 
systemically important derivatives clearing organizations and subpart C 
derivatives clearing organizations shall maintain viable plans for 
raising additional financial resources, including, where appropriate, 
capital, in a scenario in which the systemically important derivatives 
clearing organization or subpart C derivatives clearing organization is 
unable, or virtually unable, to comply with any financial resources 
requirements set forth in this part. This plan shall be approved by the 
board of directors and be updated regularly.
    (f) The Commission may, upon request, grant an entity, which has 
been designated as a systemically important derivatives clearing 
organization or that has elected to become subject to subpart C, up to 
one year to comply with any provision of this section or of Sec.  39.35.

[76 FR 69430, Nov. 8, 2011, as amended at 85 FR 4862, Jan. 27, 2020]



Sec.  39.40  Consistency with the Principles for Financial 
Market Infrastructures.

    This subpart C is intended to establish standards which, together 
with subparts A and B of this part, are consistent with section 5b(c) of 
the Act and the Principles for Financial Market Infrastructures 
published by the Committee on Payment and Settlement Systems and the 
Board of the International Organization of Securities Commissions and 
should be interpreted in that context.



Sec.  39.41  Special enforcement authority for systemically important 
derivatives clearing organizations.

    For purposes of enforcing the provisions of Title VIII of the Dodd-
Frank Act, a systemically important derivatives clearing organization 
shall be subject to, and the Commission has authority under the 
provisions of subsections (b) through (n) of section 8 of the Federal 
Deposit Insurance Act (12 U.S.C. 1818) in the same manner and to the 
same extent as if the systemically important derivatives clearing 
organization were an insured depository institution and the Commission 
were the appropriate Federal banking agency for such insured depository 
institution.



Sec.  39.42  Advance notice of material risk-related rule changes 
by systemically important derivatives clearing organizations.

    A systemically important derivatives clearing organization shall 
provide notice to the Commission 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, in accordance with the requirements 
of Sec.  40.10 of this chapter.



Sec. Sec.  39.43-39.49  [Reserved]



 Subpart D_Provisions Applicable to Derivatives Clearing Organizations 
Subject to Compliance with Core Principles Through Compliance with Home 
                        Country Regulatory Regime

    Source: 85 FR 67187, Oct. 21, 2020, unless otherwise noted.



Sec.  39.50  Scope.

    The provisions of this subpart D apply to any derivatives clearing 
organization that is registered through the process described in Sec.  
39.3(a)(3) of this part or as otherwise provided by order of the 
Commission.



Sec.  39.51  Compliance with the core principles through compliance with 
home country regulatory regime.

    (a) Eligibility. (1) A derivatives clearing organization shall be 
eligible for registration for the clearing of swaps subject to 
compliance with this subpart if:
    (i) The Commission determines that compliance by the derivatives 
clearing

[[Page 883]]

organization with its home country regulatory regime constitutes 
compliance with the core principles set forth in section 5b(c)(2) of the 
Act;
    (ii) The derivatives clearing organization is in good regulatory 
standing in its home country;
    (iii) The Commission determines the derivatives clearing 
organization does not pose substantial risk to the U.S. financial 
system; and
    (iv) A memorandum of understanding or similar arrangement 
satisfactory to the Commission is in effect between the Commission and 
the derivatives clearing organization's home country regulator, pursuant 
to which, among other things, the home country regulator agrees to 
provide to the Commission any information that the Commission deems 
appropriate to evaluate the initial and continued eligibility of the 
derivatives clearing organization for registration or to review its 
compliance with any conditions of such registration.
    (2) To the extent that the derivatives clearing organization's home 
country regulatory regime lacks legal requirements that correspond to 
those core principles less related to risk, the Commission may, in its 
discretion, grant registration subject to conditions that would address 
the relevant core principles.
    (b) Conditions. A derivatives clearing organization subject to 
compliance with this subpart shall be subject to any conditions the 
Commission may prescribe including, but not limited to:
    (1) Applicable requirements under the Act and Commission 
regulations. The derivatives clearing organization shall comply with: 
The core principles set forth in section 5b(c)(2) of the Act through its 
compliance with applicable legal requirements in its home country; and 
other requirements applicable to derivatives clearing organizations as 
specified in the derivatives clearing organization's registration order 
including, but not limited to, section 4d(f) of the Act, parts 1, 22, 
and 45 of this chapter, subpart A of this part and Sec.  39.15.
    (2) Open access. The derivatives clearing organization shall have 
rules with respect to swaps to which one or more of the counterparties 
is a U.S. person that:
    (i) Provide that all swaps with the same terms and conditions, as 
defined by product specifications established under the derivatives 
clearing organization's rules, submitted to the derivatives clearing 
organization for clearing are economically equivalent within the 
derivatives clearing organization and may be offset with each other 
within the derivatives clearing organization, to the extent offsetting 
is permitted by the derivatives clearing organization's rules; and
    (ii) Provide that there shall be non-discriminatory clearing of a 
swap executed bilaterally or on or subject to the rules of an 
unaffiliated electronic matching platform or trade execution facility.
    (3) Consent to jurisdiction; designation of agent for service of 
process. The derivatives clearing organization shall:
    (i) Consent to jurisdiction in the United States;
    (ii) Designate, authorize, and identify to the Commission, an agent 
in the United States who shall accept any notice or service of process, 
pleadings, or other documents, including any summons, complaint, order, 
subpoena, request for information, or any other written or electronic 
documentation or correspondence issued by or on behalf of the Commission 
or the United States Department of Justice to the derivatives clearing 
organization, in connection with any actions or proceedings brought 
against, or investigations relating to, the derivatives clearing 
organization or any of its U.S. clearing members; and
    (iii) Promptly inform the Commission of any change in its designated 
and authorized agent.
    (4) Compliance. The derivatives clearing organization shall comply, 
and shall demonstrate compliance as requested by the Commission, with 
any condition of its registration.
    (5) Inspection of books and records. The derivatives clearing 
organization shall make all documents, books, records, reports, and 
other information related to its operation as a derivatives clearing 
organization open to inspection and copying by any representative of the 
Commission; and in response to a request by any representative of the 
Commission, the derivatives clearing

[[Page 884]]

organization shall, promptly and in the form specified, make the 
requested books and records available and provide them directly to 
Commission representatives.
    (6) Representation of good regulatory standing. On an annual basis, 
within 60 days following the end of its fiscal year, a derivatives 
clearing organization shall request and the Commission must receive from 
a home country regulator a written representation that the derivatives 
clearing organization is in good regulatory standing.
    (7) Other conditions. The Commission may condition compliance with 
this subpart on any other facts and circumstances it deems relevant.
    (c) General reporting requirements. (1) A derivatives clearing 
organization shall provide to the Commission the information specified 
in this paragraph and any other information that the Commission deems 
necessary, including, but not limited to, information for the purpose of 
the Commission evaluating the continued eligibility of the derivatives 
clearing organization for compliance with this subpart, reviewing 
compliance by the derivatives clearing organization with any conditions 
of its registration, or conducting oversight of U.S. clearing members, 
and the swaps that are cleared by such persons through the derivatives 
clearing organization. Information provided to the Commission under this 
paragraph shall be submitted in accordance with Sec.  39.19(b).
    (2) Each derivatives clearing organization shall provide to the 
Commission the following information:
    (i) A report compiled as of the end of each trading day and 
submitted to the Commission by 10 a.m. U.S. central time on the 
following business day, containing with respect to swaps:
    (A) Total initial margin requirements for all clearing members;
    (B) Initial margin requirements and initial margin on deposit for 
each U.S. clearing member, by house origin and by each customer origin, 
and by each individual customer account; and
    (C) Daily variation margin, separately listing the mark-to-market 
amount collected from or paid to each U.S. clearing member, by house 
origin and by each customer origin, and by each individual customer 
account.
    (ii) A report compiled as of the last day of each fiscal quarter of 
the derivatives clearing organization and submitted to the Commission no 
later than 17 business days after the end of the derivatives clearing 
organization's fiscal quarter, containing a list of U.S. clearing 
members, with respect to the clearing of swaps, as of the last day of 
the fiscal quarter.
    (iii) Prompt notice regarding any change in the home country 
regulatory regime;
    (iv) As available to the derivatives clearing organization, any 
examination report or examination findings by a home country regulator, 
and notify the Commission within five business days after it becomes 
aware of the commencement of any enforcement or disciplinary action or 
investigation by a home country regulator;
    (v) Immediate notice of any change with respect to the derivatives 
clearing organization's licensure, registration, or other authorization 
to act as a derivatives clearing organization in its home country;
    (vi) In the event of a default by a clearing member, with such event 
of default determined in accordance with the rules of the derivatives 
clearing organization, immediate notice of the default including the 
amount of the clearing member's financial obligation; provided, however, 
if the defaulting clearing member is a U.S. clearing member, the notice 
shall also include the name of the U.S. clearing member and a list of 
the positions held by the U.S. clearing member; and
    (vii) Notice of action taken against a U.S. clearing member by a 
derivatives clearing organization, no later than two business days after 
the derivatives clearing organization takes such action against a U.S. 
clearing member.
    (d) Modification of registration upon Commission initiative. (1) The 
Commission may, in its discretion and upon its own initiative, modify 
the terms and conditions of an order of registration subject to 
compliance with this subpart if the Commission determines that there are 
changes to or omissions in facts or circumstances pursuant to which the 
order was issued, or that any

[[Page 885]]

of the terms and conditions of its order have not been met, including, 
but not limited to, the requirement that:
    (i) Compliance with the derivatives clearing organization's home 
country regulatory regime satisfies the core principles set forth in 
section 5b(c)(2) of the Act;
    (ii) The derivatives clearing organization is in good regulatory 
standing in its home country; or
    (iii) The derivatives clearing organization does not pose 
substantial risk to the U.S. financial system.
    (2) The Commission shall provide written notification to a 
derivatives clearing organization that it is considering whether to 
modify an order of registration pursuant to this paragraph and the basis 
for that consideration.
    (3) The derivatives clearing organization may respond to the 
notification in writing no later than 30 business days following receipt 
of the notification, or at such later time as the Commission permits in 
writing.
    (4) Following receipt of a response from the derivatives clearing 
organization, or after expiration of the time permitted for a response, 
the Commission may:
    (i) Issue an order requiring the derivatives clearing organization 
to comply with all requirements applicable to derivatives clearing 
organizations in the Act and this chapter, effective as of a date to be 
specified therein. The specified date shall be intended to provide the 
derivatives clearing organization with a reasonable amount of time to 
come into compliance with the Act and Commission regulations or request 
a vacation of registration in accordance with Sec.  39.3(f);
    (ii) Issue an amended order of registration that modifies the terms 
and conditions of the order; or
    (iii) Provide written notification to the derivatives clearing 
organization that the order of registration will remain in effect 
without modification to its terms and conditions.

[[Page 886]]



 Sec. Appendix A to Part 39--Form DCO Derivatives Clearing Organization 
                      Application for Registration
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[85 FR 4863, Jan. 27, 2020]

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           Sec. Appendix B to Part 39--Subpart C Election Form
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[85 FR 4891, Jan. 27, 2020]

[[Page 922]]



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 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

[[Page 923]]

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:
    (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) Speculative position limits, position accountability 
standards, and position reporting requirements, including an indication 
as to whether the contract meets the definition of a referenced contract 
as defined in Sec.  150.1 of

[[Page 924]]

this chapter, and, if so, the name of either the core referenced futures 
contract or other referenced contract upon which the new referenced 
contract submitted under this part 40 is based.
    (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;
    (vi) Any price limits, trading halts, or circuit breaker provisions, 
and procedures for the establishment of daily settlement prices;
    (vii) Speculative position limits, position accountability 
standards, and position reporting requirements, including an indication 
as to whether the contract meets the definition of economically 
equivalent swap as defined in Sec.  150.1 of this chapter, and, if so, 
the name of either the core referenced futures contract or referenced 
contract, as applicable, to which the swap submitted under this part 40 
is economically equivalent.
    (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.

[76 FR 44790, July 27, 2011, as amended at 86 FR 3463, Jan. 14, 2021]



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 under Sec.  40.3 of 
this part or that remains dormant subsequent to being submitted under 
this section or approved under Sec.  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:

[[Page 925]]

    (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 to Sec.  
40.8(c)(4);
    (vii) A request for confidential treatment, if appropriate, as 
permitted under Sec.  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.
    (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 in Sec.  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, 
under Sec.  40.2(a)(1)-(2), Sec.  40.2(a)(3)(i), Sec.  40.2(a)(3)(iv), 
and Sec.  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 in Sec.  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 to Sec.  
40.2 or Sec.  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 under Sec.  40.2(d)(1) and to submit each 
individual swap or certain individual swaps within the submission for 
Commission review pursuant to Sec.  40.2 or Sec.  40.3

[[Page 926]]



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 or Sec.  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 in Sec.  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 under Sec.  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 consistent with any determination made pursuant to Sec.  
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

[[Page 927]]

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 
of Sec.  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 in Sec.  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:
    (1) Changes that are enumerated in Sec.  40.6(d)(2) may be 
implemented without prior approval or certification if implemented 
pursuant to the notification procedures of Sec.  40.6(d);
    (2) Changes that are enumerated in Sec.  40.6(d)(3)(ii) may be 
implemented without prior approval or certification or notification as 
permitted pursuant to Sec.  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 of Sec.  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 of Sec.  
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 
of Sec.  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

[[Page 928]]

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 to Sec.  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 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 of Sec.  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

[[Page 929]]

under Sec.  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 in Sec.  
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 under Sec.  
40.6(a) of this section.
    (g) Expedited approval. Notwithstanding the provisions of paragraph 
(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) 
and Sec.  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 under Sec.  40.5 of this part, 
or that is submitted under Sec.  40.10 of this part, except as otherwise 
provided by Sec.  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 to Sec.  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

[[Page 930]]

entity's implementation of the rule or rule amendment.
    (4) The Commission has not stayed the submission pursuant to Sec.  
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 to Sec.  40.6(a);
    (ii) Rules or rule amendments implemented under procedures of the 
governing board to respond to an emergency as defined in Sec.  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, 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 in Sec.  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 to Sec.  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

[[Page 931]]

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 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

[[Page 932]]

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;
    (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 of Sec.  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 of Sec.  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 
Risk 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

[[Page 933]]

Counsel or the General Counsel's delegate:
    (i) To request, pursuant to Sec.  40.3(c)(2) or Sec.  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 to Sec.  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 in Sec.  
40.10.
    (2) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Clearing and Risk 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 to Sec.  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 to Sec.  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 to Sec.  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 Risk 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 to Sec.  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 to Sec.  40.6(c) has been 
stayed, because 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 Risk, 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 under Sec.  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 under Sec.  40.4(b)(5) of this part is not material (in 
which case it may be reported pursuant to the provisions of Sec.  
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 Risk 
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 and Sec.  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

[[Page 934]]

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 Risk 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.

[76 FR 44790, July 27, 2011, as amended at 78 FR 22419, Apr. 16, 2013]



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) [Reserved]
    (c) A registered entity's filing of new products pursuant to the 
self-certification procedures of Sec.  40.2 of this part, new products 
for Commission review and approval pursuant to Sec.  40.3 of this part, 
new rules and rule amendments for Commission review and approval 
pursuant to Sec.  40.4 or Sec.  40.5 of this part, and new rules and 
rule amendments pursuant to the self-certification procedures of Sec.  
40.6 and Sec.  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 by Sec.  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 by Sec.  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 by Sec.  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.

[[Page 935]]

    (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 to Sec. Sec.  40.2, 40.3, 40.5 and 40.6 of this part shall be 
made publicly available at the time of submission.

[76 FR 44790, July 27, 2011, as amended at 80 FR 59578, Oct. 2, 2015]



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 
of Sec.  40.6(a)(1) and the Web site publication requirements of Sec.  
40.6(a)(2).
    (1) The notice of a proposed change shall provide the information 
required to be submitted under Sec.  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 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 this Sec.  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

[[Page 936]]

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 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

[[Page 937]]

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 in Sec.  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 under Sec.  40.2 or Sec.  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 in Sec.  40.11(a)(1) or Sec.  
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 of Sec.  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 
in Sec.  40.11(a)(1) or Sec.  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 under Sec.  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.



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 of Sec.  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 to Sec.  
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 in Sec.  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

[[Page 938]]

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 in Sec.  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 under Sec.  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 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).
    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 under Sec.  
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 in Sec.  40.8 and, where appropriate, Sec.  145.9 
of this chapter, and will not substitute for notice or full compliance 
with such requirements.

[80 FR 59578, Oct. 2, 2015]

[[Page 939]]



                              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 941]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2023)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 942]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)
        LX  Federal Communications Commission (Parts 6000--6099)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)

[[Page 943]]

      XXVI  Department of Defense (Parts 3600--3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)

[[Page 944]]

    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Parts 10100--10199)
       CII  U.S. Office of Special Counsel (Parts 10200--10299)
       CIV  Office of the Intellectual Property Enforcement 
                Coordinator (Part 10400--10499)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)

[[Page 945]]

      VIII  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  [Reserved]
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]

[[Page 946]]

      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)
         L  Rural Business-Cooperative Service, and Rural 
                Utilities Service, Department of Agriculture 
                (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Agricultural Marketing Service (Fair Trade Practices 
                Program), Department of Agriculture (Parts 200--
                299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  [Reserved]
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  (Parts 900--999)[Reserved]

[[Page 947]]

         X  Consumer Financial Protection Bureau (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research, Department of the 
                Treasury (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        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
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)

[[Page 948]]

      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
        XV  Office of the Under-Secretary for Economic Affairs, 
                Department of Commerce (Parts 1500--1599)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

[[Page 949]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  United States Agency for Global Media (Parts 500--599)
       VII  U.S. International Development Finance Corporation 
                (Parts 700--799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       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)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 950]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       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
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      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)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799) 
                [Reserved]
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]

[[Page 951]]

        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--799)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 952]]

        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
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 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

[[Page 953]]

         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Department of Defense, Defense Logistics Agency (Parts 
                1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Great Lakes St. Lawrence Seaway Development 
                Corporation, Department of Transportation (Parts 
                400--499)

[[Page 954]]

                          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
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical, and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)

[[Page 955]]

       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)
        IX  Federal Permitting Improvement Steering Council (Part 
                1900)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)

[[Page 956]]

       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Federal Acquisition Supply Chain Security
       201  Federal Acquisition Security Council (Parts 201-1--
                201-99).
            Subtitle E [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   II--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

[[Page 957]]

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

[[Page 958]]

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)

[[Page 959]]

        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        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
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 960]]

        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)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 961]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2023)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

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     5, 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, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  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
  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
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force, Department of                          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
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 962]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
  Federal Acquisition Regulation                  48, 19
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Affairs, Office of the Under-          15, XV
       Secretary for
  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; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
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 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
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense, Department of                            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

[[Page 963]]

  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy, Department of                             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
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
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 Affairs, Office of the Under-Secretary   15, XV
     for
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
  Career, Technical, and Adult Education, Office  34, IV
       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
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 Policy, National Commission for        1, IV
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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, II
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
     States
[[Page 964]]

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 Acquisition Security Council              41, 201
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 2, LX; 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 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 Permitting Improvement Steering Council   40, IX
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 of                          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
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

[[Page 965]]

  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
Great Lakes St. Lawrence Seaway Development       33, IV
     Corporation
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
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, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  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; 5, XXXVI; 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
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II

[[Page 966]]

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
Intellectual Property Enforcement Coordinator,    5, CIV
     Office of
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  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
  Safety and Environmental Enforcement, Bureau    30, II
       of
  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 Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
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
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 of                            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
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Federal Acquisition Regulation                  48, 29

[[Page 967]]

  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
  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, VI
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
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
Military Compensation and Retirement              5, XCIX
     Modernization Commission
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, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 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 Geospatial-Intelligence Agency           32, I
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 of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
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; 47, II

[[Page 968]]

National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resource Revenue, Office of               30, XII
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               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
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
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, IV, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
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
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Contracts, Department of Labor             41, 50
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
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 Utilities Service                           7, XVII, XVIII, XLII, L
Safety and Environmental Enforcement, Bureau of   30, II
Science and Technology Policy, Office of          32, XXIV; 47, II
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 of                              2, VI; 22, I; 28, XI

[[Page 969]]

  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
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  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
  Great Lakes St. Lawrence Seaway Development     33, IV
       Corporation
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  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 of the                       2, X; 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
Truman, Harry S. Scholarship Foundation           45, XVIII
United States Agency for Global Media             22, V
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
U.S. Office of Special Counsel                    5, CII
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   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
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 971]]



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, 2018 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.govinfo.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.govinfo.gov.

                                  2018

17 CFR
                                                                   83 FR
                                                                    Page
Chapter I
1.3 Amended; interim................................................7981
    Amended........................................................56689
1.10 (j)(3) amended; interim........................................7995
1.17 (b)(4)(ii), (5), (10), and (c)(5)(xiii)(C) amended; interim 
                                                                    7995
1.33 (a)(1)(iii) and (g)(2) amended; interim........................7995
    (a)(2) and (b)(3) introductory text revised....................30534
1.46 (d)(2) amended; interim........................................7995
1.52 (a)(2) amended; interim........................................7995
1.55 (f) amended; interim...........................................7995
1.59 (a)(1) amended; interim........................................7995
1.63 (a)(1) amended; interim........................................7995
1.64 (a)(1) amended; interim........................................7995
1.69 (a)(7) amended; interim........................................7995
3 Authority citation revised........................................1545
3.1 (j) added......................................................43522
3.3 (d), (e), and (f) revised......................................43522
3.10 (c)(1), (2)(i), (3)(i) and (4)(ii) amended; interim............7995
3.11 (b) revised....................................................1545
3.12 (h)(1)(iv) amended; interim....................................7995
3.21 (c)(2)(i) amended; interim.....................................7995
3.31 (a)(1), (3)(i), (b) and (c)(1) revised.........................1545
3 Appendix C added.................................................43523
4.5 (c)(2)(iii)(A) and (B) introductory text revised; interim.......7995
5.5 (a)(1)(ii) amended; interim.....................................7996
9 Authority citation revised........................................1546
    Policy statement................................................1548
9.1 (b) and (c) revised.............................................1546
9.2 (b), (c), (f) and (k) revised...................................1546
9.3 Revised.........................................................1546
9.4 (a), (b) and (c) revised........................................1546
9.8 (a)(1) revised..................................................1547
9.9 (b)(3) and (4) revised..........................................1547
9.11 Revised........................................................1547
9.12 Revised........................................................1547
9.13 Revised........................................................1548
9.24 (a)(2) revised.................................................1548
9.31 Revised........................................................1548
15.00 (e) and (n) amended; interim..................................7996
15.01 (d)(1) amended; interim.......................................7996
18 Appendix A amended; interim......................................7996
19 Heading revised; interim.........................................7996
19.00 (a)(1) and (b)(1) amended; interim............................7996
23.22 (a) amended; interim..........................................7996
23.151 Amended.....................................................60346
23.161 (d) added...................................................60346
30.1 (c), (e) and (f) amended; interim..............................7996
30.4 (a) amended; interim...........................................7996
30 Appendix B amended; interim......................................7996
    Policy statement...............................................23577

[[Page 972]]

38 Appendix B amended; interim......................................7996
39.1 Amended; interim...............................................7996
39.2 Amended; interim...............................................7996
39.4 (e) amended; interim...........................................7996
39.9 Amended; interim...............................................7996
39.30 (a) amended; interim..........................................7996
39.37 (d)(1) and (3) amended; interim...............................7996

                                  2019

17 CFR
                                                                   84 FR
                                                                    Page
Chapter I
Chapter I Policy statement..................................12074, 12908
1.3 amended........................................................12466
1.52 (c)(2)(ii) through (v), (d)(2)(ii)(F) through (I), and (iii) 
        revised; (c)(2)(vi), (vii), (d)(2)(ii)(J), and (K) removed
                                                                   12892
4.5 (a)(1), (b)(1), (c)(2) introductory text, (i), (ii), and (iii) 
        introductory text revised..................................67353
4.7 (b)(1) through (5) redesignated as (b)(2) through (6); new 
        (b)(1) added; (b) introductory text and new (3) revised....67367
4.13 (a)(3)(i), (iii)(C), (D), (b)(1) introductory text, and 
        (c)(1) introductory text revised; (a)(3)(iii)(E) removed; 
        (a)(6) redesignated as (a)(7); new (a)(6) added............67368
4.14 (a)(11) added.................................................67368
4.27 Heading and (b) revised.......................................67354
13 Revised.........................................................68789
23.161 (d) revised; interim........................................12071
23.700--23.704 (Subpart L) Revised.................................12905

                                  2020

17 CFR
                                                                   85 FR
                                                                    Page
Chapter I
1 Policy statement.................................................37734
1.10 (f)(1) introductory text and (h) revised......................57543
1.12 (a) introductory text, (1), (b)(3), and (4) revised; (b)(5) 
        added......................................................57543
1.16 (f)(1)(i)(B) and (ii)(B) revised..............................57543
1.17 (a)(1)(i)(A), (B), (b)(9), (10), (c)(1)(i), (2)(i), (ii)(B), 
        (D), (5)(viii), (ix), (x), (xiv), (6)(i), (iv)(A), and 
        (g)(1) revised; (a)(1)(ii), (b)(11), (c)(2)(ii)(G), 
        (5)(iii), (iv), (xv), (xvi), and (6)(v) added..............57544
1.20 (d)(1), (7), and (8) introductory text revised.................4850
1.59 (a)(1) revised.................................................4850
1.63 (a)(1) revised.................................................4850
1.64 (a)(1) revised.................................................4850
1.65 (b) introductory text, (d), and (e) revised...................57547
1.69 (a)(7) revised.................................................4850
3.10 (c) revised...................................................78738
4.13 (b)(1)(ii) revised; (b)(1)(iii) redesignated as (b)(1)(iv); 
        new (b)(1)(iii) added......................................40890
4.27 (c) and (d) revised...........................................71789
4 Appendix A revised...............................................71789
23.23 Added........................................................56997
    (h)(3)(i) correctly amended....................................69499
23.100 Added.......................................................57547
23.101 Added.......................................................57548
23.102 Added.......................................................57550
23.103 Added.......................................................57551
23.104 Added.......................................................57551
23.105 Added.......................................................57551
23.106 Added.......................................................57556
23.100--23.199 (Subpart E) Appendix A added........................57556
23.100--23.199 (Subpart E) Appendix B added........................57561
23.100--23.199 (Subpart E) Appendix C added........................57565
23.151 Amended.....................................................27678
23.157 (c)(1) revised..............................................27678
23.161 (a)(1)(iii), (3)(iii), (4)(iii), (5)(iii), and (6) revised; 
        (a)(7) added...............................................19882
    (a)(6) revised; interim........................................41352
    (a)(7) revised.................................................71251
30 Order...............................74861, 74864, 74867, 74869, 74872
30.10 (c) added....................................................15363
36 Revised.........................................................82328
37.3 (a)(4) added..................................................82329
37.9 (d) added.....................................................44707
    (d) redesignated as (f); new (d) and (e) added; (a)(2)(i) 
introductory text and new (f) revised..............................82329
39 Authority citation revised......................................67186
39.2 Revised........................................................4850
    Amended........................................................67186

[[Page 973]]

39.3 (a), (b)(2)(i), and (c) through (f) revised; (g) added.........4851
    (a)(3) through (6) redesignated as (a)(4) through (7); new 
(a)(3) added; new (a)(5) and (6) revised...........................67186
39.4 (a) and (e) revised............................................4852
    (c) through (e) redesignated as (d) through (f); new (c) added
                                                                   67187
39.9 Revised.......................................................67187
39.10 (c)(1)(ii), (iv), (3) introductory text, (i), (ii) 
        introductory text, (A), (v), (4)(i), and (ii) revised; (d) 
        added.......................................................4852
39.11 (a) introductory text, (2), (b)(1) introductory text, (i) 
        through (v), (c), (d)(2)(iv), (e)(1)(ii)(A), (B), (C), 
        (iii), (2), (3), (4)(i), (f)(1) introductory text, (i)(A), 
        (ii), (iii), (2), (3), and (4) revised; (e)(1)(iv) and 
        (f)(1)(iv) added............................................4853
    (b)(1)(vi) removed; (e)(4)(ii) and (iii) added.................35805
39.12 (a) introductory text, (1)(i), (4), (5), (6), (b)(1) 
        introductory text, and (2) revised..........................4855
39.13 (b), (f), (g)(2)(i), (3), (4)(i) introductory text, (8), 
        (12), (h)(1)(i) introductory text, (5)(i) introductory 
        text, and (ii) revised; (g)(7)(iii), (h)(3)(iii), and (i) 
        added.......................................................4855
    (g)(8)(iii) added..............................................35805
39.15 (b) heading, (1), (2) heading, (2)(i) introductory text, 
        (A), (D), (F), (H) through (L), (ii), (iii), (d) 
        introductory text, and (e) revised..........................4856
39.16 (a), (b), (c)(1), (2) introductory text, (ii), (iii)(C), and 
        (d)(1) revised; (e) added...................................4857
39.17 (a) introductory text, (1), (3), and (b) revised..............4858
39.19 (a), (b), (c) introductory text, (1) heading, (i), (ii) 
        introductory text, (C), and (2) through (5) revised.........4858
39.20 (a) introductory text and (b)(2) revised......................4860
39.21 (a), (b), (c) introductory text, and (3) through (7) 
        revised; (c)(8) and (9) added; (d) removed..................4861
39.22 Revised.......................................................4861
39.24 Added.........................................................4861
39.25 Added.........................................................4862
39.26 Added.........................................................4862
39.27 (c)(3) added..................................................4862
39.32 Removed.......................................................4862
39.33 (a)(1) and (c)(1)(i) revised; (d)(5) added....................4862
39.36 (a)(5)(ii), (6), (b)(2)(ii), (d), and (e) revised.............4862
39.37 (b) and (c) revised...........................................4862
39.39 (a)(2) revised................................................4862
39.50--39.51 (Subpart D) Added.....................................67187
39 Appendix A revised...............................................4863
39 Appendix B revised...............................................4891

                                  2021

17 CFR
                                                                   86 FR
                                                                    Page
Chapter I
1.3 Amended.........................................................3454
1.25 (a)(2)(ii)(B) revised.........................................19419
1.41 Added.........................................................19419
1.42 Added.........................................................19419
1.43 Added.........................................................19419
1.55 (d) and (f) revised; authority citation following (h) and (k) 
        heading removed; (p) added.................................19419
1.65 (a)(3) introductory text and (iii) revised....................19420
4.5 (c)(2)(iii)(A) revised.........................................19420
4.12 Heading and (b)(1)(i)(C) revised..............................19420
4.13 (a)(3)(ii)(A) revised.........................................19421
12.2 Revised.......................................................64350
12.5 (a) revised; undesignated text following (a) removed..........64351
12.6 (a) revised...................................................64352
12.7 (c)(1) revised................................................64352
12.8 Revised.......................................................64352
12.9 (a)(1) and (b) revised........................................64352
12.10 (b) and (c) revised..........................................64352
12.11 (d)(1), (2) introductory text, (i), and (iii) revised........64352
12.12 (b) introductory text, (1), and (3) revised..................64352
12.13 (b)(2) revised...............................................64353
12.14 Revised......................................................64353
12.15 (b) revised..................................................64353
12.17 Revised......................................................64353
12.18 (b) through (d) revised......................................64353
12.20 (a) and (c) revised..........................................64353
12.21 (a) revised..................................................64353
12.22 (b) revised..................................................64353
12.23 (b) revised..................................................64354
12.24 (a)(1)(iii) and (e) revised..................................64354
12.25 (b) and (c) revised..........................................64354
12.26 Revised......................................................64354

[[Page 974]]

12.30 (c) revised..................................................64355
12.33 (b) through (d) revised......................................64355
12.34 Revised......................................................64355
12.35 Introductory text revised....................................64356
12.101 Heading and introductory text revised.......................64356
12.102 Revised.....................................................64356
12.106 (a) revised.................................................64356
12.200 Revised.....................................................64356
12.201 Heading, introductory text, (a), and (d) revised............64356
12.202 Revised.....................................................64356
12.204 (a) and (b) revised.........................................64356
12.205 (a), (b), (c)(1), and (2) revised...........................64357
12.206 (a) through (g) redesignated as (a)(1) through (7); 
        introductory text and undesignated text following new 
        (a)(7) redesignated as (a) introductory text and (b); new 
        (a) introductory text and new (b) revised..................64357
12.207 (a) through (d) revised.....................................64357
12.208 (b) revised.................................................64357
12.209 Revised.....................................................64358
12.210 (a), (b) introductory text, (1), and (c) revised............64358
12.303 (a) through (g) redesignated as (a)(1) through (7); 
        introductory text and undesignated text following new 
        (a)(7) redesignated as (a) introductory text and (b); new 
        (a) introductory text and new (b) revised..................64358
12.304 Introductory text and (e) revised...........................64358
12.305 Revised.....................................................64359
12.307 (a) and (b) revised.........................................64359
12.308 (b) and (c)(1) revised......................................64359
12.309 (a)(1), (d), and (e) revised................................64359
12.310 (a), (b), and (d) revised...................................64359
12.311 Revised.....................................................64359
12.312 (b) introductory text, (2), (d)(1), (2), (4), and (g) 
        revised....................................................64360
12.313 (a)(2), (b)(3), (c)(1), (2), and (3)(ii) revised............64360
12.314 (a) and (b)(1) revised......................................64361
12.402 Revised.....................................................64361
12.405 Revised.....................................................64361
12.407 (c) introductory text and (d) revised.......................64361
12.408 Introductory text, (a)(2) introductory text, (ii), (iii), 
        (3), (4), (6), and (b) revised.............................64361
15.00 (p)(1) revised................................................3454
15.01 (d) revised...................................................3454
15.02 Revised.......................................................3454
17.00 (b) introductory text revised.................................3455
17.03 (i) added.....................................................3455
19 Revised..........................................................3455
23.151 Amended.................................................246, 6857
23.152 (b)(3) revised...............................................6857
23.153 (c) revised..................................................6857
23.154 (a)(5) added..................................................246
23.158 (a) revised..................................................6858
23.500 (g) revised; interim..........................................225
23.500--23.506 (Subpart I) Appendix 1 added; interim.................225
36.1 (b) and (c) added..............................................9001
37.205 (a) revised; (b)(2)(iv) removed; eff. 5-12-21................9247
37.1300--37.1307 (Subpart N) Revised; eff. 5-12-21..................9247
37.1501 Revised; eff. 5-12-21.......................................9248
37 Appendix B amended; eff. 5-12-21.................................9249
38.251 (e) through (g) added........................................2071
38 Appendix B amended...............................................2072
39.1 Revised.........................................................965
39.2 Amended.........................................................965
39.6 Added...........................................................965
39.9 Revised.........................................................968
40.1 (j)(1)(vii) and (2)(vii) revised...............................3463

                                  2022

17 CFR
                                                                   87 FR
                                                                    Page
Chapter I
1 Notification.....................................................36407
    Correction.....................................................41246

                                  2023

   (Regulations published from January 1, 2023, through April 1, 2023)

17 CFR
                                                                   88 FR
                                                                    Page
Chapter I
23.202 (a)(2)(iii), (v), and (vii) revised..........................8753
23.205 (a) revised..................................................8753
23.500--23.506 (Subpart I) Appendix 1 amended.......................8753

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