[Federal Register Volume 63, Number 22 (Tuesday, February 3, 1998)]
[Notices]
[Pages 5505-5506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2622]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION


Application of Cantor Financial Futures Exchange as a Contract 
Market in US Treasury Bond, Ten-Year Note, Five-Year Note and Two-Year 
Note Futures Contracts

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of the terms and conditions of proposed 
commodity futures contracts.

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

SUMMARY: The Cantor Financial Futures Exchange, Inc. (``CFFE'' or 
``Exchange'') has applied for designation as a contract market for the 
computer-based trading of US Treasury bond, ten-year note, five-year 
note and two-year note futures contracts. CFFE has been formed pursuant 
to an agreement between the New York Cotton Exchange (``NYCE'') and 
CFFE, LLC (``Cantor'') which is wholly owned by Cantor Fitzgerald, LP. 
Under the agreement, CFFE trading would be conducted on the same 
trading system that another Cantor Fitzgerald, LP subsidiary, Cantor 
Fitzgerald Securities, LLC, currently operates as an interdealer-broker 
in the US Treasury securities market. CFFE's regulatory 
responsibilities would be handled by NYCE. CFFE has not previously been 
approved by the Commission as a contract market in any commodity. 
Accordingly, in addition to the terms and conditions of the proposed 
futures contracts, the Exchange has submitted to the Commission a 
proposed trade-matching algorithm; proposed rules pertaining to CFFE 
governance, disciplinary and arbitration procedures, trading standards 
and recordkeeping requirements; and various other materials to meet the 
requirements for a board of trade seeking initial designation as a 
contract market. CFFE trades would be cleared and settled by a newly-
formed clearing organization--the New York Board of Clearing, Inc. 
(``NYBOC''), a wholly-owned subsidiary of the Commodity Clearing 
Corporation (``CCC'') which is wholly owned by NYCE. NYBOC has 
submitted its proposed rules to the Commission in conjunction with 
CFFE's designation application. Acting pursuant to the authority 
delegated by Commission Regulation 140.96, the Division of Economic 
Analysis and the Division of Trading and Markets have determined to 
publish CFFE's proposal for public comment. The Divisions believe that 
publication of the proposal for comment at this time is in the public 
interest, will assist the Commission in considering the views of 
interested persons, and is consistent with the purposes of the 
Commodity Exchange Act. The Divisions seek comment regarding all 
aspects of CFFE's application and addressing any issues commenters 
believe the Commission should consider.

DATES: Comments must be received on or before April 6, 1998.

FOR FURTHER INFORMATION CONTACT: With respect to questions about the 
terms and conditions of CFFE's proposed futures contracts, please 
contact Thomas M. Leahy of the Division of Economic Analysis, Commodity 
Futures Trading Commission, at Three Lafayette Centre, 1155 21st 
Street, NW, Washington, DC 20581; Telephone number: (202) 418-5278; 
Facsimile number: (202) 418-5527; or Electronic mail: [email protected]. 
With respect to questions about any of CFFE's other proposed rules or 
NYBOC's proposed rules, please contact David Van Wagner of the Division 
of Trading and Markets at the same address; Telephone number: (202) 
418-5481; Facsimile number: (202) 418-5536; or Electronic mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Description of Proposal

    CFFE, a New York not-for-profit corporation, has applied for 
designation as a contract market for the computer-based trading of US 
Treasury bond, ten-year note, five-year note and two-year note futures 
contracts. CFFE has not been approved previously by the Commission as a 
contract market in any commodity. Thus, in addition to the terms and 
conditions of the proposed futures contracts, the Exchange has 
submitted, among other things, proposed trade-matching algorithm 
procedures and rules pertaining to CFFE governance, disciplinary and 
arbitration procedures, trading standards and recordkeeping 
requirements.
    CFFE would be wholly-owned by CFFE Regulatory Services, LLC. Equity 
interest in CFFE Regulatory Services, LLC would be held entirely by 
NYCE (ten percent equity interest) and NYCE's members (ninety percent 
equity interest).\1\ CFFE's contracts would trade over a computer-based 
trading system maintained by Cantor Fitzgerald Securities, LLC (the 
``Cantor System''). Cantor Fitzgerald Securities, LLC is an 
interdealer-broker in the US Treasury securities market and it 
currently operates the Cantor System to match orders placed with it by 
broker-dealers and other customers. Although neither Cantor nor any of 
its affiliates would have any equity interest in CFFE, Cantor would 
collect a transaction fee for each trade executed at CFFE through the 
Cantor System.
---------------------------------------------------------------------------

    \1\ NYCE would have the sole voting interest in CFFE Regulatory 
Services, LLC.
---------------------------------------------------------------------------

    CFFE would be governed by a thirteen-person board of directors--
eight of whom would be appointed by Cantor and five of whom would be 
appointed by NYCE.\2\ NYCE would be responsible for providing all of 
CFFE's regulatory services including its compliance, surveillance, 
arbitration and disciplinary programs.\3\ Accordingly, all CFFE rule 
changes that involved regulatory procedures would have to be approved 
by NYCE's Board of Managers in addition to CFFE's board.
---------------------------------------------------------------------------

    \2\ Three of the eight CFFE directors appointed by Cantor would 
be public directors who could not be NYCE members or be employed by 
or affiliated with NYCE or Cantor.
    \3\ In this regard, CFFE's proposed rules would incorporate by 
reference certain NYCE rules, such as its rules governing 
arbitration and disciplinary procedures.
---------------------------------------------------------------------------

    CFFE proposes to trade each of its four contracts from 7:30 a.m. to 
5:30 p.m., New York time, on each business day. Under the proposal, all 
CFFE trading would be conducted through NYBOC clearing members and 
certain registered persons guaranteed by NYBOC clearing members 
(collectively referred to in CFFE's proposed rules as ``authorized 
traders''). Authorized traders would place orders, whether for their 
own or for their customers' accounts, by phoning CFFE terminal 
operators \4\ located at a Cantor Fitzgerald Securities, LLC 
facility.\5\ For each order, an authorized trader would be required

[[Page 5506]]

to provide the terminal operator with a customer or proprietary account 
identifier, the relevant contract and the quantity and price.\6\ The 
CFFE terminal operator would promptly enter this information into the 
Cantor System via a terminal keyboard.
---------------------------------------------------------------------------

    \4\ All CFFE terminal operators would be jointly employed by 
CFFE and Cantor. Terminal operators would be registered as 
government securities representatives with the National Association 
of Securities Dealers and would be supervised by a registered floor 
broker.
    \5\ All phone conversations between NYCE authorized traders and 
CFFE terminal operators would be recorded and timed by a Cantor 
tape-recording system.
    \6\ Authorized traders also would be required to fill out an 
order ticket for each order.
---------------------------------------------------------------------------

    The Cantor System would match eligible CFFE orders according to a 
trade-matching algorithm that is similar to the algorithm that Cantor 
Fitzgerald Securities, LLC currently uses to match orders as an 
interdealer-broker in the government securities market. Under the 
algorithm, the Cantor System would post the best bid (best offer) 
available at any given time and its quantity. Any inferior bids 
(offers) that were posted earlier would be removed from the Cantor 
System, while inferior bids (offers) entered subsequently would be 
rejected by the Cantor System. Responsive offers (bids) would be 
matched with the best bid (best offer) on a time-priority basis at the 
designated bid (offer) price. Upon filling the best bid's (best 
offer's) stated quantity, the Cantor System would provide the 
authorized trader who made that bid (offer) with the exclusive right to 
buy (sell) all or part of the offers (bids) subsequently posted on the 
Cantor System at that same bid (offer) price for a pre-determined, 
limited period of time. During this exclusive period, the Cantor System 
would accept bids (offers) at the same price as the trader's best bid 
(best offer), and they would be matched on a time-priority basis to the 
extent possible after the exclusive period.
    Upon the execution of a CFFE transaction, the terminal operator 
would provide an oral confirmation of the trade to the submitting 
authorized trader by telephone, and the authorized trader would record 
the details of the trade on an order ticket.\7\ Upon execution of a 
trade, the Cantor System also would electronically transmit matched-
trade data to NYBOC for clearing and settlement purposes. For each 
trade, NYBOC would transmit transaction information to the appropriate 
clearing members via the Trade Input Processing System (``TIPS''). \8\ 
Clearing members would be required to accept or reject each trade 
within thirty minutes of its posting on TIPS.
---------------------------------------------------------------------------

    \7\ The terminal operators' duties would be limited to receiving 
and inputing orders from authorized traders and relaying back trade 
confirmations. Terminal operators could not maintain any sort of 
order book or deck, nor could they exercise any discretion over 
orders.
    \8\ NYBOC estimates that CFFE trades would be posted on TIPS 
within fifteen minutes of their execution.
---------------------------------------------------------------------------

    The Cantor System also would transmit relevant trade data to NYCE 
each day for compliance and surveillance purposes.

III. Request for Comments

    Any person interested in submitting written data, views, or 
arguments on the proposal to designate CFFE should submit their views 
and comments by the specified date to Jean A. Webb, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW, Washington, DC 20581. In addition, comments may be sent by 
facsimile transmission to facsimile number (202) 418-5521, or by 
electronic mail to [email protected]. The Division seeks comment on 
all aspects of CFFE's application for designation as a new contract 
market, as well as NYBOC's proposal to serve as CFFE's clearing 
organization. Reference should be made to the CFFE application for 
designation as a contract market in US Treasury bond, ten-year note, 
five-year note and two-year note futures contracts. Copies of the 
proposed terms and conditions are available for inspection at the 
Office of the Secretariat at the above address. Copies also may be 
obtained through the Office of the Secretariat at the above address or 
by telephoning (202) 418-5100.
    Other materials submitted by CFFE and NYBOC may be available upon 
request pursuant to the Freedom of Information Act (5 U.S.C. 552), 
except to the extent that they are entitled to confidential treatment 
pursuant to 17 CFR 145.5 or 145.9. Requests for copies of such 
materials should be made to the Freedom of Information, Privacy and 
Sunshine Act compliance staff of the Office of the Secretariat at the 
Commission headquarters in accordance with 17 CFR 145.7 and 145.8.

    Issued in Washington, DC, on January 29, 1998.
John R. Mielke,
Acting Director.
[FR Doc. 98-2622 Filed 2-2-98; 8:45 am]
BILLING CODE 6351-01-P