[Federal Register Volume 69, Number 169 (Wednesday, September 1, 2004)]
[Proposed Rules]
[Pages 53367-53373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19946]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 37 and 38

RIN 3038-AC14


Application Procedures for Registration as a Derivatives 
Transaction Execution Facility or Designation as a Contract Market

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing to revise the application and review procedures for 
registration as a Derivatives Transaction Execution Facility (DTEF) or 
designation as a Contract Market (DCM). Specifically, the Commission is 
proposing to eliminate the presumption of automatic fast-track review 
of applications and replace it with the presumption that all 
applications will be reviewed pursuant to the statutory 180-day 
timeframe and procedures specified in Section 6(a) of the Commodity 
Exchange Act (CEA or Act). In lieu of the automatic fast-track review 
(under which applicants were deemed to be registered as DTEFs 30 days, 
or designated as DCMs 60 days, after receipt of an application), the 
Commission is proposing to permit applicants to request expedited 
review and to be registered as a DTEF or designated as a DCM by the 
Commission not later than 90 days after the date of receipt of the 
application. The Commission is also proposing, among other things, to 
more completely identify application content requirements; to provide 
that review under the expedited review procedures may be terminated if 
it appears that the application is materially incomplete, raises novel 
or complex issues that require additional time for review, or has 
undergone substantive amendment or supplementation during the review 
period; to reorganize the paragraphs being revised; and to eliminate 
duplication. The Commission is proposing these amendments based upon 
its experience in processing applications and in light of 
administrative practices that have been implemented since the rules 
were first adopted.

DATES: Comments must be received by October 1, 2004.

ADDRESSES: Comments should be sent to the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, attention: Office of the Secretariat. Comments may be sent by 
facsimile to (202) 418-5521, or by e-mail to [email protected]. 
Reference should be made to ``Application Procedures.'' Comments may 
also be submitted to the Federal eRulemaking Portal: http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Special Counsel, 
(telephone (202) 418-5492, e-mail [email protected]), Division of 
Market Oversight, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581. This document is also available at http://www.regulations.gov.

SUPPLEMENTARY INFORMATION: The Commission adopted the application 
procedures specified in Commission Regulations 37.5 \1\ and 38.3 \2\ 
for boards of trade applying to be registered as DTEFs or designated as 
DCMs in 2001 when it first implemented the Commodity Futures 
Modernization Act of 2000 (CFMA).\3\ These procedures presume that an 
application will be submitted and reviewed pursuant to a fast-track 
procedure under which a board of trade is deemed to be designated as a 
DCM 60 days after submitting its application,\4\ or registered as a 
DTEF 30 days after submitting its application,\5\ unless notified 
otherwise during the respective review period. These fast-track review 
periods are substantially shorter than the 180-day review period 
specified in Section 6(a) of the Act for reviewing DCM and DTEF 
applications.\6\ The rules provide procedures for terminating the fast-
track review, including termination by the Commission if it appears 
that the application's form or substance fails to meet the requirements 
of the Commission's regulations.\7\
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    \1\ 17 CFR 37.5.
    \2\ 17 CFR 38.3.
    \3\ See 66 FR 42256 (August 10, 2001). The CFMA, Appendix E of 
Pub. L. 106-554, 114 Stat. 2763, substantially revised the Commodity 
Exchange Act (Act or CEA), 7 U.S.C. Sec.  1 et. seq.
    \4\ 17 CFR 38.3(a)(1).
    \5\ 17 CFR 37.5(b).
    \6\ See 7 U.S.C. 8(a).
    \7\ 17 CFR 37.5(d), 38.3(c).
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    Among other things, the application procedures also generally 
identify information required to be included in applications for 
registration as a DTEF \8\ or designation as a DCM,\9\ require that the 
applicant support requests for confidential treatment of information 
included in the application with reasonable justification,\10\ and 
identify where additional guidance for applicants can be found.\11\ The 
rules also provide procedures for the withdrawal of an application for 
registration or vacation of registration as a DTEF \12\ and for the 
withdrawal of an application for designation or vacation of designation 
as a DCM,\13\ and specify the extent of the delegation of authority 
from the Commission to the Director of the Division of Market 
Oversight, with the concurrence of the General Counsel, with respect to 
the termination of expedited review procedures.\14\
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    \8\ 17 CFR 37.5(b)(1)(iii).
    \9\ 17 CFR 38.3(a)(1)(iii).
    \10\ 17 CFR 37.5(b)(1)(v); 38.3(a)(1)(v).
    \11\ 17 CFR 37.5(c); 38.3(b).
    \12\ 17 CFR 37.5(e).
    \13\ 17 CFR 38.3(d).
    \14\ 17 CFR 37.5(f); 38.3(e).
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    The Commission is proposing to modify the application procedures in 
a number of respects. With respect to the timeliness of the review of 
applications generally, it is proposing to establish the presumption 
that all applications are submitted for review under the 180-day 
timeframe specified in Section 6(a) of the Act.\15\ An expedited 90-day 
review could be requested by the applicant, in which case the 
Commission would register the applicant as a DTEF or designate the 
applicant as a DCM during or by the end of the 90-day period unless the 
Commission terminated the expedited review for certain specifically 
identified reasons. In comparison to the current rules, the Commission 
is proposing to lengthen the expedited review periods for DCM 
applications by 30 days and for DTEF applications by 60 days. The 
Commission believes, based upon its extensive experience in processing 
DCM applications and in light of certain administrative practices that 
have developed since these rules were first adopted, that these 
potentially longer review periods are necessary to ensure a 
comprehensive review of applications and to meet other public policy 
objectives.
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    \15\ Under the current rules, DCM and DTEF applications are 
routinely reviewed under the fast-track procedures unless the 
applicant instructs the Commission in writing at the time of 
submission of the application or during the review period to review 
the application pursuant to the time provisions of and procedures 
under section 6 of the Act. See 17 CFR 37.5(b)(1)(vi); 
38.3(a)(1)(vi).
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    Specifically, the Commission has reviewed seven DCM applications 
under the fast-track review procedures and none of these reviews has 
been completed within the current fast-track 60-day review period. The 
applications

[[Page 53368]]

themselves are large and often contain a number of regulatory and 
operational outsourcing agreements, as well as the technical documents 
describing electronic order matching systems.\16\ The applications 
frequently need to be substantially amended or supplemented in various 
ways and unfailingly generate a series of questions by Commission staff 
responsible for reviewing the applications. In addition, a new 
Commission policy to promote transparency in Commission operations, 
implemented in August of 2003, provides for the posting of all such 
applications on the Commission's Web site for a period of at least 15 
days for public review and comment.\17\ This has also lengthened the 
review process. The proposed 90-day review period should provide the 
Commission with sufficient time to review these substantial 
applications and to respond to any public comments. The Commission 
notes that the proposed 90-day review period, while longer than the 
current fast-track review periods, would continue to be substantially 
shorter than the 180-day review period established under the Act.\18\
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    \16\ In this regard, the initial application of one DCM 
applicant included over 1300 pages of supporting documents and 
thereafter the applicant submitted hundreds of additional pages 
before designation.
    \17\ The Commission has recently proposed revisions to 
Commission Regulation 40.8 to specify which portions of an 
application for registration as a DTEF or designation as a DCM will 
be made public. See 69 FR 44981 (July 28, 2004).
    \18\ Although the Commission has not yet reviewed an application 
to become registered as a DTEF under the fast track procedure, it 
anticipates that such an application would likely also be sizeable 
and require a similar amount of time to review. Accordingly, the 
Commission is proposing to conform the DTEF expedited review period 
to that applicable to DCMs.
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    The Commission also is proposing to modify its internal processing 
procedures under which an applicant would be registered as a DTEF or 
designated as a DCM. Under the proposal, an applicant would no longer 
be deemed to be registered or designated based upon the passage of time 
(30 days for DTEFs, 60 days for DCMs). If the applicant requested 
expedited review, the Commission would take affirmative action to 
register or designate the applicant as a DTEF or DCM, respectively, 
subject to conditions if appropriate, not later than 90 days after 
receipt of the application, unless the Commission terminated the 
expedited review. Thus, registration as a DTEF or designation as a DCM 
would involve affirmative action by the Commission, which would 
normally be in the form of issuance of a Commission order. It should be 
noted that it would be possible, under the proposed procedures, for 
applicants who submit applications that are complete and not amended or 
supplemented during the review period to be registered as a DTEF or 
designated as a DCM in less than 90 days.
    With respect to the termination of expedited review, the rules 
provide that fast-track review may be terminated because the 
application's form or substance fails to meet the requirements of part 
37 or 38, as appropriate, or upon written instruction of the applicant 
during the review period. Based upon its experience in reviewing 
applications submitted to date and in light of its new practice of 
posting all such applications on the Commission's Web site for public 
review and comment, the Commission is proposing to clarify and expand 
the rationale for terminating expedited review. In addition to the 
reasons for termination cited above, the Commission is proposing that 
the expedited review period be terminated if the application is 
materially incomplete or, as more fully described below, undergoes 
major amendment or supplementation. The Commission is also proposing to 
provide for termination of expedited review if an application raises 
novel or complex issues that require additional time for review. This 
proposal is responsive to the substantial public interest that the 
Commission has witnessed to date with respect to DCM applications.
    The Commission is further proposing to delete the provision of the 
rules that would require the Commission, upon terminating fast-track 
review, to commence a proceeding to deny a DCM or DTEF application upon 
the request of the applicant. This procedure has proved to be 
unnecessary to date, and an analogous procedure is available under the 
statutory review procedure.\19\ Finally, the Commission is proposing to 
amend the expedited review procedures to expressly provide that 
expedited review would be terminated if an applicant so requests in 
writing. The Commission stresses that if expedited review were 
terminated for any of the reasons cited above, the application would 
continue to be reviewed pursuant to the 180-day statutory procedure.
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    \19\ See 7 U.S.C. 8(a)
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    In order to further enhance the application process, the Commission 
is proposing to more completely identify and expand the information 
required to be provided by an applicant under both the statutory 180-
day and the expedited 90-day review procedures. The proposal clarifies 
that the rules required to be included in all applications are those 
rules as defined in Commission Regulation 40.1 and more clearly 
identifies the documents required to be provided pertaining to the 
applicant's legal status and governance structure. The Commission 
anticipates that such documents would include copies of corporate 
charters, limited liability corporation or partnership agreements, and 
the like.\20\
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    \20\ The proposal adds the requirement that DTEF application 
also must include a copy of any documents describing the applicant's 
legal status and governance structure.
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    The proposal would make it clear that all applicants would be 
required to submit for review an executed or executable copy of any 
agreements or contracts entered into or to be entered into by the 
applicant that enable the applicant to comply with a requirement for 
trading or registration criterion (DTEFs) or a designation criterion or 
core principle (DCMs) and that final, signed copies of such documents 
would be required to be submitted prior to registration or designation. 
The initial application would be required to include something more 
than a letter of intent or draft contract or agreement, such as a final 
contract or agreement signed by at least one of the parties. While the 
Commission is cognizant that applicants generally prefer to defer the 
finalization of contracts in order to defer associated costs until 
registration or designation, it must balance that preference against 
the assurance that a contract or agreement will actually be executed 
prior to registration or designation.
    With respect to the additional information that would be required 
to be submitted as part of the application,\21\ the proposal requires 
that applicants submit a ``regulatory chart'' that describes the manner 
in which the items included in the application enable the applicant to 
comply with each requirement for trading and registration criterion 
(DTEFs) or with each designation criterion and core principle (DCMs). 
The proposal would also require that the applicant identify any item 
included in the application that raises novel issues and explain how 
that item satisfies the requirements for trading or the registration 
criteria (DTEFs) or the designation criteria or the core principles 
(DCMs). In addition, the proposal would require that the applicant 
submit a copy of any manual or other document describing the

[[Page 53369]]

manner in which the applicant will conduct trade practice, market, and 
financial surveillance. Based upon experience in reviewing DCM 
applications, the Commission recognizes that this additional 
information is necessary for Commission review of the application when 
determining whether the applicant satisfies the requirements for 
trading and registration criteria (DTEFs) or the designation criteria 
and core principles (DCMs). Finally, the proposal would eliminate the 
requirement that the applicant support requests for confidential 
treatment of information included in the application with reasonable 
justification. The Commission believes that the procedures provided in 
Commission Regulation 145.9, Petition for confidential treatment of 
information submitted to the Commission, should be followed by all 
applicants.
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    \21\ It should be noted that the ``additional information'' 
referred to herein is additional only in the sense that the proposal 
specifically provides that the information must be included in an 
application. In fact, this information has been requested as part of 
each of the DCM applications that have been reviewed to date.
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    Under the proposal, the items required to be included in an 
application to be reviewed under the statutory 180-day review 
procedures are identical to those required to be included in an 
application to be reviewed under the expedited review procedures with 
the following exceptions for the expedited review procedure: (1) An 
applicant must request expedited review, and (2) an application 
submitted for expedited review must not be amended or supplemented by 
the applicant, except as requested by the Commission or for correction 
of typographical errors, renumbering or other nonsubstantive revisions. 
The proposal provides that amending or supplementing an application in 
a manner that is inconsistent with the above provision would result in 
termination of the expedited review.
    The Commission is also proposing to modify the delegation of 
authority provisions applicable to applications for registration as a 
DTEF and for designation as a DCM. Currently, the rules provide for the 
delegation of authority to the Director of the Division of Market 
Oversight, with the concurrence of the General Counsel, (1) to 
terminate the fast-track review of both types of applications and (2) 
to designate an applicant as a DCM subject to conditions. The 
Commission is proposing to modify and standardize the delegation of 
authority as it applies to DTEF and DCM applicants. Thus, under the 
proposal, the Commission would also delegate to the Director of the 
Division of Market Oversight, with the concurrence of the General 
Counsel, the authority to stay the running of the 180-day statutory 
review period for both types of applications if they are materially 
incomplete, as is provided under Section 6(a) of the Act. Because one 
result of the proposed amendments would be that registration as a DTEF 
and designation as a DCM would involve affirmative action on the part 
of the Commission, the proposal would rescind the delegation of the 
authority to designate the applicant as a DCM subject to conditions.
    Finally, the Commission is proposing to reorganize the sequence of 
paragraphs in the rules where appropriate and to make minor word 
changes and deletions in order to clarify the application requirements. 
The Commission is also proposing to delete certain guidance regarding 
applications for designation as that information duplicates information 
available elsewhere in part 38.\22\
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    \22\ The guidance provided in 17 CFR 38.3(b) is discussed more 
completely in Appendices A and B to part 38.
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    The Commission continues to encourage applicants to consult with 
Commission staff prior to formally submitting a DTEF or DCM application 
to help ensure that an application, once submitted, will be reviewed in 
a timely manner. The Commission encourages interested parties, 
particularly prior applicants, to comment upon these proposals.

Related Matters

A. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires Federal agencies, in promulgating rules, to consider the 
impact of those rules on small entities. The rules adopted herein would 
affect DCMs and DTEFs. The Commission has previously established 
certain definitions of small entities to be used by the Commission in 
evaluating the impact of its rules on small entities in accordance with 
the RFA.\23\ In its previous determinations, the Commission has 
concluded that DCMs and DTEFs are not small entities for the purpose of 
the RFA.\24\
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    \23\ 47 FR 18618, 18618-21 (Apr. 30, 1982).
    \24\ 47 FR 18618, 18619 (Apr. 30, 1982) (discussing DCMs); 66 FR 
42256, 42268 (Aug. 10, 2001) (discussing DTEFs).
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    Accordingly, the Commission does not expect the rules, as proposed 
herein, to have a significant economic impact on a substantial number 
of small entities. Therefore, the Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
proposed amendments will not have a significant economic impact on a 
substantial number of small entities. The Commission invites the public 
to comment on this finding and on its proposed determination that the 
trading facilities covered by these rules would not be small entities 
for purposes of the RFA.

B. The Paperwork Reduction Act

    This proposed rulemaking affects information-collection 
requirements. As required by the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), the Commission has submitted a copy of this section to 
the Office of Management and Budget (OMB) for its review.
    Collection of Information: Rules Relating to part 37, Establishing 
Procedures for Entities to be Registered as Derivatives Transaction 
Execution Facilities, OMB Control Number 3038-0053. The proposed rules 
will not change the burden previously approved by OMB. The estimated 
burden was calculated as follows:
    Estimated number of respondents: 10.
    Annual responses by each respondent: 1.
    Total annual responses: 10.
    Estimated average hours per response: 200.
    Annual reporting burden: 2,000.
    Collection of Information: Rules Relating to part 38, Establishing 
Procedures for Entities to Become Designated as Contract Markets, OMB 
Control Number 3038-0052. The proposed rules will not change the burden 
previously approved by OMB. The estimated burden was calculated as 
follows:
    Estimated number of respondents: 10.
    Annual responses by each respondent: 1.
    Total annual responses: 10.
    Estimated average hours per response: 300.
    Annual reporting burden: 3,000.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 10202, New Executive Office Building, 725 17th Street, NW., 
Washington, DC 20503; Attention: Desk Officer for the Commodity Futures 
Trading Commission.
    The Commission considers comments by the public on this proposed 
collection of information in:
    Evaluating whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have a practical 
use;
    Evaluating the accuracy of the Commission's estimate of the burden 
of the proposed collection of information, including the validity of 
the methodology and assumptions used;

[[Page 53370]]

    Enhancing the quality, usefulness, and clarity of the information 
to be collected; and
    Minimizing the burden of collecting information on those who are to 
respond, including through the use of appropriate automated electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication. This does not affect 
the deadline for the public to comment to the Commission on the 
proposed regulations.
    Copies of the information collection submission to OMB are 
available from the CFTC Clearance Officer, 1155 21st Street, NW., 
Washington, DC 20581, (202) 418-5160.

C. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its action before issuing a new regulation under 
the Act. By its terms, section 15(a) does not require the Commission to 
quantify the costs and benefits of a new regulation or to determine 
whether the benefits of the proposed regulation outweigh its costs. 
Rather, section 15(a) requires the Commission to ``consider the costs 
and benefits'' of the subject rule.
    Section 15(a) further specifies that the costs and benefits of the 
proposed rule shall be evaluated in light of five broad areas of market 
and public concern: (1) Protection of market participants and the 
public; (2) efficiency, competitiveness, and financial integrity of 
futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations. The Commission 
may, in its discretion, give greater weight to any one of the five 
enumerated areas of concern and may, in its discretion, determine that, 
notwithstanding its costs, a particular rule is necessary or 
appropriate to protect the public interest or to effectuate any of the 
provisions or to accomplish any of the purposes of the Act.
    The proposed amendments are based upon past experience in reviewing 
DCM applications, and in light of the Commission's intention to post 
all such applications on its Web site for public review and comment, 
and are intended to facilitate increased flexibility, consistency and 
increased public input. The proposed amendments impose limited new 
submission obligations on entities seeking designation as DCMs or 
registration as DTEFs with the Commission. The proposed amendments 
establish the premise that all designation and registration 
applications are to be reviewed under the statutory 180-day review 
process unless otherwise requested and set new parameters for the 
expedited review of such applications and for the termination of such 
expedited review. These parameters create a useful and forward-looking 
expedited review process. Under the proposed rules, the Commission will 
review and take affirmative action upon designation and registration 
applications in an abbreviated time frame that adequately protects the 
interests of all market participants and the public. The proposed rules 
establish flexible expedited review procedures that allow the 
Commission to efficiently terminate expedited review when requested to 
do so by the applicant, or when necessary because of the submission of 
materially incomplete, novel or complex, or substantially amended or 
supplemented applications.
    After considering these factors, the Commission has determined to 
propose the revisions to parts 37 and 38 set forth below. The 
Commission specifically invites public comment on its application of 
the criteria contained in section 15(a) of the Act for consideration. 
Commenters are also invited to submit any quantifiable data that they 
may have concerning the costs and benefits of the proposed rule with 
their comment letters.

List of Subjects

17 CFR Part 37

    Commodity futures, Commodity Futures Trading Commission.

17 CFR Part 38

    Commodity futures, Commodity Futures Trading Commission.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Act, and, in particular, sections 2, 3, 4, 4c, 5, 5a 
and 8a of the Act, the Commission hereby proposes to amend chapter I of 
title 17 of the Code of Federal Regulations as follows:

PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES

    1. The authority citation for Part 37 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c, 7a and 12a, as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 
106-554, 114 Stat. 2763 (2000).

    2. Revise Sec.  37.5 to read as follows:


Sec.  37.5  Procedures for registration.

    (a) Notification by contract markets. (1) To operate as a 
registered derivatives transaction execution facility pursuant to 
Section 5a of the Act, a board of trade that is designated as a 
contract market, which is not a dormant contract market as defined in 
Section 40.1 of this chapter, must:
    (i) Notify the Commission of its intent to so operate by filing 
with the Secretary of the Commission at its Washington, DC, 
headquarters a copy of the facility's rules (as defined in Section 40.1 
of this chapter) or a list of the designated contract market's rules 
that apply to the operation of the derivatives transaction execution 
facility, and a certification by the contract market that it meets:
    (A) The requirements for trading of Section 5a(b) of the Act; and
    (B) The criteria for registration under Section 5a(c) of the Act.
    (ii) Comply with the core principles for operation under Section 
5a(d) of the Act and the provisions of this part 37.
    (2) Before using the notification procedure of paragraph (a)(1)(i) 
of this section for registration as a derivatives transaction execution 
facility, a dormant contract market, as defined in Sec.  40.1 of this 
chapter, must reinstate its designation under Sec.  38.3(a)(3) of this 
chapter.
    (b) Application Procedures--(1) Statutory (180-day) review 
procedures. A board of trade desiring to be registered as a derivatives 
transaction execution facility shall file an application for 
registration with the Secretary of the Commission at its Washington, 
DC, headquarters. Except as provided under the 90-day review procedures 
described in paragraph (b)(2) of this section, the Commission will 
review the application for registration as a derivatives transaction 
execution facility pursuant to the 180-day timeframe and procedures 
specified in Section 6(a) of the Act. The Commission shall approve or 
deny the application or, if deemed appropriate, register the applicant 
as a derivatives transaction execution facility subject to conditions.
    (i) The applicant must demonstrate that it satisfies the 
requirements for trading and the criteria for registration of sections 
5a(b) and 5a(c) of the Act, respectively, and the provisions of this 
part 37.
    (ii) The application must include the following:
    (A) The derivatives transaction execution facility's rules (as 
defined in Sec.  40.1 of this chapter);

[[Page 53371]]

    (B) Any technical manuals and other guides or instructions for 
users of such facility, descriptions of any system test procedures, 
tests conducted or test results, descriptions of the trading mechanism 
or algorithm used or to be used by such facility, and contingency or 
disaster recovery plans;
    (C) A copy of any documents describing the applicant's legal status 
and governance structure;
    (D) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the applicant, including 
partnership or limited liability company, third-party regulatory 
service, or member or user agreements, that enable or empower the 
applicant to comply with a requirement for trading or a registration 
criterion (final, executed copies of such documents must be submitted 
prior to registration);
    (E) A copy of any manual or other document describing, with 
specificity, the manner in which the applicant will conduct trade 
practice, market, and financial surveillance;
    (F) A document that describes the manner in which the applicable 
items in Sec.  37.5(b)(1)(ii)(A)-(E) enable or empower the applicant to 
comply with each requirement for trading and registration criterion (a 
regulatory chart); and
    (G) To the extent that any of the items in Sec.  37.5(b)(1)(ii)(A)-
(E) raise issues that are novel, or for which compliance with a 
requirement for trading or condition for registration is not self-
evident, an explanation of how that item and the application satisfy 
the requirements for trading and registration criteria.
    (iii) The applicant must identify with particularity information in 
the application that will be subject to a request for confidential 
treatment pursuant to Sec.  145.9 of this chapter.
    (2) Ninety-day review procedures. A board of trade desiring to be 
registered as a derivatives transaction execution facility may request 
that its application be reviewed on an expedited basis and that the 
applicant be registered as a derivatives transaction execution facility 
not later than 90 days after the date of receipt of the application for 
registration by the Secretary of the Commission. The 90-day period 
shall begin on the first business day (during the business hours 
defined in Sec.  40.1 of this chapter) that the Commission is in 
receipt of the application. Unless the Commission notifies the 
applicant during the 90-day period that the expedited review has been 
terminated pursuant to Sec.  37.5(c), the Commission will register the 
applicant as a derivatives transaction execution facility during the 
90-day period. If deemed appropriate by the Commission, the 
registration may be subject to such conditions as the Commission may 
stipulate.
    (i) The applicant must demonstrate that it satisfies the 
requirements for trading and the criteria for registration of Sections 
5a(b) and 5a(c) of the Act, respectively, and the provisions of this 
part 37;
    (ii) The application must include the items described in Sections 
37.5(b)(1)(ii) and (iii); and
    (iii) The applicant must not amend or supplement the application, 
except as requested by the Commission or for correction of 
typographical errors, renumbering or other nonsubstantive revisions, 
during the 90-day review period.
    (c) Termination of 90-day review. (1) During the 90-day period for 
review pursuant to paragraph (b)(2) of this section, the Commission 
shall notify the applicant seeking registration that the Commission is 
terminating review under this section, and will review the application 
under the 180-day time period and procedures of Section 6(a) of the 
Act, if it appears to the Commission that the application: (i) is 
materially incomplete, (ii) fails in form or substance to meet the 
requirements of this part, (iii) raises novel or complex issues that 
require additional time for review, or (iv) is amended or supplemented 
in a manner that is inconsistent with Section 37.5(b)(2)(iii) above. 
The Commission shall also terminate review under this section if 
requested in writing to do so by the applicant.
    (2) The termination notification shall identify the deficiencies in 
the application that render it incomplete, the manner in which the 
application fails to meet the requirements of this part, the novel or 
complex issues that require additional time for review, or the 
amendment or supplement that is inconsistent with Sec.  37.5(b)(2)(iii) 
above.
    (d) Reinstatement of dormant registration. Before listing products 
for trading, a dormant derivatives transaction execution facility as 
defined in Sec.  40.1 must reinstate its registration under the 
procedures of paragraphs (a)(1), (b)(1) or (b)(2) of this section; 
provided, however, that an application for reinstatement may rely upon 
previously submitted materials that still pertain to, and accurately 
describe, current conditions.
    (e) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Market 
Oversight or such other employee or employees as the Director may 
designate from time to time, with the concurrence of the General 
Counsel or the General Counsel's delegate, authority to notify the 
applicant seeking registration under Section 6(a) of the Act that the 
application is materially incomplete and the running of the 180-day 
period is stayed or that the 90-day review under paragraph (b)(2) of 
this section is terminated.
    (2) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph.
    (3) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (e)(1) 
of this section.
    (f) Request for withdrawal of application for registration. An 
applicant for registration may withdraw its application submitted 
pursuant to paragraphs (b)(1) or (b)(2) of this section by filing such 
a request with the Commission at its Washington, DC, headquarters. 
Withdrawal of an application for registration shall not affect any 
action taken or to be taken by the Commission based upon actions, 
activities or events occurring during the time that the application for 
registration was pending with the Commission.
    (g) Request for vacation of registration. A registered derivatives 
transaction execution facility may vacate its registration under 
Section 7 of the Act by filing such a request with the Commission at 
its Washington, DC, headquarters. Vacation of registration shall not 
affect any action taken or to be taken by the Commission based upon 
actions, activities or events occurring during the time that the 
facility was registered by the Commission.
    (h) Guidance for applicants. Appendix A to this part provides 
guidance on how the registration criteria in Section 5a(c) of the Act 
can be satisfied.

PART 38--DESIGNATED CONTRACT MARKETS

    1. The authority citation for part 38 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c, 7 and 12a, as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 
106-554, 114 Stat. 2763 (2000).

    2. Revise Sec.  38.3 to read as follows:


Sec.  38.3  Procedures for designation.

    (a) Application procedures--(1) Statutory (180-day) review 
procedures. A board of trade desiring to be designated as a contract 
market shall file an application for designation with the Secretary of 
the Commission at its

[[Page 53372]]

Washington, DC, headquarters. Except as provided under the 90-day 
review procedures described in paragraph (a)(2) of this section, the 
Commission will review the application for designation as a contract 
market pursuant to the 180-day timeframe and procedures specified in 
Section 6(a) of the Act. The Commission shall approve or deny the 
application or, if deemed appropriate, designate the applicant as a 
contract market subject to conditions.
    (i) The applicant must demonstrate compliance with the criteria for 
designation of Section 5(b) of the Act, the core principles for 
operation of Section 5(d) of the Act and the provisions of this part 
38.
    (ii) The application must include the following:
    (A) A copy of the applicant's rules (as defined in Section 40.1 of 
this chapter) and any technical manuals, other guides or instructions 
for users of, or participants in, the market, including minimum 
financial standards for members or market participants;
    (B) A description of the trading system, algorithm, security and 
access limitation procedures with a timeline for an order from input 
through settlement, and a copy of any system test procedures, tests 
conducted, test results and contingency or disaster recovery plans;
    (C) A copy of any documents describing the applicant's legal status 
and governance structure, including governance fitness information;
    (D) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the applicant, including 
partnership or limited liability company, third-party regulatory 
service, or member or user agreements, that enable or empower the 
applicant to comply with a designation criterion or core principle 
(final, executed copies of such documents must be submitted prior to 
designation);
    (E) A copy of any manual or other document describing, with 
specificity, the manner in which the applicant will conduct trade 
practice, market, and financial surveillance;
    (F) A document that describes the manner in which the applicable 
items in Sec.  38.3(a)(1)(ii)(A) through (E) enable or empower the 
applicant to comply with each designation criterion and core principle 
(a regulatory chart); and
    (G) To the extent that any of the items in Sec.  38.3(a)(1)(ii)(A) 
through (E) raise issues that are novel, or for which compliance with a 
designation criterion or a core principle is not self-evident, an 
explanation of how that item and the application satisfy the 
designation criteria or the core principles.
    (iii) The applicant must identify with particularity information in 
the application that will be subject to a request for confidential 
treatment pursuant to Section 145.9 of this chapter.
    (2) Ninety-day review procedures. A board of trade desiring to be 
designated as a contract market may request that its application be 
reviewed on an expedited basis and that the applicant be designated as 
a contract market not later than 90 days after the date of receipt of 
the application for designation by the Secretary of the Commission. The 
90-day period shall begin on the first business day (during the 
business hours defined in Section 40.1 of this chapter) that the 
Commission is in receipt of the application. Unless the Commission 
notifies the applicant during the 90-day period that the expedited 
review has been terminated pursuant to Sec.  38.3(b), the Commission 
will designate the applicant as a contract market during the 90-day 
period. If deemed appropriate by the Commission, the designation may be 
subject to such conditions as the Commission may stipulate.
    (i) The applicant must demonstrate compliance with the criteria for 
designation of section 5(b) of the Act, the core principles for 
operation of section 5(d) of the Act and the provisions of this part 
38;
    (ii) The application must include the items described in Sec. Sec.  
38.3(a)(1)(ii) and (iii); and
    (iii) The applicant must not amend or supplement the application, 
except as requested by the Commission or for correction of 
typographical errors, renumbering or other nonsubstantive revisions, 
during the 90-day review period.
    (b) Termination of 90-day review. (1) During the 90-day period for 
review pursuant to paragraph (a)(2) of this section, the Commission 
shall notify the applicant seeking designation that the Commission is 
terminating review under this section, and will review the application 
under the 180-day time period and procedures of Section 6(a) of the 
Act, if it appears to the Commission that the application:
    (i) Is materially incomplete,
    (ii) Fails in form or substance to meet the requirements of this 
part,
    (iii) Raises novel or complex issues that require additional time 
for review, or
    (iv) Is amended or supplemented in a manner that is inconsistent 
with Sec.  38.3(a)(2)(iii) above. The Commission shall also terminate 
review under this section if requested in writing to do so by the 
applicant.
    (2) The termination notification shall identify the deficiencies in 
the application that render it incomplete, the manner in which the 
application fails to meet the requirements of this part, the novel or 
complex issues that require additional time for review, or the 
amendment or supplement that is inconsistent with Sec.  38.3(a)(2)(iii) 
above.
    (c) Reinstatement of dormant designation. Before listing or 
relisting products for trading, a dormant designated contract market as 
defined in Sec.  40.1 of this chapter must reinstate its designation 
under the procedures of paragraph (a)(1) or (a)(2) of this section; 
provided, however, that an application for reinstatement may rely upon 
previously submitted materials that still pertain to, and accurately 
describe, current conditions.
    (d) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Market 
Oversight or such other employee or employees as the Director may 
designate from time to time, with the concurrence of the General 
Counsel or the General Counsel's delegate, authority to notify the 
applicant seeking designation under Section 6(a) of the Act that the 
application is materially incomplete and the running of the 180-day 
period is stayed or that the 90-day review under paragraph (a)(2) of 
this section is terminated.
    (2) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph.
    (3) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (d)(1) 
of this section.
    (e) Request for withdrawal of application for designation. An 
applicant for designation may withdraw its application submitted 
pursuant to paragraphs (a)(1) or (a)(2) of this section by filing such 
a request with the Commission at its Washington, DC, headquarters. 
Withdrawal of an application for designation shall not affect any 
action taken or to be taken by the Commission based upon actions, 
activities or events occurring during the time that the application for 
designation was pending with the Commission.
    (f) Request for vacation of designation. A designated contract 
market may vacate its designation under Section 7 of the Act by filing 
such a request with the Commission at its Washington, DC, headquarters. 
Vacation of designation shall not affect any action

[[Page 53373]]

taken or to be taken by the Commission based upon actions, activities 
or events occurring during the time that the facility was designated by 
the Commission.
    (g) Guidance for applicants. Appendix A to this part provides 
guidance on how the criteria for designation under section 5(b) of the 
Act can be satisfied. Appendix B to this part provides guidance on how 
the core principles of section 5(d) of the Act can be satisfied.

    Issued in Washington, DC, this 26th day of August, 2004, by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-19946 Filed 8-31-04; 8:45 am]
BILLING CODE 6351-01-P