[Federal Register Volume 69, Number 224 (Monday, November 22, 2004)]
[Rules and Regulations]
[Pages 67811-67817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25614]


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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: Final rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is amending its regulations to revise the application and review 
procedures for registration as a Derivatives Transaction Execution 
Facility (DTEF) or designation as a Contract Market (DCM). The 
amendments 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

[[Page 67812]]

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 amendments 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 amendments also, among 
other things, more completely identify application content 
requirements; 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; reorganize the paragraphs being revised; and 
eliminate duplication. The amendments are responsive to the 
Commission's experience in processing applications and reflect 
administrative practices that have been implemented since the rules 
were first adopted.

DATES: Effective December 22, 2004.

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:

I. Background

A. Overview

    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, 7 U.S.C. 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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B. The Proposed Amendments

    On September 1, 2004, the Commission published proposed amendments 
to its part 37 and 38 regulations governing application procedures.\15\ 
The proposed amendments would modify the application procedures in a 
number of respects. With respect to the timeliness of the review of 
applications generally, the proposed amendments would establish the 
presumption that all applications are submitted for review under the 
180-day timeframe specified in section 6(a) of the Act.\16\ 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. The proposed amendments would lengthen the 
expedited review periods for DCM applications by 30 days and for DTEF 
applications by 60 days. The longer time periods were believed to be 
necessary, based upon the Commission's review of eight DCM applications 
under the current DCM expedited review period, to ensure a 
comprehensive review of applications and to meet other public policy 
objectives, including the Commission's policy to promote transparency 
in Commission operations, implemented in August of 2003, by providing 
for the posting of all such applications on the Commission's website 
for a period of at least 15 days for public review and comment.\17\ The 
proposed 90-day review period should provide sufficient time to review 
applications and to respond to any public comments. While longer than 
the current fast-track review periods, the 90-day review period would 
be substantially shorter than the 180-day review period established 
under the Act.\18\
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    \15\ 69 FR 53367 (September 1, 2004).
    \16\ 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).
    \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 
routinely 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 require a review 
period similar to that experienced in the review of DCM 
applications. Accordingly, the Commission proposed to conform the 
DTEF expedited review period to that applicable to DCMs.
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    The proposed amendments would also modify the Commission's 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 would be 
possible, under the proposed procedures, for applicants who submit

[[Page 67813]]

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. The proposed amendments would clarify and 
expand the rationale for terminating expedited review and would provide 
that the expedited review period also could be terminated if the 
application is materially incomplete, raises novel or complex issues 
that require additional time for review or, as more fully described 
below, undergoes major amendment or supplementation. 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. Finally, the proposed amendments would 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\
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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 proposed 
amendments would 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 would 
clarify that the rules required to be included in all applications are 
those rules as defined in Commission Regulation 40.1 and would more 
clearly identify 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 applications 
also must include a copy of any documents describing the applicant's 
legal status and governance structure.
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    The proposed amendments 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 may 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 proposed amendments 
would require 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 proposed 
amendments would require that the applicant submit a copy of any manual 
or other document describing the 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 proposed 
amendments 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 codifies the information that must be included in an 
application. In fact, Commission staff has been requesting this type 
of information from each of the DCM applicants that have applied.
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    Under the proposed amendments, the items required to be included in 
an application to be reviewed under the statutory 180-day review 
procedures would be 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 applicants and 
applications: (1) The applicant must request expedited review; and (2) 
the application 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 would provide 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 proposed amendments would also modify and standardize 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. Under the proposed amendment, 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 proposed amendments would 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 proposal would also delete certain guidance regarding applications 
for designation as that information

[[Page 67814]]

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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C. Comments and Final Rule

    In response to the proposed amendments, the Commission received 
comment letters from the Chicago Mercantile Exchange and the Chicago 
Board of Trade (CBOT), both of which voiced support for the proposed 
amendments. With respect to the proposed application content 
requirements, however, the CBOT, suggested that the Commission should 
also require submission of documents detailing the applicant's plans to 
offer payment for order flow, or other incentives that could encourage 
wash trading or compromise the fiduciary responsibilities of 
intermediaries, as well as documentation of plans to allow or encourage 
trading off the centralized market. The Commission has carefully 
considered this suggestion, but does not believe that the application 
content requirements need to be expanded to include this information.
    If an applicant's plans regarding payment for order flow \23\ or 
other incentive plans are established at the time of the application, 
it is expected that they would be included in the application because 
they would be considered to be rules and the applicant's proposed rules 
are required to be submitted as part of the application. The same is 
true with respect to plans to allow or encourage trading off the 
centralized market, such as block trading. Of course, any proposal to 
implement incentive and/or off-centralized market trading plans after 
DCM designation or DTEF registration would have to be submitted to the 
Commission by the registrant as rule changes, either seeking Commission 
approval or certifying compliance with designation criteria and core 
principles (DCM) or with core principles (DTEF) as required under the 
Act.
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    \23\ The term ``payment for order flow'' is more commonly used 
to describe incentives offered by securities exchanges or market 
makers to securities brokers to direct orders to a particular 
exchange or an over-the-counter (OTC) dealer. Commission staff 
generally views these plans as volume discount programs because 
their primary purpose is to enhance volume by discounting 
transaction costs.
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    Although the Commission expects that an application represents the 
applicant's actual business plan at the time of its submission, the 
Commission has never required an applicant to reveal all of its 
potential future plans, which may be in various stages of development 
and indeed may never be adopted, when considering whether the 
application satisfies the designation criteria and core principles. 
Commission staff appropriately considers the materials filed and 
representations made by an applicant in drawing conclusions as to 
whether designation or registration is warranted. Subsequent to 
designation or registration, the DCM or DTEF may adopt changes to its 
rules and procedures; however, under the Act, DCMs and DTEFs must, on a 
continuing basis, comply with all designation criteria and core 
principles (DCMs) and core principles (DTEFs). In implementing changes 
to their business plans, DCMs and DTEFs seek Commission approval or 
certify compliance with the designation criteria and core principles, 
as applicable, as required under the Act. The Commission considers 
whether to approve new rules or rule amendments or whether to take 
action concerning certifications when a DCM or DTEF proposes to 
implement its revised plans.\24\
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    \24\ For instance, when reviewing an incentive program proposed 
to be adopted by a DCM, Commission staff's regulatory analysis of 
the proposed rule would focus on the manner of implementation and 
the potential for distorting open, competitive, and efficient 
trading by facilitating illegal trading practices, such as wash or 
fictitious trading. DCMs are obligated by Core Principle 2 to 
monitor trading for trade practice abuses. Staff would also analyze 
a plan's potential for eroding fiduciary obligations owed by futures 
brokers to customers. Core Principle 12 requires that DCMs establish 
and enforce rules that protect market participants from abusive 
trading practices committed by any party acting as an agent for a 
participant, and in a situation where a broker handles an order that 
could be executed at more than one exchange, Commission staff would 
want to ensure that an incentive plan does not compromise the 
broker's fiduciary obligations.
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    For the reasons cited above, the Commission does not believe that 
the application content requirements need to be expanded to include 
documents detailing the applicant's incentive plans or documentation of 
plans to allow or encourage trading off the centralized market. After 
careful review and consideration of the comments received, the 
Commission has determined to adopt the proposed amendments to the 
application procedures as written. The Commission continues to 
encourage would-be applicants to consult with Commission staff prior to 
formally submitting a DTEF or DCM application to help ensure that an 
application, once formally submitted, will be reviewed in a timely 
manner.

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.\25\ In its previous determinations, the Commission has 
concluded that DCMs and DTEFs are not small entities for the purpose of 
the RFA.\26\
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    \25\ 47 FR 18618, 18618-21 (April 30, 1982).
    \26\ 47 FR 18618, 18619 (April 30, 1982) (discussing DCMs); 66 
FR 42256, 42268 (August 10, 2001) (discussing DTEFs).
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    In the proposed rules, the Commission solicited comment on whether 
the proposed amendments would have a significant impact on a 
substantial number of small entities. The Commission received no 
comments in response to this request. Accordingly, the Commission 
hereby determines that the rules, as adopted herein, will not have a 
significant economic impact on a substantial number of small entities. 
Therefore, the Acting 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.

B. The Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995, 44 U.S.C. 
3507(d), the Commission submitted a copy of the proposed rule 
amendments to the Office of Management and Budget for its review. The 
Commission did not receive any public comments relative to its analysis 
of paperwork burdens associated with this rulemaking.

C. Cost Benefit Analysis

    Section 15(a) of the Act, as amended by section 119 of the CFMA, 
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) 
simply requires the Commission to ``consider the costs and benefits'' 
of its action.
    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)

[[Page 67815]]

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 Commission published an analysis of costs and benefits when it 
proposed the rule amendments that have now been adopted.\27\ The 
Commission did not receive any public comments pertaining to the 
analysis.
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    \27\ 69 FR 53367, 53370 (September 1, 2004).
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List of Subjects

17 CFR Part 37

    Commodity futures, Commodity Futures Trading Commission.

17 CFR Part 38

    Commodity futures, Commodity Futures Trading Commission.

0
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 amends Chapter I of Title 17 
of the Code of Federal Regulations as follows:

PART 37--DERIVATIVES TRANSACTION EXECUTION FACILITIES

0
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).


0
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 
Sec.  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 Sec.  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);
    (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) through (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) 
through (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 Sec.  
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

[[Page 67816]]

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 Sec.  37.5(b)(2)(iii).
    (2) The Commission shall also terminate review under this section 
if requested in writing to do so by the applicant.
    (3) 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).
    (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 paragraph (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

0
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).


0
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 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 Sec.  40.1 of 
this chapter) and any technical manuals, other guides or instructions 
for users of, or participants in, the market, including minimum 
financial standards for members or market participants;
    (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 Sec.  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

[[Page 67817]]

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.  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.  
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).
    (2) The Commission shall also terminate review under this section 
if requested in writing to do so by the applicant.
    (3) 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).
    (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 paragraph (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 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, on November 12, 2004, by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-25614 Filed 11-19-04; 8:45 am]
BILLING CODE 6351-01-P