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U.S. Code as of:
01/03/05
Section 7. Designation of boards of trade as contract markets
(a) Applications
A board of trade applying to the Commission for designation as a
contract market shall submit an application to the Commission that
includes any relevant materials and records the Commission may
require consistent with this chapter.
(b) Criteria for designation
(1) In general
To be designated as a contract market, the board of trade shall
demonstrate to the Commission that the board of trade meets the
criteria specified in this subsection.
(2) Prevention of market manipulation
The board of trade shall have the capacity to prevent market
manipulation through market surveillance, compliance, and
enforcement practices and procedures, including methods for
conducting real-time monitoring of trading and comprehensive and
accurate trade reconstructions.
(3) Fair and equitable trading
The board of trade shall establish and enforce trading rules to
ensure fair and equitable trading through the facilities of the
contract market, and the capacity to detect, investigate, and
discipline any person that violates the rules. The rules may
authorize -
(A) transfer trades or office trades;
(B) an exchange of -
(i) futures in connection with a cash commodity
transaction;
(ii) futures for cash commodities; or
(iii) futures for swaps; or
(C) a futures commission merchant, acting as principal or
agent, to enter into or confirm the execution of a contract for
the purchase or sale of a commodity for future delivery if the
contract is reported, recorded, or cleared in accordance with
the rules of the contract market or a derivatives clearing
organization.
(4) Trade execution facility
The board of trade shall -
(A) establish and enforce rules defining, or specifications
detailing, the manner of operation of the trade execution
facility maintained by the board of trade, including rules or
specifications describing the operation of any electronic
matching platform; and
(B) demonstrate that the trade execution facility operates in
accordance with the rules or specifications.
(5) Financial integrity of transactions
The board of trade shall establish and enforce rules and
procedures for ensuring the financial integrity of transactions
entered into by or through the facilities of the contract market,
including the clearance and settlement of the transactions with a
derivatives clearing organization.
(6) Disciplinary procedures
The board of trade shall establish and enforce disciplinary
procedures that authorize the board of trade to discipline,
suspend, or expel members or market participants that violate the
rules of the board of trade, or similar methods for performing
the same functions, including delegation of the functions to
third parties.
(7) Public access
The board of trade shall provide the public with access to the
rules, regulations, and contract specifications of the board of
trade.
(8) Ability to obtain information
The board of trade shall establish and enforce rules that will
allow the board of trade to obtain any necessary information to
perform any of the functions described in this subsection,
including the capacity to carry out such international
information-sharing agreements as the Commission may require.
(c) Existing contract markets
A board of trade that is designated as a contract market on
December 21, 2000, shall be considered to be a designated contract
market under this section.
(d) Core principles for contract markets
(1) In general
To maintain the designation of a board of trade as a contract
market, the board of trade shall comply with the core principles
specified in this subsection. The board of trade shall have
reasonable discretion in establishing the manner in which it
complies with the core principles.
(2) Compliance with rules
The board of trade shall monitor and enforce compliance with
the rules of the contract market, including the terms and
conditions of any contracts to be traded and any limitations on
access to the contract market.
(3) Contracts not readily subject to manipulation
The board of trade shall list on the contract market only
contracts that are not readily susceptible to manipulation.
(4) Monitoring of trading
The board of trade shall monitor trading to prevent
manipulation, price distortion, and disruptions of the delivery
or cash-settlement process.
(5) Position limitations or accountability
To reduce the potential threat of market manipulation or
congestion, especially during trading in the delivery month, the
board of trade shall adopt position limitations or position
accountability for speculators, where necessary and appropriate.
(6) Emergency authority
The board of trade shall adopt rules to provide for the
exercise of emergency authority, in consultation or cooperation
with the Commission, where necessary and appropriate, including
the authority to -
(A) liquidate or transfer open positions in any contract;
(B) suspend or curtail trading in any contract; and
(C) require market participants in any contract to meet
special margin requirements.
(7) Availability of general information
The board of trade shall make available to market authorities,
market participants, and the public information concerning -
(A) the terms and conditions of the contracts of the contract
market; and
(B) the mechanisms for executing transactions on or through
the facilities of the contract market.
(8) Daily publication of trading information
The board of trade shall make public daily information on
settlement prices, volume, open interest, and opening and closing
ranges for actively traded contracts on the contract market.
(9) Execution of transactions
The board of trade shall provide a competitive, open, and
efficient market and mechanism for executing transactions.
(10) Trade information
The board of trade shall maintain rules and procedures to
provide for the recording and safe storage of all identifying
trade information in a manner that enables the contract market to
use the information for purposes of assisting in the prevention
of customer and market abuses and providing evidence of any
violations of the rules of the contract market.
(11) Financial integrity of contracts
The board of trade shall establish and enforce rules providing
for the financial integrity of any contracts traded on the
contract market (including the clearance and settlement of the
transactions with a derivatives clearing organization), and rules
to ensure the financial integrity of any futures commission
merchants and introducing brokers and the protection of customer
funds.
(12) Protection of market participants
The board of trade shall establish and enforce rules to protect
market participants from abusive practices committed by any party
acting as an agent for the participants.
(13) Dispute resolution
The board of trade shall establish and enforce rules regarding
and provide facilities for alternative dispute resolution as
appropriate for market participants and any market
intermediaries.
(14) Governance fitness standards
The board of trade shall establish and enforce appropriate
fitness standards for directors, members of any disciplinary
committee, members of the contract market, and any other persons
with direct access to the facility (including any parties
affiliated with any of the persons described in this paragraph).
(15) Conflicts of interest
The board of trade shall establish and enforce rules to
minimize conflicts of interest in the decisionmaking process of
the contract market and establish a process for resolving such
conflicts of interest.
(16) Composition of boards of mutually owned contract markets
In the case of a mutually owned contract market, the board of
trade shall ensure that the composition of the governing board
reflects market participants.
(17) Recordkeeping
The board of trade shall maintain records of all activities
related to the business of the contract market in a form and
manner acceptable to the Commission for a period of 5 years.
(18) Antitrust considerations
Unless necessary or appropriate to achieve the purposes of this
chapter, the board of trade shall endeavor to avoid -
(A) adopting any rules or taking any actions that result in
any unreasonable restraints of trade; or
(B) imposing any material anticompetitive burden on trading
on the contract market.
(e) Current agricultural commodities
(1) Subject to paragraph (2) of this subsection, a contract for
purchase or sale for future delivery of an agricultural commodity
enumerated in section 1a(4) of this title that is available for
trade on a contract market, as of December 21, 2000, may be traded
only on a contract market designated under this section.
(2) In order to promote responsible economic or financial
innovation and fair competition, the Commission, on application by
any person, after notice and public comment and opportunity for
hearing, may prescribe rules and regulations to provide for the
offer and sale of contracts for future delivery or options on such
contracts to be conducted on a derivatives transaction execution
facility.
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