Designated Contract Markets

Designation as a Contract Market

Designated contract markets (DCMs) are boards of trade (or exchanges) that operate under the regulatory oversight of the CFTC, pursuant to Section 5 of the Commodity Exchange Act (CEA), 7 USC 7. DCMs are most like traditional futures exchanges, which may allow access to their facilities by all types of traders, including retail customers.

DCMs may list for trading futures or option contracts based on any underlying commodity, index or instrument. Part 38 of the CFTC’s regulations, 17 CFR Part 38, details the procedures and requirements for operating as a board of trade (or exchange).

How to Become a Designated Contract Market

Any market that seeks to provide a trading facility to trade futures, options on futures or options on commodities must apply to the Commission to be designated as a contract market (DCM), unless some exemption or exclusion would apply to the facility. Criteria, procedures and requirements for designation as a DCM are set forth in Section 5 of the CEA, 7 USC 7, and Part 38 of the CFTC's regulations. Appendix A and B provide specific information on these requirements and guidance to applicants seeking to become designated as DCMs.

Security futures products are subject to special requirements such as joint CFTC and Securities and Exchange Commission (SEC) oversight, and can be offered only by markets that are either regulated by the CFTC and notice-registered with the SEC or regulated by the SEC and notice-registered with the CFTC. Options on securities and securities indexes can only be traded on a securities exchange under the jurisdiction of the SEC.

Ongoing Compliance with Designation Criteria

To obtain and maintain its designation, a DCM must comply with the designation criteria established in Section 5b of the CEA, 7 USC 7(b), and Part 38:

• General demonstration of adherence to designation criteria;
• Prevention of market manipulation;
• Fair and equitable trading;
• Enforcement of rules on the trade execution facility;
• Financial integrity of transactions;
• Disciplinary procedures;
• Public access to information on the contract market; and
• Ability of the contract market to obtain information.

Appendix A to Part 38 of the CFTC’s regulations provides specific information on these designation requirements and guidance to applicants seeking to become DCMs.

Ongoing Compliance with Core Principles

To obtain and maintain its designation, a DCM must also comply with the 18 core principles established in Section 5(d) of the CEA, 7 USC 7(d) and Part 38 of the CFTC's regulations. Designated contract markets must comply on an initial and continuing basis with these 18 core principles:

1. In general
2. Compliance with rules
3. Contracts not readily subject to manipulation
4. Monitoring of trading
5. Position limits or accountability
6. Emergency authority
7. Availability of general information
8. Daily publication of trading information
9. Execution of transactions
10. Trade information
11. Financial integrity of contracts
12. Protection of market participants
13. Dispute resolution
14. Governance fitness standards
15. Conflicts of interest
16. Composition of boards of mutually owned markets
17. Record keeping
18. Antitrust considerations

Appendix B to Part 38 provides additional information and guidance to applicants on how DCMs can remain in compliance with the core principles.

Section 5(c) of the CEA, 7 USC 7(c), provides that boards of trade that were designated contract markets on the date of enactment of the Commodity Futures Modernization Act of 2000 (CFMA) (December 21, 2000) are to be considered designated contract markets under the CEA as of that date.

The Division of Market Oversight's Market Compliance Section conducts regular reviews of each DCM’s ongoing compliance with core principles through the self-regulatory programs operated by the exchange in order to enforce its rules, prevent market manipulation and customer and market abuses, and ensure the recording and safe storage of trade information. These reviews are known as rule enforcement reviews (RERs).

Designated Contract Market Filings

Designated contract markets may implement new rules or rule amendments or list new products by filing with the CFTC a certification that the rule or rule amendment complies with the CEA and CFTC regulations and policies and/or by requesting approval from the CFTC. DCMs, like other entities, may submit requests that the CFTC take action on a number of other issues, including requesting no-action relief, interpretations, or guidance on particular issues.

Dormant Designated Contract Markets

A dormant contract market defined in CFTC Regulation 40.1, is any contract market on which no trading has occurred for over a period of 12 months. (See attached list of dormant DCMs) Prior to listing or re-listing products for trading, a dormant contract market must reinstate its designation. To be reinstated, a dormant contract market submits an application for reinstatement under the procedures found in CFTC Regulation 38.3(a)(1), although the application might rely on previously submitted materials that still pertain to, and accurately describe, the contract market conditions.

Newly designated contract markets, however, are not considered to be dormant until the end of a grace period of 36 complete calendar months following the day that the order of designation was issued or that the contract market was deemed to be designated. Since Section 5(c) of the CEA provides that boards of trade that were designated as contract markets on December 21, 2000, the date of enactment of the CFMA, they were to be considered as designated contract markets as of that date, and the 36-month grace period for those contract markets ended on December 31, 2003.

Vacated Exchange

Exchanges previously designated by the CFTC or by the Secretary of Agriculture prior to 1975 as contract markets under the CEA and subsequently vacated at the request of the exchange or whose designation was otherwise revoked must reapply to the CFTC for contract market designation prior to listing contracts for trading. For vacated exchanges see attached list.