Industry Oversight
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Requesting Prior Approval of a New Designated Contract Market or Derivatives Transaction Execution Facility Rule or Rule Amendment
See, generally, CFTC Regulation 40.5, which establishes procedures for a designated contract market (DCM) or registered derivatives transaction execution facility (DTEF) to request CFTC approval of a new rule or a rule amendment regarding exchange trading or listing of exchange products. These same procedures are applicable to those amendments to the terms and conditions of contracts on enumerated agricultural commodities that are required to be submitted for prior CFTC approval pursuant to CFTC Regulation 40.4.
Procedures for Listing Products details the procedures regarding the listing of new products.
1. The DCM or DTEF must file its request electronically with the Secretary of the CFTC at secretary@cftc.gov and at the CFTC regional office having local jurisdiction over the DCM or DTEF (to determine the correct regional office, consult CFTC Regulation 140.2).
2. The request must:
a. Include a Submission Cover Sheet which must be filled out in accordance with the instructions in Appendix D to 17 CFR Part 40;
b. Set forth the text of the proposed rule or rule amendment (in the case of a rule amendment, deletions and additions must be indicated);
c. Describe the proposed effective date of a proposed rule and any action taken or anticipated to be taken to adopt the proposed rule by the DCM or DTEF or by its governing board or by any committee thereof, and cite the rules of the entity that authorizes the adoption of the proposed rule;
d. Explain the operation, purpose, and effect of the proposed rule, including, as applicable, a description of the anticipated benefits to market participants or others, any potential anticompetitive effects on market participants or others, how the rule fits into the DCM’s and DTEF’s framework of self-regulation, and any other information which may be beneficial to the CFTC in analyzing the proposed rule (if a proposed rule affects, directly or indirectly, the application of any other rule of the submitting registered entity, set forth the pertinent text of any such rule and describe the anticipated effect);
e. Briefly describe any substantive opposing views expressed to the DCM or DTEF by governing board or committee members, members of the entity or market participants with respect to the proposed rule that were not incorporated into the proposed rule;
f. Identify any CFTC regulation that the CFTC may need to amend, or sections of the Commodity Exchange Act (CEA) or CFTC regulations that the CFTC may need to interpret, in order to approve the proposed rule. To the extent that such an amendment or interpretation is necessary to accommodate a proposed rule, the submission should include a reasoned analysis supporting the amendment to the CFTC regulation or the interpretation; and
g. Identify with particularity information in the submission that will be subject to a request for confidential treatment and support that request for confidential treatment with reasonable justification.
Timeline for Review
In general, the review period is 45 days. To qualify for 45-day review, the request must comply with the requirements discussed above, and the DCM or DTEF must not amend the proposed rule or supplement the submission, except as requested by the CFTC, during the pendency of the review period. Any amendment or supplementation not requested by the CFTC will be treated as the submission of a new filing under this section.
1. An additional 45 days, if the proposed rule raises novel or complex issues that require additional time for review or is of major economic significance, in which case the CFTC would notify the submitting DCM or DTEF within the initial 45-day review period and would briefly describe the nature of the specific issues for which additional time for review would be required; or
Standard By Which the CFTC Reviews Rules or Rule Amendments Submitted for Approval
Section 5c(c)(3) of the CEA, 7 USC 7a-2(c)(3), provides that the CFTC shall approve any new rule or rule amendment unless it finds that the rule or rule amendment would violate the CEA. The general requirements for DCMs are found in Section 5 of the CEA, 7 USC 7, and Part 38 of the CFTC's regulations. DTEFs are governed by Section 5a of the CEA and Part 37 of the CFTC's regulations. The particular requirements for approval of rules and rule amendments related to the economic terms and conditions of a contract are contained in the CFTC's Guideline No. 1, Appendix A to Part 40 of the CFTC’s regulations.
What Happens if the CFTC Does Not Approve the Rule or Rule Amendment?
The CFTC, at any time during its review under this section, may notify the DCM or DTEF that it will not, or is unable to, approve the proposed rule or rule amendment. This notification will briefly specify the nature of the issues raised and the specific provision of the CEA or regulations, including the form or content requirements of this section, that the proposed rule would violate, appears to violate, or the violation of which cannot be ascertained from the submission.
This notification shall be presumptive evidence that the DCM or DTEF may not truthfully certify that the same, or substantially the same, proposed rule or rule amendment does not violate the CEA or regulations thereunder.
However, this notification does not prejudice the entity from subsequently submitting a revised version of the proposed rule or rule amendment for CFTC approval or from submitting the rule or rule amendment as initially proposed pursuant to a supplemented submission.
CFTC Regulation 40.5(f) provides for a procedure whereby amendments to the terms and conditions of a product may qualify for "Expedited Approval." To be eligible for this expedited approval procedure, the changes must be consistent with the CEA and CFTC regulations and with standards approved or established by the CFTC in a written notification to the DCM or DTEF.