[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR38.3]

[Page 409-410]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 38--DESIGNATED CONTRACT MARKETS--Table of Contents
 
Sec. 38.3  Procedures for designation by application.

    (a)(1) Initial Application. A board of trade or trading facility 
shall be deemed to be designated as a contract market sixty days after 
receipt (during the business hours defined in Sec. 40.1 of this chapter) 
by the Secretary of the Commission at its Washington, DC, headquarters, 
of an application for designation unless notified otherwise during that 
period, or, as determined by Commission order, designated upon 
conditions, if:
    (i) The application demonstrates that the applicant satisfies the 
criteria for designation of section 5(b) of the Act, the core principles 
for operation under section 5(d) of the Act and the provisions of this 
part 38;
    (ii) The application is labeled as being submitted pursuant to this 
part 38;
    (iii) The application includes:
    (A) A copy of the applicant's rules 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 the nature of contingency or disaster 
recovery plans;
    (C) A copy of any documents pertaining to the applicant's legal 
status and governance structure, including governance fitness 
information;
    (D) A 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, member or user 
agreements, that enable or empower the applicant to comply with a 
designation criterion or core principal; and
    (E) To the extent that any of the items in Sec. 38.3(a)(1)(iii)(A)-
(D) raise issues that are novel, or for which compliance with a 
condition for designation is not self-evident, a brief explanation of 
how that item and the application satisfies the conditions for 
designation;
    (iv) The applicant does not amend or supplement the designation 
application, except as requested by the Commission or for correction of 
typographical errors, renumbering or other nonsubstantive revisions, 
during that period;
    (v) The applicant identifies with particularity information in the 
application that will be subject to a request for confidential treatment 
and supports that request for confidential treatment with reasonable 
justification; and
    (vi) The applicant has not instructed the Commission in writing at 
the time of submission of the application or during the review period to 
review the application pursuant to procedures under section 6 of the 
Act.
    (2) 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) 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.
    (b) Guidance regarding application for designation. An applicant for 
contract market designation may meet the following conditions for 
designation as specified in this paragraph:
    (1) Prevention of market manipulation. The designation criterion to 
prevent market manipulation under section 5(b)(2) of the Act also 
includes the requirement that the designated contract market have a 
dedicated regulatory department, or delegation of that function;
    (2) Fair and equitable trading. The designation criterion requiring 
fair and equitable trading rules under section 5(b)(3) of the Act also 
includes fair, equitable and timely availability to market participants 
of information regarding, as appropriate to the market, prices, bids and 
offers;
    (3) Disciplinary procedures. The designation criterion to enforce 
disciplinary procedures under section 5(b)(6) of

[[Page 410]]

the Act may be satisfied by an organized exchange or a trading facility 
with respect to members with trading privileges but having no, or only 
nominal, equity, in the facility and non-member market participants of 
the contract market by expelling or by denying future access, either 
directly or indirectly, to such a person found to have violated the 
contract market's rules;
    (4) Governance fitness standards. The requirement to establish 
appropriate minimum fitness standards for participants having direct 
access to the facility, under the core principle on fitness pursuant to 
section 5(d)(14) of the Act, includes natural persons that directly or 
indirectly have greater than a ten percent ownership interest in the 
facility; and
    (5) In general. Appendix A to this part provides guidance to 
applicants for designation as contract markets on how the criteria for 
designation under section 5(b) of the Act can be satisfied, and Appendix 
B to this part provides guidance to applicants for designation and 
designated contract markets on how the core principles of section 5(d) 
of the Act can be satisfied;
    (c) Termination of fast track review. During the sixty-day period 
for review pursuant to paragraph (a) of this section, the Commission 
shall notify the applicant seeking designation that the Commission is 
terminating review under this section and will review the proposal under 
the time period and procedures of section 6 of the Act, if it appears 
that the application's form or substance fails to meet the requirements 
of this part. This termination notification will state the nature of the 
issues raised and the specific condition of designation that the 
applicant would violate, appears to violate, or the violation of which 
cannot be ascertained from the application. Within ten days of receipt 
of this termination notification, the applicant seeking designation may 
request that the Commission render a decision whether to designate the 
contract market or to institute a proceeding to deny the proposed 
application under procedures specified in section 6 of the Act by 
notifying the Commission that the applicant views its submission as 
complete and final as submitted.
    (d) Request for withdrawal of application for designation or 
vacation of designation. An applicant to be designated, or a designated 
contract market, may withdraw its application or vacate its designation 
under section 7 of the Act by filing with the Secretary of the 
Commission at its Washington, DC, headquarters such a request. 
Withdrawal of an application for designation or 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 
application for designation was pending with, or that the facility was 
designated by, the Commission.
    (e) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of 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 delegatee, authority to notify the 
entity seeking designation under paragraph (a) of this section that 
review under those procedures is being terminated or to designate the 
entity as a contract market upon conditions.
    (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.

[66 FR 42277, Aug. 10, 2001, as amended at 67 FR 62352, Oct. 7, 2002; 67 
FR 62878, Oct. 9, 2002]