How to Register as a Derivatives Transaction Execution Facility

Criteria for Registration as a Derivatives Transaction Execution Facility

Criteria for initial designation as a derivatives transaction execution facility (DTEF) are set forth in Section 5a(c) of the Commodity Exchange Act (CEA), 7 USC 7a(c), and Part 37 of the CFTC’s regulations, 17 CFR Part 37, and relate to the following standards:

1. General demonstration of adherence to registration criteria;
2. Deterrence of abuses;
3. Establishment of trading procedures; and
4. Provision for financial integrity of transactions.

Appendix A to Part 37 of the CFTC’s regulations provides guidance to applicants for compliance with these registration requirements.

Ongoing Compliance with Core Principles

A registered DTEF must comply initially and on a continuing basis with the following core principles:

1. In general
2. Compliance with rules
3. Monitoring of trading
4. Disclosure of general information
5. Daily publication of trading information
6. Fitness standards
7. Conflicts of interest
8. Recordkeeping
9. Antitrust considerations

Appendix B to Part 37 of the CFTC’s regulations provides guidance concerning the core principles with which a registered DTEF must comply to maintain its registration. This guidance is illustrative only and is not intended to stipulate the only means by which a registered DTEF may comply with the core principles.

Derivatives Transaction Execution Facility Registration

Applications should be filed with the CFTC either via mail to its Washington, DC headquarters office or electronically via email to secretary@cftc.gov.

Potential applicants are encouraged to contact CFTC staff for guidance and assistance in preparing an application for registration and to submit draft documents to the CFTC for review and feedback by the staff prior to submission of a formal application. Questions may be submitted via email to secretary@cftc.gov, Fax to 202-418-5527, or telephone to 202-418-5260.

Except as provided under the expedited 90-day review procedures described below, the Commission will review a DTEF application pursuant to the 180-day time frame and procedures specified in Section 6(a) of the CEA, 7 USC 8(a). The Commission will approve or deny the application or, if deemed appropriate, register the applicant as a DTEF subject to conditions.

Part 37 Registration Process
An applicant must demonstrate that it satisfies the statutory requirements for trading set forth in Section 5a(b) of the CEA, 7 USC 7a(b), the criteria for registration set forth in Section 5a(c) of the CEA, 7 USC 7a(c), and the provisions of Part 37 of the CFTC’s regulations.

An application for contract market designation under Part 37 should include:

a statement that the applicant is applying to become a registered DTEF pursuant to Part 37;
a copy of the applicant's rules, as defined in CFTC Regulation 40.1 (which may be procedures, trading protocols, agreements, terms and conditions, etc.), governing the operation of the exchange;
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;
a copy of any documents describing the applicant's legal status and governance structure;
a signed copy of any agreements or contracts 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 registration criterion or core principle (a final draft copy of such agreements may be submitted with the application; however signed copies of such documents must be submitted prior to approval);
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;
a regulatory chart or other document that describes the manner in which the applicant will comply with each registration criterion (see sample regulatory chart);
to the extent that any aspect of the application raises issues that are novel, or for which compliance with a registration criterion or a core principle is not self-evident, an explanation as to how the designation criteria or core principles are satisfied; and
a detailed description of any information in the application for which confidential treatment is requested.

Part 37 of the CFTC’s regulations provides a complete description of the requirements for recognition as a DTEF. Appendix A to Part 37 provides guidance to applicants on how to meet the specific conditions for initial registration as a DTEF. Appendix B to Part 37 provides guidance to applicants on how DTEFs can remain in compliance with the core principles.

Expedited (90-day) Review

An applicant desiring to be registered as a DTEF may request that its application be reviewed on an expedited basis and that the applicant be registered as a DTEF not later than 90 days after the date of receipt of the application. The 90-day period begins on the first business day (during business hours as defined in CFTC Regulation 40.1) 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 as described below, the Commission will register the applicant as a DTEF during the 90-day period. If deemed appropriate by the Commission, the designation may be subject to such conditions as the Commission may stipulate.

To receive expedited review, an applicant must demonstrate that it satisfies the criteria for registration of Sections 5a(b) and 5a(c) of the Commodity Exchange Act, respectively, and the provisions of Part 37. The application must include the necessary information and documents related to the items listed above, and the applicant must not amend or supplement the application, except as requested by the Commission or for correction of typographical errors, renumbering or other non-substantive revisions, during the 90-day review period.

The Commission may terminate expedited review and review the application under the 180-day time period and procedures of Section 6(a) of the CEA, 7 USC 8(a). Such action may be taken 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 material manner that has not been requested by the Commission. In addition, the Commission shall terminate expedited review if requested in writing to do so by the applicant. If expedited review is terminated, the Commission will provide a written notification to the applicant specifying the reasons for this action.

Existing Designated Contract Markets

Under CFTC Regulation 37.5(a), existing DCMs must notify the CFTC of their intent to operate as a DTEF by filing a notice at the CFTC’s Washington DC headquarters which includes:

a copy of the facility’s rules, as defined in CFTC Regulation 40.1, 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

the statutory requirements for trading set forth in Section 5a(b) of the CEA, and
the criteria for registration set forth in Section 5a(c) of the CEA.

The designated contract market must also comply with the core principles for operation of a DTEF as set forth in Section 5a(d) of the CEA, and the provisions of Part 37 of the CFTC’s regulations.

Last Updated: September 12, 2007