On June 19, the Commodity Futures Trading Commission published final rules relating to core principles and other requirements for designated contract markets (DCMs). The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) amended the DCM core principles by eliminating the eight criteria for contract market designation, amending many of the core principles for DCMs and adding five new core principles relating to disciplinary procedures, system safeguards, financial resources,. diversity of boards of directors and access to swap records by the Securities and Exchange Commission.
The CFTC’s final rules address the Dodd-Frank Act requirements by implementing twenty-three new and amended core principles for DCMs and incorporating provisions related to the trading and execution of swaps on DCMs. The final rules also establish financial information and resource requirements, compliance and surveillance obligations, operational requirements, trading and product requirements and risk control mechanisms for DCMs.
The final rules also include a requirement that market participants trading on a contract market consent to the jurisdiction of the DCM. The CFTC has made clear that this requirement applies, in addition to market participants with direct market access, to persons whose trades are intermediated, persons who are customers of DCM member firms, and persons whose access to the exchange is granted by or through member firms.
In addition, the final rules revise the application process for DCMs and include a new DCM application form with a comprehensive list of instructions and exhibits. Among other things, the CFTC has eliminated its ninety-day accelerated approval procedure for DCM applications but requires all applications for designation as a contract market to be reviewed by the CFTC within 180 days, unless extended with the consent of the applicant.
The rules will become effective on August 20. With one exception related to the access requirements articulated in Rule 38.151(a), the compliance date for the new and amended rules is October 17. The compliance date for the access requirements for existing DCM members and market participants will be 180 days after the effective date to allow DCMs enough time to obtain consents to the DCM’s jurisdiction from all existing market participants.
The final rule is available here.