• Revisions to Various Rules in Connection with the Revised CFTC Core Principles Applicable to Designated Contract Markets

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • SER-6416
      • Notice Date
      • 08 October 2012
      • Effective Date
      • 17 October 2012
    • Pending all relevant regulatory review periods, effective October 17, 2012, CME, CBOT, NYMEX and COMEX will adopt revisions to various rules in order to conform the respective Exchanges’ rules to the revised CFTC Core Principles and associated regulations applicable to Designated Contract Markets (“DCMs”). 
       
      The revisions include the following:
       
      ·         Rules 230.k (“General”) and 402.C. (“Business Conduct Committee – Emergency Actions”) are being modified to clarify that the Board of Directors or the Business Conduct Committee, as applicable, have the authority to suspend, curtail or terminate trading in all contracts in an emergency situation and the authority to order the liquidation or transfer of positions where the holder is unable or unwilling to make or take delivery.  The changes are being adopted as a result of CFTC Regulation § 38.350 (“Core Principle 6”).  The revision to Rule 230.h. is based on the recently adopted Rule 418 (“Consent to Exchange Jurisdiction”) and associated revisions to Rule 400 (“General Provisions”).
       
      ·         The revisions to Rule 300.E. (“Exchange Committees – Disciplinary Offenses Defined”) replace a reference to “Member” with a reference to “Person” to clarify that any person serving on any of the committees referenced in Rule 300.D. (“Disqualification from Certain Committees and Governing Boards”) has an affirmative obligation to inform the Exchange if they become ineligible to serve because of having committed a disciplinary offense.
       
      ·         The revisions to Rule 400 are being adopted in connection with CFTC Regulation § 38.7 (“Prohibited Use of Data Collected for Regulatory Purposes”).
       
      ·         The revisions to Rule 415 (“Cooperation with Other Exchanges and Clearing Organizations”) are being adopted in accordance with the requirements of CFTC Regulations § 38.150 (“Core Principle 2”) and § 38.159 (“Ability to obtain information”) which require that a DCM have rules providing the DCM with the authority to obtain any information needed to remain in compliance with Core Principle 2.  The title of Rule 415 has also been modified to accurately characterize the new text of the rule.
       
      ·         The revisions to Rule 560 (“Position Accountability”) are being adopted in connection with the requirements of CFTC Regulation § 38.254 (“Ability to obtain information”).  Regulation § 38.254 requires a DCM to have rules requiring traders in its contracts to keep records of their trading, including records of their activity in the underlying commodity and related derivatives markets, and to make such records available to the DCM upon request.
       
      ·         The revisions to Rule 853 (“Transfers of Trades and Customer Accounts”) are being adopted to harmonize the window of time in which trades may be transferred to correct an error that is made in the clearing of a trade.  Historically, CME and CBOT have allowed two business days and NYMEX and COMEX have allowed four business days.  The harmonized rule allows three business days.
       
      The revisions are set forth below, with additions underscored and deletions overstruck.
       
      If you have any questions concerning these rule changes, please contact Robert Sniegowski, Senior Director, Market Regulation Department, at 312.341.5991 or Erin Schwartz, Senior Rules & Regulatory Outreach Specialist, at 312.341.3083.
       
      For media inquiries concerning this Special Executive Report, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.
       
       
       
      230.        GENERAL
      The Board shall, subject to applicable provisions in the relevant corporate charter and bylaws:
      a. Be the governing body of the Exchange;
      b. Have charge and control of all property of the Exchange;
      c. Provide, acquire and maintain suitable Exchange quarters and facilities;
      d. [Reserved];
      e. [Reserved];
      f. Designate and authorize specific appointed officers to act on behalf of the Board to execute contracts within specified budgetary limits;
      g. Fix, determine and levy all membership dues, fees and assessments when necessary;
      h. Act in a judicial capacity in the conduct of hearings with respect to any charges proffered against mMembers as defined in Rule 400 and non-membersand, after such hearings, determine what disciplinary action, if any, should be taken by the Exchange with respect to those charges;
      i. Determine the commodities traded, the Division in which they shall be traded, the delivery months, hours of trading, the days of the contract month on which delivery may be made, and performance bond requirements;
      j. Make and amend the Rules; provided, the Board has also delegated such authority to make and amend the Rules to the Executive Chairman and President and the Chief Executive Officer acting together; and
      k. Have power to act in emergencies. In the event that the Board or a hearing panel of the Board determines that an emergency situation exists in which the free and orderly market in a commodity is likely to be disrupted, or the financial integrity of the Exchange is threatened, or the normal functioning of the Exchange has been or is likely to be disrupted, it may, upon a majority vote of the members present or upon a majority vote of the members who respond to a poll, take such action as may in the Board's sole discretion appear necessary to prevent, correct or alleviate the emergency condition. Board members who abstain from voting on a Significant Action as defined in Rule 234 shall not be counted in determining whether such action was approved by a majority vote, but such members can be counted for the purpose of determining whether a quorum exists. Without limiting the foregoing, the Board may: (1) suspend, curtail orterminate trading in any or all contracts, (2) limit trading to liquidation of contracts only, (3) order liquidation or transferof all or a portion of a member's proprietary and/or customers' accounts, (4) order liquidation of positions of which the holder is unable or unwilling to make or take delivery, (5) confine trading to a specific price range, (6) modify the trading days or hours, (7) alter conditions of delivery, (8) fix the settlement price at which contracts are to be liquidated, and (9) require additional performance bonds to be deposited with the Clearing House. All Exchange contracts shall be subject to the Board's emergency powers and the specifications of each shall be deemed subject to this rule.
      Any authority or discretion by these rules vested in the Chairman, Chief Executive Officer, President or other officer or delegated to any committee shall not be construed to deprive the Board of such authority or discretion and in the event of a conflict, the determination of the matter by the Board shall prevail.
       
      300.        COMMITTEES
      [Sections A. – D. are unchanged.]
      300.E DISCIPLINARY OFFENSES DEFINED
      "Disciplinary offense" is defined as a:
      [Numbers (1) – (4) are unchanged.]
      A PersonMember who serves on any of the committees listed in Rule 300.D. shall inform the Exchange if he or she is currently ineligible, and shall immediately inform the Exchange if he or she later becomes ineligible, to serve on such committees under the standards set forth above with respect to disciplinary offenses. Violation of this rule shall be an act detrimental to the interest or welfare of the Exchange.
      [The remainder of the rule is unchanged.]
       
      400. GENERAL PROVISIONS
      The Board has adopted Rules, and from time to time adopts amendments and supplements to such Rules, to promote a free and open market on the Exchange, to maintain appropriate business conduct and to provide protection to the public in its dealings with the Exchange and its Members. The Board has created committees to which it has delegated responsibility for the investigation, hearing and imposition of penalties for violations of Exchange Rules. The Board has also delegated responsibility for the investigation and imposition of penalties for violations of Exchange Rules to Exchange staff as set forth in the Rules. The delegation of such responsibility and authority shall in no way limit the authority of the Board with respect to all Rule violations.
      Pursuant to CFTC Regulation §38.7, the Exchange may not use for business or marketing purposes any proprietary data or personal information collected or received, from or on behalf of any Person, for the purpose of fulfilling its regulatory obligations; provided however, that the Exchange may use such data or information for business or marketing purposes if the Person from whom it collects or receives such data or information clearly consents to the Exchange’s use of such data or information in such manner.  The Exchange may, where necessary or appropriate for regulatory purposes, share such data or information with one or more designated contract markets or swap execution facilities registered with the CFTC.  The Exchange is precluded from conditioning access to its markets on a Person’s consent to the use of such data for business or marketing purposes.
      [The remainder of the Rule is unchanged.]
       
      402.        BUSINESS CONDUCT COMMITTEE
      [Sections A. and B. are unchanged.]
      402.C.    Emergency Actions
      The BCC is authorized to determine whether an emergency exists and whether emergency action is warranted.  The following events and/or conditions may constitute emergencies:
      [Numbers 1. – 6. are unchanged.]
      In the event that the BCC determines, in the good faith exercise of its sole discretion, that an emergency exists, it may take any of the following emergency actions or any other action that may be appropriate to respond to the emergency:
      1.     Suspend, curtail or tTerminate trading in any or all contracts;
      2.     Limit or deny access to any CME Group trading or clearing platform or trading floor owned or controlled by CME Group;
      3.     Limit trading to liquidation of contracts only;
      4.     Impose or modify position limits and/or order liquidation of all or a portion of a Member or non-member’s account;
      5.     Order liquidation or transferof positions as to which the holder is unable or unwilling to make or take delivery;
      6.     Confine trading to a specific price range;
      7.     Modify price limits;
      8.     Modify the trading days or hours;
      9.     Modify conditions of delivery;
      10.  Establish the settlement price at which contracts are to be liquidated;
      11.  Require additional performance bond to be deposited with the Clearing House; and/or
      12.          Order any other action or undertaking to address or relieve the emergency.
      [The remainder of the Rule is unchanged.]
       
       
       
      415.        COOPERATION WITH OTHER EXCHANGES AND CLEARING ORGANIZATIONS AND INTERNATIONAL GOVERNMENT INFORMATION-SHARING AGREEMENTS
      The Chief Executive Officer or the President, or their delegates, are authorized to provide information to:
      A.     an exchange or clearing organization that is a party to an information sharing agreement with the Exchange, in accordance with the terms and conditions of such agreement;. or
      B.     a duly authorized foreign regulator or governmental entity, as directed by the Commission, in accordance with an information-sharing agreement executed with the Commission.
       
      Rule 560.              POSITION ACCOUNTABILITY
      The Market Regulation Department may, at any time, require aA person who owns or controls positions in excess of reportable levels or where such Person otherwise holds substantial positions in contracts traded on the Exchangeor cleared by the Exchange Clearing House shall keep records, including records of their activity in the underlying commodity and which are subjectrelated derivative markets, and make such records available, upon request, to position limit or position accountability rules tothe Exchange. 
      Upon request by the Market Regulation Department, such person shall alsoprovide information relating to such person’s position. the positions owned or controlled by that person including, but not limited to, the nature and size of the position, the trading strategy employed with respect to the position, and hedging information, if applicable.
      For purposes of this rule, all positions in accounts for which a person, by power of attorney or otherwise, directly or indirectly holds positions or controls trading shall be included with the positions held by such person. Additionally, positions held by two or more persons acting pursuant to an expressed or implied agreement or understanding shall be treated the same as if the positions were held by a single person.
      Upon request by the Market Regulation Department, such person shall provide information relating to the positions owned or controlled by that person including, but not limited to, the nature and size of the position, the trading strategy employed with respect to the position, and hedging information, if applicable. If the person from whom such records orinformation is requested fails to provide the informationcomply as directed, the Market Regulation Department may order the reduction of such position, in addition to taking disciplinary action as a result of such failure.
      A person who exceeds position accountability or position limit levels as a result of maintaining positions at more than one clearing firm shall be deemed to have waived confidentiality regarding his position and the identity of the clearing members at which the positions are maintained.
      A person who holds or controls aggregate positions in excess of specified position accountability levels or in excess of position limits pursuant to an approved exemption shall be deemed to have consented, when so ordered by the Market Regulation Department, not to further increase the positions, to comply with any prospective limit which exceeds the size of the position owned or controlled, or to reduce any open position which exceeds position accountability or position limit levels. Any order to reduce an open position shall be issued by the Chief Regulatory Officer or his designee, if he determines in his sole discretion, that such action is necessary to maintain an orderly market.
      A clearing member that carries positions for another person shall be responsible for taking reasonable and diligent actions to effect the timely compliance with any order issued pursuant to this rule upon notification of such order by the Market Regulation Department.
      All positions must be initiated and liquidated in an orderly manner.
       
      CME and CBOT Revisions
       
      853.        TRANSFERS OF TRADES AND CUSTOMER ACCOUNTS
      853.A.    Transfers of Trades
      1. Subject to the limitations of Rule 854, existing trades may be transferred either on the books of a clearing member or from one clearing member to another clearing member provided:
      i. The transfer merely constitutes a change from one account to another account provided the underlying beneficial ownership in said accounts remains the same; or
      ii. An error has been made in the clearing of a trade and the error is discovered and the transfer is completed within threetwo Bbusiness Ddays after the trade date.
      [The remainder of the rule is unchanged.]
       
       
      NYMEX and COMEX Revisions
       
      853.        TRANSFERS OF TRADES AND CUSTOMER ACCOUNTS
      853.A.    Transfers of Trades
      1. Subject to the limitations of Rule 854, existing trades may be transferred either on the books of a clearing member or from one clearing member to another clearing member provided:
      i. The transfer merely constitutes a change from one account to another account provided the underlying beneficial ownership in said accounts remains the same; or
      ii. An error has been made in the clearing of a trade and the error is discovered and the transfer is completed within threefour Bbusiness Ddays after the trade date.
      [The remainder of the rule is unchanged.]

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