Core principles for contract markets
Designation as contract market
To be designated, and maintain a designation, as a contract market, a board of trade shall comply with—
(i) any core principle described in this subsection; and
(ii) any requirement that the Commission may impose by rule or regulation pursuant to section 12a(5) of this title.
Reasonable discretion of contract market
Unless otherwise determined by the Commission by rule or regulation, a board of trade described in subparagraph (A) shall have reasonable discretion in establishing the manner in which the board of trade complies with the core principles described in this subsection.
Compliance with rules
The board of trade shall establish, monitor, and enforce compliance with the rules of the contract market, including—
(i) access requirements;
(ii) the terms and conditions of any contracts to be traded on the contract market; and
(iii) rules prohibiting abusive trade practices on the contract market.
Capacity of contract market
The board of trade shall have the capacity to detect, investigate, and apply appropriate sanctions to any person that violates any rule of the contract market.
Requirement of rules
The rules of the contract market shall provide the board of trade with the ability and authority to obtain any necessary information to perform any function described in this subsection, including the capacity to carry out such international information-sharing agreements as the Commission may require.
Contracts not readily subject to manipulation
The board of trade shall list on the contract market only contracts that are not readily susceptible to manipulation.
Prevention of market disruption
The board of trade shall have the capacity and responsibility to prevent manipulation, price distortion, and disruptions of the delivery or cash-settlement process through market surveillance, compliance, and enforcement practices and procedures, including—
(A) methods for conducting real-time monitoring of trading; and
(B) comprehensive and accurate trade reconstructions.
Position limitations or accountability
To reduce the potential threat of market manipulation or congestion (especially during trading in the delivery month), the board of trade shall adopt for each contract of the board of trade, as is necessary and appropriate, position limitations or position accountability for speculators.
Maximum allowable position limitation
For any contract that is subject to a position limitation established by the Commission pursuant to section 6a(a) of this title, the board of trade shall set the position limitation of the board of trade at a level not higher than the position limitation established by the Commission.
(A) to liquidate or transfer open positions in any contract;
(B) to suspend or curtail trading in any contract; and
(C) to require market participants in any contract to meet special margin requirements.
Availability of general information
The board of trade shall make available to market authorities, market participants, and the public accurate information concerning—
(A) the terms and conditions of the contracts of the contract market; and
(i) the rules, regulations, and mechanisms for executing transactions on or through the facilities of the contract market; and
the rules and specifications describing the operation of the contract market’s—(I) electronic matching platform; or(II) trade execution facility.
Daily publication of trading information
The board of trade shall make public daily information on settlement prices, volume, open interest, and opening and closing ranges for actively traded contracts on the contract market.
Execution of transactions
The board of trade shall provide a competitive, open, and efficient market and mechanism for executing transactions that protects the price discovery process of trading in the centralized market of the board of trade.
The rules of the board of trade may authorize, for bona fide business purposes—
(i) transfer trades or office trades;
an exchange of—(I) futures in connection with a cash commodity transaction;(II) futures for cash commodities; or(III) futures for swaps; or
(iii) a futures commission merchant, acting as principal or agent, to enter into or confirm the execution of a contract for the purchase or sale of a commodity for future delivery if the contract is reported, recorded, or cleared in accordance with the rules of the contract market or a derivatives clearing organization.
The board of trade shall maintain rules and procedures to provide for the recording and safe storage of all identifying trade information in a manner that enables the contract market to use the information—
(A) to assist in the prevention of customer and market abuses; and
(B) to provide evidence of any violations of the rules of the contract market.
Financial integrity of transactions
The board of trade shall establish and enforce—
(A) rules and procedures for ensuring the financial integrity of transactions entered into on or through the facilities of the contract market (including the clearance and settlement of the transactions with a derivatives clearing organization); and
rules to ensure—
the financial integrity of any—(I) futures commission merchant; and(II) introducing broker; and
(ii) the protection of customer funds.
Protection of markets and market participants
The board of trade shall establish and enforce rules—
(A) to protect markets and market participants from abusive practices committed by any party, including abusive practices committed by a party acting as an agent for a participant; and
(B) to promote fair and equitable trading on the contract market.
The board of trade shall establish and enforce disciplinary procedures that authorize the board of trade to discipline, suspend, or expel members or market participants that violate the rules of the board of trade, or similar methods for performing the same functions, including delegation of the functions to third parties.
The board of trade shall establish and enforce rules regarding, and provide facilities for alternative dispute resolution as appropriate for, market participants and any market intermediaries.
Governance fitness standards
The board of trade shall establish and enforce appropriate fitness standards for directors, members of any disciplinary committee, members of the contract market, and any other person with direct access to the facility (including any party affiliated with any person described in this paragraph).
Conflicts of interest
The board of trade shall establish and enforce rules—
(A) to minimize conflicts of interest in the decision-making process of the contract market; and
(B) to establish a process for resolving conflicts of interest described in subparagraph (A).
Composition of governing boards of contract markets
The governance arrangements of the board of trade shall be designed to permit consideration of the views of market participants.
The board of trade shall maintain records of all activities relating to the business of the contract market—
(A) in a form and manner that is acceptable to the Commission; and
(B) for a period of at least 5 years.
Unless necessary or appropriate to achieve the purposes of this chapter, the board of trade shall not—
(A) adopt any rule or taking 1
1 So in original. Probably should be “take”. any action that results in any unreasonable restraint of trade; or
(B) impose any material anticompetitive burden on trading on the contract market.
The board of trade shall—
(A) establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk, through the development of appropriate controls and procedures, and the development of automated systems, that are reliable, secure, and have adequate scalable capacity;
(B) establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allow for the timely recovery and resumption of operations and the fulfillment of the responsibilities and obligations of the board of trade; and
(C) periodically conduct tests to verify that backup resources are sufficient to ensure continued order processing and trade matching, price reporting, market surveillance, and maintenance of a comprehensive and accurate audit trail.
The board of trade shall have adequate financial, operational, and managerial resources to discharge each responsibility of the board of trade.
Determination of adequacy
The financial resources of the board of trade shall be considered to be adequate if the value of the financial resources exceeds the total amount that would enable the contract market to cover the operating costs of the contract market for a 1-year period, as calculated on a rolling basis.
Diversity of board of directors
The board of trade, if a publicly traded company, shall endeavor to recruit individuals to serve on the board of directors and the other decision-making bodies (as determined by the Commission) of the board of trade from among, and to have the composition of the bodies reflect, a broad and culturally diverse pool of qualified candidates.
Securities and Exchange Commission
The board of trade shall keep any such records relating to swaps defined in section 1a(47)(A)(v) of this title open to inspection and examination by the Securities and Exchange Commission.
Current agricultural commodities
(1) Subject to paragraph (2) of this subsection, a contract for purchase or sale for future delivery of an agricultural commodity enumerated in section 1a(9) of this title that is available for trade on a contract market, as of December 21, 2000, may be traded only on a contract market designated under this section.
(2) In order to promote responsible economic or financial innovation and fair competition, the Commission, on application by any person, after notice and public comment and opportunity for hearing, may prescribe rules and regulations to provide for the offer and sale of contracts for future delivery or options on such contracts to be conducted on a derivatives transaction execution facility.
(Sept. 21, 1922, ch. 369, § 5, as added Pub. L. 106–554, § 1(a)(5) [title I, § 110(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–384; amended Pub. L. 111–203, title VII, §§ 721(e)(4), 735, July 21, 2010, 124 Stat. 1671, 1718.)