Provisions Common to Registered Entities

The Commodity Futures Trading Commission (CFTC) has launched and published in the Federal Register a consultation on proposed rule amendments to its regulations under the Commodity Exchange Act (CEA) to streamline the process by which registered entities submit self-certifications and approval requests for their rules, rule amendments, and new products for trading and clearing. The goal of these proposed amendments is to streamline (simplify) and clarify the regulatory process for registered entities, making it more efficient for both the Commission and registered entities.
##### The key proposed changes concern the following:
(1) Dormant Registered Entities and Products (§ 40.1):
The amendments in 17 CFR 40, § 40.1 aim to simplify the determination of when a registered entity is considered dormant. Thereafter, any registered entity would be deemed dormant if it is inactive for 365 days. Registered entities like Designated Contract Markets (DCMs), Derivatives Clearing Organizations (DCOs), or Swap Execution facilities (SEFs) wouldn’t become dormant during the 1,095 days (3 years) following their initial designation or registration. Dormant entities will still need approval for their rules and products during reinstatement, but non-dormant entities wouldn’t need to re-certify previously approved rules or products solely due to lack of implementation or inactivity. The Commission also proposes to remove the definitions for „dormant contract or dormant product“ and „dormant rule“.
(2) Definitions of Rule and Terms and Conditions (§ 40.1):
The Commission is proposing changes to explicitly include „margin methodology“ in the definition of „rule“ so that any changes to such will have to be notified to the CFTC (this process is already current practice, but not codified). On the other hand certain terms related to payments or collections of premiums or margins are proposed to be removed from the definition of „terms and conditions“, allowing DCOs to „submit rules or rule amendments governing the payment or collection of these premiums or margins through weekly notices to the Commission pursuant to § 40.6(d)(2)“. Thus, no self-certification would be required.
(3) Instructions for Self-Certification and Approval of Products (§§ 40.2 and 40.3):
Besides some updates and clarifications as to the filing process and instructions related to new product submissions, the CFTC is proposing to require entities to submit concise explanations of products that must be complete AND include details of a product’s terms and conditions, the underlying commodity, and a product’s compliance with the Commodity Exchange Act (CEA) and other relevant regulations.
Furthermore, the Commission proposes to eliminate the two-business day deadline for registered entities to respond to Commission staff requests for additional information with respect to product approval requests under § 40.3 and grant Commission staff authority to set response deadlines. Also, the regulator proposes to introduce a 45-day review period for product approval requests, extendable for another 45-days when the initial request was incomplete or the request raises complex issues concerning the product.
(4) Terms or Conditions for Enumerated Agricultural Products (§ 40.4 and Appendix E):
The Commission proposes to add new Appendix E relating to 17 CFR 40, § 40.4 aiming to provide guidance to DCMs regarding how to determine if a rule change for agricultural products with open interests is considered non-material and thus does not require approval of the Commission. New Appendix E would set out relevant evaluation criteria such as the affect upon traders and their decision to maintain or enter into a position or to make or take delivery. Additionally, when filing the proposed rule change and relying upon „non-materiality“, DCMs would be required to furnish „a copy of a previously approved rule or rule amendment that is essentially the same as the non-material rule or rule amendment, if applicable for justification of its assessment.
(5) Filing Instructions for Rules (§§ 40.5, 40.6, and 40.10):
The Commission proposes several changes to update its processes and clarify submission procedures for registered entities regarding rule submissions and self-certifications. Additionally, the Commission proposes certain changes to clarify that rule submissions, particularly those concerning the delisting of products with no open interest, can become effective immediately, subject to certain conditions. Furthermore, the Commission proposes to allow registered entities to resubmit revised versions of rules that were previously objected to by the Commission, provided that the entities offer a substantive basis for reconsideration.
There are also amendments expanding the categories of rules that can be implemented without certification, including updates to contact information and rule changes related to trading months, price ranges, and option premiums or margins. These rules can be implemented by notifying the Commission on a weekly basis without self-certification.
For Systemically Important Derivatives Clearing Organizations (SIDCOs), the Commission proposes to revise the definition of „proposed changes requiring advance notice“ and specify various types of material changes that require such advance notice (e.g. default rules, recovery and wind-down plans, etc).
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Other modifications involve reorganization of rule text and – in relation to Appendix D stipulating the information that must be provided to the Commission in case of rule changes, new rules, or new products – the indication of whether or not a new product meets the definition of „referenced contract“ for purposes of the Federal position limit assessment.