CFTC issues for public comment a package of proposed rules for SEFs, DCMs, FCMs, and FBOTs
The three proposals, approved under the Commodity Futures Trading Commission’s (CFTC) seriatim process, include: (1) requirements regarding governance and the mitigation of conflicts of interest for swap execution facilities (SEFs) and designated contract markets (DCMs), (2) margin adequacy requirements for futures commission merchants (FCMs), and (3) amendments expanding foreign boards of trade (FBOTs) direct access to U.S.-based introducing brokers (IBs).
(1) Requirements regarding governance and the mitigation of conflicts of interest for SEFs and DCMs:
Conflicts of interest provisions: The proposal seeks to address conflicts involving “market regulation functions,” which include responsibilities related to trade practice surveillance, market surveillance, real-time market monitoring, audit trail data, recordkeeping, investigations, and disciplinary actions. It would require SEFs and DCMs to establish policies regarding the disclosure of potential conflicts in matters under consideration by its board of directors, committees, and disciplinary panels. Covered entities would also be required to establish and enforce policies to safeguard against the use and disclosure of material nonpublic information.
Governance provisions: The proposal would codify and expand various requirements relating to the composition, transparency, and accountability of a SEF or DCM’s board of directors and regulatory oversight committee. Additionally, the proposal would require enhanced notification requirements with respect to changes in the ownership or corporate or organizational structure of a SEF or DCM.
(2) Margin adequacy requirements for FCMs:
The proposal would require that FCM’s ensure customers are not permitted to withdraw funds if the withdrawal would result in an insufficient balance to meet the customer’s initial margin requirements. The proposal would also allow both clearing and non-clearing FCMs to treat multiple accounts owned by a single customer as separate entities for purposes of the new margin adequacy requirements.
(3) Expansion of FBOT direct access to U.S.-based IBs:
The proposal would add U.S.-based IBs to the list of CFTC-approved intermediaries that are permitted to enter orders to FBOTs on behalf of their customers. IBs would be required to submit their orders for clearing to a Commission-registered FCM or registration-exempt firm.
Public comment period: All three proposals are available for public comment through April 22, 2024.
Bloomberg
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