Core Principles & Other Requirements for DCMs

In January 2018, the Commission adopted regulation 9.11(b)(3)(ii) requiring a designated contract market (DCM) or swap execution facility (SEF) (collectively, “exchange”) to include two additional elements in the disciplinary or access denial notice action provided to the National Futures Association. First, an exchange must include the type of product (as applicable) involved in the adverse action. Requiring an exchange to provide this information in the disciplinary or access denial notice will provide the Commission, market participants, the public, and other exchanges with greater transparency concerning where market abuses originate and whether the abuses are concentrated among certain product types. Second, an exchange must indicate in its notice of disciplinary or access denial actions whether the violation underlying the notice resulted in financial harm to any customers. The Commission believes that the inclusion of customer harm is essential because it cannot effectively perform its regulatory and oversight functions without knowledge of those instances in which brokers violate their fiduciary duty to customers by taking advantage of customer orders and engaging in fraudulent activity. The Commission concluded that the additional burden for an exchange to add the two additional elements in the contents of the disciplinary or access denial notice is de minimis and will not change the burden hours for the collection. In addition, The Commission has recently amended its regulation 1.52 to revise the scope and potential frequency of a third-party expert’s evaluation of SROs’ financial surveillance programs. The evaluation report requirement is a portion of the existing information collection of requirements for SROs under Commission regulation 1.52, including Designated Contract Markets and the National Futures Association. The Commission is eliminating the requirement that the examinations expert must review the SRO’s ongoing application of its supervisory program during periodic reviews and the analysis of the supervisory program’s design to detect material weaknesses in internal controls during both periodic reviews and the initial review prior to the program’s initial use. The Commission also is revising the frequency of when an SRO must engage an examinations expert. The changes to the examinations expert reviews impact the resulting expert reports information collection burden. The information collection is necessary to enhance the ability of the Commission and the designated self-regulatory organization to identify problematic financial matters in time to avoid market disruptions when an FCM may fail, particularly with respect to the tie-up of customer funds that may result.

The latest form for Core Principles & Other Requirements for DCMs expires 2022-08-31 and can be found here.

Part 38 - Designated Contract Markets

Federal Enterprise Architecture: General Government - Executive Functions