[Title 17 CFR 39]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter I - COMMODITY FUTURES TRADING COMMISSION]
[Part 39 - DERIVATIVES CLEARING ORGANIZATIONS]
[From the U.S. Government Printing Office]


17COMMODITY AND SECURITIES EXCHANGES12003-04-012003-04-01false39PART 39COMMODITY AND SECURITIES EXCHANGESCOMMODITY FUTURES TRADING COMMISSION
PART 39--DERIVATIVES CLEARING ORGANIZATIONS--Table of Contents




Sec.
39.1  Scope.
39.2  Exemption.
39.3  Procedures for registration.
39.4  Procedures for implementing derivatives clearing organization 
          rules and clearing new products.
39.5  Information relating to derivatives clearing organization 
          operations.
39.6  Enforceability.
39.7  Fraud in connection with the clearing of transactions on a 
          derivatives clearing organization.

Appendix A to Part 39--Application Guidance and Compliance With Core 
          Principles

    Authority: 7 U.S.C. 7b as amended by Appendix E of Pub. L. 106-554, 
114 Stat. 2763A-365.

    Source: 66 FR 45609, Aug. 29, 2001, unless otherwise noted.



Sec. 39.1  Scope.

    The provisions of this part apply to any derivatives clearing 
organization as defined under section 1a(9) of the Act which is 
registered or deemed to be registered with the Commission as a 
derivatives clearing organization, is required to register as such with 
the Commission pursuant to section 5b(a) of the Act, or which 
voluntarily applies to register as such with the Commission pursuant to 
section 5b(b) or otherwise.



Sec. 39.2  Exemption.

    A derivatives clearing organization and the clearing of agreements, 
contracts and transactions on a derivatives clearing organization are 
exempt from all Commission regulations except for the requirements of 
this part 39 and Secs. 1.3, 1.12(f)(1), 1.20, 1.24, 1.25, 1.26, 1.27, 
1.29, 1.31, 1.36, 1.38(b), part 40 and part 190 of this chapter, and as 
applicable to the agreement, contract or transaction cleared, parts 15 
through 18 of this chapter. The foregoing reserved regulations are 
applicable to a derivatives clearing organization and its activities as 
though they were set forth in this section and included specific 
reference to derivatives clearing organizations. Any reference to the 
term ``clearinghouse'' or ``clearing organization'' contained in the 
regulations shall be deemed to refer to a derivatives clearing 
organization.



Sec. 39.3  Procedures for registration.

    (a) Registration by application. An organization shall be deemed to 
be registered as a derivatives clearing organization sixty days after 
receipt by the Commission of an application for registration as a 
derivatives clearing organization unless notified otherwise during that 
period, or, as determined by Commission order, registered upon 
conditions, if:
    (1) The application is labeled as being submitted pursuant to this 
part 39;
    (2) The applicant represents that it will operate in accordance with 
the definition of derivatives clearing organization contained in section 
1a(9) of the Act;
    (3) The application includes a copy of the applicant's rules;
    (4) To the extent it is not self evident from the applicant's rules, 
the application demonstrates how the applicant is able to satisfy each 
of the core principles specified in section 5b(c)(2) of the Act;

[[Page 421]]

    (5) The applicant submits agreements entered into or to be entered 
into between or among the applicant, its operator or its participants, 
and descriptions of system test procedures, tests conducted or test 
results, that will enable the applicant to comply, or demonstrate the 
applicant's ability to comply, with the core principles specified in 
section 5b(c)(2) of the Act;
    (6) The applicant does not amend or supplement the application 
except as requested by the Commission or for correction of typographical 
errors, renumbering or other nonsubstantive revisions, during that 
period;
    (7) The applicant identifies with particularity information in the 
application that will be subject to a request for confidential treatment 
and supports that request for confidential treatment with reasonable 
justification; and
    (8) The applicant has not instructed the Commission in writing 
during the review period to review the application pursuant to the time 
provisions of and procedures under section 6 of the Act.
    (b) Termination of part 39 review. If, during the sixty-day period 
for review provided by paragraph (a) of this section, it appears that 
the application's form or substance fails to meet the requirements of 
this part, the Commission shall notify the applicant seeking 
registration that the Commission is terminating review under this 
section and will review the proposal under the time period and 
procedures of section 6 of the Act. This termination notification will 
state the nature of the issues raised and the specific condition of 
registration that the applicant would violate, appears to violate, or 
the violation of which cannot be ascertained from the application. 
Within ten days of receipt of this termination notification, the 
applicant seeking registration may request that the Commission render a 
decision whether to register the applicant or to institute a proceeding 
to deny the proposed application under procedures specified in section 6 
of the Act by notifying the Commission that the applicant views its 
submission as complete and final as submitted.
    (c) Withdrawal of application for registration. An applicant for 
registration may withdraw its application by filing with the Commission 
such a request. Withdrawal of an application for registration shall not 
affect any action taken or to be taken by the Commission based upon 
actions, activities, or events occurring during the time that the 
application for registration was pending with the Commission.
    (d) Guidance for applicants and registrants. Appendix A to this part 
provides guidance to applicants and registrants on how the core 
principles specified in section 5b(c)(2) of the Act may be satisfied.
    (e) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight or the Director's delegatees, with the 
concurrence of the General Counsel or the General Counsel's delegatees, 
the authority to exercise the functions under paragraphs (a) and (b) of 
this section and under Sec. 39.5.
    (2) The Director of the Division of Clearing and Intermediary 
Oversight may submit to the Commission for its consideration any matter 
which has been delegated in this paragraph.
    (3) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (e)(1) of 
this section.

[66 FR 45609, Aug. 29, 2001, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 39.4  Procedures for implementing derivatives clearing organization rules and clearing new products.

    (a) Request for approval of rules. An applicant for registration, or 
a registered derivatives clearing organization, may request, pursuant to 
the procedures of Sec. 40.5 of this chapter, that the Commission approve 
any or all of its rules and subsequent amendments thereto, including 
operational rules, prior to their implementation or, notwithstanding the 
provisions of section 5c(c)(2) of the Act, at any time thereafter, under 
the procedures of Sec. 40.5 of this chapter. A derivatives clearing 
organization may label as, ``Approved by the Commission,'' only those 
rules that have been so approved.
    (b) Self-certification of rules. Proposed new or amended rules of a 
derivatives

[[Page 422]]

clearing organization not voluntarily submitted for prior Commission 
approval pursuant to paragraph (a) of this section must be submitted to 
the Commission with a certification that the proposed new rule or rule 
amendment complies with the Act and rules thereunder pursuant to the 
procedures of Sec. 40.6 of this chapter.
    (c) Acceptance of new products for clearing. (1) A dormant 
derivatives clearing organization within the meaning of Sec. 40.1 of 
this chapter may not accept for clearing a new product until its 
registration as a derivatives clearing organization is reinstated under 
the procedures of Sec. 39.3 of this part; provided however, that an 
application for reinstatement may rely upon previously submitted 
materials that still pertain to, and accurately describe, current 
conditions.
    (2) Acceptance of certain new products for clearing. A derivatives 
clearing organization that accepts for clearing a new product that is 
not traded on a designated contract market or a registered derivatives 
transaction execution facility must submit to the Commission any rules 
establishing the terms and conditions of the product that make it 
acceptable for clearing with a certification that the clearing of the 
product and the rules and terms and conditions comply with the Act and 
the rules thereunder pursuant to the procedures of Sec. 40.2 of this 
chapter.
    (d) Orders regarding competition. An applicant or a registered 
derivatives clearing organization may request that the Commission issue 
an order concerning whether a rule or practice of the organization is 
the least anticompetitive means of achieving the objectives, purposes, 
and policies of the Act.

[66 FR 45609, Aug. 29, 2001, as amended at 67 FR 62878, Oct. 9, 2002]



Sec. 39.5  Information relating to derivatives clearing organization operations.

    (a) Upon request by the Commission, a derivatives clearing 
organization shall file with the Commission such information related to 
its business as a clearing organization, including information relating 
to trade and clearing details, in the form and manner and within the 
time as specified by the Commission in the request.
    (b) Upon request by the Commission, a derivatives clearing 
organization shall file with the Commission a written demonstration, 
containing such supporting data, information and documents, in the form 
and manner and within such time as the Commission may specify that the 
derivatives clearing organization is in compliance with one or more core 
principles as specified in the request.
    (c) Information regarding transactions by large traders cleared by a 
derivatives clearing organization shall be filed with the Commission, in 
a form and manner acceptable to the Commission, by futures commission 
merchants, clearing members, foreign brokers or registered entities 
other than a derivatives clearing organization, as applicable. Provided, 
however, that if no such person or entity is required to file large 
trader information with the Commission, such information must be filed 
with the Commission by a derivatives clearing organization.
    (d) Upon special call by the Commission, each futures commission 
merchant, clearing member or foreign broker shall provide information to 
the Commission concerning customer accounts or related positions cleared 
on a derivatives clearing organization or other multilateral clearing 
organization in the form and manner and within the time specified by the 
Commission in the special call.



Sec. 39.6  Enforceability.

    An agreement, contract or transaction submitted to a derivatives 
clearing organization for clearance shall not be void, voidable, subject 
to rescission, or otherwise invalidated or rendered unenforceable as a 
result of:
    (a) A violation by the derivatives clearing organization of the 
provisions of the Act or of Commission regulations; or
    (b) Any Commission proceeding to alter or supplement a rule under 
section 8a(7) of the Act, to declare an emergency under section 8a(9) of 
the Act, or any other proceeding the effect

[[Page 423]]

of which is to alter, supplement, or require a derivatives clearing 
organization to adopt a specific rule or procedure, or to take or 
refrain from taking a specific action.



Sec. 39.7  Fraud in connection with the clearing of transactions on a derivatives clearing organization.

    It shall be unlawful for any person, directly or indirectly, in or 
in connection with the clearing of transactions by a derivatives 
clearing organization:
    (a) To cheat or defraud or attempt to cheat or defraud any person;
    (b) Willfully to make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (c) Willfully to deceive or attempt to deceive any person by any 
means whatsoever.

  Appendix A to Part 39--Application Guidance and Compliance With Core 
                               Principles

    This appendix provides guidance concerning the core principles with 
which applicants must demonstrate the ability to comply and with which 
registered derivatives clearing organizations must continue to comply to 
be granted and to maintain registration as a derivatives clearing 
organization under section 5b of the Act and Sec. 39.3 and Sec. 39.5 of 
the Commission's regulations. The guidance follows each core principle 
and can be used to demonstrate core principle compliance under 
Sec. 39.3(a)(iv) and Sec. 39.5(d). The guidance for each core principle 
is illustrative only of the types of matters a clearing organization may 
address, as applicable, and is not intended to be a mandatory checklist. 
Addressing the criteria set forth in this appendix would help the 
Commission in its consideration of whether the clearing organization is 
in compliance with the core principles. To the extent that compliance 
with, or satisfaction of, a core principle is not self-explanatory from 
the face of a clearing organization's rules, an application pursuant to 
Sec. 39.3 or a submission pursuant to Sec. 39.5 should include an 
explanation or other form of documentation demonstrating that the 
clearing organization is able to or does comply with the core 
principles.
    Core Principle A: IN GENERAL--To be registered and to maintain 
registration as a derivatives clearing organization, an applicant shall 
demonstrate to the Commission that the applicant complies with the core 
principles specified in this paragraph. The applicant shall have 
reasonable discretion in establishing the manner in which it complies 
with the core principles.
    An entity preparing to submit to the Commission an application to 
operate as a derivatives clearing organization is encouraged to contact 
Commission staff for guidance and assistance in preparing its 
application. Applicants may submit a draft application for review prior 
to the submission of an actual application without triggering the 
application review procedures of Sec. 39.3 of the Commission's 
regulations. The Commission also may require a derivatives clearing 
organization to demonstrate to the Commission that it is operating in 
compliance with one or more core principles.
    Core Principle B: FINANCIAL RESOURCES--The applicant shall 
demonstrate that the applicant has adequate financial, operational, and 
managerial resources to discharge the responsibilities of a derivatives 
clearing organization.
    In addressing Core Principle B, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. The resources dedicated to supporting the clearing function:
    a. The level of resources available to the clearing organization and 
the sufficiency of those resources to assure that no material adverse 
break in clearing operations will occur in a variety of market 
conditions; and
    b. The level of member/participant default such resources could 
support as demonstrated through use of hypothetical default scenarios 
that explain assumptions and variables factored into the illustrations.
    2. The nature of resources dedicated to supporting the clearing 
function:
    a. The type of the resources, including their liquidity, and how 
they could be accessed and applied by the clearing organization 
promptly;
    b. How financial and other material information will be updated and 
reported to members, the public, if and when appropriate, and to the 
Commission on an ongoing basis; and
    c. Any legal or operational impediments or conditions to access.
    Core Principle C: PARTICIPANT AND PRODUCT ELIGIBILITY--The applicant 
shall establish (i) appropriate admission and continuing eligibility 
standards (including appropriate minimum financial requirements) for 
members of and participants in the organization; and (ii) appropriate 
standards for determining eligibility of agreements, contracts, or 
transactions submitted to the applicant.
    In addressing Core Principle C, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Member/participant admission criteria:
    a. How admission standards for its clearing members/participants 
would contribute to the soundness and integrity of operations; and
    b. Matters such as whether these criteria would be in the form of 
organization rules

[[Page 424]]

that apply to all clearing members/participants, whether different 
levels of membership/participation would relate to different levels of 
net worth, income, and creditworthiness of members/participants, and 
whether margin levels, position limits and other controls would vary in 
accordance with these levels.
    2. Member/participant continuing eligibility criteria:
    a. A program for monitoring the financial status of its members/
participants; and
    b. Whether and how the clearing organization would be able to change 
continuing eligibility criteria in accordance with changes in a 
member's/participant's financial status.
    3. Criteria for instruments acceptable for clearing:
    a. The criteria, and the factors considered in establishing the 
criteria, for the types of agreements, contracts, or transactions it 
will clear; and
    b. How those criteria take into account the different risks inherent 
in clearing different agreements, contracts, or transactions and how 
they affect maintenance of assets to support the guarantee function in 
varying risk environments.
    4. The clearing function for each instrument the organization 
undertakes to clear.
    Core Principle D: RISK MANAGEMENT--The applicant shall have the 
ability to manage the risks associated with discharging the 
responsibilities of a derivatives clearing organization through the use 
of appropriate tools and procedures.
    In addressing Core Principle D, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Use of risk analysis tools and procedures:
    a. How the adequacy of the overall level of financial resources 
would be tested on an ongoing periodic basis in a variety of market 
conditions;
    b. How the organization would use specific risk management tools 
such as stress testing and value at risk calculations; and
    c. What contingency plans the applicant has for managing extreme 
market events.
    2. Use of collateral:
    a. What forms and levels of collateral would be established and 
collected;
    b. How amounts would be adequate to secure prudentially obligations 
arising from clearing transactions and, where applicable, performing as 
a central counterparty;
    c. The factors considered in determining appropriate margin levels 
for an instrument cleared and for clearing members/participants;
    d. The appropriateness of required or allowed forms of margin given 
the liquidity and related requirements of the clearing organization;
    e. How the clearing organization would value open positions and 
collateral assets; and
    f. The proposed margin collection schedule and how it would relate 
to changes in the value of market positions and collateral values.
    3. Use of credit limits:
    If systems would be implemented that would prevent members/
participants and other market participants from exceeding credit limits 
and how they would operate.
    Core Principle E: SETTLEMENT PROCEDURES--The applicant shall have 
the ability to (i) complete settlements on a timely basis under varying 
circumstances; (ii) maintain an adequate record of the flow of funds 
associated with each transaction that the applicant clears; and (iii) 
comply with the terms and conditions of any permitted netting or offset 
arrangements with other clearing organizations.
    In addressing Core Principle E, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Settlement timeframe:
    a. Procedures for completing settlements on a timely basis during 
times of normal operating conditions; and
    b. Procedures for completing settlements on a timely basis in 
varying market circumstances including during a period when one or more 
significant members/participants have defaulted.
    2. Recordkeeping:
    a. The nature and quality of the information collected concerning 
the flow of funds involved in clearing and settlement; and
    b. How such information would be recorded, maintained and accessed.
    3. Interfaces with other clearing organizations:
    How compliance with the terms and conditions of netting or offset 
arrangements with other clearing organizations would be met, including, 
among others, common banking or common clearing programs.
    Core Principle F: TREATMENT OF FUNDS--The applicant shall have 
standards and procedures designed to protect and ensure the safety of 
member and participant funds.
    In addressing Core Principle F, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Safe custody:
    a. The safekeeping of funds, whether in accounts, in depositories, 
or with custodians, and how it would meet industry standards of safety;
    b. Any written terms regarding the legal status of the funds and the 
specific conditions or prerequisites for movement of the funds; and
    c. The extent to which the deposit of funds in accounts in 
depositories or with custodians would limit concentration of risk.

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    2. Segregation between customer and proprietary funds:
    Requirements or restrictions regarding commingling customer funds 
with proprietary funds, obligating customer funds for any purpose other 
than to purchase, clear, and settle the products the clearing 
organization is clearing, or procedures regarding customer funds which 
are subject to cross-margin or similar agreements, and any other aspects 
of customer fund segregation.
    3. Investment standards:
    a. How customer funds would be invested consistent with high 
standards of safety; and
    b. How the organization will gather and keep associated records and 
data regarding the details of such investments.
    Core Principle G: DEFAULT RULES AND PROCEDURES--The applicant shall 
have rules and procedures designed to allow for efficient, fair, and 
safe management of events when members or participants become insolvent 
or otherwise default on their obligations to the derivatives clearing 
organization.
    In addressing Core Principle G, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Definition of default:
    a. The events that will constitute member or participant default;
    b. What action the organization would take upon a default and how 
the organization would otherwise enforce the definition of default; and
    c. How the organization would address situations related to but 
which may not constitute an event of default, such as failure to comply 
with certain rules, failure to maintain eligibility standards, actions 
taken by other regulatory bodies, or other events.
    2. Remedial action:
    The authority pursuant to which, and how, the clearing organization 
may take appropriate action in the event of the default of a member/
participant which may include, among other things, closing out 
positions, replacing positions, set-off, and applying margin.
    3. Process to address shortfalls:
    Procedures for the prompt application of clearing organization and/
or member/participant financial resources to address monetary shortfalls 
resulting from a default.
    4. Use of cross-margin programs:
    How cross-margining programs would provide for clear, fair, and 
efficient means of covering losses in the event of a program participant 
default.
    5. Customer priority rule:
    Rules and procedures regarding priority of customer accounts over 
proprietary accounts of defaulting members/participants and, where 
applicable, in the context of specialized margin reduction programs such 
as cross-margining or trading links with other exchanges.
    Core Principle H: RULE ENFORCEMENT--The applicant shall (i) maintain 
adequate arrangements and resources for the effective monitoring and 
enforcement of compliance with rules of the applicant and for resolution 
of disputes; and (ii) have the authority and ability to discipline, 
limit, suspend, or terminate a member's or participant's activities for 
violations of rules of the applicant.
    In addressing Core Principle H, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Surveillance:
    Arrangements and resources for the effective monitoring of 
compliance with rules relating to clearing practices and financial 
surveillance.
    2. Enforcement:
    Arrangements and resources for the effective enforcement of rules 
and authority and ability to discipline and limit or suspend a member's/
participant's activities pursuant to clear and fair standards.
    3. Dispute resolution:
    Where applicable, arrangements and resources for resolution of 
disputes between customers and members/participants, and between 
members/participants.
    Core Principle I: SYSTEM SAFEGUARDS--The applicant shall demonstrate 
that the applicant (i) has established and will maintain a program of 
oversight and risk analysis to ensure that the automated systems of the 
applicant function properly and have adequate capacity and security; and 
(ii) has established and will maintain emergency procedures and a plan 
for disaster recovery, and will periodically test backup facilities 
sufficient to ensure daily processing, clearing, and settlement of 
transactions.
    In addressing Core Principle I, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Oversight/risk analysis program:
    a. Whether a program addresses appropriate principles and procedures 
for the oversight of automated systems to ensure that its clearing 
systems function properly and have adequate capacity and security. The 
Commission believes that the guidelines issued by the International 
Organization of Securities Commissions (IOSCO) in 1990 and adopted by 
the Commission on November 21, 1990 (55 FR 48670), as supplemented in 
October 2000, are appropriate guidelines for an automated clearing 
system to apply.
    b. Emergency procedures and a plan for disaster recovery; and
    c. Periodic testing of back-up facilities and ability to provide 
timely processing, clearing, and settlement of transactions.
    2. Appropriate periodic objective system reviews/testing:
    a. Any program for the periodic objective testing and review of the 
system, including tests conducted and results; and

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    b. Confirmation that such testing and review would be performed or 
assessed by a qualified independent professional.
    Core Principle J: REPORTING--The applicant shall provide to the 
Commission all information necessary for the Commission to conduct the 
oversight function of the applicant with respect to the activities of 
the derivatives clearing organization.
    In addressing Core Principle J, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Information available to or generated by the clearing 
organization that will be made routinely available to the Commission, 
upon request and/or as appropriate, to enable the Commission to perform 
properly its oversight function, including information regarding 
counterparties and their positions, stress test results, internal 
governance, legal proceedings, and other clearing activities;
    2. Information the clearing organization will make available to the 
Commission on a non-routine basis and the circumstances which would 
trigger such action;
    3. The information the organization intends to make routinely 
available to members/participants and/or the general public; and
    4. Provision of information:
    a. The manner in which all relevant routine or non-routine 
information will be provided to the Commission, whether by electronic or 
other means; and
    b. The manner in which any information will be made available to 
members/participants and/or the general public.
    Core Principle K: RECORDKEEPING--The applicant shall maintain 
records of all activities related to the business of the applicant as a 
derivatives clearing organization in a form and manner acceptable to the 
Commission for a period of 5 years.
    In addressing Core Principle K, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. The different activities related to the entity as a clearing 
organization for which it must maintain records; and
    2. How the entity would satisfy the performance standards of 
Commission regulation 1.31 (17 CFR 1.31), reserved in this part 39 and 
applicable to derivatives clearing organizations, including:
    a. What ``full'' or ``complete'' would encompass with respect to 
each type of book or record that would be maintained;
    b. The form and manner in which books or records would be compiled 
and maintained with respect to each type of activity for which such 
books or records would be kept;
    c. Confirmation that books and records would be open to inspection 
by any representative of the Commission or of the U.S. Department of 
Justice;
    d. How long books and records would be readily available and how 
they would be made readily available during the first two years; and
    e. How long books and records would be maintained (and confirmation 
that, in any event, they would be maintained for at least five years).
    Core Principle L: PUBLIC INFORMATION--The applicant shall make 
information concerning the rules and operating procedures governing the 
clearing and settlement systems (including default procedures) available 
to market participants.
    In addressing Core Principle L, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    Disclosure of information regarding rules and operating procedures 
governing clearing and settlement systems:
    a. Which rules and operating procedures governing clearing and 
settlement systems should be disclosed to the public, to whom they would 
be disclosed, and how they would be disclosed;
    b. What other information would be available regarding the 
operation, purpose and effect of the clearing organization's rules;
    c. How members/participants may become familiar with such procedures 
before participating in operations; and
    d. How members/participants will be informed of their specific 
rights and obligations preceding a default and upon a default, and of 
the specific rights, options and obligations of the clearing 
organization preceding and upon the member's/participant's default.
    Core Principle M: INFORMATION SHARING--The applicant shall (i) enter 
into and abide by the terms of all appropriate and applicable domestic 
and international information-sharing agreements; and (ii) use relevant 
information obtained from the agreements in carrying out the clearing 
organization's risk management program.
    In addressing Core Principle M, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Applicable appropriate domestic and international information-
sharing agreements and arrangements including the different types of 
domestic and international information-sharing arrangements, both formal 
and informal, which the clearing organization views as appropriate and 
applicable to its operations.
    2. How information obtained from information-sharing arrangements 
would be used to carry out risk management and surveillance programs:
    a. How information obtained from any information-sharing 
arrangements would be used to further the objectives of the clearing 
organization's risk management program and any of its surveillance 
programs including financial surveillance and continuing eligibility of 
its members/participants;

[[Page 427]]

    b. How accurate information is expected to be obtained and the 
mechanisms or procedures which would make timely use and application of 
all information; and
    c. The types of information expected to be shared and how that 
information would be shared.
    Core Principle N: ANTITRUST CONSIDERATIONS--Unless appropriate to 
achieve the purposes of this Act, the derivatives clearing organization 
shall avoid (i) adopting any rule or taking any action that results in 
any unreasonable restraint of trade; or (ii) imposing any material 
anticompetitive burden on trading on the contract market.
    Pursuant to section 5b(c)(3) of the Act, a registered derivatives 
clearing organization or an entity seeking registration as a derivatives 
clearing organization may request that the Commission issue an order 
concerning whether a rule or practice of the organization is the least 
anticompetitive means of achieving the objectives, purposes, and 
policies of the Act. The Commission intends to apply section 15(b) of 
the Act to its consideration of issues under this core principle in a 
manner consistent with that previously applied to contract markets.