PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING ORGANIZATIONS

[Title 17 CFR 40]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter I - COMMODITY FUTURES TRADING COMMISSION]
[Part 40 - PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING ORGANIZATIONS]
[From the U.S. Government Printing Office]

17COMMODITY AND SECURITIES EXCHANGES12003-04-012003-04-01falsePROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING ORGANIZATIONS40PART 40COMMODITY AND SECURITIES EXCHANGESCOMMODITY FUTURES TRADING COMMISSION
PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING ORGANIZATIONS--Table of Contents

Sec.
40.1 Definitions.
40.2 Listing products for trading by certification.
40.3 Voluntary submission of new products for Commission review and
approval.
40.4 Amendments to terms or conditions of enumerated agricultural
contracts.
40.5 Voluntary submission of rules for Commission review and approval.
40.6 Self-certification of rules by designated contract markets and
registered derivatives clearing organizations.
40.7 Delegations.
40.8 Availability of public information.

Appendix A to Part 40--Guideline No. 1
Appendix B to Part 40--Schedule of fees
Appendix C to part 40--Information That a Foreign Board of Trade Should
Submit When Seeking No-Action Relief to Offer and Sell, to
Persons Located in the United States, a Futures Contract on a
Foreign Securities Index Traded on That Foreign Board of Trade

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as amended by
appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

Source: 66 FR 42283, Aug. 10, 2001, unless otherwise noted.

Sec. 40.1 Definitions.

As used in this part:
Business hours means the hours between 8:15 a.m. and 4:45 p.m.,
eastern standard time or eastern daylight savings time, whichever is
currently in effect in Washington, DC all days except Saturdays, Sundays
and legal public holidays.
Dormant contract or dormant product means any commodity futures or
option contract or other agreement, contract, transaction or instrument
in which no trading has occurred in any future or option expiration for
a period of six complete calendar months; provided, however, no contract
or instrument shall be considered to be dormant until the end of thirty-
six complete calendar months following initial exchange certification or
Commission approval.
Dormant contract market means any designated contract market on
which no trading has occurred for a period of six complete calendar
months; provided, however, no contract market shall be considered to be
dormant until the end of 36 complete calendar months following the day
that the order of designation was issued or that the contract market was
deemed to be designated.
Dormant derivatives clearing organization means any derivatives
clearing organization that has not accepted for clearing any agreement,
contract or transaction that is required or permitted to be cleared by a
derivatives clearing organization under sections 5b(a) and 5b(b) of the
Act, respectively, for a period of six complete calendar months;
provided, however, no derivatives clearing organization shall be
considered to be dormant until the end of 36 complete calendar months
following the day that the order of registration was issued or that the
derivatives clearing organization was deemed to be registered.
Dormant derivatives transaction execution facility means any
derivatives transaction execution facility on which no trading has
occurred for a period of

[[Page 428]]

six complete calendar months; provided, however, no derivatives
transaction execution facility shall be considered to be dormant until
the end of 36 complete calendar months following the day that the order
of registration was issued or that the derivatives transaction execution
facility was deemed to be registered.
Emergency means any occurrence or circumstance which, in the opinion
of the governing board of the contract market or derivatives transaction
execution facility, requires immediate action and threatens or may
threaten such things as the fair and orderly trading in, or the
liquidation of or delivery pursuant to, any agreements, contracts or
transactions on such a trading facility, including any manipulative or
attempted manipulative activity; any actual, attempted, or threatened
corner, squeeze, congestion, or undue concentration of positions; any
circumstances which may materially affect the performance of agreements,
contracts or transactions traded on the trading facility, including
failure of the payment system or the bankruptcy or insolvency of any
participant; any action taken by any governmental body, or any other
board of trade, market or facility which may have a direct impact on
trading on the trading facility; and any other circumstance which may
have a severe, adverse effect upon the functioning of a designated
contract market or derivatives transaction execution facility.
Rule means any constitutional provision, article of incorporation,
bylaw, rule, regulation, resolution, interpretation, stated policy, term
and condition, trading protocol, agreement or instrument corresponding
thereto, in whatever form adopted, and any amendment or addition thereto
or repeal thereof, made or issued by a contract market, derivatives
transaction execution facility or derivatives clearing organization or
by the governing board thereof or any committee thereof, except those
provisions relating to the setting of levels of margin for commodities
other than those subject to the provisions of section 2(a)(1)(C)(v) of
the Act and security futures as defined in section 1a(31) of the Act.
Terms and conditions mean any definition of the trading unit or the
specific commodity underlying a contract for the future delivery of a
commodity or commodity option contract, specification of settlement or
delivery standards and procedures, and establishment of buyers' and
sellers' rights and obligations under the contract. Terms and conditions
include provisions relating to the following:
(1) Quality or quantity standards for a commodity and any applicable
premiums or discounts;
(2) Trading hours, trading months and the listing of contracts;
(3) Minimum and maximum price limits and the establishment of
settlement prices;
(4) Position limits and position reporting requirements;
(5) Delivery points and locational price differentials;
(6) Delivery standards and procedures, including fees related to
delivery or the delivery process, alternatives to delivery and
applicable penalties or sanctions for failure to perform;
(7) Settlement of the contract; and
(8) Payment or collection of commodity option premiums or margins.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62878, Oct. 9, 2002]

Sec. 40.2 Listing products for trading by certification.

To list a new product for trading, to list a product for trading
that has become dormant, or to accept for clearing a product (not traded
on a designated contract market or a registered derivatives transaction
execution facility), a registered entity must file with the Secretary of
the Commission at its Washington, D.C., headquarters no later than the
close of business of the business day preceding the product's listing or
acceptance for clearing, either in electronic or hard-copy form, a copy
of the product's rules, including its terms and conditions, or the rules
establishing the terms and conditions of products that make them
acceptable for clearing, and a certification by the registered entity

[[Page 429]]

that the trading product or other instrument, or the clearing of the
trading product or other instrument including any rules establishing the
terms and conditions of products that make them acceptable for
clearing), complies with the Act and rules thereunder.

Sec. 40.3 Voluntary submission of new products for Commission review and approval.

(a) Request for approval. A designated contract market or registered
derivatives transaction execution facility may request under section
5c(c)(2) of the Act that the Commission approve new products under the
following procedures:
(1) The submitting entity labels the request as ``Request for
Commission Product Approval'';
(2) The request for product approval is for a commodity other than a
security future or a security futures product as defined in sections
1a(31) or 1a(32) of the Act, respectively;
(3) The submission complies with the requirements of Appendix A to
this part--Guideline No. 1;
(4) The submission identifies with particularity information in the
submission, except for the product's terms and conditions which are made
publicly available at the time of submission, that will be subject to a
request for confidential treatment and supports that request for
confidential treatment with reasonable justification; and
(5) The submission includes the fee required under appendix B to
this part.
(b) Forty-five day review. All products submitted for Commission
approval under this paragraph shall be deemed approved by the Commission
forty-five days after receipt by the Commission, or at the conclusion of
such extended period as provided under paragraph (c) of this section,
unless notified otherwise within the applicable period, if:
(1) The submission complies with the requirements of paragraph (a)
of this section; and
(2) The submitting entity does not amend the terms or conditions of
the product or supplement the request for approval, except as requested
by the Commission or for correction of typographical errors, renumbering
or other such nonsubstantive revisions, during that period. Any
voluntary, substantive amendment by the submitting entity will be
treated as a new submission under this section.
(c) Extension of time. The Commission may extend the forty-five day
review period in paragraph (b) of this section for:
(1) An additional forty-five days, if within the initial forty-five
day review period, the Commission notifies the submitting entity that
the product raises novel or complex issues that require additional time
for review or is of major economic significance. This notification shall
briefly describe the nature of the specific issues for which additional
time for review is required; or
(2) Such period as the submitting entity so instructs the Commission
in writing.
(d) Notice of non-approval. The Commission at any time during its
review under this section may notify the submitting entity that it will
not, or is unable to, approve the product or instrument. This
notification will briefly specify the nature of the issues raised and
the specific provision of the Act or regulations, including the form or
content requirements of paragraph (a) of this section, that the product
would violate, appears to violate or the violation of which cannot be
ascertained from the submission.
(e) Effect of non-approval. (1) Notification to a submitting entity
under paragraph (d) of this section of the Commission's refusal to
approve a product or instrument does not prejudice the entity from
subsequently submitting a revised version of the product or instrument
for Commission approval or from submitting the product or instrument as
initially proposed pursuant to a supplemented submission.
(2) Notification to a submitting entity under paragraph (d) of this
section of the Commission's refusal to approve a product shall be
presumptive evidence that the entity may not truthfully certify under
Sec. 40.2 that the same, or substantially the same, product does not
violate the Act or rules thereunder.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002]

[[Page 430]]

Sec. 40.4 Amendments to terms or conditions of enumerated agricultural contracts.

(a) Designated contract markets must submit for Commission approval
under the procedures of Sec. 40.5, prior to its implementation, any rule
or rule amendment that, for a delivery month having open interest, would
materially change a term or condition as defined in Sec. 40.1(f), of a
contract for future delivery in an agricultural commodity enumerated in
section 1a(4) of the Act, or of an option on such a contract or
commodity.
(b) The following rules or rule amendments are not material changes:
(1) Changes in trading hours;
(2) Changes in lists of approved delivery facilities pursuant to
previously set standards or criteria;
(3) Changes to terms and conditions of options on futures other than
those relating to last trading day, expiration date, option strike price
delistings, and speculative position limits;
(4) Reductions in the minimum price fluctuation (or ``tick'');
(5) Changes required to comply with a binding order of a court of
competent jurisdiction, or of a rule, regulation or order of the
Commission or of another Federal regulatory authority;
(6) Corrections of typographical errors, renumbering, periodic
routine updates to identifying information about approved entities and
other such nonsubstantive revisions of a product's terms and conditions
that have no effect on the economic characteristics of the product;
(7) Fees or fee changes of less than $1.00; and
(8) Any other rule, the text of which has been submitted to the
Secretary of the Commission at least ten days prior to its
implementation at its Washington, DC, headquarters and that has been
labeled ``Non-material Agricultural Rule Change,'' and with respect to
which the Commission has not notified the contract market during that
period that the rule appears to require or does require prior approval
under this section.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002]

Sec. 40.5 Voluntary submission of rules for Commission review and approval.

(a) Request for approval of rules. A registered entity may request
pursuant to section 5c(c) of the Act that the Commission approve any
rule or proposed rule or rule amendment under the following procedures:
(1) Three copies of each rule or rule amendment submission under
this section shall be furnished in hard copy form to the Secretary of
the Commodity Futures Trading Commission, Three Lafayette Centre, 1155
21st Street NW., Washington, DC 20581 or electronically in a format
specified by the Secretary of the Commission. One copy of each
submission shall be transmitted by the registered entity to the regional
office of the Commission having local jurisdiction over the registered
entity. Each request for approval under this section shall be in the
following order and shall:
(i) Label the submission as ``Request for Commission rule
approval'';
(ii) Set forth the text of the rule or proposed rule (in the case of
a rule amendment, deletions and additions must be indicated);
(iii) Describe the proposed effective date of a proposed rule and
any action taken or anticipated to be taken to adopt the proposed rule
by the registered entity or by its governing board or by any committee
thereof, and cite the rules of the entity that authorize the adoption of
the proposed rule;
(iv) Explain the operation, purpose, and effect of the proposed
rule, including, as applicable, a description of the anticipated
benefits to market participants or others, any potential anticompetitive
effects on market participants or others, how the rule fits into the
registered entity's framework of self-regulation, and any other
information which may be beneficial to the Commission in analyzing the
proposed rule. If a proposed rule affects, directly or indirectly, the
application of any other rule of the submitting entity, set forth the
pertinent text of any such rule and describe the anticipated effect;
(v) Note and briefly describe any substantive opposing views
expressed with respect to the proposed rule that were

[[Page 431]]

not incorporated into the proposed rule prior to its submission to the
Commission;
(vi) Identify any Commission regulation that the Commission may need
to amend, or sections of the Act or Commission regulations that the
Commission may need to interpret in order to approve the proposed rule.
To the extent that such an amendment or interpretation is necessary to
accommodate a proposed rule, the submission should include a reasoned
analysis supporting the amendment to the Commission's rule or
interpretation; and
(vii) Identify with particularity information in the submission
(except for a product's terms and conditions, which are made publicly
available at the time of submission) that will be subject to a request
for confidential treatment and support that request for confidential
treatment with reasonable justification.
(2) [Reserved]
(b) Forty-five day review. All rules submitted for Commission
approval under paragraph (a) of this section shall be deemed approved by
the Commission under section 5c(c) of the Act, forty-five days after
receipt by the Commission, or at the conclusion of such extended period
as provided under paragraph (c) of this section, unless notified
otherwise within the applicable period, if:
(1) The submission complies with the requirements of paragraphs
(a)(1)(i) through (vi) of this section, and
(2) The submitting entity does not amend the proposed rule or
supplement the submission, except as requested by the Commission, during
the pendency of the review period. Any amendment or supplementation not
requested by the Commission will be treated as the submission of a new
filing under this section.
(c) Extensions of time. The Commission may extend the review period
in paragraph (b) of this section for:
(1) An additional thirty days, if the Commission, within the initial
forty-five day review period, notifies the submitting entity that the
proposed rule raises novel or complex issues that require additional
time for review or is of major economic significance. This notification
shall briefly describe the nature of the specific issues for which
additional time for review is required; or
(2) Such additional period as the submitting entity has so
instructed the Commission in writing.
(d) Notice of non-approval. The Commission at any time during its
review under this section may notify the submitting entity that it will
not, or is unable to, approve the proposed rule or rule amendment. This
notification will briefly specify the nature of the issues raised and
the specific provision of the Act or regulations, including the form or
content requirements of this section, that the proposed rule would
violate, appears to violate or the violation of which cannot be
ascertained from the submission.
(e) Effect of non-approval. (1) Notification to a registered entity
under paragraph (d) of this section of the Commission's refusal to
approve a proposed rule or rule amendment of a registered entity does
not prejudice the entity from subsequently submitting a revised version
of the proposed rule or rule amendment for Commission approval or from
submitting the rule or rule amendment as initially proposed pursuant to
a supplemented submission.
(2) Notification to a registered entity under paragraph (d) of this
section of the Commission's refusal to approve a proposed rule or rule
amendment of a registered entity shall be presumptive evidence that the
entity may not truthfully certify that the same, or substantially the
same, proposed rule or rule amendment does not violate the Act or rules
thereunder.
(f) Expedited approval. Notwithstanding the provisions of paragraph
(b) of this section, changes to terms and conditions of a product that
are consistent with the Act and Commission regulations and with
standards approved or established by the Commission in a written
notification to the registered entity of the applicability of this
paragraph (f) shall be deemed approved by the Commission at such time
and under such conditions as the Commission shall specify in the notice,
provided, however, that the Commission may, at any time, alter or revoke
the

[[Page 432]]

applicability of such a notice to any particular product.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002]

Sec. 40.6 Self-certification of rules by designated contract markets and registered derivatives clearing organizations.

(a) Required certification. A designated contract market or a
registered derivatives clearing organization may implement any new rule
or rule amendment (other than a rule or rule amendment approved or
deemed approved by the Commission under Sec. 40.5) only if:
(1) The rule or rule amendment is not a rule or rule amendment of a
designated contract market that materially changes a term or condition
of a contract for future delivery of an agricultural commodity
enumerated in section 1a(4) of the Act or an option on such a contract
or commodity in a delivery month having open interest;
(2) The designated contract market or registered derivatives
clearing organization has filed a submission for the rule or rule
amendment with the Commission at its Washington, D.C. headquarters and
at the regional office having local jurisdiction, and the Commission has
received the submission at its headquarters by close of business on the
business day preceding implementation of the rule; provided, however,
rules or rule amendments implemented under procedures of the governing
board to respond to an emergency as defined in Sec. 40.1, shall, if
practicable, be filed with the Commission prior to the implementation
or, if not practicable, be filed with the Commission at the earliest
possible time after implementation but in no event more than 24 hours
after implementation; and
(3) The rule submission includes:
(i) The label, ``Rule Certification'' or, in the case of a rule or
rule amendment that responds to an emergency, ``Emergency Rule
Certification'';
(ii) The text of the rule (in the case of a rule amendment,
deletions and additions must be indicated);
(iii) The date of implementation;
(iv) A brief explanation of any substantive opposing views not
incorporated into the rule; and
(v) A certification by the entity that the rule complies with the
Act and regulations thereunder.
(b) Stay. The Commission may stay the effectiveness of a rule
implemented pursuant to paragraph (a) of this section during the
pendency of Commission proceedings for filing a false certification or
to alter or amend the rule pursuant to section 8a(7) of the Act. The
decision to stay the effectiveness of a rule in such circumstances shall
not be delegable to any employee of the Commission.
(c) Notification of rule amendments. Notwithstanding the rule
certification requirement of section 5c(c)(1) of the Act, and paragraphs
(a)(2) and (a)(3) of this section, a designated contract market or a
registered derivatives clearing organization may place the following
rules or rule amendments into effect without certification to the
Commission if the following conditions are met:
(1) The designated contract market or registered derivatives
clearing organization provides to the Commission at least weekly a
summary notice of all rule changes made effective pursuant to this
paragraph during the preceding week. Such notice must be labeled
``Weekly Notification of Rule Changes'' and need not be filed for weeks
during which no such actions have been taken. One copy of each such
submission shall be furnished in hard copy to the Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,
Washington, DC 20581, or electronically in a format specified by the
Secretary of the Commission; and
(2) The rule governs:
(i) Nonmaterial revisions. Corrections of typographical errors,
renumbering, periodic routine updates to identifying information about
approved entities and other such nonsubstantive revisions of a product's
terms and conditions that have no effect on the economic characteristics
of the product;
(ii) Delivery standards set by third parties. Changes to grades or
standards of commodities deliverable on a product that are established
by an independent third party and that are incorporated by reference as
product terms, provided that the grade or standard is not established,
selected or calculated solely for

[[Page 433]]

use in connection with futures or option trading and such changes do not
affect deliverable supplies or the pricing basis for the product;
(iii) Index products. Routine changes in the composition,
computation, or method of selection of component entities of an index
(other than a stock index) referenced and defined in the product's
terms, that do not affect the pricing basis of the index, which are made
by an independent third party whose business relates to the collection
or dissemination of price information and that was not formed solely for
the purpose of compiling an index for use in connection with a futures
or option product;
(iv) Option contract terms. Changes to option contract rules
relating to the strike price listing procedures, strike price intervals,
and the listing of strike prices on a discretionary basis, or
(v) Fees. Fees or fee changes that are $1.00 or more and are
established by an independent third party or are unrelated to delivery,
trading, clearing or dispute resolution.
(3) Notification of rule amendments not required. Notwithstanding
the rule certification requirements of section 5c(c)(1) of the Act and
of paragraphs (a)(2) and (a)(3) of this section, designated contract
markets and registered derivatives clearing organizations may place the
following rules or rule amendments into effect without certification or
notice to the Commission if the following conditions are met:
(i) The designated contract market or registered derivatives
clearing organization maintains documentation regarding all changes to
rules; and
(ii) The rule governs:
(A) Transfer of membership or ownership. Procedures and forms for
the purchase, sale or transfer of membership or ownership, but not
including qualifications for membership or ownership, any right or
obligation of membership or ownership or dues or assessments;
(B) Administrative procedures. The organization and administrative
procedures of a contract market or a derivatives clearing organization's
governing bodies such as a Board of Directors, Officers and Committees,
but not voting requirements, Board of Directors or Committee composition
requirements or procedures, use or disclosure of material non-public
information gained through the performance of official duties, or
requirements relating to conflicts of interest;
(C) Administration. The routine, daily administration, direction and
control of employees, requirements relating to gratuity and similar
funds, but not guaranty, reserves, or similar funds; declaration of
holidays, and changes to facilities housing the market, trading floor or
trading area;
(D) Standards of decorum. Standards of decorum or attire or similar
provisions relating to admission to the floor, badges, or visitors, but
not the establishment of penalties for violations of such rules; and
(E) Fees. Fees or fee changes that are less than $1.00 or that
relate to matters such as dues, badges, telecommunication services,
booth space, real time quotations, historical information, publications,
software licenses or other matters that are administrative in nature.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002]

Sec. 40.7 Delegations.

(a) Procedural matters--(1) Review of products or rules. The
Commission hereby delegates, until it orders otherwise, to the Director
of the Division of Clearing and Intermediary Oversight and separately to
the Director of the Division of Market Oversight or to the Director's
delegatee with the concurrence of the General Counsel or the General
Counsel's delegatee, authority to request under Sec. 40.3(b)(2) or
Sec. 40.5(b)(2) that the entity requesting approval amend the proposed
product, rule or rule amendment or supplement the submission, to notify
a submitting entity under Sec. 40.3(c) or Sec. 40.5(c) that the time for
review has been extended, and to notify the submitting entity under
Sec. 40.3(d) or Sec. 40.5(d) that the Commission is not approving, or is
unable to approve, the proposed product, rule or rule amendment.
(2) Emergency rules. The Commission hereby delegates authority to
the Directors of Division of Market Oversight and Division of Clearing
and Intermediary Oversight or the delegatees of

[[Page 434]]

the Directors, authority to receive notification and the required
certification of emergency rules under Sec. 40.6(a)(2).
(b) Approval authority. The Commission hereby delegates, until the
Commission orders otherwise, to the Director of the Division of Clearing
and Intermediary Oversight and separately to the Director of the
Division of Market Oversight, with the concurrence of the General
Counsel or the General Counsel's delegatee, to be exercised by either of
such Directors or by such other employee or employees of the Commission
under the supervision of such Directors as may be designated from time
to time by the Directors, the authority to approve, pursuant to section
5c(c)(3) of the Act and Sec. 40.5, rules or rule amendments of a
designated contract market, registered derivatives transaction execution
facility or registered derivatives clearing organization that:
(1) Relate to, but do not substantially change, the quantity,
quality, or other delivery specifications, procedures, or obligations
for delivery, cash settlement, or exercise under an agreement, contract
or transaction approved for trading by the Commission; daily settlement
prices; clearing position limits; requirements or procedures for
governance of a registered entity; procedures for transfer trades;
trading hours; minimum price fluctuations; and maximum price limit and
trading suspension provisions;
(2) Reflect routine modifications that are required or anticipated
by the terms of the rule of a registered entity;
(3) [Reserved]
(4) Are in substance the same as a rule of the same or another
registered entity which has been approved previously by the Commission
pursuant to section 5c(c)(3) of the Act;
(5) Are consistent with a specific, stated policy or interpretation
of the Commission; or
(6) Relate to the listing of additional trading months of approved
contracts.
(c) The Directors may submit to the Commission for its consideration
any matter that has been delegated pursuant to paragraph (a) or (b) of
this section.
(d) Nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising the authority delegated in
paragraph (a) or (b) of this section to the Directors.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62352, Oct. 7, 2002; 67
FR 62880, Oct. 9, 2002]

Sec. 40.8 Availability of public information.

Any information required to be made publicly available by a
registered entity under sections 5(d)(7), 5a(d)(4) and 5b(c)(2)(L) of
the Act, respectively, will be treated as public information by the
Commission at the time an order of designation or registration is issued
by the Commission, a registered entity is deemed to be designated or
registered, a rule or rule amendment of the registered entity is
approved or deemed to be approved by the Commission or can first be made
effective the day following its certification by the registered entity.

[67 FR 62880, Oct. 9, 2002]

Appendix A to Part 40--Guideline No. 1

(a) Application for Designation of Physical Delivery Futures Contracts

A board of trade shall submit:
(1) The rules setting froth the terms and conditions of the futures
contract.
(2) A description of the cash market for the commodity on which the
contract is based.
(i) The description may include, in addition to or in lieu of
materials prepared by the board of trade, existing studies by industry
trade groups, academics, governmental bodies or other entities, reports
of consultants, or other materials which provide a description of the
underlying cash market.
(ii) Where the same, or a closely related commodity, is already
designated as a contract market which and is not dormant, the cash
market description can be confined to those aspects relevant to
particular term(s) or condition(s) which differ from such existing
contract.
(3) A demonstration that the terms and conditions, as a whole, will
result in a deliverable supply such that the contract will not be
conducive to price manipulation or distortion and that the deliverable
supply reasonably can be expected to be available to short traders and
salable by long traders at its market value in normal cash marketing
channels.

[[Page 435]]

For purposes of this demonstration, provide the following
information in chart or narrative form.

Contract Terms and Conditions
----------------------------------------------------------------------------------------------------------------
Explanation as to
Rule number of consistency with,
Exchange identical or reason for
Term or condition proposal approved variance from
provision, if any cash market
\1\ practice
----------------------------------------------------------------------------------------------------------------
1. Commodity characteristics (e.g., grade, quality, ................. ................. .................
weight, class, growth, issuer, origin, maturity,
source, rating, etc.).................................
2. Any quality differentials for nonpar deliveries, or ................. ................. .................
lack thereof..........................................
3. Delivery points/region.............................. ................. ................. .................
4. Any locational differentials for nonpar deliveries, ................. ................. .................
or lack thereof.......................................
5. Delivery facilities (type, number, capacity, ................. ................. .................
ownership)............................................
6. Contract size and/or trading unit................... ................. ................. .................
7. Delivery pack or composition of delivery units...... ................. ................. .................
8. Delivery instrument (e.g., warehouse receipt, ................. ................. .................
shipping certificate, bill of lading).................
9. Transportation terms (e.g., FOB, CIF, prepay freight ................. ................. .................
to destination).......................................
10. Delivery procedures................................ ................. ................. .................
11. Delivery months.................................... ................. ................. .................
12. Delivery period and last trading day............... ................. ................. .................
13. Inspection/certification procedures (verification ................. ................. .................
of delivery eligibility, any discounts applied for
age)..................................................
14. Minimum price change (tick) equal to or less than ................. ................. .................
cash market minimum price increment...................
15. Daily price limit provisions (note relationship to ................. ................. .................
cash market price movements)..........................
----------------------------------------------------------------------------------------------------------------

DELIVERABLE SUPPLIES \2\--ESTIMATE OF DELIVERABLE
SUPPLIES FOR TRADING MONTH(S) WITH LOWEST SUPPLIES
ESTIMATION METHODOLOGY................................. ................. ................. .................
----------------------------------------------------------------------------------------------------------------
\1\ If an identical provision has been approved for a nondormant contract in the same commodity, there is no
need to provide an explanation in the next column.
\2\ No estimate of deliverable supply is needed if a previously designated nondormant contract is trading. Also,
no justification of the spot month limit is needed if the limit is the same as that approved by the Commission
for an identical contract in that commodity (relative to the quantity or value of the identical contract).
Where more than one contract is based on the same underlying commodity or instrument, positions should be
combined for purposes of applying speculative limits.

Terms and Conditions Related to Speculative Limits
----------------------------------------------------------------------------------------------------------------
Level (exchange
Speculative limit Standard rule)
----------------------------------------------------------------------------------------------------------------
1. Spot month.................................. No greater than one-fourth of estimated .................
deliverable supply.
2. Nonspot individual month or all months 5,000 contract.............................. .................
combined (financial and energy contract).
3. Nonspot individual month or all months 1,000 contracts............................. .................
combined (tangible commodity contracts).
4. Reporting level............................. Equal to or less than levels specified in .................
CFTC rule 15.03.
5. Aggregation rule............................ Same as CFTC rule 150.5(g) or previously .................
approved language.
----------------------------------------------------------------------------------------------------------------

(4) As specifically requested, such additional evidence, information
or data relating to whether the contract meets, initially or on a
continuing basis, any of the specific requirements of the Act, including
the public interest standard contained in Section 5(7) of the Act, and
whether the contract reasonably can be expected to be, or has been, used
for hedging and/or price basing on more than an occasional basis, or any
other requirement for designation under the Act or Commission rules and
policies.

(b) Application for Cash Settled Futures Contracts

A board of trade shall submit:
(1) The rules setting forth the terms and conditions of the proposed
futures contract.
(2) A description of the cash market for the commodity on which the
contract is based.

[[Page 436]]

(i) The description may include, in addition to or in lieu of
materials prepared by the board of trade, existing studies by industry
trade groups, academics, governmental bodies or other entities, reports
of consultants, or other materials which provide a description of the
underlying cash market.
(ii) Where the same, or a closely related commodity, is already
designated as a contract market which is not dormant, the cash market
description can be confined to those aspects relevant to particular
term(s) or conditions(s) which differ from such existing contract.
(3) A demonstration that cash settlement of the contract is at a
price reflecting the underlying cash market, will not be subject to
manipulation or distortion, and is based on a cash price series that is
reliable, acceptable, publicly available and timely.
For purposes of this demonstration, provide the following
information in chart or narrative form.

Terms and Conditions Related to Cash Settlement Price Series
------------------------------------------------------------------------
Rule number of
identical Explanation or
Requirement approved justification
provision
------------------------------------------------------------------------
1. Where an independent third ................. .................
party calculate the cash
settlement price series, evidence
that the third party does not
object to its use and provides
safeguards against susceptibility
to manipulation..................
2. Where board of trade generates ................. .................
cash settlement rice series,
specifications of calculation
procedure and safeguards in cash
settlement process to protect
against susceptibility to
manipulation (e.g., if self-
generated survey, polling sample
representative of cash market,
but with a minimum of 4
nontrading entities or 8 entities
that trade for own account)......
3. Procedure for, and timeliness ................. .................
of, dissemination to public......
4. Evidence that price is reliable ................. .................
indicator of cash market values
and acceptable for hedging.......
------------------------------------------------------------------------

Terms and Conditions Related to Speculative Limits
----------------------------------------------------------------------------------------------------------------
Level (exchange
Speculative limit Standard rule)
----------------------------------------------------------------------------------------------------------------
1. Spot month.................................. Must be no greater than necessary to .................
minimize the potential for manipulation or
distortion of the contract's or the
underlying commodity's price.
2. Nonspot individual month or all months 5,000 contracts............................. .................
combined (financial and energy contracts).
3. Nonspot individual month or all months 1,000 contracts............................. .................
combined (tangible commodity contracts).
4. Reporting level............................. Equal to or less than levels specified in .................
CFTC rule 15.03.
5. Aggregation rule............................ Same as CFTC rule 150.5(g) or previously .................
approved language.
----------------------------------------------------------------------------------------------------------------

(4) As specifically requested, such additional evidence, information
or data relating to whether the contract meets, initially or

[[Page 437]]

on a continuing basis, any of the specific requirements of the Act,
including the public interest standard contained in Section 5(7) of the
Act, and whether the contract reasonably can be expected to be, or has
been, used for hedging and/or price basing on more than an occasional
basis, or any other requirement for designation under the Act or
Commission rules and policies.

A board of trade shall submit:
(1) The rules setting forth the terms and conditions of the proposed
option contract.
(2)(i) For options on futures contracts, the terms and conditions of
the proposed or existing underlying futures contract.
(2)(ii) For options on physical commodities:
(A) A description of the cash market for the commodity on which the
contract is based.
(1) The description may include, in addition to or in lieu of
material prepared by the board of trade: existing studies by industry
trade groups, academics, governmental bodies or other entities;
promotional or marketing materials prepared by or for the board of
trade; reports of consultants; or other materials which provide a
description of the underlying cash market.
(2) Where the same, or a closely related commodity, is already
designated and is not dormant, the cash market description can be
confined to those aspects relevant to particular term(s) or condition(s)
which differ from such existing contract.
(B) Depending on the method of settling the option, the relevant
chart for either a physical delivery or cash settled futures contract.
(3) The following completed chart.

Terms and Conditions
----------------------------------------------------------------------------------------------------------------
Justification for
not meeting
Applicable CFTC Met by exchange standard, or rule
Criterion Rule (17 CFR) Standard rule number number of
identical
approved rule
----------------------------------------------------------------------------------------------------------------
1. Speculative limits.......... 150.5............ Combined net position ................. .................
in futures and
options on a futures-
equivalent basis at
the futures position
levels, with inter-
month spread
exemptions that are
consistent with those
of the futures
contracts or
consistent with
Commission Rule
150.5(e) for
underlying future.
2. Aggregation rule............ 150.4............ Same as Rule 150.5(g) ................. .................
or previously
approved language.
3. Reporting level............. 15.00(b)(2)...... 50 contracts or fewer. ................. .................
4. Strike prices (number listed 33.4(b)(1)....... Procedures for routine ................. .................
& increments). listing of strikes
are specified and
automatic, provisions
for listing
discretionary strikes
are specified.
5. Option expiration & last 33.4(b)(2)....... Except for options on ................. .................
trading day. cash-settled futures
contracts, expiration
is not less than one
business day before
the earlier of the
last trading day or
the first notice day
of the underlying
future.
6. Minimum tick................ 33.4(d).......... Equal to, or less ................. .................
than, the underlying
futures tick.
7. Daily price limit, if 33.4(d).......... Equal to, or greater ................. .................
specified. than, the underlying
futures price limit.
----------------------------------------------------------------------------------------------------------------

(4) As specifically requested, such additional evidence, information
or data relating to whether the contract meets, initially or on a
continuing basis, any of the specific requirements of the Act, including
the public interest standard contained in Section 5(7) of the Act, or
any other requirement for designation under the Act or Commission rules
and policies.

[64 FR 29221, June 1, 1999. Redesignated at 66 FR 42287, Aug. 10, 2001]

Appendix B to Part 40--Schedule of Fees

(a) Applications for product approval. Each application for product
approval under Sec. 40.3 must be accompanied by a check or money order
made payable to the Commodity Futures Trading Commission in an amount to
be determined annually by the Commission and published in the Federal
Register.

[[Page 438]]

(b) Checks and applications should be sent to the attention of the
Office of the Secretariat, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. No checks
or money orders may be accepted by personnel other than those in the
Office of the Secretariat.
(c) Failure to submit the fee with an application for product
approval will result in return of the application. Fees will not be
returned after receipt.

Appendix C to part 40--Information That a Foreign Board of Trade Should
Submit When Seeking No-Action Relief to Offer and Sell, to Persons
Located in the United States, a Futures Contract on a Foreign Securities
Index Traded on That Foreign Board of Trade

A foreign board of trade seeking no-action relief to offer and to
sell, to persons located in the U.S., a futures contract on a foreign
securities index traded on that foreign board of trade should submit the
following in English:
(1) The terms and conditions of the contract and all other relevant
rules of the exchange and, if applicable, of the exchange on which the
underlying securities are traded, which have an effect on the over-all
trading of the contract, including circuit breakers, price limits,
position limits or other controls on trading;
(2) Surveillance agreements between the foreign board of trade and
the exchange(s) on which the underlying securities are traded;
(3) Information sharing agreements between the host regulator and
the Commission or assurances of ability and willingness to share
information with the Commission and assurances from the foreign board of
trade of its ability and willingness to share information with the
Commission, either directly or indirectly.
(4) When applicable, information regarding foreign blocking statutes
and their impact on the ability of United States government agencies to
obtain information concerning the trading of such contracts; and
(5) Information and data denoted in U.S. dollars relating to:
(i) The method of computation, availability, and timeliness of the
index;
(ii) The total capitalization, number of stocks (including the
number of unaffiliated issuers if different from the number of stocks),
and weighting of the stocks by capitalization and, if applicable, by
price in the index as well as the combined weighting of the five
highest-weighted stocks in the index;
(iii) Procedures and criteria for selection of individual securities
for inclusion in, or removal from, the index, how often the index is
regularly reviewed, and any procedures for changes in the index between
regularly scheduled reviews;
(iv) Method of calculation of the cash-settlement price and the
timing of its public release;
(v) Average daily volume of trading by calendar month, measured by
share turnover and dollar value, in each of the underlying securities
for a six-month period of time and, separately, the dollar value of the
average daily trading volume of the securities comprising the lowest
weighted 25% of the index for the past six calendar months, calculated
pursuant to Sec. 41.11;
(vi) If applicable, average daily futures trading volume; and
(vii) A statement that the index is not a narrow-based security
index as defined in section 1a(25) of the Act.

[64 FR 29224, June 1, 1999. Redesignated at 66 FR 42287, Aug. 10, 2001;
67 FR 62880, Oct. 9, 2002]