Requirements for Designated Contract Markets and Swap Execution Facilities Regarding Governance and the Mitigation of Conflicts of Interest Impacting Market Regulation Functions

COMMODITY FUTURES TRADING COMMISSION <CFR>17 CFR Parts 37 and 38</CFR> <RIN>RIN 3038-AF29</RIN> <SUBJECT>Requirements for Designated Contract Markets and Swap Execution Facilities Regarding Governance and the Mitigation of Conflicts of Interest Impacting Market Regulation Functions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Commodity Futures Trading Commission. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Commodity Futures Trading Commission (“Commission” or “CFTC”) is proposing new rules and amendments to its existing regulations for designated contract markets (“DCMs”) and swap execution facilities (“SEFs”) that would establish governance and fitness requirements with respect to market regulation functions, as well as related conflict of interest standards. The proposed new rules and amendments include minimum fitness standards, requirements for identifying, managing, and resolving conflicts of interest, and structural governance requirements to ensure that SEF and DCM governing bodies adequately incorporate an independent perspective. The proposal also address requirements relating to the following: composition requirements for board of directors and disciplinary panels; limitations on the use and disclosure by employees and certain others of material non-public information; requirements relating to Chief Regulatory Officers, Chief Compliance Officers, and Regulatory Oversight Committees; and notification of certain changes in the ownership or corporate or organizational structure of a SEF or DCM. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before April 22, 2024. </DATES> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by “Requirements for Designated Contract Markets and Swap Execution Facilities Regarding Governance and the Mitigation of Conflicts of Interest” and RIN 3038-AF29, by any of the following methods: • <E T="03">CFTC Comments Portal: https://comments.cftc.gov</E> . Select the “Submit Comments” link for this rulemaking and follow the instructions on the Public Comment Form. • <E T="03">Mail:</E> Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. • <E T="03">Hand Delivery/Courier:</E> Follow the same instructions as for Mail, above. Please submit your comments using only one of these methods. Submissions through the CFTC Comments Portal are encouraged. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to <E T="03">https://comments.cftc.gov</E> . You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act (“FOIA”), a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations. <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  17 CFR 145.9. </FTNT> The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse, or remove any or all of your submission from <E T="03">https://www.comments.cftc.gov</E> that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under FOIA. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Rachel Berdansky, Deputy Director, <E T="03">rberdansky@cftc.gov,</E> 202-418-5429; Swati Shah, Associate Director, <E T="03">sshah@cftc.gov,</E> 202-418-5042; Marilee Dahlman, Special Counsel, <E T="03">mdahlman@cftc.gov,</E> 202-418-5264; Jennifer L. Tveiten-Rifman, Special Counsel, <E T="03">jtveitenrifman@cftc.gov,</E> 312-802-3848; Lillian Cardona, <E T="03">lcardona@cftc.gov,</E> Assistant Chief Counsel, 202-418-5012. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP-2">II. Background</FP> <FP SOURCE="FP1-2">a. Statutory Requirements for SEFs and DCMs</FP> <FP SOURCE="FP1-2">b. Proposed and Final Rules Addressing SEF and DCM Governance and Conflicts of Interest</FP> <FP SOURCE="FP1-2">1. 2001 Regulatory Framework</FP> <FP SOURCE="FP1-2">2. 2007 Final Release, Conflicts of Interest Acceptable Practices for DCMs</FP> <FP SOURCE="FP1-2">3. 2009 Final Release, Definition of Public Director</FP> <FP SOURCE="FP1-2">4. 2010 Conflicts of Interest Rule Proposal</FP> <FP SOURCE="FP1-2">5. 2011 Governance and Conflicts of Interest NPRM</FP> <FP SOURCE="FP1-2">6. 2012 Part 38 Final Rule</FP> <FP SOURCE="FP1-2">7. 2013 Part 37 Final Rule</FP> <FP SOURCE="FP1-2">8. 2021 Part 37 Amendments—CCO Duties and Annual Compliance Report</FP> <FP SOURCE="FP1-2">c. Industry Changes and Impact on Regulatory Developments</FP> <FP SOURCE="FP1-2">d. Conflicts of Interest Relating to Market Regulation Functions</FP> <FP SOURCE="FP1-2">1. Market Regulation Functions</FP> <FP SOURCE="FP1-2">2. Questions for Comment</FP> <FP SOURCE="FP1-2">3. Conflicts of Interest Between Market Regulation Functions and Commercial Interests</FP> <FP SOURCE="FP-2">III. Proposed Governance Fitness Requirements</FP> <FP SOURCE="FP1-2">a. Overview</FP> <FP SOURCE="FP1-2">b. Minimum Fitness Standards—Proposed §§ 37.207 and 38.801</FP> <FP SOURCE="FP1-2">1. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">2. Proposed Rules</FP> <FP SOURCE="FP1-2">3. Questions for Comment</FP> <FP SOURCE="FP-2">IV. Proposed Substantive Requirements for Identifying, Managing and Resolving Actual and Potential Conflicts of Interest</FP> <FP SOURCE="FP1-2">a. General Requirements for Conflicts of Interest and Definitions—Proposed §§ 37.1201 and 38.851</FP> <FP SOURCE="FP1-2">1. Existing Regulatory Framework and Definitions</FP> <FP SOURCE="FP1-2">2. Proposed Rules</FP> <FP SOURCE="FP1-2">b. Conflicts of Interest in Decision-Making—Proposed §§ 37.1202 and 38.852</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">c. Limitations on the Use and Disclosure of Material Non-Public Information—Proposed §§ 37.1203 and 38.853</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP-2">V. Proposed Structural Governance Requirements for Identifying, Managing and Resolving Actual and Potential Conflicts of Interest</FP> <FP SOURCE="FP1-2">a. Composition and Related Requirements for Board of Directors—Proposed §§ 37.1204 and 38.854</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">b. Public Director Definition—Proposed §§ 37.1201(b)(12) and 38.851(b)(12)</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">c. Nominating Committee and Diverse Representation—Proposed §§ 37.1205 and 38.855</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">d. Regulatory Oversight Committee—Proposed §§ 37.1206 and 38.857</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">e. Disciplinary Panel Composition—Proposed §§ 37.1207 and 38.858</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2"> 4. Questions for Comment </FP> <FP SOURCE="FP1-2">f. DCM Chief Regulatory Officer—Proposed § 38.856</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">g. Staffing and Investigations—Proposed Changes to §§ 38.155, 38.158, and 37.203</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP1-2">h. SEF Chief Compliance Officer—Proposed Changes to § 37.1501</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP-2">VI. Conforming Changes</FP> <FP SOURCE="FP1-2">a. Commission Regulations §§ 37.2, 38.2, and Part 1</FP> <FP SOURCE="FP1-2">b. Transfer of Equity Interest—Commission Regulations §§ 37.5(c) and 38.5(c)</FP> <FP SOURCE="FP1-2">1. Background</FP> <FP SOURCE="FP1-2">2. Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Proposed Rules</FP> <FP SOURCE="FP1-2">4. Questions for Comment</FP> <FP SOURCE="FP-2">VII. Effective and Compliance Dates</FP> <FP SOURCE="FP-2">VIII. Related Matters</FP> <FP SOURCE="FP1-2">a. C ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 650k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━