Event Contracts

COMMODITY FUTURES TRADING COMMISSION <CFR>17 CFR Part 40</CFR> <RIN>RIN 3038-AF14</RIN> <SUBJECT>Event Contracts</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 amendments to its rules concerning event contracts in certain excluded commodities. The Commission is proposing amendments to further specify types of event contracts that fall within the scope of section 5c(c)(5)(C) of the Commodity Exchange Act (CEA or the Act) and are contrary to the public interest, such that they may not be listed for trading or accepted for clearing on or through a CFTC-registered entity. Among other things, the Commission proposes to further specify the types of event contracts that involve “gaming.” The Commission also proposes to amend certain language in its event contract rules to further align with statutory text, and to make certain technical changes to its event contract rules in order to enhance clarity and organization. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before July 9, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by “Event Contracts” and RIN number 3038-AF14, by any of the following methods: • <E T="03">CFTC Comments Portal: https://comments.cftc.gov.</E> Select the “Submit Comments” link for this release 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 Commission's procedures established in 17 CFR 145.9. 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://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> Grey Tanzi, Assistant Chief Counsel, (312) 596-0635, <E T="03">gtanzi@cftc.gov,</E> Division of Market Oversight, Commodity Futures Trading Commission, 77 West Jackson Blvd., Suite 800, Chicago, Illinois 60604, Andrew Stein, Assistant Chief Counsel, (202) 418-6054, <E T="03">astein@cftc.gov,</E> Lauren Bennett, Assistant Chief Counsel, (202) 418-5290, <E T="03">lbennett@cftc.gov,</E> or Nora Flood, Chief Counsel, (202) 418-6059, <E T="03">nflood@cftc.gov,</E> Three Lafayette Centre, 1151 21st Street NW, Washington, DC 20581. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Background</FP> <FP SOURCE="FP1-2">A. Overview of Proposed Changes to § 40.11</FP> <FP SOURCE="FP1-2">B. Commission History With Event Contracts</FP> <FP SOURCE="FP1-2">C. Statutory Authority and Prior Commission Action</FP> <FP SOURCE="FP1-2">1. CEA Section 5c(c)(5)(C)</FP> <FP SOURCE="FP1-2">2. Commission Regulation § 40.11</FP> <FP SOURCE="FP1-2">3. Commission Determinations Pursuant to § 40.11</FP> <FP SOURCE="FP-2">II. Proposed Amendments to § 40.11</FP> <FP SOURCE="FP1-2">A. Amendments to Further Align With Statutory Language</FP> <FP SOURCE="FP1-2">1. Description of Excluded Commodities</FP> <FP SOURCE="FP1-2">(a) Proposed Amendments</FP> <FP SOURCE="FP1-2">(b) Illustrative Examples of Event Contracts Not Within Scope of CEA Section 5c(c)(5)(C) and § 40.11</FP> <FP SOURCE="FP1-2">2. Contracts That “Involve” an Enumerated Activity</FP> <FP SOURCE="FP1-2">B. The Enumerated Activities</FP> <FP SOURCE="FP1-2">1. Gaming</FP> <FP SOURCE="FP1-2">(a) Background</FP> <FP SOURCE="FP1-2">(b) Proposed Gaming Definition</FP> <FP SOURCE="FP1-2">(c) Illustrative Examples of Gaming</FP> <FP SOURCE="FP1-2">2. The Other Enumerated Activities</FP> <FP SOURCE="FP1-2">C. Public Interest Considerations</FP> <FP SOURCE="FP1-2">1. Overview of Proposed Amendments</FP> <FP SOURCE="FP1-2">2. Factors Considered by the Commission in Evaluating Whether a Contract, or Category of Contracts, Is Contrary to the Public Interest</FP> <FP SOURCE="FP1-2">3. The Enumerated Activities</FP> <FP SOURCE="FP1-2">(a) Terrorism, Assassination, and War</FP> <FP SOURCE="FP1-2">(b) Activity That Is Unlawful Under Federal or State Law</FP> <FP SOURCE="FP1-2">(c) Gaming</FP> <FP SOURCE="FP1-2">D. The Commission's Authority To Identify Additional Similar Activities to the Enumerated Activities</FP> <FP SOURCE="FP1-2">E. Technical Amendments</FP> <FP SOURCE="FP1-2">1. Technical Amendments to § 40.11(a)</FP> <FP SOURCE="FP1-2">2. Technical Amendments to § 40.11(c)</FP> <FP SOURCE="FP1-2">F. Implementation Timeline</FP> <FP SOURCE="FP-2">III. Related Matters</FP> <FP SOURCE="FP1-2">A. Regulatory Flexibility Act</FP> <FP SOURCE="FP1-2">B. Paperwork Reduction Act</FP> <FP SOURCE="FP1-2">1. Submission of Updated Rules to the Commission</FP> <FP SOURCE="FP1-2">2. Request for Comment</FP> <FP SOURCE="FP1-2">C. Consideration of Costs and Benefits</FP> <FP SOURCE="FP1-2">1. Introduction</FP> <FP SOURCE="FP1-2">2. Proposed Amendments</FP> <FP SOURCE="FP1-2">(a) Definition of Gaming—Proposed § 40.11(b)</FP> <FP SOURCE="FP1-2">(1) Baseline and Proposed Amendments</FP> <FP SOURCE="FP1-2">(2) Benefits</FP> <FP SOURCE="FP1-2">(3) Costs</FP> <FP SOURCE="FP1-2">(b) Amendments to Further Align With Statutory Language</FP> <FP SOURCE="FP1-2">3. Section 15(a) Factors</FP> <FP SOURCE="FP1-2">(a) Protection of Market Participants and the Public</FP> <FP SOURCE="FP1-2">(b) Efficiency, Competitiveness and Financial Integrity</FP> <FP SOURCE="FP1-2">(c) Price Discovery</FP> <FP SOURCE="FP1-2">(d) Sound Risk Management Practices</FP> <FP SOURCE="FP1-2">(e) Other Public Interest Considerations</FP> <FP SOURCE="FP1-2">D. Antitrust Considerations</FP> </EXTRACT> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Overview of Proposed Changes to § 40.11</HD> On July 27, 2011, the Commission published in the <E T="04">Federal Register</E> final rules under part 40 of the Commission's regulations, including new § 40.11. <SU>1</SU> <FTREF/> Commission Regulation 40.11 was promulgated pursuant to authority granted under section 5c(c)(5)(C) of the CEA, <SU>2</SU> <FTREF/> which was added by section 745(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). <SU>3</SU> <FTREF/> CEA section 5c(c)(5)(C) authorizes the Commission to prohibit certain “event contracts” from being listed or made available for clearing or trading on or through a registered entity, <SU>4</SU> <FTREF/> if such contracts involve an activity that is enumerated in CEA section 5c(c)(5)(C) or “other similar activity” as determined by the Commission by rule or regulation, and the Commission determines that such contracts are contrary to the public interest. <FTNT> <SU>1</SU>   <E T="03">Provisions Common to Registered Entities,</E> 76 FR 44776 (July 27, 2011). Commission Regulation 40.11 was adopted as part of broader changes made to part 40 of the Commission's regulations to implement section 745 of the Dodd-Frank Act, which amended section 5c of the CEA. Section 5c(c) of the CEA, in particular, sets forth requirements relating to the listing for trading or making available for clearing of derivative contracts, and the implementation of rules and rule amendments, by “registered entities.” CEA section 1a(40), 7 U.S.C. 1a(40), defines the term “registered entity” to include any board of trade designated by the Commission as a contract market (“DCM”), and any derivatives clearing organization (“DCO”), swap execution facility (“SEF”), or swap data repository (“SDR”) registered by the Commission. </FTNT> <FTNT> <SU>2</SU>  7 U.S.C. 7a-2(c)(5)(C). </FTNT> <FTNT> <SU>3</SU>  Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (July 21, 2010). </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> note 2, <E T="03">supra.</E> CEA section 1a(40), 7 U.S.C. 1a(40), defines the term “registered entity” to include any DCM, and any DCO, SEF, or SDR registered by the Commission. </FTNT> While the term “event contract” is not defined in the CEA or the CFTC's regulations, event contracts are generally understood to be a type of derivative contract, typically with a binary payoff structure, based on the outcome of an underlying occurrence or event. <SU>5</SU> <FTREF/> A registered entity that seeks to list event contracts for trading, or make event contracts available for clearing, must comply with the substantive and procedural requirements that apply, more generally, to the listing for trading, or making available for cle ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 304k characters. 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