§ 7a-1. — Derivatives clearing organizations.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 7USC7a-1]
TITLE 7--AGRICULTURE
CHAPTER 1--COMMODITY EXCHANGES
Sec. 7a-1. Derivatives clearing organizations
(a) Registration requirement
It shall be unlawful for a derivatives clearing organization, unless
registered with the Commission, directly or indirectly to make use of
the mails or any means or instrumentality of interstate commerce to
perform the functions of a derivatives clearing organization described
in section 1a(9) of this title with respect to a contract of sale of a
commodity for future delivery (or option on such a contract) or option
on a commodity, in each case unless the contract or option--
(1) is excluded from this chapter by section 2(a)(1)(C)(i),
2(c), 2(d), 2(f), or 2(g) of this title or sections 27 to 27f of
this title, or exempted under section 2(h) or 6(c) of this title; or
(2) is a security futures product cleared by a clearing agency
registered under the Securities Exchange Act of 1934 [15 U.S.C. 78a
et seq.].
(b) Voluntary registration
A derivatives clearing organization that clears agreements,
contracts, or transactions excluded from this chapter by section 2(c),
2(d), 2(f), or 2(g) of this title or sections 27 to 27f of this title,
or exempted under section 2(h) or 6(c) of this title, or other over-the-
counter derivative instruments (as defined in the Federal Deposit
Insurance Corporation Improvement Act of 1991) may register with the
Commission as a derivatives clearing organization.
(c) Registration of derivatives clearing organizations
(1) Application
A person desiring to register as a derivatives clearing
organization shall submit to the Commission an application in such
form and containing such information as the Commission may require
for the purpose of making the determinations required for approval
under paragraph (2).
(2) Core principles
(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.
(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.
(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.
(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.
(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.
(F) Treatment of funds
The applicant shall have standards and procedures designed
to protect and ensure the safety of member and participant
funds.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(N) Antitrust considerations
Unless appropriate to achieve the purposes of this chapter,
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.
(3) Orders concerning competition
A derivatives clearing organization may request the Commission
to issue an order concerning whether a rule or practice of the
applicant is the least anticompetitive means of achieving the
objectives, purposes, and policies of this chapter.
(d) Existing derivatives clearing organizations
A derivatives clearing organization shall be deemed to be registered
under this section to the extent that the derivatives clearing
organization clears agreements, contracts, or transactions for a board
of trade that has been designated by the Commission as a contract market
for such agreements, contracts, or transactions before December 21,
2000.
(e) Appointment of trustee
(1) In general
If a proceeding under section 7b of this title results in the
suspension or revocation of the registration of a derivatives
clearing organization, or if a derivatives clearing organization
withdraws from registration, the Commission, on notice to the
derivatives clearing organization, may apply to the appropriate
United States district court where the derivatives clearing
organization is located for the appointment of a trustee.
(2) Assumption of jurisdiction
If the Commission applies for appointment of a trustee under
paragraph (1)--
(A) the court may take exclusive jurisdiction over the
derivatives clearing organization and the records and assets of
the derivatives clearing organization, wherever located; and
(B) if the court takes jurisdiction under subparagraph (A),
the court shall appoint the Commission, or a person designated
by the Commission, as trustee with power to take possession and
continue to operate or terminate the operations of the
derivatives clearing organization in an orderly manner for the
protection of participants, subject to such terms and conditions
as the court may prescribe.
(f) Linking of regulated clearing facilities
(1) In general
The Commission shall facilitate the linking or coordination of
derivatives clearing organizations registered under this chapter
with other regulated clearance facilities for the coordinated
settlement of cleared transactions.
(2) Coordination
In carrying out paragraph (1), the Commission shall coordinate
with the Federal banking agencies and the Securities and Exchange
Commission.
(Sept. 21, 1922, ch. 369, Sec. 5b, as added Pub. L. 106-554,
Sec. 1(a)(5) [title I, Sec. 112(f)], Dec. 21, 2000, 114 Stat. 2763,
2763A-396.)
References in Text
The Securities Exchange Act of 1934, referred to in subsec. (a)(2),
is act June 6, 1934, ch. 404, 48 Stat. 881, as amended, which is
classified principally to chapter 2B (Sec. 78a et seq.) of Title 15,
Commerce and Trade. For complete classification of this Act to the Code,
see section 78a of Title 15 and Tables.
The Federal Deposit Insurance Corporation Improvement Act of 1991,
referred to in subsec. (b), is Pub. L. 102-242, Dec. 19, 1991, 105 Stat.
2236, as amended. For definition of over-the-counter derivative
instrument, see section 4421 of Title 12, Banks and Banking. For
complete classification of this Act to the Code, see Short Title of 1991
Amendment note set out under section 1811 of Title 12 and Tables.
Prior Provisions
A prior section 5b of act Sept. 21, 1922, was renumbered section 5e,
and is classified to section 7b of this title.
Section Referred to in Other Sections
This section is referred to in sections 1a, 2, 7a-2, 8, 13a, 25, 27e
of this title; title 12 section 4402.
