§ 7a. — Derivatives transaction execution facilities.
[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]
TITLE 7--AGRICULTURE
CHAPTER 1--COMMODITY EXCHANGES
Sec. 7a. Derivatives transaction execution facilities
(a) In general
In lieu of compliance with the contract market designation
requirements of sections 6(a) and 7 of this title, a board of trade may
elect to operate as a registered derivatives transaction execution
facility if the facility is--
(1) designated as a contract market and meets the requirements
of this section; or
(2) registered as a derivatives transaction execution facility
under subsection (c) of this section.
(b) Requirements for trading
(1) In general
A registered derivatives transaction execution facility under
subsection (a) of this section may trade any contract of sale of a
commodity for future delivery (or option on such a contract) on or
through the facility only by satisfying the requirements of this
section.
(2) Requirements for underlying commodities
A registered derivatives transaction execution facility may
trade any contract of sale of a commodity for future delivery (or
option on such a contract) only if--
(A) the underlying commodity has a nearly inexhaustible
deliverable supply;
(B) the underlying commodity has a deliverable supply that
is sufficiently large that the contract is highly unlikely to be
susceptible to the threat of manipulation;
(C) the underlying commodity has no cash market;
(D)(i) the contract is a security futures product, and (ii)
the registered derivatives transaction execution facility is a
national securities exchange registered under the Securities
Exchange Act of 1934 [15 U.S.C. 78a et seq.];
(E) the Commission determines, based on the market
characteristics, surveillance history, self-regulatory record,
and capacity of the facility that trading in the contract (or
option) is highly unlikely to be susceptible to the threat of
manipulation; or
(F) except as provided in section 7(e)(2) of this title, the
underlying commodity is a commodity other than an agricultural
commodity enumerated in section 1a(4) of this title, and trading
access to the facility is limited to eligible commercial
entities trading for their own account.
(3) Eligible traders
To trade on a registered derivatives transaction execution
facility, a person shall--
(A) be an eligible contract participant; or
(B) be a person trading through a futures commission
merchant that--
(i) is registered with the Commission;
(ii) is a member of a futures self-regulatory
organization or, if the person trades only security futures
products on the facility, a national securities association
registered under section 15A(a) of the Securities Exchange
Act of 1934 [15 U.S.C. 78o-3(a)];
(iii) is a clearing member of a derivatives clearing
organization; and
(iv) has net capital of at least $20,000,000.
(4) Trading by contract markets
A board of trade that is designated as a contract market shall,
to the extent that the contract market also operates a registered
derivatives transaction execution facility--
(A) provide a physical location for the contract market
trading of the board of trade that is separate from trading on
the derivatives transaction execution facility of the board of
trade; or
(B) if the board of trade uses the same electronic trading
system for trading on the contract market and derivatives
transaction execution facility of the board of trade, identify
whether the electronic trading is taking place on the contract
market or the derivatives transaction execution facility.
(c) Criteria for registration
(1) In general
To be registered as a registered derivatives transaction
execution facility, the board of trade shall be required to
demonstrate to the Commission only that the board of trade meets the
criteria specified in subsection (b) of this section and this
subsection.
(2) Deterrence of abuses
The board of trade shall establish and enforce trading and
participation rules that will deter abuses and has the capacity to
detect, investigate, and enforce those rules, including means to--
(A) obtain information necessary to perform the functions
required under this section; or
(B) use technological means to--
(i) provide market participants with impartial access to
the market; and
(ii) capture information that may be used in
establishing whether rule violations have occurred.
(3) Trading procedures
The board of trade shall establish and enforce rules or terms
and conditions defining, or specifications detailing, trading
procedures to be used in entering and executing orders traded on the
facilities of the board of trade. The rules may authorize--
(A) transfer trades or office trades;
(B) an exchange of--
(i) futures in connection with a cash commodity
transaction;
(ii) futures for cash commodities; or
(iii) futures for swaps; or
(C) a futures commission merchant, acting as principal or
agent, to enter into or confirm the execution of a contract for
the purchase or sale of a commodity for future delivery if the
contract is reported, recorded, or cleared in accordance with
the rules of the registered derivatives transaction execution
facility or a derivatives clearing organization.
(4) Financial integrity of transactions
The board of trade shall establish and enforce rules or terms
and conditions providing for the financial integrity of transactions
entered on or through the facilities of the board of trade, and
rules or terms and conditions to ensure the financial integrity of
any futures commission merchants and introducing brokers and the
protection of customer funds.
(d) Core principles for registered derivatives transaction execution
facilities
(1) In general
To maintain the registration of a board of trade as a
derivatives transaction execution facility, a board of trade shall
comply with the core principles specified in this subsection. The
board of trade shall have reasonable discretion in establishing the
manner in which the board of trade complies with the core
principles.
(2) Compliance with rules
The board of trade shall monitor and enforce the rules of the
facility, including any terms and conditions of any contracts traded
on or through the facility and any limitations on access to the
facility.
(3) Monitoring of trading
The board of trade shall monitor trading in the contracts of the
facility to ensure orderly trading in the contract and to maintain
an orderly market while providing any necessary trading information
to the Commission to allow the Commission to discharge the
responsibilities of the Commission under the \1\ chapter.
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\1\ So in original. Probably should be ``this''.
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(4) Disclosure of general information
The board of trade shall disclose publicly and to the Commission
information concerning--
(A) contract terms and conditions;
(B) trading conventions, mechanisms, and practices;
(C) financial integrity protections; and
(D) other information relevant to participation in trading
on the facility.
(5) Daily publication of trading information
The board of trade shall make public daily information on
settlement prices, volume, open interest, and opening and closing
ranges for contracts traded on the facility if the Commission
determines that the contracts perform a significant price discovery
function for transactions in the cash market for the commodity
underlying the contracts.
(6) Fitness standards
The board of trade shall establish and enforce appropriate
fitness standards for directors, members of any disciplinary
committee, members, and any other persons with direct access to the
facility, including any parties affiliated with any of the persons
described in this paragraph.
(7) Conflicts of interest
The board of trade shall establish and enforce rules to minimize
conflicts of interest in the decision making process of the
derivatives transaction execution facility and establish a process
for resolving such conflicts of interest.
(8) Recordkeeping
The board of trade shall maintain records of all activities
related to the business of the derivatives transaction execution
facility in a form and manner acceptable to the Commission for a
period of 5 years.
(9) Antitrust considerations
Unless necessary or appropriate to achieve the purposes of this
chapter, the board of trade shall endeavor to avoid--
(A) adopting any rules or taking any actions that result in
any unreasonable restraint of trade; or
(B) imposing any material anticompetitive burden on trading
on the derivatives transaction execution facility.
(e) Use of broker-dealers, depository institutions, and farm credit
system institutions as intermediaries
(1) In general
With respect to transactions other than transactions in security
futures products, a registered derivatives transaction execution
facility may by rule allow a broker-dealer, depository institution,
or institution of the Farm Credit System that meets the requirements
of paragraph (2) to--
(A) act as an intermediary in transactions executed on the
facility on behalf of customers of the broker-dealer, depository
institution, or institution of the Farm Credit System; and
(B) receive funds of customers to serve as margin or
security for the transactions.
(2) Requirements
The requirements referred to in paragraph (1) are that--
(A) the broker-dealer be in good standing with the
Securities and Exchange Commission, or the depository
institution or institution of the Farm Credit System be in good
standing with Federal bank regulatory agencies (including the
Farm Credit Administration), as applicable; and
(B) if the broker-dealer, depository institution, or
institution of the Farm Credit System carries or holds customer
accounts or funds for transactions on the derivatives
transaction execution facility for more than 1 business day, the
broker-dealer, depository institution, or institution of the
Farm Credit System is registered as a futures commission
merchant and is a member of a registered futures association.
(3) Implementation
The Commission shall cooperate and coordinate with the
Securities and Exchange Commission, the Secretary of the Treasury,
and Federal banking regulatory agencies (including the Farm Credit
Administration) in adopting rules and taking any other appropriate
action to facilitate the implementation of this subsection.
(f) Segregation of customer funds
Not later than 180 days after December 21, 2000, consistent with
regulations adopted by the Commission, a registered derivatives
transaction execution facility may authorize a futures commission
merchant to offer any customer of the futures commission merchant that
is an eligible contract participant the right to not segregate the
customer funds of the customer that are carried with the futures
commission merchant for purposes of trading on or through the facilities
of the registered derivatives transaction execution facility.
(g) Election to trade excluded and exempt commodities
(1) In general
Notwithstanding subsection (b)(2) of this section, a board of
trade that is or elects to become a registered derivatives
transaction execution facility may trade on the facility any
agreements, contracts, or transactions involving excluded or exempt
commodities other than securities, except contracts of sale for
future delivery of exempt securities under section 3(a)(12) of the
Securities Exchange Act of 1934 [15 U.S.C. 78c(a)(12)] as in effect
on January 11, 1983, that are otherwise excluded from this chapter
under section 2(c), 2(d), or 2(g) of this title, or exempt under
section 2(h) of this title.
(2) Exclusive jurisdiction of the Commission
The Commission shall have exclusive jurisdiction over
agreements, contracts, or transactions described in paragraph (1) to
the extent that the agreements, contracts, or transactions are
traded on a derivatives transaction execution facility.
(Sept. 21, 1922, ch. 369, Sec. 5a, as added Pub. L. 106-554,
Sec. 1(a)(5) [title I, Sec. 111], Dec. 21, 2000, 114 Stat. 2763, 2763A-
387.)
References in Text
The Securities Exchange Act of 1934, referred to in subsec.
(b)(2)(D)(ii), 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.
Prior Provisions
A prior section 7a, act Sept. 21, 1922, ch. 369, Sec. 5a, as added
June 15, 1936, ch. 545, Sec. 7, 49 Stat. 1497; amended Pub. L. 90-258,
Sec. 12, Feb. 19, 1968, 82 Stat. 29; Pub. L. 93-463, title I,
Sec. 103(a), (e), (f), title II, Secs. 208-210, title IV, Secs. 406,
407, Oct. 23, 1974, 88 Stat. 1392, 1400, 1401, 1413; Pub. L. 95-405,
Secs. 11, 12, Sept. 30, 1978, 92 Stat. 870, 871; Pub. L. 97-444, title
II, Secs. 216, 217(a), Jan. 11, 1983, 96 Stat. 2306, 2307; Pub. L. 99-
641, title I, Sec. 110(2), Nov. 10, 1986, 100 Stat. 3561; Pub. L. 102-
546, title I, Sec. 103, title II, Secs. 201(a), 206(a)(1), 213(a), 217,
222(a), Oct. 28, 1992, 106 Stat. 3594, 3595, 3601, 3609, 3611, 3615,
related to duties of contract markets prior to repeal by Pub. L. 106-
554, Sec. 1(a)(5) [title I, Sec. 110(2)], Dec. 21, 2000, 114 Stat. 2763,
2763A-384.
Section Referred to in Other Sections
This section is referred to in sections 1a, 2, 7a-2, 8, 13a, 25 of
this title; title 15 section 78f.
