7 U.S.C. § 7 — Designation of boards of trade as contract

Page 82 TITLE 7—AGRICULTURE § 7 that term is defined in section 1a(47)(A)(v) of this title), and consistent with the confiden- tiality and disclosure requirements of sec- tion 12 of this title. (2) Jurisdiction Nothing in paragraph (1) shall affect the ex- clusive jurisdiction of the Commission to pre- scribe recordkeeping and reporting require- ments for large swap traders under this sec- tion. (c) Applicability For purposes of this section, the swaps, fu- tures, and cash or spot transactions and posi- tions of any person shall include the swaps, fu- tures, and cash or spot transactions and posi- tions of any persons directly or indirectly con- trolled by the person. (d) Significant price discovery function In making a determination as to whether a swap performs or affects a significant price dis- covery function with respect to registered enti- ties, the Commission shall consider the factors described in section 6a(a)(3) of this title. (Sept. 21, 1922, ch. 369, § 4t, as added Pub. L. 111–203, title VII, § 730, July 21, 2010, 124 Stat. 1702.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle A (§§ 711–754) of title VII of Pub. L. 111–203 requires a rule- making, not less than 60 days after publication of the final rule or regulation implementing such provision of subtitle A, see section 754 of Pub. L. 111–203, set out as an Effective Date of 2010 Amendment note under sec- tion 1a of this title. § 7. Designation of boards of trade as contract markets (a) Applications A board of trade applying to the Commission for designation as a contract market shall sub- mit an application to the Commission that in- cludes any relevant materials and records the Commission may require consistent with this chapter. (b) Repealed. Pub. L. 111–203, title VII, § 735(a), July 21, 2010, 124 Stat. 1718 (c) Existing contract markets A board of trade that is designated as a con- tract market on December 21, 2000, shall be con- sidered to be a designated contract market under this section. (d) Core principles for contract markets (1) Designation as contract market (A) In general To be designated, and maintain a designa- tion, as a contract market, a board of trade shall comply with— (i) any core principle described in this subsection; and (ii) any requirement that the Commis- sion may impose by rule or regulation pur- suant to section 12a(5) of this title. (B) Reasonable discretion of contract market Unless otherwise determined by the Com- mission by rule or regulation, a board of trade described in subparagraph (A) shall have reasonable discretion in establishing the manner in which the board of trade com- plies with the core principles described in this subsection. (2) Compliance with rules (A) In general The board of trade shall establish, mon- itor, and enforce compliance with the rules of the contract market, including— (i) access requirements; (ii) the terms and conditions of any con- tracts to be traded on the contract mar- ket; and (iii) rules prohibiting abusive trade prac- tices on the contract market. (B) Capacity of contract market The board of trade shall have the capacity to detect, investigate, and apply appropriate sanctions to any person that violates any rule of the contract market. (C) Requirement of rules The rules of the contract market shall pro- vide the board of trade with the ability and authority to obtain any necessary informa- tion to perform any function described in this subsection, including the capacity to carry out such international information- sharing agreements as the Commission may require. (3) Contracts not readily subject to manipula- tion The board of trade shall list on the contract market only contracts that are not readily susceptible to manipulation. (4) Prevention of market disruption The board of trade shall have the capacity and responsibility to prevent manipulation, price distortion, and disruptions of the deliv- ery or cash-settlement process through mar- ket surveillance, compliance, and enforcement practices and procedures, including— (A) methods for conducting real-time mon- itoring of trading; and (B) comprehensive and accurate trade re- constructions. (5) Position limitations or accountability (A) In general To reduce the potential threat of market manipulation or congestion (especially dur- ing trading in the delivery month), the board of trade shall adopt for each contract of the board of trade, as is necessary and ap- propriate, position limitations or position accountability for speculators. (B) Maximum allowable position limitation For any contract that is subject to a posi- tion limitation established by the Commis- sion pursuant to section 6a(a) of this title, the board of trade shall set the position lim- itation of the board of trade at a level not higher than the position limitation estab- lished by the Commission. Page 83 TITLE 7—AGRICULTURE § 7 (6) Emergency authority The board of trade, in consultation or co- operation with the Commission, shall adopt rules to provide for the exercise of emergency authority, as is necessary and appropriate, in- cluding the authority— (A) to liquidate or transfer open positions in any contract; (B) to suspend or curtail trading in any contract; and (C) to require market participants in any contract to meet special margin require- ments. (7) Availability of general information The board of trade shall make available to market authorities, market participants, and the public accurate information concerning— (A) the terms and conditions of the con- tracts of the contract market; and (B)(i) the rules, regulations, and mecha- nisms for executing transactions on or through the facilities of the contract mar- ket; and (ii) the rules and specifications describing the operation of the contract market’s— (I) electronic matching platform; or (II) trade execution facility. (8) 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 actively traded contracts on the contract market. (9) Execution of transactions (A) In general The board of trade shall provide a competi- tive, open, and efficient market and mecha- nism for executing transactions that pro- tects the price discovery process of trading in the centralized market of the board of trade. (B) Rules The rules of the board of trade may au- thorize, for bona fide business purposes— (i) transfer trades or office trades; (ii) an exchange of— (I) futures in connection with a cash commodity transaction; (II) futures for cash commodities; or (III) futures for swaps; or (iii) a futures commission merchant, act- ing 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, re- corded, or cleared in accordance with the rules of the contract market or a deriva- tives clearing organization. (10) Trade information The board of trade shall maintain rules and procedures to provide for the recording and safe storage of all identifying trade informa- tion in a manner that enables the contract market to use the information— (A) to assist in the prevention of customer and market abuses; and (B) to provide evidence of any violations of the rules of the contract market. (11) Financial integrity of transactions The board of trade shall establish and en- force— (A) rules and procedures for ensuring the financial integrity of transactions entered into on or through the facilities of the con- tract market (including the clearance and settlement of the transactions with a deriva- tives clearing organization); and (B) rules to ensure— (i) the financial integrity of any— (I) futures commission merchant; and (II) introducing broker; and (ii) the protection of customer funds. (12) Protection of markets and market partici- pants The board of trade shall establish and en- force rules— (A) to protect markets and market partici- pants from abusive practices committed by any party, including abusive practices com- mitted by a party acting as an agent for a participant; and (B) to promote fair and equitable trading on the contract market. (13) Disciplinary procedures The board of trade shall establish and en- force disciplinary procedures that authorize the board of trade to discipline, suspend, or expel members or market participants that violate the rules of the board of trade, or simi- lar methods for performing the same func- tions, including delegation of the functions to third parties. (14) Dispute resolution The board of trade shall establish and en- force rules regarding, and provide facilities for alternative dispute resolution as appropriate for, market participants and any market intermediaries. (15) Governance fitness standards The board of trade shall establish and en- force appropriate fitness standards for direc- tors, members of any disciplinary committee, members of the contract market, and any other person with direct access to the facility (including any party affiliated with any per- son described in this paragraph). (16) Conflicts of interest The board of trade shall establish and en- force rules— (A) to minimize conflicts of interest in the decision-making process of the contract market; and (B) to establish a process for resolving con- flicts of interest described in subparagraph (A). (17) Composition of governing boards of con- tract markets The governance arrangements of the board of trade shall be designed to permit consider- ation of the views of market participants. (18) Recordkeeping The board of trade shall maintain records of all activities relating to the business of the contract market— Page 84 TITLE 7—AGRICULTURE § 7a 1 So in original. Probably should be ‘‘take’’. (A) in a form and manner that is accept- able to the Commission; and (B) for a period of at least 5 years. (19) Antitrust considerations Unless necessary or appropriate to achieve the purposes of this chapter, the board of trade shall not— (A) adopt any rule or taking 1 any action that results in any unreasonable restraint of trade; or (B) impose any material anticompetitive burden on trading on the contract market. (20) System safeguards The board of trade shall— (A) establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk, through the development of appropriate con- trols and procedures, and the development of automated systems, that are reliable, se- cure, and have adequate scalable capacity; (B) establish and maintain emergency pro- cedures, backup facilities, and a plan for dis- aster recovery that allow for the timely re- covery and resumption of operations and the fulfillment of the responsibilities and obliga- tions of the board of trade; and (C) periodically conduct tests to verify that backup resources are sufficient to en- sure continued order processing and trade matching, price reporting, market surveil- lance, and maintenance of a comprehensive and accurate audit trail. (21) Financial resources (A) In general The board of trade shall have adequate fi- nancial, operational, and managerial re- sources to discharge each responsibility of the board of trade. (B) Determination of adequacy The financial resources of the board of trade shall be considered to be adequate if the value of the financial resources exceeds the total amount that would enable the con- tract market to cover the operating costs of the contract market for a 1-year period, as calculated on a rolling basis. (22) Diversity of board of directors The board of trade, if a publicly traded com- pany, shall endeavor to recruit individuals to serve on the board of directors and the other decision-making bodies (as determined by the Commission) of the board of trade from among, and to have the composition of the bodies reflect, a broad and culturally diverse pool of qualified candidates. (23) Securities and Exchange Commission The board of trade shall keep any such records relating to swaps defined in section 1a(47)(A)(v) of this title open to inspection and examination by the Securities and Exchange Commission. (e) Current agricultural commodities (1) Subject to paragraph (2) of this subsection, a contract for purchase or sale for future deliv- ery of an agricultural commodity enumerated in section 1a(9) of this title that is available for trade on a contract market, as of December 21, 2000, may be traded only on a contract market designated under this section. (2) In order to promote responsible economic or financial innovation and fair competition, the Commission, on application by any person, after notice and public comment and opportunity for hearing, may prescribe rules and regulations to provide for the offer and sale of contracts for fu- ture delivery or options on such contracts to be conducted on a derivatives transaction execu- tion facility. (Sept. 21, 1922, ch. 369, § 5, as added Pub. L. 106–554, § 1(a)(5) [title I, § 110(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–384; amended Pub. L. 111–203, title VII, §§ 721(e)(4), 735, July 21, 2010, 124 Stat. 1671, 1718.) Editorial Notes PRIOR PROVISIONS A prior section 7, acts Sept. 21, 1922, ch. 369, § 5, 42 Stat. 1000; June 15, 1936, ch. 545, §§ 2, 6, 49 Stat. 1491, 1497; Pub. L. 90–258, §§ 10, 11, Feb. 19, 1968, 82 Stat. 29; Pub. L. 93–463, title I, § 103(a), (f), (g), title II, § 207, Oct. 23, 1974, 88 Stat. 1392, 1400; Pub. L. 102–546, title II, §§ 201(c), 209(b)(2), Oct. 28, 1992, 106 Stat. 3597, 3606, re- lated to conditions and requirements for designation of boards of trade as contract markets, prior to repeal by Pub. L. 106–554, § 1(a)(5) [title I, § 110(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–384. AMENDMENTS 2010—Subsec. (b). Pub. L. 111–203, § 735(a), struck out subsec. (b) which related to criteria for designation as a contract market. Subsec. (d). Pub. L. 111–203, § 735(b), added subsec. (d) and struck out former subsec. (d) which related to core principles for contract markets. Subsec. (e)(1). Pub. L. 111–203, § 721(e)(4), substituted ‘‘section 1a(9)’’ for ‘‘section 1a(4)’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–203 effective on the later of 360 days after July 21, 2010, or, to the extent a provi- sion of subtitle A (§§ 711–754) of title VII of Pub. L. 111–203 requires a rulemaking, not less than 60 days after publication of the final rule or regulation imple- menting such provision of subtitle A, see section 754 of Pub. L. 111–203, set out as a note under section 1a of this title. § 7a. Repealed. Pub. L. 111–203, title VII, § 734(a), July 21, 2010, 124 Stat. 1718 Section, act Sept. 21, 1922, ch. 369, § 5a, as added Pub. L. 106–554, § 1(a)(5) [title I, § 111], Dec. 21, 2000, 114 Stat. 2763, 2763A–387; amended Pub. L. 110–234, title XIII, § 13203(h), May 22, 2008, 122 Stat. 1440; Pub. L. 110–246, § 4(a), title XIII, § 13203(h), June 18, 2008, 122 Stat. 1664, 2202; Pub. L. 111–203, title VII, § 721(e)(5), July 21, 2010, 124 Stat. 1671, related to derivatives transaction execu- tion facilities. A prior section 7a, act Sept. 21, 1922, ch. 369, § 5a, as added June 15, 1936, ch. 545, § 7, 49 Stat. 1497; amended Pub. L. 90–258, § 12, Feb. 19, 1968, 82 Stat. 29; Pub. L. 93–463, title I, § 103(a), (e), (f), title II, §§ 208–210, title IV, §§ 406, 407, Oct. 23, 1974, 88 Stat. 1392, 1400, 1401, 1413; Pub. L. 95–405, §§ 11, 12, Sept. 30, 1978, 92 Stat. 870, 871; Pub. L. 97–444, title II, §§ 216, 217(a), Jan. 11, 1983, 96 Stat. 2306, 2307; Pub. L. 99–641, title I, § 110(2), Nov. 10, 1986, 100 Stat. 3561; Pub. L. 102–546, title I, § 103, title II, §§ 201(a),