The CFTC Amends Part 40 to Streamline and Improve Product Submission Processes

The Commodity Futures Trading Commission (CFTC) finalized amendments to its regulations governing how CFTC-registered exchanges, clearinghouses and other registered entities submit self-certifications for rule approvals, new product approvals, as well as the CFTC’s formal review process for such submissions. The agency's goal in amending Part 40 of its regulations is to simplify and enhance the utility of these regulations and to better facilitate the self-certification of products. 

While the majority of the Part 40 amendments are not substantive (e.g., reorganizing certain requirements, word replacement, and minor definitional changes), we have highlighted a couple of the material changes below: 

• Amendments to Rule 40.2(a)(3)(v) – Self-Certification Process. CFTC Rule 40.2(a)(3)(v) requires designated contract markets (DCMs) and swap execution facilities (SEFs) to submit a concise explanation and analysis of the product and its compliance with applicable provisions of the Commodity Exchange Act (CEA), core principles, and CFTC regulations. At the rule proposal stage, the CFTC cited what they observed as a trend of new product certifications, which did not include sufficient information on the underlying commodity. The final amendment to Rule 40.2(a)(3)(v) now introduces added language to mitigate these insufficiencies. The amendment adds the phrase “complete with respect to the product's terms and conditions, the underlying commodity” to the provision on the explanation and analysis for listing products for trading by self-certification. The CFTC explained that any explanation and analysis that is added to a self-certification should be a fact-specific endeavor dependent on the circumstances surrounding the contract and the underlying commodity.
• Amendments to Rule 40.3(a)(4) – Formal CFTC Review Process. CFTC Rule 40.3(a)(4) requires that when a DCM, SEF or derivatives clearing organization (DCO) voluntarily submits a new product for CFTC review and approval before its listing for trading or accepting the product for clearing, the DCM, SEF or DCO must also submit an explanation and analysis of the product and its compliance with applicable CEA provisions, including core principles, and the CFTC's regulations. This new language is nearly identical to the new language added to the amendments to CFTC Rule 40.2(a)(3)(v). This amendment is intended to ensure the CFTC receives adequate information regarding the product and the commodity underlying the product to analyze whether the terms and conditions of the product submitted for voluntary CFTC review and approval violate the CEA or CFTC regulations. 

Commissioner Summer K. Mersinger dissented to the final rule and noted that the addition of “complete” to the information to be provided for self-certification will lead to the CFTC subjecting products to unreasonable stays and requests for additional information. The commissioner expressed concern that these new amendments will stifle innovation and show a lack of trust in registered entities' ability to voluntarily comply with the CEA and CFTC regulations.

The Part 40 amendments become effective 30 days after publication in the Federal Register.

The Commission-approved version of the Part 40 amendments is available here.