Commission Implementing Decision (EU) 2016/1073 of 1 July 2016 on the equivalence of designated contract markets in the United States of America in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council
Recitals 4 - 11
(4) DCMs are boards of trade that operate under the regulatory oversight of the Commodity Futures Trading Commission (the CFTC) pursuant to Section 5 of the Commodity Exchange Act (CEA), 7 USC 7. The legally binding requirements for DCMs authorised in the USA consist of the CEA, which together with the Commodity Futures Trading Commission's regulations (CFTC regulations) establish the legal framework for the operation of the DCM. Part 38 of the CFTC's regulations specifies the requirements for operating as a board of trade and sets out 23 core principles that DCMs must comply with on an initial and ongoing basis. The CFTC regulations require DCMs to operate a trading facility which generally, under the CEA, means a multilateral system in which participants have the ability to execute transactions in accordance with non-discretionary rules. DCMs must provide members with impartial access to their markets and services. The access criteria must be impartial, transparent, and applied in a non-discriminatory manner. In addition, CFTC regulations subject DCMs to organisational requirements with regards to conflicts of interest policy, risk management, trading and clearing and settlement arrangements, listing rules as well as monitoring of compliance. Under Core Principle 2 (17 CFR §38.150 (2015)) the board of trade must establish, monitor and enforce compliance with the internal rules of the DCM, including rules prohibiting abusive trade practices on it. To this end, it must have the capacity to detect, investigate and apply appropriate sanctions to any person that violates any internal rule of the DCM.
(5) The legally binding requirements applicable to DCMs authorised in the USA which are set out in the legal framework for the operation of DCMs deliver substantial results equivalent to those of the requirements laid down in Title III of Directive 2004/39/EC in the following areas: authorisation process, definitional requirements, access to the DCM, organisational requirements, requirements for senior management, admission of derivatives to trading, suspension and removal of derivatives from trading, monitoring of compliance and access to clearing and settlement arrangements.
(6) Under Directive 2004/39/EC, pre- and post-trade transparency requirements apply only to shares admitted to trading on regulated markets. As shares are neither traded nor admitted to trading on DCMs, the Commission considers that the assessment of those requirements is not relevant for the purposes of this Decision.
(7) It should therefore be concluded that the legally binding requirements for DCMs established in the USA deliver results equivalent to those of the requirements laid down in Title III of Directive 2004/39/EC.
(8) The DCMs operate under the supervision of the CFTC. The primary objective of the CFTC's compliance programme is to evaluate DCM compliance with applicable provisions of the CEA, including the 23 core principles with which DCMs must comply, and CFTC regulations implementing those core principles. To this end, the CFTC conducts examinations of a DCM's compliance with core principles and regulations relating to trade surveillance, market surveillance, audit trail, and DCM disciplinary programmes. Under the market surveillance programme, the CFTC monitors traders to ensure that they comply with provisions in the CEA and CFTC regulations. To this end, the surveillance programme monitors trading activity on DCMs, futures positions, swap transactions and swap positions in order to detect and prevent market abusive practices and to ensure compliance with the CEA and CFTC regulations. In addition, the market review programme reviews all DCM rule filings and the product review programme reviews DCM product terms and conditions filings; both programmes review the filings to ensure consistency with the CEA and the CFTC's regulations.
(9) The CFTC also has enforcement responsibilities. Under CEA Section 6b, the CFTC may issue an order directing the cessation of specified activities and impose civil or criminal penalties if a DCM is found to violate the CEA or the CFTC's regulations. Pursuant to CEA Section 6c(a)) the CFTC may also bring an action in US federal court against any registered entity or other person that violates provisions of the CEA as well as relevant CFTC rules, regulations and orders. DCMs assume certain supervisory responsibilities and are required to monitor and enforce compliance with the internal rules of each DCM. Under 'emergency powers' (CEA § 8a(9)) the CFTC is authorised to direct a DCM to take such action as, in the CFTC's judgment, is necessary to maintain or restore orderly trading in or liquidation of a given derivative contract. The DCMs are also required to have arrangements and resources for effective enforcement of its internal rules.
(10) It should therefore be concluded that DCMs are subject to effective supervision and enforcement in the USA on an ongoing basis.
(11) The conditions laid down in Article 2a of Regulation (EU) No 648/2012 should therefore be considered to be satisfied with respect to DCMs authorised in the USA.