Commodity options and futures trading act of 2000 eligible contract participant


We use cookies to improve the functionality and performance of this site. By continuing to use this site, you are providing us with your consent to our use of cookies on the site. Please see our Privacy Policy for details. Congress enacted the CFMA to, among other things, streamline and eliminate unnecessary regulation, promote innovation and competition, enhance legal certainty concerning the enforceability of commodity transactions and transform the role of the CFTC in overseeing the futures and over-the-counter OTC derivatives markets from front-line regulator to high-level supervisory agency.

Significantly, the legislation also grants the CFTC limited jurisdiction over securities-based futures products. The exemptions and the exclusions depend, in part, on the parties involved in the transactions.

Certain Relief is limited to transactions conducted other than on "trading facilities," while other Relief is available for transactions conducted either on or off of such facilities. The CFMA generally accords greater Relief to electronic markets than to their non-electronic counterparts. For the first time, the CEA explicitly provides that contracts that do not comply with the provisions of an exemption or exclusion from the CEA are nevertheless enforceable. The CFMA also changes the regulatory regime with respect to clearing.

Clearing of futures and options for certain categories of transactions no longer implicates CFTC registration requirements. In addition, clearing of swap transactions is now open to clearing organizations regulated by the Securities and Exchange Commission SECbank regulators, foreign regulators or the CFTC.

The CFMA clarifies the scope of the so-called "Treasury Amendment," by amending the CEA to provide that transactions in certain specified commodities including foreign currency and government securities are excluded from the CEA unless conducted on an organized exchange. The CFMA also grants the CFTC express jurisdiction over foreign currency futures and option contracts other than currency options traded on national securities exchanges offered by unregulated persons to retail investors. Agreements, contracts or transactions Transactions in "excluded commodities" are excluded from almost all provisions of the CEA if either: In general, "excluded commodities" are commodities that are not susceptible to manipulation.

Excluded commodities include rates, currencies, securities, macroeconomic indexes, economic or commercial measures that are broad-based or based on commodities lacking cash markets, economic or commercial measures based on an underlying commodity not within the control of a party to the relevant contract and an occurrence not within the control of such a party. A "trading facility" TF is defined as a physical or electronic facility or system permitting multiple participants to execute Transactions by accepting bids or offers made by other participants and open to multiple participants in the facility or system.

An "electronic trading facility" ETF is a TF that operates by means of an electronic or telecommunications network and maintains an automated audit trail of bids and offers and order matching or transaction execution. The CFMA created two separate exclusions for transactions in "exempt commodities": Transactions in "exempt commodities" that are entered into between ECPs and not on a TF are now excluded from all provisions of the CEA other than the clearing and antifraud and anti-manipulation provisions.

Transactions in exempt commodities that are entered into on a principal-to-principal basis solely between "eligible commercial entities" ECEs and executed or traded on an ETF are also excluded from all provisions of the CEA other than the clearing and antifraud and anti-manipulation provisions. ETFs relying on the foregoing Transactions in Exempt Commodities exclusion must provide the CFTC with certain information prior to commencing trading in exempt commodities. ETFs are also subject to ongoing reporting and recordkeeping requirements.

They include physical commodities such as power and metals. Individually negotiated Transactions in excluded and exempt commodities that are entered into between ECPs and not traded on a TF are subject only to the clearing provisions of the CEA. The study must address potential uses of Retail Swaps, the extent to which financial institutions would be willing to offer Retail Swaps, the appropriate regulatory structure and any other issues deemed relevant by the Agencies. The Agencies must present the study and their recommendations for legislative action to Congress prior to December 21, Markets meeting the conditions for registration as a DTEF can operate under less regulation than traditional futures exchanges.

To be a DTEF, a market must limit contracts to: To register as a DTEF, a facility must: Markets meeting the conditions for registration as an EBOT can operate under less regulation than a traditional futures exchange designated as a contract market in a commodity.

To be an EBOT, a market must limit contracts to those based on commodities with: Trading must be limited to ECPs. Security- and security index-based futures and option contracts cannot be traded on EBOTs. The CFMA prescribes commodity options and futures trading act of 2000 eligible contract participant futures contracts which are based on enumerated agricultural commodities and that were listed on a futures exchange as of December 21,may be traded only on a CFTC-designated "contract commodity options and futures trading act of 2000 eligible contract participant. A market applying for designation as a contract market must meet specified criteria Designation Criteriaincluding having the capacity to prevent market manipulation, provide public access to its rules, regulations and contract specifications and establishing and enforcing rules: In order to maintain its designation, a contract market must adhere to no less than 18 core principles, including: A contract market may comply with any of the core principles though delegation of any relevant function to a registered futures association or another registered entity, but remains responsible for carrying out each function.

A hybrid instrument is defined by the CFMA as a security or banking product with a payment indexed to a commodity value or rate or providing for delivery of a commodity. Hybrid instruments that are predominantly securities or banking products are completely excluded from all CEA requirements. Unlike the former CFTC predominance test, the new predominance test should be straightforward to apply. A hybrid instrument will be considered predominantly a securities or banking product, as applicable, if: However, entities supervised by a foreign financial regulator that a U.

A DCO is defined as an entity that, with respect to a Transaction: An entity is not a DCO solely because it arranges or provides for: A DCO must be registered with the CFTC commodity options and futures trading act of 2000 eligible contract participant clear futures, options on futures and options on commodities unless the futures or option transactions to be cleared fall within specified exclusions or exemptions from the CEA.

To become and remain registered commodity options and futures trading act of 2000 eligible contract participant a DCO, an entity must demonstrate compliance with specified core principles designed to ensure the financial integrity of the DCO, including standards for financial resources, participant and product eligibility, risk management and treatment of funds, settlement procedures and system safeguards. Prior to the CFMA, futures contracts which had been subject to the exclusive jurisdiction of the CFTC were regulated as such, regardless of the underlying commodity, even when that commodity was a securities index or Exempted Security.

By contrast, futures contracts on broad-based securities indices, which had been subject to SEC approval, are now regulated solely by the CFTC. To expedite registration, the CFMA establishes an abbreviated notice registration procedure for such markets and intermediaries. The National Futures Association commodity options and futures trading act of 2000 eligible contract participant has the authority to regulate broker-dealers in Security Futures.

Clearing organizations must establish procedures for the clearing of Security Futures products by one of two deadlines set forth in the CFMA. The drafters of the CFMA included several measures to ensure that Securities Futures do not have a Congressionally-imposed competitive advantage over securities options.

Perhaps most important, initial and maintenance margin requirements for Security Futures cannot be less than the lowest level of margin required for comparable securities options traded on a national securities exchange. Security Futures will initially be subject to the same transaction fee as securities options.

Dealers and market-makers will receive capital gains treatment for tax purposes, consistent with security options. All other market participants will be taxed on the profits and losses accruing from Security Futures transactions as if such transactions commodity options and futures trading act of 2000 eligible contract participant in the underlying securities. Security Futures products cannot be offered until one year after the enactment of the CFMA or on the date on which the National Futures Association is registered as a limited purpose national securities association.

Certain principal-to-principal and commodity options and futures trading act of 2000 eligible contract participant other transactions in Security Futures between eligible contract participants can be effected as early as eight months after enactment of the CFMA. The term "security-based swap agreement" means a swap agreement as defined in new section A of the Gramm-Leach-Bliley Act of which a material term is. A "non-security-based swap agreement" is defined as a swap agreement that is not a security-based swap agreement.

The SEC retains limited antifraud, anti-manipulation and anti-insider trading authority over security-based swap agreements. A covered swap agreement means a swap agreement as defined in new section A of the Gramm-Leach-Bliley Act based on a commodity other than an agricultural commodity enumerated in Section 1a 4 of commodity options and futures trading act of 2000 eligible contract participant CEA, that is either entered into:.

The CFTC must commodity options and futures trading act of 2000 eligible contract participant "consult with and seek the concurrence of" the Federal Reserve Board before commencing a rule making or making a determination under a rule concerning hybrid instruments issued under the CFMA.

The Commodity options and futures trading act of 2000 eligible contract participant provides that no hybrid instrument or covered swap agreement is void, voidable or unenforceable, and no party to either is entitled to rescind or recover a payment with respect to such instrument or agreement, based solely on the failure of the hybrid instrument or covered swap agreement to comply with the terms or conditions of any CFTC exemption or exclusion. The Treasury Amendment The CFMA clarifies the scope of the so-called "Treasury Amendment," by amending the CEA to provide that transactions in certain specified commodities including foreign currency and government securities are excluded from the CEA unless conducted on an organized exchange.

Excluded Derivative Transactions Agreements, contracts or transactions Transactions in "excluded commodities" are excluded from almost all provisions of the CEA if either: Excluded Commodities In general, "excluded commodities" are commodities that are not susceptible to manipulation.

Trading Facility A "trading facility" TF is defined as a physical or electronic facility or system permitting multiple participants to execute Transactions by accepting bids or offers made by other participants and open to multiple participants in the facility or system. Electronic Trading Facility An "electronic trading facility" ETF is a TF that operates by means of an electronic or telecommunications network and maintains an automated audit trail of bids and offers and order matching or transaction execution.

Exempt Commodities "Exempt commodities" are all commodities other than excluded commodities or agricultural commodities. Relief for Commodities Markets 1. Derivatives Transaction Execution Facilities Markets meeting the conditions for registration as a DTEF can operate under less regulation than traditional futures exchanges.

Exempt Boards of Trade Markets meeting the conditions for registration as an EBOT can operate under less regulation than a traditional futures exchange designated as a contract market in a commodity.

Contract Markets The CFMA prescribes that futures contracts which are based on enumerated agricultural commodities and that were listed on a futures exchange as of December 21,may be traded only on a CFTC-designated "contract market. Hybrid Instruments A hybrid instrument is defined by the CFMA as a security or banking product with a payment indexed to a commodity value or rate or providing for delivery of a commodity. Registration A DCO commodity options and futures trading act of 2000 eligible contract participant be registered with the CFTC to clear futures, options on futures and options on commodities unless the futures or option transactions to be cleared fall within specified exclusions or exemptions from the CEA.

The term "security-based swap agreement" means a swap agreement as defined in new section A of the Gramm-Leach-Bliley Act of which a material term is based on the price, yield, value, or volatility of any security or any group or index of securities, or any interest therein.

A covered swap agreement means a swap agreement as defined in new section A of the Gramm-Leach-Bliley Act based on a commodity other than an agricultural commodity enumerated in Section 1a 4 of the CEA, that is either entered into:

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Instead, the trader buys or sells the CFD, a tradable instrument whose value reflects that of an underlying asset. The asset can be virtually anything, including stocks, currencies, commodities and indices. Normally, you would have to contact a broker to buy the shares for you.