The CME Group proposed amendments to an existing rule and a Market Regulation Advisory Notice to subject to its exchanges’ express jurisdiction all intermediaries that charge a commission or fee in connection with a transaction on or subject to the rules of one or more of its exchanges. Currently, only persons who initiate or execute transactions on or subject to the rules of an exchange are subject to the jurisdiction of CME Group exchanges. (Click here, e.g., to access CME Rule 418 and here to access CME Group RA1909-5.) The CME Group's amended provisions would potentially apply to non-member future commission merchants, introducing brokers, associated persons or foreign persons performing similar functions that may not already be covered by the exchanges' jurisdictional umbrella.
According to CME Group, this same provision will soon be adopted by all US designated contract markets. CME Group said that “[t]he provision is being adopted to ensure that DCMs have the ability to gather information from the intermediaries including, but not limited to, information on the firm’s clients and the firm’s practices with respect to its clients.”
As with other DCMs, CME Group exchanges’ exercise jurisdiction over members and non-members, and require cooperation and participation in investigatory and disciplinary processes. The CME Group’s new provisions are scheduled to be effective February 3, 2020, absent objection by the Commodity Futures Trading Commission.
Legal Weeds: Under applicable law, designated contract markets like CME Group exchanges must establish and enforce disciplinary procedures that authorize them to “discipline, suspend or expel members or market participants” that violate the exchanges rules. (Click here to access 7 U.S.C. § 7(d)(13).) Separately, DCMs must have the capacity to detect, investigate and apply appropriate sanctions “to any person” that violates any DCM rule, and to obtain necessary information to ensure compliance with their rules. (Click here to access 7 U.S.C. §§ 7(d)(2)(B and C).) However, on their face, these provisions’ references to “members or market participants” and “any person” are somewhat inconsistent – any person is a much broader concept than members or market participants.
In response, the CFTC appears to have opted for a narrow view of the reach of the applicable law by requiring DCMs “[p]rior to granting any member or market participant access to its markets” to have such specifically identified persons consent to its jurisdiction. The CFTC in its rules does not define “market participant.” (Click here to access CFTC Rule 38.151.)
CME Group exchanges have relied on the relevant CFTC rule in proposing to expand the reach of their jurisdiction to certain intermediaries. However, it is not clear that the CME Group's proposed extension of its jurisdictional reach as currently proposed is fully supported by the relevant CFTC rule which itself seems to rest on somewhat inconsistent provisions of law.