The conclusion of the CFTC’s multi-year examination of self-regulatory organizations (SROs) resulted in the publication of acceptable practices for U.S. designated contract markets (DCMs) that, if approved, could dramatically change the makeup of the boards of U.S. futures exchanges.
The proposal would require the boards of DCMs to have at least half non member public directors, and require DCMs to establish a board level Regulatory Oversight Committee (ROC) composed of non member public directors. The proposal also creates a tougher standard in defining “public” that would exclude some board members who currently qualify as public.
John Damgard, president of the Futures Industry Association, says the new standards are a good idea. “Exchanges are being held to a higher standard based on their self-
regulatory responsibility.”
The CFTC says the proposal addresses new conflicts of interests that have arisen from evolution in the industry, particularly involving the ownership structure of exchanges. The practices will offer DCMs safe-harbor from provisions of the Commodity Exchange Act.
CFTC Commissioner Fred Hatfield, writing separately, stated, “I am concerned that the board composition proposal also would create an additional and perhaps unnecessary layer of regulation for publicly traded exchanges.” Hatfield suggested that the creation of the ROC and other provision in the proposal were sufficient to ensure fair, vigorous and effective self-regulation.
A spokesperson for the CBOT said the exchange is currently reviewing the proposal and will submit a comment letter in response to it. The CME has opposed suggestions
for a fixed number for public directors for DCMs during the CFTC’s study but have not yet commented on the current proposal.
By Daniel P. Collins
