The Commodity Futures Trading Commission (CFTC) in February adopted final acceptable practices for minimizing conflicts of interest for designated contract markets (exchanges). The practices, which are voluntary, provide guidance for exchanges to comply with “Core Principle 15” of the Commodity Exchange Act, which requires exchanges to minimize conflicts of interest in their decision- making processes.
The new standards provided exchanges who comply with them “safe harbor” from their requirements under Core Principal 15.
The acceptable practices call for exchange boards to be made up of 35% public directors, each exchange to establish a board-level regulatory oversight committee made up entirely of public directors and exchange disciplinary panels not to be dominated by any class of member and to include one public person. The CFTC guidance also includes a definition of “public” that excludes exchange members, officers and employees and there are other restrictions.
The CFTC has a phase-in period of two years or two board election cycles, whichever comes first. That is important to the CME Group, because once the CME/CBOT merger is complete, the additional CBOT board members that will be added are expected to push the board’s public representation below the 35% threshold. The definition of public also could change the status of certain board members currently deemed public.
The recommendations are not mandatory.
By Daniel P. Collins
