[Federal Register Volume 63, Number 22 (Tuesday, February 3, 1998)]
[Notices]
[Pages 5505-5506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2622]
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COMMODITY FUTURES TRADING COMMISSION
Application of Cantor Financial Futures Exchange as a Contract
Market in US Treasury Bond, Ten-Year Note, Five-Year Note and Two-Year
Note Futures Contracts
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of availability of the terms and conditions of proposed
commodity futures contracts.
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SUMMARY: The Cantor Financial Futures Exchange, Inc. (``CFFE'' or
``Exchange'') has applied for designation as a contract market for the
computer-based trading of US Treasury bond, ten-year note, five-year
note and two-year note futures contracts. CFFE has been formed pursuant
to an agreement between the New York Cotton Exchange (``NYCE'') and
CFFE, LLC (``Cantor'') which is wholly owned by Cantor Fitzgerald, LP.
Under the agreement, CFFE trading would be conducted on the same
trading system that another Cantor Fitzgerald, LP subsidiary, Cantor
Fitzgerald Securities, LLC, currently operates as an interdealer-broker
in the US Treasury securities market. CFFE's regulatory
responsibilities would be handled by NYCE. CFFE has not previously been
approved by the Commission as a contract market in any commodity.
Accordingly, in addition to the terms and conditions of the proposed
futures contracts, the Exchange has submitted to the Commission a
proposed trade-matching algorithm; proposed rules pertaining to CFFE
governance, disciplinary and arbitration procedures, trading standards
and recordkeeping requirements; and various other materials to meet the
requirements for a board of trade seeking initial designation as a
contract market. CFFE trades would be cleared and settled by a newly-
formed clearing organization--the New York Board of Clearing, Inc.
(``NYBOC''), a wholly-owned subsidiary of the Commodity Clearing
Corporation (``CCC'') which is wholly owned by NYCE. NYBOC has
submitted its proposed rules to the Commission in conjunction with
CFFE's designation application. Acting pursuant to the authority
delegated by Commission Regulation 140.96, the Division of Economic
Analysis and the Division of Trading and Markets have determined to
publish CFFE's proposal for public comment. The Divisions believe that
publication of the proposal for comment at this time is in the public
interest, will assist the Commission in considering the views of
interested persons, and is consistent with the purposes of the
Commodity Exchange Act. The Divisions seek comment regarding all
aspects of CFFE's application and addressing any issues commenters
believe the Commission should consider.
DATES: Comments must be received on or before April 6, 1998.
FOR FURTHER INFORMATION CONTACT: With respect to questions about the
terms and conditions of CFFE's proposed futures contracts, please
contact Thomas M. Leahy of the Division of Economic Analysis, Commodity
Futures Trading Commission, at Three Lafayette Centre, 1155 21st
Street, NW, Washington, DC 20581; Telephone number: (202) 418-5278;
Facsimile number: (202) 418-5527; or Electronic mail: tleahy@cftc.gov.
With respect to questions about any of CFFE's other proposed rules or
NYBOC's proposed rules, please contact David Van Wagner of the Division
of Trading and Markets at the same address; Telephone number: (202)
418-5481; Facsimile number: (202) 418-5536; or Electronic mail:
dvanwagner@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Description of Proposal
CFFE, a New York not-for-profit corporation, has applied for
designation as a contract market for the computer-based trading of US
Treasury bond, ten-year note, five-year note and two-year note futures
contracts. CFFE has not been approved previously by the Commission as a
contract market in any commodity. Thus, in addition to the terms and
conditions of the proposed futures contracts, the Exchange has
submitted, among other things, proposed trade-matching algorithm
procedures and rules pertaining to CFFE governance, disciplinary and
arbitration procedures, trading standards and recordkeeping
requirements.
CFFE would be wholly-owned by CFFE Regulatory Services, LLC. Equity
interest in CFFE Regulatory Services, LLC would be held entirely by
NYCE (ten percent equity interest) and NYCE's members (ninety percent
equity interest).\1\ CFFE's contracts would trade over a computer-based
trading system maintained by Cantor Fitzgerald Securities, LLC (the
``Cantor System''). Cantor Fitzgerald Securities, LLC is an
interdealer-broker in the US Treasury securities market and it
currently operates the Cantor System to match orders placed with it by
broker-dealers and other customers. Although neither Cantor nor any of
its affiliates would have any equity interest in CFFE, Cantor would
collect a transaction fee for each trade executed at CFFE through the
Cantor System.
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\1\ NYCE would have the sole voting interest in CFFE Regulatory
Services, LLC.
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CFFE would be governed by a thirteen-person board of directors--
eight of whom would be appointed by Cantor and five of whom would be
appointed by NYCE.\2\ NYCE would be responsible for providing all of
CFFE's regulatory services including its compliance, surveillance,
arbitration and disciplinary programs.\3\ Accordingly, all CFFE rule
changes that involved regulatory procedures would have to be approved
by NYCE's Board of Managers in addition to CFFE's board.
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\2\ Three of the eight CFFE directors appointed by Cantor would
be public directors who could not be NYCE members or be employed by
or affiliated with NYCE or Cantor.
\3\ In this regard, CFFE's proposed rules would incorporate by
reference certain NYCE rules, such as its rules governing
arbitration and disciplinary procedures.
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CFFE proposes to trade each of its four contracts from 7:30 a.m. to
5:30 p.m., New York time, on each business day. Under the proposal, all
CFFE trading would be conducted through NYBOC clearing members and
certain registered persons guaranteed by NYBOC clearing members
(collectively referred to in CFFE's proposed rules as ``authorized
traders''). Authorized traders would place orders, whether for their
own or for their customers' accounts, by phoning CFFE terminal
operators \4\ located at a Cantor Fitzgerald Securities, LLC
facility.\5\ For each order, an authorized trader would be required
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to provide the terminal operator with a customer or proprietary account
identifier, the relevant contract and the quantity and price.\6\ The
CFFE terminal operator would promptly enter this information into the
Cantor System via a terminal keyboard.
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\4\ All CFFE terminal operators would be jointly employed by
CFFE and Cantor. Terminal operators would be registered as
government securities representatives with the National Association
of Securities Dealers and would be supervised by a registered floor
broker.
\5\ All phone conversations between NYCE authorized traders and
CFFE terminal operators would be recorded and timed by a Cantor
tape-recording system.
\6\ Authorized traders also would be required to fill out an
order ticket for each order.
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The Cantor System would match eligible CFFE orders according to a
trade-matching algorithm that is similar to the algorithm that Cantor
Fitzgerald Securities, LLC currently uses to match orders as an
interdealer-broker in the government securities market. Under the
algorithm, the Cantor System would post the best bid (best offer)
available at any given time and its quantity. Any inferior bids
(offers) that were posted earlier would be removed from the Cantor
System, while inferior bids (offers) entered subsequently would be
rejected by the Cantor System. Responsive offers (bids) would be
matched with the best bid (best offer) on a time-priority basis at the
designated bid (offer) price. Upon filling the best bid's (best
offer's) stated quantity, the Cantor System would provide the
authorized trader who made that bid (offer) with the exclusive right to
buy (sell) all or part of the offers (bids) subsequently posted on the
Cantor System at that same bid (offer) price for a pre-determined,
limited period of time. During this exclusive period, the Cantor System
would accept bids (offers) at the same price as the trader's best bid
(best offer), and they would be matched on a time-priority basis to the
extent possible after the exclusive period.
Upon the execution of a CFFE transaction, the terminal operator
would provide an oral confirmation of the trade to the submitting
authorized trader by telephone, and the authorized trader would record
the details of the trade on an order ticket.\7\ Upon execution of a
trade, the Cantor System also would electronically transmit matched-
trade data to NYBOC for clearing and settlement purposes. For each
trade, NYBOC would transmit transaction information to the appropriate
clearing members via the Trade Input Processing System (``TIPS''). \8\
Clearing members would be required to accept or reject each trade
within thirty minutes of its posting on TIPS.
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\7\ The terminal operators' duties would be limited to receiving
and inputing orders from authorized traders and relaying back trade
confirmations. Terminal operators could not maintain any sort of
order book or deck, nor could they exercise any discretion over
orders.
\8\ NYBOC estimates that CFFE trades would be posted on TIPS
within fifteen minutes of their execution.
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The Cantor System also would transmit relevant trade data to NYCE
each day for compliance and surveillance purposes.
III. Request for Comments
Any person interested in submitting written data, views, or
arguments on the proposal to designate CFFE should submit their views
and comments by the specified date to Jean A. Webb, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW, Washington, DC 20581. In addition, comments may be sent by
facsimile transmission to facsimile number (202) 418-5521, or by
electronic mail to secretary@cftc.gov. The Division seeks comment on
all aspects of CFFE's application for designation as a new contract
market, as well as NYBOC's proposal to serve as CFFE's clearing
organization. Reference should be made to the CFFE application for
designation as a contract market in US Treasury bond, ten-year note,
five-year note and two-year note futures contracts. Copies of the
proposed terms and conditions are available for inspection at the
Office of the Secretariat at the above address. Copies also may be
obtained through the Office of the Secretariat at the above address or
by telephoning (202) 418-5100.
Other materials submitted by CFFE and NYBOC may be available upon
request pursuant to the Freedom of Information Act (5 U.S.C. 552),
except to the extent that they are entitled to confidential treatment
pursuant to 17 CFR 145.5 or 145.9. Requests for copies of such
materials should be made to the Freedom of Information, Privacy and
Sunshine Act compliance staff of the Office of the Secretariat at the
Commission headquarters in accordance with 17 CFR 145.7 and 145.8.
Issued in Washington, DC, on January 29, 1998.
John R. Mielke,
Acting Director.
[FR Doc. 98-2622 Filed 2-2-98; 8:45 am]
BILLING CODE 6351-01-P
