Exempt Markets

In an Order of September 16, 2010, the CFTC provided limited grandfather relief, pursuant to the Dodd-Frank Act, to certain ECMs and EBOTs.  These entities must meet a number of conditions specified in the Order, including having filed a petition for grandfather relief within a stated timeframe. 

In addition, all ECMs and EBOTs that have submitted to the Commission a notification of their intent to operate in reliance upon a particular exemption may continue to operate in reliance upon the CFTC’s July 14, 2011 Order granting limited exemptive relief.  The Commission, to provide for the orderly implementation of the Dodd-Frank Act, determined to conditionally exempt from the amended provisions of the CEA, among other things, agreements, contracts, and transactions in exempt and excluded (but not agricultural) commodities within the scope of existing CEA sections 2(h)(3) and 5d as in effect prior to July 16, 2011, provided the ECM and EBOT meets the conditions of the July 14, 2011 exemptive order.  The temporary exemption provided in the CFTC’s July 14, 2011 exemptive order will expire, in relevant part, upon the earlier of the repeal, withdrawal or replacement of part 35 of the CFTC’s regulations or December 31, 2011. 

Exempt markets are exempted from most requirements of the Commodity Exchange Act (CEA) and most CFTC regulatory oversight . There are two kinds of exempt markets—exempt commercial markets (ECMs) and exempt boards of trade (EBOTs). This contrasts to the CFTC’s authority over designated and registered entities.

Exempt markets are not registered with, or designated, recognized, licensed or approved by the CFTC, and they are prohibited from representing that they are registered, designated, or recognized by the CFTC in any way. To be exempt from most CFTC regulatory oversight, the exempt market must satisfy the conditions for the exemption, including a requirement to notify the CFTC of the market’s intention to rely on the exemption. If the exempt market is performing a price discovery function, the market must provide certain pricing information to the public.

Agreements, contracts, and transactions in exempt commodities that are traded on a principal-to-principal basis on electronic trading facilities between eligible commercial entities may be traded on an exempt commercial market (ECM) and be exempt from regulation if the market satisfies the conditions for the exemption found in Sections 2(h)(3) through (5) of the CEA, 7 USC 2(h)(3)-(5), including a requirement that the exempt commercial market notify the CFTC. CFTC Regulation 36.3, 17 CFR 36.3, provides further details on compliance with Sections 2(h)(3) through (5) of the CEA.

ECMs transactions that meet the requirements for the Section 2(h)(3) exemption are not subject to the CFTC’s regulatory or enforcement jurisdiction, except for certain limited fraud and manipulation authority.

Transactions by eligible contract participants in a certain narrow list of selected commodities may be conducted on an exempt board of trade (EBOT) and be exempt from regulation if they meet the conditions for the exemption found in Section 5d of the CEA, 7 USC 7a-3, including a requirement that the exempt commercial market notify the CFTC. Part 36.2 of the CFTC’s regulations contains further details on compliance with CEA Section 5d.

EBOT transactions that meet the requirements for the Section 5d exemption are not subject to the CFTC’s regulatory or enforcement jurisdiction except for certain limited fraud and manipulation authority.