Title 17
SECTION 38.1101
38.1101 General requirements.
§ 38.1101 General requirements.(a) General rule. (1) A designated contract market must maintain financial resources sufficient to enable it to perform its functions in compliance with the core principles set forth in section 5 of the Act and regulations thereunder.
(2) Financial resources shall be considered sufficient if their value is at least equal to a total amount that would enable the designated contract market, or applicant for designation as such, to cover its operating costs for a period of at least one year, calculated on a rolling basis.
(3) An entity that is registered with the Commission as both a designated contract market and a derivatives clearing organization also shall comply with the financial resource requirements of § 39.11 of this chapter, demonstrating that it has sufficient financial resources to operate the single, combined entity as both a designated contract market and a derivatives clearing organization. In lieu of filing separate quarterly reports under paragraph (a)(2) of this section and § 39.11(f) of this chapter, such entity shall file single quarterly reports in accordance with § 39.11.
(b) Types of financial resources. Financial resources available to satisfy the requirements of paragraph (a) of this section may include:
(1) The designated contract market's own capital, calculated in accordance with U.S. generally accepted accounting principles; and
(2) Any other financial resource deemed acceptable by the Commission.
(c) Computation of financial resource requirement. A designated contract market must, on a quarterly basis, based upon its fiscal year, make a reasonable calculation of its projected operating costs over a 12-month period in order to determine the amount needed to meet the requirements of paragraph (a) of this section. The designated contract market shall have reasonable discretion in determining the methodology used to compute such projected operating costs. The Commission may review the methodology and require changes as appropriate.
(d) Valuation of financial resources. At appropriate intervals, but not less than quarterly, a designated contract market must compute the current market value of each financial resource used to meet its obligations under paragraph (a) of this section. Reductions in value to reflect market and credit risk (“haircuts”) must be applied as appropriate.
(e) Liquidity of financial resources. The financial resources allocated by the designated contract market to meet the requirements of paragraph (a) of this section must include unencumbered, liquid financial assets (i.e., cash and/or highly liquid securities) equal to at least six months' operating costs. If any portion of such financial resources is not sufficiently liquid, the designated contract market may take into account a committed line of credit or similar facility for the purpose of meeting this requirement.
(f) Reporting requirements. (1) Each fiscal quarter, or at any time upon Commission request, a designated contract market must:
(i) Report to the Commission:
(A) The amount of financial resources necessary to meet the requirements of paragraph (a) of this section; and
(B) The value of each financial resource available, computed in accordance with the requirements of paragraph (d) of this section; and
(ii) Provide the Commission with a financial statement, including the balance sheet, income statement, and statement of cash flows of the designated contract market or of its parent company.
(2) The calculations required by this paragraph shall be made as of the last business day of the designated contract market's fiscal quarter.
(3) The designated contract market must provide the Commission with:
(i) Sufficient documentation explaining the methodology used to compute its financial requirements under paragraph (a) of this section;
(ii) Sufficient documentation explaining the basis for its determinations regarding the valuation and liquidity requirements set forth in paragraphs (d) and (e) of this section; and
(iii) Copies of any agreements establishing or amending a credit facility, insurance coverage, or other arrangement evidencing or otherwise supporting the designated contract market's conclusions.
(4) The reports shall be filed not later than 40 calendar days after the end of the designated contract market's first three fiscal quarters, and not later than 60 calendar days after the end of the designated contract market's fourth fiscal quarter, or at such later time as the Commission may permit, in its discretion, upon request by the designated contract market.
(g) Delegation of authority. (1) The Commission hereby delegates, until it orders otherwise, the authority to the Director of the Division of Market Oversight or such other employee or employees as the Director may designate from time to time, to:
(i) Determine whether a particular financial resource under paragraph (b)(2) may be used to satisfy the requirements of paragraph (a)(1) and (2) of this section;
(ii) Review and make changes to the methodology used to compute the requirements of paragraph (c) of this section;
(iii) Request financial reporting from a designated contract market (in addition to quarterly reports) under paragraph (f)(1) of this section; and
(iv) Grant an extension of time for a designated contract market to file its quarterly financial report under paragraph (f)(4) of this section.
(2) The Director may submit to the Commission for its consideration any matter that has been delegated in this paragraph. Nothing in this paragraph prohibits the Commission, at its election, from exercising the authority delegated in this paragraph.