Form DCO Form DCO Form DCO

OMB No. 3038-0076
COMMODITY FUTURES TRADING COMMISSION

FORM DCO
DERIVATIVES CLEARING ORGANIZATION
APPLICATION FOR REGISTRATION

GENERAL INSTRUCTIONS

Intentional misstatements or omissions of fact may constitute federal criminal violations (7 U.S.C. 13 and 18
U.S.C. 1001) or grounds for disqualification from registration.
DEFINITIONS
Unless the context requires otherwise, all terms used in this Form DCO have the same meaning as in the Commodity
Exchange Act (“Act”), and in the General Rules and Regulations of the Commodity Futures Trading Commission
(“Commission”) thereunder. All references to Commission regulations are found at 17 CFR Ch. I.
For the purposes of this Form DCO, the term “Applicant” shall include any applicant for registration as a derivatives
clearing organization.

GENERAL INSTRUCTIONS
1.

This Form DCO, which includes a Cover Sheet and required Exhibits (together, “Form DCO” or “application”),
is to be filed with the Commission by all applicants for registration as a derivatives clearing organization,
including applicants when amending a pending application, pursuant to Section 5b of the Act and the
Commission’s regulations thereunder. Upon the filing of an application for registration or an amendment to an
application in accordance with the instructions provided herein, the Commission will publish notice of the filing
and afford interested persons an opportunity to submit written data, views and comments concerning such
application. No application for registration will be effective unless the Commission, by order, grants such
registration.

2.

Individuals’ names, except the executing signature, shall be given in full (Last Name, First Name, Middle Name).

3.

With respect to the executing signature, it must be manually signed by a duly authorized representative of the
Applicant as follows: If the Form DCO is filed by a corporation, it must be signed in the name of the corporation
by a principal officer duly authorized; if filed by a limited liability company, it must be signed in the name of the
limited liability company by a manager or member duly authorized to sign on the limited liability company’s
behalf; if filed by a partnership, it must be signed in the name of the partnership by a general partner duly
authorized; if filed by an unincorporated organization or association which is not a partnership, it must be signed
in the name of such organization or association by the managing agent, i.e., a duly authorized person who directs
or manages or who participates in the directing or managing of its affairs.

1

4.

If this Form DCO is being filed as an application for registration, all applicable items must be answered in full.
If any item or Exhibit is inapplicable, this response must be affirmatively indicated by the designation “none,”
“not applicable,” or “N/A,” as appropriate.

5.

Under section 5b of the Act and the Commission’s regulations thereunder, the Commission is authorized to solicit
the information required to be supplied by this Form DCO from any Applicant seeking registration as a derivatives
clearing organization and from any registered derivatives clearing organization. Disclosure by the Applicant of
the information specified in this Form DCO is mandatory prior to the start of the processing of an application for
registration as a derivatives clearing organization. The information provided in this Form DCO will be used for
the principal purpose of determining whether the Commission should grant or deny registration to an Applicant.
The Commission may determine that additional information is required from the Applicant in order to
process its application. An Applicant is therefore encouraged to supplement this Form DCO with any
additional information that may be significant to its operation as a derivatives clearing organization and
to the Commission’s review of its application. A Form DCO which is not prepared and executed in
compliance with applicable requirements and instructions may be returned as not acceptable for filing.
Acceptance of this Form DCO, however, shall not constitute a finding that the Form DCO has been filed
as required or that the information submitted is true, current or complete.

6.

As provided in 17 CFR 39.3(a)(5), except in cases where the Applicant submits a request for confidential
treatment with the Secretary of the Commission pursuant to the Freedom of Information Act and 17 CFR 145.9,
information supplied in this application will be included routinely in the public files of the Commission and will
be available for inspection by any interested person.

APPLICATION AMENDMENTS
1.

17 CFR 39.3(a)(4) requires an Applicant to promptly amend its application if it discovers a material omission or
error in the application, or if there is a material change in the information contained in the application, including
any supplement or amendment thereto.

2.

Applicants, when filing this Form DCO for purposes of amending a pending application, must re-file an entire
Cover Sheet, amended if necessary and including an executing signature, and attach thereto revised Exhibits or
other materials marked to show changes, as applicable. The submission of an amendment to a pending application
represents that the remaining items and Exhibits that are not amended remain true, current, and complete as
previously filed.

WHERE TO FILE
This Form DCO must be filed with the Commission in the format and manner specified by the Commission.

2

COMMODITY FUTURES TRADING COMMISSION
FORM DCO
DERIVATIVES CLEARING ORGANIZATION
APPLICATION FOR REGISTRATION
COVER SHEET

______________________________________________________________________________________
Exact name of Applicant as specified in charter
______________________________________________________________________________________
Address of principal executive offices



If this is an APPLICATION for registration, complete in full and check here.



If this is an AMENDMENT to a pending application, list below all items that are being amended and check
here.

______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
GENERAL INFORMATION
1.

Name under which business is or will be conducted, if different than name specified above (include acronyms,
if any):

______________________________________________________________________________________

2.

If name of derivatives clearing organization is being amended, state previous derivatives clearing organization
name:

______________________________________________________________________________________

3

3.

Additional contact information:

______________________________________________________________________________________
Website URL

4.

Main Phone Number

List of principal office(s) and address(es) where derivatives clearing organization activities are/will be
conducted:
Office

Address

BUSINESS ORGANIZATION
5.

If Applicant is a successor to a previously registered derivatives clearing organization, please complete the
following:
a.

Date of succession __________________________

b.

Full name and address of predecessor registrant
___________________________________________________________________________
Name
___________________________________________________________________________
Street Address
___________________________________________________________________________
City

6.

State

Country

Zip Code

Applicant is a:



Corporation



Partnership (specify whether general or limited)



Limited Liability Company



Other form of organization (specify) ________________________________________________

7.

Date of formation: _______________________________________________________________

4

8.

Jurisdiction of organization: ________________________________________________________
List all other jurisdictions in which Applicant is qualified to do business (including non-US jurisdictions):

______________________________________________________________________________________
______________________________________________________________________________________

List all other regulatory licenses or registrations of Applicant (or exemptions from any licensing requirement)
including with non-US regulators:
______________________________________________________________________________________
______________________________________________________________________________________

9.

FEIN or other Tax ID#: __________________

10. Fiscal Year End: _______________________

5

ADDITIONAL CONTACT INFORMATION
11. Provide contact information specifying name, title, phone numbers, mailing address and e-mail address for the
following individuals:

a.

The primary contact for questions and correspondence regarding the application

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

b.

E-mail Address

The individual responsible for handling questions regarding the Applicant’s financial statements

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

c.

E-mail Address

The individual responsible for serving as the Chief Risk Officer of the Applicant pursuant to § 39.13 of
the Commission’s regulations

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

E-mail Address

6

d.

The individual responsible for serving as the Chief Compliance Officer of the Applicant pursuant to
§ 39.10 of the Commission’s regulations

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address
e.

E-mail Address

The individual responsible for serving as the chief legal officer of the Applicant

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

E-mail Address

12. Outside Service Providers: Provide contact information specifying name, title, phone numbers, mailing address
and e-mail address for any outside service provider retained by the Applicant as follows:
a.

Certified Public Accountant

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

b.

E-mail Address

Legal Counsel

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

7

______________________________________________________________________________________
Mailing address

c.

E-mail Address

Records Storage or Management

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

d.

E-mail Address

Business Continuity/Disaster Recovery

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address
e.

E-mail Address

Professional consultants providing services related to this application

______________________________________________________________________________________
Name and Title
______________________________________________________________________________________
Office Phone Number

Mobile Phone Number

______________________________________________________________________________________
Mailing address

E-mail Address

13. Applicant agrees and consents that the notice of any proceeding before the Commission in connection with this
application may be given by sending such notice by certified mail to the person named below at the address given.

______________________________________________________________________________________
Print Name and Title

8

______________________________________________________________________________________
Street Address

______________________________________________________________________________________
City

State

Country

Zip Code

SIGNATURE/REPRESENTATION
14. Applicant has duly caused this application to be signed on its behalf by its duly authorized representative as of
the ___________ day of ________________________________, 20_____. Applicant and the undersigned each
represent hereby that, to the best of their knowledge, all information contained herein is true, current and complete
in all material respects. It is understood that all required items and Exhibits are considered integral parts of this
Form DCO and that the submission of any amendment represents that all unamended items and Exhibits remain
true, current, and complete as previously filed.

______________________________________________________________________________________
Name of Applicant

By:___________________________________________________________________________________
Manual Signature of Duly Authorized Person

______________________________________________________________________________________
Print Name and Title of Signatory

9

COMMODITY FUTURES TRADING COMMISSION

FORM DCO
DERIVATIVES CLEARING ORGANIZATION
APPLICATION FOR REGISTRATION

EXHIBIT INSTRUCTIONS
1.

The following Exhibits must be filed with the Commission by each Applicant seeking registration as a
derivatives clearing organization pursuant to section 5b of the Act and the Commission’s regulations
thereunder.

2.

The application must include a Table of Contents listing each Exhibit required by this Form DCO and
indicating which, if any, Exhibits are inapplicable. For any Exhibit that is inapplicable, next to the
Exhibit letter specify “none,” “not applicable,” or “N/A,” as appropriate.

3.

The Exhibits must be labeled as specified in this Form DCO. If any Exhibit requires information that is
related to, or may be duplicative of, information required to be included in another Exhibit, Applicant
may summarize such information and provide a cross-reference to the Exhibit that contains the required
information.

4.

If the information required in an Exhibit involves computerized programs or systems, Applicant must
submit descriptions of system test procedures, tests conducted, or test results in sufficient detail to
demonstrate the Applicant’s ability to comply with the core principles specified in section 5b of the Act
and the Commission’s regulations thereunder (the “Core Principles”). With respect to each system test,
Applicant must identify the methodology used and provide the computer software, programs, and data
necessary to enable the Commission to duplicate each system test as it relates to the applicable Core
Principle.

5.

If Applicant seeks confidential treatment of any Exhibit or a portion of any Exhibit, Applicant must mark
such Exhibit with a prominent stamp, typed legend, or other suitable form of notice on each page or
portion of each page stating “Confidential Treatment Requested by [Applicant].” If such marking is
impractical under the circumstances, a cover sheet prominently marked “Confidential Treatment
Requested by [Applicant]” should be provided for each group of records submitted for which
confidential treatment is requested. Each of the records transmitted in this matter shall be individually
marked with an identifying number and code so that they are separately identifiable. Applicant must
also file a confidentiality request with the Secretary of the Commission in accordance with 17 CFR
145.9.

10

DESCRIPTION OF EXHIBITS
EXHIBIT A — GENERAL INFORMATION/COMPLIANCE


Attach as Exhibit A-1, a regulatory compliance chart setting forth each Core Principle and providing citations to
the Applicant’s relevant rules, policies, and procedures that address each Core Principle, and a brief summary of
the manner in which Applicant will comply with each Core Principle.



Attach as Exhibit A-2, a copy of Applicant’s rulebook. The rulebook must consist of all the rules necessary to
carry out Applicant’s role as a derivatives clearing organization. Applicant must certify that its rules constitute a
binding agreement between Applicant and its clearing members and, in addition to any separate clearing member
agreements, establish rights and obligations between Applicant and its clearing members.



Attach as Exhibit A-3, a narrative summary of Applicant’s proposed clearing activities including (i) the
anticipated start date of clearing products (or, if Applicant is already clearing products, the anticipated start date
of activities for which Applicant is seeking an amendment to its registration), and (ii) a description of the scope
of Applicant’s proposed clearing activities (e.g., clearing for a designated contract market; clearing for a swap
execution facility; clearing bilaterally executed products).



Attach as Exhibit A-4, a detailed business plan setting forth, at a minimum, the nature of and rationale for
Applicant’s activities as a derivatives clearing organization, the context in which it is beginning or expanding its
activities, and the nature, terms, and conditions of the products it will clear.



Attach as Exhibit A-5, a list of the names of any person (i) who owns 5% or more of Applicant’s stock or other
ownership or equity interests; or (ii) who, either directly or indirectly, through agreement or otherwise, may
control or direct the management or policies of Applicant. Provide as part of Exhibit A-5 the full name and
address of each such person, indicate the person’s ownership percentage, and attach a copy of the agreement or,
if there is no agreement, an explanation of the basis upon which such person exercises or may exercise such
control or direction.



Attach as Exhibit A-6, a list of Applicant’s current officers, directors, governors, general partners, LLC managers,
and members of all standing committees, as applicable, or persons performing functions similar to any of the
foregoing, indicating for each:
a.

Name and Title (with respect to a director, such title must include participation on any
committee of Applicant);

b.

Dates of commencement and, if appropriate, termination of present term of office or position;

c.

Length of time each such person has held the same office or position;

d.

Brief description of the business experience of each person over the last ten years;

e.

Any other current business affiliations in the financial services industry;

f.

If such person is not an employee of Applicant, list any compensation paid to the person as a
result of his or her position at Applicant. For a director, describe any performance-based
compensation;

g.

A certification for each such person that the individual would not be disqualified under section
8a(2) of the Act or § 1.63; and

11

h.

With respect to a director, indicate whether such director is an independent director, and
whether such director is a market participant, and the basis for such a determination as to the
director’s status.

If another entity will operate or control the day-to-day business operations of the Applicant, attach for such entity all
of the items indicated in Exhibit A-6.


Attach as Exhibit A-7, a diagram of the entire corporate organizational structure of Applicant including the
legal name of all entities within the organizational structure and the applicable percentage ownership among
affiliated entities. Additionally, provide (i) a list of all jurisdictions in which Applicant or its affiliated entities
are doing business; (ii) the registration status of Applicant and its affiliated entities, including pending
applications or exemption requests and whether any applications or exemptions have been denied (e.g., country,
regulator, registration category, date of registration or request for exemption, date of denial, if applicable); and
(iii) the address for legal service of process for Applicant (which cannot be a post office box) for each
applicable jurisdiction.



Attach as Exhibit A-8, a copy of the constituent documents, articles of incorporation or association with all
amendments thereto, partnership or limited liability agreements, and existing bylaws, operating agreement, or
instruments corresponding thereto, of Applicant. Provide a certificate of good standing or its equivalent for
Applicant for each jurisdiction in which Applicant is doing business, including any foreign jurisdiction, dated
within one month of the date of the Form DCO.



Attach as Exhibit A-9, a brief description of any material pending legal proceeding(s) or governmental
investigation(s) to which Applicant or any of its affiliates is a party or is subject, or to which any of its or their
property is at issue. Include the name of the court or agency where the proceeding(s) is pending, the date(s)
instituted, the principal parties involved, a description of the factual allegations in the complaint(s), the laws
that were allegedly violated, and the relief sought. Include similar information as to any such proceeding(s) or
any investigation known to be contemplated by any governmental agency.



If Applicant intends to use the services of an outside service provider (including services of its clearing
members or market participants), to enable Applicant to comply with any of the Core Principles, Applicant
must submit as Exhibit A-10 all agreements entered into or to be entered into between Applicant and the outside
service provider, and identify (1) the services that will be provided; (2) the staff of the outside service provider
who will provide the services (specifying (i) in which department or unit of the outside service provider they
are employed, (ii) title, and (iii) if known, level of expertise); and (3) the Core Principles addressed by such
arrangement. Each submitted agreement must include all attachments cited therein. If a submitted agreement
is not final and executed, the Applicant must submit evidence that constitutes reasonable assurance that such
services will be provided as soon as operations require.



Attach as Exhibit A-11, documentation that demonstrates compliance with the Chief Compliance Officer
(“CCO”) requirements set forth in § 39.10(c), including but not limited to:
a.

Evidence of the designation of an individual to serve as Applicant’s CCO with full
responsibility and authority to develop and enforce appropriate compliance policies and
procedures;

b.

A description of the background and skills of the person designated as the CCO and a
certification that the individual would not be disqualified under section 8a(2) or 8a(3) of the
Act;

12



c.

Identification of to whom the CCO reports (i.e., the senior officer of the derivatives clearing
organization, the senior officer responsible for the derivative clearing organization’s clearing
activities, or the Board of Directors of the derivatives clearing organization);

d.

Any plan of communication or regular or special meetings between the CCO and the Board of
Directors or senior officer as appropriate;

e.

A job description setting forth the CCO’s duties;

f.

Procedures for the remediation of noncompliance issues; and

g.

A copy of Applicant’s written compliance policies and procedures (including a code of ethics
and conflict of interest policy).

Attach as Exhibit A-12, a description of Applicant’s enterprise risk management program, and how it complies
with the requirements set forth in § 39.10(d).

EXHIBIT B — FINANCIAL RESOURCES


Attach as Exhibit B, documents that demonstrate compliance with the financial resources requirements set
forth in § 39.11 of the Commission’s regulations, including but not limited to:
a.

General – Provide as Exhibit B-1:
(1)

The most recent year-end audited financial statements of Applicant calculated in
accordance with U.S. generally accepted accounting principles (“U.S. GAAP”),
including the balance sheet, income statement, statement of cash flows, notes to the
financial statements, and an independent auditor’s report issued by a certified public
accountant, dated as of the end of Applicant’s last fiscal year-end prior to the date of
filing the Form DCO. If Applicant does not have its own year-end audited financial
statements, it may submit the audited financial statements of its direct parent company,
dated as of the end of the direct parent company’s last fiscal year-end prior to the date
of filing the Form DCO. Applicant should be aware that once it is registered as a
derivatives clearing organization it must submit its own year-end audited financial
statements, as required by § 39.11(f)(2)(i), and the cost of such audit must be included
in Applicant’s calculation of its total projected operating costs in Exhibit B-3, as
described in paragraph c(5) below;

(2)

If Applicant is unable to submit a copy of its own audited financial statements or the
audited financial statements of its direct parent company, as required by paragraph a(1)
above, Applicant must provide its year-end financial statements calculated in accordance
with U.S. GAAP, including the balance sheet, income statement, statement of cash flows,
and notes to the financial statements, dated as of the end of Applicant’s last fiscal yearend prior to the date of filing the Form DCO. These year-end financial statements must
be accompanied by an independent accountant’s review report issued by a certified
public accountant;

(3)

If the audited or reviewed financial statements submitted in accordance with either
paragraph a(1) or paragraph a(2) above are not dated as of the end of Applicant’s last
fiscal quarter prior to the date of filing the Form DCO, Applicant must also provide a set
of Applicant’s quarterly unaudited financial statements, dated as of the end of
Applicant’s last fiscal quarter prior to the date of filing the Form DCO;

13

b.

(4)

If Applicant is incorporated or organized under the laws of any foreign country, it may
submit the financial statements described above prepared in accordance with either
U.S.GAAP or the International Financial Reporting Standards (“IFRS”) issued by the
International Accounting Standards Board. Applicant should be aware that once it is
registered as a derivatives clearing organization it must submit financial statements
prepared in accordance with U.S. GAAP or IFRS, as required by § 39.11(f)(1) and (f)(2);

(5)

If Applicant is a start-up or will commence operations after it is registered as a
derivatives clearing organization, Applicant must submit a set of pro-forma financial
statements, including the balance sheet, income statement, and statement of cash flows,
dated as of the first month-end after Applicant’s expected start date. The set of pro-forma
statements must include a narrative description of how the estimates were determined;

(6)

A narrative description of how Applicant will fund its financial resources obligations on
the first day of its operation as a registered derivatives clearing organization; and

(7)

Applicant must complete the form that is used by registered derivatives clearing
organizations for quarterly reports under § 39.11(f)(1), as of the date of the most recent
financial statements provided in Exhibit B-1. If Applicant is a start-up, Applicant must
complete the form using estimated figures and must provide a narrative description of
how the estimates were determined. The Division of Clearing and Risk will provide the
current form to Applicant, upon request.

Default Resources – Provide as Exhibit B-2:
(1)

A calculation of the financial resources needed to enable Applicant to meet its
requirements under § 39.11(a)(1), as of the date of the most recent financial statements
provided in Exhibit B-1. Applicant must provide hypothetical default scenarios designed
to reflect a variety of market conditions, and the assumptions and variables underlying
the scenarios must be explained. All results of the analysis must be included. This
calculation requires a start-up enterprise to estimate its largest anticipated financial
exposure and explain the basis for such estimate;

(2)

Evidence of unencumbered assets sufficient to satisfy § 39.11(a)(1), as of the date of the
most recent financial statements provided in Exhibit B-1. For example, this may be
demonstrated by audited financial statements or a copy of a bank balance statement(s),
custodian statement(s), or statement(s) from any other institution holding such assets for
each type of financial resource. A start-up enterprise may not make this demonstration
through audited financial statements. If relying on § 39.11(b)(1)(v), such other resources
must be thoroughly explained. If Applicant intends to use a committed line of credit or
similar facility to meet the liquidity requirement pursuant to § 39.11(e)(1)(iii), Applicant
must provide a copy of the applicable credit agreement(s). If relying on § 39.11(b)(1)(i)
and/or (v), Applicant cannot also count these assets when demonstrating its compliance
with its operating resources requirement under § 39.11(a)(2) and Applicant must detail
the amounts or percentages of such assets that apply to each financial resource
requirement;

(3)

A demonstration that Applicant can perform the monthly calculations required by
§ 39.11(c)(1);

14

c.

(4)

A demonstration that Applicant’s financial resources are sufficiently liquid as required
by § 39.11(e)(1), as of the date of the most recent financial statements provided in
Exhibit B-1;

(5)

A demonstration of how Applicant will be able to maintain, at all times, the level of
resources required by § 39.11(a)(1); and

(6)

A demonstration of how default resources financial information will be updated and
reported to clearing members and the public under § 39.21, and to the Commission as
required by § 39.11(f)(1) and § 39.19.

Operating Resources – Provide as Exhibit B-3:
(1)

A calculation of the financial resources needed to enable Applicant to meet its
requirements under § 39.11(a)(2), as of the date of the most recent financial statements
provided in Exhibit B-1;

(2)

Evidence of assets sufficient to satisfy the amount required under § 39.11(a)(2), as of the
date of the most recent financial statements provided in Exhibit B-1. For example, this
may be demonstrated by audited financial statements or a copy of a bank balance
statement(s), custodian statement(s), or statement(s) from any other institution holding
such assets, in the name of Applicant, for each type of financial resource. A start-up
enterprise may not make this demonstration through audited financial statements. If
relying on § 39.11(b)(2)(ii), such other resources must be thoroughly explained. If
Applicant intends to use a committed line of credit or similar facility to meet the liquidity
requirement pursuant to § 39.11(e)(2), Applicant must provide a copy of the applicable
credit agreement(s). If relying on § 39.11(b)(2)(i) or (ii), Applicant cannot also count
these assets when demonstrating its compliance with meeting its default resources
requirement under § 39.11(a)(1) and Applicant must detail the amounts or percentages
of such assets that apply to each financial resource requirement;

(3)

A narrative statement demonstrating the adequacy of Applicant’s physical infrastructure
to carry out business operations, which includes a principal executive office (separate
from any personal dwelling) with a street address (not merely a post office box number).
For its principal executive office and other facilities Applicant plans to occupy in
carrying out its functions as a derivatives clearing organization, a description of the space
(e.g., location and square footage), use of the space (e.g., executive office, data center),
and the basis for Applicant’s right to occupy the space (e.g., lease, agreement with parent
company to share leased space);

(4)

A narrative statement demonstrating the adequacy of the technological systems
necessary to carry out Applicant’s business operations, including a description of
Applicant’s information technology and telecommunications systems and a timetable for
full operability;

(5)

A calculation pursuant to § 39.11(c)(2), including the total projected operating costs for
Applicant’s first year of operation as a derivatives clearing organization, calculated on a
monthly basis with an explanation of the basis for calculating each cost and a discussion
of the type, nature, and number of the various costs included;

15

d.

(6)

A demonstration that Applicant’s financial resources are sufficiently liquid and
unencumbered, as required by § 39.11(e)(2), as of the date of the most recent financial
statements provided in Exhibit B-1;

(7)

A demonstration of how Applicant will maintain, at all times, the level of resources
required by § 39.11(a)(2) with an explanation of asset valuation methodology and
calculation of projected revenue, if applicable; and

(8)

A demonstration of how financial information for operating resources will be updated
and reported to clearing members and the public under § 39.21, and to the Commission
as required by § 39.11(f)(1) and § 39.19.

Human Resources – Provide as Exhibit B-4:
(1)

An organizational chart showing Applicant’s current and planned staff by position and
title, including key personnel (as such term is defined in § 39.2) and, if applicable,
managerial staff reporting to key personnel.

(2)

A discussion and description of the staffing requirements needed to fulfill all operations
and associated functions, tasks, services, and areas of supervision necessary to operate
Applicant on a day-to-day basis; and

(3)

The names and qualifications of individuals who are key personnel or other managerial
staff who will carry out the operations and associated functions, tasks, services, and
supervision needed to run the Applicant on day-to-day basis. In particular, Applicant
must identify such individuals who are responsible for risk management, treasury,
clearing operations and compliance (and specify whether each such person is an
employee or consultant/agent).

EXHIBIT C — PARTICIPANT AND PRODUCT ELIGIBILITY


Attach as Exhibit C, documents that demonstrate compliance with the participant and product eligibility
requirements set forth in § 39.12 of the Commission’s regulations, including but not limited to:
a.

Participant Eligibility – Provide as Exhibit C-1, an explanation of the requirements for
becoming a clearing member and how those requirements satisfy § 39.12 and, where applicable,
support Applicant’s compliance with other Core Principles. Applicant must address how its
participant eligibility requirements comply with the core principles and regulations thereunder
for financial resources, risk management, and operational capacity. The explanation also must
include:
(1)

A final version of the membership agreement between Applicant and its clearing
members that sets forth the full scope of respective rights and obligations;

(2)

A discussion of how Applicant will monitor for and enforce compliance with its
eligibility criteria, especially minimum financial requirements;

(3)

An explanation of how the eligibility criteria are objective and allow for fair and open
access to Applicant. Applicant must include an explanation of the differences between
various classes of membership or participation that might be based on different levels of
capital and/or creditworthiness. Applicant must also include information about whether
any differences exist in how Applicant will monitor and enforce the obligations of its

16

various clearing members including any differences in access, privilege, margin levels,
position limits, or other controls;

b.

(4)

If Applicant allows intermediation, Applicant must describe the requirements applicable
to those who may act as intermediaries on behalf of customers or other market
participants;

(5)

A description of the program for monitoring the financial status of the clearing members
on an ongoing basis;

(6)

The procedures that Applicant will follow in the event of the bankruptcy or insolvency
of a clearing member, which did not result in a default to Applicant;

(7)

A description of whether and how Applicant would adjust clearing member participation
under continuing eligibility criteria based on the financial, risk, or operational status of a
clearing member;

(8)

A discussion of whether Applicant’s clearing members will be required to be registered
with the Commission; and

(9)

A list of current or prospective clearing members. If a current or prospective clearing
member is a Commission registrant, Applicant must identify the member’s designated
self-regulatory organization.

Product Eligibility – Provide as Exhibit C-2, an explanation of the criteria used to determine
the eligibility of products submitted for clearing, including:
(1)

The regulatory status of each market on which a contract to be cleared by Applicant is
traded (e.g., designated contract market, swap execution facility, not a registered market),
and whether the market for which Applicant clears intends to join the Joint Audit
Committee. For bilaterally executed agreements, contracts, or transactions not traded on
a registered market, Applicant must describe the nature of the related market and its
interest in having the particular bilaterally executed agreement, contract, or transaction
cleared;

(2)

The criteria, and the factors considered in establishing the criteria, for determining the
types of products that will be cleared;

(3)

An explanation of how the criteria for deciding what products to clear take into account
the different risks inherent in clearing different agreements, contracts, or transactions and
how those criteria affect maintenance of assets to support the guarantee function in
varying risk environments;

(4)

A precise list of all the agreements, contracts, or transactions to be covered by
Applicant’s registration order, including the terms and conditions of all agreements,
contracts, or transactions;

(5)

A forecast of expected volume and open interest at the outset of clearing operations as a
derivatives clearing organization, after six months, and after one year of operation as a
derivatives clearing organization; and

17

(6)

The mechanics of clearing each contract, such as reliance on exchange for physical,
exchange for swap, or other substitution activity; whether the contracts are matched prior
to submission for clearing or after submission; and other aspects of clearing mechanics
that are relevant to understanding the products that would be eligible for clearing.

EXHIBIT D — RISK MANAGEMENT


Attach as Exhibit D, documents that demonstrate compliance with the risk management requirements set
forth in § 39.13 of the Commission’s regulations, including but not limited to:

a.

Risk Management Framework – Provide as Exhibit D-1, a copy of Applicant’s written policies,
procedures, and controls, as approved by Applicant’s Board of Directors, that establish
Applicant’s risk management framework as required by § 39.13(b). Applicant must also
provide a description of the composition and responsibilities of Applicant’s Risk Management
Committee.

b.

Measuring Risk – Provide as Exhibit D-2, a narrative explanation of how Applicant has
projected and will continue to measure its counterparty risk exposure, including:
(1)

A description of the risk-based margin calculation methodology;

(2)

The assumptions upon which the methodology was designed, including the risk analysis
tools and procedures employed in the design process;

(3)

An explanation as to whether other margining methodologies were considered and, if so,
why they were not chosen;

(4)

A demonstration of the margin methodology as applied to real or hypothetical clearing
scenarios;

(5)

A description of the data sources for inputs used in the methodology, e.g., historical price
data reflecting market volatility over various periods of time;

(6)

A description of the sources of price data for the measurement of current exposures and
the valuation models for addressing circumstances where pricing data is not readily
available or reliable;

(7)

The frequency and circumstances under which the margin methodology will be reviewed
and the criteria for deciding how often to review and whether to modify a margin
methodology;

(8)

An independent validation of Applicant’s systems for generating initial margin
requirements, including its theoretical models;

(9)

The frequency of measuring counterparty risk exposures (mark to market), whether
counterparty risk exposures are routinely measured on an intraday basis, whether
Applicant has the operational capacity to measure counterparty risk exposures on an

18

intraday basis, and the circumstances under which Applicant would conduct a nonroutine intraday measurement of counterparty risk exposures;
(10) Preliminary forecasts regarding future counterparty risk exposure and assumptions upon
which such forecasts of exposure are based;
(11) A description of any systems or software that Applicant will require clearing members
to use in order to margin their positions in their internal bookkeeping systems, and
whether and under what terms and conditions Applicant will provide such systems or
software to clearing members; and
(12) A description of the extent to which counterparty risk can be offset through the clearing
process (i.e., the limitations, if any, on Applicant’s duty to fulfill its obligations as the
buyer to every seller and the seller to every buyer).
c.

Limiting Risk – Provide as Exhibit D-3, a narrative discussion addressing the specifics of
Applicant’s clearing activities, including:
(1)

How Applicant will collect financial information about its clearing members and other
traders or market participants, monitor price movements, and mark to market, on a daily
basis, the products and/or portfolios it clears;

(2)

How Applicant will monitor accounts carried by clearing members, the accumulation of
positions by clearing members and other market participants, and compliance with risk
limits; and how it will use large trader information;

(3)

How Applicant will determine variation margin levels and outstanding initial margin
due;

(4)

How Applicant will identify unusually large pays on a proactive basis before they occur;

(5)

Whether and how Applicant will compare price moves and position information to
historical patterns and to the financial information collected from its clearing members;
and how it will identify unusually large pays on a daily basis;

(6)

How Applicant will use various risk tools and procedures such as: (i) value-at-risk
calculations; (ii) stress testing; (iii) back testing; and/or (iv) other risk management tools
and procedures. If Applicant is currently clearing products for which it is seeking
registration as a derivatives clearing organization, provide back testing results for actual
portfolios containing each such product, which demonstrate margin coverage at least at
the 99 percent confidence level over the previous 252 trading days;

(7)

How Applicant will communicate with clearing members, settlement banks, other
derivatives clearing organizations, designated contract markets, swap execution
facilities, major swap participants, swap data repositories, and other entities in
emergency situations or circumstances that might require immediate action by the
Applicant;

(8)

How Applicant will monitor risk outside of its business hours;

(9)

How Applicant will review its clearing members’ risk management practices;

19

(10) Whether Applicant will impose credit limits and/or employ other risk filters (such as
automatic system denial of entry of trades under certain conditions);
(11) Plans for handling “extreme market volatility” and how Applicant defines that term;
(12) An explanation of how Applicant will be able to offset positions in order to manage risk
including: (i) ensuring both Applicant and clearing members have the operational
capacity to do so; and (ii) liquidity of the relevant market, especially with regard to
bilaterally executed products;
(13) Plans for managing accounts that are “too big” to liquidate and for conducting “what if”
analyses on these accounts;
(14) If options are involved, how Applicant will manage the different and more complex risk
presented by these products;
(15) If Applicant intends to clear swaps, whether and how often Applicant will offer
multilateral portfolio compression exercises for its clearing members; and
(16) If Applicant intends to clear credit default swaps, credit default futures, and any
derivatives that reference either credit default swaps or credit default futures, how
Applicant will manage the unique risks associated with clearing these products, including
but not limited to liquidity risk, currency risk, seasonable risk, compounding risk, jumpto-default risk or similar jump risk.
d.

Existence of collateral (funds and assets) to apply to losses resulting from realized risk –
Provide as Exhibit D-4:
(1)

An explanation of the factors, process, and methodology used for calculating and setting
required collateral levels, the required inputs, the appropriateness of those inputs, and an
illustrative example;

(2)

An analysis supporting the sufficiency of Applicant’s collateral levels for capturing all
or most price moves that may take place in one settlement cycle;

(3)

A description of how Applicant will value open positions and collateral assets;

(4)

A description and explanation of the forms of assets allowed as collateral, why they are
acceptable, and whether there are any haircuts or concentration limits or charges on
certain kinds of assets, including how often any such haircuts and concentration limits or
charges are reviewed;

(5)

An explanation of how and when Applicant will collect collateral, whether and under
what circumstances it will collect collateral on an intraday basis, and what will happen
if collateral is not received in a timely manner. Include a proposed collateral collection
schedule based on changes in market positions and collateral values; and

(6)

If options are involved, a full explanation of how Applicant will manage the associated
risk through the use of collateral including, if applicable, a discussion of Applicant’s
option pricing model, how it establishes its implied volatility scan range, and other
matters related to the complex matter of managing the risk associated with the clearing
of option contracts.

20

e.

Orderly wind-down plan – Provide as Exhibit D-5, the derivatives clearing organization’s
orderly wind-down plan, and a demonstration that the plan complies with the requirements of
§ 39.13(k).

EXHIBIT E — SETTLEMENT PROCEDURES



Attach as Exhibit E, documents that demonstrate compliance with the settlement procedures requirements
set forth in § 39.14 of the Commission’s regulations, including but not limited to:
a.

Settlement – Provide as Exhibit E-1, a full description of the daily process of settling financial
obligations on all open positions being cleared. This must include:
(1)

Procedures for completing settlements on a timely basis during normal market conditions
(and no less frequently than once each business day);

(2)

Procedures for completing settlements on a timely basis in varying market circumstances
including in the event of a default by the clearing member creating the largest financial
exposure for Applicant in extreme but plausible market conditions;

(3)

A description of how contracts will be marked to market on at least a daily basis;

(4)

Identification of the settlement banks used by Applicant (including identification of the
lead settlement bank, if applicable) and a copy of Applicant’s settlement bank
agreement(s). Such settlement bank agreements must (i) outline daily cash settlement
procedures, (ii) state clearly when settlement fund transfers will occur, (iii) provide
procedures for settlements on bank holidays when the markets are open, and (iv) ensure
that settlements are final when effected;

(5)

Identification of settlement banks that Applicant will allow its clearing members to use
for margin calls and variation settlements;

(6)

A description of the criteria and review process used by Applicant when selecting
settlement banks to be used by the Applicant or its clearing members, including criteria
addressing the capitalization, creditworthiness, access to liquidity, operational reliability,
and regulation or supervision of such settlement banks;

(7)

Procedures for monitoring the continued appropriateness of each approved settlement
bank, including a description of how Applicant monitors the full range and concentration
of its exposures to each settlement bank;

(8)

The specific means by which settlement instructions are communicated from Applicant
to the settlement bank(s);

(9)

A timetable showing the flow of funds associated with the settlement of financial
obligations with respect to all cleared products for a 24-hour period or such other
settlement timeframe specified with respect to a particular product; this may be presented
in the form of a chart, as in the following example:

21

FORM DCO - SAMPLE SETTLEMENT CYCLE CHART
[Specify U.S. Dollar or other currency as applicable] applicable]
TRADE DATE = T
[INSERT TIME ZONE]
[INSERT EXACT
TIMES BELOW]

EXAMPLE OF SETTLEMENT ACTIVITY FOR WHICH TIMES SHOULD BE
PROVIDED

T: _____ pm

Last market closes (end of regular trading hours).

T: Approx. ____ pm

DCO/DCM/SEF establishes daily settlement price for each product based on information
generated by its [INSERT NAME OF APPLICABLE CLEARING SYSTEM].

T: By _____ pm

Clearing members’ position information for intraday settlement is obtained from DCO’s
clearing system.

T+1: Approx. ____ am

DCO provides daily initial margin (IM) and settlement variation/option premium
(SVOP) amounts to clearing members and banks.

T+1: By ____ am

Banks commit to pay daily IM and SVOP amounts.

T+1: Approx. ____ am

Banks pay daily IM and SVOP amounts from clearing members to DCO.

T+1: Approx. __ am

Banks pay daily IM and SVOP amounts from DCO to clearing members.

T: Approx. ____ pm

DCO/DCM/SEF determines prices for intraday settlement.

T: Approx. ____ pm

Clearing members’ position information for intraday settlement is obtained from DCO’s
clearing system.

T: By approx. ____ pm

DCO provides intraday IM and SVOP amounts to banks and clearing members.

T: By ____ pm

Banks commit to pay intraday IM and SVOP amounts.

T: Approx. ____ pm

Banks pay intraday IM and SVOP amounts from clearing members to DCO.

T: Approx. ____ pm

Banks pay intraday IM and SVOP amounts from DCO to clearing members.

(10) A description of what happens in the event that there are insufficient funds in a clearing
member’s settlement account;

22

(11) An explanation of how and when Applicant will collect variation margin, whether and
under what circumstances it will collect variation margin on an intraday basis, what will
happen if variation margin is not received in a timely manner, and a proposed variation
margin collection schedule based on changes in market prices;
(12) All the information above, to the extent relevant, for any products cleared that may be
denominated in a foreign currency; and
(13) With respect to physical settlements, identify Applicant’s rules that clearly state each
obligation of Applicant with respect to physical deliveries, and explain how Applicant
intends to identify and manage risks arising from physical settlement.
b.

c.

Recordkeeping – Provide as Exhibit E-2, a full description of the following:
(1)

The nature and quality of the information collected concerning the flow of funds involved
in clearing and settlement; and

(2)

How such information will be recorded, maintained, and accessed.

Relationships with other clearing organizations – Provide as Exhibit E-3, a description of
Applicant’s relationships with other derivatives clearing organizations, clearing agencies,
financial market utilities, or foreign entities that perform similar functions, including how
compliance with the terms and conditions of agreements or arrangements with such other
entities will be satisfied, e.g., any netting or offset arrangements, cross-margining, portfolio
margining, linkage, common banking, common clearing programs or limited guaranty
agreements or arrangements.

EXHIBIT F — TREATMENT OF FUNDS


Attach as Exhibit F, documents that demonstrate compliance with the treatment of funds requirements set
forth in § 39.15 of the Commission’s regulations, including but not limited to:
a.

b.

Safe custody – Provide as Exhibit F-1, documents that demonstrate:
(1)

How Applicant will ensure the safekeeping of funds and assets belonging to clearing
members and their customers in depositories and how Applicant will minimize the risk
of loss or of delay in accessing such funds and assets;

(2)

The depositories that will hold such funds and assets and any written agreements between
or among such depositories, Applicant, or its clearing members regarding the legal status
of the funds and assets and the specific conditions or prerequisites for movement of the
funds and assets; and

(3)

How Applicant will limit the concentration of risk in depositories where such funds and
assets are deposited.

Segregation of customer and proprietary funds and assets – Provide as Exhibit F-2, documents
that demonstrate:
(1)

The appropriate segregation of customer funds and assets and associated
acknowledgment documentation, including the acknowledgment letters required under

23

§§ 1.20 and/or 22.5, as applicable, for each bank or trust company that Applicant will
use for the deposit of customer funds and assets; and
(2)

c.

Requirements or restrictions regarding commingling customer funds and assets with
proprietary funds and assets, obligating customer funds and assets for any purpose other
than to purchase, clear, and settle the products Applicant is clearing, procedures
regarding customer funds and assets which are subject to cross-margin or similar
agreements, and any other aspects of the segregation of customer funds and assets.

Investment standards – Provide as Exhibit F-3, documents that demonstrate:
(1)

Policies and procedures to ensure that funds and assets belonging to clearing members
and their customers would only be invested in instruments with minimal credit, market,
and liquidity risks, and that any investment of customer funds or assets would comply
with the requirements of § 1.25; and

(2)

How Applicant will obtain and keep associated records and data regarding the details of
such investments.

EXHIBIT G — DEFAULT RULES AND PROCEDURES


Attach as Exhibit G, documents that demonstrate compliance with the default rules and procedures
requirements set forth in § 39.16 of the Commission’s regulations, including but not limited to:
a.

Default Management Plan – Applicant must provide a copy of its written default management
plan which must contain all of the information required by § 39.16(b), along with Applicant’s
most recently documented results of a test of its default management plan.

b.

Definition of default – Applicant must describe or otherwise document:

c.

(1)

The events (activities, lapses, or situations) that will constitute a clearing member default;

(2)

What action Applicant can take upon a default and how Applicant will otherwise enforce
the rules applicable in the event of default, including the steps and the sequence of the
steps that will be followed. Identify whether a Default Management Committee exists
and, if so, its role in the default process; and

(3)

An example of a hypothetical default scenario and the results of the default management
process used in the scenario.

Remedial action – Applicant must describe or otherwise document:
(1)

The authority and methods by which Applicant may take appropriate action in the event
of the default of a clearing member which may include, among other things, liquidating
positions, hedging, auctioning, allocating (including any obligations of clearing members
to participate in auctions or to accept allocations), and transferring of customer accounts
to another clearing member (including an explanation of the movement of positions and
collateral on deposit); and

(2)

Actions taken by a clearing member or other events that would put a clearing member on
Applicant’s “watch list” or similar device.

24

d.

Process to address shortfalls – Applicant must describe or otherwise document:
(1)

Procedures for the prompt application of Applicant and/or clearing member financial
resources to address monetary shortfalls resulting from a default;

(2)

How Applicant will make publicly available its default rules including a description of
the priority of application of financial resources in the event of default (i.e., the
“waterfall”); and

(3)

How Applicant will take timely action to contain losses and liquidity pressures and to
continue to meet each obligation of Applicant.

e.

Use of cross-margin programs – Describe or otherwise document, as applicable, how crossmargining programs will provide for fair and efficient means of covering losses in the event of
a default of any clearing member participating in the program.

f.

Customer priority rule – Describe or otherwise document rules and procedures regarding
priority of customer accounts over proprietary accounts of defaulting clearing members and,
where applicable, specifically in the context of specialized margin reduction programs such as
cross-margining or common banking arrangements with other derivatives clearing
organizations, clearing agencies, financial market utilities, or foreign entities that perform
similar functions.

EXHIBIT H — RULE ENFORCEMENT


Attach as Exhibit H, documents that demonstrate compliance with the rule enforcement requirements set
forth in § 39.17 of the Commission’s regulations, including but not limited to:
a.

Surveillance – Describe or otherwise document arrangements and resources for the effective
monitoring of compliance with Applicant’s rules.

b.

Enforcement – Describe or otherwise document:

c.

(1)

Arrangements and resources for enforcing compliance with Applicant’s rules and
addressing instances of non-compliance, including disciplinary tools such as limiting,
suspending, or terminating a clearing member’s access or member privileges; and

(2)

The standards and any procedural protections Applicant will follow in imposing any such
enforcement measure.

Dispute resolution – Describe or otherwise document arrangements and resources for resolution
of disputes between clearing members and Applicant.

EXHIBIT I — SYSTEM SAFEGUARDS


Attach as Exhibit I, documents that demonstrate compliance with the system safeguards requirements set
forth in § 39.18 of the Commission’s regulations, including but not limited to:
a.

A description of Applicant’s program of risk analysis and oversight with respect to its
operations and automated systems. This program must be designed to ensure daily processing,
clearing, and settlement of transactions and address each of the following categories of risk:
(1)

Information security;

25

b.

(2)

Business continuity-disaster recovery planning and resources;

(3)

Capacity and performance planning;

(4)

Systems operations;

(5)

Systems development and quality assurance; and

(6)

Physical security and environmental controls.

An explanation of how Applicant will establish and maintain resources that allow for the
fulfillment of its program of risk analysis and oversight with respect to its operations and
automated systems, and a description of such resources, including:
(1)

A description of how Applicant will periodically verify that its resources are adequate to
ensure daily processing, clearing, and, settlement;

(2)

A demonstration that Applicant’s automated systems are reliable, secure, and have (and
will continue to have) adequate scalable capacity;

(3)

A description of the physical, technological and personnel resources and procedures used
by Applicant as part of its business continuity and disaster recovery plan, and support for
the conclusion that these resources are sufficient to enable the Applicant to resume daily
processing, clearing, and settlement no later than the next business day following a
disruption; and

(4)

A statement identifying which such resources are Applicant’s own resources and which
are provided by a service provider (outsourced). For resources that are outsourced,
provide (i) all contracts governing the outsourcing arrangements, including all schedules
and other supplemental materials, and (ii) a demonstration that Applicant employs
personnel with the expertise necessary to enable them to supervise the service provider’s
delivery of the services.

c.

An explanation of how Applicant will ensure the proper functioning of its systems, including
its program for the periodic objective testing and review of its systems and back-up facilities
(including all of its own and outsourced resources), and verification that all such resources will
work effectively together;

d.

Identification of the persons conducting the testing, including information as to their
qualifications and independence;

e.

A description of Applicant’s emergency procedures, including a copy of its written plan for
business continuity and disaster recovery and a description of how Applicant will coordinate
its business continuity and disaster recovery plan (including testing) with its clearing members
and providers of essential services such as telecommunications, power, and water; and

f.

A description of how Applicant will report exceptional events and planned changes to the
Commission as required by §§ 39.18(g) and 39.18(h).

26

EXHIBIT J — REPORTING


Attach as Exhibit J, documents that demonstrate compliance with the reporting requirements set forth in §
39.19 of the Commission’s regulations, including but not limited to:
a.

A description of how Applicant will make available to Commission staff all the information
Commission staff needs in order to carry out effective oversight, e.g., the internal staff
procedures Applicant will follow to provide such information. If the laws or regulations of any
foreign country in which Applicant is incorporated or organized require any approval(s) by a
foreign regulatory authority with respect to the provision of any information to the Commission,
Applicant must submit evidence that such approval(s) have been obtained.

b.

A representation that the Applicant will submit the information required to satisfy the daily,
quarterly, annual, event-specific, and requested reporting requirements specified in § 39.19(c)
of the Commission’s regulations, in the format and manner and within the time specified by the
Commission.

EXHIBIT K — RECORDKEEPING


Attach as Exhibit K, documents that demonstrate compliance with the recordkeeping requirements set forth
in § 39.20 of the Commission’s regulations, including but not limited to:
a.

Applicant’s recordkeeping and record retention policies and procedures;

b.

The different activities related to the entity as a derivatives clearing organization for which it
must maintain records;

c.

The manner in which records relating to swaps and swap data are gathered and maintained; and

d.

How Applicant will satisfy the performance standards of § 1.31 as applicable to derivatives
clearing organizations, including:

e.

(1)

What “full” or “complete” will encompass with respect to each type of book or record
that will be maintained;

(2)

The form and manner in which books or records will be compiled and maintained with
respect to each type of activity for which such books or records will be kept;

(3)

Confirmation that books and records will be open to inspection by any representative of
the Commission or of the U.S. Department of Justice;

(4)

How long books and records will be readily available and how they will be made readily
available during the first two years; and

How long books and records will be maintained (and confirmation that, in any event, they will
be maintained as required in § 1.31).

EXHIBIT L — PUBLIC INFORMATION


Attach as Exhibit L, documents that demonstrate compliance with the public information requirements set
forth in § 39.21 of the Commission’s regulations, including but not limited to:

27

a.

Applicant’s procedures for making its rulebook, a list of all current clearing members, and all
other information listed in § 39.21(c) readily available to the general public, in a timely manner,
by posting such information on Applicant’s website;

b.

The URLs for Applicant’s website for each item listed in § 39.21(c)(1) through (c)(9).

c.

Any other information routinely made available to the public by Applicant;

d.

How Applicant will make information available to clearing members and market participants
in order to allow such persons to become familiar with Applicant’s procedures before
participating in clearing operations; and

e.

How clearing members will be informed of their specific rights and obligations preceding a
default and upon a default, and of the specific rights, options, and obligations of Applicant
preceding and upon a clearing member’s default.

EXHIBIT M — INFORMATION SHARING


Attach as Exhibit M, documents that demonstrate compliance with the information sharing requirements set
forth in § 39.22 of the Commission’s regulations, including but not limited to:
a.

The appropriate and applicable information sharing agreements to which Applicant is, or
intends to be, a party including any domestic or international information-sharing agreements
or arrangements, whether formal or informal, which involve or relate to Applicant’s operations,
especially as it relates to measuring and addressing counterparty risk;

b.

A description of the types of information expected to be shared and how that information will
be shared;

c.

An explanation as to how information obtained pursuant to any information-sharing agreements
or arrangements would be used to further the objectives of Applicant’s risk management
program and any of its surveillance programs including financial surveillance and continuing
eligibility of its clearing members; and

d.

An explanation as to how Applicant expects to obtain accurate information pursuant to the
information-sharing agreement or arrangement and the mechanisms or procedures which would
allow for timely use and application of all information.

EXHIBIT N — ANTITRUST CONSIDERATIONS


Attach as Exhibit N, documents that demonstrate compliance with the antitrust considerations requirements
set forth in § 39.23 of the Commission’s regulations, including but not limited to policies or procedures to
ensure compliance with the antitrust considerations requirements.

EXHIBIT O — GOVERNANCE


Attach as Exhibit O, documents that demonstrate compliance with the governance fitness standards
requirements set forth in § 39.24 of the Commission’s regulations, including but not limited to:
a.

A copy of:
(1) The charter (or mission statement) of Applicant (if not attached as Exhibit A-8);

28

(2) The charter (or mission statement) of Applicant’s Board of Directors, each committee
composed entirely or in part of members of the Board of Directors (including any
Executive Committee), as well as each other committee that has the authority to amend or
constrain actions of Applicant’s Board of Directors (if not attached as Exhibit A-8);
(3) If another entity “operates” the Applicant, the charter (or mission statement) of such
entity’s Board of Directors (if not attached as Exhibit A-8); and a description of the manner
in which the Applicant will ensure that such entity’s officers, directors, employees, and
agents and such entity’s books and records shall be subject to the authority of the
Commission pursuant to the Act and the Commission’s regulations thereunder; and
(4) An internal organizational chart showing the lines of responsibility and accountability for
each operational unit.
b.

A description of how Applicant’s governance arrangements place a high priority on Applicant’s
safety and efficiency and explicitly support the stability of the broader financial system and
other relevant public interest considerations of clearing members, customers of clearing
members, and other relevant stakeholders;

c.

A description of how the Board of Directors makes certain that Applicant’s design, rules,
overall strategy, and major decisions appropriately reflect the legitimate interests of clearing
members, customers of clearing members, and other relevant stakeholders;

d.

A description of how major decisions of the Board of Directors are clearly disclosed to clearing
members and other relevant stakeholders, and will be disclosed to the Commission, and how
major decisions of the Board of Directors having a broad market impact are clearly disclosed
to the public, to the extent consistent with other statutory and regulatory requirements on
confidentiality and disclosure;

e.

A description of how Applicant’s governance arrangements are disclosed, as appropriate, to
clearing members, customers of clearing members, Applicant’s owners, and the public, and will
be disclosed to the Commission, to the extent consistent with other statutory and regulatory
requirements on confidentiality and disclosure;

f.

A description of how Applicant’s governance arrangements: (1) describe the structure pursuant
to which the Board of Directors, committees, and management operate; (2) include clear and
direct lines of responsibility and accountability; (3) clearly specify the roles and responsibilities
of the Board of Directors and its committees, including the establishment of a clear and
documented risk management framework; and (4) clearly specify the roles and responsibilities
of management;

g.

A description of the procedures pursuant to which Applicant’s Board of Directors oversees
Applicant’s chief risk officer, risk management committee, and material risk decisions;

h.

A description of how Applicant provides risk management, internal control, and internal audit
personnel with sufficient independence, authority, resources, and access to the Board of
Directors so that the operations of Applicant are consistent with its risk management
framework;

i.

A description of how Applicant’s governance arrangements assign responsibility and
accountability for risk decisions, including in crises and emergencies, and assign responsibility

29

for implementing default rules and procedures, system safeguard rules and procedures, and as
applicable, recovery and wind-down plans;
j.

A description of the fitness standards applicable to members of the Board of Directors, members
of any disciplinary committee, clearing members, any other individual or entity with direct
access to settlement or clearing activities, and any party affiliated with any of the above
individuals or entities, including a description or other documentation explaining how
Applicant will collect and verify information that supports compliance with the fitness
standards and how Applicant will enforce compliance with such standards; and

k.

A description of how Applicant will make certain that: (1) its Board of Directors consists of
suitable individuals having appropriate skills and incentives; (2) the performance of the Board
of Directors and individual directors are reviewed on a regular basis; and (3) managers have
the appropriate experience, skills, and integrity necessary to discharge operational and risk
management responsibilities.

EXHIBIT P — CONFLICTS OF INTEREST
 Attach as Exhibit P, documents that demonstrate compliance with the conflicts of interest requirements set
forth in § 39.25 of the Commission’s regulations, including but not limited to:
a.

A description of Applicant’s rules to minimize conflicts of interest in its decision-making
process and how it enforces those rules;

b.

A description of Applicant’s process for resolving such conflicts of interest or for making fair
and non-biased decisions in the event of a conflict of interest; and

c.

A description of Applicant’s procedures for identifying, addressing, and managing conflicts of
interest involving members of its Board of Directors.

EXHIBIT Q — COMPOSITION OF GOVERNING BOARDS
 Attach as Exhibit Q, documents that demonstrate compliance with the composition of governing boards
requirements set forth in § 39.26, including but not limited to documentation describing the composition of
Applicant’s Board of Directors, including the number of market participants.
EXHIBIT R — LEGAL RISK CONSIDERATIONS


Attach as Exhibit R, documents that demonstrate compliance with the legal risk considerations requirements
set forth in § 39.27 of the Commission’s regulations, including but not limited to:
a.

A discussion of how Applicant operates pursuant to a well-founded, transparent, and
enforceable legal framework that addresses each aspect of the activities of Applicant. The
framework must provide for Applicant to act as a counterparty, including, as applicable:
(1)

Novation;

(2)

Netting arrangements;

(3)

Applicant’s interest in collateral (including margin);

(4)

The steps that Applicant can take to address a default of a clearing member, including
but not limited to, the unimpeded ability to liquidate collateral and close out or transfer
positions in a timely manner;

30

b.

(5)

Finality of settlement and funds transfers that are irrevocable and unconditional when
effected (no later than when Applicant’s accounts are debited and credited); and

(6)

Other significant aspects of Applicant’s operations, risk management procedures, and
related requirements.

If Applicant provides, or will provide, clearing services outside the United States, Applicant
must provide a memorandum from local counsel analyzing insolvency issues in the foreign
jurisdiction where Applicant is based, which should describe or otherwise document:
(1)

The manner in which Applicant’s clearing rules and procedures pertaining to customer
funds (“FCM Clearing Rules”) segregate such funds, in accordance with section 4d of
the Act and the Commission’s regulations (“ring-fence”);

(2)

The basis for the conclusion that the arrangements to ring-fence customer funds set
forth in the FCM Clearing Rules would be effective, under any relevant non-U.S. law
or regulation, in the insolvency of a futures commission merchant (“FCM”) clearing
member or of the Applicant itself, including how such customer funds would not,
therefore, form part of the general estate for distribution to the unsecured creditors of
an insolvent FCM clearing member or of the Applicant;

(3)

The basis for the conclusion that the laws of the jurisdiction in which Applicant is
domiciled and the laws of any other relevant jurisdiction (e.g., other jurisdictions in
which customer funds may be held) support the enforceability of the FCM Clearing
Rules;

(4)

The basis for the conclusion that a local court or insolvency official in the jurisdiction
in which Applicant is domiciled (and any other relevant jurisdiction) respect the choice
of U.S. law in governing specific aspects of the FCM Clearing Rules to determine the
extent of rights that Applicant has with respect to customer funds and be bound to
follow the FCM Clearing Rules with respect to customer funds. The memorandum
should explain whether the application of U.S. law to customer funds would contravene
any public policy in the jurisdiction in which Applicant is domiciled (or any other
relevant jurisdiction);

(5)

The basis for the conclusion that the FCM Clearing Rules are enforceable (i.e., the
conclusion that the Applicant may take default action, pursuant to the FCM Clearing
Rules, discretely against each FCM clearing member in respect of FCM customer
accounts without interference from the law of insolvency applicable to the FCM
clearing member or to Applicant); and

(6)

The basis for the conclusion that following the default of an FCM clearing member or
of the Applicant, Applicant will be able to comply with the provisions of the U.S.
Bankruptcy Code and Commission regulations with respect to the pro rata distribution
requirements set forth therein, as well as comply with any relevant order or direction by
a U.S. court (including a bankruptcy court) regarding the distribution of customer
funds.

In all cases, the memorandum must include separate discussions of the legal analysis and
conclusions with respect to: (a) the default of the Applicant, and (b) the default of an FCM
clearing member.

31