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CFTC Requires Exchanges to Install Public Directors, Oversight Committees

The Commodity Futures Trading Commission (CFTC) released new requirements Thursday that futures exchanges install "public" directors -- excluding exchange members, employees and officers -- to their boards and disciplinary panels and to create new regulatory oversight committees made up entirely of public directors.

The increased public representation at key levels of decision making is designed to enable exchanges to better manage and minimize conflicts arising from changing ownership structures, increased sources of competition and the inherent tension between their regulatory and commercial functions, the agency said.

"Today's initiative raises the bar for exchange governance," CFTC Chairman Reuben Jeffery said. "The measures adopted today by the commission will further public confidence in the futures markets, which play an essential role in both the U.S. and global economy.

"A robust governance structure, with an increased presence of independent directors in the boardroom, empowers exchanges to promote market integrity and customer protection. We appreciate the important insights provided by various participants during the development of these guidelines."

The new board composition standards are part of a set of "acceptable practices" issued by the commission as a voluntary safe harbor for compliance with "Core Principle 15," a provision of the Commodity Exchange Act that requires exchanges to minimize conflicts of interest in their decision-making processes. The commission is granting existing exchanges a phase-in period of two years or two board election cycles, whichever comes first, to implement the acceptable practices or otherwise demonstrate full compliance with Core Principle 15. Exchanges that do not comply with the safe harbor afforded by the commission's guidance must demonstrate to the commission how they otherwise comply with the requirement to minimize conflicts.

The four-part acceptable practices call for exchange boards to consist of at least 35% public directors. They also call upon each exchange to establish a board-level regulatory oversight committee (ROC), composed entirely of public directors, to oversee the exchange's performance of its day-to-day self-regulatory functions. In addition, they call on each exchange disciplinary panel to have at least one public member.

Nymex CEO James E. Newsome said, "Looking toward our May board of directors elections, we look forward to working with the CFTC to ensure that Nymex will be compliant with all CFTC guidelines." Three of the current 15 members on Nymex's board are public directors.

The acceptable practices will be effective 30 days after publication in the Federal Register.

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