The US Commodity Futures Trading Commission has proposed a regulatory framework for managing conflicts arising from affiliations among futures commission merchants, swap execution facilities, designated contract markets and derivatives clearing organizations. The proposal would replace uneven voluntary practices with baseline requirements covering regulatory independence, financial oversight, public disclosure and the handling of nonpublic information. Swap execution facilities, designated contract markets and derivatives clearing organizations would have to implement safeguards addressing relationships with affiliated market participants, including limits on shared staff, technology, office space and nonpublic information. The framework would impose additional requirements on designated contract markets with affiliated principal trading firms, including a proposed prohibition and a conditional exception for affiliated market makers. It would also address governance and disciplinary arrangements, as well as conflicts involving affiliated clearing members. For futures commission merchant oversight, a self-regulatory organization with an affiliated merchant would need separate reporting lines for staff performing regulatory functions and could not serve as the merchant’s designated self-regulatory organization. Futures commission merchants would face strengthened disclosure requirements for affiliations with trading venues or clearing organizations and could select their designated self-regulatory organization subject to conditions. Comments are due 60 days after the proposal is published in the Federal Register.

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