CFTC Grants No-Action Relief to DCM/DCO from Binary Options Reporting Rules

In a no action letter, the CFTC Divisions of Market Oversight ("DMO") and Clearing and Risk ("DCR") granted the Chicago Mercantile Exchange ("CME") relief from specific swap data reporting and recordkeeping requirements binary options contracts listed and cleared under its rules. 

CME is both a designated contract market ("DCM") and a registered derivatives clearing organization ("DCO"). The Divisions explained that the applicable contracts concern "DCM listed binary options with characteristics similar to other exchange-listed products," including standardization, fungibility, central trading and premium-style margining.

Under No-Action Letter 25-23, the Divisions said they will not pursue enforcement action against CME (or its participants) for failure to comply with reporting and recordkeeping requirements under CFTC Rules 38.8(b) ("Listing of swaps on a designated contract market"), 38.10 ("Reporting of swaps traded on a designated contract market") and 38.951 ("Boards of trade operating both a designated contract market and a swap execution facility")—but only to the extent that Rule 38.951 requires compliance with Part 45—as well as Rule 39.20(b)(2) ("Recordkeeping"), and Parts 43 ("Real-Time Public Reporting") and 45 ("Swap Data Recordkeeping and Reporting Requirements") of the Commission's regulations.

The no-action relief is conditioned upon: (i) all contracts being fully margined, (meaning CME must hold both the full long option value and the full notional value for the short position holder until contract expiry); (ii) exclusive clearing of all contracts through CME; (iii) timely publication of time and sales data (including timestamp, contract, quantity and price) on the CME's website; (iv) the CME must provide transactional data to the CFTC in accordance with Regulation 16.02; (v) the CME must continue to comply with all swap data reporting and recordkeeping requirements of the Commodity Exchange Act and Commission Regulations; and (vi) CME must maintain and produce required records upon request by the CFTC, the Department of Justice, or other authorized regulators.