CFTC Proposes Governance and Conflict Standards for Regulated Markets

The CFTC proposed new rules and amendments establishing governance and fitness requirements with respect to market regulation functions and conflict of interest standards at Designated Contract Markets ("DCMs") and Swap Execution Facilities ("SEFs").

The proposal would:

• require individuals on boards of directors, committees and disciplinary panels to disclose any conflicts of interest and to recuse themselves from voting on matters as to which they have a conflict;
• prohibit trading by an individual that is an employee or otherwise associated with an SEF or DCM from trading on the basis of material nonpublic information;
• require at least 35% of the members of an SEF's Board of Directors be "public directors" and requires that all members of an SEF's Regulatory Oversight Committee be public directors; and
• require each DCM to establish the position of a Chief Regulatory Officer; and requires that the CCO of each SEF report directly either to the SEF's Board of Directors or to its senior officer.

Commissioner Christy Goldsmith Romero criticized the proposed rule for not tackling the issues of vertically integrated market structures, despite concerns expressed by the White House and the Financial Stability Oversight Council. Commissioner Romero said she considered the rule to be a "baseline minimum, largely codifying existing guidance, extending it to swap execution facilities, and adding a few additional requirements."

Commissioner Kristin N. Johnson described the proposal as "materially incomplete," saying it "ignores conflicts of interest in novel segments of our markets where the Commission lacks visibility and the market lacks the benefit of robust regulatory oversight."

Comments are due by April 22, 2024.