(i) Notwithstanding any other provision of this chapter, the Securities and Exchange Commission shall have jurisdiction and authority over security futures as defined in section 3(a)(55) of the Securities Exchange Act of 1934 [
15 U.S.C.
78c (a)(55)], section 77b(a)(16) of title
15, section
80a–2 (a)(52) of title 15, and section
80b–2 (a)(27) of title
15, options on security futures, and persons effecting transactions in security futures and options thereon, and this chapter shall apply to and the Commission shall have jurisdiction with respect to accounts, agreements (including any transaction which is of the character of, or is commonly known to the trade as, an option, privilege, indemnity, bid, offer, put, call, advance guaranty, or decline guaranty), contracts, and transactions involving, and may designate a board of trade as a contract market in, or register a derivatives transaction execution facility that trades or executes, a security futures product as defined in section
1a of this title: Provided, however, That, except as provided in clause (vi) of this subparagraph, no board of trade shall be designated as a contract market with respect to, or registered as a derivatives transaction execution facility for, any such contracts of sale for future delivery unless the board of trade and the applicable contract meet the following criteria:
(I) Except as otherwise provided in a rule, regulation, or order issued pursuant to clause (v) of this subparagraph, any security underlying the security future, including each component security of a narrow-based security index, is registered pursuant to section 12 of the Securities Exchange Act of 1934 [
15 U.S.C.
78l].
(II) If the security futures product is not cash settled, the board of trade on which the security futures product is traded has arrangements in place with a clearing agency registered pursuant to section 17A of the Securities Exchange Act of 1934 [
15 U.S.C.
78q–1] for the payment and delivery of the securities underlying the security futures product.
(III) Except as otherwise provided in a rule, regulation, or order issued pursuant to clause (v) of this subparagraph, the security future is based upon common stock and such other equity securities as the Commission and the Securities and Exchange Commission jointly determine appropriate.
(IV) The security futures product is cleared by a clearing agency that has in place provisions for linked and coordinated clearing with other clearing agencies that clear security futures products, which permits the security futures product to be purchased on a designated contract market, registered derivatives transaction execution facility, national securities exchange registered under section 6(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78f (a)], or national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78o–3 (a)] and offset on another designated contract market, registered derivatives transaction execution facility, national securities exchange registered under section 6(a) of the Securities Exchange Act of 1934, or national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934.
(V) Only futures commission merchants, introducing brokers, commodity trading advisors, commodity pool operators or associated persons subject to suitability rules comparable to those of a national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78o–3 (a)] solicit, accept any order for, or otherwise deal in any transaction in or in connection with the security futures product.
(VI) The security futures product is subject to a prohibition against dual trading in section
6j of this title and the rules and regulations thereunder or the provisions of section 11(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78k (a)] and the rules and regulations thereunder, except to the extent otherwise permitted under the Securities Exchange Act of 1934 [
15 U.S.C.
78a et seq.] and the rules and regulations thereunder.
(VII) Trading in the security futures product is not readily susceptible to manipulation of the price of such security futures product, nor to causing or being used in the manipulation of the price of any underlying security, option on such security, or option on a group or index including such securities;
(VIII) The board of trade on which the security futures product is traded has procedures in place for coordinated surveillance among such board of trade, any market on which any security underlying the security futures product is traded, and other markets on which any related security is traded to detect manipulation and insider trading, except that, if the board of trade is an alternative trading system, a national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78o–3 (a)] or national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78f (a)] of which such alternative trading system is a member has in place such procedures.
(IX) The board of trade on which the security futures product is traded has in place audit trails necessary or appropriate to facilitate the coordinated surveillance required in subclause (VIII), except that, if the board of trade is an alternative trading system, a national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78o–3 (a)] or national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78f (a)] of which such alternative trading system is a member has rules to require such audit trails.
(X) The board of trade on which the security futures product is traded has in place procedures to coordinate trading halts between such board of trade and markets on which any security underlying the security futures product is traded and other markets on which any related security is traded, except that, if the board of trade is an alternative trading system, a national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78o–3 (a)] or national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 [
15 U.S.C.
78f (a)] of which such alternative trading system is a member has rules to require such coordinated trading halts.
(XI) The margin requirements for a security futures product comply with the regulations prescribed pursuant to section 7(c)(2)(B) of the Securities Exchange Act of 1934 [
15 U.S.C.
78g (c)(2)(B)], except that nothing in this subclause shall be construed to prevent a board of trade from requiring higher margin levels for a security futures product when it deems such action to be necessary or appropriate.
(ii) It shall be unlawful for any person to offer, to enter into, to execute, to confirm the execution of, or to conduct any office or business anywhere in the United States, its territories or possessions, for the purpose of soliciting, or accepting any order for, or otherwise dealing in, any transaction in, or in connection with, a security futures product unless
(I) the transaction is conducted on or subject to the rules of a board of trade that
(aa) has been designated by the Commission as a contract market in such security futures product; or
(bb) is a registered derivatives transaction execution facility for the security futures product that has provided a certification with respect to the security futures product pursuant to clause (vii);
(II) the contract is executed or consummated by, through, or with a member of the contract market or registered derivatives transaction execution facility; and
(III) the security futures product is evidenced by a record in writing which shows the date, the parties to such security futures product and their addresses, the property covered, and its price, and each contract market member or registered derivatives transaction execution facility member shall keep the record for a period of 3 years from the date of the transaction, or for a longer period if the Commission so directs, which record shall at all times be open to the inspection of any duly authorized representative of the Commission.
(iv)
(I) All relevant records of a futures commission merchant or introducing broker registered pursuant to section
6f (a)(2) of this title, floor broker or floor trader exempt from registration pursuant to section
6f (a)(3) of this title, associated person exempt from registration pursuant to section
6k (6) of this title, or board of trade designated as a contract market in a security futures product pursuant to section
7b–1 of this title shall be subject to such reasonable periodic or special examinations by representatives of the Commission as the Commission deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter, and the Commission, before conducting any such examination, shall give notice to the Securities and Exchange Commission of the proposed examination and consult with the Securities and Exchange Commission concerning the feasibility and desirability of coordinating the examination with examinations conducted by the Securities and Exchange Commission in order to avoid unnecessary regulatory duplication or undue regulatory burdens for the registrant or board of trade.
(II) The Commission shall notify the Securities and Exchange Commission of any examination conducted of any futures commission merchant or introducing broker registered pursuant to section
6f (a)(2) of this title, floor broker or floor trader exempt from registration pursuant to section
6f (a)(3) of this title, associated person exempt from registration pursuant to section
6k (6) of this title, or board of trade designated as a contract market in a security futures product pursuant to section
7b–1 of this title, and, upon request, furnish to the Securities and Exchange Commission any examination report and data supplied to or prepared by the Commission in connection with the examination.
(III) Before conducting an examination under subclause (I), the Commission shall use the reports of examinations, unless the information sought is unavailable in the reports, of any futures commission merchant or introducing broker registered pursuant to section
6f (a)(2) of this title, floor broker or floor trader exempt from registration pursuant to section
6f (a)(3) of this title, associated person exempt from registration pursuant to section
6k (6) of this title, or board of trade designated as a contract market in a security futures product pursuant to section
7b–1 of this title that is made by the Securities and Exchange Commission, a national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934 (
15 U.S.C.
78o–3 (a)), or a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (
15 U.S.C.
78f (a)).
(IV) Any records required under this subsection for a futures commission merchant or introducing broker registered pursuant to section
6f (a)(2) of this title, floor broker or floor trader exempt from registration pursuant to section
6f (a)(3) of this title, associated person exempt from registration pursuant to section
6k (6) of this title, or board of trade designated as a contract market in a security futures product pursuant to section
7b–1 of this title, shall be limited to records with respect to accounts, agreements, contracts, and transactions involving security futures products.
(v)
(I) The Commission and the Securities and Exchange Commission, by rule, regulation, or order, may jointly modify the criteria specified in subclause (I) or (III) of clause (i), including the trading of security futures based on securities other than equity securities, to the extent such modification fosters the development of fair and orderly markets in security futures products, is necessary or appropriate in the public interest, and is consistent with the protection of investors.
(II) The Commission and the Securities and Exchange Commission, by order, may jointly exempt any person from compliance with the criterion specified in clause (i)(IV) to the extent such exemption fosters the development of fair and orderly markets in security futures products, is necessary or appropriate in the public interest, and is consistent with the protection of investors.