17 CFR Appendix E to Part 40: Appendix E to Part 40—Guidance on Compliance With the Materiality Assessment in § 40.4

This appendix provides guidance on complying with the requirement in § 40.4(a) that a DCM must submit rule changes that would materially change a term or condition of a contract on an agricultural product enumerated in section 1a(9) of the CEA with open interest for Commission approval under the procedures of § 40.5. Section 40.4(a) applies strictly to rules that materially change a product's economic terms and conditions, and does not apply to other rules. Guidance is set forth below to assist a DCM in assessing whether a change to the terms and conditions is material pursuant to § 40.4(a) and in explaining why it considers a rule to be non-material when § 40.4(b)(5) is applicable. The guidance below can be used to demonstrate to the Commission compliance with the requirement in § 40.4(b)(5)(ii) that the DCM explain why it considers a rule to be non-material when applicable.

Materiality of a Change of a Term or Condition

Any change that is enumerated by the Commission in § 40.4(b)(1) through (4) is not material for purposes of § 40.4(a) and may be submitted under the applicable § 40.6 provision that is specified in the applicable § 40.4(b). For any other rule that the DCM believes to be non-material, § 40.4(b)(5) sets forth a process for the DCM to implement the change through self-certification pursuant to § 40.6(a).

In order for a DCM to self-certify a change to a term or condition of a contract on an agricultural product enumerated in CEA section 1a(9) with open interest that the DCM believes to be non-material, § 40.4(b)(5) requires the DCM to make a non-materiality filing and explain why it considers the rule change to be “non-material.” To assist an exchange in assessing and explaining whether a change to the terms and conditions is non-material pursuant to § 40.4(b)(5), paragraphs (1) through (4) of the following paragraph are the criteria that the Commission generally considers as evidence that an enumerated agricultural product rule change is non-material under § 40.4(a) pursuant to § 40.4(b)(5). A DCM may address these criteria in its assessment and explanation to demonstrate compliance with § 40.4(b)(5).

The Commission considers a change to the terms and conditions of a contract on an agricultural product enumerated in CEA section 1a(9) that has open interest as a non-material change if:

(1) The change should not affect a reasonable trader's decision to enter into, or maintain, a position;

(2) The change should not affect a reasonable trader's decision to make or take delivery on the contract or to exercise an option on the contract; and

(3) The change should not have an effect on the value of existing positions, including, but not limited to, a change affecting the price of the contract due to a change in the commodity quality characteristics of the existing contract, a change to the size of the existing contract, or a change to a cost of effecting delivery for the existing contract.