Appendix D to Part 30 - Commission Certification With Respect to Foreign Futures and Options Contracts on a Non-Narrow-Based Security Index
17:1.0.1.1.23.0.7.14.25 : Appendix D
Appendix D to Part 30 - Commission Certification With Respect to
Foreign Futures and Options Contracts on a Non-Narrow-Based
Security Index
In its analysis of a request for certification by a foreign
board of trade relating to a security index futures contract traded
on that foreign board of trade pursuant to § 30.13, the Commission
will evaluate the contract to ensure that it complies with the
three criteria of section 2(a)(1)(C)(ii) of the Act.
(1) Because security index futures contracts are cash settled,
the Commission also evaluates the contract terms and conditions
relating to cash settlement. In that regard, the Commission
examines, among other things, whether the cash price series is
reliable, acceptable, publicly available and timely; that the cash
settlement price is reflective of the underlying cash market; and
that the cash settlement price is not readily susceptible to
manipulation. In making its determination, the Commission considers
the design and maintenance of the index, the method of index
calculation, the nature of the component security prices used to
calculate the index, the breadth and frequency of index
dissemination, and any other relevant factors.
(2) In considering the susceptibility of an index to
manipulation, the Commission examines several factors, including
the structure of the primary and secondary markets for the
component equities, the liquidity of the component stocks, the
method of index calculation, the total capitalization of stocks
underlying the index, the number, weighting and capitalization of
individual stocks in the index, and the existence of surveillance
sharing agreements between the board of trade and the securities
exchange(s) on which the underlying securities are traded.
(3) To verify that the index is not narrow-based, the Commission
considers the number and weighting of the component securities and
the aggregate value of average daily trading volume of the lowest
weighted quartile of securities. Under the Act, a security index is
narrow-based if it meets any one of the following criteria:
(i) The index is composed of fewer than 10 securities;
(ii) Any single security comprises more than 30% of the total
index weight;
(iii) The five largest securities comprise more than 60% of the
total index weight; or
(iv) The lowest-weighted securities that together account for
25% of the total weight of the index have an aggregate dollar value
of average daily trading volume of less than US$30 million (or
US$50 million if the index includes fewer than 15 securities).
[76 FR 59245, Sept. 26, 2011]