Staff of the Division of Clearing and Risk (“DCR”), Division of Market Oversight (“DMO”), and Market Participants Division (“MPD”) (collectively, the “Divisions”) of the Commodity Futures Trading Commission (“CFTC” or...

Summary: Staff of the Division of Clearing and Risk (“DCR”), Division of Market Oversight (“DMO”), and Market Participants Division (“MPD”) (collectively, the “Divisions”) of the Commodity Futures Trading Commission (“CFTC” or “Commission”) are issuing this advisory to set forth CFTC staff’s expectations with respect to, designated contract markets (“DCMs”), swap execution facilities (“SEFs”), and derivatives clearing organizations (“DCOs”) who are seeking to extend trading and/or clearing operations to a 24 hours a day, 7 days a week (“24/7”) basis as well as futures commission merchants (“FCMs”) seeking to intermediate such operations on a 24/7 basis. This staff advisory is informational and does not create new obligations on registered entities, nor does it supersede the Commodity Exchange Act (“CEA”) or Commission regulations thereunder.

CFTC Letter No. 26-16 Advisories May 29, 2026

UNITED STATES

COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

Staff Advisory

Division of Clearing and Risk

Division of Market Oversight

Market Participants Division

To: Derivatives Clearing Organizations, Designated Contract Markets, Swap Execution

Facilities, and Futures Commission Merchants

Subject: Staff Advisory for Extending Trading and/or Clearing Operations to a 24 hours-a-day, 7

days-a-week Basis

I. Introduction

Staff of the Division of Clearing and Risk (“DCR”), Division of Market Oversight

(“DMO”), and Market Participants Division (“MPD”) (collectively, the “Divisions”) of the

Commodity Futures Trading Commission (“CFTC” or “Commission”) are issuing this advisory

to set forth CFTC staff’s expectations with respect to, designated contract markets (“DCMs”),

swap execution facilities (“SEFs”), and derivatives clearing organizations (“DCOs”) who are

seeking to extend trading and/or clearing operations to a 24 hours-a-day, 7 days-a-week (“24/7”)

basis as well as futures commission merchants (“FCMs”) seeking to intermediate such operati

issuing this advisory

to set forth CFTC staff’s expectations with respect to, designated contract markets (“DCMs”),

swap execution facilities (“SEFs”), and derivatives clearing organizations (“DCOs”) who are

seeking to extend trading and/or clearing operations to a 24 hours-a-day, 7 days-a-week (“24/7”)

basis as well as futures commission merchants (“FCMs”) seeking to intermediate such operations

on a 24/7 basis.1 This staff advisory is informational and does not create new obligations on

registered entities, nor does it supersede the Commodity Exchange Act (“CEA”)2 or Commission

regulations thereunder.

Commission staff will engage in a detailed review of any plans, and associated analysis,

to determine whether the extension of market hours complies with the CEA and Commission

regulations thereunder. As such, Commission staff recommend that any DCMs, SEFs, or DCOs

considering 24/7 trading or associated clearing operations for specific products or markets, and

FCMs seeking to intermediate such operations, engage with Commission staff beforehand.

1 Trading and clearing on a “24/7 basis” may have a number of interpretations. In this document, we will use, as a

general definition, trading that is active for the vast majority of weekend and holiday hours and associated clearing.

2 7 U.S.C. 1 et seq.

2

II. Background

In recent years, the Divisions have seen an increased interest in the trading, associated

clearing operations, and settlement of financial products on a continuous, or near-continuous

basis. The ability to engage in, and maintain, markets on a 24/7 basis has been, in part,

paralleled by evolutions in market technologies, such as blockchain networks and decentralized

infrastructure, alternate forms of collateral, including stablecoins and crypto assets, and market

accessibility through smartphones and associated software applications

ucts on a continuous, or near-continuous

basis. The ability to engage in, and maintain, markets on a 24/7 basis has been, in part,

paralleled by evolutions in market technologies, such as blockchain networks and decentralized

infrastructure, alternate forms of collateral, including stablecoins and crypto assets, and market

accessibility through smartphones and associated software applications. With this evolution, an

increasing number of platforms, with a growing list of tradeable products, are providing 24/7

access to retail and institutional participants.

Historically, U.S. derivatives markets have allowed participants the ability to trade

futures and swaps on weekdays, but not on weekends. In practice, many derivative contracts

now trade for roughly 23 hours on each weekday, and participants may receive collateral calls

once or multiple times on each of those days, but not on Saturdays, Sundays, or certain holidays.

In recent years, the interest in, and growth of, 24/7 trading in other financial markets has started

to shift to regulated derivatives.

Because of inherent differences between underlying markets, switching to 24/7 trading

and clearing may not currently be suitable for all asset classes. For example, derivatives

referencing crypto assets may be well-suited for 24/7 trading due to their digital infrastructure

and global reach, while other derivatives markets, such as in agricultural products, may be less

suited for 24/7 trading due to their unique customer bases, regional nature, and the specialized

trading and hedging practices in those markets. Given these distinctions, DCMs, SEFs, and

DCOs should consider market needs, the trading characteristics of the underlying markets,

specific contract features and design, and the potential implications for risk management,

clearing, and trading activities when considering a transition to 24/7 trading, clearing, and

settlement

nd the specialized

trading and hedging practices in those markets. Given these distinctions, DCMs, SEFs, and

DCOs should consider market needs, the trading characteristics of the underlying markets,

specific contract features and design, and the potential implications for risk management,

clearing, and trading activities when considering a transition to 24/7 trading, clearing, and

settlement.

Therefore, Commission staff believes that an advisory, outlining the potential risks

associated with 24/7 trading, clearing, and settlement, and the ways in which these risks are

addressed by current Commission regulations, may help promote continued market robustness,

along with responsible innovation and fair competition among market participants.3 This

advisory provides an overview of Commission staff’s current views on extensions of current

market activity to a 24/7 basis, and how this thinking may or can depend on the relevant

products, operational systems and infrastructure, or eligible collateral types.

3 7 U.S.C. § 5(b).

3

III. Trading

Under the CEA and Commission regulations, DCMs and SEFs must comply with Core

Principles that are intended to promote market integrity and protect market participants. To

satisfy their obligations under the Core Principles, DCMs and SEFs must, among other things,

implement risk controls, conduct real-time market monitoring, establish system safeguards, and

maintain sufficient compliance staff and resources. Additionally, they are required to prevent

manipulation, price distortion, and disruptions of the delivery or cash settlement process through

robust market surveillance, compliance, and enforcement (or disciplinary) practices and

procedures.

A

implement risk controls, conduct real-time market monitoring, establish system safeguards, and

maintain sufficient compliance staff and resources. Additionally, they are required to prevent

manipulation, price distortion, and disruptions of the delivery or cash settlement process through

robust market surveillance, compliance, and enforcement (or disciplinary) practices and

procedures.

A. Settlement Process

DMO staff believe DCMs and SEFs should avoid offering contracts that settle during off-

peak periods, such as overnight and weekends in the underlying market, which may result in

manipulation, disruptions of the settlement process, as well as trading, market, and pricing

disruptions or distortions.4

B. Real-Time Monitoring and Risk Controls

DCMs and SEFs are expected to play a key role in addressing conditions that are, or

threaten to be, disruptive to its markets. Among other things, DCMs and SEFs are required to

have in place surveillance, compliance and enforcement/disciplinary practices and procedures—

including methods for conducting real-time monitoring of trading—to monitor trading in

derivatives, in order to prevent manipulation, price distortion and disruptions of the delivery or

cash-settlement process.5 DCMs and SEFs also must establish and maintain risk control

mechanisms to prevent and reduce the potential risk of market disruptions, including, but not

limited to, market restrictions that pause or halt trading under market conditions prescribed by

the DCM or SEF, or other additional risk controls as may be needed or appropriate.6 Further,

DCMs and SEFs must maintain robust market surveillance for abusive trading practices,

including front-running, wash trading, pre-arranged trading, and any other manipulative or

disruptive trading practices prohibited by the CEA.7

4 See 7 U.S.C. 7(d)(3); 7 U.S.C. 7b-3(f)(3); 17 CFR §§ 37.300-301; and 17 CFR §§ 38.200-201

er additional risk controls as may be needed or appropriate.6 Further,

DCMs and SEFs must maintain robust market surveillance for abusive trading practices,

including front-running, wash trading, pre-arranged trading, and any other manipulative or

disruptive trading practices prohibited by the CEA.7

4 See 7 U.S.C. 7(d)(3); 7 U.S.C. 7b-3(f)(3); 17 CFR §§ 37.300-301; and 17 CFR §§ 38.200-201. For example,

Appendix C to Part 38 states “[w]here a [DCM] itself generates the cash settlement price series, the designated

contract market should establish calculation procedures that safeguard against potential attempts to artificially

influence the price. For example, if the cash settlement price is derived by the [DCM] based on a survey of cash

market sources, the [DCM] should maintain a list of such entities which all should be reputable sources with

knowledge of the cash market. In addition, the sample of sources polled should be representative of the cash

market, and the poll should be conducted at a time when trading in the cash market is active.” 17 CFR § 38

Appendix C.

5 See 7 U.S.C. 7(d)(4); 7 U.S.C. 7b-3(f)(4); 17 CFR § 37.203; 17 CFR §§ 37.400-401; 17 CFR §§ 38.250-251; 17

CFR § 38.155; and 17 CFR § 38.157.

6 17 CFR § 37.405; 17 CFR § 38.251.

7 17 CFR § 37.200; 17 CFR § 37.203; 17 CFR § 37.401; 17 CFR § 38.150; 17 CFR § 38.152; 17 CFR § 38.155; and

17 CFR § 38.250.

4

DMO staff believes that extending trading hours to a 24/7 schedule for certain markets or

products could potentially result in reduced liquidity, increased volatility, widened bid/ask

spreads, and, as a result, create greater opportunities for market manipulation

7 17 CFR § 37.200; 17 CFR § 37.203; 17 CFR § 37.401; 17 CFR § 38.150; 17 CFR § 38.152; 17 CFR § 38.155; and

17 CFR § 38.250.

4

DMO staff believes that extending trading hours to a 24/7 schedule for certain markets or

products could potentially result in reduced liquidity, increased volatility, widened bid/ask

spreads, and, as a result, create greater opportunities for market manipulation. As such, when

extending trading hours to 24/7 for a particular product or market, DCMs and SEFs must

demonstrate that they are able to effectively conduct real-time monitoring and maintain robust

market surveillance for abusive trading practices of the product or market that is trading under a

24/7 schedule because of the inherent risks of a thinly traded market. Further, DCMs and SEFs

must be able to demonstrate that they have adopted effective risk control mechanisms to prevent

and reduce the potential risk of market disruptions that may be present in a 24/7 trading

environment.

C. System Safeguards

DCMs and SEFs must ensure reliability and integrity of their trading platforms at all

times.8 In particular, DCMs and SEFs must establish and maintain a program of risk analysis

and oversight to identify and minimize sources of operational risk, through the development of

appropriate controls and procedures, and the development of automated systems that are reliable,

secure, and have adequate scalable capacity.9 Further, DCMs and SEFs must conduct regular,

periodic, objective testing and review of their automated systems to ensure that they are reliable,

secure, and have adequate scalable capacity.10 Finally, SEFs and DCMs must maintain business-

continuity disaster recovery plans that are subject to regular, periodic, objective testing, and

review.11

24/7 trading presents additional challenges for system safeguards, primarily due to the

need for uninterrupted reliability and integrity of trading platforms

to ensure that they are reliable,

secure, and have adequate scalable capacity.10 Finally, SEFs and DCMs must maintain business-

continuity disaster recovery plans that are subject to regular, periodic, objective testing, and

review.11

24/7 trading presents additional challenges for system safeguards, primarily due to the

need for uninterrupted reliability and integrity of trading platforms. With markets operating

continuously, automated systems must be constantly monitored and regularly tested to ensure

they remain secure and scalable under varying loads, including off-peak hours when staffing and

oversight may be reduced. As a result, there may be an increased risk of operational failures,

cyber threats, and system outages, requiring robust business continuity and disaster recovery

plans that can respond swiftly to incidents at any time.

In addition to these monitoring and testing obligations, DCMs and SEFs must also

address the increased system-design demands created by continuous operations. Core systems

should be designed for high availability and resilience, including the elimination of single points

of failure, the use of redundant infrastructure, real-time data synchronization, and ongoing

validation of component-level availability. DCMs and SEFs should further maintain duplicate or

parallel production environments that support rolling upgrades, live cutovers, and back-out

procedures, in accordance with generally accepted best practices.

8 See U.S.C. 7(d)(20); 7 U.S.C. 7b-3(f)(14); 17 CFR §§ 37.1400-1401; 17 CFR §§ 38.1050-1051.

9 Id.

10 Id.

11 Id.

nization, and ongoing

validation of component-level availability. DCMs and SEFs should further maintain duplicate or

parallel production environments that support rolling upgrades, live cutovers, and back-out

procedures, in accordance with generally accepted best practices.

8 See U.S.C. 7(d)(20); 7 U.S.C. 7b-3(f)(14); 17 CFR §§ 37.1400-1401; 17 CFR §§ 38.1050-1051.

9 Id.

10 Id.

11 Id.

5

D. Compliance Staffing and Resources

DCMs and SEFs must both establish and maintain adequate compliance staff and

resources to conduct effective audit trail reviews, trade practice surveillance, market

surveillance, and real-time market monitoring.12 Compliance teams must be sufficiently

resourced not only to handle unusual market or trading events as they arise but also to conduct

and complete investigations promptly.13 DMO staff notes that maintaining adequate real-time

surveillance and compliance coverage during overnight and weekend periods may strain

resources and complicate the timely identification and mitigation of emerging risks. Further,

DCMs and SEFs that use a regulatory service provider must ensure that the provider has the

capacity and resources necessary to provide timely and effective regulatory services, including

adequate staff and automated surveillance systems.14

In order to support 24/7 trading, DCMs and SEFs should implement additional

compliance measures designed to address the unique challenges associated with expanded

trading hours. These measures include increasing compliance staffing and resources to ensure

adequate coverage and real-time, continuous monitoring, updating procedures to reflect the

demands of continuous operations, and establishing new operational protocols specifically

tailored to mitigate risks and maintain market integrity in a 24/7 trading environment.

IV. Clearing

Even where 24/7 markets provide continuous access to trading platforms, associated

clearing systems may, or may not, operate on a different schedule

tinuous monitoring, updating procedures to reflect the

demands of continuous operations, and establishing new operational protocols specifically

tailored to mitigate risks and maintain market integrity in a 24/7 trading environment.

IV. Clearing

Even where 24/7 markets provide continuous access to trading platforms, associated

clearing systems may, or may not, operate on a different schedule. In some instances, clearing

operations, and associated processes, overlap with those of the trading platform; collateral calls,

and the accompanying movement of collateral from participant to DCO, or between participants,

also occurs on a 24/7 basis. In other instances, clearing operations are more closely aligned with

traditional market hours, with collateral calls/payments only occurring during weekday sessions.

Distinctions between these clearing models, and the resulting risks they may present, are

discussed in more detail below. In either case, however, under the CEA, a DCO is required to

manage its risks. Similar to DCMs and SEFs, DCOs are subject to Core Principles, which make

DCOs responsible not only for risk management generally (see Core Principle D(i))15, but also

for more specific requirements covering the setting and collection of margin (which “shall be

12 17 CFR § 37.203; 17 CFR §§ 38.154-155.

13 Id.

14 17 CFR § 37.204; 17 CFR § 38.154. DCMs and SEFs remain responsible for the performance of any regulatory

services received, for compliance with their obligations under the Act and Commission regulations, and for the

regulatory service provider's performance on its behalf. Id.

15 7 U.S.C. 7a-1(c)(2)(D)(i). “Each [DCO] shall ensure that the [DCO] possesses the ability to manage the risks

associated with discharging the responsibilities of the [DCO] through the use of appropriate tools and procedures.”).

s received, for compliance with their obligations under the Act and Commission regulations, and for the

regulatory service provider's performance on its behalf. Id.

15 7 U.S.C. 7a-1(c)(2)(D)(i). “Each [DCO] shall ensure that the [DCO] possesses the ability to manage the risks

associated with discharging the responsibilities of the [DCO] through the use of appropriate tools and procedures.”).

6

sufficient to cover potential exposures in normal market conditions,” Core Principle D(iv))16, and

maintenance of sufficient financial resources to withstand a default (Core Principle B).17

In evaluating whether extending market access to a 24/7 basis would remain consistent

with the CEA and Commission regulations thereunder, DCR staff will consider, among other

things, the potential effects of 24/7 trading operations on the DCO’s clearing, margin, settlement

arrangements; system safeguards; market-integrity controls; and staffing and governance. DCOs

proposing new or amended clearing processes to facilitate 24/7 trading should, where relevant,

address the following areas, to inform Staff’s review.

A. Clearing, Margining, and Settlement Design

As noted above, extended trading hours may or may not be paired with a similar

extension of hours for clearing services. Extended trading hours may mean any one of the

following for clearing:

1. Collateral calls continue to only be made during traditional market hours

2. Participants can opt into posting collateral during weekend hours

3. Participants are required to post collateral during weekend hours

Current 24/7 trading in U.S. derivatives markets falls in the first of these categories. This

approach may reflect operational frictions related to the movement of certain collateral types

over the weekend, as well as concerns that imposing collateral calls over the weekend may place

undue liquidity demands on market participants

rticipants are required to post collateral during weekend hours

Current 24/7 trading in U.S. derivatives markets falls in the first of these categories. This

approach may reflect operational frictions related to the movement of certain collateral types

over the weekend, as well as concerns that imposing collateral calls over the weekend may place

undue liquidity demands on market participants.

Where collateral continues to be collected only during traditional market hours, a DCO

must still demonstrate sufficient financial resources and liquidity to meet obligations

continuously, including over multi-day bank closures, as required by the DCO’s Core Principle B

obligations (Financial Resources).18 Given this, DCOs should evaluate the impacts caused by a

divergence between trading and clearing frequencies on areas including risk tolerances, stress

scenarios, and participant behavior, and explain to the Commission any mitigants implemented

to ensure that they are still meeting this core principle (e.g., adjusting the size of the guarantee

fund, or to margin calibrations, in response to novel risks posed by weekend trading).

Similarly, regulations related to DCO Core Principle D (Risk Management) highlight the

need for the DCO to ensure initial margin requirements consider unique risks associated with a

given product or portfolio19—which may speak to the value of, or need for, pre-funding of initial

margin, or additional liquidity buffers for initial margin associated with positions entered into

16 7 U.S.C. 7a-1(c)(2)(D)(i).

17 7 U.S.C. 7a-1(c)(2)(B).

18 Id.

19 Specifically, Commission Regulation 39.13(g)(2)(i) states that “[a DCO] shall have initial margin requirements

that are commensurate with the risks of each product and portfolio, including any unusual characteristics of, or risk

associated with, particular products or portfolios.” 17 CFR § 39.13(g)(2)(i).

ions entered into

16 7 U.S.C. 7a-1(c)(2)(D)(i).

17 7 U.S.C. 7a-1(c)(2)(B).

18 Id.

19 Specifically, Commission Regulation 39.13(g)(2)(i) states that “[a DCO] shall have initial margin requirements

that are commensurate with the risks of each product and portfolio, including any unusual characteristics of, or risk

associated with, particular products or portfolios.” 17 CFR § 39.13(g)(2)(i).

7

during extended hours. In addition, margin calibrations may need to be adjusted to ensure

appropriate coverage given weekend trading would encompass multiple days.20 These risks may

be mitigated or enhanced depending on the characteristics of the underlying market: liquidity

risks may be lower for product classes where 24/7 spot markets are already well established, or

higher for product classes where participation is dominated by participants who have limited

operational capabilities for weekend trading.

Other risk management considerations, and associated mitigants, can arise in the second

and third categories above, when collateral is actually exchanged over the weekend, either on an

optional or required basis. In models of this type, as with all other models, the DCO must

continue to ensure that eligible collateral remains restricted to “those that have minimal credit,

market, and liquidity risks.”21 Because certain traditional forms of collateral (e.g., cash) are less

widely available over the weekend, the DCO may need to consider, and quantify, changes in

credit, market, and liquidity risks during this period.

For specific collateral types, such as stablecoins and other crypto assets, distinctions

between the risks of weekend and weekday collection and transfer may be less acute

sks.”21 Because certain traditional forms of collateral (e.g., cash) are less

widely available over the weekend, the DCO may need to consider, and quantify, changes in

credit, market, and liquidity risks during this period.

For specific collateral types, such as stablecoins and other crypto assets, distinctions

between the risks of weekend and weekday collection and transfer may be less acute. However,

other risks may be relevant and in need of analysis for these more innovative classes of

collateral.22

More generally, factors that may need to be considered in models with weekend collateral

exchange could include:

• Operational structures that allow for timely and reliable collateral movement;

• The ability, when needed, to readily convert between collateral types;

• Exposure monitoring during trading periods with participant and liquidity profiles

distinct from that of weekday trading; and

• Distinct default management procedures that address weekend risks.

The importance, and complexity, of these factors may depend on the set of market

participants for whom they are relevant. For example, in a case where weekend collateral

transfer is optional, operational, legal, and default risks may only be applicable to specific

participant or product classes.

In some cases, weekend clearing models, especially those where all market participants

are required to participate in weekend collateral posting and transfer, may be neither prudent nor

viable. This may be especially true for markets where trading of the product is highly

concentrated in specific geographical regions or hours of the day (e.g., U.S. regional markets like

20 17 CFR § 39.13(g)(2)(ii).

21 17 CFR § 39.13(g)(10).

22 For a discussion of potential factors associated, see CFTC staff’s recent guidance on tokenized collateral, CFTC

Letter No. 25-39 (Dec. 8, 2025).

viable. This may be especially true for markets where trading of the product is highly

concentrated in specific geographical regions or hours of the day (e.g., U.S. regional markets like

20 17 CFR § 39.13(g)(2)(ii).

21 17 CFR § 39.13(g)(10).

22 For a discussion of potential factors associated, see CFTC staff’s recent guidance on tokenized collateral, CFTC

Letter No. 25-39 (Dec. 8, 2025).

8

agriculture or livestock), or where operational or liquidity costs of weekend collateral are

especially high for market participants (e.g., traditional end users).

B. Other Risk Considerations

Other DCO Core Principles may be implicated depending on the clearing model used in

connection with 24/7 trading. For example, extending current systems to weekend hours, or

needing to introduce new systems, may pose unique operational risks. When this is the case,

DCOs must demonstrate a comprehensive program of risk monitoring and oversight that

addresses: (1) information and operational security; (2) business continuity and disaster recovery

planning and resources; (3) capacity and performance planning; (4) systems operations; (5)

systems development and quality assurance; and (6) physical/environmental security.23

Other areas that DCOs may need to consider and demonstrate consistency with the CEA

could include:

• Revised Enterprise Technology Risk Assessments, including changes to vulnerability

management, penetration testing, operational security, and change-management

governance given continuous operations and the potential use of technology like

blockchain networks or distributed ledgers for tokenized collateral;

• Updated procedures for notice filings related to material system impairments or business

continuity and disaster recovery activation that occur during weekend hours; and

• Staffing coverage plans across operations, risk management, compliance, surveillance,

cybersecurity, and incident response, as well as vendor/service-provider coverage for

critical dependencies (e.g., cloud/hostin

ateral;

• Updated procedures for notice filings related to material system impairments or business

continuity and disaster recovery activation that occur during weekend hours; and

• Staffing coverage plans across operations, risk management, compliance, surveillance,

cybersecurity, and incident response, as well as vendor/service-provider coverage for

critical dependencies (e.g., cloud/hosting, network, and market-support services).

V. Rule Changes to Adopt 24/7 Trading and/or Clearing (Part 40)

Pursuant to Part 40, registered entities that submit rule changes and related procedures

relating to 24/7 operations should include comprehensive explanations of changes, expected

effects on risk, and mitigation strategies. In addition, such rule changes must contain an

explanation and analysis that demonstrates the registered entity’s compliance with all relevant

provisions of the CEA, including the applicable Core Principles, and the Commission's

regulations thereunder.24

Further, registered entities are required to provide an explanation of any substantive

opposing views that were expressed to them by governing board or committee members, entity

members, or market participants, which were not incorporated into the rule.25 Recognizing and

addressing opposing views is especially important when introducing 24/7 trading and associated

clearing activities, as these perspectives can highlight unique operational, risk, or compliance

23 17 CFR § 39.18(b)(2).

24 17 CFR § 40.6(a)(7)(v); and 17 CFR § 40.5(a)(5).

25 17 CFR § 40.6(a)(7)(vi); and 17 CFR § 40.5(a)(8).

cipants, which were not incorporated into the rule.25 Recognizing and

addressing opposing views is especially important when introducing 24/7 trading and associated

clearing activities, as these perspectives can highlight unique operational, risk, or compliance

23 17 CFR § 39.18(b)(2).

24 17 CFR § 40.6(a)(7)(v); and 17 CFR § 40.5(a)(5).

25 17 CFR § 40.6(a)(7)(vi); and 17 CFR § 40.5(a)(8).

9

concerns that may arise from continuous market activity, ensuring that all potential impacts are

thoroughly considered by the registered entity before implementing 24/7 trading and associated

clearing activities for particular products or markets.

VI. Intermediation

FCMs play a critical role in the exchange-traded derivatives market by acting as

intermediaries that facilitate transactions between customers on one side and DCMs and DCOs

on the other. As market intermediaries, FCMs hold funds deposited by customers to margin and

clear futures and cleared swap positions as well as funds accruing to customers as a result of

such positions. FCMs also perform daily settlement functions with DCOs on behalf of their

customers. FCMs that are clearing members of a DCO also perform an essential function in the

clearing process by guaranteeing their customers’ financial obligations to the DCO. As such,

24/7 trading and associated clearing activities raise important risk-management considerations

for FCMs.

In addition to general operational risk issues related to information security, business

continuity/disaster recovery planning, and capacity and performance planning, FCMs should

consider the following FCM-specific compliance requirements.

A

’ financial obligations to the DCO. As such,

24/7 trading and associated clearing activities raise important risk-management considerations

for FCMs.

In addition to general operational risk issues related to information security, business

continuity/disaster recovery planning, and capacity and performance planning, FCMs should

consider the following FCM-specific compliance requirements.

A. Compliance with Segregation Requirements

The CEA and Commission regulations thereunder require that an FCM treat customer

funds as belonging to customers and not as the property of the FCM, and that the FCM segregate

customer funds from its own funds in designated customer accounts maintained at certain

permitted depositories.26 Additionally, the CEA and Commission regulations thereunder prohibit

an FCM from using the money, securities, and property of one customer to margin or settle the

trades or contracts of another customer. The CEA and Commission regulations thereunder

effectively require an FCM to add its own funds (referred to as “residual interest”) into

segregation in an amount equal to the sum of all customers’ undermargined amounts, including

customer account deficits, to prevent the FCM from being induced to use one customer’s funds

to margin or carry another customer’s trades or contracts.27 FCMs must comply with the

segregation requirements at all times.

Extending trading hours to a 24/7 basis without settlement during the weekend or

holidays may cause FCMs to violate segregation requirements, and possibly capital

requirements, if there is significant volatility in the relevant market or products

ne customer’s funds

to margin or carry another customer’s trades or contracts.27 FCMs must comply with the

segregation requirements at all times.

Extending trading hours to a 24/7 basis without settlement during the weekend or

holidays may cause FCMs to violate segregation requirements, and possibly capital

requirements, if there is significant volatility in the relevant market or products. Therefore,

consistent with the risk-management requirements of Commission Regulation 1.11, an FCM

intermediating transactions on a 24/7 basis is expected to assess and adjust, as appropriate, the

targeted amount of residual interest it seeks to maintain in segregated accounts, and implement

other appropriate risk-management processes, to account for the risks associated with 24/7

26 7 U.S.C. 6d; 17 CFR § 1.20; 17 CFR § 22.2; and 17 CFR § 30.7.

27 7 U.S.C. 6d(a)(2);17 CFR §§ 1.20 and 1.22; 17 CFR § 22.2, and 17 CFR § 30.7.

10

trading and associated clearing activities.28 Pursuant to Commission Regulation 1.11, an FCM’s

process for establishing a targeted amount of residual interest must be reasonably designed to

ensure that the FCM remains in compliance with the segregation requirements at all times.29

FCMs should also consider other risk mitigating options, including customer prefunding of

accounts that trade on a 24/7 basis.

B. Adequate Customer Disclosures of Risks

Extending trading hours to a 24/7 basis may expose FCMs and customers to additional

risks beyond those associated with trading during traditional market hours. For example, FCMs

may need to enhance existing risk management programs to address weekend, holiday, and

overnight trading, including auto-liquidation of undermargined customer accounts. The

implementation of auto-liquidation may result in a situation where a sudden, large price move

could trigger numerous simultaneous, same-direction orders, and result in further liquidations

market hours. For example, FCMs

may need to enhance existing risk management programs to address weekend, holiday, and

overnight trading, including auto-liquidation of undermargined customer accounts. The

implementation of auto-liquidation may result in a situation where a sudden, large price move

could trigger numerous simultaneous, same-direction orders, and result in further liquidations.

The auto-liquidation of customer positions may also be exacerbated by an inability of customers

to deposit additional margin during non-banking hours. In addition, auto-liquidation during

extended trading hours may impact customers of an FCM that actively trade during weekend and

overnight hours and may also impact customers of the FCM that elect to trade only during

traditional trading hours. FCMs should ensure that appropriate risk disclosures regarding all

applicable aspects of extended trading hours are provided to customers and the public consistent

with Commission Regulation 1.55.30

C. Risk Management Program

Commission Regulation 1.11 requires each FCM holding customer funds to establish and

enforce a system of written risk policies and procedures designed to manage the risks associated

with the activities of the FCM.31 Specifically, an FCM’s risk management program is required to

address risks associated with the segregation of customer funds, operational risks, and capital

risks. FCMs that offer trading during extended hours should consider whether amendments to

risk management policies and procedures are necessary to address the risks associated with

trading during extended hours.

D

vities of the FCM.31 Specifically, an FCM’s risk management program is required to

address risks associated with the segregation of customer funds, operational risks, and capital

risks. FCMs that offer trading during extended hours should consider whether amendments to

risk management policies and procedures are necessary to address the risks associated with

trading during extended hours.

D. Operational Capabilities and Staffing

To comply with Commission Regulation 1.11, FCMs must maintain adequate operational

capabilities and staffing to effectively facilitate customer trading during extended trading

28 Commission Regulation 1.11 requires FCMs that hold customer funds to implement a risk management program

that includes, among other elements, a process for establishing a targeted amount of residual interest. 17 CFR §

1.11.

29 17 CFR § 1.11.

30 17 CFR § 1.55.

31 17 CFR § 1.11.

11

hours.32 This includes an FCM maintaining necessary front-office and back-office systems with

adequate staffing to ensure that such systems are operational. FCMs should further consider

whether critical third-party service providers can perform the necessary services for FCMs to

operate in a manner consistent with Commission and exchange requirements during extended

trading hours.

VII. Conclusion

This advisory is intended to assist registered entities in developing materials for rule

submissions or other filings related to 24/7 trading and associated clearing operations. Although

not exhaustive, it identifies key considerations and provides clarity to the marketplace as a whole

concerning the potential risks presented by 24/7 models, and the areas in which these risks could,

or should be, mitigated, in accordance with the CEA and Commission regulations thereunder

for rule

submissions or other filings related to 24/7 trading and associated clearing operations. Although

not exhaustive, it identifies key considerations and provides clarity to the marketplace as a whole

concerning the potential risks presented by 24/7 models, and the areas in which these risks could,

or should be, mitigated, in accordance with the CEA and Commission regulations thereunder.

Commission staff recommends that any DCMs, SEFs, or DCOs considering 24/7 trading

or clearing operations for specific products or markets, and any FCMs seeking to intermediate

such operations, engage with Commission staff in advance.

This advisory is not intended to, does not, and may not be relied upon to create any

rights, substantive or procedural, enforceable by law by any party in any matter. This advisory

does not provide any no-action position with respect to a recommendation by any division that

the Commission initiate an enforcement action for failure to comply with the CEA or

Commission regulations thereunder. Further, this advisory is not intended to, does not, and may

not be relied upon to create any new binding rules or regulations, or to amend existing rules or

regulations. This advisory represents only the views of the Divisions and does not necessarily

represent the views of the Commission or of any other division or office of the Commission.

Questions concerning this advisory may be directed to Roger Smith, DMO,

rsmith@cftc.gov; Eileen Donovan, DCR, edonovan@cftc.gov; or Liliya Bozhanova, MPD,

lbozhanova@cftc.gov.

Sincerely,

_______________________

Richard Haynes

Acting Director

Division of Clearing and Risk

32 Commission Regulation 1.11(e) (providing that an FCM’s risk management program must address operational

risk, among other risks). 17 CFR § 1.11(e).

12

_______________________

Joshua Beale

Acting Director

Division of Market Oversight

____________________

DJ Hennes

Director

Market Participants Division