The Commodity Futures Trading Commission (CFTC) has proposed a framework governing what happens when a derivatives exchange, a clearing house and a trading firm sit inside the same corporate group, and it would for the first time subordinate an exchange-affiliated market maker’s orders behind every unaffiliated order at the same price.

The proposal, published as “Conflicts and Affiliations” at 91 FR 50926 on August 6, 2026 under RIN 3038-AF76, amends 17 CFR Parts 1, 37, 38 and 39 and runs to 70 pages. It reaches all four rungs of the US derivatives stack: 27 designated contract markets (DCMs), 20 swap execution facilities (SEFs), 24 derivatives clearing organisations (DCOs) and 71 futures commission merchants (FCMs). Comments close on October 5, 2026. This analysis walks through what each proposed regulation actually requires, how the US position compares with the European Union and the United Kingdom, what the enforcement record already says about undisclosed exchange incentives, and what compliance teams have to produce before the comment window shuts.

Methodology and sources

This analysis is built on the full text of the CFTC’s proposed rule as published in the Federal Register on August 6, 2026 (91 FR 50926-50995), read in the original rather than from the agency’s summary; the CFTC press release announcing the proposal, Release 9274-26 of July 30, 2026; two CFTC enforcement releases and one settled order; and the primary legislative text for each comparator jurisdiction. Every article, section and paragraph number in the comparison table below was read in the source instrument: Directive 2014/65/EU on EUR-Lex, statutory instrument SI 2001/995 and the Financial Services and Markets Act 2000 on legislation.gov.uk, and 17 CFR 143.8 on the eCFR.

Two caveats on scope. Singapore, Australia and Hong Kong comparators were researched and omitted: none of the three official statute databases returned the operative provision text, and this publication does not print a statute reference or penalty figure it has not read in the original. Separately, the CFTC is currently a single-Commissioner agency, so the proposal carries no concurring or dissenting Commissioner statements; the regulator quotations below come from Chairman Michael S. Selig and the then-Director of Enforcement, and the industry-side quotations from comment letters the Commission reproduces verbatim.

What the proposal actually requires, provision by provision

The proposal has four operative limbs. The first rewrites Commission Regulation 1.52, which sets the minimum standards for self-regulatory organisation (SRO) financial supervision of member FCMs. Proposed 1.52(a)(3) introduces a definition of “affiliate futures commission merchant” built on control — “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person” — rather than on an equity threshold, on the reasoning that reporting-line pressure and information flow turn on who can direct management, not on who owns what percentage. Where an SRO has an affiliate FCM, proposed 1.52(c)(1)(i)(B) requires its examination staff to report directly to the board or to a designated committee or officer responsible for regulatory compliance; proposed 1.52(c)(1)(i)(C) requires it to hand surveillance of that affiliate to an independent third-party SRO; and proposed 1.52(c)(1)(i)(D) bars it from touching the affiliate’s non-public information outside its Part 38 duties, or from routing non-affiliate FCMs’ supervisory information to the affiliate “directly or indirectly”.

The second limb creates new Regulations 38.852 for DCMs and 37.1201 for SEFs, imposing a principles-based duty to maintain procedures identifying, addressing and managing conflicts involving an “affiliate market participant”, covering at a minimum applications and systems, personnel, office space, documentation and disclosures. New acceptable practices in Appendix B to Parts 37 and 38 supply the content: logically separate trading, surveillance and recordkeeping systems; no shared staff beyond administrative functions such as accounting, human resources and payroll plus technology staff performing systems-safeguards work; and separate office space with physical barriers and access monitoring. The Commission states expressly that legal and compliance personnel are not administrative staff for this purpose, which would end shared general counsel and shared compliance arrangements between a venue and an affiliated participant.

What is an “affiliate principal trading firm” under the CFTC’s proposal? Proposed Regulation 38.852(a) defines it as a member of a DCM that is under common control with that exchange and trades on a principal basis for its own account on that exchange “as a market maker, liquidity provider, or otherwise”. The catchall is deliberate: the CFTC says it is included “in order to elevate substance over form”, so that a firm performing market-making economics escapes nothing by being labelled something else in an exchange rulebook. Under proposed 38.852(c)(1), such a firm may not trade on its affiliated DCM at all unless it satisfies every condition of the affiliate-market-maker exception, and status is continuing rather than one-off: an affiliate that stops meeting any condition stops qualifying and must stop trading. Approximately eight of the 27 DCMs the CFTC has designated currently have an affiliated market maker.

The third limb is the sharpest. Proposed 38.852(c)(1)(i) requires the exchange’s trade-matching system, including any price/time priority algorithm, to fill an unaffiliated member’s bid or offer before the affiliate market maker’s at the same price, “such that the bids and offers of the affiliate market maker are filled last at every price level”. Proposed 38.852(c)(1)(ii) requires the affiliate’s market-making agreement, filed under Part 40, to specify continuous two-sided quoting obligations, minimum trading hours, bid-ask spread limits and a bar on directional proprietary positions taken outside the quoting obligation, on terms no less favourable to the DCM than those given to unaffiliated members. Proposed 38.852(c)(2) requires an independent third-party regulatory service provider to conduct financial surveillance of the affiliate as if it were an FCM, to monitor the exchange’s own conflicts compliance, and to certify both to the Commission annually. Proposed 38.852(b)(2) separately requires incentive parity, and proposed 38.852(c)(3) requires a plain-language, per-session, pre-order disclosure of the relationship and of the subordination condition, delivered in full rather than by hyperlink.

The fourth limb covers clearing, customer disclosure and governance. Proposed Regulation 39.2 defines “affiliate clearing member”; proposed 39.25(d) imposes the same four-part procedures duty on DCOs; proposed 39.21(c)(9) requires public disclosure of the relationship. Proposed Regulation 1.55(k)(5) requires an FCM to disclose any affiliate relationship with a SEF, DCM or DCO “along with any risks created by such affiliate relationship”. Proposed Regulation 38.853 converts guidance into rule: at least 35% public directors on a DCM board and its executive committees, a regulatory oversight committee of public directors supervising the chief regulatory officer, and — upgrading a “can” to a “must” — at least one public director on every disciplinary panel.

How three jurisdictions police exchange conflicts of interest

Jurisdiction / regulator	Effective date	Scope	Key requirement	Penalty / sanction
US (CFTC) — in force today	DCM Core Principle 16 in force since the Dodd-Frank Act amendments; acceptable practices in Appendix B to Part 38	27 DCMs, 20 SEFs, 24 DCOs, 71 FCMs	CEA section 5(d)(16), 7 U.S.C. 7(d)(16): each DCM must “establish and enforce rules to minimize conflicts of interest in [its] decision-making process” and “establish a process for resolving such conflicts of interest”. SEF equivalent at CEA section 5h(f)(12), 7 U.S.C. 7b-3(f)(12). Affiliate-specific separations are voluntary practice, not rule.	Civil monetary penalty of up to $1,136,100 per violation against a registered entity in a Commission administrative action under CEA section 6b, 7 U.S.C. 13a, for penalties assessed after January 15, 2025 (17 CFR 143.8(b)(1)). Manipulation tier: $1,487,712.
US (CFTC) — as proposed, RIN 3038-AF76	Proposed August 6, 2026; comments close October 5, 2026; no compliance date proposed	Same registrant population, plus affiliate market participants, affiliate principal trading firms and affiliate clearing members	Proposed 17 CFR 38.852(b)(1) and 37.1201(b) conflicts procedures; 38.852(c)(1)(i) order-priority subordination; 38.852(c)(2) mandatory independent regulatory service provider certification; 1.52(d)(2)(ii)(C)(1)(ii) DSRO bar; 39.25(d) DCO procedures; 1.55(k)(5) FCM affiliate disclosure	Same CEA section 6b maximum of $1,136,100 per violation; in addition, an affiliate that fails any 38.852(c)(1) condition “will immediately cease to qualify as an affiliate market maker eligible to trade on the DCM”
EU (national competent authorities under MiFID II)	Applied from January 3, 2018	Regulated markets and their market operators	Article 47(1)(a) of Directive 2014/65/EU: the regulated market must “have arrangements to identify clearly and manage the potential adverse consequences … of any conflict of interest between the interest of the regulated market, its owners or its market operator and the sound functioning of the regulated market”. No order-priority or ownership condition.	Article 47 is listed at Article 70(3)(a)(xxvii), so Article 70(6)(f) applies: administrative fines for a legal person of at least EUR 5,000,000, or up to 10% of total annual turnover; Article 70(6)(h) permits at least twice the benefit derived where quantifiable
UK (FCA — recognised investment exchanges)	Paragraph 4(2)(ea) inserted November 1, 2007 by SI 2006/3386; “trading venues” wording substituted January 3, 2018 by SI 2017/701	Recognised investment exchanges and recognised clearing houses	SI 2001/995, Schedule, paragraph 4(2)(ea): “appropriate arrangements are made to (i) identify conflicts between the interests of the exchange, its owners and operators and the interests of the persons who make use of its facilities … and (ii) manage such conflicts so as to avoid adverse consequences”	FSMA 2000 section 312F(1): the regulator “may impose on the body a penalty, in respect of the contravention, of such amount as it considers appropriate” — statutorily uncapped, with no maximum since section 312F(2) was omitted on December 31, 2020 by SI 2019/662

Sources: 91 FR 50926 (August 6, 2026); 17 CFR 143.8(b)(1) via the eCFR; Directive 2014/65/EU via EUR-Lex; SI 2001/995 and the Financial Services and Markets Act 2000 via legislation.gov.uk. Every cell was read in the primary instrument. Singapore, Australia and Hong Kong comparators were researched but are not shown because their operative provision text could not be retrieved from the official statute databases; no unread reference is printed. Last updated: August 15, 2026.

The comparison exposes a real divergence, and it is not the one industry usually complains about. On the abstract duty, the three regimes are close to identical: identify conflicts between the venue’s owners and its users, and manage them. Article 47(1)(a) of MiFID II and paragraph 4(2)(ea) of the UK recognition requirements are near-textual cousins of DCM Core Principle 16, and all three have been on the statute book for years. What the CFTC is proposing is not a new principle but a set of hard-edged operating conditions attached to one specific structure — an exchange that owns a firm trading on it — and neither Brussels nor London has anything comparable. There is no European or British analogue to order-priority subordination, no analogue to a mandatory independent certifier, and no analogue to a per-session pre-trade notice naming the venue’s own trading affiliate.

That asymmetry cuts both ways. A group wanting an in-house liquidity provider will find the EU and UK rulebooks silent on the mechanics and so more permissive in practice, even though their headline fines are far larger — EUR 5 million or 10% of turnover in the EU, and an uncapped penalty in the UK, against a per-violation ceiling of $1,136,100 in a CFTC administrative action. The US number is small; the US conditions are severe. The real choice is between a regime that permits the structure and punishes failure heavily, and one that constrains the structure in advance and fines modestly. For firms already running euro clearing across the EU-UK boundary, that trade-off is familiar.

Does the CFTC proposal ban exchange-owned trading firms outright? No. The Commission considered a flat prohibition on exchange-affiliate relationships and preliminarily declined to propose it, concluding that such affiliations “can produce efficiencies and competitive benefits, including with respect to market access and liquidity” and that the Commodity Exchange Act does not bar them. What proposed Regulation 38.852(c) does instead is bar an affiliate principal trading firm from trading on its affiliated DCM unless it meets every condition of a narrow exception for bona fide market making. The CFTC’s own framing is that the conflicts created by an affiliated proprietary trader are “inherent in the relationship and are not adequately minimized by conflicts procedures and disclosure alone” — which is why this affiliate type, alone among the four the proposal addresses, gets structural conditions rather than procedures and a disclosure.

“By setting forth principles-based regulations for vertically integrated market structures, the CFTC is taking a significant step in our continued efforts to support responsible innovation in U.S. derivatives markets. This proposal would institute purpose-fit rules of the road that bolster market integrity without stifling novel market structures or imposing excessive compliance costs on registrants.”

— Michael S. Selig, Chairman, Commodity Futures Trading Commission (CFTC Release 9274-26, July 30, 2026)

The enforcement record already reached the incentive question

The proposal’s incentive-parity and disclosure provisions are not speculative. On August 29, 2024 the CFTC announced a settled order against Nasdaq Futures, Inc., then a designated contract market focused on energy futures, imposing a $22 million civil monetary penalty (CFTC Release 8954-24; order filed with the Office of Proceedings on August 28, 2024). The order found that from July 2015 through July 2018 the exchange ran a Designated Market Maker programme which, as filed with the Commission and disclosed to the public, paid participants a fixed monthly stipend — while separately paying a select group of those same participants on the basis of the total volume they traded. That volume-based component was never disclosed. The exchange’s Part 40 rule submissions, the CFTC found, “omitted or explicitly denied the existence of a volume-based incentive”, and its employees repeatedly told Commission staff in interviews that no volume-based component existed. The order also found the exchange failed to follow its regulatory service provider’s recommendation to contact three programme participants about certain trading activity, or to document why it had not.

The violations were charged under sections 5(d)(2), 5(d)(7), 5(d)(12) and 6(c)(2) of the Commodity Exchange Act, 7 U.S.C. 7(d)(2), 7(d)(7), 7(d)(12) and 9(2) — Core Principle breaches plus false statements. The published order carries a blank docket-number field, so the release number is the citable identifier.

“The CFTC’s oversight regime depends upon CFTC-designated exchanges providing the CFTC and market participants accurate information. Nasdaq Futures, Inc.’s conduct here represents significant violations of both its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges.”

— Ian McGinley, then Director of Enforcement, Commodity Futures Trading Commission (CFTC Release 8954-24, August 29, 2024)

Read against the proposal, the case is close to a specification document. Every element the CFTC now wants written into 38.852 — programme terms enumerated in the Part 40 filing, performance standards and consequences of failure stated, unaffiliated members participating on terms no less favourable, an independent service provider whose recommendations are acted on or documented — maps onto something Nasdaq Futures was found to have got wrong, and it did so without any affiliate in the picture. The Commission’s implicit argument is that if an arm’s-length incentive programme could be misdescribed for three years, an affiliated one warrants structural conditions rather than filings alone.

The supervision baseline is being enforced in parallel. On August 3, 2026 the CFTC ordered UBS Financial Services Inc., a registered FCM, to pay an $8 million civil monetary penalty and cease and desist, for failing to diligently supervise the configuration of its anti-money-laundering transaction-monitoring systems for foreign-currency wires between January 2019 and June 2023 (CFTC Release 9277-26). That action was one leg of a coordinated four-regulator package: the Financial Crimes Enforcement Network, the Securities and Exchange Commission and the Financial Industry Regulatory Authority each announced related settled actions against the same entity the same day. The relevance here is narrow but real — the proposal reallocates who examines an FCM, and the UBS matter is a reminder of what SRO and DSRO examination is supposed to catch.

What this means for exchanges, FCMs, clearing houses and compliance teams

Exchanges and SEFs face the heaviest lift. Any DCM with an affiliated market maker has to establish whether its matching engine can implement price-level subordination at all — filling unaffiliated orders first at every price regardless of time priority is a change to the core matching algorithm, not a configuration flag, and the CFTC has asked for comment on how it should work on non-central-limit-order-book models. Venues also need to inventory shared services against the acceptable practices: shared legal and compliance staff would have to be separated, shared office space would need physical barriers and access monitoring, and surveillance and recordkeeping systems would need logical separation from any affiliate’s systems. Existing Part 40 market-maker and incentive filings should be re-read against the incentive-parity test in proposed 38.852(b)(2), because a programme available to an affiliate on better terms than unaffiliated members would not survive.

FCMs get one obligation and one option. The obligation is the amended Regulation 1.55(k)(5) disclosure — every affiliate relationship with a SEF, DCM or DCO, plus the risks it creates, written into customer disclosure documents. The Commission declined to prescribe the wording, so each FCM drafts its own and carries the risk of it being judged inadequate. The option is the new election under proposed 1.52(d)(2)(i)(A): an FCM that is an NFA member may write to the Joint Audit Committee and elect NFA as its DSRO, moving itself away from an examiner that is affiliated with a competitor. The CFTC estimates the written election takes about one hour to prepare. Firms clearing through a venue that owns an FCM should be modelling that decision now.

Clearing houses need conflicts procedures under proposed 39.25(d) covering systems, personnel, office space and documentation, plus the public disclosure under 39.21(c)(9). The area to watch is what the Commission has flagged for comment rather than proposed: guidance that a DCO document decisions affecting an affiliate clearing member including margin determinations, default-related decisions and rule-enforcement decisions, and treat that member on terms no more favourable than others. If that guidance lands in the final rule, default-management runbooks and margin-model governance need an affiliate-specific evidence trail. Firms already working through new collateral arrangements in US clearing will recognise the documentation burden.

Legal and compliance teams have a dated deliverable. Comments close on October 5, 2026, and the Commission has posed numbered questions that invite firm-specific evidence — question 34 on whether legal and compliance staff should be shareable, question 37 asking exchanges with affiliated participants to describe their current barriers and estimate the incremental cost of compliance as drafted. The CFTC proposed no amendment to Regulation 3.3, so responsibility sits with the existing chief compliance officer or, at a DCM, the chief regulatory officer, and material non-compliance belongs in the annual report. The practical sequence before October is: map every affiliate relationship against the three proposed control-based definitions, cost the systems work, and answer the questions the Commission actually asked.

What compliance teams should do before October 5

The comment window closes on October 5, 2026. Firms most exposed are those where a designated contract market, swap execution facility or derivatives clearing organisation sits in the same group as an FCM or a principal trading firm. Three steps follow from the text as proposed. Map every affiliate relationship that would trigger the disclosure obligation, including shared staffing, shared technology, shared premises and any channel through which non-public information could move between an affiliated trader and the venue’s surveillance or listing functions. Test existing information barriers against the proposal’s structural conditions rather than a procedures-and-disclosure standard, because the Commission has signalled those are not equivalent. And cost the burden: the Commission’s own estimate assumes a blended labour rate of $250 per hour and a one-time systems build of roughly 100 hours per registrant. The perimeter question facing proprietary trading firms and the Commission’s twin event-contract rules both bear on which entities fall inside that map.

Frequently asked questions

What is the CFTC’s Conflicts and Affiliations proposal?

A proposed rule, RIN 3038-AF76, published in the Federal Register on August 6, 2026 at pages 50926 to 50995. It would amend 17 CFR Parts 1, 37, 38 and 39 to address self-regulatory oversight of futures commission merchants, FCM disclosure of affiliate relationships with trading venues, and conflicts-of-interest requirements where exchanges or clearing houses have affiliated FCMs or principal trading firms. Comments close October 5, 2026.

Who does it apply to?

Designated contract markets, swap execution facilities, derivatives clearing organisations and registered futures commission merchants. The operative exposure falls on vertically integrated groups — those where a trading venue or clearing house shares ownership with an intermediary or a proprietary trading firm. Firms with no affiliate relationship of that kind face principally the disclosure and recordkeeping elements rather than the structural conditions.

Does the proposal ban affiliated FCMs outright?

No. The Commission has not proposed prohibition. Commenters including Public Citizen argued the conflicts “cannot be successfully mitigated” and that the Commission “must therefore establish rules prohibiting” such affiliations; the proposal instead sets conditions. Of the affiliate types it addresses, only the affiliated proprietary trader attracts structural conditions rather than procedures and disclosure alone.

What penalties apply if the rules are adopted and breached?

Under CEA section 6b, a registered entity faces a maximum civil monetary penalty of $1,136,100 per violation in a Commission administrative action, adjusted annually for inflation. By comparison, MiFID II provides for administrative fines of at least EUR 5,000,000 or up to 10% of annual turnover for a legal person, while FSMA 2000 section 312F leaves the penalty for a recognised body statutorily uncapped, at “such amount as it considers appropriate.”

When does this take effect?

Nothing takes effect on the comment deadline. October 5, 2026 closes the consultation; the Commission must then consider comments and issue a final rule carrying its own compliance dates. Treat the autumn window as the point at which to shape the rule, not to comply with it.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.