Almost every safeguard in the conflicts rulemaking the Commodity Futures Trading Commission issued on 30 July 2026 is something a venue can build. Order priority is a change to a matching engine, information barriers are a systems project, a disclosure is a screen the customer acknowledges. One requirement in the same document cannot be delivered by an engineering team, because it is not a system: at least thirty-five percent of a designated contract market's board has to be people who owe the exchange nothing. That expectation has sat in Commission guidance since 2007, the agency has twice tried to turn it into binding rule text, and both attempts were withdrawn without being adopted. The third attempt is open for comment until 5 October 2026.
The expectation is nineteen years old and has never been a rule
The thirty-five percent figure was not invented for prediction markets. The Commission adopted acceptable practices for the conflicts of interest core principle on 14 February 2007 at 72 FR 6936, and defined what a public director is two years later at 74 FR 18982. Both have lived ever since in Appendix B to part 38, under the heading Guidance on, and Acceptable Practices in, Compliance With Core Principles.
That location matters more than the wording. The binding obligation is the statutory core principle itself, Core Principle 16 at 7 U.S.C. 7(d)(16), which requires a board of trade to establish and enforce rules minimising conflicts of interest in its decision making. Appendix B describes one accepted way to satisfy it. An exchange that follows it is on solid ground; one that does not is not automatically in breach, it simply has to show that what it does instead meets the statute. Nineteen years of board independence practice has rested on that arrangement.
Proposed Commission Regulation 38.853 would move the same words into part 38 as rule text. In its announcement of the proposal the Commission says it is responding to growth in affiliations among the entities it regulates, and it cites section 8a(5) of the Commodity Exchange Act at 7 U.S.C. 12a(5) alongside Core Principle 16.
What thirty-five percent actually buys you
Proposed 38.853(a) sets the same floor in two places. At least thirty-five percent of a designated contract market's directors must be public, and any executive committees or similarly empowered bodies must be at least thirty-five percent public as well. The second half is what makes the first half work. A board floor with no committee floor is avoidable by moving the decisions that matter into a smaller room.
Thirty-five percent is a minority and was always meant to be one. Describing the 2007 adoption, the Commission wrote in its 2024 proposal that the figure "struck an appropriate balance between (1) the need to minimize conflicts of interest in DCM decision-making processes and (2) the need for expertise and efficiency in such processes." On a seven seat board it comes to three people, on a nine seat board to four.
A material relationship is defined by four specific facts
The independence test in proposed 38.853(b) is objective enough to audit, which is its main virtue. A director qualifies as public only after the board finds, on the record, that the person has no material relationship with the exchange, meaning one that could reasonably affect their independent judgment. Four circumstances are deemed material automatically.
- The director is an officer or employee of the exchange or of an affiliate, meaning a parent, a subsidiary, or an entity sharing a common parent.
- The director is a member of the exchange, or an officer or director of a member, with member taking its statutory meaning under section 1a(34) of the Commodity Exchange Act.
- The director, or a firm where the director is an officer, director or partner, takes more than 100,000 dollars a year from the exchange or any affiliate for legal, accounting or consulting services.
- Any of the above applies to the director's immediate family: spouse, parents, children, siblings.
All four carry a one year look back, so a person who left a disqualifying role last quarter does not become independent by changing job titles. Proposed 38.853(b)(5) then requires the exchange to tell the Commission which directors it treats as public and why. The Commission puts that filing at two hours a year for each of 27 designated contract markets, 54 hours and 13,500 dollars across the whole industry. The administrative cost is close to nothing. The cost, if there is one, is in who you are willing to appoint.
The oversight committee has a higher bar than the board
The number people will quote is thirty-five percent. The one that does more work is one hundred. Proposed 38.853(c) requires a standing Regulatory Oversight Committee of public directors only, with the board obliged to give it sufficient authority, resources and time.
Its duties are worth reading as a group rather than a list. The committee monitors the regulatory programme for sufficiency, effectiveness and independence. It oversees trade practice and market surveillance, audits, examinations and investigations. It reviews the regulatory budget, and the number, hiring, termination and compensation of regulatory staff. It supervises the chief regulatory officer, who reports directly to it. It writes an annual assessment for the board and the Commission, covering expenses, staffing, the year's disciplinary actions and how the panels performed. The Commission estimates that report at twenty hours a year per exchange.
The budget and personnel line is what turns independence from a statement into a control. Surveillance costs money and finds problems in the product the commercial side is trying to grow. If the people who decide how much it gets, and who runs it, are the same people whose income depends on listings, the function is advisory whatever the org chart says. Putting that decision with directors who have no material relationship with the exchange is a structural answer to a structural problem.
Proposed 38.853(c)(2)(iv) adds a clarification with real consequences for newer venues. The existing practice names a chief regulatory officer; the proposed text says the committee supervises that officer or another officer responsible for regulatory compliance. A venue that never created the title still has to identify who holds the role in substance, and that person reports to the independent committee.
One sentence moves from optional to mandatory
The Commission describes this section as codifying existing practices "without material changes." That is true of nearly all of it, with one exception it flags a few paragraphs later.
The practice in force says contract markets can further minimise conflicts by including in all disciplinary panels at least one person who would qualify as a public director. Proposed 38.853(d)(2) says a designated contract market shall do so. Can becomes shall, and the only carve out is for matters limited to decorum, attire, or the timely submission of accurate records required for clearing or verifying each day's transactions. For an exchange that disciplines its own members, and whose members may include a firm it is affiliated with, that is where the floor genuinely rises.
There is also a mismatch between how the Commission summarises the change and how it drafted it. The preamble says the rule would require all disciplinary panels to include at least one public director. The rule text requires at least one person who would qualify as a public director, which is a wider pool: someone who passes the independence test without holding a board seat satisfies the text but not the summary. We flagged two similar gaps between preamble and codified text in the affiliate market maker conditions of the same document, so it is worth raising in a comment.
The Commission tried this twice before and withdrew both times
This is the part of the story the proposal does not tell about itself, and it changes how the document reads. When the Commission proposed a version of these requirements as rules on 18 October 2010, at 75 FR 63732, it went well beyond board composition: thirty-five percent public directors but no fewer than two, a nominating committee at least fifty-one percent public and chaired by a public director, disciplinary panels chaired by a public participant, a membership committee thirty-five percent public, and caps limiting any member to twenty percent of a class of voting equity and of voting power. It was never adopted, and was dropped from the regulatory agenda in 2020. Proposed 38.853(a) keeps the percentage and drops the absolute floor of two.
The second attempt is recent enough that the comment file is still easy to find. On 19 March 2024 the Commission proposed governance and fitness requirements for designated contract markets and swap execution facilities at 89 FR 19646, covering board and disciplinary panel composition, regulatory and compliance officers, oversight committees and the use of material non public information.
On 15 September 2025 the Commission formally withdrew it, at 90 FR 45007. The stated reason repays attention. The Commission said it was reconsidering how the rules would work given changes to the industry, and added that many such firms "have already implemented governance standards and requirements for conflicts of interest." In plain terms, the firms already do this, so a rule is not needed.
Why the argument that everyone already complies stopped working
Eleven months later the Commission makes the same factual claim and draws the opposite conclusion. Its preliminary understanding is that most if not all designated contract markets already comply, so codification should cost very little. What changed is set out in the concerns it identifies for this section: the rising number of affiliate relationships between exchanges and market participants has increased the potential for conflicts of interest and, with it, the need for safeguards.
The document is specific about where that structure sits. There are 27 designated contract markets, approximately eight of which have affiliated market makers trading on their own venue, and the Commission writes that it understands this market structure to be particularly prominent in prediction markets. Its explanation will be familiar to any operator: these venues list a large and continually refreshed population of small, short lived contracts, and unaffiliated market makers concentrate on the few deepest ones and decline to quote the long tail.
The Commission's word for the risk is slippage, and it puts the question to the industry directly. Among its requests for comment it asks whether its belief that firms already comply is correct or whether there is some slippage, and whether potential slippage justifies writing the guidance into rule text at all. That is a regulator asking the category to say out loud whether a voluntary standard is being kept.
It is hard to read that sequence without hearing our own argument in it. A voluntary standard is credible exactly as long as nothing tests it. In 2025 nothing had, and the rule was withdrawn on the strength of the industry's own practice. By 2026 a structure had arrived that puts commercial weight on the very decisions the guidance covers, and the same practice stopped being reassuring. This is what our manifest means when it says the floor should be set before someone else sets a lower one.
The affiliate seat the proposal does not close
For a rulemaking premised on affiliate relationships creating conflicts, one carry over deserves a comment before October. Being an officer or employee of an affiliate disqualifies a director under 38.853(b)(2)(i). But 38.853(b)(4) lets a public director also sit on the affiliate's board and still count as public, and 38.853(b)(2)(iii) excludes pay for that seat from the 100,000 dollar threshold.
So one individual can sit on the board of the exchange and on the board of the affiliated firm that trades on it, be paid for both, and neither fact by itself removes their independent status. Neither carve out is new; both descend from the 2009 definition and the proposal does not revisit them. The overarching materiality test still applies, and a board could conclude that a dual seat could reasonably affect a director's judgment. Nothing in the deemed list requires that conclusion, which is a strange place to leave the question in this document.
What a venue should be able to show about its own board
None of this waits for the rule. Every question below is answerable today from records an exchange keeps anyway.
- How many board seats are there, how many are public, and what is the percentage? Is the same true of every executive committee, or only of the full board?
- For each public director, which of the four deemed relationships was checked, over what look back period, and where is that determination written down?
- Does anyone on the board also sit on the board of an affiliate that trades on the venue? If so, who decided that was not material, and what did they write?
- Who sets the surveillance budget, and can the person who runs surveillance be removed by someone whose compensation depends on listing volume?
- Does every disciplinary panel already include an independent seat, or only the ones where it was convenient?
A venue that cannot answer these in an afternoon has a governance question it cannot resolve inside the thirty days a contract review allows for a response, as we set out in the review timetable of the June 2026 proposal. Board composition is slower to change than anything else on a compliance list, because it means finding people, persuading them and seating them. It is the item to start first and the one most likely to be left last.
A seat is the one control you cannot ship
The rest of the conflicts proposal is engineering, which this category is good at. Order priority, information barriers, per session disclosures and third party surveillance reviews all ship on a schedule. Board independence is different in kind. It is a decision about who is allowed to tell you no, made in advance, by you, about your own company.
That is why it belongs to the same argument as publishing the number that makes your headline figure look worse and being honest about what a trader is exposed to besides the event. Directive 02 asks that conflicts of interest be stated in plain language on the surface where the trade happens. Disclosure is the visible half. The other half is somebody with standing to object being in the room when the decision is taken, without needing permission from the people they are checking.
The comment period closes on 5 October 2026, and the useful comments will come from operators who have run these questions against their own board first. If your venue already meets this floor, writing that down before anyone asks is the cheapest thing you will ever do. If it does not, the gap is better found by you in September than by a reviewer later. Our commitment is voluntary and reputational, and it asks for the posture the Commission is describing in regulatory language.