SECTION 3. PROCEDURES

.01 Procedures for submitting a ruling request. An exchange desiring a letter ruling concerning whether certain persons trading on that exchange will qualify as dealers with respect to specific contracts

traded on that exchange is required to submit a letter ruling request under the procedures provided in Rev. Proc. 2002–1 (2002–1 I.R.B. 1) (or successor procedure).

.02 Time for submitting a ruling request. Ruling requests may be submitted prior to the date on which the exchange anticipates that trading in the securities futures contracts at issue will begin, provided the exchange has developed a substantially definite framework and set of rules within which these contracts are expected to trade and has undertaken significant actions to obtain necessary regulatory approvals and to establish requisite contractual arrangements and trading systems. The Service will not rule on requests involving alternative plans of proposed transactions or hypothetical situations. See section 7.02 of Rev. Proc. 2002–1 (2002–1 I.R.B. 1, 20). .03 Information that should be included in each ruling request. In addition to the information required by Rev. Proc. 2002–1, the exchange must submit any relevant information that will help the Service to determine whether or not persons trading in securities futures contracts on that exchange qualify as dealers under section 1256(g)(9). References to securities futures contracts include options on such contracts. References to rules applicable to trading in securities futures contracts include rules that are not yet adopted in final form but that are expected to be applicable. The current status of such rules should be described. The ruling request should also include the following:

Copies of information filed with nontax regulatory agencies regarding trading on that exchange in the securities futures contracts at issue.

Information regarding whether persons trading in such contracts on that exchange are required to register with the Securities and Exchange Commission or the Commodity Futures Trading Commission and the nature of any required registration.

A description of any books and records requirements under federal securities laws or commodities laws to which persons trading on that exchange are subject.

February 19, 2002 527 2002–7 I.R.B.

Information regarding whether persons trading in such contracts on that exchange will be required to be members of the exchange and, if such persons are not required to be members of the exchange, whether such persons are required to be lessees or delegates of other persons entitled to trade at member rates on the exchange.

References to the exchange’s rules, if any, to which such persons will be subject when trading in such contracts.

A description of any books and records requirements the exchange will impose on such persons and any rules granting the exchange the right to monitor and/or examine a person’s trading activities and financial stability.

Information regarding whether the exchange, the Securities and Exchange Commission, or the Commodity Futures Trading Commission imposes any licensing requirements on such persons, including a description of any such requirements.

Information regarding whether the exchange imposes net capital requirements on such persons, or imposes such requirements on a clearing member firm that clears a person’s trades; whether clearing firms impose any capital requirements on persons clearing trades through those firms; and, in either case, a description of any net capital requirements.

Information regarding whether the exchange requires such persons to regularly and continuously hold themselves out as willing to buy and sell securities futures contracts, regardless of market conditions; and, if the exchange imposes no such affirmative obligation, whether those persons will in fact make a two-sided market because of other factors or obligations, including a description of any such other factors or obligations.

Information regarding whether the exchange anticipates that those persons expect to profit by entering into either side of a position to capture a portion of the bid-ask spread, or whether the exchange anticipates that those persons expect that most of their gross income from trading in these securities futures contracts will be attributable to profits from market price movements.

Information regarding whether the exchange anticipates that such persons will enter into transactions to hedge their risks with respect to the securities futures contracts traded on the exchanges and the nature of such hedges.

An estimate of the average gross trading volume that the exchange anticipates such persons will generate with regard to these contracts.

Information regarding whether the exchange anticipates that trading in these securities futures contracts will be a substantial part of the principal business activity of such persons. Such information might include, for example, an estimate of the average percentage of gross income that the exchange anticipates such persons will generate from trading in these securities futures contracts.

Information regarding whether the exchange will impose a substantial presence requirement or a trading activity requirement on such persons, including a description of any such requirements.

An estimate of the volume of proprietary trading, compared to the volume of trading for customers, that such persons are expected to generate on the exchange.

A description of the exchange’s trading environment ( e.g., floor trading or

screen trading) and any special features of such environment that differentiate the persons for whom dealer status is sought from other exchange participants.

A discussion of the nature, extent, and frequency of material changes that may occur in any of the above information after the requested ruling is issued. The exchange is encouraged to include suggestions for procedures to be followed by the exchange, its traders, and the Service in the event that material changes in the information occur. See section 12.10 of Rev. Proc. 2002–1 (2002–1 I.R.B. 1, 52); section 7.01 of Rev. Proc. 89–14 (1989–1 C.B. 814, 815).

The foregoing list of information should be provided with any ruling request, along with any additional information that may help the Service to make its determination. After its review of a request for ruling, the Service may require the exchange to submit additional information needed to make its determination. See section 10.06 and 10.07 of Rev. Proc. 2002–1 (2002–1 I.R.B. 1, 43–44).