The Commodity Futures Trading Commission and the Securities and Exchange Commission have adopted the first joint rules to permit the trading of single-stock futures in the United States.

These rules implement provisions of the Commodity Futures Modernization Act of 2000 that lift the 19-year ban on the trading of single-stock and narrow-based stock index futures in the U.S.

The CFMA, which was enacted last December, provided a regulatory framework for the trading of futures contracts on single stock futures and narrow-based security index futures — collectively referred to as security futures products.

Specifically, the CFMA established a regulatory structure for the joint regulation of security futures products by the CFTC and SEC. Futures contracts on broad-based indexes are to be regulated under the exclusive jurisdiction of the CFTC.

The final joint rules approved by the CFTC and SEC establish the method for computing whether an index is a narrow-based index or a broad-based index. Futures on indexes that are narrow-based are security futures products and, therefore, regulated jointly by the CFTC and SEC. Futures on indexes that are broad-based are regulated solely by the CFTC.

The CFMA defines the criteria for an index to be considered narrow-based, including, among other factors, the market capitalization of each security in the index and the dollar value of that security’s average daily trading volume.

These rules set forth the methods for determining market capitalization and dollar value of average daily trading volume. These rules further provide that the definition of narrow-based security index and the statutory exclusion from that definition apply to indexes traded on or subject to foreign boards of trade.

In addition, the CFTC and SEC issued a joint order to permit, under certain circumstances, an American Depositary Receipt to underlie a security future and be a component security of a narrow-based security index underlying a security future.