[Federal Register: March 3, 2006 (Volume 71, Number 42)]
[Notices]
[Page 10958-10959]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr06-34]
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COMMODITY FUTURES TRADING COMMISSION
Recognition of Multilateral Clearing Organizations
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and order.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
issuing an Order pursuant to Section 409(b)(3) of the Federal Deposit
Insurance Corporation Improvement Act (``FDICIA''). Section 409
provides that the Commission (or one of several other authorized U.S.
financial regulators) may determine that the supervision by a foreign
financial regulator of a multilateral clearing organization for over-
the-counter derivative instruments satisfies appropriate standards. The
Commission is issuing this Order pursuant to Section 409(b)(3) of
FDICIA with respect to the Alberta Securities Commission and its
supervision of NetThruPut, Inc., a recognized clearing agency in
Alberta, Canada.
DATES: Effective Date: February 27, 2006.
FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Special Counsel,
Division of Clearing and Intermediary Oversight, Commodity Futures
Trading Commission, 1155 21st Street, NW., Washington, DC 20581.
Telephone: (202) 418-5430. Email: achapin@cftc.gov.
SUPPLEMENTARY INFORMATION: The Commission has issued the following
Order: Order Issued Pursuant to Section 409 of the Federal Deposit
Insurance Corporation Improvement Act Regarding the Multilateral
Clearing Activities of NetThruPut, Inc., in Connection with
Transactions Entered into on NTP's Online Trading Platform.
The Commodity Futures Modernization Act (``CFMA'') substantially
revised the Commodity Exchange Act (``CEA'') and other Federal
statutes, including FDICIA.\1\ In particular, new Section 409 of FDICIA
provides that a clearing organization may operate a multilateral
clearing
[[Page 10959]]
organization (``MCO'') \2\ for over-the-counter derivatives instruments
(``OTC derivatives'') \3\ if, among other alternatives, it is
supervised by a foreign financial regulator that the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Securities and Exchange
Commission, or the Commission, as applicable, has determined satisfies
appropriate standards.
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\1\ See Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).
\2\ Section 408(1) of FDICIA defines MCO to mean ``a system
utilized by more than [two] participants in which the bilateral
credit exposures of participants arising from the transactions
cleared are effectively eliminated and replaced by a system of
guarantees, insurance, or mutualized risk of loss.''
\3\ Section 408(2) of FDICIA defines OTC derivative instrument
to include any agreement, contract, or transaction exempt under
Section 2(h) of the CEA.
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NetThruPut, Inc. (``NTP'') has requested that the Commission
determine that the oversight of its activities by the Alberta
Securities Commission satisfies the criteria for operating as an MCO
set forth in Section 409(b)(3) of FDICIA.\4\ NTP intends to operate as
an MCO with respect to OTC derivatives transactions to be executed on
its online trading platform. NTP's online trading platform provides
anonymous trading of crude oil, condensate and other energy contracts.
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\4\ Letter from Kenneth M. Raisler, Esq., Sullivan & Cromwell,
counsel to NTP, to Jean Webb, Secretary, Commodity Futures Trading
Commission, dated November 7, 2005, with exhibits.
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In its request, NTP provided the Commission with a detailed
description of the regulatory program applicable to clearing
organizations in Alberta, Canada. NTP also provided the Commission with
information comparing the regulatory requirements applicable to NTP and
the regulatory requirements applicable to derivatives clearing
organizations (``DCOs'') in the U.S.,\5\ as set forth in Section 5b of
the CEA and Part 39 of the Commission's regulations.\6\ The Commission
evaluated the regulatory program of the ASC in the context of the
Principles and Objectives of Securities Regulation issued by the
International Organization of Securities Commissions.
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\5\ As a matter of first impression, the ASC determined to
direct NTP to address in its application for recognition compliance
with the fourteen Core Principles set forth under Section 5b(c)(2)
of the CEA for registration as a DCO and to provide supporting
documentation manifesting its compliance with the Core Principles.
See Letter from Allan R. Twa, counsel for NTP, to the ASC, dated
November 10, 2004 (``Recognized Clearing Agency Application--
NetThruPut Inc.'').
\6\ See 66 FR 45604 (August 29, 2001). Part 39 of the
Commission's regulations stipulates the form and provides guidance
for what should be included in applications for DCO registration.
Part 39 also addresses ongoing compliance by DCOs with the Core
Principles and other provisions of the CEA and regulations
thereunder. The guidance set forth in Part 39 merely illustrates the
manner in which a clearing organization may meet a Core Principle
and is not intended to be a mandatory checklist.
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In support of NTP's request for relief, the ASC confirmed that:
The ASC is authorized under the Alberta Securities Act to
supervise the clearing of financial instruments by persons located in
Alberta, Canada, and has the ability to enforce compliance with the
applicable laws, rules and regulations;
Clearing in Alberta, Canada, of exchange contracts, as
defined in the Alberta Securities Act, may be conducted only by a
clearing agency recognized by the ASC;\7\
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\7\ See Alberta Securities Act Section 67.
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The clearing of contracts entered into on NTP's online
trading platform is subject to regulatory oversight by the ASC;
The ASC is an associate member of IOSCO, has adopted
IOSCO's Principles and Objectives of Securities Regulation, and has
established systems consistent with those Principles and Objectives;
and
The ASC has the ability and undertakes to share with the
Commission, upon request, information in its possession regarding NTP's
activities as a recognized clearing agency and to otherwise cooperate
with the CFTC, subject to Alberta law.\8\
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\8\ See Securities Act, Sections 46 and 46.1; see also the
Freedom of Information and Protection of Privacy Act.
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Based upon the information and materials submitted by NTP, and the
representations made by the ASC, the Commission has determined that the
supervision by ASC of an MCO for OTC derivatives operated by NTP
satisfies the criteria set forth in Section 409(b)(3) of FDICIA. Any
material changes or omissions in the facts and circumstances pursuant
to which this Order is issued might require the Commission to
reconsider this matter.
Issued in Washington, DC on February 27, 2006.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 06-1940 Filed 3-2-06; 8:45 am]
BILLING CODE 6351-01-P