[Federal Register: September 18, 2008 (Volume 73, Number 182)]
[Rules and Regulations]
[Page 54069-54072]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18se08-7]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 3 and 30
RIN 3038-AC26
Exemption From Registration for Certain Firms With Regulation
30.10 Relief
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'') has
amended the regulation concerning the registration of firms located
outside the U.S. that are engaged in commodity interest activities with
respect to trading on U.S. designated contract markets (``DCMs'') and
U.S. derivatives transaction execution facilities (``DTEFs'').\1\ The
amended regulation
[[Page 54070]]
codifies past actions of the Commission's staff to permit certain
foreign firms that have confirmed relief from registration as futures
commission merchants (``FCMs'') in accordance with the regulations to
introduce to registered FCMs certain U.S. customers in connection with
trading futures and commodity options listed on, or subject to the
rules of, a U.S. DCM or DTEF without having to register as an
introducing broker (``IB'') pursuant to Section 4d of the Commodity
Exchange Act (``Act''). The Commission also has revoked the regulation
regarding quarterly reporting requirements for foreign futures and
foreign options transactions.
---------------------------------------------------------------------------
\1\ Commission regulations referred to herein are found at 17
CFR Ch. I (2007) and may be accessed through the Commission's Web
site, http://www.cftc.gov/lawandregulation/index.htm.
---------------------------------------------------------------------------
DATES: Effective Date: October 20, 2008.
FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Associate Director,
at (202) 418-5430, Division of Clearing and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Electronic mail: achapin@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. The Proposal
Part 3 of the Commission's regulations governs the registration of
intermediaries engaged in the offer and sale of, and providing advice
concerning, futures and commodity options traded on U.S. markets,
including both DCMs and DTEFs. Regulation 3.10 sets forth the manner in
which FCMs, IBs, commodity pool operators (``CPOs''), commodity trading
advisors (``CTAs''), and leverage transaction merchants must apply for
registration with the Commission. Regulation 3.10(c) also provides an
exemption from registration for certain persons. For example,
Regulation 3.10(c)(3) provides an exemption from registration to any
foreign person engaged in the activity of an IB, CPO or CTA solely on
behalf of customers located outside the U.S., provided that all
commodity interest transactions are submitted for clearing to a
registered FCM.\2\ Part 30 of the Commission's regulations governs the
offer and sale to U.S. persons of futures and option contracts entered
into on or subject to the rules of a foreign board of trade.
---------------------------------------------------------------------------
\2\ See 72 FR 63976 (Nov. 14, 2007).
---------------------------------------------------------------------------
On January 25, 2008, the Commission published for comment proposed
amendments to Regulations 3.10 and 30.8 (the ``Proposal'').\3\
Specifically, the Commission proposed new Regulation 3.10(c)(4) to
exempt from registration as an IB the foreign affiliate of a registered
FCM that introduces eligible contract participants (``ECPs'') to a
registered FCM for the purpose of trading U.S. exchange-traded futures
and options. Among other conditions, the registration relief described
in the Proposal was predicated upon the foreign affiliate obtaining an
exemption from FCM registration pursuant to Regulation 30.10
(``Regulation 30.10 firm'') and the affiliated FCM's acknowledgment
that it would be jointly and severally liable for any violations of the
Act or the Commission's regulations by the foreign affiliate in
connection with those activities, even if the FCM did not submit the
trade for clearing.
---------------------------------------------------------------------------
\3\ 73 FR 4499 (Jan. 25, 2008).
---------------------------------------------------------------------------
As explained in the Proposal, the Commission sought to codify past
no-action positions taken by Commission staff that provided a limited-
purpose exemption from IB registration only to those foreign affiliates
of registered FCMs engaged in global futures brokerage activities on
behalf of institutional customers located in the U.S. In doing so, the
Commission recognized that institutional U.S. customers who trade
globally throughout the 24-hour trading day may achieve greater
operational and economic efficiencies by eliminating the need to use
multiple order entry systems to execute transactions both domestically
and abroad.
The Commission also proposed to revoke Regulation 30.8 requiring
each FCM to provide the National Futures Association (``NFA'') with a
quarterly report containing data for the total volume of foreign
futures and options contracts effected on foreign boards of trade. In
the Proposal, the Commission stated that the Regulation 30.8 reporting
requirement was overly burdensome in lieu of other extensive reporting
and recordkeeping requirements applicable to FCMs as set forth in Part
1 of its regulations.
II. Comments Regarding the Proposal
A. The Comments
The Commission received four comment letters. All of the commenters
supported the adoption of Regulation 3.10(c)(4). The two commenters on
the proposal to revoke Regulation 30.8 similarly supported that action.
One commenter, a registered FCM, requested the Commission to
preserve the position taken in Staff Letter 07-16, applicable to one of
the FCM's foreign affiliates.\4\ In contrast to other recipients of
prior no-action relief, the FCM's foreign affiliate was exempt from IB
registration pursuant to Regulation 30.5 and not Regulation 30.10. As
such, the FCM's foreign affiliate would not be eligible for the IB
registration exemption under the Proposal until such time that either
its foreign regulator or self-regulatory organization filed a petition
with the Commission in accordance with Regulation 30.10. Another
commenter, a membership organization comprised of FCMs and other
futures industry participants, commented that FCMs' foreign affiliates
in non-30.10 jurisdictions may be interested in obtaining exemptive
relief consistent with Regulation 3.10(c)(4) and, accordingly, it
requested that the Commission consider addressing those foreign
affiliates in the final rulemaking.
---------------------------------------------------------------------------
\4\ CFTC Staff Letter 07-16, [Current Transfer Binder] Comm.
Fut. L. Rep. (CCH) ] -------- (Aug. 21, 2007). CFTC Staff Letters
issued since 1995 may be accessed through http://www.cftc.gov/
lawandregulation/exemptivenoactionandinterpretativeletters/
index.htm.
---------------------------------------------------------------------------
B. The Commission's Response
The Commission does not believe it is appropriate at this time to
extend the proposed IB registration exemption for trading on domestic
markets as set forth in Regulation 3.10(c)(4) to those foreign
affiliates exempt from IB registration pursuant to Regulation 30.5.
This is because, while the limited-purpose exemption from IB
registration set forth in Regulation 3.10(c)(4) is predicated on the
existence of a comparable regulatory program in the jurisdiction in
which the Regulation 30.10 firm is located, the exemption available in
Regulation 30.5 is not. The Commission's determination to limit the
relief set forth in Regulation 3.10(c)(4) to Regulation 30.10 firms
will benefit U.S. customers by requiring any firm not registered with
the Commission as an IB to be subject to a comparable regulatory
program in lieu of compliance with the provisions of the Act and
Commission regulations applicable to IBs. As set forth in Appendix A to
Part 30, the Commission's review of each Regulation 30.10 firm's
regulatory program, among other requirements, addresses the foreign
laws and regulations applicable to registration and fitness,
recordkeeping and reporting, and minimum sales practice standards.
III. Final Rulemaking
Accordingly, the Commission has determined to adopt Regulation
3.10(c)(4) as proposed. As the Commission indicated would be the case
in the Proposal, the adoption of Regulation 3.10(c)(4) will supersede
the following Staff Letters: 03-28, 04-09, 04-14, 05-06, 07-05, 07-08,
07-16, 07-
[[Page 54071]]
17, 07-20, and 07-23 (the ``Prior Staff Letters'').
Regulation 3.10(c)(4)(iii) requires that the FCM affiliated with
the Regulation 30.10 firm seeking relief thereunder file with NFA an
acknowledgment of joint and several liability with the 30.10 Firm.
Notwithstanding that the Prior Staff Letters have been superseded by
the adoption of Regulation 3.10(c)(4), by this Federal Register release
the Commission confirms that any FCM that previously filed an
acknowledgment of joint and several liability pursuant to the
conditions of a Prior Staff Letter is not required to file a new
acknowledgment with NFA--provided that the previously filed
acknowledgment complies with Regulation 3.10(c)(4)(iii).
For the reasons provided in the Proposal, and in the absence of any
comments to the contrary, the Commission similarly has determined to
revoke and reserve Regulation 30.8.
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611,
requires that agencies, in proposing regulations, consider the impact
of those regulations on small businesses. The Commission has previously
established certain definitions of ``small entities'' to be used by the
Commission in evaluating the impact of its regulations on such entities
in accordance with the RFA.\5\ The Commission previously has determined
that registered FCMs are not small entities for the purpose of the RFA
because each FCM has an underlying fiduciary relationship with its
customers, regardless of the size of the FCM.\6\ The Commission notes
that certain foreign persons affected by the changes to the
Commission's regulations would be registered as FCMs if not for the
exemption provided therein and, as such, would maintain a fiduciary
relationship with customers similar to the relationship maintained by
each registered FCM.
---------------------------------------------------------------------------
\5\ 47 FR 18618-18621 (Apr. 30, 1982).
\6\ 47 FR 18619-18620.
---------------------------------------------------------------------------
With respect to IBs, the Commission has stated that it would
evaluate within the context of a particular rule whether all or some
affected IBs would be considered to be small entities and, if so, the
economic impact on them of any rule.\7\ The Commission does not believe
that any affected global IBs would be considered to be small entities.
Moreover, the Commission invited public comment on the impact these
proposed rules may have on small entities and received no comments.
---------------------------------------------------------------------------
\7\ 47 FR 18618; see also 48 FR 35276 (Aug. 3, 1983).
---------------------------------------------------------------------------
Therefore, the Acting Chairman, on behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b), that these regulations will not
have a significant economic impact on a substantial number of small
entities. No comment was received regarding the impact of these
amendments on small businesses.
B. Paperwork Reduction Act
As required by the Paperwork Reduction Act of 1995,\8\ the
Commission submitted a copy of the proposed rule amendments to the
Office of Management and Budget for its review. The Commission did not
receive any public comments relative to its analysis of paperwork
burdens associated with this rulemaking.
---------------------------------------------------------------------------
\8\ Pub. L. 104-13 (May 13, 1995).
---------------------------------------------------------------------------
C. Cost-Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its actions before issuing new regulations under
the Act. The Commission published an analysis of costs and benefits
when it proposed the rule amendments that it is now adopting.\9\ It did
not receive any public comments pertaining to the analysis.
---------------------------------------------------------------------------
\9\ 73 FR at 4502.
---------------------------------------------------------------------------
List of Subjects
17 CFR Part 3
Definitions, Foreign futures, Consumer protection, Foreign options,
Registration requirements.
17 CFR Part 30
Definitions, Foreign futures, Consumer protection, Foreign options,
Registration requirements.
0
In consideration of the foregoing, and pursuant to the authority
contained in the Commodity Exchange Act and, in particular, Sections
2(a)(1), 4(b), 4c and 8a thereof, 7 U.S.C. 2, 6(b), 6c and 12a (1982),
and pursuant to the authority contained in 5 U.S.C. 552 and 552b
(1982), the Commission hereby amends Chapter I of Title 17 of the Code
of Federal Regulations as follows:
PART 3--REGISTRATION
0
1. The authority citation for part 3 continues to read as follows:
Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b,
13c, 16a, 18, 19, 21, 23, unless otherwise noted.
0
2. Section 3.10 is amended by adding paragraph (c)(4) to read as
follows:
Sec. 3.10 Registration of futures commission merchants, introducing
brokers, commodity trading advisors, commodity pool operators and
leverage transaction merchants.
* * * * *
(c) * * *
(4) A person located outside the United States, its territories or
possessions that is exempt from registration as a futures commission
merchant in accordance with Sec. 30.10 of this chapter is not required
to register as an introducing broker in accordance with section 4d of
the Act if:
(i) Such a person is affiliated with a futures commission merchant
registered in accordance with section 4d of the Act;
(ii) Such a person introduces, on a fully-disclosed basis in
accordance with Sec. 1.57 of this chapter, any institutional customer,
as defined in Sec. 1.3(g) of this chapter, to a registered futures
commission merchant for the purpose of trading on a designated contract
market or derivatives execution facility;
(iii) Prior to a person located outside the United States, its
territories or possessions, that is exempt from registration as a
futures commission merchant pursuant to Sec. 30.10 of this chapter,
engaging in the introducing activities described in this paragraph, the
affiliated futures commission merchant has filed with the National
Futures Association (ATTN: Vice President, Compliance) an
acknowledgement that it will be jointly and severally liable for any
violations of the Act or the Commission's regulations committed by such
person in connection with those introducing activities, whether or not
the affiliated futures commission merchant submits for clearing any
trades resulting from those introducing activities; and
(iv) Such person does not solicit any person located in the United
States, its territories or possessions for trading on a designated
contract market or derivatives transaction execution facility, nor does
such person handle the customer funds of any person located in the
United States, its territories or possessions for the purpose of
trading on any designated contract market or derivatives transaction
execution facility.
(v) For the purposes of this paragraph, a person shall be
affiliated with a futures commission merchant if such a person:
(A) Owns 50 percent or more of the futures commission merchant;
(B) Is owned 50 percent or more by the futures commission merchant;
or
(C) Is owned 50 percent or more by a third person that also owns 50
percent
[[Page 54072]]
or more of the futures commission merchant.
* * * * *
PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS
0
3. The authority citation for part 30 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 4, 6, 6c, and 12a, unless otherwise
noted.
Sec. 30.8 [Removed and reserved]
0
4. Section 30.8 is removed and reserved.
Dated: September 12, 2008.
By the Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E8-21857 Filed 9-17-08; 8:45 am]
BILLING CODE 6351-01-P