Foreign Futures and Options Transactions, 75934-75937 [05-24360]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 70, Number 245 (Thursday, December 22, 2005)]
[Rules and Regulations]
[Pages 75934-75937]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24360]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30


Foreign Futures and Options Transactions

AGENCY: Commodity Futures Trading Commission.

[[Page 75935]]


ACTION: Order.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is granting an exemption to firms designated by the 
Australian Stock Exchange Limited from the application of certain of 
the Commission's foreign futures and option rules based on substituted 
compliance with certain comparable regulatory and self-regulatory 
requirements of a foreign regulatory authority consistent with 
conditions specified by the Commission, as set forth herein. This Order 
is issued pursuant to Commission Rule 30.10, which permits persons to 
file a petition with the Commission for exemption from the application 
of certain of the rules set forth in Part 30 and authorizes the 
Commission to grant such an exemption if such action would not be 
otherwise contrary to the public interest or to the purposes of the 
provision from which exemption is sought.

DATES: Effective Date: December 22, 2005.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Esq., Deputy 
Director, Susan A. Elliott, Esq., Special Counsel, Division of Clearing 
and Intermediary Oversight, Commodity Futures Trading Commission, 1155 
21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5430.

SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order:

Order Under CFTC Rule 30.10 Exempting Firms Designated by the 
Australian Stock Exchange Limited (``ASXL'') From the Application of 
Certain of the Foreign Futures and Option Rules the Later of the 
Date of Publication of the Order Herein in the Federal Register or 
After Filing of Consents by Such Firms to the Terms and Conditions 
of the Order Herein.

    Commission rules governing the offer and sale of commodity futures 
and option contracts traded on or subject to the rules of a foreign 
board of trade to customers located in the U.S. are contained in part 
30 of the Commission's rules.\1\ These rules include requirements for 
intermediaries with respect to registration, disclosure, capital 
adequacy, protection of customer funds, recordkeeping and reporting, 
and sales practice and compliance procedures, that are generally 
comparable to those applicable to transactions on U.S. markets.
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    \1\ Commission rules referred to herein are found at 17 CFR Ch. 
I (2005).
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    In formulating a regulatory program to govern the offer and sale of 
foreign futures and option products to customers located in the U.S., 
the Commission, among other things, considered the desirability of 
ameliorating the potential extraterritorial impact of such a program 
and avoiding duplicative regulation of firms engaged in international 
business. Based upon these considerations, the Commission determined to 
permit persons located outside the U.S. and subject to a comparable 
regulatory structure in the jurisdiction in which they were located to 
seek an exemption from certain of the requirements under Part 30 of the 
Commission's rules based upon substituted compliance with the 
regulatory requirements of the foreign jurisdiction.
    Appendix A to Part 30, ``Interpretative Statement With Respect to 
the Commission's Exemptive Authority Under Sec.  30.10 of Its Rules'' 
(``Appendix A''), generally sets forth the elements the Commission will 
evaluate in determining whether a particular regulatory program may be 
found to be comparable for purposes of exemptive relief pursuant to 
Rule 30.10.\2\ These elements include: (1) Registration, authorization 
or other form of licensing, fitness review or qualification of persons 
that solicit and accept customer orders; (2) minimum financial 
requirements for those persons who accept customer funds; (3) 
protection of customer funds from misapplication; (4) recordkeeping and 
reporting requirements; (5) sales practice standards; (6) procedures to 
audit for compliance with, and to take action against those persons who 
violate, the requirements of the program; and (7) information sharing 
arrangements between the Commission and the appropriate governmental 
and/or self-regulatory organization to ensure Commission access on an 
``as needed'' basis to information essential to maintaining standards 
of customer and market protection within the U.S.
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    \2\ 52 FR 28990, 29001 (August 5, 1987).
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    Moreover, the Commission specifically stated in adopting Rule 30.10 
that no exemption of a general nature would be granted unless the 
persons to whom the exemption is to be applied: (1) Submit to 
jurisdiction in the U.S. by designating an agent for service of process 
in the U.S. with respect to transactions subject to Part 30 and filing 
a copy of the agency agreement with the National Futures Association 
(``NFA''); (2) agree to provide access to their books and records in 
the U.S. to Commission and Department of Justice representatives; and 
(3) notify NFA of the commencement of business in the U.S.\3\ The 
representations for confirmation of relief also include a 
representation that the firm will maintain ``the greater of regulatory 
capital'' as required by regulations of the exchange or the Commission.
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    \3\ 52 FR 28980, 28981 and 29002.
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    By this Order, the Commission hereby exempts, subject to specified 
conditions, those firms identified to the Commission by ASXL as 
eligible for the relief granted herein from:

--Registration with the Commission for firms and for firm 
representatives;
--The requirement in Commission Rule 30.6(a) and (d), 17 CFR 30.6(a) 
and (d), that firms provide customers located in the U.S. with the 
risk disclosure statements in Commission Rule 1.55(b), 17 CFR 
1.55(b) and Commission Rule 33.7, 17 CFR 33.7, or as otherwise 
approved under Commission Rule 1.55(c), 17 CFR 1.55(c);
--The separate account requirement contained in Commission Rule 
30.7, 17 CFR 30.7;
--Those sections of Part 1 of the Commission's financial rules that 
apply to foreign futures and options sold in the U.S. as set forth 
in Part 30; and
--Those sections of Part 1 of the Commission's rules relating to 
books and records which apply to transactions subject to Part 30,

based upon submitted compliance by such persons with the applicable 
statutes and regulations in effect in Australia.
    This determination to permit substituted compliance is based on, 
among other things, the Commission's finding that the regulatory scheme 
governing persons in Australia who would be exempted hereunder 
provides:

    (1) A system of qualification or authorization of firms who deal 
in transactions subject to regulation under Part 30 that includes, 
for example, criteria and procedures for granting, monitoring, 
suspending and revoking licenses, and provisions for requiring and 
obtaining access to information about authorized firms and persons 
who act on behalf of such firms;
    (2) Financial requirements for firms including, without 
limitation, a requirement for a minimum level of working capital and 
daily mark-to-market settlement and/or accounting procedures;
    (3) A system for the protection of customer assets that is 
designed to preclude the use of customer assets to satisfy house 
obligations and requires separate accounting for such assets;
    (4) Recordkeeping and reporting requirements pertaining to 
financial and trade information;
    (5) Sales practice standards for authorized firms and persons 
acting on their behalf that include, for example, required 
disclosures to prospective customers and prohibitions on improper 
trading advice;
    (6) Procedures to audit for compliance with, and to redress 
violations of, the

[[Page 75936]]

customer protection and sales practice requirements referred to 
above, including, without limitation, an affirmative surveillance 
program designed to detect trading activities that take advantage of 
customers, and the existence of broad powers of investigation 
relating to sales practice abuses; and
    (7) Mechanisms for sharing of information between the 
Commission, ASXL, and the Australian regulatory authorities on an 
``as needed'' basis including, without limitation, confirmation 
data, data necessary to trace funds related to trading futures 
products subject to regulation in Australia, position data, and data 
on firms' standing to do business and financial condition.

    This Order does not provide an exemption from any provision of the 
Act or rules thereunder not specified herein, such as the antifraud 
provision in Rule 30.9. Moreover, the relief granted is limited to 
brokerage activities undertaken on behalf of customers located in the 
U.S. with respect to transactions on or subject to the rules of ASXL 
for products that customers located in the U.S. may trade.\4\ The 
relief does not extend to rules relating to trading, directly or 
indirectly, on U.S. exchanges. For example, a firm trading in U.S. 
markets for its own account would be subject to the Commission's large 
trader reporting requirements.\5\ Similarly, if such a firm were 
carrying a position on a U.S. exchange on behalf of foreign clients, it 
would be subject to the reporting requirements applicable to foreign 
brokers.\6\ The relief herein is inapplicable where the firm solicits 
or accepts orders from customers located in the U.S. for transactions 
on U.S. markets. In that case, the firm must comply with all applicable 
U.S. laws and regulations, including the requirement to register in the 
appropriate capacity.
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    \4\ See, e.g., sections 2(a)(1)(C) and (D) of the Act.
    \5\ See, e.g., 17 CFR part 18 (2002).
    \6\ See, e.g., 17 CFR parts 17 and 21 (2002).
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    The eligibility of any firm to seek relief under this exemptive 
Order is subject to the following conditions:

    (1) The regulatory or self-regulatory organization responsible 
for monitoring the compliance of such firms with the regulatory 
requirements described in the Rule 30.10 petition must represent in 
writing to the CFTCSec.  \7\ that:
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    \7\ As described below, these representations are to be filed 
with NFA.
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    (a) Each firm for which relief is sought is registered, licensed 
or authorized, as appropriate, and is otherwise in good standing 
under the standards in place in Australia; such firm is engaged in 
business with customers in Australia as well as in the U.S.; and 
such firm and its principals and employees who engage in activities 
subject to Part 30 would not be statutorily disqualified from 
registration under Section 8a(2) of the Act, 7 U.S.C. 12a(2);
    (b) It will monitor firms to which relief is granted for 
compliance with the regulatory requirements for which substituted 
compliance is accepted and will promptly notify the Commission or 
NFA of any change in status of a firm that would affect its 
continued eligibility for the exemption granted hereunder, including 
the termination of its activities in the U.S.;
    (c) All transactions with respect to customers resident in the 
U.S. will be made on or subject to the rules of ASXL and the 
Commission will receive prompt notice of all material changes to the 
relevant laws in Australia, any rules promulgated thereunder and 
ASXL rules;
    (d) Customers located in the U.S. will be provided no less 
stringent regulatory protection than Australian customers under all 
relevant provisions of Australian law; and
    (e) It will cooperate with the Commission with respect to any 
inquiries concerning any activity subject to regulation under the 
Part 30 rules, including sharing the information specified in 
Appendix A on an ``as needed'' basis and will use its best efforts 
to notify the Commission if it becomes aware of any information that 
in its judgment affects the financial or operational viability of a 
member firm doing business in the U.S. under the exemption granted 
by this order.\8\
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    \8\ The Australian Securities and Investments Commission (ASIC) 
represented to the Commission that the existing Memorandum of 
Understanding governing the sharing of information between ASIC and 
the Commission ``will extend to activities of the ASXF [now ASXL] 
and its members,'' in letters to DCIO of May 16, 2003 and May 17, 
2004.
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    (2) Each firm seeking relief hereunder must represent in writing 
that it:
    (a) Is located outside the U.S., its territories and 
possessions, and where applicable, has subsidiaries or affiliates 
domiciled in the U.S. with a related business (e.g., banks or 
broker/dealer affiliates) along with a brief description of each 
subsidiary's or affiliate's identity and principal business in the 
U.S.;
    (b) Consents to jurisdiction in the U.S. under the Act by filing 
a valid and binding appointment of an agent in the U.S. for service 
of process in accordance with the requirements set forth in Rule 
30.5;
    (c) Agrees to provide access to its books and records related to 
transactions under Part 30 required to be maintained under the 
applicable statutes and regulations in effect in Australia upon the 
request of any representative of the Commission or U.S. Department 
of Justice at the place in the U.S. designated by such 
representative, within 72 hours, or such lesser period of time as 
specified by that representative as may be reasonable under the 
circumstances after notice of the request.
    (d) Has no principal or employee who solicits or accepts orders 
from customers located in the U.S., who would be disqualified under 
Section 8a(2) of the Act, 7 U.S.C. 12a(2), from doing business in 
the U.S.;
    (e) Consents to participate in any NFA arbitration program that 
offers a procedure for resolving customer disputes on the papers 
where such disputes involve representations or activities with 
respect to transactions under Part 30, and consents to notify 
customers located in the U.S. of the availability of such a program;
    (f) Undertakes to comply with the applicable provisions of 
Australian laws and ASXL rules that form the basis upon which this 
exemption from certain provisions of the Act and rules thereunder is 
granted; and
    (g) Maintains the greater of regulatory capital as required by 
ASXL or Commission regulations.

    As set forth in the Commission's September 11, 1997 Order 
delegating to NFA certain responsibilities, the written representations 
set forth in paragraph (2) shall be filed with NFA.\9\ Among other 
duties, the Commission authorized NFA to receive requests for 
confirmation of Rule 30.10 relief on behalf of particular firms, to 
verify such firms' fitness and compliance with the conditions of the 
appropriate Rule 30.10 Order and to grant exemptive relief from 
registration to qualifying firms. Each firm seeking relief hereunder 
has an ongoing obligation to notify NFA should there be a material 
change to any of the representations required in the firm's application 
for relief.
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    \9\ 62 FR 47792, 47793 (September 11, 1997).
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    This Order will become effective as to any designated ASXL firm the 
later of the date of publication of the Order in the Federal Register 
or the filing of the representations and consents set forth in 
paragraphs (2)(a)-(g), as verified by NFA. Upon filing of the notice 
required under paragraph (1)(b) as to any such firm, the relief granted 
by this Order may be suspended immediately as to that firm. That 
suspension will remain in effect pending further notice by the 
Commission, or the Commission's designee, to the firm and ASXL.
    This Order is issued pursuant to Rule 30.10 based on the 
representations made and supporting material provided to the Commission 
and the recommendation of the staff, and is made effective as to any 
firm granted relief hereunder based upon the filings and 
representations of such firms required hereunder. Any material changes 
or omissions in the facts and circumstances pursuant to which this 
Order is granted might require the Commission to reconsider its finding 
that the standards for relief set forth in Rule 30.10 and, in 
particular, Appendix A, have been met. Further, if experience 
demonstrates that the continued effectiveness fo this Order in general, 
or with respect to a particular firm, would be contrary to public 
policy or the public interest, or that the systems in place for the 
exchange of information or other circumstances do not warrant 
continuation of the exemptive relief granted herein, the

[[Page 75937]]

Commission may condition, modify, suspend, terminate, withhold as to a 
specific firm, or otherwise restrict the exemptive relief granted in 
this Order, as appropriate, on its own motion.
    The Commission will continue to monitor the implementation of its 
program to exempt firms located in jurisdictions generally deemed to 
have a comparable regulatory program from the application of certain of 
the foreign futures and option rules and will make necessary 
adjustments if appropriate.

List of Subjects in 17 CFR Part 30

    Foreign futures, Foreign options.


0
In consideration of the foregoing, and pursuant to the authority 
contained in the Commodity Exchange Act and, in particular, sections 
1a, 2, 4(b), 4c and 8a thereof, 7 U.S.C. 1a, 2, 6(b), 6(c) and 12a, and 
pursuant to the authority contained in 5 U.S.C. 552 and 552b, the 
Commission hereby amends Chapter I of Title 17 of the Code of Federal 
Regulations as follows:

PART 30--FOREIGN OPTIONS AND FOREIGN FUTURES TRANSACTIONS

0
1. The authority citation for part 30 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6c and 12a, unless otherwise 
noted.

Appendix C to Part 30 --[Amended]

0
2. Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
Application of Certain of the Part 30 Rules. The following citation is 
added:
* * * * *
    Firms designated by the Australian Stock Exchange Limited 
(``ASXL'').
    FR date and citation: 68 FR 39006 (July 1, 2003).
    FR date and citation: 70 FR -- (December 22, 2005).
* * * * *

    Issued in Washington, DC on December 16, 2005.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 05-24360 Filed 12-21-05; 8:45 am]
BILLING CODE 6351-01-M