Petition of the Chicago Mercantile Exchange Inc. for Exemptive Relief, Pursuant to Section 4(c) of the Commodity Exchange Act, From the Requirement That the China Foreign Exchange Trade System and National Interbank Funding Center or Its Members Register as Futures Commission Merchants, 48262-48264 [E7-16641]

Download as PDF 48262 Federal Register / Vol. 72, No. 163 / Thursday, August 23, 2007 / Notices SCHEDULE OF ANCILLARY MEETINGS—Continued Washington State Delegation Enforcement Consultants Groundfish Advisory Subpanel Groundfish Management Team Scientific and Statistical Committee Olympic Coast National Marine Sanctuary Marine Habitat Research Report Thursday, September 13, 2007 Council Secretariat California State Delegation Oregon State Delegation Washington State Delegation Groundfish Advisory Subpanel Groundfish Management Team Enforcement Consultants Friday, September 14, 2007 Council Secretariat California State Delegation Oregon State Delegation Washington State Delegation Enforcement Consultants 7 8 8 8 8 7 p.m. 7 a.m. 7 a.m. 7 a.m. 7 a.m. 8 a.m. 8 a.m. As needed. 7 a.m. 7 a.m. 7 a.m. 7 a.m. As needed. Although non-emergency issues not contained in this agenda may come before this Council for discussion, those issues may not be the subject of formal Council action during this meeting. Council action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under Section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council’s intent to take final action to address the emergency. Special Accommodations These meetings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Ms. Carolyn Porter at (503) 820–2280 at least 5 days prior to the meeting date. Dated: August 17, 2007. Tracey L. Thompson, Acting Director, Office of Sustainable Fisheries, National Marine Fisheries Service. [FR Doc. E7–16625 Filed 8–22–07; 8:45 am] BILLING CODE 3510–22–S COMMODITY FUTURES TRADING COMMISSION Petition of the Chicago Mercantile Exchange Inc. for Exemptive Relief, Pursuant to Section 4(c) of the Commodity Exchange Act, From the Requirement That the China Foreign Exchange Trade System and National Interbank Funding Center or Its Members Register as Futures Commission Merchants Commodity Futures Trading Commission. ACTION: Notice of proposed order and request for comment. AGENCY: SUMMARY: The Chicago Mercantile Exchange Inc. (CME) has petitioned the Commodity Futures Trading Commission (Commission) for exemptive relief, pursuant to section 4(c) of the Commodity Exchange Act (Act or CEA), from the requirement that the China Foreign Exchange Trade System and National Interbank Funding Center (CFETS) or its members register as futures commission merchants (FCMs). The Commission seeks comment on CME’s petition. Copies of the petition are available for inspection at the Office of the Secretariat by mail at the address listed below, by telephoning (202) 418–5100, or on the Commission’s Web site (http:// www.cftc.gov). Comments must be received on or before September 24, 2007. ADDRESSES: Comments should be sent to David A. Stawick, Secretary, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be sent by ebenthall on PRODPC61 with NOTICES DATES: VerDate Aug<31>2005 15:04 Aug 22, 2007 Jkt 211001 a.m. a.m. a.m. a.m. a.m. PO 00000 Frm 00009 Fmt 4703 Sfmt 4703 facsimile transmission to (202) 418– 5521, or by e-mail to secretary@cftc.gov. Reference should be made to ‘‘CME Petition for Exemption from FCM Registration on Behalf of CFETS.’’ Comments may also be submitted by connecting to the Federal eRulemaking Portal at http://www.regulations.gov and following the comment submission instructions. Comments will be published on the Commission’s Web site. FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate Director, (202) 418–5092, rwasserman@cftc.gov, Division of Clearing and Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Background By petition dated July 27, 2007 (Petition), CME applied for an exemption, pursuant to section 4(c) of the Act, 7 U.S.C. 6(c), from the requirement (pursuant to section 4d of the Act, 7 U.S.C. 6d) that CFETS or its members register as FCMs. According to the Petition, CFETS is a non-profit affiliate of the People’s Bank of China (PBC). CFETS operates an electronic trading system with respect to trading in the interbank foreign exchange market, Renminbi (RMB) lending, and trading on the bond market in China. The foreign currencies traded against the RMB through CFETS include the U.S. dollar, Japanese yen, Euro, and Hong Kong dollar, and CFETS provides trading services for foreign exchange spot, forwards, and swaps. CFETS also operates China’s interbank RMB money E:\FR\FM\23AUN1.SGM 23AUN1 Federal Register / Vol. 72, No. 163 / Thursday, August 23, 2007 / Notices ebenthall on PRODPC61 with NOTICES market and facilitates the trading of government securities and repo transactions. CFETS has over 270 members engaged in foreign exchange trading, including all of the major Chinese banks. CFETS members also include insurance and securities companies, fund management companies, and foreign financial institutions. CME and CFETS have entered into an agreement pursuant to which CFETS will become a ‘‘super-clearing’’ member of CME authorized to clear foreign currency and interest rate futures transactions on behalf of CFETS members and their customers domiciled in China. Although CFETS members include non-Chinese financial institutions, only those of its members (and their customers) that are domiciled in China would be permitted to clear CME contracts through CFETS under the agreement. Pursuant to the agreement, CME will, among other things, provide consulting services and technical assistance to CFETS. In addition, CME and CFETS will cooperate to complete both a comprehensive training program and a marketing program. Under the arrangement, CFETS’ compliance with CME operational procedures will not be enforced via regulatory processes applicable to other clearing members, but instead under the terms of the agreement. As a clearing member of CME, CFETS would fall within the FCM definition of section 1a(20) of the Act, 7 U.S.C. 1a(20), in that it would ‘‘accept[] orders for the purchase or sale of [a] commodity for future delivery on or subject to the rules of [a] contract market * * * and * * * in or in connection with such * * * acceptance of orders, [would] accept[] * * * money, securities, or property * * * to margin, guarantee, or secure * * * trades or contracts that * * * result therefrom.’’ While the Commission and its predecessor agencies have not applied the FCM registration requirement to foreign brokers 1 that 1 In this context, ‘‘foreign broker’’ means any person located outside the U.S., its territories, or possessions who is engaged in soliciting or in accepting orders only from persons located outside the U.S., its territories, or possessions for the purchase or sale of any commodity interest transaction on or subject to the rules of any designated contract market or derivatives execution facility and that, in or in connection with such solicitation or acceptance of orders, accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom. See Exemption From Registration for Certain Foreign Persons, 72 FR 15,637 (Apr. 2, 2007) (proposing to revise and redesignate a definition for the term ‘‘foreign broker’’). VerDate Aug<31>2005 15:04 Aug 22, 2007 Jkt 211001 clear through U.S. FCMs, Commission staff have stated that the FCM registration requirement of Section 4d(a)(1) of the Act, 7 U.S.C. 6d(a)(1), applies to foreign brokers that clear directly through a U.S.-based clearinghouse,2 as CFETS will under the proposed arrangement with CME. CME states that, given CFETS’ status as an entity that is not separately capitalized, ‘‘CFETS itself will not be in a position to provide net capital information to CME. Therefore, CFETS cannot meet the requirements that would apply if it were required to register as an FCM.’’ 3 CME further states that, in light of CFETS’ existing business environment, CFETS is currently unable to establish a capitalized subsidiary in the U.S. that could otherwise meet the requirements applicable to registered FCMs. Consequently, CME is seeking an exemption, pursuant to section 4(c) of the Act, 7 U.S.C. 6(c), on behalf of CFETS, from the FCM registration requirement. CME is also seeking relief from any FCM registration requirement that might apply to CFETS members. Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), empowers the Commission to ‘‘promote responsible economic or financial innovation and fair competition’’ by exempting any transaction or class of transactions, including any person offering or entering into such transaction, from any of the provisions of the CEA (subject to exceptions not relevant here) where the Commission determines that the exemption would be consistent with the public interest.4 2 The Commission has recently proposed to codify its longstanding view that a foreign broker is not required to register if the foreign broker: (1) Limits its customers to foreign customers; (2) submits the trades of such foreign customers that are entered into on U.S. markets for clearing on an omnibus basis through a registered FCM; and (3) does not solicit or accept orders from U.S. customers for trading on U.S. markets. See supra note 1; see also CFTC Staff Letter 89–07, [1987– 1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,479 at 36,096–97 (June 22, 1989) (‘‘The Commission has not required a person located outside the United States which engages in the conduct described in section 2(a)(1)(A) of [the Act] for or on behalf of foreign customers through a U.S. FCM to register as an FCM’’). In the proposal, the Commission specifically noted that, by limiting exemptive relief in the past to activities conducted ‘‘though a U.S. FCM’’ ‘‘staff did not extend the exemptive relief available to a foreign broker to include the submission of trades executed for its customer and non-customer accounts directly to a clearing organization for a U.S. market.’’ See 72 FR at 15,638. 3 Petition, at 3. 4 Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides that: In order to promote responsible economic or financial innovation and fair competition, the Commission by * * * order, after notice and PO 00000 Frm 00010 Fmt 4703 Sfmt 4703 48263 The Petition includes, among other things, the following conditions that could be included in any order granting an exemption to CFETS pursuant to section 4(c), § 6(c): • CFETS shall be required to comply with financial requirements that substitute for those applicable to CME’s clearing members. Specifically, CFETS shall be required to satisfy CME’s security deposit requirement, which is currently a minimum of $500,000. CFETS shall be required to maintain ‘‘surrogate capital’’ 5 of 8% of aggregate required customer performance bond, but in any case, no less than $10 million. All such surrogate capital shall be required to be held in the form of U.S. dollars or Treasury securities (subject to any haircuts required by Regulation 1.17) in a CME-controlled account in the U.S. • CME shall be required to provide the Commission a monthly report detailing surrogate capital amounts and calculation (which report, or portions thereof, would be published on the Commission’s Web site). CME shall be required to provide next-day notice to the Commission if: (i) Surrogate capital falls below 110% of the requirement; or (ii) if a customer margin call exceeds excess surrogate capital on deposit.6 opportunity for hearing, may ( * * * on application of any person, including any board of trade designated or registered as a contract market * * *) exempt any agreement, contract, or transaction (or class thereof) that is otherwise subject to subsection (a) of this section (including any person or class of persons offering, entering into, rendering advice or rendering other services with respect to, the agreement, contract, or transaction), either unconditionally or on stated terms or conditions or for stated periods * * * from any * * * provision of this chapter (except subparagraphs (C)(ii) and (D) of section 2(a)(1) of this title, except that the Commission and the Securities and Exchange Commission may by rule, regulation, or order jointly exclude any agreement, contract, or transaction from section 2(a)(1)(D) of this title), if the Commission determines that the exemption would be consistent with the public interest. While Section 4(c)(2) of the Act, 7 U.S.C. 6(c)(2), imposes additional requirements with respect to any exemption from the requirements of Section 4(a) of the Act, 7 U.S.C. 6(a), CME is not seeking such relief. 5 If the Commission were to grant CFETS’ request for relief, CFETS would not be required to meet the minimum capital requirements of Regulation 1.17. See Regulation 1.17, 17 CFR 1.17 (minimum capital requirements applicable to persons ‘‘registered as a futures commission merchant’’). ‘‘Surrogate capital’’ refers to alternative minimum capital requirements that CME represents that CFETS would be required to meet that are intended to parallel, in effect, the minimum capital requirements of Regulation 1.17. These requirements may be imposed on CFETS as conditions of a Commission order pursuant to Section 4(c)(1), 6(c)(1). 6 For example, if CFETS had a surrogate capital requirement of $10 million, it would be required to maintain surrogate capital of $11 million (110% of the requirement) in a CME-controlled account in E:\FR\FM\23AUN1.SGM Continued 23AUN1 48264 Federal Register / Vol. 72, No. 163 / Thursday, August 23, 2007 / Notices ebenthall on PRODPC61 with NOTICES CME shall be required to provide the Commission immediate notice of any deficiency in surrogate capital. • CME and CFETS shall be required to provide all large-trader reporting information at the same time and in the same format that CFETS would be required to provide if CFETS were registered as an FCM. CME and CFETS shall be required to act as agent for service of process regarding trading on CME for both CFETS members and customers of CFETS members. • CME shall not hold CFETS positions and associated funds in U.S. customer accounts segregated pursuant to section 4d of the Act, 7 U.S.C. 6d. • CME and CFETS shall be required to maintain records, in English, in the U.S., sufficient to permit the Commission to confirm compliance with any provision of any order issued by the Commission. CME and CFETS shall be required to make such records available to the Commission in the U.S. within 72 hours of any request. • CME and CFETS shall be required to comply with U.S. anti-money laundering requirements as determined by the U.S. Treasury. • CME and CFETS shall be required to accept joint and several liability in any Commission enforcement action relating to compliance with any order issued by the Commission. • CME and CFETS shall be required to file a report with the Commission providing statistics and analyzing issues (to be determined) within 18 months after issuance of any relief. II. Request for Comments The Commission requests public comment on any aspect of the Petition that commenters believe may raise issues under the CEA or Commission regulations. In particular, the Commission invites comment regarding: (1) Whether the proposed exemption is consistent with the requirements for relief set forth in section 4(c) of the Act, 7 U.S.C. 6(c), including whether granting the exemption would be consistent with the public interest and the purposes of the CEA; (2) whether CME’s representations, as discussed above, if imposed as conditions of an order pursuant to section 4(c)(1), section 6(c)(1), would provide adequate safeguards with respect to the U.S. clearing system in light of CFETS’ exemption from the FCM registration requirement; (3) whether an order granting the request for relief should include requirements different from or in addition to those discussed above; (4) order to avoid providing the Commission with nextday notice of its surrogate capital on deposit. VerDate Aug<31>2005 15:04 Aug 22, 2007 Jkt 211001 whether an order granting the request for relief should exclude any one or more of the requirements discussed above; (5) any material adverse effects that granting the petition would have upon other derivatives clearing organizations, exchanges, or other Commission registrants from a competitive 7 or other perspective 8; and (6) any other issues relevant to this petition. Issued in Washington, DC, on August 8, 2007 by the Commission. David A. Stawick, Secretary of the Commission. [FR Doc. E7–16641 Filed 8–22–07; 8:45 am] BILLING CODE 6351–01–P Effective Dates: The FY 2007 fees for Commission oversight of each SRO rule enforcement program must be paid by each of the named SROs in the amount specified by no later than October 22, 2007. DATES: FOR FURTHER INFORMATION CONTACT: Stacy Dean Yochum, Counsel to the Executive Director, Commodity Futures Trading Commission, (202) 418–5160, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. For information on electronic payment, contact Adrienne Young-Burgess, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, (202) 418–5196. SUPPLEMENTARY INFORMATION: I. General COMMODITY FUTURES TRADING COMMISSION Fees for Reviews of the Rule Enforcement Programs of Contract Markets and Registered Futures Associations Commodity Futures Trading Commission. ACTION: Establish the FY 2007 schedule of fees. AGENCY: SUMMARY: The Commission charges fees to designated contract markets and registered futures associations to recover the costs incurred by the Commission in the operation of its program of oversight of self-regulatory organization (SRO) rule enforcement programs (17 CFR part 1 Appendix B) (National Futures Association (NFA), a registered futures association, and the contract markets are referred to as SROs). The calculation of the fee amounts to be charged for FY 2007 is based upon an average of actual program costs incurred during FY 2004, 2005, and 2006, as explained below. The FY 2007 fee schedule is set forth in the SUPPLEMENTARY INFORMATION. Electronic payment of fees is required. 7 As noted above, the Commission may grant an exemption pursuant to Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), ‘‘[i]n order to promote responsible economic or financial innovation and fair competition.’’ Section 15(b) of the Act, 7 U.S.C. 19(b), provides that the ‘‘Commission shall take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of this chapter, as well as the policies and purposes of this chapter, in issuing any order * * *.’’ 8 The Commission notes that Section 15(a) of the Act, 7 U.S.C. 19(a), requires that the Commission, before issuing an order, consider the costs and benefits in light of considerations of protection of market participants and the public; considerations of the efficiency, competitiveness, and financial integrity of futures markets; considerations of price discovery; considerations of sound risk management practices; and other public interest considerations. PO 00000 Frm 00011 Fmt 4703 Sfmt 4703 This notice relates to fees for the Commission’s review of the rule enforcement programs at the registered futures associations 1 and designated contract markets (DCM), which are referred to as SROs, regulated by the Commission. II. Schedule of Fees Fees for the Commission’s review of the rule enforcement programs at the registered futures associations and DCMs regulated by the Commission: Entity Fee amount Chicago Board of Trade ............. Chicago Mercantile Exchange .... New York Mercantile Exchange Kansas City Board of Trade ....... New York Board of Trade .......... Minneapolis Grain Exchange ..... HedgeStreet ................................ One Chicago ............................... Chicago Climate Futures Exchange .................................... EUREX ....................................... National Futures Association ...... $72,547 97,725 59,604 10,799 57,273 10,967 2,736 18,355 Total ..................................... 608,114 1,731 2,523 273,854 III. Background Information A. General The Commission recalculates the fees charged each year with the intention of recovering the costs of operating this Commission program.2 All costs are accounted for by the Commission’s Management Accounting Structure Codes (MASC) system, which records each employee’s time for each pay period. The fees are set each year based 1 NFA is the only registered futures association. Section 237 of the Futures Trading Act of 1982, 7 U.S.C. 16a and 31 U.S.C. 9701. For a broader discussion of the history of Commission Fees, see 52 FR 46070 (Dec. 4, 1987). 2 See E:\FR\FM\23AUN1.SGM 23AUN1

Agencies

[Federal Register Volume 72, Number 163 (Thursday, August 23, 2007)]
[Notices]
[Pages 48262-48264]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-16641]


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COMMODITY FUTURES TRADING COMMISSION


Petition of the Chicago Mercantile Exchange Inc. for Exemptive 
Relief, Pursuant to Section 4(c) of the Commodity Exchange Act, From 
the Requirement That the China Foreign Exchange Trade System and 
National Interbank Funding Center or Its Members Register as Futures 
Commission Merchants

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed order and request for comment.

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SUMMARY: The Chicago Mercantile Exchange Inc. (CME) has petitioned the 
Commodity Futures Trading Commission (Commission) for exemptive relief, 
pursuant to section 4(c) of the Commodity Exchange Act (Act or CEA), 
from the requirement that the China Foreign Exchange Trade System and 
National Interbank Funding Center (CFETS) or its members register as 
futures commission merchants (FCMs). The Commission seeks comment on 
CME's petition. Copies of the petition are available for inspection at 
the Office of the Secretariat by mail at the address listed below, by 
telephoning (202) 418-5100, or on the Commission's Web site (http://
www.cftc.gov).

DATES: Comments must be received on or before September 24, 2007.

ADDRESSES: Comments should be sent to David A. Stawick, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Comments may be sent by facsimile 
transmission to (202) 418-5521, or by e-mail to secretary@cftc.gov. 
Reference should be made to ``CME Petition for Exemption from FCM 
Registration on Behalf of CFETS.'' Comments may also be submitted by 
connecting to the Federal eRulemaking Portal at http://
www.regulations.gov and following the comment submission instructions. 
Comments will be published on the Commission's Web site.

FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate 
Director, (202) 418-5092, rwasserman@cftc.gov, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    By petition dated July 27, 2007 (Petition), CME applied for an 
exemption, pursuant to section 4(c) of the Act, 7 U.S.C. 6(c), from the 
requirement (pursuant to section 4d of the Act, 7 U.S.C. 6d) that CFETS 
or its members register as FCMs.
    According to the Petition, CFETS is a non-profit affiliate of the 
People's Bank of China (PBC). CFETS operates an electronic trading 
system with respect to trading in the interbank foreign exchange 
market, Renminbi (RMB) lending, and trading on the bond market in 
China. The foreign currencies traded against the RMB through CFETS 
include the U.S. dollar, Japanese yen, Euro, and Hong Kong dollar, and 
CFETS provides trading services for foreign exchange spot, forwards, 
and swaps. CFETS also operates China's interbank RMB money

[[Page 48263]]

market and facilitates the trading of government securities and repo 
transactions. CFETS has over 270 members engaged in foreign exchange 
trading, including all of the major Chinese banks. CFETS members also 
include insurance and securities companies, fund management companies, 
and foreign financial institutions.
    CME and CFETS have entered into an agreement pursuant to which 
CFETS will become a ``super-clearing'' member of CME authorized to 
clear foreign currency and interest rate futures transactions on behalf 
of CFETS members and their customers domiciled in China. Although CFETS 
members include non-Chinese financial institutions, only those of its 
members (and their customers) that are domiciled in China would be 
permitted to clear CME contracts through CFETS under the agreement. 
Pursuant to the agreement, CME will, among other things, provide 
consulting services and technical assistance to CFETS. In addition, CME 
and CFETS will cooperate to complete both a comprehensive training 
program and a marketing program. Under the arrangement, CFETS' 
compliance with CME operational procedures will not be enforced via 
regulatory processes applicable to other clearing members, but instead 
under the terms of the agreement.
    As a clearing member of CME, CFETS would fall within the FCM 
definition of section 1a(20) of the Act, 7 U.S.C. 1a(20), in that it 
would ``accept[] orders for the purchase or sale of [a] commodity for 
future delivery on or subject to the rules of [a] contract market * * * 
and * * * in or in connection with such * * * acceptance of orders, 
[would] accept[] * * * money, securities, or property * * * to margin, 
guarantee, or secure * * * trades or contracts that * * * result 
therefrom.'' While the Commission and its predecessor agencies have not 
applied the FCM registration requirement to foreign brokers \1\ that 
clear through U.S. FCMs, Commission staff have stated that the FCM 
registration requirement of Section 4d(a)(1) of the Act, 7 U.S.C. 
6d(a)(1), applies to foreign brokers that clear directly through a 
U.S.-based clearinghouse,\2\ as CFETS will under the proposed 
arrangement with CME.
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    \1\ In this context, ``foreign broker'' means any person located 
outside the U.S., its territories, or possessions who is engaged in 
soliciting or in accepting orders only from persons located outside 
the U.S., its territories, or possessions for the purchase or sale 
of any commodity interest transaction on or subject to the rules of 
any designated contract market or derivatives execution facility and 
that, in or in connection with such solicitation or acceptance of 
orders, accepts any money, securities, or property (or extends 
credit in lieu thereof) to margin, guarantee, or secure any trades 
or contracts that result or may result therefrom. See Exemption From 
Registration for Certain Foreign Persons, 72 FR 15,637 (Apr. 2, 
2007) (proposing to revise and redesignate a definition for the term 
``foreign broker'').
    \2\ The Commission has recently proposed to codify its 
longstanding view that a foreign broker is not required to register 
if the foreign broker: (1) Limits its customers to foreign 
customers; (2) submits the trades of such foreign customers that are 
entered into on U.S. markets for clearing on an omnibus basis 
through a registered FCM; and (3) does not solicit or accept orders 
from U.S. customers for trading on U.S. markets. See supra note 1; 
see also CFTC Staff Letter 89-07, [1987-1990 Transfer Binder] Comm. 
Fut. L. Rep. (CCH) ] 24,479 at 36,096-97 (June 22, 1989) (``The 
Commission has not required a person located outside the United 
States which engages in the conduct described in section 2(a)(1)(A) 
of [the Act] for or on behalf of foreign customers through a U.S. 
FCM to register as an FCM''). In the proposal, the Commission 
specifically noted that, by limiting exemptive relief in the past to 
activities conducted ``though a U.S. FCM'' ``staff did not extend 
the exemptive relief available to a foreign broker to include the 
submission of trades executed for its customer and non-customer 
accounts directly to a clearing organization for a U.S. market.'' 
See 72 FR at 15,638.
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    CME states that, given CFETS' status as an entity that is not 
separately capitalized, ``CFETS itself will not be in a position to 
provide net capital information to CME. Therefore, CFETS cannot meet 
the requirements that would apply if it were required to register as an 
FCM.'' \3\ CME further states that, in light of CFETS' existing 
business environment, CFETS is currently unable to establish a 
capitalized subsidiary in the U.S. that could otherwise meet the 
requirements applicable to registered FCMs. Consequently, CME is 
seeking an exemption, pursuant to section 4(c) of the Act, 7 U.S.C. 
6(c), on behalf of CFETS, from the FCM registration requirement. CME is 
also seeking relief from any FCM registration requirement that might 
apply to CFETS members.
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    \3\ Petition, at 3.
---------------------------------------------------------------------------

    Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), empowers the 
Commission to ``promote responsible economic or financial innovation 
and fair competition'' by exempting any transaction or class of 
transactions, including any person offering or entering into such 
transaction, from any of the provisions of the CEA (subject to 
exceptions not relevant here) where the Commission determines that the 
exemption would be consistent with the public interest.\4\
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    \4\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides that:
    In order to promote responsible economic or financial innovation 
and fair competition, the Commission by * * * order, after notice 
and opportunity for hearing, may ( * * * on application of any 
person, including any board of trade designated or registered as a 
contract market * * *) exempt any agreement, contract, or 
transaction (or class thereof) that is otherwise subject to 
subsection (a) of this section (including any person or class of 
persons offering, entering into, rendering advice or rendering other 
services with respect to, the agreement, contract, or transaction), 
either unconditionally or on stated terms or conditions or for 
stated periods * * * from any * * * provision of this chapter 
(except subparagraphs (C)(ii) and (D) of section 2(a)(1) of this 
title, except that the Commission and the Securities and Exchange 
Commission may by rule, regulation, or order jointly exclude any 
agreement, contract, or transaction from section 2(a)(1)(D) of this 
title), if the Commission determines that the exemption would be 
consistent with the public interest.
    While Section 4(c)(2) of the Act, 7 U.S.C. 6(c)(2), imposes 
additional requirements with respect to any exemption from the 
requirements of Section 4(a) of the Act, 7 U.S.C. 6(a), CME is not 
seeking such relief.
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    The Petition includes, among other things, the following conditions 
that could be included in any order granting an exemption to CFETS 
pursuant to section 4(c), Sec.  6(c):
     CFETS shall be required to comply with financial 
requirements that substitute for those applicable to CME's clearing 
members. Specifically, CFETS shall be required to satisfy CME's 
security deposit requirement, which is currently a minimum of $500,000. 
CFETS shall be required to maintain ``surrogate capital'' \5\ of 8% of 
aggregate required customer performance bond, but in any case, no less 
than $10 million. All such surrogate capital shall be required to be 
held in the form of U.S. dollars or Treasury securities (subject to any 
haircuts required by Regulation 1.17) in a CME-controlled account in 
the U.S.
---------------------------------------------------------------------------

    \5\ If the Commission were to grant CFETS' request for relief, 
CFETS would not be required to meet the minimum capital requirements 
of Regulation 1.17. See Regulation 1.17, 17 CFR 1.17 (minimum 
capital requirements applicable to persons ``registered as a futures 
commission merchant''). ``Surrogate capital'' refers to alternative 
minimum capital requirements that CME represents that CFETS would be 
required to meet that are intended to parallel, in effect, the 
minimum capital requirements of Regulation 1.17. These requirements 
may be imposed on CFETS as conditions of a Commission order pursuant 
to Section 4(c)(1), 6(c)(1).
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     CME shall be required to provide the Commission a monthly 
report detailing surrogate capital amounts and calculation (which 
report, or portions thereof, would be published on the Commission's Web 
site). CME shall be required to provide next-day notice to the 
Commission if: (i) Surrogate capital falls below 110% of the 
requirement; or (ii) if a customer margin call exceeds excess surrogate 
capital on deposit.\6\

[[Page 48264]]

CME shall be required to provide the Commission immediate notice of any 
deficiency in surrogate capital.
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    \6\ For example, if CFETS had a surrogate capital requirement of 
$10 million, it would be required to maintain surrogate capital of 
$11 million (110% of the requirement) in a CME-controlled account in 
order to avoid providing the Commission with next-day notice of its 
surrogate capital on deposit.
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     CME and CFETS shall be required to provide all large-
trader reporting information at the same time and in the same format 
that CFETS would be required to provide if CFETS were registered as an 
FCM. CME and CFETS shall be required to act as agent for service of 
process regarding trading on CME for both CFETS members and customers 
of CFETS members.
     CME shall not hold CFETS positions and associated funds in 
U.S. customer accounts segregated pursuant to section 4d of the Act, 7 
U.S.C. 6d.
     CME and CFETS shall be required to maintain records, in 
English, in the U.S., sufficient to permit the Commission to confirm 
compliance with any provision of any order issued by the Commission. 
CME and CFETS shall be required to make such records available to the 
Commission in the U.S. within 72 hours of any request.
     CME and CFETS shall be required to comply with U.S. anti-
money laundering requirements as determined by the U.S. Treasury.
     CME and CFETS shall be required to accept joint and 
several liability in any Commission enforcement action relating to 
compliance with any order issued by the Commission.
     CME and CFETS shall be required to file a report with the 
Commission providing statistics and analyzing issues (to be determined) 
within 18 months after issuance of any relief.

II. Request for Comments

    The Commission requests public comment on any aspect of the 
Petition that commenters believe may raise issues under the CEA or 
Commission regulations. In particular, the Commission invites comment 
regarding: (1) Whether the proposed exemption is consistent with the 
requirements for relief set forth in section 4(c) of the Act, 7 U.S.C. 
6(c), including whether granting the exemption would be consistent with 
the public interest and the purposes of the CEA; (2) whether CME's 
representations, as discussed above, if imposed as conditions of an 
order pursuant to section 4(c)(1), section 6(c)(1), would provide 
adequate safeguards with respect to the U.S. clearing system in light 
of CFETS' exemption from the FCM registration requirement; (3) whether 
an order granting the request for relief should include requirements 
different from or in addition to those discussed above; (4) whether an 
order granting the request for relief should exclude any one or more of 
the requirements discussed above; (5) any material adverse effects that 
granting the petition would have upon other derivatives clearing 
organizations, exchanges, or other Commission registrants from a 
competitive \7\ or other perspective \8\; and (6) any other issues 
relevant to this petition.
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    \7\ As noted above, the Commission may grant an exemption 
pursuant to Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), ``[i]n 
order to promote responsible economic or financial innovation and 
fair competition.'' Section 15(b) of the Act, 7 U.S.C. 19(b), 
provides that the ``Commission shall take into consideration the 
public interest to be protected by the antitrust laws and endeavor 
to take the least anticompetitive means of achieving the objectives 
of this chapter, as well as the policies and purposes of this 
chapter, in issuing any order * * *.''
    \8\ The Commission notes that Section 15(a) of the Act, 7 U.S.C. 
19(a), requires that the Commission, before issuing an order, 
consider the costs and benefits in light of considerations of 
protection of market participants and the public; considerations of 
the efficiency, competitiveness, and financial integrity of futures 
markets; considerations of price discovery; considerations of sound 
risk management practices; and other public interest considerations.

    Issued in Washington, DC, on August 8, 2007 by the Commission.
David A. Stawick,
Secretary of the Commission.
 [FR Doc. E7-16641 Filed 8-22-07; 8:45 am]
BILLING CODE 6351-01-P