Foreign Futures and Options Transactions, 74872-74875 [2020-24658]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 85, Number 227 (Tuesday, November 24, 2020)]
[Rules and Regulations]
[Pages 74872-74875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24658]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30


Foreign Futures and Options Transactions

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: By this Order, the Commodity Futures Trading Commission 
(Commission) is amending and consolidating prior relief issued in 
orders pursuant to Commission regulation 30.10 regarding the offer and 
sale of foreign futures and options contracts to customers located in 
the U.S. by firms designated by the Montreal Exchange (MX) to reflect 
changes to the local laws and regulations applicable to the segregation 
of customer funds.

DATES: This Order is effective November 24, 2020.

FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Associate Chief 
Counsel, (202) 418-5465, [email protected], Division of Swap Dealer and 
Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st 
Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order:

Order Amending and Consolidating the Terms and Conditions Set Forth in 
Prior Orders Issued Pursuant to Commission Regulation 30.10 Exempting 
Firms Designated by the Montreal Exchange From the Application of 
Certain of the Foreign Futures and Option Regulations

    Part 30 of the Commission's regulations governs the offer and sale 
of futures and option contracts traded on or subject to the regulations 
of a foreign board of trade (foreign futures and options) to customers 
located in the U.S.\1\ These regulations set forth requirements for 
foreign firms acting in the capacity of a futures commission merchant 
(FCM), introducing broker, commodity pool operator and commodity 
trading adviser with respect to the offer and sale of foreign futures 
and options to U.S. customers and are designed to ensure that such 
products offered and sold in the U.S. are subject to regulatory 
safeguards comparable to those applicable to transactions entered into 
on designated contract markets. Pursuant to Sec.  30.10(a), persons 
located outside the U.S. and subject to a comparable regulatory 
structure in the jurisdiction in which they are located may seek an 
exemption from certain of the requirements under Part 30 of the 
Commission's regulations based upon compliance with the regulatory 
requirements of the person's jurisdiction.\2\ If the Commission 
determines that relief pursuant to Sec.  30.10(a) is not otherwise 
contrary to the public interest or to the purposes of the provisions 
from which exemption is sought, the Commission issues an Order to the 
petitioner--typically a foreign regulator or self-regulatory 
organization (SRO)--that sets forth conditions governing such relief. 
Persons subject to regulatory oversight by the foreign regulator or SRO 
granted an exemption, as appropriate, and located and doing business 
outside the U.S. may solicit or accept orders directly from U.S. 
customers for foreign futures or options transactions and, in the case 
of a person acting in the capacity of an FCM, accept customer money or 
other property, without registering under the

[[Page 74873]]

Commodity Exchange Act (CEA or Act) in the appropriate capacity.\3\
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    \1\ 17 CFR part 30. The Commission promulgated part 30 of its 
regulations in 1987. See Foreign Futures and Foreign Options 
Transactions, 52 FR 28980 (Aug. 5, 1987). Appendix A also 
specifically states that in considering an exemption request, the 
Commission will take into account the extent to which United States 
persons or contracts regulated by the Commission are permitted to 
engage in futures-related activities or be offered in the country 
from which an exemption is sought. 17 CFR part 30, Appendix A.
    \2\ 17 CFR 30.10(a).
    \3\ The term ``futures commission merchant'' is defined in Sec.  
1.3, 17 CFR 1.3.
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    In 1989, the Commission issued an order to MX pursuant to Sec.  
30.10(a) permitting designated members of MX to intermediate on behalf 
of customers located in the U.S. foreign futures and options 
transactions executed on MX without having to register as FCMs with the 
Commission.\4\ In 1997, the Commission issued another order expanding 
the exemptive relief for designated members to include foreign futures 
and options transactions on foreign boards of trade other than MX, as 
permitted by local law and regulation.\5\ At the time that these orders 
were published, the local laws and regulations applicable to MX members 
did not require the segregation of customer funds consistent with those 
requirements applicable to FCMs set forth in Section 4d(f) of the CEA 
and those regulations promulgated thereunder, including Sec.  30.7.\6\ 
As a result, the Commission imposed a condition on each designated 
member of MX seeking confirmation of relief to comply with the secured 
amount requirement set forth in Sec.  30.7. Specifically, among other 
representations, the 1989 Order stated that each MX member agrees to 
maintain, on behalf of customers located in the United States, funds 
equivalent to the ``secured amount'' described in Commission Rule 
1.3(rr), 17 CFR 1.3(rr) (1988), in a separate account as set forth in 
Commission Rule 30.7, 17 CFR 30.7 (1988), and to treat those funds in 
the manner described by that rule.\7\
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    \4\ 54 FR 11179 (Mar. 17, 1989) (1989 Order).
    \5\ 62 FR 8875 (Feb. 27, 1997) (1997 Order). The expanded Sec.  
30.10 relief provided under the 1997 Order was contingent on the 
continued compliance by MX and its designated members with the 1989 
Order along with certain additional conditions. See 62 FR at 8876-7.
    \6\ 7 U.S.C. 6d(f); 17 CFR 30.7.
    \7\ 54 FR at 11182. In the time since the 1989 Order was issued, 
the Commission has amended Sec.  30.7. See, e.g., 78 FR 68648, (Nov. 
14, 2013), as amended at 79 FR 44126, (July 30, 2014).
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    On July 15, 2019, MX petitioned the Commission on behalf of its 
member firms to amend the conditions for relief set forth in the 1989 
and 1997 Orders. In particular, MX requested that the Commission remove 
the condition set forth in subparagraph (f) of the 1989 Order requiring 
MX members to comply with the secured amount requirement set forth in 
Sec.  30.7. In support of its request, MX provided supplementary 
materials demonstrating that the relevant laws and regulations 
governing MX members require the segregation of customer funds 
consistent with Sec.  30.7's secured amount requirement applicable to 
registered FCMs.
    Based upon a review of the petition and supplementary materials 
filed by MX, the Commission has concluded that MX has demonstrated to 
the Commission's satisfaction that the exemption for relief pursuant to 
Sec.  30.10(a) is not otherwise contrary to the public interest or to 
the purposes of the provisions from which exemption is sought. 
Accordingly, the Commission has determined that compliance with 
applicable Qu[eacute]bec law and MX rules may be substituted for 
compliance with those sections of the Act and regulations regarding the 
separate account requirement set forth in Sec.  30.7.
    By this Order, the Commission hereby exempts, subject to specified 
conditions, those firms identified to the Commission by MX as eligible 
for the relief granted herein from:
     Registration with the Commission for firms and for firm 
representatives;
     The requirement in Commission Regulation 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 Regulation 
1.55(b), 17 CFR 1.55(b), and Commission Regulation 33.7, 17 CFR 33.7, 
or as otherwise approved under Commission Regulation 1.55(c), 17 CFR 
1.55(c);
     The separate account requirement contained in Commission 
Regulation 30.7, 17 CFR 30.7;
     Those sections of Part 1 of the Commission's regulations 
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 regulations 
relating to books and records which apply to transactions subject to 
Part 30,

based upon substituted compliance by such persons with the applicable 
statutes and regulations in effect in Qu[eacute]bec, Canada.
    This determination to permit substituted compliance is based on, 
among other things, the Commission's previous finding and the finding 
today that the regulatory framework governing persons in Qu[eacute]bec 
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 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, 
MX and the Qu[eacute]bec 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 Qu[eacute]bec, position data, and data on firms' standing 
to do business and financial condition.
    The relief set forth in this Order permits designated MX members to 
solicit and accept orders from U.S. customers for otherwise permitted 
transactions \8\ on all non-U.S. exchanges where such members are 
authorized under local law and regulation to transact in futures and 
options. The relief does not extend to regulations relating to trading, 
directly or indirectly, on U.S. exchanges, and does not pertain to any 
transaction in swaps, as defined in Section 1a(47) of the Act. This 
Order does not provide an exemption from any provision of the Act or 
regulations thereunder not specified herein, such as the antifraud 
provision in Sec.  30.9. For example, a MX member trading in U.S. 
markets for its own account would be subject to the Commission's large 
trader reporting requirements.\9\ Similarly, if such a firm were 
carrying positions on a U.S. exchange on behalf of foreign clients and 
submitted such transactions for clearing on an omnibus basis through a 
firm registered as an FCM

[[Page 74874]]

under the Act, it would be subject to the reporting requirements 
applicable to foreign brokers.\10\ 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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    \8\ See, e.g., Sections 2(a)(1)(C) and (D) of the Act.
    \9\ See, e.g., 17 CFR part 18.
    \10\ See, e.g., 17 CFR parts 17 and 21.
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    The eligibility of any firm to seek relief under this exemptive 
Order is subject to the following conditions:
    (1) MX, as the SRO responsible for monitoring the compliance of 
such firms with the regulatory requirements described in the Sec.  
30.10 petition, must represent in writing to the Commission that:
    (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 Qu[eacute]bec; such firm is engaged in business 
with customers located in Qu[eacute]bec 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) It will carry out its compliance, surveillance, and rule 
enforcement activities with respect to any transactions on any non-MX 
exchange to the same extent it carries out such activities with respect 
to MX business;
    (d) All transactions with respect to customers located in the U.S. 
will be made subject to the regulations of MX, and the Commission will 
receive prompt notice of all material changes to the relevant laws in 
Qu[eacute]bec, any rules promulgated thereunder and MX rules;
    (e) Customers located in the U.S. will be provided no less 
stringent regulatory protection than customers in Qu[eacute]bec under 
all relevant provisions of Qu[eacute]bec law;
    (f) It will cooperate with the Commission with respect to any 
inquiries concerning any activity subject to regulation under the Part 
30 Regulations, 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.
    (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 and 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 Sec.  30.5;
    (c) Agrees to provide access to its books and records related to 
transactions under Part 30, including those transactions undertaken on 
any non-U.S. exchange, required to be maintained under the applicable 
statutes and regulations in effect in Qu[eacute]bec 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 Canadian 
laws and MX rules that form the basis upon which this exemption from 
certain provisions of the Act and regulations thereunder is granted; 
and
    (g) Notwithstanding provisions of the Qu[eacute]bec regulatory 
program, consents not to commingle the foreign futures and options 
funds or property of any customer located in the U.S. with funds of any 
account holders unrelated to trading foreign futures or foreign 
options; and refuse to any customer located in the U.S. the option of 
not segregating customer funds.
    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.\11\ 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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    \11\ 62 FR 47792, 47793 (Sept. 11, 1997). Among other duties, 
the Commission authorized NFA to receive requests for confirmation 
of Regulation 30.10 relief on behalf of particular firms, to verify 
such firms' fitness and compliance with the conditions of the 
appropriate Sec.  30.10 Order and to grant exemptive relief from 
registration to qualifying firms.
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    This Order will become effective immediately as to any designated 
MX firm which currently operates under the 1989 and 1997 Orders, who 
will be deemed to have consented to the amended conditions by effecting 
transactions pursuant to this Order. With respect to any other 
designated MX firms, the relief will be become effective the later of 
the date of publication of the Order in the Federal Register or the 
filing of the consents set forth in paragraphs (2)(a)-(g). 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 MX.
    This Order is issued pursuant to Regulation 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 exemption is not otherwise contrary to the public interest or 
to the purposes of the provision from which exemption is sought. 
Further, if experience demonstrates that the continued effectiveness of 
this Order in general, or with respect to a particular firm, would be 
contrary to public policy or to the purposes of the provision from 
which exemption is sought, 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 Commission 
may, after appropriate notice and opportunity to respond, condition, 
modify, suspend, terminate,

[[Page 74875]]

withhold as to a specific firm, or otherwise restrict the exemptive 
relief granted in this Order, as appropriate and as permitted by law, 
on its own motion. The process by which the Commission may terminate 
relief is set forth in Sec.  30.10(c).\12\
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    \12\ 17 CFR 30.10(c). See 85 FR 15359 (Mar. 18, 2020).
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    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 regulations and will make necessary 
adjustments if appropriate.

    Issued in Washington, DC, on November 2, 2020, by the 
Commission.
Robert Sidman,
Deputy Secretary of the Commission.

    Note:  The following appendix will not appear in the Code of 
Federal Regulations.

Appendix to Foreign Futures and Options Transactions--Commission Voting 
Summary

    On this matter, Chairman Tarbert and Commissioners Quintenz, 
Behnam, Stump, and Berkovitz voted in the affirmative. No 
Commissioner voted in the negative.

[FR Doc. 2020-24658 Filed 11-23-20; 8:45 am]
BILLING CODE 6351-01-P