Foreign Futures and Options Transactions, 74869-74872 [2020-24662]
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Federal Register / Vol. 85, No. 227 / Tuesday, November 24, 2020 / Rules and Regulations
under the exemption granted by this
Order;
(2) 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
Commission § 30.5;
(3) 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.;
(4) 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.;
(5) Undertakes to comply with the
applicable provisions of Swiss laws and
FINMA rules that form the basis upon
which this exemption from certain
provisions of the Act and regulations
thereunder is granted, and will notify
the Commission promptly of all material
changes to the relevant laws in
Switzerland, any rules promulgated
thereunder and FINMA rules;
(6) Will provide customers located in
the U.S. no less stringent regulatory
protection than Switzerland customers
under all relevant provisions of Swiss
law;
(7) Will cooperate with the
Commission with respect to any
inquiries concerning any activity subject
to regulation under the Part 30
Regulations, and 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
Switzerland 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; and
(8) 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; provided,
however, that the firm may require its
customers located in the U.S. to execute
a consent concerning the exhaustion of
certain mediation or conciliation
procedures made available by FINMA
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prior to bringing an NFA arbitration
proceeding.
As set forth in the Commission’s
September 11, 1997 Order delegating to
NFA certain responsibilities, the written
representations set forth in paragraphs
(1)–(8) above shall be filed with NFA.9
This Order will become effective as to
UBS the later of the date of publication
of the Order in the Federal Register or
the filing of the consents set forth above.
Should the Commission receive written
notice from FINMA or UBS that any
change in status of UBS affects its
continued eligibility for the exemption
granted hereunder, including the
termination of its activities in the U.S.,
the relief granted by this Order may be
suspended immediately as to UBS. That
suspension will remain in effect
pending further notice by the
Commission, or the Commission’s
designee, to UBS and FINMA.
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 UBS granted
relief hereunder based upon the filing
and representations of UBS 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 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
Commission may, after appropriate
notice and opportunity to respond,
condition, modify, suspend, terminate,
withhold as to UBS, 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
§ 30.10(c).10
The Commission will continue to
monitor the implementation of its
9 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 Regulation 30.10
Order and to grant exemptive relief from
registration to qualifying firms.
10 17 CFR 30.10(c). See 85 FR 15359 (Mar. 18,
2020).
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74869
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. 2020–24661 Filed 11–23–20; 8:45 am]
BILLING CODE 6351–01–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 30
Foreign Futures and Options
Transactions
Commodity Futures Trading
Commission.
AGENCY:
ACTION:
Order.
The Commodity Futures
Trading Commission (Commission or
CFTC) is granting an exemption to
certain member firms designated by the
BSE Limited (BSE) from the application
of certain of the Commission’s foreign
futures and option regulations based
upon substituted compliance with
certain comparable regulatory and selfregulatory requirements of a foreign
regulatory authority consistent with
conditions specified by the
Commission, as set forth herein. This
Order is issued pursuant to Commission
regulation 30.10, which permits persons
to file a petition with the Commission
for exemption from the application of
certain of the regulations 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. The Commission notes that
this Order does not pertain to any
transaction in swaps, as defined in
Section 1a(47) of the Commodity
Exchange Act (Act).
SUMMARY:
This Order is effective November
24, 2020.
DATES:
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FOR FURTHER INFORMATION CONTACT:
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Andrew Chapin, Associate Chief
Counsel, (202) 418–5465, achapin@
cftc.gov, or C. Barry McCarty, Special
Counsel, (202) 418–6627, cmccarty@
cftc.gov, 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 Under CFTC Regulation 30.10
Exempting Firms Designated by BSE
Limited (BSE) From the Application of
Certain of the Foreign Futures and
Option Regulations the Later of the
Date of Publication of the Order Herein
in the Federal Register or After Filing
of Consents by Such Firms and BSE, as
Appropriate, to the Terms and
Conditions of the Order Herein
Commission Regulations governing
the offer and sale of commodity futures
and option contracts traded on or
subject to the regulations of a foreign
board of trade to customers located in
the U.S. are contained in Part 30 of the
Commission’s regulations.1 These
regulations 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.
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 impact of
such a program. 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 regulations based upon
substituted compliance with the
regulatory requirements of the foreign
jurisdiction.2
Appendix A to Part 30, ‘‘Interpretative
Statement With Respect to the
Commission’s Exemptive Authority
Under § 30.10 of Its Rules’’ (Appendix
A), generally sets forth the elements the
Commission will evaluate in
1 Commission regulations referred to herein are
found at 17 CFR Ch. I.
2 ‘‘Foreign Futures and Foreign Options
Transactions,’’ 52 FR 28290 (Aug. 5, 1987).
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determining whether a particular
regulatory program may be found to be
comparable for purposes of exemptive
relief pursuant to Regulation 30.10.3
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; and (6) procedures
to audit for compliance with, and to
take action against those persons who
violate, the requirements of the
program. In addition, Appendix A to
Part 30 further provides that any
exemption of a general nature based on
comparability requires appropriate
information sharing arrangements
between the Commission and the
appropriate governmental agency 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.
Moreover, the Commission
specifically stated in adopting
Regulation 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 the Commission and Department
of Justice representatives; and (3) notify
NFA of the commencement of business
in the U.S.4 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.5
On February 26, 2016, BSE petitioned
the Commission on behalf of its member
firms, located and conducting a
financial investment business in the
Republic of India, for an exemption
from the application of the
Commission’s Part 30 Regulations to
those firms. BSE amended its petition
on various occasions with additional
information. In support of its petition,
3 52
FR 28990, 29001.
FR 28980, 28981 and 29002.
5 17 CFR part 30, Appendix A.
4 52
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BSE stated that granting such an
exemption with respect to such firms
that it has authorized to conduct foreign
futures and option transactions on
behalf of customers located in the U.S.
would not be contrary to the public
interest or to the purposes of the
provisions from which the exemption is
sought because such firms are subject to
a regulatory framework comparable to
that imposed by the Act and the
regulations thereunder.
Based upon a review of the petition
and supplementary materials filed by
BSE, the Commission has concluded
that BSE has demonstrated to the
Commission’s satisfaction that the
exemption for relief pursuant to
§ 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 Indian law and BSE rules
may be substituted for compliance with
those sections of the Act and regulations
thereunder more particularly set forth
herein.
By this Order, the Commission hereby
exempts, subject to specified conditions,
those firms identified to the
Commission by BSE 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
India.
This determination to permit
substituted compliance is based on,
among other things, the Commission’s
finding that the regulatory framework
governing persons in India who would
be exempted hereunder provides:
(1) A system of qualification or
authorization of firms who deal in
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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-tomarket 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,
BSE and the Indian 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 India,
position data, and data on firms’
standing to do business and financial
condition.
Commission staff has concluded,
upon review of the petition of BSE and
accompanying exhibits, that BSE’s
regulation of futures and options
intermediaries is comparable to that of
the U.S. in the areas specified in
Appendix A of Part 30, as described
above.
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 Regulation 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 entered on or
subject to the rules of BSE for products
that customers located in the U.S. may
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trade.6 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. For example, a BSE member
trading in U.S. markets for its own
account would be subject to the
Commission’s large trader reporting
requirements.7 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 a futures commission
merchant under the Act, it would be
subject to the reporting requirements
applicable to foreign brokers.8 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.
The eligibility of any firm to seek
relief under this exemptive Order is
subject to the following conditions:
(1) The BSE, as the self-regulatory
organization responsible for monitoring
the compliance of such firms with the
regulatory requirements described in the
Regulation 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
India; such firm is engaged in business
with customers located in India 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 located in the U.S. will be
made subject to the regulations of BSE;
(d) Customers located in the U.S. will
be provided no less stringent regulatory
protection than India customers under
6 See,
e.g., Sections 2(a)(1)(C) and (D) of the Act.
e.g., 17 CFR part 18.
8 See, e.g., 17 CFR parts 17 and 21.
7 See,
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74871
all relevant provisions of Indian law;
and
(e) 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
Regulation 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
India 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; provided,
however, that the firm may require its
customers located in the U.S. to execute
a consent concerning the exhaustion of
certain mediation or conciliation
procedures made available by BSE prior
to bringing an NFA arbitration
proceeding; and
(f) Undertakes to comply with the
applicable provisions of Indian laws
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and BSE rules that form the basis upon
which this exemption from certain
provisions of the Act and regulations
thereunder is granted.
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 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.
This Order will become effective as to
any designated BSE firm 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)–
(f). 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 BSE.
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 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 Commission may,
after appropriate notice and opportunity
to respond, condition, modify, suspend,
terminate, 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
9 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 Regulation 30.10
Order and to grant exemptive relief from
registration to qualifying firms.
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Commission may terminate relief is set
forth in § 30.10(c).10
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. 2020–24662 Filed 11–23–20; 8:45 am]
BILLING CODE 6351–01–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 30
Foreign Futures and Options
Transactions
Commodity Futures Trading
Commission.
ACTION: Order.
AGENCY:
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, achapin@
cftc.gov, 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:
SUMMARY:
10 17 CFR 30.10(c). See 85 FR 15359 (Mar. 18,
2020).
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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 § 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
§ 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
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).
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]]>Agencies
[Federal Register Volume 85, Number 227 (Tuesday, November 24, 2020)]
[Rules and Regulations]
[Pages 74869-74872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24662]
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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: The Commodity Futures Trading Commission (Commission or CFTC)
is granting an exemption to certain member firms designated by the BSE
Limited (BSE) from the application of certain of the Commission's
foreign futures and option regulations based upon 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 regulation 30.10, which permits
persons to file a petition with the Commission for exemption from the
application of certain of the regulations 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. The
Commission notes that this Order does not pertain to any transaction in
swaps, as defined in Section 1a(47) of the Commodity Exchange Act
(Act).
DATES: This Order is effective November 24, 2020.
[[Page 74870]]
FOR FURTHER INFORMATION CONTACT: Andrew Chapin, Associate Chief
Counsel, (202) 418-5465, [email protected], or C. Barry McCarty, Special
Counsel, (202) 418-6627, [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 Under CFTC Regulation 30.10 Exempting Firms Designated by BSE
Limited (BSE) From the Application of Certain of the Foreign Futures
and Option Regulations the Later of the Date of Publication of the
Order Herein in the Federal Register or After Filing of Consents by
Such Firms and BSE, as Appropriate, to the Terms and Conditions of the
Order Herein
Commission Regulations governing the offer and sale of commodity
futures and option contracts traded on or subject to the regulations of
a foreign board of trade to customers located in the U.S. are contained
in Part 30 of the Commission's regulations.\1\ These regulations
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 regulations referred to herein are found at 17
CFR Ch. I.
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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 impact of such a program. 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
regulations based upon substituted compliance with the regulatory
requirements of the foreign jurisdiction.\2\
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\2\ ``Foreign Futures and Foreign Options Transactions,'' 52 FR
28290 (Aug. 5, 1987).
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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
Regulation 30.10.\3\ 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;
and (6) procedures to audit for compliance with, and to take action
against those persons who violate, the requirements of the program. In
addition, Appendix A to Part 30 further provides that any exemption of
a general nature based on comparability requires appropriate
information sharing arrangements between the Commission and the
appropriate governmental agency 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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\3\ 52 FR 28990, 29001.
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Moreover, the Commission specifically stated in adopting Regulation
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 the Commission and Department of Justice representatives; and
(3) notify NFA of the commencement of business in the U.S.\4\ 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.\5\
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\4\ 52 FR 28980, 28981 and 29002.
\5\ 17 CFR part 30, Appendix A.
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On February 26, 2016, BSE petitioned the Commission on behalf of
its member firms, located and conducting a financial investment
business in the Republic of India, for an exemption from the
application of the Commission's Part 30 Regulations to those firms. BSE
amended its petition on various occasions with additional information.
In support of its petition, BSE stated that granting such an exemption
with respect to such firms that it has authorized to conduct foreign
futures and option transactions on behalf of customers located in the
U.S. would not be contrary to the public interest or to the purposes of
the provisions from which the exemption is sought because such firms
are subject to a regulatory framework comparable to that imposed by the
Act and the regulations thereunder.
Based upon a review of the petition and supplementary materials
filed by BSE, the Commission has concluded that BSE 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 Indian law and BSE rules may be substituted for compliance
with those sections of the Act and regulations thereunder more
particularly set forth herein.
By this Order, the Commission hereby exempts, subject to specified
conditions, those firms identified to the Commission by BSE 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 India.
This determination to permit substituted compliance is based on,
among other things, the Commission's finding that the regulatory
framework governing persons in India who would be exempted hereunder
provides:
(1) A system of qualification or authorization of firms who deal in
[[Page 74871]]
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,
BSE and the Indian 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 India, position data, and data on firms' standing to do business and
financial condition.
Commission staff has concluded, upon review of the petition of BSE
and accompanying exhibits, that BSE's regulation of futures and options
intermediaries is comparable to that of the U.S. in the areas specified
in Appendix A of Part 30, as described above.
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 Regulation 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 entered on or subject
to the rules of BSE for products that customers located in the U.S. may
trade.\6\ 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. For example, a BSE member trading in U.S. markets for its own
account would be subject to the Commission's large trader reporting
requirements.\7\ 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 a futures commission merchant under the Act, it would be subject to
the reporting requirements applicable to foreign brokers.\8\ 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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\6\ See, e.g., Sections 2(a)(1)(C) and (D) of the Act.
\7\ See, e.g., 17 CFR part 18.
\8\ 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) The BSE, as the self-regulatory organization responsible for
monitoring the compliance of such firms with the regulatory
requirements described in the Regulation 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 India; such firm is engaged in business with
customers located in India 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 located in the U.S.
will be made subject to the regulations of BSE;
(d) Customers located in the U.S. will be provided no less
stringent regulatory protection than India customers under all relevant
provisions of Indian law; and
(e) 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 Regulation
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 India 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; provided, however, that
the firm may require its customers located in the U.S. to execute a
consent concerning the exhaustion of certain mediation or conciliation
procedures made available by BSE prior to bringing an NFA arbitration
proceeding; and
(f) Undertakes to comply with the applicable provisions of Indian
laws
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and BSE rules that form the basis upon which this exemption from
certain provisions of the Act and regulations thereunder is granted.
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\ 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 (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 Regulation 30.10 Order and to grant exemptive relief
from registration to qualifying firms.
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This Order will become effective as to any designated BSE firm 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)-(f). 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
BSE.
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 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 Commission
may, after appropriate notice and opportunity to respond, condition,
modify, suspend, terminate, 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).\10\
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\10\ 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. 2020-24662 Filed 11-23-20; 8:45 am]
BILLING CODE 6351-01-P
