[Federal Register: January 17, 2002 (Volume 67, Number 12)]
[Notices]
[Page 2419-2420]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ja02-31]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
Recognition of Multilateral Clearing Organizations
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and order.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
issuing an Order pursuant to section 409(b)(3) of the Federal Deposit
Insurance Corporation Improvement Act (``FDICIA''). Section 409
provides that the Commission (or one of several other authorized U.S.
financial regulators) may determine that the supervision by a foreign
financial regulator of a multilateral clearing organization for over-
the-counter derivative instruments satisfies appropriate standards. The
Commission is issuing this Order pursuant to section 409(b)(3) of
FDICIA with respect to the Norwegian Banking, Insurance and Securities
Commission and its supervision of NOS Clearing ASA, a Norwegian
clearing house.
EFFECTIVE DATE: January 11, 2002.
FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Staff Attorney,
Division of Trading and Markets, Commodity Futures Trading Commission,
1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5430.
SUPPLEMENTARY INFORMATION: The Commission has issued the following
Order:
[[Page 2420]]
Order Issued Pursuant to Section 409 of the Federal Deposit
Insurance Corporation Improvement Act Regarding the Multilateral
Clearing Activities of NOS Clearing ASA in Connection With
Transactions Entered Into on the International Maritime Exchange
On December 21, 2000, the President signed into law the Commodity
Futures Modernization Act (``CFMA''), which substantially revised the
Commodity Exchange Act (``CEA'') and other federal statutes, including
FDICIA.\1\ In particular, new section 409 of FDICIA provides that a
clearing organization may operate a multilateral clearing organization
(``MCO'') \2\ for over-the-counter derivatives instruments (``OTC
derivatives'') \3\ if, among other alternatives, it is supervised by a
foreign financial regulator that the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Securities and Exchange Commission, or the
Commission, as applicable, has determined satisfies appropriate
standards.
---------------------------------------------------------------------------
\1\ See Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).
\2\ Section 408(1) of FDICIA defines MCO to mean ``a system
utilized by more than [two] participants in which the bilateral
credit exposures of participants arising from the transactions
cleared are effectively eliminated and replaced by a system of
guarantees, insurance, or mutualized risk of loss.''
\3\ Section 408(2) of FDICIA defines over-the-counter derivative
instrument to include any agreement, contract, or transaction exempt
under section 2(h) of the CEA.
---------------------------------------------------------------------------
NOS Clearing ASA (``NOS'') has requested that the Commission
determine that the oversight of its activities by the Norwegian
Banking, Insurance and Securities Commission (``BISC'') satisfies the
criteria for operating as an MCO set forth in section 409(b)(3) of
FDICIA.\4\ NOS intends to operate as an MCO with respect to OTC
derivatives transactions to be executed on the International Maritime
Exchange (``IMAREX'').\5\ IMAREX operates an electronic trading
facility for cash-settled futures contracts for the transportation of
maritime freight.
---------------------------------------------------------------------------
\4\ Letter from Joshua M. Cohn, Esq., Allen & Overy, counsel to
NOS, to Jean Webb, Secretary, Commodity Futures Trading Commission,
dated December 21, 2001, with exhibits.
\5\ IMAREX filed a notification with the Commission indicating
its intent to operate an electronic trading facility in reliance on
the exemption set forth in section 2(h)(3) of the CEA. In accordance
with the notification requirement applicable to section 2(h)(3)
electronic trading facilities, IMAREX identified NOS as the MCO to
which IMAREX will transmit transaction data for the purpose of
facilitating clearance and settlement of transactions. IMAREX
commenced trading on November 2, 2001.
---------------------------------------------------------------------------
In its request, NOS provided the Commission with a detailed
description of the Norwegian regulatory program applicable to clearing
organizations along with English translations of the relevant Norwegian
statutes and regulations. NOS also provided the Commission with
information comparing the regulatory requirements applicable to NOS and
the regulatory requirements applicable to derivatives clearing
organizations (``DCOs'') in the U.S., as set forth in Part 39 of the
Commission's rules.\6\ The Commission also evaluated the oversight
activities undertaken by BISC in the context of the Principles and
Objectives of Securities Regulation issued by the International
Organization of Securities Commissions.
---------------------------------------------------------------------------
\6\ See 66 FR 45604 (August 29, 2001). Part 39 of the
Commission's rules stipulates the form and provides guidance for
what should be included in applications for DCO registration. Part
39 also addresses ongoing compliance by DCOs with the core
principles and other provisions of the CEA and rules thereunder. The
guidance set forth in Part 39 merely illustrates the manner in which
a clearing organization may meet a core principle and is not
intended to be a mandatory checklist.
---------------------------------------------------------------------------
In support of NOS's request for relief, BISC confirmed that:
BISC is authorized under the Norwegian Securities Trading
Act and the Financial Supervision Act to supervise the clearing of
financial instruments by persons located in Norway and has the ability
to enforce compliance with the applicable laws, rules and
regulations;\7\
---------------------------------------------------------------------------
\7\ See Act on Securities Trading, No. 79 of 19 June 1997
(``Securities Trading Act''); Act on the Supervision of Credit
Institutions, Insurance Companies and Securities Trading of 1956
(``Financial Supervision Act''), paragraph 1 No. 13.
---------------------------------------------------------------------------
Clearing in Norway of financial derivatives, including
commodity derivatives, as defined in the Securities Trading Act,\8\ as
well as financial forward contracts, options or swaps, may be conducted
only by a clearing house with authorization from the Norwegian Ministry
of Finance, and NOS Clearing ASA has received such authorization;
---------------------------------------------------------------------------
\8\ See Securities Trading Act, section 1-2 paragraph 2 No. 8.
---------------------------------------------------------------------------
Trading on IMAREX that is cleared by NOS is subject to
regulatory oversight by BISC;
BISC is a member of IOSCO, has adopted IOSCO's Principles
and Objectives of Securities Regulation, and has established systems
consistent with those Principles and Objectives; and
BISC has the ability and undertakes to share with the
Commodity Futures Trading Commission, upon request, information in its
possession regarding U.S. persons using NOS as a clearing facility in
connection with contracts listed for trading on IMAREX and to otherwise
cooperate with the CFTC, subject to Norwegian law.\9\
---------------------------------------------------------------------------
\9\ See Act of 10 February 1967 Relating to Procedure in Cases
Concerning the Public Administration; Act of 19 June 1970 no. 69 on
Public Access to Documents in the Public Administration; Financial
Supervision Act.
---------------------------------------------------------------------------
Based upon the information and materials submitted by NOS, and the
representations made by BISC, the Commission has determined that the
supervision by BISC of an MCO for OTC derivatives operated by NOS
satisfies the criteria set forth in section 409(b)(3) of FDICIA. The
Commission has not, however, made any independent investigation or
assessment of the Norwegian regulatory program applicable to NOS and
its clearing activities. Any material changes or omissions in the facts
and circumstances pursuant to which this Order is issued might require
the Commission to reconsider this matter.
Issued in Washington, DC on January 11, 2002.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 02-1205 Filed 1-16-02; 8:45 am]
BILLING CODE 6351-01-M