2020-24658
[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