2020-05097
Federal Register, Volume 85 Issue 53 (Wednesday, March 18, 2020)
[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Rules and Regulations]
[Pages 15359-15363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05097]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 30
RIN 3038-AE86
Foreign Futures and Options Transactions
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (Commission) is
issuing a final rule that amends its regulations governing the offer
and sale of foreign futures and options to customers located in the
U.S. The amended regulation codifies the process
[[Page 15360]]
by which the Commission may terminate exemptive relief issued pursuant
to its regulations.
DATES: The rule is effective March 18, 2020.
FOR FURTHER INFORMATION CONTACT: Joshua Sterling, Director,
[email protected]; Frank Fisanich, Chief Counsel, [email protected];
or Andrew Chapin, Associate Chief Counsel, [email protected], Division
of Swap Dealer and Intermediary Oversight, Commodity Futures Trading
Commission, 1155 21st Street NW, Washington, DC 20581, (202) 418-5000.
SUPPLEMENTARY INFORMATION:
I. Background
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 home jurisdiction.\2\
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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). The Commission promulgated
these regulations pursuant to Section 2(b)(2)(A) of the Commodity
Exchange Act (CEA), 7 U.S.C. 6(b)(2)(A).
\2\ 17 CFR 30.10(a).
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A petition for exemption pursuant to Sec. 30.10(a) typically is
filed on behalf of persons located and doing business outside the U.S.
that seek access to U.S. customers by: (1) A governmental agency
responsible for implementing and enforcing the foreign regulatory
program; or (2) a self-regulatory organization (SRO) of which such
persons are members. A petitioner who seeks an exemption pursuant to
Sec. 30.10(a) must set forth with particularity the comparable
regulations applicable in the jurisdiction in which that person is
located. The Commission may, in its discretion, grant such an exemption
if it is demonstrated to the Commission's satisfaction that the
exemption is not otherwise contrary to the public interest or to the
purposes of the provision from which exemption is sought. 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 Sec. 30.10,\3\
and 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.\4\
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\3\ 52 FR 28990, 29001.
\4\ 17 CFR part 30, appendix A.
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If the Commission determines that relief pursuant to Sec. 30.10(a)
is appropriate, the Commission issues an Order to the person that filed
the petition for relief (typically the foreign regulator or SRO) that
sets forth conditions governing such relief. After the relief is
granted to the foreign regulator or SRO, persons under its regulatory
oversight 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 CEA in the appropriate capacity.\5\ The
Commission reserves the right within each Order issued pursuant to
Sec. 30.10(a) to condition, modify, suspend, terminate, or otherwise
restrict the exemptive relief granted, as appropriate, on its own
motion.
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\5\ The term ``futures commission merchant'' is defined in Sec.
1.3, 17 CFR 1.3.
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II. The Proposal
The Commission published for public comment in the Federal Register
on July 5, 2019 a notice of proposed rulemaking (the Proposal)
proposing amendments to regulation Sec. 30.10.\6\ As noted above,
Sec. 30.10(a) sets forth the process by which any person adversely
affected by any requirement set forth in part 30 may file a petition
with the Commission seeking an exemption. While Sec. 30.10(a) provides
that the Commission may grant an exemption subject to any terms or
conditions it may find appropriate, the regulation does not provide a
specific course of action should the Commission determine that
exemptive relief is no longer warranted. Accordingly, the Commission
proposed to amend Sec. 30.10 by adding a new paragraph (c) to codify
the process by which the Commission may terminate exemptive relief
issued pursuant to paragraph (a).
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\6\ See Foreign Futures and Options Transactions, 84 FR 32105
(Jul. 5, 2019).
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Specifically, the Proposal provided that the Commission may
terminate exemptive relief, after appropriate notice and an opportunity
to respond, under certain circumstances. First, the Commission could
terminate the relief should it determine that there has been a material
change or omission in the facts and circumstances pursuant to which
relief was granted that demonstrate that the standards set forth in
appendix A forming the basis for granting such relief are no longer
met. Second, the Commission could terminate relief should it determine
that the continued exemptive relief would be contrary to the public
interest or inconsistent with the purposes of the regulation Sec.
30.10 exemption. For example, in considering whether exemptive relief
continues to be warranted, the Commission could take into account any
material changes in the applicable regulatory regime, including a lack
of comity relating to the execution or clearing of any commodity
interest \7\ subject to the Commission's exclusive jurisdiction.\8\
Third, the Commission could terminate relief should it determine that
information-sharing arrangements no longer adequately support exemptive
relief.
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\7\ The term ``commodity interest'' includes, among other
things, any contract for the purchase or sale of a commodity for
future delivery, or any swap as defined in the CEA. See 17 CFR 1.3.
\8\ The Commission's exclusive jurisdiction is set forth in 7
U.S.C. 2(a).
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The Proposal also provided any affected person with an appropriate
opportunity to respond to any notice by the Commission issued pursuant
to Sec. 30.10(c)(1). The affected person is the foreign regulator,
SRO, or other entity that filed the original petition for relief.\9\
The Commission proposed that the timing for any opportunity to respond
would take into account the exigency of circumstances. The Commission
noted that it is able to suspend immediately the relief set forth in
any Order issued pursuant to Sec. 30.10(a) should exigent
circumstances occur. Thus, the Proposal stated that the affected party
would have a period of 30 business days, or
[[Page 15361]]
such time as the Commission permits in writing to respond to the
notification. This time period could be less than 30 business days
depending on the exigency of the circumstances and other relevant
considerations.
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\9\ Paragraph (a) of the current regulation states that any
person adversely affected by any requirement of this part may file a
petition. 17 CFR 30.10(a).
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Should the Commission ultimately determine to terminate any
exemptive relief, it proposed that the Commission would be required to
notify the affected person in writing setting forth the particular
reasons why relief is no longer warranted and issue an Order
terminating exemptive relief to be published in the Federal Register.
Proposed Sec. 30.10(c)(2)-(4) provided further that any Order
terminating exemptive relief would set forth an appropriate time frame
for the orderly transfer or close out of any accounts held by U.S.
customers impacted by such an Order. Finally, proposed Sec. 30.10
(c)(5) provided that any person whose relief has been terminated may
re-apply for exemptive relief 360 days after the issuance of the
relevant Order by the Commission if the deficiency causing the
revocation has been cured or relevant facts and circumstances have
changed.
III. Comments
The Commission received three comment letters on the Proposal from
the Intercontinental Exchange, Inc. (ICE); the Futures Industry
Association (FIA); and the CME Group Inc. (CME Group).\10\ Each of the
commenters commended the long-standing success of the Commission's
program for regulatory deference set forth in Sec. 30.10 and generally
supported the Proposal to provide greater transparency to the process
by which the Commission may terminate exemptive relief.
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\10\ The comment letters can be found at: https://comments.cftc.gov/PublicComments/CommentList.aspx?id=3002.
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Both CME Group and FIA urged the Commission to adhere to the
standard set forth in appendix A regarding principles of regulatory
comity. In particular, these commenters noted that the Commission, in
consideration of any petition submitted pursuant to Sec. 30.10(a),
should take into account the extent to which U.S. 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. Both commenters recognized that complementary regulatory
programs of mutual recognition across jurisdictional boundaries reduce
artificial barriers to market access, encourage liquidity, promote
price discovery, and mitigate market fragmentation. Otherwise, market
intermediaries will be required to comply with more costly, overlapping
regulation that fail to take into account the market structure and
participants in local markets.
With respect to specific rule text, both ICE and FIA requested that
the final regulation provide all market participants--and not simply
the foreign regulator or SRO to which the Order was issued--with notice
and opportunity to comment on any notification by the Commission of its
intention to terminate exemptive relief. Both commenters noted that
market intermediaries taking advantage of such relief would be better
positioned to plan for, and potentially mitigate, any possible business
and market disruptions resulting from the termination of relief with
formal notice from the Commission.
IV. Final Rule
The Commission has considered the comments from ICE, FIA, and CME
Group and is adopting Sec. 30.10(c) as proposed, with two
modifications. The Commission agrees with comments that market
intermediaries taking advantage of such relief and other market
participants impacted by the potential termination of relief may
provide helpful insight to the Commission as it considers whether
termination is appropriate. Accordingly, the Commission is adopting a
change to proposed Sec. 30.10(c)(2) to provide parties other than the
affected person with notice of and opportunity to comment on any
potential termination of relief.
Revised Sec. 30.10(c)(2) will require the Commission to publish on
its website any notice of an intention to terminate relief. The
Commission expects that the notice would be published on the website at
substantially the same time that it is sent to the affected person,
subject to any logistical or similar considerations. In this manner,
market intermediaries--and derivatively, their U.S. customers--will be
prompted to communicate with the Commission regarding any issues
relevant to the potential termination of relief, including those
regarding the potential transfer of customer accounts and property. The
Commission also is adopting a corresponding change to Sec. 30.10(c)(3)
to provide persons other than the affected party with the opportunity
to respond to the notification in writing no later than 30 business
days following the publication on the Commission's website of the
notification, or at such time as the Commission permits in writing
(which could be more or less than 30 business days, depending on the
exigency of the circumstances and other relevant considerations).
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that Federal agencies
consider whether the rules that they issue will have a significant
economic impact on a substantial number of small entities and, if so,
to provide a regulatory flexibility analysis regarding the impact on
those entities. Each Federal agency is required to conduct an initial
and final regulatory flexibility analysis for each rule of general
applicability for which the agency issues a general notice of proposed
rulemaking.\11\
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\11\ See U.S.C. 601 et seq.
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As noted in the Proposal, this rule would affect foreign members of
foreign boards of trade who perform the functions of an FCM. While the
RFA may not apply to foreign entities,\12\ the Commission previously
determined that FCMs should be excluded from the definition of small
entities.\13\ Accordingly, the Chairman, on behalf of the Commission,
hereby certifies, pursuant to 5 U.S.C. 605(b), that the final
regulations will not have a significant impact on a substantial number
of small entities.
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\12\ See 13 CFR 121.105 (noting that a small business is a
business entity organized for profit, with a place of business
located in the U.S., and which operates primarily within the U.S.,
or which makes a significant contribution to the U.S. economy
through payment of taxes or use of American products, materials or
labor).
\13\ See, e.g., Policy Statement and Establishment of
Definitions of ``Small Entities'' for purposes of the Regulatory
Flexibility Act, 47 FR 18618, 18619 (Apr. 30, 1982).
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) imposes certain
requirements on Federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. Under the PRA, an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number from the Office of Management and Budget (OMB). The final
regulations adopted would result in a collection of information within
the meaning of the PRA, as discussed below. Therefore, the Commission
is submitting the Final Rules to OMB for approval.
As discussed in the Proposal, final Sec. 30.10(c)(2) will result
in a collection of information within the meaning of the PRA, as
discussed below. This final rule contains a collection of information
for
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which the Commission has not previously received control numbers from
the Office of Management and Budget (OMB). As noted in the Proposal,
the Commission has submitted to OMB an information collection request
to obtain an OMB control number for the collection contained in this
proposal in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.
Specifically, final Sec. 30.10(c)(3) provides any party affected
by the Commission's determination to terminate relief with the
opportunity to respond to the notification in writing no later than 30
business days following the receipt of the notification, or at such
time as the Commission permits in writing. The Commission estimates
that, if adopted, it would receive one response to this collection
resulting in eight burden hours annually.
In the Proposal, the Commission invited the public and other
Federal agencies to comment on any aspect of the proposed information
collection requirements discussed therein.\14\ The Commission did not
receive any such comments.
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\14\ Proposal, 84 FR at 32107.
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C. Cost-Benefit Considerations
1. Summary
Section 15(a) of the CEA \15\ requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. The baseline for this
consideration of costs and benefits is the current status, where the
Commission has not codified the procedures by which the Commission may
terminate exemptive relief issued pursuant to Sec. 30.10(a). As noted
in the Proposal, the Commission has not yet terminated such relief, so
the Commission has not yet implemented a procedure for terminating such
exemptions. Moreover, the Commission has limited relevant or useful
quantitative data to assess the potential costs and benefits of the
final regulation Sec. 30.10(c). Accordingly, the Commission generally
considered the costs and benefits of final regulation Sec. 30.10(c) in
qualitative terms. The Commission invited comment on its preliminary
consideration of the costs and benefits associated with the proposed
changes to Sec. 30.10,\16\ and received no such comments.
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\15\ 7 U.S.C. 19(a).
\16\ Id.
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As a general matter, final Sec. 30.10(c) will inform the public,
affected persons and market participants of the basis on which the
Commission may terminate exemptive relief pursuant to Sec. 30.10(a)
and establishing a process whereby an affected party would first be
notified and given an opportunity to respond before the Commission
would take any action. The affected party will benefit from the clear
process set forth in the final regulation. The affected person will
only incur costs in connection with the final regulation to the extent
that the Commission identified a basis for terminating the exemption
and notified the party of that basis. Similarly, market participants
and other interested members of the public would incur costs in
connection with responding to the posting of the notice on the
Commission's website. Those costs would include reviewing and
responding to the notification, which the Commission believes would
vary depending on the circumstances, including the stated basis for
termination. As stated above, the Commission believes that 30 days, or
such additional or less time as the Commission may permit in writing
due to any exigent circumstances, will be sufficient for the affected
person and other interested parties to develop a response while
allowing the Commission to take timely action to consider their
interests.
The Commission requested comment on the potential costs and
benefits of proposed Sec. 30.10(c), including, where possible,
quantitative data, and on any alternative proposals that might achieve
the objectives of the proposed regulation, and the costs and benefits
associated with any such alternatives.\17\ The Commission did not
receive any such comments.
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\17\ Proposal, 84 FR 32108.
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2. Section 15(a) Factors
Section 15(a) specifies that the costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
(1) Protection of market participants and the public; (2) efficiency,
competitiveness, and financial integrity of the futures markets; (3)
price discovery; (4) sound risk management practices; and (5) other
public interest considerations.
The Commission is considering the costs and benefits of these rules
in light of the specific provisions of Section 15(a) of the CEA:
a. Protection of Market Participants and the Public. Section
15(a)(2)(A) of the CEA requires the Commission to evaluate the costs
and benefits of a proposed regulation in light of protection of market
participants and the public. The final regulations will benefit
affected persons, market participants and the public by setting forth a
clear procedure for the Commission's termination of exemptive relief
issued pursuant to Sec. 30.10(a). The final regulations will provide
affected persons, market participants and the public with a reasonable
timeframe to communicate any concerns to the Commission and, if
necessary, for the orderly transfer of any accounts held by U.S.
customers impacted by an order terminating relief.
b. Efficiency, Competitiveness, and Financial Integrity of Markets.
Section 15(a)(2)(B) of the CEA requires the Commission to evaluate the
costs and benefits of a proposed regulation in light of efficiency,
competitiveness, and financial integrity considerations. The Commission
has not identified a specific effect on the efficiency and financial
integrity of markets as a result of the proposed regulations. There may
be a minor impact from termination of an exemption on the
competitiveness of futures markets. Foreign futures and options may
compete directly or indirectly with contracts listed on DCMs. Due to
legal restrictions in foreign jurisdictions, the only way that U.S.
customers may access certain foreign contracts may be through an exempt
foreign firm. The termination of any exemptive relief therefore may
reduce the available options for U.S. market participants.
c. Price Discovery. Section 15(a)(2)(C) of the CEA requires the
Commission to evaluate the costs and benefits of a proposed regulation
in light of price discovery considerations. The Commission believes
that the final regulations will not have any significant impact on
price discovery.
d. Sound Risk Management Practices. Section 15(a)(2)(D) of the CEA
requires the Commission to evaluate the costs and benefits of a
proposed regulation in light of sound risk management practices. The
Commission believes that the final regulations will not have a large
impact on the risk management practices of the futures and options
industry. However, to the extent that having a transparent process for
terminating exemptions issued to foreign regulatory or self-regulatory
organizations on behalf of individual firms may encourage an increased
offer and sale of contracts that more closely match the hedging needs
of particular U.S. market participants, the practice of sound risk
management might be improved slightly.
e. Other Public Interest Considerations. Section 15(a)(2)(E) of the
CEA requires the Commission to evaluate the costs and benefits of a
proposed regulation in light of other
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public considerations. The Commission believes that having a
transparent process for terminating an exemption from registration
will, in the event that the Commission believes such a termination may
be warranted, provide an appropriate notice and opportunity to comment
to the public, affected persons, exempt Sec. 30.10 firms, and market
participants who may be affected by the termination of an order of
Sec. 30.10 exemption.
3. Antitrust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least competitive means of achieving the
objectives of the CEA in issuing any order or adopting any Commission
regulation. The Commission has determined that the final amendments to
Sec. 30.10 have no anticompetitive effects. The final regulation is a
procedural rule that will not cause a change in the behavior that would
alter the level playing fields of regulated entities.
List of Subjects in 17 CFR Part 30
Consumer protection, Fraud.
For the reasons set forth in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 30 as follows:
PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS
0
1. The authority citation for part 30 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise
noted.
0
2. Add paragraph (c) to Sec. 30.10 to read as follows:
Sec. 30.10 Petitions for exemption.
* * * * *
(c)(1) The Commission may, in its discretion and upon its own
initiative, terminate the exemptive relief granted to any person
pursuant to paragraph (a) of this section, after appropriate notice and
an opportunity to respond, if the Commission determines that:
(i) There is a material change or omission in the facts and
circumstances pursuant to which relief was granted that demonstrate
that the standards set forth in appendix A to this part forming the
basis for granting such relief are no longer met; or
(ii) The continued effectiveness of any such exemptive relief would
be contrary to the public interest or inconsistent with the purposes of
the exemption under paragraph (a) of this section; or
(iii) The arrangements in place for the sharing of information with
the Commission do not warrant continuation of the exemptive relief
granted.
(2) The Commission shall provide written notification to the
affected party of its intention to terminate an exemption pursuant to
paragraph (a) of this section and the basis for that intention. Such
written notification also shall be published prominently on the
Commission's website.
(3) The affected party may respond to the notification in writing
no later than 30 business days following the receipt of the
notification, or at such time as the Commission permits in writing. Any
other person may respond to the notification in writing no later than
30 business days following the publication on the Commission's website
of the written notice issued to the affected party, or at such time as
the Commission permits in writing.
(4) If, after providing any affected person appropriate notice and
opportunity to respond, the Commission determines that relief pursuant
to paragraph (a) of this section is no longer warranted, the Commission
shall notify the person of such determination in writing, including the
particular reasons why relief is no longer warranted, and issue an
Order Terminating Exemptive Relief. Any Order Terminating Exemptive
Relief shall provide an appropriate timeframe for the orderly transfer
or close out of any accounts held by U.S. customers impacted by such an
Order.
(5) Any person whose relief has been terminated may apply for
exemptive relief 360 days after the issuance of the Order Terminating
Exemptive Relief if the deficiency causing the revocation has been
cured or relevant facts and circumstances have changed.
Issued in Washington, DC, on March 9, 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. 2020-05097 Filed 3-17-20; 8:45 am]
BILLING CODE 6351-01-P