2024-17828
[Federal Register Volume 89, Number 158 (Thursday, August 15, 2024)]
[Rules and Regulations]
[Pages 66201-66210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17828]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 48
RIN 3038-AF37
Foreign Boards of Trade
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission)
is amending its regulations to permit a foreign board of trade (FBOT)
registered with the Commission to provide direct access to its
electronic trading and order matching system to an identified member or
other participant located in the United States and registered with the
Commission as an introducing
[[Page 66202]]
broker (IB) for submission of customer orders to the FBOT's trading
system for execution. The Commission is also establishing a procedure
for an FBOT to request revocation of its registration, and removing
certain outdated references to ``existing no-action relief.''
DATES: The rules will become effective September 16, 2024.
FOR FURTHER INFORMATION CONTACT: Alexandros Stamoulis, Associate
Director, Division of Market Oversight, Commodity Futures Trading
Commission, (646) 746-9792, [email protected], 290 Broadway, 6th
Floor, New York, NY 10007; Roger Smith, Associate Chief Counsel,
Division of Market Oversight, Commodity Futures Trading Commission,
(202) 418-5344, [email protected], 77 West Jackson Blvd., Suite 800,
Chicago, IL 60604; Jennifer Diamantis, Special Counsel, (202) 418-5762,
[email protected], Commodity Futures Trading Commission, Division of
Market Oversight, Three Lafayette Centre, 1151 21st Street NW,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Final Regulations
A. Section 48.4--Registration Eligibility and Scope
B. Section 48.8--Conditions of Registration
C. Section 48.9--Revocation of Registration
D. Section 48.6--Foreign Boards of Trade Providing Direct Access
Pursuant to Existing No-Action Relief
III. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost Benefit Considerations
D. Antitrust Considerations
I. Background
Under part 48 of the Commission's regulations, an FBOT must be
registered with the Commission in order to provide its members or other
participants located in the United States with direct access to its
electronic trading and order matching system.\1\ Part 48 is authorized
by section 738 of the Dodd-Frank Act, which amended section 4(b) of the
Commodity Exchange Act (CEA), to provide that the Commission may adopt
rules and regulations requiring FBOTs that wish to provide U.S. persons
with direct access to register with the Commission.\2\ Prior to
enactment of the part 48 FBOT registration procedures in 2011, FBOTs
relied on no-action letters that were requested by the FBOT and issued
by Commission staff in order to provide direct access to U.S.
persons.\3\
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\1\ See Registration of Foreign Boards of Trade, Final Rule, 76
FR 80674 (Dec. 23, 2011); 17 CFR part 48. ``Direct access'' is
defined as an explicit grant of authority by a foreign board of
trade to an identified member or other participant located in the
United States to enter trades directly into the trade matching
system of the foreign board of trade. CEA section 4(b)(1)(A), 7
U.S.C. 6(b)(1)(A); 17 CFR 48.2(c).
\2\ See Sec. 738, Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376, 1726-1728 (2010)
(codified at 7 U.S.C. 6(b)).
\3\ See 76 FR 80674 at 80674-80675.
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Part 48 provides the procedures, requirements, and conditions to be
met by FBOTs that seek to provide their members and other participants
in the U.S. with direct access to the FBOT's trade matching system. The
regulations set forth, among other things, procedures an FBOT must
follow in applying for registration, requirements that an FBOT must
meet in order to obtain registration, conditions that an FBOT must
satisfy on a continuing basis upon obtaining registration, and
provisions for the termination of registration.
On March 1, 2024, the Commission released a proposal \4\ to amend
Sec. 48.4 to broaden the types of intermediaries eligible for direct
access for submission of customer orders to the FBOT to include IBs
registered with the Commission as such and located in the United
States.\5\ An IB is generally defined as an individual or organization
that solicits or accepts orders to buy or sell futures contracts,
commodity options, retail off-exchange forex or commodity contracts, or
swaps, but does not accept money or other assets from customers to
support these orders.\6\ Currently, Sec. 48.4 only includes certain
futures commission merchants (FCMs), commodity pool operators (CPOs),
and commodity trading advisors (CTAs) as intermediaries that are
eligible for entering orders on behalf of customers or commodity pools
(in the case of CPOs) via direct access on a registered FBOT.
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\4\ Foreign Boards of Trade, 89 FR 15083 (Mar. 1, 2024) (the
Proposal).
\5\ Intermediaries are entities that act on behalf of another
person with respect to trading derivatives. They are generally
required to register with the Commission and, depending on the
nature of their activities, may be subject to various financial,
disclosure, reporting, and recordkeeping requirements.
\6\ IB is defined, subject to certain exclusions and additions,
in CEA section 1a(31) as any person (except an individual who elects
to be and is registered as an associated person of a futures
commission merchant) (i) who (I) is engaged in soliciting or in
accepting orders for (aa) the purchase or sale of any commodity for
future delivery, security futures product, or swap; (bb) any
agreement, contract, or transaction described in section
2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (cc) any commodity option
authorized under section 4c; or (dd) any leverage transaction
authorized under section 19; and (II) does not accept any money,
securities, or property (or extend credit in lieu thereof) to
margin, guarantee, or secure any trades or contracts that result or
may result therefrom; or (ii) who is registered with the Commission
as an IB. 7 U.S.C. 1a(31). IB is further defined, subject to certain
exclusions and additions, in Commission regulation 1.3(mm) as (1)
Any person who, for compensation or profit, whether direct or
indirect: (i) Is engaged in soliciting or in accepting orders (other
than in a clerical capacity) for the purchase or sale of any
commodity for future delivery, security futures product, or swap;
any agreement, contract or transaction described in section
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the CEA; any commodity
option transaction authorized under section 4c; or any leverage
transaction authorized under section 19; or who is registered with
the Commission as an IB; and (ii) Does not accept any money,
securities, or property (or extend credit in lieu thereof) to
margin, guarantee, or secure any trades or contracts that result or
may result therefrom. 17 CFR 1.3(mm). IBs are subject to
registration with the Commission under CEA section 4d(g) and
Commission regulation 3.4(a). 7 U.S.C. 6d(g) and 17 CFR 3.4(a).
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In addition, the Proposal proposed to amend Sec. 48.9 to provide
registered FBOTs with a procedure to request revocation of their FBOT
registration. Further, the Commission proposed to delete Sec. 48.6,
which provides for an alternate registration procedure for FBOT's
operating under the preexisting staff no-action letter process, because
such no-action letter process and no-action letters are no longer in
effect.
The Commission received seven comment letters regarding the
Proposal.\7\ After considering the comments, the Commission is adopting
the rule amendments described herein as proposed. The Commission
believes the amendments are an appropriate response to market
developments that have occurred since part 48 was promulgated in 2011,
and will benefit affected markets and their participants by improving
competition, risk management and liquidity--while also maintaining the
Commission's longstanding protections available to U.S. customers that
trade foreign futures and options.
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\7\ The following persons and entities submitted relevant
comment letters: Everett Mein, Eurex Deutschland (Eurex), Futures
Industry Association (FIA), Intercontinental Exchange Inc. (ICE),
New Zealand Exchange Limited (NZX), NIBA, and the Wholesale Markets
Brokers' Association, Americas (WMBAA).
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II. Final Regulations
A. Section 48.4--Registration Eligibility and Scope
1. Proposed Regulations
The Commission proposed to amend Sec. 48.4(b) to permit FBOTs to
provide direct access to eligible IBs to enter orders directly into an
FBOT's trading and order matching system on behalf of U.S.
customers.\8\ Section 48.4(b)
[[Page 66203]]
identifies the types of members or other participants located in the
U.S. that may enter orders directly into the trading and order matching
system of a registered FBOT, and the types of accounts for which orders
may be submitted by such members or other participants. In this regard,
the types of members or other participants identified in existing Sec.
48.4(b) represent the types of members or other participants that were
trading via direct access on FBOTs that operated in reliance on CFTC
staff no-action letters at the time part 48 was promulgated.\9\
Specifically, Sec. 48.4(b)(1) provides that any member or other
participant located in the U.S. may enter orders for their proprietary
accounts.\10\ Further, Sec. 48.4(b)(2) provides that registered FCMs
may submit orders on behalf of their customers. Section 48.4(b)(3)
permits certain CPOs to submit orders on behalf of U.S. commodity pools
and certain CTAs to submit orders on behalf of U.S. customers provided,
however, all trades by the CPO or CTA effected through submission of
such orders are guaranteed by a clearing firm registered as an FCM or
exempt from FCM registration pursuant to Sec. 30.10.\11\ The
Commission proposed to amend Sec. 48.4(b) by inserting a new paragraph
(b)(4) to provide that eligible IBs may submit orders on behalf of
their customers, provided that a registered FCM or firm exempt from FCM
registration pursuant to Sec. 30.10 acts as a clearing firm and
guarantees all trades of the IB effected through submission of U.S.
customer orders to the trading system. The Commission also proposed to
amend paragraph (b)(3) to insert the words ``registered as such''
following ``futures commission merchant'' to clarify that the reference
is limited to FCMs registered with the Commission as such.\12\
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\8\ The term ``eligible IB'' is used in this release to mean an
IB that is located in the United States and registered with the
Commission as an IB. Direct access, as defined in the CEA and part
48, refers explicitly to members or other participants of an FBOT
that are located in the United States. See footnote 1, supra. For
purposes of this rulemaking and as used herein, the terms ``U.S.
customer'' and ``United States customer'' refer to customers located
in the United States, its territories or its possessions.
\9\ See Registration of Foreign Boards of Trade, Notice of
Proposed Rulemaking, 88 FR 61432, 70977 (Nov. 19, 2010).
\10\ Under Sec. 48.2(l), member or other participant is defined
as a member or other participant of an FBOT and any affiliate
thereof that has been granted direct access by the FBOT. 17 CFR
48.2(l). Proprietary account is defined in Sec. 1.3, 17 CFR 1.3.
\11\ A Sec. 30.10 exemptive order permits firms subject to
regulation by a foreign regulator to conduct business from locations
outside of the U.S. for U.S. persons on FBOTs without registering as
FCMs, based upon the firm's substituted compliance with a foreign
regulatory structure found comparable to that administered by the
Commission under the CEA. Used herein, U.S. commodity pool refers to
a commodity pool that does not meet the criteria set forth in Sec.
3.10(c)(5)(iii)(A) through (F), 17 CFR 3.10(c)(5)(iii)(A) through
(F).
\12\ The addition of the words ``registered as such'' here is
intended as a technical change rather than a substantive change;
i.e., that the reference is intended to refer to registered FCMs is
already implied by the subsequent clause ``or a firm exempt from
such registration . . .''
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Direct access is defined in the CEA and part 48 of the Commission's
regulations to mean an explicit grant of authority by an FBOT to an
identified member or other participant located in the U.S. to enter
trades directly into the trade matching engine of the FBOT.\13\ This
means that the FBOT, as opposed to its members or participants, has
identified and permitted a member or participant to enter trades
directly into the FBOT's order matching and trade entry system from the
United States.\14\ For example, a registered FBOT may authorize its
members or other participants eligible to handle U.S. customer orders
to enter orders on behalf of their U.S. customers or to otherwise
permit their U.S. customers to access the trading system using the
member's or participant's identifier and grant of authority. In such
cases the FBOT permits an identified exchange member or other
participant to allow their U.S. customers, who have not been granted
direct access by the FBOT, to have access to the exchange's trading
systems, subject to a guarantee from an exchange member or other
participant. The proposed amendment to Sec. 48.4(b) would permit
registered FBOTs to grant explicit authority to eligible IBs to act in
such capacity, provided that all trades effected by the IB through
submission of U.S. customer orders are guaranteed by a registered FCM
or a firm exempt from FCM registration pursuant to Sec. 30.10.
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\13\ CEA section 4(b)(1)(A), 7 U.S.C. 6(b)(1)(A); 17 CFR
48.2(c).
\14\ Conversely, a person located in the U.S. who accesses an
FBOT through an intermediary (whether such intermediary is located
in the United States or not) and without an explicit grant of
authority by the FBOT (i.e., such person is not an identified member
or other participant of the FBOT) would not meet the definition of
``direct access'' for purposes of part 48. See, e.g., 76 FR 80674 at
80688.
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2. Public Comments
All comment letters received generally support the proposed
amendment to Sec. 48.4(b) to permit registered FBOTs to provide direct
access to eligible IBs to enter orders on behalf of U.S. customers.\15\
Commenters agree that permitting eligible IBs to submit customer orders
via direct access to FBOTs would benefit affected markets and market
participants.\16\ Several commenters observe that markets have evolved
and the role of IBs serving as executing brokers has grown since the
Commission's adoption of part 48 in 2011.\17\ In light of these
changes, commenters support the Commission's efforts to update part 48
to ensure that its regulations remain current and reflect changes in
the market.\18\ Commenters further opine that the Proposal, if adopted,
is likely to: provide greater customer choice in, and promote fair
competition among, brokers; \19\ improve the ability for U.S.
participants to manage risk; \20\ and increase liquidity in affected
markets.\21\
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\15\ See Eurex Letter; FIA Letter; ICE Letter; Mein Letter; NZX
Letter; NIBA Letter; and WMBAA Letter.
\16\ See Eurex at 1-4; FIA at 2; ICE at 2; Mein at 5-6, 8 NIBA
at 2; WMBAA at 2.
\17\ See Eurex at 3-4; FIA at 2; WMBAA at 2.
\18\ See Eurex at 2-4; WMBAA at 2.
\19\ See FIA at 2; NZX at 1; NIBA at 2; WMBAA at 2-3.
\20\ See Eurex at 3-4; FIA at 2; WMBAA at 2; NIBA at 1.
Commenters specifically note that the Proposal would allow U.S.
participants to better conduct risk management by enabling on-
exchange trades in foreign markets through IBs during the U.S.
business day following the close of European markets. Id.
\21\ ICE posits that the proposed changes to Sec. 48.4 would
enable additional types of market participants to access FBOTs,
which would improve liquidity and reduce fragmentation while
promoting competitiveness in derivatives markets. ICE at 2. NIBA and
WMBAA generally state that they believe the Proposal would improve
liquidity. NIBA at 2; WMBAA at 2.
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The Commission received several comments specifically in support of
the proposed condition in Sec. 48.4(b)(4) requiring U.S. customer
orders submitted by IBs to be guaranteed by a registered FCM or a firm
exempt from FCM registration pursuant to Sec. 30.10.\22\ Commenters
note that they support the proposed condition because it would extend
access to IBs located in the U.S. on the same terms that U.S. CPOs and
CTAs currently access FBOTs.\23\
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\22\ See FIA at 2; Eurex at 3-4, 6, 8; ICE at 2; NIBA at 2; NZX
at 1.
\23\ Id. Eurex further states that it does not believe there is
any reason to require a different standard for IBs than what is
presently required for CPOs or CTAs, and asserts that the
Commission's framework for assessing applications for exemptions
under Sec. 30.10 provides a comprehensive and robust process to
assess whether the foreign jurisdiction offers a comparable
regulatory scheme (including with respect to the protection of
customer funds, and anti-money laundering (AML)). Eurex at 6-7. ICE
states that the condition reflects the different ways U.S. customers
access clearing and avoids unnecessary limitations on customers
trading through FBOTs. ICE at 2. Further, Eurex states that it does
not believe there is any additional information the Commission
should receive from FBOTs that provide direct access to IBs under
the proposed amendment to Sec. 48.4(b)(4). Eurex at 8. Eurex notes
that all quarterly, annual, and prompt-notice reporting requirements
that pertain to an FBOT's members under Sec. 48.8(b)(1) would apply
to IBs as well as existing categories of participants. Eurex at 8.
In addition, Eurex asserts that IBs are already subject to a wide
range of CFTC and NFA regulatory record keeping and reporting
requirements, which provides the Commission with the necessary
reporting for oversight. Eurex at 8. Eurex further opines that it
does not believe there are any additional registration requirements
under Sec. 48.7 that the Commission should consider for FBOTs that
provide direct access to IBs under proposed Sec. 48.4(b)(4). Eurex
at 7.
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[[Page 66204]]
Two commenters requested clarification that proposed Sec.
48.4(b)(4) would permit IBs to submit block trades to an FBOT (or
otherwise not prohibit them from doing so).\24\
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\24\ See Eurex at 4; WMBAA at 3. In addition, WMBAA requests
clarification as to whether permitting IBs located in the U.S. to
engage in block trades would require an unregistered foreign board
of trade to be registered as an FBOT under part 48. WMBAA at 3.
Generally speaking, a board of trade that is not a designated
contract market (DCM) or registered FBOT may, depending on the
nature of its activities within the United States, be liable for
violating section 4(a) of the CEA, 7 U.S.C. 6(a). Without knowing
the specifics of how each potential unregistered foreign board of
trade operates with respect to block trades involving IBs located in
the U.S. as well as other U.S. located participants, the Commission
is not in a position to opine generally on WMBAA's request. However,
the Commission notes that unregistered foreign boards of trade
seeking guidance concerning FBOT registration and its application to
their particular operations may request informal guidance from the
Division of Market Oversight.
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3. Commission Determination
The Commission is adopting, as proposed and as supported by
commenters, the amendment to Sec. 48.4(b) to permit FBOTs to provide
direct access to eligible IBs to enter orders directly into an FBOT's
trading and order matching system on behalf of U.S. customers.\25\ The
Commission agrees with commenters that permitting eligible IBs to
submit customer orders via direct access to FBOTs would benefit market
participants and affected markets,\26\ and is an appropriate update to
part 48 of the Commission's regulations given the increased role that
IBs now serve in derivatives markets.\27\ As discussed above, existing
Sec. 48.4(b) permits registered FBOTs to provide direct access to
eligible FCMs, CPOs and CTAs for submission of client orders. DCMs may
provide for IBs to act as executing brokers for customer accounts that
in turn use FCM clearing members to whom executed trades are given up
for clearing and through which such customer accounts are carried.\28\
FBOTs may similarly permit IBs located outside of the United States to
enter trades directly into the trading system of the FBOT on behalf of
their customer accounts.\29\ The Commission agrees with commenters that
the amendment to Sec. 48.4 will permit registered IBs located in the
U.S. to act in a comparable capacity on registered FBOTs in cases where
an FBOT grants direct access to the IB for the purpose of submitting
customer orders for execution.\30\ The Commission believes, as
supported by commenters, that allowing eligible IBs to have direct
access to registered FBOTs to execute transactions on behalf of their
U.S. clients is likely to: provide U.S. market participants that wish
to trade in foreign derivatives contracts with greater choice in
brokers and broker arrangements, and increase competition among firms
offering execution brokerage services to customers on registered FBOTs;
\31\ improve the ability for U.S. participants to manage risk; \32\ and
increase liquidity on affected markets.\33\ The Commission furthermore
believes, as supported by commenters, that permitting U.S. IBs access
to FBOTs on par with FCMs, CPOs, CTAs, and foreign brokers will not
undermine or otherwise adversely affect protections available to U.S.
customers because their trades must be guaranteed by a registered FCM
or firm exempt from FCM registration under Sec. 30.10,\34\ and will be
subject to required risk disclosures relating to foreign futures and
options transactions.\35\
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\25\ See Eurex Letter; FIA Letter; ICE Letter; NZX Letter; NIBA
Letter; WMBAA Letter; and Mein Letter.
\26\ See Eurex at 1-4; FIA at 2; ICE at 2, NIBA at 2; Mein at 5-
6, 8.
\27\ See Eurex at 3-4; FIA at 2; WMBAA at 2.
\28\ The Commission also agrees with ICE that the amendment to
48.4(b) ``would establish a similar structure that is already in
place on [DCMs] whereby IBs submit customer orders via direct
electronic access.'' ICE at 2.
\29\ See Eurex at 3; WMBAA at 3.
\30\ See WMBAA at 2-3. See also Eurex at 4; FIA at 2.
\31\ See FIA at 2; NZX at 1; NIBA at 2; WMBAA at 2-3.
\32\ See Eurex at 3-4; FIA at 2; WMBAA at 2; NIBA at 1.
\33\ See footnote 21, supra.
\34\ Including the provision relating to the guarantee of U.S.
customer trades in new Sec. 48.4(b)(4) will ensure that U.S.
customer trades executed by eligible IBs via direct access are
guaranteed by a firm that is registered as an FCM or exempt from FCM
registration under Sec. 30.10. In so doing, the final rule will act
to reinforce adherence with part 30, insofar as part 30 generally
requires intermediaries holding funds of U.S. customers in
connection with the offer or sale of foreign futures and options to
be registered as FCMs or exempt from FCM registration under Sec.
30.10. Part 30 of the Commission's regulations governs the offer and
sale of foreign futures and options to customers located in the
United States. These regulations are designed to carry out
Congress's intent that foreign futures and options offered or sold
in the U.S. be subject to regulatory safeguards comparable to those
applicable to domestic transactions. Section 30.4 of the
Commission's regulations requires that in order to accept any money,
securities or property (or extend credit in lieu thereof) to margin,
guarantee or secure transactions conducted by U.S. persons on an
FBOT, a person must be registered as an FCM. See 17 CFR 30.4(a). The
Commission may grant and has granted exemptions to this requirement
to register as an FCM based on petitions filed pursuant to 17 CFR
30.10. See footnote 11, supra. See also Eurex at 5-7; ICE at 2.
\35\ Section 30.6 of the Commission's regulations requires FCMs
and IBs to provide a statement to customers disclosing the risks of
trading foreign futures and options outside the United States. 17
CFR 30.6. This requirement also applies to exempt foreign IBs, CPOs,
and CTAs. 17 CFR 30.5(c). Petitions for exemptive relief under Sec.
30.10 for firms seeking an exemption from FCM registration must
demonstrate that such firms are subject to a comparable regulatory
program that includes, among other elements, minimum sales practice
standards, including ``disclosure of the risks of futures and
options transactions and, in particular, the risk of transactions
undertaken outside the jurisdiction of domestic law.'' 17 CFR part
30, Appendix A, Sales Practice Standards. See also Eurex at 4.
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Therefore, for the reasons stated above, the Commission is adopting
as proposed the amendment to Sec. 48.4(b) to permit FBOTs to provide
direct access to eligible IBs to enter orders directly into an FBOT's
trading and order matching system on behalf of U.S. customers.
Eurex and WMBAA each requested that the Commission clarify that the
Proposal would permit IBs to submit block trades to an FBOT (or
otherwise not prohibit them from doing so).\36\ Section 48.4(b)
provides that an FBOT may apply for registration under part 48 ``in
order to permit the members and other participants of the [FBOT] that
are located in the United States to enter trades directly into the
trading and order matching system of the foreign board of trade[. .
.].'' \37\ The Commission confirms and clarifies that this may include
block trades submitted to an FBOT. As such, and for the avoidance of
doubt, an FBOT registered under part 48 is not prohibited by this final
rule from allowing an eligible IB to which it has granted direct access
to submit block trades to the FBOT on behalf of the IB's U.S. clients.
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\36\ See Eurex at 4; WMBAA at 3.
\37\ 17 CFR 48.4(b).
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B. Section 48.8--Conditions of Registration
1. Proposed Regulations
The Commission proposed conforming amendments that will include
eligible IBs in Sec. Sec. 48.8(a)(4)(ii) and (a)(5)(i) and (iii)
alongside FCMs, CPOs and CTAs.
Section 48.8(a)(4)(ii) requires all orders transmitted via direct
access and pursuant to an FBOT's registration to be for a member's or
other participant's proprietary trading account unless transmitted by a
registered FCM, CPO or CTA (or exempt CPO or CTA). The Commission
proposed to include IBs in this section along with FCMs, CPOs and CTAs,
to conform with the proposed changes to Sec. 48.4(b) that would allow
[[Page 66205]]
eligible IBs to transmit orders via direct access on behalf of the
accounts of their customers. The Commission also proposed to add the
words ``registered as such'' following the final reference to ``futures
commission merchant'' in Sec. 48.8(a)(4)(ii) to conform to the
proposed amendment to Sec. 48.4(b)(3).\38\
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\38\ See footnote 12, supra, and accompanying text.
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Section 48.8(a)(5)(i) provides that a registered FBOT must require
each current and prospective member or other participant granted direct
access and not registered with the Commission as an FCM, CPO or CTA to
agree to and submit to the jurisdiction of the Commission with respect
to activities conducted pursuant to the FBOT's registration. Registered
FCMs, CPOs and CTAs are excluded from this requirement because they are
otherwise subject to the jurisdiction of the Commission as Commission
registrants. Registered IBs are likewise subject to the jurisdiction of
the Commission as registrants and the Commission therefore proposed to
include IBs alongside FCMs, CPOs and CTAs in Sec. 48.8(a)(5)(i).
Section 48.8(a)(5)(iii) provides that a registered FBOT, its
clearing organization, and each current and prospective member or other
participant granted direct access that is not registered with the
Commission as an FCM, CPO or CTA must maintain with the FBOT written
representations stating that such entity will provide prompt access to
books, records, and premises upon the request of the Commission, U.S.
Department of Justice and, if appropriate, the National Futures
Association (NFA). Registered FCMs, CPOs and CTAs are excluded from
this requirement because they are otherwise required to provide such
access to books, records, and premises as Commission registrants and,
where applicable, NFA members.\39\ Registered IBs, as Commission
registrants and NFA members, are likewise required to provide such
access to books, records, and premises by the Commission, U.S.
Department of Justice, and NFA, and the Commission therefore proposed
to include IBs alongside FCMs, CPOs and CTAs in Sec. 48.8(a)(5)(iii).
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\39\ Subpart C of part 170 of the Commission's regulations
provides for certain exceptions to the general requirement that
Commission-registered FCMs and CTAs must become NFA members. See 17
CFR 170.15 and 170.17.
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2. Public Comments
The Commission received no comments regarding the proposed
conforming amendments to include eligible IBs in Sec. Sec.
48.8(a)(4)(ii) and (a)(5)(i) and (iii) alongside FCMs, CPOs and CTAs.
3. Commission Determination
The Commission is adopting, as proposed, the amendments to
Sec. Sec. 48.8(a)(4)(ii) and (a)(5)(i) and (iii).
C. Section 48.9--Revocation of Registration
1. Proposed Regulations
The Commission proposed to amend Sec. 48.9 to establish a
procedure for FBOTs to request voluntary revocation of registration.
Section 48.9 addresses certain events which could lead the Commission
to revoke an FBOT's registration, including the failure to satisfy
registration requirements or conditions, and certain other specified
events.\40\ However, part 48 presently does not contain any provisions
for an FBOT to request voluntary revocation of its registration. In
order to allow registered FBOTs to more easily ascertain the steps
required to request revocation, the Commission proposed to amend Sec.
48.9(b) (``Other Events that Could Result in Revocation'') by adding a
new paragraph (b)(5).
---------------------------------------------------------------------------
\40\ See 17 CFR 48.9.
---------------------------------------------------------------------------
2. Public Comments
The Commission received one comment regarding the proposed
amendments to Sec. 48.9 to establish a procedure for FBOTs to request
voluntary revocation of registration. NZX commented that it supports
the introduction of a revocation process for FBOTs because it will
provide greater certainty for entities that no longer wish to retain
their status as a registered FBOT.\41\
---------------------------------------------------------------------------
\41\ NZX at 3.
---------------------------------------------------------------------------
3. Commission Determination
The Commission agrees with NZX that the amendment will provide
greater certainty for entities that no longer wish to retain their
status as a registered FBOT.\42\ Therefore, for the reasons stated
above and as supported by public comment, the Commission is adopting as
proposed the addition of Sec. 48.9(b)(5) which makes clear that the
Commission may revoke an FBOT's registration in response to a voluntary
request by an FBOT to do so, and provides that an FBOT can make such
request via email to the Commission.
---------------------------------------------------------------------------
\42\ Id.
---------------------------------------------------------------------------
D. Section 48.6--Foreign Boards of Trade Providing Direct Access
Pursuant to Existing No-Action Relief
1. Proposed Regulations
Section 48.6 provides for a limited registration application
procedure for FBOTs that had been operating under existing staff no-
action letters and FBOTs that had submitted a complete application for
a staff no-action letter that was pending as of the effective date of
part 48. Those limited application provisions are no longer applicable
because all FBOTs with previously existing staff no-action letters have
been registered under part 48 and all such no-action letters have been
revoked. Accordingly, the Commission proposed to delete Sec. 48.6. As
a conforming amendment the Commission also proposed to delete Sec.
48.2(h) (definition of ``existing no-action relief'') as that
definition will no longer be applicable or necessary once existing
Sec. 48.6 is removed.
2. Public Comments
The Commission received one comment generally in support of the
proposed deletion of Sec. 48.6 and the conforming deletion of Sec.
48.2(h).\43\
---------------------------------------------------------------------------
\43\ NZX states that it supports the removal of Sec. 48.6,
which is obsolete, and the removal of Sec. 48.2(h) as a conforming
amendment. NZX at 3.
---------------------------------------------------------------------------
3. Commission Determination
Therefore, for the reasons stated above, the Commission is adopting
as proposed the deletion of Sec. 48.6 and the conforming deletion of
Sec. 48.2(h).
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires agencies to consider
whether the regulations they promulgate will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis with respect to such
impact.\44\ The Commission has previously established certain
definitions of ``small entities'' to be used by the Commission in
evaluating the impact of its regulations on small entities in
accordance with the RFA.\45\ The amendments to part 48 would impact
FBOTs. The Commission has previously determined that FBOTs are not
small entities for purposes of the RFA.\46\
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\44\ 5 U.S.C. 601 et seq.
\45\ See Policy Statement and Establishment of ``Small
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR
18618 (Apr. 30, 1982).
\46\ 76 FR 80698.
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The amendments to part 48 would also impact eligible IBs by
providing
[[Page 66206]]
them with the potential to gain direct access to FBOTs that incorporate
the new regulatory provisions allowing such IBs direct access. The
Commission has previously established that IBs may in some cases be
deemed ``small entities'' for the purposes of the RFA.\47\ However, the
final rules do not impose any new burden on eligible IBs. Instead, the
final rules would remove a regulatory barrier preventing these small
entities from accessing FBOTs. Accordingly, the Commission believes
that the regulation will be less burdensome to small-entity, eligible
IBs and will not impose any additional costs on them.
---------------------------------------------------------------------------
\47\ 85 FR 78718, 78733 (Dec. 7, 2020).
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Therefore, the Chairman, on behalf of the Commission, pursuant to 5
U.S.C. 605(b), hereby certifies that the final rules will not have a
significant economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \48\ imposes certain
requirements on Federal agencies (including the Commission) in
connection with conducting or sponsoring any ``collection of
information,'' \49\ 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).\50\ The PRA is
intended, in part, to minimize the paperwork burden created for
individuals, businesses, and other persons as a result of the
collection of information by Federal agencies, to ensure the greatest
possible benefit and utility of information created, collected,
maintained, used, shared, and disseminated by or for the Federal
Government.\51\ The PRA applies to all information, ``regardless of
form or format,'' whenever the government is obtaining, causing to be
obtained, or soliciting information, and includes required disclosure
to third parties or the public, of facts or opinions, when the
information collection calls for answers to identical questions posed
to, or identical reporting or recordkeeping requirements imposed on,
ten or more persons.\52\
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\48\ 44 U.S.C. 3501 et seq.
\49\ See 44 U.S.C. 3502(3)(A).
\50\ See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3).
\51\ See 44 U.S.C. 3501.
\52\ See 44 U.S.C. 3502(3).
---------------------------------------------------------------------------
This final rulemaking amends regulations that contain collections
of information for which the Commission has previously received a
control number from OMB: 3038-0101, Registration of Foreign Boards of
Trade (17 CFR part 48).\53\ This collection addresses the information
collection requirements associated with part 48's registration
requirement and related registration procedures and conditions that
apply to FBOTs that wish to provide direct access to their electronic
trading and order matching systems. The final rulemaking allows
eligible IBs to act as direct access participants on registered FBOTs,
provides a process for FBOTs to request voluntary revocation of their
registration, and removes outdated references to ``no action relief.''
---------------------------------------------------------------------------
\53\ The Commission's most recent burden estimates for this
collection are available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202301-3038-001.
---------------------------------------------------------------------------
The Commission believes that these amendments do not contain any
new collections of information and will not increase the burden
associated with the information collections under part 48. While the
amendments establish a new process for FBOTs to submit requests for
revocation of their registration, the regulations allow FBOTs to submit
their requests electronically via email to the Commission and do not
mandate any specific form or format for such requests. Accordingly,
this new submission method does not constitute a collection of
information under the PRA. In addition, the amendments do not affect
the provisions of part 48 covered in the current PRA approval (Sec.
48.8 (periodic data submissions to the Commission), Sec. 48.9
(demonstration of compliance); and Sec. 48.10 (listing additional
futures and options contracts)). Accordingly, the Commission is
retaining its existing estimates for the burden associated with the
information collections under OMB Collection 3038-0101. The Commission
received no comments related to the PRA analysis or this determination.
C. Cost-Benefit Considerations
1. Introduction
Section 15(a) of the CEA \54\ requires the Commission to ``consider
the costs and benefits'' of its actions before promulgating a
regulation under the CEA or issuing certain orders. CEA section 15(a)
further 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 futures markets; (3) price discovery; (4)
sound risk management practices; and (5) other public interest
considerations. The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the CEA
section 15(a) factors.
---------------------------------------------------------------------------
\54\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
The Commission has endeavored to assess the expected costs and
benefits of the amendments in quantitative terms, including Paperwork
Reduction Act (PRA)-related costs, where practicable. In situations
where the Commission is unable to quantify the costs and benefits, the
Commission identifies and considers the costs and benefits of the
applicable amendments in qualitative terms. The Commission did not
receive any comments from commenters which quantified or attempted to
quantify the costs and benefits of the Proposal.
The Commission notes that this consideration of costs and benefits
is based on, inter alia, its understanding that the derivatives markets
regulated by the Commission function internationally, with (1)
transactions that involve entities organized in the United States
occurring across different international jurisdictions, (2) some
entities organized outside of the United States that are prospective
Commission registrants, and (3) some entities that typically operate
both within and outside the United States, and that follow
substantially similar business practices wherever located. Where the
Commission does not specifically refer to matters of location, the
discussion of costs and benefits below refers to the effects of the
regulations on all relevant derivatives activity, whether based on
their actual occurrence in the United States or on their connection
with activities in, or effect on, U.S. commerce.\55\
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\55\ See, e.g., 7 U.S.C. 2(i).
---------------------------------------------------------------------------
In the following consideration of costs and benefits, the
Commission first identifies and discusses the benefits and costs
attributable to the rule amendments. The Commission, where applicable,
then considers the costs and benefits of the rule amendments in light
of the five public interest considerations set out in section 15(a) of
the CEA.
2. Final Regulations
The Commission is amending certain rules in part 48 of its
regulations relating to FBOTs. The Commission identifies the costs and
benefits of the amendments relative to the baseline of the regulatory
status quo. In particular, the baseline against which the Commission
considers the costs and benefits of these rule amendments is the
statutory and regulatory requirements of the CEA and Commission
regulations
[[Page 66207]]
now in effect, in particular CEA section 4(b) and part 48 of the
Commission's regulations.
Amendments to Sec. 48.6
The final rules delete Sec. 48.6, which provided for an alternate
registration procedure for FBOTs acting under the preexisting staff no-
action letter process, because such no-action letter process and no-
action letters are no longer in effect. Deletion of Sec. 48.6 and
elimination of the alternate registration procedure will not increase
costs to FBOTs because Sec. 48.6 and the alternate registration
procedure are already in effect obsolete.
Amendments to Sec. 48.9
The amendment to Sec. 48.9 establishes a procedure for FBOTs to
request voluntary revocation of registration. This amendment would not
impose a new requirement for FBOTs. The baseline is the current
practice of the Commission, whereby requests for voluntary revocation
are processed on an ad-hoc basis. The primary benefit will be to allow
registrants to more easily ascertain the steps required to request
revocation. The amendments are not expected to increase costs to
registered FBOTs compared to the status quo.
Amendments to Sec. 48.4 and Conforming Amendments to Sec. 48.8
The amendments to Sec. 48.4 and conforming amendments to Sec.
48.8 permit a registered FBOT to provide direct access to its
electronic trading and order matching system to an identified member or
other participant located in the U.S. and registered with the
Commission as an IB for submission of customer orders to the FBOT's
trading system for execution, provided that all trades effected through
submission of U.S. customer orders are guaranteed by a registered FCM
or a firm exempt from FCM registration pursuant to Sec. 30.10.
There are presently 24 FBOTs registered with the Commission. Under
the current rules, eligible intermediaries permitted direct access on
registered FBOTs for purposes of entering trades on behalf of non-
proprietary client accounts include certain FCMs, CTAs, and CPOs. The
amendments would add eligible IBs to the existing list of eligible
intermediaries. Similar to trades submitted by CTAs and CPOs via direct
access, the trades executed by eligible IBs on behalf of customers
located in the U.S. would be required to be guaranteed by a registered
FCM or a firm exempt from FCM registration pursuant to Sec. 30.10. IBs
specialize in soliciting and executing orders for their clients. The
field of trade execution is continuously evolving with technological
advances, and has helped bring down execution costs. As of July 2024,
the following numbers of intermediaries were registered with the
Commission.\56\
---------------------------------------------------------------------------
\56\ NFA website, https://www.nfa.futures.org/registration-membership/membership-and-directories.html.
Intermediaries Registered With the Commission as of July 2024
------------------------------------------------------------------------
------------------------------------------------------------------------
CTAs \1\.................................................... 1,237
CPOs \1\.................................................... 1,188
IBs......................................................... 919
FCMs........................................................ 62
Swap Dealers................................................ 107
------------------------------------------------------------------------
\1\ These categories are not mutually exclusive, i.e., a CPO may also be
registered as a CTA.
The table above shows that the number of IBs is more than one
quarter of all Commission-registered intermediaries. The Commission
does not know how many FBOTs will choose to provide direct access to
eligible IBs for purposes of entering trades on behalf of non-
proprietary client accounts or how many eligible IBs will become direct
access members or participants of registered FBOTs pursuant to this
final rule. There could also be new IB entrants that are granted direct
access to registered FBOTs. However, by permitting FBOTs the option to
provide direct access to eligible IBs for submission of customer
orders, the amendments could lead to a significant increase in the
number of choices for U.S. customers with respect to execution of
trades on FBOTs.
Although the Commission lacks the data and information to
quantitatively estimate the costs and benefits of permitting IBs
located in the U.S. to have direct access to registered FBOTs pursuant
to this final rule, it has endeavored to assess the expected costs and
benefits of the proposal in qualitative terms. The lack of data and
information to estimate costs is attributable in part to uncertainty
regarding how FBOTs will choose to respond to the amendments to part 48
and how IBs located in the U.S. will choose to respond to potential new
opportunities to participate on registered FBOTs.
The baseline is the status quo in which Sec. 48.4 permits FBOTs to
provide direct access to certain FCMs, CPOs and CTAs for purposes of
transmission of orders for certain client accounts. Furthermore,
foreign IBs not located in the U.S. may have similar arrangements on
FBOTs whereby their customer orders are transmitted to an FBOT.\57\ IBs
are not included in Sec. 48.4 as intermediaries eligible to have
direct access and transmit trades on behalf of customers. As such,
registered FBOTs currently do not provide direct access to IBs located
in the United States to enter orders on behalf of their customers.
---------------------------------------------------------------------------
\57\ The definition of ``direct access'' does not include
identified members or other participants of an FBOT that are located
outside of the United States. See 17 CFR 48.2(c).
---------------------------------------------------------------------------
Relative to the baseline, the primary effect of the amendment to
Sec. 48.4 is to allow registered FBOTs to provide direct access to
eligible IBs in order to transmit orders of U.S. customers. This could
promote competition among execution-only brokers on registered FBOTs.
There may be advantages to customers from having additional choices in
brokers and brokerage arrangements to trade foreign derivatives on
registered FBOTs--for example, lower trading costs or the use of
advantageous proprietary execution algorithms developed by such IBs.
Several commenters assert that the amendments will allow U.S.
participants to better conduct risk management by enabling trades to be
submitted to FBOTs through IBs during the U.S. business day following
the close of European markets.\58\ From the standpoint of registered
FBOTs, allowing eligible IBs to become direct access participants for
submission of customer orders will open up potential new distribution
channels that could lead to additional trading volume. This in turn
could improve the viability of some traded instruments. Similarly,
eligible IBs may be able to pursue new business models and/or expand
existing business models onto new foreign markets.
---------------------------------------------------------------------------
\58\ Eurex at 3-4; FIA at 2; NIBA at 1.
---------------------------------------------------------------------------
FBOTs that decide to provide direct access to eligible IBs pursuant
to this final rule and that do not already have necessary structures in
place to do so may incur certain costs relating to, for example,
modification of rules, procedures and/or systems to enable direct
access to eligible IBs to submit customer orders to the FBOT's trading
system for execution.
The Commission did not receive any comments which quantified or
attempted to quantify any of the costs and benefits described above, or
which quantified or attempted to quantify any other costs or benefits
associated with eligible IBs having direct access to registered FBOTs.
Section 15(a) Factors
Section 15(a) of the CEA requires the Commission to consider the
costs and
[[Page 66208]]
benefits of the amendments to part 48 with respect to the following
factors: protection of market participants and the public; efficiency,
competitiveness, and financial integrity of markets; price discovery;
sound risk management practices; and other public interest
considerations.
(i) Protection of Market Participants and the Public
The changes to part 48 would not affect the basic protection for
customers with respect to their foreign futures and options
transactions. Under the rule, U.S. customer assets are required to be
maintained by registered FCMs or similar entities exempt from FCM
registration pursuant to Sec. 30.10.
(ii) Efficiency, Competitiveness, and Financial Integrity of Markets
The current part 48 treats IBs differently from certain FCMs, CTAs
and CPOs in that certain FCMs, CTAs and CPOs have the ability to be
granted direct access to registered FBOTs for the submission of client
orders. Similarly, non-U.S. intermediaries (which are outside of the
scope of part 48) may also, under the status quo, be granted similar
access to registered FBOTs for the purpose of offering execution
services to U.S. and non-U.S. customers. The adopted amendments to part
48 will permit eligible IBs to offer competing execution services on
registered FBOTs. The adopted amendments may also open access to
foreign derivatives markets for existing IB customers that otherwise
would not have access to trading on a registered FBOT (i.e., customers
that choose not to or cannot become direct access participants or
otherwise seek out an eligible FCM, CPO, CTA, or foreign broker to
transact on an FBOT). Greater competition among introducing brokers and
potentially additional and new types of customers participating in
affected markets may lead to increased market efficiencies and greater
financial integrity. Furthermore, that trades of U.S. customers must be
guaranteed by registered FCMs or comparable foreign firms promotes the
financial integrity of affected markets by ensuring that intermediaries
handling U.S. customer funds are subject to certain regulatory
safeguards.
(iii) Price Discovery
There is a potential for the adopted changes to part 48 to
positively affect price discovery in futures markets. Participation of
eligible IBs as direct access members may lead to increased
participation and volume on registered FBOTs, in particular during
hours when U.S. brokers are more active than foreign brokers.
(iv) Risk Management Practices
As noted above, the changes will not affect how customer assets are
treated. However, registered FCMs and firms exempt from FCM
registration pursuant to Sec. 30.10 may need to expand their risk
mitigation processes to ensure that they have robust processes for
managing the risk associated with eligible IBs executing trades on
registered FBOTs via direct access.
(v) Other Public Interest Considerations
As noted above, the changes may enable new and distinct kinds of
market participants to access registered FBOTs, which could help
improve liquidity and reduce fragmentation in affected markets.
D. 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 anticompetitive means of achieving the
purposes of this Act, in issuing any order or adopting any Commission
rule or regulation (including any exemption under section 4(c) or
4c(b)), or in requiring or approving any bylaw, rule, or regulation of
a contract market or registered futures association established
pursuant to section 17 of this Act.\59\
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\59\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------
The Commission believes that the public interest to be protected by
the antitrust laws is generally to protect competition. The Commission
has considered the modified rule to determine whether it is
anticompetitive and has identified no anticompetitive effects.\60\
Because the Commission has determined that the modified rule is not
anticompetitive and has no anticompetitive effects, the Commission has
not identified any less anticompetitive means of achieving the purposes
of the Act.
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\60\ The Commission received several comments stating that the
modified rule may increase competition and/or promote fair
competition among brokers. See FIA at 2 (stating that the rule may
``work to increase competition in brokering foreign products'');
NIBA at 2 (stating that ``IBs should have the same access to FBOTs
as CPOs and CTAs currently enjoy'' and that the modified rule ``can
provide additional market choices for IBs and their customers'');
WMBAA at 2-3 (stating that the rule will ``promote competition among
firms offering execution brokerage services to customers on
registered FBOTs,'' and that the rule ``allows for the growth of
competitive markets without impeding liquidity formation'').
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List of Subjects in 17 CFR Part 48
Registration of foreign boards of trade.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 48 as follows:
PART 48--REGISTRATION OF FOREIGN BOARDS OF TRADE
0
1. The authority citation for part 48 continues to read as follows:
Authority: 7 U.S.C. 5, 6 and 12a, unless otherwise noted.
Sec. 48.2 [Amended]
0
2. In Sec. 48.2 remove paragraph (h) and redesignate paragraphs (i)
through (l) as paragraphs (h) through (k), respectively.
0
3. In Sec. 48.4 revise paragraph (b) to read as follows:
Sec. 48.4 Registration eligibility and scope.
* * * * *
(b) A foreign board of trade may apply for registration under this
part in order to permit the members and other participants of the
foreign board of trade that are located in the United States to enter
trades directly into the trading and order matching system of the
foreign board of trade, to the extent that such members or other
participants are:
(1) Entering orders for the member's or other participant's
proprietary accounts;
(2) Registered with the Commission as futures commission merchants
and are submitting customer orders to the trading system for execution;
(3) Registered with the Commission as a commodity pool operator or
commodity trading advisor, or are exempt from such registration
pursuant to Sec. 4.13 or Sec. 4.14 of this chapter, and are
submitting orders for execution on behalf of a United States pool that
the member or other participant operates or an account of a United
States customer for which the member or other participant has
discretionary authority, respectively, provided that a futures
commission merchant registered with the Commission as such or a firm
exempt from such registration pursuant to Sec. 30.10 of this chapter
acts as clearing firm and guarantees, without limitation, all such
trades of the commodity pool operator or commodity trading advisor
effected through submission of orders to the trading system; or
(4) Registered with the Commission as introducing brokers and are
submitting customer orders to the trading system for execution,
provided that a futures commission merchant registered with the
Commission as such or a firm exempt from such registration pursuant to
Sec. 30.10 of this chapter acts as a clearing firm and guarantees,
without limitation, all trades of the introducing
[[Page 66209]]
broker effected through submission of orders for United States
customers to the trading system.
Sec. 48.6 [Removed and Reserved]
0
4. Remove and reserve Sec. 48.6.
0
5. In Sec. 48.8, revise paragraphs (a)(4)(ii) and (a)(5)(i) and (iii)
to read as follows:
Sec. 48.8 Conditions of registration.
* * * * *
(a) * * *
(4) * * *
(ii) All orders that are transmitted to the foreign board of
trade's trading system by a foreign board of trade's identified member
or other participant that is operating pursuant to the foreign board of
trade's registration will be solely for the member's or trading
participant's own account unless such member or other participant is
registered with the Commission as a futures commission merchant or such
member or other participant is registered with the Commission as an
introducing broker, commodity pool operator or commodity trading
advisor, or is exempt from registration as a commodity pool operator or
commodity trading advisor pursuant to Sec. 4.13 or Sec. 4.14 of this
chapter, provided that a futures commission merchant registered with
the Commission as such or a firm exempt from such registration pursuant
to Sec. 30.10 of this chapter acts as clearing firm and guarantees,
without limitation, all trades of the introducing broker, commodity
pool operator or commodity trading advisor effected through submission
of orders for United States pools or customers to the trading system.
(5) * * *
(i) Prior to operating pursuant to registration under this part and
on a continuing basis thereafter, a registered foreign board of trade
will require that each current and prospective member or other
participant that is granted direct access to the foreign board of
trade's trading system and that is not registered with the Commission
as a futures commission merchant, an introducing broker, a commodity
trading advisor or a commodity pool operator, file with the foreign
board of trade a written representation, executed by a person with the
authority to bind the member or other participant, stating that as long
as the member or other participant is authorized to enter orders
directly into the trade matching system of the foreign board of trade,
the member or other participant agrees to and submits to the
jurisdiction of the Commission with respect to activities conducted
pursuant to the registration.
* * * * *
(iii) The foreign board of trade, clearing organization, and each
current and prospective member or other participant that is granted
direct access to the foreign board of trade's trading system and that
is not registered with the Commission as a futures commission merchant,
an introducing broker, a commodity trading advisor, or a commodity pool
operator will maintain with the foreign board of trade written
representations, executed by persons with the authority to bind the
entity making them, stating that as long as the foreign board of trade
is registered under this part, the foreign board of trade, the clearing
organization or member of either or other participant granted direct
access pursuant to this part will provide, upon the request of the
Commission, the United States Department of Justice and, if
appropriate, the National Futures Association, prompt access to the
entity's, member's, or other participant's original books and records
or, at the election of the requesting agency, a copy of specified
information containing such books and records, as well as access to the
premises where the trading system is available in the United States.
* * * * *
0
6. In Sec. 48.9, add paragraph (b)(5) to read as follows:
Sec. 48.9 Revocation of registration.
* * * * *
(b) * * *
(5) The Commission may revoke a foreign board of trade's
registration in response to a voluntary request by the foreign board of
trade to vacate its registration. A foreign board of trade may file a
request to vacate its registration with the Secretary of the Commission
at [email protected].
* * * * *
Issued in Washington, DC, on August 6, 2024, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Foreign Boards of Trade--Voting Summary and Chairman's
and Commissioners' Statements
Appendix 1--Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson, and
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Rostin Behnam
I support this final rule, which amends the CFTC regulations for
foreign boards of trade (FBOTs). The amendments permit a registered
FBOT to provide direct access to its electronic trading and order
matching system to a registered introducing broker (IB) located in
the United States for submission of customer orders to the FBOT's
trading system for execution. Based upon more than ten years of
Commission experience with the existing rules for FBOTs, the
amendments also enhance and modernize the ruleset.
The existing FBOT rules were promulgated in 2011. Today's
amendments demonstrate the Commission's ongoing consideration of its
existing rules and my commitment to ensuring that our rules address
the reality of today's markets and their structure. The changes
enable new types of market participants to access registered FBOTs,
improving liquidity and promoting healthier markets.
I thank staff in the Division of Market Oversight, Office of the
General Counsel, and the Office of the Chief Economist for all of
their work on this final rule.
Appendix 3--Statement of Commissioner Kristin N. Johnson
The Commodity Futures Trading Commission (Commission) approved a
final rule that amends Part 48 to permit a foreign board of trade
(FBOT) registered with the Commission to provide introducing brokers
(IBs) located in the United States and registered with the
Commission direct access to submit orders to trade foreign futures
and options on behalf of customers located in the United States
(Final Rule).\1\ Under the Final Rule, FBOTs will be able to provide
registered IBs located in the United States with direct access to
execute customer trades, provided that they submit such orders for
clearing to a Commission-registered FCM or a firm exempt from FCM
registration under CFTC Regulation 30.10.
---------------------------------------------------------------------------
\1\ The Commission is also establishing a procedure for an FBOT
to request the revocation of its registration, and removing certain
outdated references to ``existing no-action relief.''
---------------------------------------------------------------------------
Over the course of my tenure as a Commissioner, I have
consistently supported the Commission's efforts to advance the
protection of customer funds. I appreciate the thoughtful comments
regarding the Commission's 30.10 framework in the context of the
Final Rule and the attention given to the need to ensure that the
foreign regime has comparable customer protection, disclosure, and
anti-money laundering requirements.
I support the Final Rule, which includes important protections
for U.S. customers, while also facilitating market access. I commend
the careful work of the staff of the Division of Market Oversight,
including Alexandros Stamoulis, Roger Smith, Maura Dundon, and David
Reiffen, on the Final Rule.
[[Page 66210]]
Appendix 4--Statement of Commissioner Caroline D. Pham
I support the Foreign Boards of Trade (FBOT) Final Rule because
it promotes access to markets for U.S. participants, competition,
and liquidity. I would like to thank Maura Dundon, Roger Smith, and
Alexandros Stamoulis in the CFTC's Division of Market Oversight for
their work on this rulemaking.
I will reiterate key points from my statement on the FBOT
proposed rule.\1\ As a CFTC Commissioner, I have made it clear that
I believe in good policy that enables growth, progress, and access
to markets.\2\ Accordingly, I am pleased to support Commission
efforts that take a pragmatic approach to issues that hinder market
access and cross-border activity. I continue to believe that this
rulemaking exemplifies policy that ensures a level playing field,
and I applaud this step in the right direction for market structure.
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\1\ Statement of Commissioner Caroline D. Pham in Support of
Foreign Board of Trade Proposal (Feb. 20, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement022024.
\2\ See, e.g., Keynote Address by Commissioner Caroline D. Pham,
98th Annual Convention of the American Cotton Shippers Association
(June 22, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/opapham2; Statement of Commissioner Caroline D. Pham on Staff Letter
Regarding ADM Investor Services, Inc. (June 16, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement061623.
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FBOTs have been a critical piece of the CFTC's markets for
decades and provide access for U.S. market participants to non-U.S.
markets in realization of the global economy and international
business.\3\ The main substantive amendment in the FBOT Final Rule
is to Regulation 48.4, which will now include introducing brokers
(IBs) \4\ as a permissible intermediary, in addition to futures
commission merchants (FCMs), commodity pool operators (CPOs), and
commodity trading advisors (CTAs), to enter orders on behalf of
customers or commodity pools via direct access on a registered
FBOT.\5\ I believe that the FBOT Final Rule will provide more choice
in brokers and broker arrangements for U.S. market participants that
trade foreign futures and ensure that appropriate customer
protections are in place.
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\3\ While FBOTs initially had operated pursuant to no-action
relief, in 2011, following the Dodd-Frank Wall Street and Consumer
Protection Act of 2010, the Commission began registering FBOTs. See
Registration of Foreign Boards of Trade, Final Rule, 76 FR 80674
(Dec. 23, 2011), https://www.federalregister.gov/documents/2011/12/23/2011-31637/registration-of-foreign-boards-of-trade.
\4\ The Commission generally defines an IB as an individual or
organization that solicits or accepts orders to buy or sell futures
contracts, commodity options, retail off-exchange forex or commodity
contracts, or swaps, but does not accept money or other assets from
customers to support these orders. Commodity Exchange Act (CEA)
section 1a(31); 17 CFR 1.3(mm). The Commission registers IBs under
CEA section 4d(g) and CFTC Regulation 3.4(a). 7 U.S.C. 6d(g) and 17
CFR 3.4(a).
\5\ 17 CFR 48.4.
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As sponsor of the CFTC's Global Markets Advisory Committee
(GMAC),\6\ I have devoted a significant part of my Commissionership
to supporting solutions that will enhance the resiliency and
efficiency of global markets.\7\ The FBOT Final Rule is policy that
mitigates market fragmentation and the associated impact on
liquidity, and promotes the overall competitiveness of our
derivatives markets. I am pleased to support the FBOT Final Rule.
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\6\ CFTC Global Markets Advisory Committee, https://www.cftc.gov/About/AdvisoryCommittees/GMAC. See Commissioner Pham
Announces New Members and Leadership of the CFTC's Global Markets
Advisory Committee and Subcommittees (June 30, 2023), https://www.cftc.gov/PressRoom/PressReleases/8740-23.
\7\ E.g., Achieving Growth and Progress: Statement of
Commissioner Caroline D. Pham at the Global Markets Advisory
Committee June 4 Meeting (June 4, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement060424; Opening Statement
of Commissioner Caroline D. Pham before the Global Markets Advisory
Committee (Feb. 13, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement021323. To date, the GMAC has
advanced 13 recommendations and reports to the Commission on a broad
set of significant global markets issues, including U.S. Treasury
market liquidity, well-functioning repo and funding markets, capital
and margin requirements, exchange volatility controls, T+1
securities settlement, improved collateral management, central
counterparty (CCP) default simulation, streamlining trade reporting
data to monitor systemic risk, and a foundational digital asset
taxonomy to facilitate alignment in regulation across jurisdictions.
[FR Doc. 2024-17828 Filed 8-14-24; 8:45 am]
BILLING CODE 6351-01-P