2024-04117
[Federal Register Volume 89, Number 42 (Friday, March 1, 2024)]
[Proposed Rules]
[Pages 15083-15094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04117]
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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: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission)
is proposing to amend 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 broker (IB) for submission of
customer orders to the FBOT's trading system for execution. The
Commission is also proposing to establish a procedure for an FBOT to
request revocation of its registration, and to remove certain outdated
references to ``existing no-action relief.''
DATES: Comments must be received on or before April 22, 2024.
ADDRESSES: You may submit comments, identified by ``Foreign Boards of
Trade'' and RIN 3038-AF37, by any of the following methods:
CFTC Comments Portal: https://comments.cftc.gov. Select
the ``Submit Comments'' link for this rulemaking and follow the
instructions on the Public Comment Form.
Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Follow the same instruction as for
Mail, above.
Please submit your comments using only one of these methods.
Submissions through the CFTC Comments Portal are encouraged.
All comments must be submitted in English or, if not, accompanied
by an English translation. Comments will be posted as received to
https://comments.cftc.gov. You should submit only information that you
wish to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act (FOIA), a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in section 145.9 of the Commission's
regulations.\1\
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\1\ 17 CFR 145.9. The Commission's regulations referred to in
this release are found at 17 CFR chapter I (2022), available on the
Commission's website at https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from https://comments.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of this proposed rule will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act (APA) and other applicable laws, and may be accessible
under FOIA.
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; Maura Dundon, Special Counsel, (202) 418-5286,
[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. The Proposed Amendments
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
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.\2\ 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.\3\
[[Page 15084]]
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
granted by Commission staff in order to provide direct access to U.S.
persons.\4\
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\2\ 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).
\3\ 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)).
\4\ 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.
The Commission has not amended part 48 since it was first
promulgated in 2011. Based on the Commission's experience engaging with
registered FBOTs and applying part 48 over the ensuing years, the
Commission is proposing certain amendments to the regulation. The
proposed amendments are limited in scope and would not change the
overall registration structure or framework of part 48. Rather, the
proposal would 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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\5\ Intermediaries are entities that act on behalf of another
person with respect to a trade. 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 proposed amendments would amend Sec. 48.9 to
provide registered FBOTs with a procedure to request revocation of
their FBOT registration. Further, the Commission proposes to delete
Sec. 48.6, which provides for an alternate registration procedure for
FBOT's acting under the preexisting staff no-action letter process,
because such no-action letter process and no-action letters are no
longer in effect.
II. Proposed Amendments
A. Section 48.4--Registration Eligibility and Scope
The Commission proposes 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.\7\ Section 48.4(b) 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 currently identified in 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.\8\ 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.\9\ 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 registered FCM or a firm exempt from FCM registration pursuant to
Sec. 30.10.\10\ The Commission proposes 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--subject to the same
condition now in place for CPOs and CTAs submitting orders on behalf of
U.S. commodity pools or U.S. customers: all trades effected through
submission of U.S. customer orders must be guaranteed by a registered
FCM or a firm exempt from FCM registration pursuant to Sec. 30.10. The
Commission also proposes 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.\11\
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\7\ 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 2, 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.
\8\ See footnote 14, infra, and accompanying text.
\9\ 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.
\10\ 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).
\11\ The proposed 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
[[Page 15085]]
trade matching engine of the FBOT.\12\ This means that the FBOT itself,
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.\13\ For
example, a registered FBOT may authorize its member firms or other
participants eligible to handle U.S. customer orders to enter orders on
behalf of their customers in the U.S. or to otherwise permit their
customers in the U.S. to access the trading system using the member
firm'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 customers in the U.S., who have not been
granted explicit authority by the FBOT as a member or other participant
of the FBOT, to have access to the exchange's trading systems, subject
to a guarantee from an exchange participant firm. 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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\12\ CEA section 4(b)(1)(A), 7 U.S.C. 6(b)(1)(A); 17 CFR
48.2(c).
\13\ 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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In promulgating Sec. 48.4(b) the Commission set forth criteria
based on then-existing staff no-action letters for FBOTs, noting that
persons that would be permitted by the FBOT to trade by direct access
from the U.S. pursuant to the registration rules would be the types of
persons that are currently able to trade by direct access pursuant to
staff issued no-action relief letters.\14\ However, the referenced
staff no-action letters did not include any provision for IBs. In the
proposing release for part 48, the Commission requested comments
concerning additional entities that should be eligible for direct
access to the trading and order matching systems of FBOTs from the
U.S.\15\ At that time, no comments were received in response to that
request and the Commission adopted Sec. 48.4(b) as proposed and
without direct comment.
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\14\ Registration of Foreign Boards of Trade, Notice of Proposed
Rulemaking, 88 FR 61432, 70977 (Nov. 19, 2010). See also, Q & A--
Final Rule on Registration of Foreign Boards of Trade, What entities
will be eligible to trade via direct access from the U.S.?,
available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/fbot_qa_final.pdf (``[t]he
registration regulations identify the types of entities to which a
registered FBOT could grant direct access: identified members and
other participants that trade for their proprietary accounts; FCMs
that submit orders on behalf of U.S. customers; and CPOs or CTAs, or
entities exempt from such registration, that submit orders on behalf
of U.S. pools or for accounts of U.S. customers for which they have
discretionary authority. This is consistent with the existing no-
action relief.''); and Fact Sheet, Final Rules Regarding the
Registration of Foreign Boards of Trade, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/fbot_factsheet_final.pdf.
\15\ 88 FR 61432 at 70977.
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The Commission believes that permitting eligible IBs to submit
customer orders via direct access to FBOTs may be beneficial to market
participants and affected markets. Designated contract markets (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,
typically in an omnibus customer account or a fully disclosed basis.
FBOTs may similarly permit IBs located outside of the United States to
enter trades directly into the trade matching system of the FBOT on
behalf of their customer accounts. The proposed amendment to Sec. 48.4
would permit registered IBs located in the U.S. to act in a comparable
capacity on registered FBOTs in cases where an FBOT will be providing
direct access to the IB for the purpose of submitting customer orders
for execution. The Commission preliminarily believes that allowing
eligible IBs to have direct access to registered FBOTs to execute
transactions on behalf of their clients may provide market participants
that wish to trade in foreign futures contracts with greater choice in
brokers and broker arrangements, and may increase competition among
firms offering execution brokerage services to customers on registered
FBOTs. The Commission furthermore preliminarily believes that affording
greater choice in brokers and broker arrangements would not undermine
or otherwise adversely affect customer protections available to U.S.
customers as their trades would be guaranteed by a registered FCM or
firm exempt from FCM registration under Sec. 30.10,\16\ and would be
subject to required risk disclosures relating to foreign futures
transactions.\17\
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\16\ Including the proposed provision relating to the guarantee
of U.S. customer trades in proposed new Sec. 48.4(b)(4) would
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
proposed rule would 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 contracts 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 contracts to customers located in the United States. These
regulations are designed to carry out Congress's intent that foreign
futures and foreign options products 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 10,
supra.
\17\ 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.
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Request for Comment
The Commission requests comments on all aspects of the proposal to
amend Sec. 48.4(b) to permit registered FBOTs to provide direct access
to eligible IBs to enter orders directly into the FBOT's trading and
order matching system on behalf of customers, 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. In particular, the Commission requests comment on the following
questions.
(1) Would extending direct access eligibility to eligible IBs for
the purpose of submitting customer orders potentially result in any
unintended consequences? Is there any reason the Commission should not
amend Sec. 48.4 to extend direct access eligibility to eligible IBs
for the purpose of submitting customer orders? Are there other issues
the Commission should address in order to ensure that FBOTs providing
direct access to IBs under proposed Sec. 48.4(b)(4) does not harm U.S.
markets or increase risk to the U.S. economy?
(2) The proposed regulation would require that an FCM registered
with the Commission as such or a firm exempt from such registration
pursuant to Sec. 30.10 act as a clearing firm and guarantee, without
limitation, all trades
[[Page 15086]]
of the IB effected through submission of orders for U.S. customers to
the trading system.
(a) Is this condition appropriate? Why or why not?
(b) Does ``act as a clearing firm and guarantee, without
limitation, all trades of the introducing broker'' effectively
translate to and encapsulate the various comparable foreign regimes and
market structures of FBOTs and their clearing organizations? Are there
relevant considerations relating to the clearing and guarantee of IB
trades that differ from that of CPO and CTA trades?
(c) How could this condition impact trades submitted by an IB on
behalf of a self-clearing firm? Do direct clearing members of FBOT
clearing organizations use IBs to submit their orders to FBOTs? If so,
does this proposed condition raise any operational issues, additional
costs, or other issues for such direct clearing members (e.g., relating
to portfolio margining, risk management, or other)?
(3) Should the Commission instead require all U.S. customer trades
entered by an IB via direct access on a registered FBOT to be
guaranteed by a registered FCM (but not extend the condition to firms
exempt from FCM registration under Sec. 30.10 to carry such trades)?
Would permitting firms exempt from FCM registration under Sec. 30.10
to carry U.S. customer trades entered by an IB via direct access on a
registered FBOT raise any issues with anti-money laundering (AML)
requirements under the Bank Secrecy Act and Commission regulations?
What would be the effects of requiring such trades to be carried
exclusively by clearing members that are registered with the Commission
as FCMs?
(4) Are there 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)?
(5) In addition to the information that FBOTs provide to the
Commission on an ongoing basis under Sec. 48.8, is there additional
information that the Commission should receive from FBOTs that provide
direct access to IBs under proposed Sec. 48.4(b)(4), and if so, why?
For example, is there additional information that FBOTs could provide
to assist the Commission in identifying, evaluating, and addressing
situations that may adversely impact consumers, IBs, market
participants, and financial markets? Further, please describe whether
this information should be provided on a periodic basis (i.e.,
quarterly or monthly), or event-driven basis (i.e., after a
disciplinary action).
B. Section 48.8--Conditions of Registration
The Commission is proposing conforming amendments that will include
eligible IBs in Sec. Sec. 48.8(a)(4)(ii), 48.8(a)(5)(i) and
48.8(a)(5)(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
proposes 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
eligible IBs to transmit orders via direct access on behalf of the
accounts of their customers. The Commission also proposes 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).\18\
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\18\ See footnote 11, 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 proposes 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.\19\ 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 proposes
to include IBs alongside FCMs, CPOs and CTAs in Sec. 48.8(a)(5)(iii).
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\19\ 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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Request for Comment
The Commission requests comments on the proposed conforming changes
to Sec. Sec. 48.8(a)(4)(ii), 48.8(a)(5)(i) and 48.8(a)(5)(iii).
C. Section 48.9--Revocation of Registration
The Commission proposes 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.\20\ 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 proposes to amend Sec.
48.9(b) (``Other Events that Could Result in Revocation'') by adding a
new paragraph (b)(5). New Sec. 48.9(b)(5) would clarify that the
Commission may revoke an FBOT's registration in response to a voluntary
request by an FBOT to do so, and provide that an FBOT can make such
request via email to the Commission.
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\20\ See 17 CFR 48.9.
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Request for Comment
The Commission requests comments on all aspects of the proposed
amendment to Sec. 48.9 to establish a procedure for FBOTs to request
voluntary revocation of registration.
D. Section 48.6--Foreign Boards of Trade Providing Direct Access
Pursuant to Existing No-Action Relief
Section 48.6 provides for a limited 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
[[Page 15087]]
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 proposes to delete Sec. 48.6. As a
conforming amendment the Commission also proposes 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.
Request for Comment
The Commission requests comments on all aspects of the proposal to
delete Sec. Sec. 48.6 and 48.2(h).
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires agencies to consider
whether the rules they propose 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.\21\ 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.\22\ The
proposed amendments to part 48 would impact FBOTs. The Commission has
previously determined that FBOTs are not small entities for purposes of
the RFA.\23\
---------------------------------------------------------------------------
\21\ 5 U.S.C. 601 et seq.
\22\ See Policy Statement and Establishment of ``Small
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR
18618 (Apr. 30, 1982).
\23\ 76 FR at 80698.
---------------------------------------------------------------------------
The proposed amendments to part 48 would also impact eligible IBs
by providing 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.\24\
However, the proposed rules do not impose any new burden on eligible
IBs. Instead, the proposal 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.
---------------------------------------------------------------------------
\24\ 85 FR 78718, 78733 (Dec. 7, 2020).
---------------------------------------------------------------------------
Therefore, the Chairman, on behalf of the Commission, pursuant to 5
U.S.C. 605(b), hereby certifies that the proposed 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),\25\ imposes certain
requirements on Federal agencies (including the Commission) in
connection with conducting or sponsoring any ``collection of
information,'' \26\ 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).\27\ 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.\28\ 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.\29\
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\25\ 44 U.S.C. 3501 et seq.
\26\ See 44 U.S.C. 3502(3)(A).
\27\ See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3).
\28\ See 44 U.S.C. 3501.
\29\ See 44 U.S.C. 3502(3).
---------------------------------------------------------------------------
This notice of proposed rulemaking (NPRM) proposes amendments to
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).\30\
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 NPRM would provide a process for FBOTs to request
voluntary revocation of their registration, allow eligible IBs to act
as direct access participants, and remove an outdated reference to ``no
action relief.''
---------------------------------------------------------------------------
\30\ 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 proposed amendments do not
contain any new collections of information and would not increase the
burden associated with the information collections under part 48. While
the proposed amendments establish a new process for FBOTs to submit
requests for revocation of their registration, the proposed 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 would not constitute
a collection of information under the PRA. In addition, the proposed
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 requests public comment on this determination.
C. Cost-Benefit Considerations
1. Introduction
Section 15(a) of the CEA \31\ 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.
---------------------------------------------------------------------------
\31\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
The Commission has endeavored to assess the expected costs and
benefits of the proposed 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 proposed amendments in qualitative terms.
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
[[Page 15088]]
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 proposed 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.\32\
---------------------------------------------------------------------------
\32\ 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 proposed rule amendments. The Commission, where
applicable, then considers the costs and benefits of the proposed rule
amendments in light of the five public interest considerations set out
in Sec. 15(a) of the CEA.
2. Proposed Regulations
The Commission is proposing to amend certain rules in part 48 of
its regulations relating to FBOTs. The Commission identifies the costs
and benefits of the proposed 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 proposed rule
amendments is the statutory and regulatory requirements of the CEA and
Commission regulations now in effect, in particular CEA section 4(b)
and part 48 of the Commission's regulations.
Proposed Amendments to Sec. 48.6
The Commission proposes to delete Sec. 48.6, which provides 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. Removal 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 null.
Proposed Amendments to Sec. 48.9
The Commission proposes to amend Sec. 48.9 to establish 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.
Proposed Amendments to Sec. 48.4 and Conforming Amendments to
Sec. 48.8
The proposed amendments to Sec. 48.4 and conforming amendments to
Sec. 48.8 would 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
proposed 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 January 2024, the following number of CTAs, CPOs, and IBs were
registered with the Commission as shown on table 1.\33\
---------------------------------------------------------------------------
\33\ NFA website, https://www.nfa.futures.org/registration-membership/membership-and-directories.html.
Table 1
------------------------------------------------------------------------
------------------------------------------------------------------------
CTAs \1\....................................................... 1,262
CPOs \1\....................................................... 1,190
IBs............................................................ 937
FCMs........................................................... 60
Swap Dealers................................................... 106
------------------------------------------------------------------------
\1\ These categories are not mutually exclusive, i.e., a CPO may also be
registered as a CTA.
Table 1 above shows that the number of IBs is more than a quarter
of all CFTC-registered intermediaries. The Commission does not know how
many FBOTs would provide direct access to eligible IBs and how many
eligible IBs would become direct access members or participants of
registered FBOTs. There could also be new IB entrants that are granted
direct access to registered FBOTs. However, by permitting FBOTs to
provide direct access to eligible IBs, the proposed 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, 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 would choose
to respond to the proposed amendments to part 48 and how IBs located in
the U.S. would choose to respond to potential new opportunities to
participate on registered FBOTs. The Commission specifically requests
data and information from IBs located in the U.S., registered FBOTs,
market participants, and other commenters to allow it to better
estimate the costs and benefits of the proposal.
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.\34\ 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.
---------------------------------------------------------------------------
\34\ 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 proposed
amendment to Sec. 48.4 would be 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
[[Page 15089]]
brokerage arrangements to trade foreign futures on registered FBOTs--
for example, lower trading costs or the use of advantageous proprietary
execution algorithms developed by such IBs.
From the standpoint of registered FBOTs, allowing eligible IBs to
become direct access participants would 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 would be able to pursue new business models
and/or expand existing business models onto new foreign markets.
FBOTs that decide to provide direct access to eligible IBs 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 is interested in receiving public comments regarding these
and any other costs associated with eligible IBs having direct access
to registered FBOTs. In this regard, the Commission requests public
comment on any potential costs of the proposal, including comments
relating to questions 6 through 9 in the ``request for comment''
section below.
Section 15(a) Factors
Section 15(a) of the CEA requires the Commission to consider the
costs and 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 proposed changes to part 48 would not affect the basic
protection for customers with respect to their foreign futures
transactions. Under the proposed 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 eligible IBs differently from certain
FCMs, CTAs and CPOs located in the U.S. in regard to their ability to
be granted direct access to registered FBOTs for the purpose of
executing third-party client trades. Similarly, intermediaries located
outside of the United States may, under the status quo, offer execution
services to U.S. and non-U.S. customers on registered FBOTs. The
proposed change would permit eligible IBs to offer competing execution
services on registered FBOTs. Alternatively, to the extent that
clientele for these IBs is distinct from other kinds of intermediaries,
the rule change may enable them to access new foreign futures markets.
Greater competition among introducing brokers and 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 proposed 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 proposed 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 proposed 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.
Request for Comment
The Commission invites public comment on all aspects of its cost
benefit considerations, including the discussion of the section 15(a)
factors and the identification and assessment of any costs or benefits
not discussed herein. Commenters may also suggest alternatives to the
proposed approach where the commenters believe that the alternatives
would be appropriate under the CEA and would provide a more appropriate
cost-benefit profile. Commenters are requested to provide data and any
other information or statistics to support their position. To the
extent commenters believe that the costs or benefits of any aspect of
the proposed rules are reasonably quantifiable, the Commission requests
that they provide data and any other information or statistics to
assist the Commission in quantification. In particular, the Commission
requests comment on the following questions:
(6) What is the experience of FCMs, CTAs and CPOs regarding the
magnitude of benefits to their customers from their direct access
participation on FBOTs?
(7) Have there been instances of harm to customers/clients from
FCMs, CTAs and/or CPOs participating as direct access members of
registered FBOTs?
(8) Would direct access trading by eligible IBs on registered FBOTs
pose substantive challenges and/or costs to FCMs or firms exempt from
FCM registration under Sec. 30.10 who carry or would carry the
accounts of trades executed by such IBs?
(9) Are there additional costs or benefits from the proposed rule
change that have not been discussed?
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 proposes to amend 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
[[Page 15090]]
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 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 regulation, the foreign board of trade, the
clearing organization or member of either or other participant granted
direct access pursuant to this regulation 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 February 23, 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--Commission Voting Summary and
Chairman's and Commissioners' Statements
Appendix 1--Commission Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson,
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No
Commissioner voted in the negative.
Appendix 2--Statement of Support of Chairman Rostin Behnam
I support the proposed amendments to CFTC rules for foreign
boards of trade (FBOTs) that would 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 Commission is also
proposing certain enhancements and modernization of the existing
ruleset.
The existing FBOT rules were promulgated in 2011. Today's
proposed amendments are emblematic of the Commission's ongoing
consideration of its existing rules and my commitment to ensuring
that our rules continue to address the reality of today's markets
and their structure. The proposed changes may enable new types of
market participants to access registered FBOTs, which could help
improve liquidity and reduce fragmentation, thereby promoting
healthier markets.
I look forward to hearing the public's comments on the proposed
amendments to the regulations for FBOTs. 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 the proposal.
[[Page 15091]]
Appendix 3--Statement of Commissioner Kristin N. Johnson
Introduction
The Commodity Futures Trading Commission's (Commission or CFTC)
governing statute, the Commodity Exchange Act (CEA), enumerates
several key aims. Protecting customers from the misuse of customer
assets is one of the central goals of derivatives market
regulations. Protecting customers begins with carefully evaluating,
reviewing, monitoring, and enforcing the regulations that govern
intermediaries in our markets.
The Commission has established a comprehensive customer
protection framework that applies to futures commission merchants
(FCM). This framework requires certain entities that hold customer
assets to register with the Commission as an FCM. Under our rules,
FCMs must comply with strict segregation and risk disclosure
requirements and establish know-your-customer (KYC) and anti-money
laundering (AML) programs.
Consequently, any Commission rule or regulation that permits
entities exempt from registration as an FCM to hold customer assets
must be based on a careful evaluation and consideration of the
protections afforded to such customers. Our consideration is
particularly critical, if not heightened, in the absence of FCM
registration.
Additionally, the Commission must ensure that U.S. customers are
not afforded less protection when trading outside the United States.
Trading in foreign markets exposes U.S. customers--institutional or
retail--to a number of important risks because clearing
intermediaries may hold U.S. customers' cash and securities outside
the United States.
The mechanics of trading in foreign markets involve posting
customer cash and securities to a clearing firm or exchange
organized pursuant to the laws of, and physically located in, a
foreign jurisdiction. A bankruptcy or insolvency proceeding related
to the foreign clearing firm will be subject to applicable foreign
laws. These laws will govern the application of any customer
protections and the repatriation of customer assets to U.S.
residents. As a result, U.S. customers may not receive the specific
protections they would be afforded as customers of a Commission-
registered FCM under the U.S. bankruptcy code and part 190 of the
Commission's regulations.
Part 48 of the Commission's regulations sets forth the
conditions under which a foreign board of trade (FBOT) may provide
persons located in the United States with direct access to the
FBOT's trading system to trade foreign futures and options. CFTC
Regulation 48.4 establishes the registration eligibility for FBOTs
and identifies the entities to which an FBOT may permit direct
access once it is registered.
The Commission seeks to amend part 48 to permit an FBOT
registered with the Commission to provide direct access to
introducing brokers (IBs) located in the United States and
registered with the Commission to submit orders to trade foreign
futures and options on behalf of customers located in the United
States (Proposed Rule).\1\ Under the Proposed Rule, the foreign
futures and options must be cleared by a registered FCM or a foreign
clearing firm that is exempt from FCM registration (exempt clearing
firm) and located in a foreign jurisdiction that the Commission has
determined to have a comparable regulatory framework to the CFTC's
regulatory scheme pursuant to CFTC Regulation 30.10.
---------------------------------------------------------------------------
\1\ The Commission is also proposing to establish a procedure
for an FBOT to request the revocation of its registration, and to
remove certain outdated references to ``existing no-action relief.''
---------------------------------------------------------------------------
While our regulations permit exempt clearing firms, the
Commission must maintain a robust process for evaluating exemption
requests. These criteria, pursuant to CFTC Regulation 30.10, ensure
that only countries with comparable regulatory requirements--
including with respect to segregation, risk disclosures, and KYC and
AML programs--are granted an exemption from Commission regulations.
The need for strong customer protection safeguards is heightened
when firms organized and located outside the United States. solicit
U.S. customers to engage in derivatives activities outside the
United States.
The Proposed Rule must therefore include critical customer
protection and market integrity guardrails. The Commission must
ensure that U.S. customers allowed to have direct access to FBOTs
through CFTC-registered IBs receive customer protections equivalent
to the protections available when engaging with U.S.-registered
FCMs.
Wherever the Commission permits firms to follow foreign
regulatory requirements instead of Commission requirements, the
Commission must undertake a thorough process to ensure that those
foreign requirements are, among other things, no less protective for
customers than Commission requirements.
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 support the Proposed Rule, which
includes important protections for U.S. customers, and look forward
to comments confirming or offering guidance on how the Commission
may ensure that the Proposed Rule advances equivalent protections
for U.S. customers clearing through an exempt clearing firms,
including with respect to segregation requirements, risk
disclosures, and KYC and AML programs.
Part 48 History
Since as early as 1996, FBOTs relied on staff no-action letters
to provide trading direct access to persons located in the United
States. Section 738 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) amends section 4(b) of the
CEA, empowering the Commission to ``adopt rules and regulations
requiring registration with the Commission for [an FBOT] that
provides the members of the [FBOT] or other participants located in
the United States with direct access to the electronic trading and
order matching system.'' \2\ To have direct access, a U.S.-
registered IB must be given ``an explicit grant of authority'' by
the FBOT ``to enter trades directly into the [FBOT's] trade matching
system.'' \3\
---------------------------------------------------------------------------
\2\ 7 U.S.C. 6(b).
\3\ Id.
---------------------------------------------------------------------------
In 2011, the Commission adopted part 48 pursuant to this
statutory mandate, requiring an FBOT to register with the Commission
in order to provide its members or other participants located in the
United States with direct access for electronic trading and
execution.\4\
---------------------------------------------------------------------------
\4\ Registration of Foreign Boards of Trade, 76 FR 80674 (Dec.
23, 2011).
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Under part 48, registered FBOTs may permit direct access by
specified participants located in the United States for the purpose
of executing customer orders, but the Commission imposed very
important conditions on certain specific trading intermediaries--
Commission-registered CPOs and CTAs submitting orders on behalf of a
United States pool or customer. Those CPOs and CTAs are also
required to submit such orders for clearing to a Commission-
registered FCM or a clearing broker exempt from FCM registration
under CFTC regulation 30.10 that ``guarantees, without limitation,
all such trades.'' \5\ As an intermediary between the U.S.-located
customer and the foreign exchange, the FCM or foreign clearing
broker is liable for all trades executed on the FBOT.
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\5\ 17 CFR 48.4(b)(3).
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Proposed Rule
The Proposed Rule would be the first change to part 48 since
2011, amending CFTC Regulation 48.4(b) to add IBs located in the
United States and registered with the Commission to the list of
trading intermediaries to whom FBOTs may grant direct access for the
execution of U.S. customer orders. The customer base of IBs is
diverse and includes both institutional customers, retail customers,
and end-users. IBs engage in soliciting U.S. customers to purchase a
wide range of derivatives, including futures contracts, but do not
collect margin against those orders (or extend credit in lieu of
margin).\6\
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\6\ 7 U.S.C. 1a(31).
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Currently, FBOTs may provide direct access to IBs located
outside the United States but not to IBs located in the United
States. Under the Proposed Rule, FBOTs would be able to provide
registered IBs located in the United States with direct access to
execute customer trades, provided that, like CTAs and CPOs, they
submit such orders for clearing to a Commission-registered FCM or a
firm exempt from FCM registration under CFTC Regulation 30.10 that
guarantees all trades.
Commission Customer Protections
The condition requiring that IBs submit their foreign futures
and options to a Commission-registered FCM or exempt clearing firm
is meant to safeguard customer margin; but the Commission must be
deeply thoughtful in its assessment of whether a foreign
jurisdiction offers comparable customer protection guardrails.
Protecting the assets of customers is one of the Commission's core
missions.
Adopted in 1987, part 30 of the CFTC's regulations are intended
to ``add to the
[[Page 15092]]
Commission's existing customer protection regulatory scheme coverage
of foreign futures and options transactions undertaken by U.S.
domiciliaries.'' \7\
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\7\ Foreign Futures and Foreign Options Transactions, 52 FR
28980, 28980 (Aug. 5, 1987).
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Pursuant to CFTC Regulation 30.4, an intermediary that accepts
the funds of U.S. residents must register as an FCM, provide risk
disclosures and comply with the customer protection framework for
U.S. customers established in CFTC Regulation 30.7.\8\ Notably, a
Commission-registered FCM is required to maintain in a separate
account sufficient customer funds (referred to as secured amounts)
to cover its liabilities to foreign futures and options customers,
among other requirements.\9\ Separately, the Bank Secrecy Act and
related regulations require FCMs and IBs to ``establish [AML]
programs, report suspicious activity, verify the identity of
customers and apply enhanced due diligence to certain types of
accounts involving foreign persons.'' \10\
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\8\ At the request of my office, division staff included a
reminder in the Preamble to the Proposed Rule that these foreign
futures and options transactions would also be subject to required
risk disclosures pursuant to CFTC Regulation 30.6, which requires
IBs and FCMs to provide a statement to customers disclosing the
risks of trading foreign futures and options offshore.
\9\ 17 CFR 30.7.
\10\ CFTC, Anti-Money Laundering, https://www.cftc.gov/
IndustryOversight/AntiMoneyLaundering/
index.htm#:~:text=The%20BSA%20and%20related%20regulations,of%20accoun
ts%20involving%20foreign%20persons.
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By contrast, pursuant to CFTC Regulation 30.10, an exempt
clearing firm may hold the funds of U.S. customers outside the
United States without registering as an FCM, if it is located in a
jurisdiction that the Commission has determined has a comparable
regulatory framework to the U.S. scheme. The Commission may grant,
and has granted, exemptions from part 30 pursuant to the exemptive
procedures set forth in CFTC Regulation 30.10, a framework that has
been in place at least since the 1980s. Customers of exempt clearing
firms should benefit from the customer protection, risk disclosure,
KYC, and AML requirements available to customers of Commission-
registered FCMs.
In making its comparability determination, the Commission
considers certain threshold elements of a comparability framework,
including minimum financial requirements for entities that accept
customer funds; protection of customer funds from misapplication;
and sales practice standards, which includes disclosure of the risks
of futures and options transactions, particularly the risk of
foreign transactions traded outside the jurisdiction of U.S.
law.\11\ In evaluating the treatment of customer funds, the
Commission will also ``consider protections accorded customer funds
in a bankruptcy under applicable law, as well as protection from
fraud.'' \12\ The Commission may also take into account other
factors. This analysis is essential to ensuring the integrity of our
markets, the protection of our customers, and the mitigation of
systemic risk.
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\11\ See Appendix A to part 30, title 17, https://www.ecfr.gov/current/title-17/chapter-I/part-30/appendix-Appendix%20A%20to%20Part%2030.
\12\ Id.
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Protecting U.S. Customers in Foreign Jurisdictions
In adopting the Proposed Rule's requirement that foreign futures
and options transactions be cleared through either an FCM or a
clearing firm exempt from FCM registration, the Commission's goal is
to ensure that U.S. customers are not afforded less protection when
trading offshore and clearing through an exempt clearing firm. This
is accomplished through the application of robust comparability
standards when the Commission provides exemptions pursuant to CFTC
Regulation 30.10.
The Commission has been guided by ``Congress' intent that
foreign futures and options products sold in the U.S. be subject to
regulatory safeguards comparable to those applicable to domestic
transactions.'' \13\ The legal and regulatory framework of the
foreign jurisdiction must be found to be comparable to the U.S.
framework, but the foreign jurisdiction's segregation, risk
disclosure, KYC, and AML requirements merit particular attention.
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\13\ Id.
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As I noted in a recent statement regarding a proposed
comparability determination for the UK's capital adequacy and
financial reporting requirements, ``mutual understanding and respect
for partner regulators in other countries advances the Commission's
goal of setting a global standard for sound derivatives regulation,
enhances market stability, and is also deeply rigorous, reflecting
the Commission's commitment to safe swaps markets.'' \14\
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\14\ Kristin N. Johnson, Commissioner, CFTC, Combatting Systemic
Risk and Fostering Integrity of the Global Financial System Through
Rigorous Standards and International Comity (Jan. 24, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement012424#_ftnref5.
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The Commission included several important questions as requests
for comments to assist in evaluating whether certain elements of the
foreign jurisdiction's laws adequately protect our markets and
customers. I want to highlight a few questions below.
(1) Are there other issues the Commission should address in
order to ensure that FBOTs providing direct access to IBs under
proposed Sec. 48.4(b)(4) does not harm U.S. markets or increase
risk to the U.S. economy?
(2) Are there relevant considerations relating to the clearing
and guarantee of IB trades that differ from that of CPO and CTA
trades?
(3) Should the Commission instead require all U.S. customer
trades entered by an IB via direct access on a registered FBOT to be
guaranteed by a registered FCM (but not extend the condition to
firms exempt from FCM registration under Sec. 30.10 to carry such
trades)? Would permitting firms exempt from FCM registration under
Sec. 30.10 to carry U.S. customer trades entered by an IB via
direct access on a registered FBOT raise any issues with anti-money
laundering (AML) requirements under the Bank Secrecy Act and
Commission regulations?
I invite comments regarding comparable protections for U.S.
customers clearing through an exempt clearing firms pursuant to CFTC
Regulation 30.10, including with respect to segregation
requirements, risk disclosures, and KYC and AML programs. These
comments may inform the development of the Proposed Rule.
The Commission is required to engage in a rigorous comparability
assessment of the foreign jurisdiction's legal and regulatory
scheme. Among other concerns, the analysis must ensure that
permitting U.S. customers to access foreign markets through IBs does
not engender systemic risks that may undermine the integrity of U.S.
or global derivatives markets or otherwise amplify risks to the U.S.
or global economy. Exempt clearing firms must protect the positions
and collateral of U.S. customers under the relevant laws of their
jurisdiction in a manner parallel to the protections afforded
customer positions and collateral under U.S. regulations governing
the protection of assets of U.S. customers using on a Commission-
registered FCM as a clearing intermediary.
Risk disclosure requirements reduce information asymmetries,
improve transparency, and enable U.S. customers to make informed
decisions about the appropriateness of entering into a foreign
futures and options transaction. Commission-registered FCMs that
clear foreign futures and options transactions for U.S. IB customers
are required to provide disclosures to alert U.S. customers to the
risks of trading in foreign markets and the application of foreign
laws. It is imperative that U.S. customers that clear through an
exempt clearing firm are similarly apprised.
The Preamble to the Proposed Rule notes that an exempt clearing
firm should be 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.'' \15\ The Commission must
be certain.
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\15\ See Appendix A to part 30, title 17, https://www.ecfr.gov/current/title-17/chapter-I/part-30/appendix-Appendix%20A%20to%20Part%2030.
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Protecting our markets from fraud, illicit trading, and money
laundering or terrorism financing promotes market integrity within
our financial system. Commission-registered FCMs that clear foreign
futures and options transactions for U.S. IB customers are subject
to KYC and AML requirements under the Bank Secrecy Act and
Commission regulations. The Commission must be confident that
allowing foreign clearing firms exempt from FCM registration under
CFTC Regulation 30.10 are allowed to carry U.S. customer trades
entered by an IB via direct access on a registered FBOT would not
raise any issues with KYC and AML requirements. Careful
consideration must be given to the existence of similar requirements
in the country in which the exempt clearing firm is located.
I look forward to the comments to the Proposed Rule. I am
particularly interested in commenters' perspective on whether the
Proposed Rule will engender risks or consequences that the Proposed
Rule fails to
[[Page 15093]]
examine or consider. Among other risks, it is imperative that the
Commission understand the diverse risks to U.S. retail customers.
Conclusion
I support the issuance of the Proposed Rule, which seeks to
advance the CEA's goals of protecting U.S. markets, market
participants, and both institutional and retail customers.
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 Proposed Rule.
Appendix 4--Statement of Commissioner Christy Goldsmith Romero
The CFTC is proposing to change a post-Dodd Frank Act reform to
issue a rule that permits CFTC-registered foreign boards of trade to
have direct access to U.S. customers through introducing brokers.\1\
The Dodd-Frank Act defines direct access to mean an explicit grant
of authority by a foreign board of trade to identified members or
other participants located in the United States to enter trades
directly into the trade matching engine of the foreign board of
trade. As described in the open Commission meeting on the final
rule, ``By adopting uniform application procedures and registration
requirements and conditions, the process by which foreign boards of
trade are permitted to provide direct access to their trading
systems will become more standardized, more transparent to both
registration applicants and the general public, and will promote
fair and consistent treatment of all applicants.'' \2\
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\1\ The Dodd Frank Act provided that the CFTC may adopt rules
and regulations requiring registration for FBOTs that seek direct
access to U.S. customers. Post-Dodd Frank Act regulations in part 48
providing that registration framework has conditions limiting the
scope of intermediaries eligible for direct access for submission of
customer orders, not allowing for introducing brokers.
\2\ See CFTC, Transcript of December 5, 2011 Commission Meeting,
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/dfsubmission/dfsubmission12_120511-trans.pdf.
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The Commission in 2011 limited direct access to certain
intermediaries that did not include IBs, explaining,
Part 48 identifies the types of entities to which a registered
FBOT could grant direct access. That would include identified
members and other participants that trade for their proprietary
accounts, FCMs that can submit orders on behalf of U.S. customers,
and CPOs or CTAs or entities exempt from such registration that
submit orders on behalf of U.S. pools or for accounts of U.S.
customers for which they have discretionary authority. Again, this
list of eligible participants is consistent with the participants
under the existing no-action relief.\3\
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\3\ See Id.
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FBOT's have operated under this rule ever since. For the first
time, this proposal would change that rule and expand direct access
to an additional 937 intermediaries who are registered introducing
brokers. It is not addressed in the rule or preamble why this rule
change is necessary. I am aware of an early 2020 request from one of
the 24 registered foreign boards of trade for no-action relief
related to direct access for IBs. The CFTC did not act on that
request over the last four years. I am not aware that the request
has been made by any other FBOT. The CFTC is going farther than what
was requested by one FBOT, and is instead changing the rule for all
foreign boards of trade.
As regulators, we have an important responsibility to make an
independent assessment of what is needed to carry out the CFTC's
mission to promote market resilience, integrity, and vibrancy
through sound regulation. If the Commission is going to engage in
rulemaking to change post-Dodd Frank Act reforms, it is important
that the CFTC analyze the current market need for the change, and
the consequences of changing the rule, including any potential
increase in benefits as well as risks (and conditions necessary to
manage those risks).
It can be difficult to make decisions on proposed rules based on
a general statement that the Commission is proposing the rule
``based on the Commission's experience engaging with registered
FBOTs and applying part 48 over the ensuing years.'' I would have
liked to have seen a discussion of that experience, the current
state of the market, and the need for expanded access for more than
one FBOT. FBOTs are all over the world, reflecting unique nations,
continents, markets, and issues. I look forward to public comment on
whether there are important differences in FBOTs that should be
reflected in any potential final rule. I appreciate a November 2023
letter by the Futures Industry Association, which explains:
With IBs currently not allowed FBOT direct access under 48.4(b),
U.S. participants are left without this access route after EU-based
IBs close, usually around 1 p.m. Eastern time. Updating the rules to
expand direct access to U.S.-registered IBs would allow U.S. market
participants continued access to the relevant foreign markets after
the closure of those broker firms in Europe that provide access
earlier in the day. This is especially important for U.S.
participants' ability to conduct their risk management during
periods of high market volatility, such as those experienced with
the collapse of Silicon Valley Bank and Russian invasion of Ukraine.
Given the public interests behind the 2011 rule of
standardization, transparency, and a need for fair and consistent
treatment, as well as FIA's description of a current risk management
need, I am willing to support releasing the proposed rule to gain
public comment. However, I caution not to read into this supportive
vote that I will vote in favor of any future action on this or other
rulemaking or action without sufficient independent CFTC analysis to
accompany an industry request.
Finally, given the Commission's mission to promote market
integrity, I question the proposed allowance of a guarantee by an
entity exempt from FCM registration under Regulation 30.10 that is
not required to follow the anti-money laundering and other
requirements of the Bank Secrecy Act, rather than limit the
guarantee to registered FCMs. While an entity exempt from FCM
registration under Regulation 30.10 may be subject to another
country's anti-money laundering regime, the CFTC does not have the
same level of insight or enforceability with that entity as with a
registered FCM that is subject to the BSA.
As the former head of a Federal law enforcement office (the
Special Inspector General for the Troubled Asset Relief Program), I
have significant experience in using Currency Transaction Reports
and Suspicious Activity Reports required by the BSA to investigate
and prosecute money laundering, organized crime, drug trafficking
and other criminal enterprises. I have experienced the benefit of
financial institutions serving as a first line of defense given
their BSA requirements.
The Commission's mission includes requiring safeguards to combat
money laundering, illicit finance, and terrorist financing that can
threaten national security and financial stability, and undermine
confidence in the U.S. financial system. Illicit finance threats,
vulnerabilities, and risks facing the United States continue to
grow.\4\ The Bank Secrecy Act plays a critical role in addressing
these threats and risks.
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\4\ See Treasury's The 2024 National Money Laundering Risk
Assessment, The 2024 National Terrorist Financing Risk Assessment,
and The 2024 National Proliferation Financing Risk Assessment,
https://home.treasury.gov/news/press-releases/jy2080.
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I appreciate the staff for their work on this proposed rule
change and look forward to public comment.
Appendix 5--Statement of Support of Commissioner Caroline D. Pham
I support the Notice of Proposed Rulemaking on Foreign Boards of
Trade (FBOT) (Proposed FBOT Amendments or Proposal) 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 the Proposal. I especially appreciate their efforts to
work with me and include my revisions.
As a CFTC Commissioner, I have made it clear that I believe in
good policy that enables growth, progress, and access to markets.\1\
Accordingly, I am pleased to support Commission efforts that take a
pragmatic approach to issues that hinder market access and cross-
border activity.\2\ Today's Proposal 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\ 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.
\2\ Id.
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FBOTs have been a critical piece of the CFTC's markets for
decades and provide
[[Page 15094]]
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 today's Proposed FBOT Amendments is to
Regulation 48.4, which currently permits 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.\4\
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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\ See 17 CFR 48.4.
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As explained in the Proposal, the Commission is proposing to
permit introducing brokers (IBs) \5\ to submit customer orders via
direct access to FBOTs by adding IBs to the list of permissible
intermediaries in Regulation 48.4. Doing so would permit IBs to act
as executing brokers for U.S. customers that in turn use another
intermediary, like an FCM,\6\ for clearing and carrying the customer
accounts, similar to the way IBs currently perform this service on
CFTC-registered designated contract markets (DCMs). Among other
benefits, U.S. market participants interested in trading foreign
futures could have more choices in brokers and broker arrangements.
The Proposed FBOT Amendments will also ensure that customer
protections are in place, similar to the current FBOT requirements
for FCMs, CPOs, and CTAs.
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\5\ 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. See CEA section 1a(31); 17 CFR
1.3(mm). The Commission registers IBs under CEA section 4d(g) and
Regulation 3.4(a). See 7 U.S.C. 6d(g) and 17 CFR 3.4(a).
\6\ U.S. customers could also use a firm exempted by the
Commission pursuant to Regulation 30.10. The CFTC's part 30
regulations govern the offer and sale of foreign futures and options
contracts to U.S. customers. Regulation 30.4 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. A Regulation 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.
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As sponsor of the CFTC's Global Markets Advisory Committee
(GMAC),\7\ I have devoted a significant part of my Commissionership
to supporting solutions that will enhance the resiliency and
efficiency of global markets.\8\ The Proposal 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 Proposed FBOT
Amendments, and I look forward to the public comments.
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\7\ 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.
\8\ Opening Statement of Commissioner Caroline D. Pham before
the Global Markets Advisory Committee (Feb. 13, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement021323. Most
recently, the GMAC made eight recommendations to the CFTC that
promote access to markets and competition while safeguarding
financial stability. CFTC Global Markets Advisory Committee Advances
Key Recommendations (Feb. 8, 2024), https://www.cftc.gov/PressRoom/PressReleases/8860-24.
[FR Doc. 2024-04117 Filed 2-29-24; 8:45 am]
BILLING CODE 6351-01-P