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.

FBOTs have been a critical piece of the CFTC’s markets for decades and provide access for U.S. market participants to non-U.S. markets in realization of the global economy and international business.[3]  The main substantive amendment in 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]

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.

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.

[2] Id.

[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.

[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.

[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.