[Federal Register: December 22, 2005 (Volume 70, Number 245)]
[Rules and Regulations]
[Page 75934-75937]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de05-5]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 30
Foreign Futures and Options Transactions
AGENCY: Commodity Futures Trading Commission.
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ACTION: Order.
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SUMMARY: The Commodity Futures Trading Commission ("Commission" or
"CFTC") is granting an exemption to firms designated by the
Australian Stock Exchange Limited from the application of certain of
the Commission's foreign futures and option rules based on substituted
compliance with certain comparable regulatory and self-regulatory
requirements of a foreign regulatory authority consistent with
conditions specified by the Commission, as set forth herein. This Order
is issued pursuant to Commission Rule 30.10, which permits persons to
file a petition with the Commission for exemption from the application
of certain of the rules set forth in Part 30 and authorizes the
Commission to grant such an exemption if such action would not be
otherwise contrary to the public interest or to the purposes of the
provision from which exemption is sought.
DATES: Effective Date: December 22, 2005.
FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Esq., Deputy
Director, Susan A. Elliott, Esq., Special Counsel, Division of Clearing
and Intermediary Oversight, Commodity Futures Trading Commission, 1155
21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5430.
SUPPLEMENTARY INFORMATION: The Commission has issued the following
Order:
Order Under CFTC Rule 30.10 Exempting Firms Designated by the
Australian Stock Exchange Limited ("ASXL") From the Application of
Certain of the Foreign Futures and Option Rules the Later of the
Date of Publication of the Order Herein in the Federal Register or
After Filing of Consents by Such Firms to the Terms and Conditions
of the Order Herein.
Commission rules governing the offer and sale of commodity futures
and option contracts traded on or subject to the rules of a foreign
board of trade to customers located in the U.S. are contained in part
30 of the Commission's rules.\1\ These rules include requirements for
intermediaries with respect to registration, disclosure, capital
adequacy, protection of customer funds, recordkeeping and reporting,
and sales practice and compliance procedures, that are generally
comparable to those applicable to transactions on U.S. markets.
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\1\ Commission rules referred to herein are found at 17 CFR Ch.
I (2005).
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In formulating a regulatory program to govern the offer and sale of
foreign futures and option products to customers located in the U.S.,
the Commission, among other things, considered the desirability of
ameliorating the potential extraterritorial impact of such a program
and avoiding duplicative regulation of firms engaged in international
business. Based upon these considerations, the Commission determined to
permit persons located outside the U.S. and subject to a comparable
regulatory structure in the jurisdiction in which they were located to
seek an exemption from certain of the requirements under Part 30 of the
Commission's rules based upon substituted compliance with the
regulatory requirements of the foreign jurisdiction.
Appendix A to Part 30, "Interpretative Statement With Respect to
the Commission's Exemptive Authority Under Sec. 30.10 of Its Rules"
("Appendix A"), generally sets forth the elements the Commission will
evaluate in determining whether a particular regulatory program may be
found to be comparable for purposes of exemptive relief pursuant to
Rule 30.10.\2\ These elements include: (1) Registration, authorization
or other form of licensing, fitness review or qualification of persons
that solicit and accept customer orders; (2) minimum financial
requirements for those persons who accept customer funds; (3)
protection of customer funds from misapplication; (4) recordkeeping and
reporting requirements; (5) sales practice standards; (6) procedures to
audit for compliance with, and to take action against those persons who
violate, the requirements of the program; and (7) information sharing
arrangements between the Commission and the appropriate governmental
and/or self-regulatory organization to ensure Commission access on an
"as needed" basis to information essential to maintaining standards
of customer and market protection within the U.S.
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\2\ 52 FR 28990, 29001 (August 5, 1987).
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Moreover, the Commission specifically stated in adopting Rule 30.10
that no exemption of a general nature would be granted unless the
persons to whom the exemption is to be applied: (1) Submit to
jurisdiction in the U.S. by designating an agent for service of process
in the U.S. with respect to transactions subject to Part 30 and filing
a copy of the agency agreement with the National Futures Association
("NFA"); (2) agree to provide access to their books and records in
the U.S. to Commission and Department of Justice representatives; and
(3) notify NFA of the commencement of business in the U.S.\3\ The
representations for confirmation of relief also include a
representation that the firm will maintain "the greater of regulatory
capital" as required by regulations of the exchange or the Commission.
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\3\ 52 FR 28980, 28981 and 29002.
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By this Order, the Commission hereby exempts, subject to specified
conditions, those firms identified to the Commission by ASXL as
eligible for the relief granted herein from:
--Registration with the Commission for firms and for firm
representatives;
--The requirement in Commission Rule 30.6(a) and (d), 17 CFR 30.6(a)
and (d), that firms provide customers located in the U.S. with the
risk disclosure statements in Commission Rule 1.55(b), 17 CFR
1.55(b) and Commission Rule 33.7, 17 CFR 33.7, or as otherwise
approved under Commission Rule 1.55(c), 17 CFR 1.55(c);
--The separate account requirement contained in Commission Rule
30.7, 17 CFR 30.7;
--Those sections of Part 1 of the Commission's financial rules that
apply to foreign futures and options sold in the U.S. as set forth
in Part 30; and
--Those sections of Part 1 of the Commission's rules relating to
books and records which apply to transactions subject to Part 30,
based upon submitted compliance by such persons with the applicable
statutes and regulations in effect in Australia.
This determination to permit substituted compliance is based on,
among other things, the Commission's finding that the regulatory scheme
governing persons in Australia who would be exempted hereunder
provides:
(1) A system of qualification or authorization of firms who deal
in transactions subject to regulation under Part 30 that includes,
for example, criteria and procedures for granting, monitoring,
suspending and revoking licenses, and provisions for requiring and
obtaining access to information about authorized firms and persons
who act on behalf of such firms;
(2) Financial requirements for firms including, without
limitation, a requirement for a minimum level of working capital and
daily mark-to-market settlement and/or accounting procedures;
(3) A system for the protection of customer assets that is
designed to preclude the use of customer assets to satisfy house
obligations and requires separate accounting for such assets;
(4) Recordkeeping and reporting requirements pertaining to
financial and trade information;
(5) Sales practice standards for authorized firms and persons
acting on their behalf that include, for example, required
disclosures to prospective customers and prohibitions on improper
trading advice;
(6) Procedures to audit for compliance with, and to redress
violations of, the
[[Page 75936]]
customer protection and sales practice requirements referred to
above, including, without limitation, an affirmative surveillance
program designed to detect trading activities that take advantage of
customers, and the existence of broad powers of investigation
relating to sales practice abuses; and
(7) Mechanisms for sharing of information between the
Commission, ASXL, and the Australian regulatory authorities on an
"as needed" basis including, without limitation, confirmation
data, data necessary to trace funds related to trading futures
products subject to regulation in Australia, position data, and data
on firms' standing to do business and financial condition.
This Order does not provide an exemption from any provision of the
Act or rules thereunder not specified herein, such as the antifraud
provision in Rule 30.9. Moreover, the relief granted is limited to
brokerage activities undertaken on behalf of customers located in the
U.S. with respect to transactions on or subject to the rules of ASXL
for products that customers located in the U.S. may trade.\4\ The
relief does not extend to rules relating to trading, directly or
indirectly, on U.S. exchanges. For example, a firm trading in U.S.
markets for its own account would be subject to the Commission's large
trader reporting requirements.\5\ Similarly, if such a firm were
carrying a position on a U.S. exchange on behalf of foreign clients, it
would be subject to the reporting requirements applicable to foreign
brokers.\6\ The relief herein is inapplicable where the firm solicits
or accepts orders from customers located in the U.S. for transactions
on U.S. markets. In that case, the firm must comply with all applicable
U.S. laws and regulations, including the requirement to register in the
appropriate capacity.
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\4\ See, e.g., sections 2(a)(1)(C) and (D) of the Act.
\5\ See, e.g., 17 CFR part 18 (2002).
\6\ See, e.g., 17 CFR parts 17 and 21 (2002).
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The eligibility of any firm to seek relief under this exemptive
Order is subject to the following conditions:
(1) The regulatory or self-regulatory organization responsible
for monitoring the compliance of such firms with the regulatory
requirements described in the Rule 30.10 petition must represent in
writing to the CFTCSec. \7\ that:
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\7\ As described below, these representations are to be filed
with NFA.
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(a) Each firm for which relief is sought is registered, licensed
or authorized, as appropriate, and is otherwise in good standing
under the standards in place in Australia; such firm is engaged in
business with customers in Australia as well as in the U.S.; and
such firm and its principals and employees who engage in activities
subject to Part 30 would not be statutorily disqualified from
registration under Section 8a(2) of the Act, 7 U.S.C. 12a(2);
(b) It will monitor firms to which relief is granted for
compliance with the regulatory requirements for which substituted
compliance is accepted and will promptly notify the Commission or
NFA of any change in status of a firm that would affect its
continued eligibility for the exemption granted hereunder, including
the termination of its activities in the U.S.;
(c) All transactions with respect to customers resident in the
U.S. will be made on or subject to the rules of ASXL and the
Commission will receive prompt notice of all material changes to the
relevant laws in Australia, any rules promulgated thereunder and
ASXL rules;
(d) Customers located in the U.S. will be provided no less
stringent regulatory protection than Australian customers under all
relevant provisions of Australian law; and
(e) It will cooperate with the Commission with respect to any
inquiries concerning any activity subject to regulation under the
Part 30 rules, including sharing the information specified in
Appendix A on an "as needed" basis and will use its best efforts
to notify the Commission if it becomes aware of any information that
in its judgment affects the financial or operational viability of a
member firm doing business in the U.S. under the exemption granted
by this order.\8\
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\8\ The Australian Securities and Investments Commission (ASIC)
represented to the Commission that the existing Memorandum of
Understanding governing the sharing of information between ASIC and
the Commission "will extend to activities of the ASXF [now ASXL]
and its members," in letters to DCIO of May 16, 2003 and May 17,
2004.
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(2) Each firm seeking relief hereunder must represent in writing
that it:
(a) Is located outside the U.S., its territories and
possessions, and where applicable, has subsidiaries or affiliates
domiciled in the U.S. with a related business (e.g., banks or
broker/dealer affiliates) along with a brief description of each
subsidiary's or affiliate's identity and principal business in the
U.S.;
(b) Consents to jurisdiction in the U.S. under the Act by filing
a valid and binding appointment of an agent in the U.S. for service
of process in accordance with the requirements set forth in Rule
30.5;
(c) Agrees to provide access to its books and records related to
transactions under Part 30 required to be maintained under the
applicable statutes and regulations in effect in Australia upon the
request of any representative of the Commission or U.S. Department
of Justice at the place in the U.S. designated by such
representative, within 72 hours, or such lesser period of time as
specified by that representative as may be reasonable under the
circumstances after notice of the request.
(d) Has no principal or employee who solicits or accepts orders
from customers located in the U.S., who would be disqualified under
Section 8a(2) of the Act, 7 U.S.C. 12a(2), from doing business in
the U.S.;
(e) Consents to participate in any NFA arbitration program that
offers a procedure for resolving customer disputes on the papers
where such disputes involve representations or activities with
respect to transactions under Part 30, and consents to notify
customers located in the U.S. of the availability of such a program;
(f) Undertakes to comply with the applicable provisions of
Australian laws and ASXL rules that form the basis upon which this
exemption from certain provisions of the Act and rules thereunder is
granted; and
(g) Maintains the greater of regulatory capital as required by
ASXL or Commission regulations.
As set forth in the Commission's September 11, 1997 Order
delegating to NFA certain responsibilities, the written representations
set forth in paragraph (2) shall be filed with NFA.\9\ Among other
duties, the Commission authorized NFA to receive requests for
confirmation of Rule 30.10 relief on behalf of particular firms, to
verify such firms' fitness and compliance with the conditions of the
appropriate Rule 30.10 Order and to grant exemptive relief from
registration to qualifying firms. Each firm seeking relief hereunder
has an ongoing obligation to notify NFA should there be a material
change to any of the representations required in the firm's application
for relief.
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\9\ 62 FR 47792, 47793 (September 11, 1997).
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This Order will become effective as to any designated ASXL firm the
later of the date of publication of the Order in the Federal Register
or the filing of the representations and consents set forth in
paragraphs (2)(a)-(g), as verified by NFA. Upon filing of the notice
required under paragraph (1)(b) as to any such firm, the relief granted
by this Order may be suspended immediately as to that firm. That
suspension will remain in effect pending further notice by the
Commission, or the Commission's designee, to the firm and ASXL.
This Order is issued pursuant to Rule 30.10 based on the
representations made and supporting material provided to the Commission
and the recommendation of the staff, and is made effective as to any
firm granted relief hereunder based upon the filings and
representations of such firms required hereunder. Any material changes
or omissions in the facts and circumstances pursuant to which this
Order is granted might require the Commission to reconsider its finding
that the standards for relief set forth in Rule 30.10 and, in
particular, Appendix A, have been met. Further, if experience
demonstrates that the continued effectiveness fo this Order in general,
or with respect to a particular firm, would be contrary to public
policy or the public interest, or that the systems in place for the
exchange of information or other circumstances do not warrant
continuation of the exemptive relief granted herein, the
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Commission may condition, modify, suspend, terminate, withhold as to a
specific firm, or otherwise restrict the exemptive relief granted in
this Order, as appropriate, on its own motion.
The Commission will continue to monitor the implementation of its
program to exempt firms located in jurisdictions generally deemed to
have a comparable regulatory program from the application of certain of
the foreign futures and option rules and will make necessary
adjustments if appropriate.
List of Subjects in 17 CFR Part 30
Foreign futures, Foreign options.
0
In consideration of the foregoing, and pursuant to the authority
contained in the Commodity Exchange Act and, in particular, sections
1a, 2, 4(b), 4c and 8a thereof, 7 U.S.C. 1a, 2, 6(b), 6(c) and 12a, and
pursuant to the authority contained in 5 U.S.C. 552 and 552b, the
Commission hereby amends Chapter I of Title 17 of the Code of Federal
Regulations as follows:
PART 30--FOREIGN OPTIONS AND FOREIGN FUTURES TRANSACTIONS
0
1. The authority citation for part 30 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6c and 12a, unless otherwise
noted.
Appendix C to Part 30 --[Amended]
0
2. Appendix C to Part 30--Foreign Petitioners Granted Relief From the
Application of Certain of the Part 30 Rules. The following citation is
added:
* * * * *
Firms designated by the Australian Stock Exchange Limited
("ASXL").
FR date and citation: 68 FR 39006 (July 1, 2003).
FR date and citation: 70 FR -- (December 22, 2005).
* * * * *
Issued in Washington, DC on December 16, 2005.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 05-24360 Filed 12-21-05; 8:45 am]
BILLING CODE 6351-01-M