If applicable, the foreign board of trade also would be required to provide quarterly reports indicating the stocks held as of the end of the quarter at any warehouse maintained by it in the U.S. for products that require physical delivery;

In addition to the conditions discussed above, the Commission could retain the authority to condition, modify, suspend, terminate or otherwise restrict an order that it issues, as applied to a specific person operating thereunder or with respect to the order in its entirety. The Commission could then take action, for example, if the Commission determined that the foreign board of trade that received an order, or an entity operating in the U.S. based on the order, ceased to comply with a stated condition of the order or that continuation of the order would be contrary to public policy or the public interest.

3. Requests for Confirmation of Relief from Members and Their Affiliates

Under the possible approach the Division envisions, following the issuance of an order, an entity that desired to operate a computer terminal in the U.S. under the order would request confirmation of its ability to do so by filing a confirmation request with NFA. Such a procedure would be similar to the current procedure followed by DTB on behalf of its members that wish to install DTB terminals in the U.S. under the DTB's no-action letter.

Such a written confirmation request would be signed by a duly authorized representative of the foreign board of trade member or affiliate, and the member or affiliate would do the following: (1) certify that it is a member or an affiliate of a member in good standing of a foreign board of trade that has received a Commission order; (2) certify that it will take reasonable precautions to safeguard access to computer terminals operated by it under the order; (3) agree to comply with all applicable conditions of the order; (4) provide the NFA with the addresses where computer terminals are to be kept and the number of terminals to be placed in each location;^{(42) (5) acknowledge that it is subject to the jurisdiction of the Commission and the U.S. with respect to its activities related to the order; (6) agree to keep books and records in accordance with the Act and the Commission's regulations, if the member or affiliate is registered as an FCM, or in accordance with Rule 1.31 if not registered;(43)}

(7) agree to provide the Commission with prompt access to the premises where computer terminals are located;^{(44) (8) indicate what type of business it intends to operate in the U.S. and whether it will be trading for its proprietary account, for customer accounts or both (and if the person intends to engage in customer business, certify that it is or will be registered as an FCM and acknowledge that it is subject to all applicable Commission regulations); (9) provide a description of any litigation, enforcement actions, disciplinary proceedings or other civil, criminal or administrative proceedings, within the prior five years, involving the requester or any principal of the requester (as the term "principal" is defined in Commission Rule 3.1(a)), in which there was an allegation of fraud, customer abuse, or violation of applicable regulatory or board of trade requirements; (10) agree to provide NFA and the Commission with immediate written notice of any material changes in its structure, status or operations that might impact the entity's activities under the order; (11) agree to provide additional information as necessary; and (12) make any other certifications that may be required by the order. The Commission requests comment as to the appropriateness of these potential requirements. Are any of these requirements unduly burdensome? Are there any additional certifications, undertakings, or acknowledgments that the Commission should consider including?}

Such a confirmation request could become effective automatically ten business days after its receipt by NFA unless the requester was notified otherwise. If contacted, the requester would have to receive written notification from the Commission or NFA prior to placing any terminals in the U.S.

B. Definitional Issues

As discussed above, the Division envisions a regulatory approach that would provide a means for a foreign board of trade to petition the Commission to place computer terminals in the U.S. for use by its members and their affiliates. Initially, several definitional issues are raised by such an approach. For example: (a) how should the term "computer terminal" be defined? (b) where in the U.S. may computer terminals be placed; and (c) who is an "affiliate" of a foreign board of trade member? These issues are discussed individually below, and the Commission requests comment on them.

1. Definition of Computer Terminal

The Commission believes that the term "computer terminal," or some similar term, should be defined broadly under any rule adopted regarding foreign board of trade terminal placement in the U.S. to anticipate, to the extent practicable, the evolution of electronic trading systems. By defining such a term broadly to anticipate changes in technology, the Commission would hope to ensure that a person could not circumvent any rules adopted by the Commission simply by contending that a particular device is not a computer terminal even though the device performs essentially the same operation. Historically, the term "computer terminal" was thought to be a dedicated proprietary computer system that provided access to a board of trade (e.g., a DTB computer terminal). This perception is rapidly changing, however, as new technologies enter the marketplace. The Commission anticipates that "computer terminal" or some similar term would be defined for purposes of proposed rules in such a way as to contemplate such changes, and would include not only proprietary computer systems, but also any other device that currently is being used or may be used in the future to provide access to a foreign board of trade in the same manner and providing the same functionality as a proprietary system. Such devices might take the form of specialized computer software, a telephonic system, or Internet access to a foreign board of trade through a personal computer, telephone or similar device which is provided in a manner that makes Internet use the functional equivalent of a proprietary terminal. The Commission requests comment as to whether a mechanism that enables a customer order to be submitted electronically to an FCM and subsequently to a foreign board of trade without the necessity for human intervention at the FCM should be considered a "computer terminal" under Commission rules.⁽⁴⁵⁾

As new technology evolves, new types of access to foreign markets likely will develop. The Internet, which has seen tremendous growth in recent years, provides one likely source for such development.^{(46) The Commission solicits comment on what types of "computer" or other technological systems currently are in use or anticipated that could provide access to a foreign board of trade. To what extent is Internet access to foreign futures and options currently available? Is direct Internet access (i.e., not conducted through an intermediary) currently available to any foreign board of trade? To what extent is the Internet currently being used for the placement of orders for futures and option products with U.S. or foreign FCMs? How should the Commission define "computer terminal" so as to be sufficiently inclusive?}

2. Where May Computer Terminals Be Located in the U.S.?

The Division's approach would permit members of a foreign board of trade and members' affiliates to place computer terminals in their U.S. offices or in their firm booths on the floor of a U.S. board of trade. The Division does not currently contemplate that proposed rules would permit the installation of a foreign computer terminal that provides a customer a direct link to a foreign board of trade's floor or computer system without first flowing through a registered FCM that is a member or affiliate thereof of the foreign board of trade. Neither does the Division contemplate that the proposed rules would permit any customer to utilize a foreign board of trade's computer terminal maintained by a member of the foreign board of trade or its affiliate to achieve such direct access. The Commission requests comment as to these positions of the Division and as to what safeguards might be required to prevent improper access to a foreign board of trade's computer terminals in the U.S.

3. Definition of an "Affiliate" of a Foreign Board of Trade Member

The Division's approach would allow affiliates of members of a foreign board of trade to operate foreign board of trade computer terminals pursuant to a Commission order. This position raises the issue of who is a bona fide affiliate of a member. Arguably, only those persons who have a substantial ownership connection to a member should be permitted to have access to a foreign board of trade's U.S.-located terminals, thus preventing customers from circumventing Commission rules by becoming an "affiliate" in name only. An affiliate of a foreign board of trade member for these purposes could be defined as: (1) a person that owns 50 percent or more of a member (i.e., a foreign board of trade member's parent company with an ownership interest in the member of 50 percent or more); (2) a person owned 50 percent or more by a member (i.e., a foreign board of trade member's 50 percent or more owned subsidiary); (3) a person that is owned 50 percent or more by a third person that also owns 50 percent or more of a member (i.e., a member's sister company where both the member and the sister company are owned 50 percent or more by a third person); or (4) any person that otherwise has control, is controlled by or is owned 50 percent or more by a third person that has control of a member. The Commission requests comment as to the appropriateness of this definition. Should the Commission permit affiliates of foreign board of trade members to operate computer terminals in the U.S. absent the foreign board of trade's designation as a U.S. contract market? Is a 50 percent threshold too high or too low?

The Commission is also concerned that foreign boards of trade do not create categories of membership without creating meaningful distinctions between a member of a foreign board of trade and a customer thereof. The Commission requests comment as to whether the Commission should consider imposing any requirements that would enable the Commission to ensure that a member of a foreign board of trade is a bona fide member. If so, what types of requirements are appropriate?

C. Other Issues Concerning Foreign Board of Trade Terminal Placement in the U.S.

1. Bona Fide Foreign Board of Trade

The Division in the DTB letter took the position that only a bona fide foreign board of trade should be entitled to place and operate computer terminals in the U.S. without being designated as a contract market. At some level of U.S. activity, a board of trade can no longer claim to be a board of trade located outside the U.S. and would be required to be designated as a contract market. The Division's approach described above would establish a number of requirements that are aimed specifically at providing the Commission with initial and ongoing information concerning a foreign board of trade's U.S. presence. For example, as noted above, the Commission could receive in a petition from a foreign board of trade information concerning: (1) any physical presence the board of trade has in the U.S.; and (2) any marketing, educational or other activities that are conducted by the foreign board of trade in the U.S. or that otherwise are directed toward U.S. customers. This information could be required to be updated in the event of a material change. The Commission also could receive in a foreign board of trade's petition certain information concerning the foreign board of trade's recent trade volume originating from the U.S. and the current quantity of stocks, if any, held in any U.S.-located warehouses. Such information could be required to be provided quarterly. Information about a foreign board of trade's activities and presence in the U.S. is relevant in determining whether a board of trade should be required to be designated as a U.S. contract market. Likewise, the percentage of a foreign board of trade's volume that originates from the U.S. also is relevant in determining such questions. The Commission solicits public comment as to whether it should define in its rules the level of U.S. activity requiring contract market designation. If so, how should the level be defined? Additionally, the Commission requests comment as to any U.S. activities, other than those discussed above, that might be relevant to a determination as to whether a board of trade that desires to place its computer terminals in the U.S. is a bona fide foreign board of trade.

The Division's potential approach described above also assumes that any foreign board of trade that would petition the Commission for an order under such procedures would be a bona fide board of trade that is subject to an established rulemaking structure. This view is in keeping with Congressional intent with respect to what is meant by the term "foreign board of trade" under the Act. In this regard, the legislative history concerning the 1982 amendments to the Act suggests that, when Congress amended the Act in 1982, it intended that the exclusion of futures contracts traded on "a board of trade, exchange or market located outside the United States" from the off-exchange ban in Section 4(a) of the Act, as well as the limitation on the Commission's regulatory authority in Section 4(b), apply only to "bona fide foreign futures contracts" traded in a regulated exchange environment.⁽⁴⁷⁾

Consistent with Congressional intent, the Commission made clear when promulgating Part 30 that the Part 30 rules do not permit the offer and sale in the U.S. of foreign futures or options that are not executed on or subject to the rules of a foreign board of trade.

2. Order Execution and Order Routing Issues

Technological capabilities now exist that would enable a customer, who is not a member of a foreign board of trade, to send orders to the foreign board of trade through an automated order routing system that is linked to the board of trade through a member. Through such a system, customers could place orders on the foreign board of trade with little, if any, human intervention by the member. Execution of the customer's order could be accomplished either through the foreign board of trade's system interface or on the floor of an exchange.

To date, the Commission has not opined on the appropriateness of an FCM's use of an automated order routing system that would allow customer orders that have been submitted electronically to the FCM to be transmitted into a foreign board of trade computer system for placing orders on a foreign board of trade.^{(48) As discussed above, the Division's approach does not contemplate that the Commission's rules would permit customers to have access to "computer terminals" such that they would have the functionality of a proprietary terminal and could place a trade directly on a foreign board of trade without the use of an intermediary. The Commission requests comment on whether its rules should permit the use of some type of automated process to be employed by FCMs to allow customer orders that have been submitted electronically to the FCM to be transmitted into a foreign board of trade computer system. If so, what features would the system have to include or lack so that it would not be deemed a computer terminal under Commission rules? For example, should any automated order transmission system allowing a customer to transmit orders to its FCM require an employee of the FCM to review and to accept such orders and to take some affirmative, non-automated action to transmit such order to the foreign board of trade, or should fully automated intermediation be permitted, in which a fully computerized process would substitute for acceptance and transmission of orders by FCM employees? Should any such system limit a customer's view of information to only a portion of that otherwise available to a member of a foreign board of trade that has a computer terminal? If so, what types of information should be permissible to be viewed by the customer on such a system and what information should be inaccessible? Should automated systems be required to provide, at a minimum, credit and position limit checks? The Commission requests comment as to other safeguards that should be required if automated verification, acceptance and transmission of customer orders to a foreign board of trade's computer system is permitted.}

If the Commission were to permit an FCM to use a fully automated process to transmit electronically submitted customer orders to a foreign board of trade, should the FCM's use of this process be permitted only pursuant to the requirements of a Commission order to the foreign board of trade? That is, should customer access through an automated order routing system be provided: (1) only to a foreign board of trade that had received an order from the Commission to place computer terminals in the U.S. without being designated as a contract market; and (2) only through an FCM that is a member or affiliate of a member of such foreign board of trade and that had undergone the appropriate confirmation process to operate computer terminals under the foreign board of trade's order? Or should fully automated order routing systems be allowed to provide access to all foreign boards of trade even if they have not received permission to place terminals in the U.S.? How should foreign firms that operate pursuant to an exemption under Commission Rule 30.10 be treated?

3. Linkages Between Boards of Trade

As electronic trading systems continue to evolve, some boards of trade are finding it advantageous to enter into partnerships with other boards of trade to make their products more widely available.^{(49) These partnerships raise issues regarding how a Commission rule should accommodate situations where the products of one board of trade are being made available through another board of trade's computer terminals located in the U.S. or where two or more boards of trade share the same electronic trading platform. The Division's approach, described above, would apply not only with respect to a single foreign board of trade, but also in circumstances where the products of multiple foreign boards of trade are traded from a single system. In such a case, each foreign board of trade whose products would be made available through U.S.-located computer terminals would be required to comply with any requirements adopted by the Commission in its order. For example, if two or more foreign boards of trade share the same computer terminal platform and each wished to place computer terminals in the U.S. for the use of its members (or members' affiliates), each would be required to receive an order from the Commission and comply with the requirements in that order under the approach described above. The Division's approach would also arguably apply to a foreign board of trade which trades through terminals shared with a U.S. exchange that has been designated as a U.S. contract market.(50) The Commission requests comment as to whether different requirements should apply to a foreign board of trade's products which are traded on the computer terminals of a U.S. contract market. If so, how should such requirements differ and why?}

III. Conclusion

The Commission believes that it is appropriate to develop rules concerning placement of foreign board of trade terminals in the U.S. in light of the growing interest among foreign boards of trade to do so. The Commission hopes to develop an approach to address these issues that will provide certainty to foreign exchanges that wish to place their computer terminals in the U.S. for trading purposes and will be consistent with the Commission's obligations under the Act to maintain the integrity and competitiveness of the U.S. markets and to provide protection to U.S. customers. To this end, the Commission requests public comment on the issues and the Division's approach, as discussed above.

Issued in Washington, D.C. on _____, 1998 by the Commission.

___________________________

Jean A. Webb

Secretary of the Commission

1. ¹ 7 U.S.C. 6(a) (1994).

2. ² 7 U.S.C. 7 (1994). Section 5 of the Act authorizes the Commission to designate any board of trade as a contract market provided that the board of trade complies with certain conditions and requirements set forth in the Act.

3. ³ Section 4(a) of the Act states in relevant part:

. . . [I]t shall be unlawful for any person to offer to enter into, to enter into, to execute, to confirm the execution of, or to conduct any office or business anywhere in the U.S., its territories or possessions, for the purpose of soliciting, or accepting any order for, or otherwise dealing in, any transaction in, or in connection with, a contract for the purchase or sale of a commodity for future delivery (other than a contract which is made on or subject to the rules of a board of trade, exchange, or market located outside the U.S., its territories or possessions) unless--

(1) such transaction is conducted on or subject to the rules of a board of trade which has been designated by the Commission as a "contract market" for such commodity; [and]

(2) such contract is executed or consummated by or through a member of such contract market[.]

4. ⁴ The Commission has defined the terms "foreign futures" and "foreign options" in Rules 30.1(a) and (b). Commission rules cited herein can be found at 17 CFR Ch. I (1998).

5. ⁵ Section 4(b) of the Act states in pertinent part:

The Commission may adopt rules and regulations proscribing fraud and requiring minimum financial standards, the disclosure of risk, the filing of reports, the keeping of books and records, the safeguarding of customers' funds, and the registration with the Commission by any person located in the U.S., its territories or possessions, who engages in the offer or sale of any contract of sale of a commodity for future delivery that is made or to be made on or subject to the rules of a board of trade, exchange or market located outside the United States, its territories or possessions . . . . No rule or regulation may be adopted by the Commission under this subsection that (1) requires Commission approval of any contract, rule, regulation, or action of any foreign board of trade, exchange or market, or (2) governs in any way any rule or contract term or action of any foreign board of trade, exchange or market.

6. ⁶ A discussion concerning how to define "computer terminal" or some similar term is found at Section II.B.1, below, and makes clear that the Commission would intend this term (and this release) to cover not only dedicated proprietary terminals, but also certain other technologies that are used in a similar manner.

7. ⁷ Globex is an automated order entry and matching system for futures and options on futures. See note 25, infra, and accompanying text.

8. ⁸ See Letter from Andrea M. Corcoran, Director, Division of Trading and Markets, to Carl Royal, Vice President and General Counsel, CME (May 26, 1989).

9. ⁹ In a later no-action position, the Division also granted the CME and Chicago Board of Trade ("CBT") so-called "pass the book" relief, which allows CME and CBT member firms the flexibility to provide continuous access to Globex trading without the need for members to staff their offices 24 hours a day. The letter permits CME and CBT member firms to conduct Globex-related U.S. customer business through the offices of a foreign affiliate without requiring the foreign affiliate to register separately with the Commission as a futures commission merchant ("FCM"). Thus, CME contracts may be traded on Globex terminals located in non-U.S. offices of foreign affiliates of FCM-registered CME members, and U.S. customers may place orders for such contracts on Globex by contacting the FCMs' affiliates during hours that the CME floor is closed. The term "passing the book" is used to describe the process by which a customer order that is placed outside of regular U.S. business hours is transferred for entry into a Globex terminal located in a non-U.S. office of a foreign affiliate of an exchange member firm. CFTC Interpretative Letter No. 92-11, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶25,325 (June 25, 1992), superseded in part by CFTC Interpretative Letter No. 93-83, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶25,849 (Aug. 9, 1993).

10. ¹⁰ See Letter from Andrea M. Corcoran, Director, Division of Trading and Markets, to Gerard Pfauwadel, President, MATIF (May 7, 1990).

11. ¹¹ The Commission later approved a formal cross-exchange access program between CME and MATIF. The Commission's approval of the CME/MATIF cross-exchange access program and other "trading link" programs is discussed in Section I.B., below.

12. ¹² On June 18, 1998, DTB changed its name to Eurex Deutschland as a step toward a planned merger later this year with the Swiss Options and Financial Futures Exchange ("SOFFEX"). For the sake of historical accuracy and simplicity we will continue to refer to the DTB in this release.

The DTB is headquartered in Frankfurt, Germany, and is a fully automated international futures and option exchange on which all trades are executed and cleared electronically. Trading is conducted solely via computer terminals. The market participants' computers and terminals are linked to the DTB computer center by means of a wide-ranging telecommunications network. As noted above, DTB and SOFFEX plan to merge to create Eurex AG. Further, CBT, DTB and SOFFEX have signed a letter of intent to form an electronic trading link between CBT and Eurex with the eventual goal of providing users of Eurex and Project A (the CBT's adjunct electronic trading system, discussed in Section I.C.below) with access to both markets from a single screen.

13. ¹³ A "principal" trade under DTB rules is limited to a trade made by a DTB member for its own account. DTB's definition of "principal" is narrower than the definition of "proprietary" in Commission Rule 1.3(y). A proprietary trade under Commission rules would include not only trades of board of trade members for their own accounts, but also those made by certain members' affiliates and insiders for their respective accounts.

14. ¹⁴ See CFTC Interpretative Letter No. 96-28, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶26,669 (Feb. 29, 1996). The Division's letter did not alter DTB's obligations to: (a) request a no-action position from the Commission prior to engaging in the offer or sale of any foreign stock index futures in the U.S.; or (b) have any foreign debt obligation first designated as an "exempt security" by the Securities and Exchange Commission ("SEC") before engaging in the offer or sale of any futures contract or option thereon in the U.S. Section 2(a)(1)(B)(v) of the Act states generally that no person shall offer or enter into a contract of sale for future delivery of any security except an "exempt security" under Section 3 of the Securities Act of 1933 or Section 3(a)(12) of the Securities Exchange Act of 1934.

15. ¹⁵ The Commission has adopted principles formulated by a working group of IOSCO for the regulatory review of automated trading systems. These principles address the following topics:

1. compliance with applicable legal standards, regulatory policies, and/or market custom or practice where relevant;

2. the equitable availability of accurate and timely trade and quotation information;

3. the order execution algorithm used by the system;

4. technical operation of the system that is equitable to all market participants;

5. periodic objective risk assessment of the system and system interfaces;

6. procedures to ensure the competence, integrity, and authority of system users and to ensure fair access to the system;

7. consideration of any additional risk management exposures pertinent to the system;

8. mechanisms in place to ensure that the information necessary to conduct adequate surveillance of the system for supervisory and enforcement purposes is available;

9. adequacy of risk disclosure, including system liability; and

10. procedures to ensure that the system sponsor, providers, and users are aware of and will be responsive to relevant regulatory authorities.

See Policy Statement Concerning the Oversight of Screen-Based Trading Systems, 55 FR 48670 (Nov. 21,1990), in which the Commission adopted the principles set forth in the IOSCO report entitled "Screen-Based Trading Systems for Derivative Products" (June 1990).

16. ¹⁶ The BAWe carries out oversight of the German securities and futures markets pursuant to the German Securities Trading Law and is the central authority in Germany for cooperation with the Commission in questions of futures trading oversight and in matters that are subject to the oversight of the German Federal States.

17. ¹⁷ In this regard, DTB terminals located in the U.S. have a systems capability to "time stamp" the execution of customer orders so that an electronic "audit trail" is maintained.

18. ¹⁸ See note 14, supra.

19. ¹⁹ See Letter from Andrea M. Corcoran, Director, Division of Trading and Markets, to Volker Potthoff, Senior Vice President and Dr. Ekkehard Jaskulla, Deutsche Borse AG (May 9, 1997).

20. ²⁰ The Commission took this action pursuant to the regulatory authority provided under Section 5a(12), now Section 5a(a)(12)(A), of the Act. See Letter from Jean A. Webb, Secretary of the Commission, to Eileen T. Flaherty, Associate General Counsel, CME (Sep. 25, 1992).

21. ²¹ The responsibility for enforcing each exchange's Globex trading rules is shared between the two exchanges. Surveillance for compliance with these rules by those trading over the Globex terminals is the responsibility of the exchange whose contracts are traded. Each exchange continues to carry out its own market surveillance activities for all its contracts traded on a terminal, and each exchange's members continue to be subject to their respective exchange's financial and sales practice requirements.

22. ²² See Letter and Order from Jean A. Webb, Secretary of the Commission, to Paul J. Draths (May 6, 1997).

23. ²³ In 1995, the New York Mercantile Exchange ("NYMEX") established a linked access arrangement with the Sydney Futures Exchange ("SFE") and linked SFE terminals located in Sydney to the NYMEX ACCESS trading system. In 1997, a linked access arrangement between NYMEX and the Hong Kong Futures Exchange ("HKFE") permitted HKFE members to trade NYMEX contracts on NYMEX ACCESS terminals located in Hong Kong.

24. ²⁴ These arrangements are referred to in Section I.C., below, which discusses foreign regulators' treatment of U.S. terminals placed in their jurisdictions. See note 27, infra.

25. ²⁵ Although the Globex system originally was intended as an after-hours system for trading products otherwise traded on the floor of the CME, the CME now trades E-mini Standard and Poor's 500 contracts both on Globex and on the floor of the CME, depending upon the size of the order, during regular trading hours. The CME recently announced that it intends to launch a new electronic trading system, "GLOBEX2," in September 1998 in a joint venture with MATIF. GLOBEX2 will use a new system architecture that will replace that currently used by the Globex system.

26. ²⁶ Certain CBT contracts initially were listed for trading on Globex. However, CBT later withdrew from participation in the Globex system to develop its own automated trading system, Project A.

27. ²⁷ As of the beginning of 1998, the CME had placed Globex terminals in the U.K., Hong Kong, Japan, France and Bermuda, NYMEX ACCESS terminals were located in Australia, Hong Kong and the U.K., and CBT's Project A terminals were located in the U.K.

In certain cases, a board of trade in the foreign jurisdiction in which U.S. terminals are located has formal business agreements or arrangements with the U.S. exchange that has placed terminals in that country. For example, agreements exist between NYMEX and the SFE and the HKFE, respectively, which permit SFE and HKFE members to trade products on NYMEX ACCESS. Likewise, there is an agreement in effect between the CME and MATIF that permits, under certain circumstances, each exchange to trade the contracts of the other through Globex. As discussed above, the Commission has approved the necessary CME and NYMEX rule changes enabling these agreements and has permitted the trading arrangements proposed by these exchanges, subject to certain conditions. See Letters from Jean A. Webb, Secretary of the Commission, to Ronald S. Oppenheimer, Esq., Executive Vice President and General Counsel, NYMEX (June 5, 1997); Letter from Jean A. Webb, Secretary of the Commission, to Ronald S. Oppenheimer, Esq., Executive Vice President and General Counsel, NYMEX (Sep. 1, 1995); Letter from Jean A. Webb, Secretary of the Commission, to Eileen T. Flaherty, Associate General Counsel, CME (Sep. 25, 1992).

28. ²⁸ CME, NYMEX and CBT were designated as ROIEs prior to placing computer terminals in the U.K.

29. ²⁹ On August 30,1995, the Australian Federal Attorney General signed a Declaration exempting NYMEX ACCESS from regulation under the Australian Corporations Law, subject to certain conditions pertaining primarily to information sharing between the SFE and NYMEX and disciplinary procedures for breaches of NYMEX ACCESS trading rules. With respect to the placement of Globex and NYMEX ACCESS terminals in Hong Kong, the Hong Kong Securities and Futures Commission requested that it be kept informed with respect to operations of terminals with Hong Kong dealers and requested information-sharing arrangements with the CME and NYMEX.

30. ³⁰ The Japanese Ministry of Finance informed the CME of its approval with respect to the placement of Globex terminals in Japan by letter to the CME on February 8, 1993.

31. ³¹ In general, under the Commission's Part 30 rules, foreign brokerage firms may be exempted from the registration requirements of the Act provided that the Commission determines that the firm is subject to comparable rules and regulations in its home country. 17 CFR Part 30.

32. ³² If contact with U.S. customers is limited to carrying the customer omnibus account of the U.S. FCM for execution on the foreign exchange, the foreign firm would not be required to register with the Commission as an FCM or receive an exemption under Part 30. See CFTC Interpretative Letter No. 87-7 [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶23,972 (Nov. 17, 1987).

33. ³³ Commission Rule 30.10 is an exemptive provision that allows the Commission to exempt foreign firms from the application of certain CFTC rules and regulations (e.g., those governing registration and financial requirements) based upon substituted compliance by a firm with comparable regulatory requirements imposed by the firm's home-country regulator. In considering a request from a foreign regulatory or self-regulatory authority for Rule 30.10 comparability relief, the Commission considers, among other things: (1) registration, authorization or other form of licensing, fitness review, or qualification of persons through whom customer orders are solicited and accepted; (2) minimum financial requirements for those persons that accept customer funds; (3) minimum sales practice standards, including disclosure of risks and the risk of transactions undertaken outside of the U.S.; (4) procedures for auditing compliance with the requirements of the regulatory program, including recordkeeping and reporting requirements; (5) protection of customer funds from misapplication; and (6) the existence of appropriate information-sharing arrangements. The Commission has issued orders to permit certain foreign firms that have comparability relief under Rule 30.10 to engage in limited marketing activities of foreign futures and option products from locations within the U.S. See orders of October 28, 1992 and August 4, 1994, 57 FR 49644 (Nov. 3, 1992) and 59 FR 42156 (Aug. 17, 1994), respectively.

34. ³⁴ Given the type and scope of information concerning the foreign board of trade and its operations that likely would be required to be provided to the Commission in a petition, it would be most appropriate for the foreign board of trade itself to submit such a petition. However, the Commission requests comment as to whether it would be feasible and appropriate to allow the petition to be submitted on behalf of the foreign board of trade by a member of the foreign board of trade or an affiliate thereof or by the foreign board of trade's foreign regulatory authority.

35. ³⁵ Requirements with respect to the offer and sale of foreign stock index futures and futures and option contracts on foreign debt obligations would still be applicable if the Commission were to adopt the procedure outlined herein. See also, note 14, supra.

36. ³⁶ The Commission could, upon the request of a petitioner, limit the public availability of information if it determined that such information constituted a trade secret or that public disclosure would result in material competitive harm to the petitioner.

37. ³⁷ Information requested would be required to be translated into English where appropriate.

38. ³⁸ "Proprietary account" as used herein has the same meaning as that contained in Commission Rule 1.3(y).

39. ³⁹ Comment is requested on whether to permit the foreign board of trade to arrange for NFA or a U.S. self-regulatory organization to conduct the required on-site review. The Commission also requests comment as to whether the on-site review is appropriate and, if so, whether it should be conducted more or less frequently than biennially.

40. ⁴⁰ The Commission requests comment concerning whether its rules should specify particular elements that would be required to be included in a "satisfactory" information sharing arrangement and, if so, what elements are appropriate. Additionally, the Commission requests comment as to who should be a party to such an arrangement. Should the arrangement be only between the Commission and the relevant home country regulator, or should the foreign board of trade itself be a party to the arrangement?

41. ⁴¹ The Commission requests comment as to what information foreign boards of trade currently maintain concerning trading volume on a jurisdiction by jurisdiction basis and, in particular, whether foreign boards of trade currently maintain information in a manner that would enable them to provide the Commission with quarterly reports indicating the percentage of its total volume that originated from each foreign jurisdiction, whether from terminals or otherwise.

42. ⁴² Such information would be required to be updated when a change occurs. The Commission requests comment as to whether ten business days is a reasonable time period in which to update such information.

43. ⁴³ In the case of an unregistered entity engaged only in proprietary trading, the entity could keep either its original books and records or a complete copy of its books and records in its U.S. office. However, if copies were kept rather than originals, the member or affiliate thereof would be required to: (1) state why it is necessary or beneficial to keep the originals outside the U.S.; (2) provide the address where they are kept; (3) agree to provide the books and records in the U.S. within 72 hours of a request of a Commission or NFA representative; and (4) certify that no foreign laws would prevent the Commission's inspection of the books and records.

44. ⁴⁴ If the member or affiliate is a registered FCM that utilizes an automated order routing system for transmitting trades submitted electronically from customers, the FCM could be required to keep a list of the names and addresses of each customer who utilizes this system and make such list available to the Commission or a Commission representative upon request.

45. ⁴⁵ See also, discussion of automated order routing and execution issues in section II.C.2, below.

46. ⁴⁶ In this regard, FutureCom, a U.S. exchange owned by the Texas Beef Trading Co., Ltd., has applied to the Commission for contract market designation. If its application is approved, FutureCom would be the first U.S. Internet-based futures and option exchange.

47. ⁴⁷ See, S. Rep. 384, 97^th Cong., 2d Sess. 45-47, 84-85 (1982); H.R. Rep. No. 565, Part I, 97^th Cong., 2d Sess. 84-85 (1982).

48. ⁴⁸ By letter to the CME dated August 14, 1997, the Division, under authority delegated by the Commission in Rule 1.41a(a)(3), informed the CME that its proposal to permit customers to transmit Globex orders to FCMs via the Internet did not require Commission approval under Section 5a(a)(12) of the Act. Under CME's proposal, customers do not have direct access to Globex. Rather, the proposal permits CME clearing members to accept customer orders via the Internet. After receipt of a customer order, the order is transmitted to Globex via the clearing member's order routing system and CME's computer-to-computer interface ("CTCI"), which enables clearing members to upload and download orders between the member's order routing system and Globex. A CME clearing member may use CME's CTCI only if (1) the member's order routing system contains automated credit controls or position limits, or (2) customer orders received by the member through its order routing system are subject to manual review and processing by a clearing member employee prior to being entered into a Globex terminal.

49. ⁴⁹ See, e.g., note 12, supra.

50. ⁵⁰ The Commission anticipates that a foreign board of trade that currently is trading its products through computer terminals in the U.S. would be required to comply with any new rules eventually adopted by the Commission, but would be provided a transition period in which to come into compliance.