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e8-21857

  • FR Doc E8-21857[Federal Register: September 18, 2008 (Volume 73, Number 182)]

    [Rules and Regulations]

    [Page 54069-54072]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr18se08-7]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 3 and 30

    RIN 3038-AC26

    Exemption From Registration for Certain Firms With Regulation

    30.10 Relief

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'') has

    amended the regulation concerning the registration of firms located

    outside the U.S. that are engaged in commodity interest activities with

    respect to trading on U.S. designated contract markets (``DCMs'') and

    U.S. derivatives transaction execution facilities (``DTEFs'').\1\ The

    amended regulation

    [[Page 54070]]

    codifies past actions of the Commission's staff to permit certain

    foreign firms that have confirmed relief from registration as futures

    commission merchants (``FCMs'') in accordance with the regulations to

    introduce to registered FCMs certain U.S. customers in connection with

    trading futures and commodity options listed on, or subject to the

    rules of, a U.S. DCM or DTEF without having to register as an

    introducing broker (``IB'') pursuant to Section 4d of the Commodity

    Exchange Act (``Act''). The Commission also has revoked the regulation

    regarding quarterly reporting requirements for foreign futures and

    foreign options transactions.

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    \1\ Commission regulations referred to herein are found at 17

    CFR Ch. I (2007) and may be accessed through the Commission's Web

    site, http://www.cftc.gov/lawandregulation/index.htm.

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    DATES: Effective Date: October 20, 2008.

    FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Associate Director,

    at (202) 418-5430, Division of Clearing and Intermediary Oversight,

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street, NW., Washington, DC 20581. Electronic mail: achapin@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. The Proposal

    Part 3 of the Commission's regulations governs the registration of

    intermediaries engaged in the offer and sale of, and providing advice

    concerning, futures and commodity options traded on U.S. markets,

    including both DCMs and DTEFs. Regulation 3.10 sets forth the manner in

    which FCMs, IBs, commodity pool operators (``CPOs''), commodity trading

    advisors (``CTAs''), and leverage transaction merchants must apply for

    registration with the Commission. Regulation 3.10(c) also provides an

    exemption from registration for certain persons. For example,

    Regulation 3.10(c)(3) provides an exemption from registration to any

    foreign person engaged in the activity of an IB, CPO or CTA solely on

    behalf of customers located outside the U.S., provided that all

    commodity interest transactions are submitted for clearing to a

    registered FCM.\2\ Part 30 of the Commission's regulations governs the

    offer and sale to U.S. persons of futures and option contracts entered

    into on or subject to the rules of a foreign board of trade.

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    \2\ See 72 FR 63976 (Nov. 14, 2007).

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    On January 25, 2008, the Commission published for comment proposed

    amendments to Regulations 3.10 and 30.8 (the ``Proposal'').\3\

    Specifically, the Commission proposed new Regulation 3.10(c)(4) to

    exempt from registration as an IB the foreign affiliate of a registered

    FCM that introduces eligible contract participants (``ECPs'') to a

    registered FCM for the purpose of trading U.S. exchange-traded futures

    and options. Among other conditions, the registration relief described

    in the Proposal was predicated upon the foreign affiliate obtaining an

    exemption from FCM registration pursuant to Regulation 30.10

    (``Regulation 30.10 firm'') and the affiliated FCM's acknowledgment

    that it would be jointly and severally liable for any violations of the

    Act or the Commission's regulations by the foreign affiliate in

    connection with those activities, even if the FCM did not submit the

    trade for clearing.

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    \3\ 73 FR 4499 (Jan. 25, 2008).

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    As explained in the Proposal, the Commission sought to codify past

    no-action positions taken by Commission staff that provided a limited-

    purpose exemption from IB registration only to those foreign affiliates

    of registered FCMs engaged in global futures brokerage activities on

    behalf of institutional customers located in the U.S. In doing so, the

    Commission recognized that institutional U.S. customers who trade

    globally throughout the 24-hour trading day may achieve greater

    operational and economic efficiencies by eliminating the need to use

    multiple order entry systems to execute transactions both domestically

    and abroad.

    The Commission also proposed to revoke Regulation 30.8 requiring

    each FCM to provide the National Futures Association (``NFA'') with a

    quarterly report containing data for the total volume of foreign

    futures and options contracts effected on foreign boards of trade. In

    the Proposal, the Commission stated that the Regulation 30.8 reporting

    requirement was overly burdensome in lieu of other extensive reporting

    and recordkeeping requirements applicable to FCMs as set forth in Part

    1 of its regulations.

    II. Comments Regarding the Proposal

    A. The Comments

    The Commission received four comment letters. All of the commenters

    supported the adoption of Regulation 3.10(c)(4). The two commenters on

    the proposal to revoke Regulation 30.8 similarly supported that action.

    One commenter, a registered FCM, requested the Commission to

    preserve the position taken in Staff Letter 07-16, applicable to one of

    the FCM's foreign affiliates.\4\ In contrast to other recipients of

    prior no-action relief, the FCM's foreign affiliate was exempt from IB

    registration pursuant to Regulation 30.5 and not Regulation 30.10. As

    such, the FCM's foreign affiliate would not be eligible for the IB

    registration exemption under the Proposal until such time that either

    its foreign regulator or self-regulatory organization filed a petition

    with the Commission in accordance with Regulation 30.10. Another

    commenter, a membership organization comprised of FCMs and other

    futures industry participants, commented that FCMs' foreign affiliates

    in non-30.10 jurisdictions may be interested in obtaining exemptive

    relief consistent with Regulation 3.10(c)(4) and, accordingly, it

    requested that the Commission consider addressing those foreign

    affiliates in the final rulemaking.

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    \4\ CFTC Staff Letter 07-16, [Current Transfer Binder] Comm.

    Fut. L. Rep. (CCH) ] -------- (Aug. 21, 2007). CFTC Staff Letters

    issued since 1995 may be accessed through http://www.cftc.gov/

    lawandregulation/exemptivenoactionandinterpretativeletters/

    index.htm.

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    B. The Commission's Response

    The Commission does not believe it is appropriate at this time to

    extend the proposed IB registration exemption for trading on domestic

    markets as set forth in Regulation 3.10(c)(4) to those foreign

    affiliates exempt from IB registration pursuant to Regulation 30.5.

    This is because, while the limited-purpose exemption from IB

    registration set forth in Regulation 3.10(c)(4) is predicated on the

    existence of a comparable regulatory program in the jurisdiction in

    which the Regulation 30.10 firm is located, the exemption available in

    Regulation 30.5 is not. The Commission's determination to limit the

    relief set forth in Regulation 3.10(c)(4) to Regulation 30.10 firms

    will benefit U.S. customers by requiring any firm not registered with

    the Commission as an IB to be subject to a comparable regulatory

    program in lieu of compliance with the provisions of the Act and

    Commission regulations applicable to IBs. As set forth in Appendix A to

    Part 30, the Commission's review of each Regulation 30.10 firm's

    regulatory program, among other requirements, addresses the foreign

    laws and regulations applicable to registration and fitness,

    recordkeeping and reporting, and minimum sales practice standards.

    III. Final Rulemaking

    Accordingly, the Commission has determined to adopt Regulation

    3.10(c)(4) as proposed. As the Commission indicated would be the case

    in the Proposal, the adoption of Regulation 3.10(c)(4) will supersede

    the following Staff Letters: 03-28, 04-09, 04-14, 05-06, 07-05, 07-08,

    07-16, 07-

    [[Page 54071]]

    17, 07-20, and 07-23 (the ``Prior Staff Letters'').

    Regulation 3.10(c)(4)(iii) requires that the FCM affiliated with

    the Regulation 30.10 firm seeking relief thereunder file with NFA an

    acknowledgment of joint and several liability with the 30.10 Firm.

    Notwithstanding that the Prior Staff Letters have been superseded by

    the adoption of Regulation 3.10(c)(4), by this Federal Register release

    the Commission confirms that any FCM that previously filed an

    acknowledgment of joint and several liability pursuant to the

    conditions of a Prior Staff Letter is not required to file a new

    acknowledgment with NFA--provided that the previously filed

    acknowledgment complies with Regulation 3.10(c)(4)(iii).

    For the reasons provided in the Proposal, and in the absence of any

    comments to the contrary, the Commission similarly has determined to

    revoke and reserve Regulation 30.8.

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611,

    requires that agencies, in proposing regulations, consider the impact

    of those regulations on small businesses. The Commission has previously

    established certain definitions of ``small entities'' to be used by the

    Commission in evaluating the impact of its regulations on such entities

    in accordance with the RFA.\5\ The Commission previously has determined

    that registered FCMs are not small entities for the purpose of the RFA

    because each FCM has an underlying fiduciary relationship with its

    customers, regardless of the size of the FCM.\6\ The Commission notes

    that certain foreign persons affected by the changes to the

    Commission's regulations would be registered as FCMs if not for the

    exemption provided therein and, as such, would maintain a fiduciary

    relationship with customers similar to the relationship maintained by

    each registered FCM.

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    \5\ 47 FR 18618-18621 (Apr. 30, 1982).

    \6\ 47 FR 18619-18620.

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    With respect to IBs, the Commission has stated that it would

    evaluate within the context of a particular rule whether all or some

    affected IBs would be considered to be small entities and, if so, the

    economic impact on them of any rule.\7\ The Commission does not believe

    that any affected global IBs would be considered to be small entities.

    Moreover, the Commission invited public comment on the impact these

    proposed rules may have on small entities and received no comments.

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    \7\ 47 FR 18618; see also 48 FR 35276 (Aug. 3, 1983).

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    Therefore, the Acting Chairman, on behalf of the Commission, hereby

    certifies, pursuant to 5 U.S.C. 605(b), that these regulations will not

    have a significant economic impact on a substantial number of small

    entities. No comment was received regarding the impact of these

    amendments on small businesses.

    B. Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995,\8\ the

    Commission submitted a copy of the proposed rule amendments to the

    Office of Management and Budget for its review. The Commission did not

    receive any public comments relative to its analysis of paperwork

    burdens associated with this rulemaking.

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    \8\ Pub. L. 104-13 (May 13, 1995).

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    C. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the

    costs and benefits of its actions before issuing new regulations under

    the Act. The Commission published an analysis of costs and benefits

    when it proposed the rule amendments that it is now adopting.\9\ It did

    not receive any public comments pertaining to the analysis.

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    \9\ 73 FR at 4502.

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    List of Subjects

    17 CFR Part 3

    Definitions, Foreign futures, Consumer protection, Foreign options,

    Registration requirements.

    17 CFR Part 30

    Definitions, Foreign futures, Consumer protection, Foreign options,

    Registration requirements.

    0

    In consideration of the foregoing, and pursuant to the authority

    contained in the Commodity Exchange Act and, in particular, Sections

    2(a)(1), 4(b), 4c and 8a thereof, 7 U.S.C. 2, 6(b), 6c and 12a (1982),

    and pursuant to the authority contained in 5 U.S.C. 552 and 552b

    (1982), the Commission hereby amends Chapter I of Title 17 of the Code

    of Federal Regulations as follows:

    PART 3--REGISTRATION

    0

    1. The authority citation for part 3 continues to read as follows:

    Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c,

    6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b,

    13c, 16a, 18, 19, 21, 23, unless otherwise noted.

    0

    2. Section 3.10 is amended by adding paragraph (c)(4) to read as

    follows:

    Sec. 3.10 Registration of futures commission merchants, introducing

    brokers, commodity trading advisors, commodity pool operators and

    leverage transaction merchants.

    * * * * *

    (c) * * *

    (4) A person located outside the United States, its territories or

    possessions that is exempt from registration as a futures commission

    merchant in accordance with Sec. 30.10 of this chapter is not required

    to register as an introducing broker in accordance with section 4d of

    the Act if:

    (i) Such a person is affiliated with a futures commission merchant

    registered in accordance with section 4d of the Act;

    (ii) Such a person introduces, on a fully-disclosed basis in

    accordance with Sec. 1.57 of this chapter, any institutional customer,

    as defined in Sec. 1.3(g) of this chapter, to a registered futures

    commission merchant for the purpose of trading on a designated contract

    market or derivatives execution facility;

    (iii) Prior to a person located outside the United States, its

    territories or possessions, that is exempt from registration as a

    futures commission merchant pursuant to Sec. 30.10 of this chapter,

    engaging in the introducing activities described in this paragraph, the

    affiliated futures commission merchant has filed with the National

    Futures Association (ATTN: Vice President, Compliance) an

    acknowledgement that it will be jointly and severally liable for any

    violations of the Act or the Commission's regulations committed by such

    person in connection with those introducing activities, whether or not

    the affiliated futures commission merchant submits for clearing any

    trades resulting from those introducing activities; and

    (iv) Such person does not solicit any person located in the United

    States, its territories or possessions for trading on a designated

    contract market or derivatives transaction execution facility, nor does

    such person handle the customer funds of any person located in the

    United States, its territories or possessions for the purpose of

    trading on any designated contract market or derivatives transaction

    execution facility.

    (v) For the purposes of this paragraph, a person shall be

    affiliated with a futures commission merchant if such a person:

    (A) Owns 50 percent or more of the futures commission merchant;

    (B) Is owned 50 percent or more by the futures commission merchant;

    or

    (C) Is owned 50 percent or more by a third person that also owns 50

    percent

    [[Page 54072]]

    or more of the futures commission merchant.

    * * * * *

    PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

    0

    3. The authority citation for part 30 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6c, and 12a, unless otherwise

    noted.

    Sec. 30.8 [Removed and reserved]

    0

    4. Section 30.8 is removed and reserved.

    Dated: September 12, 2008.

    By the Commission.

    David Stawick,

    Secretary of the Commission.

    [FR Doc. E8-21857 Filed 9-17-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: September 18, 2008



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