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2010-29023

  • FR Doc 2010-29023[Federal Register: November 19, 2010 (Volume 75, Number 223)]

    [Proposed Rules]

    [Page 70973-70998]

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

    [DOCID:fr19no10-19]

    [[Page 70973]]

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    Part II

    Commodity Futures Trading Corporation

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    17 CFR Part 48

    Registration of Foreign Boards of Trade; Proposed Rule

    [[Page 70974]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 48

    RIN 3038-AD19

    Registration of Foreign Boards of Trade

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking.

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    SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

    is proposing rules to implement new statutory provisions enacted by

    Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection

    Act. These proposed rules establish a registration requirement that

    applies to foreign boards of trade (FBOT) that wish to provide their

    identified members or other participants located in the United States

    with direct access to their electronic trading and order matching

    systems.

    DATES: Comments must be received on or before January 18, 2011. The

    Commission is not inclined to grant extensions of this comment period.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AD19,

    by any of the following methods:

    Agency Web site, via its Comments Online process: http://

    comments.cftc.gov. Follow the instructions for submitting comments

    through the Web site.

    Mail: David A. Stawick, Secretary of the Commission,

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

    Street, NW., Washington, DC 20581.

    Hand Delivery/Courier: same as mail above.

    Federal eRulemaking Portal: http://www.regulations.gov.

    Follow the instructions for submitting comments.

    All comments must be submitted in English, or if not, accompanied

    by an English translation. Comments will be posted as received to

    http://www.cftc.gov. You should submit only information that you wish

    to make available publicly. If you wish the Commission to consider

    information that is exempt from disclosure under the Freedom of

    Information Act, a petition for confidential treatment of the exempt

    information may be submitted according to the established procedures in

    CFTC Regulation 145.9.\1\

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    \1\ 17 CFR 145.9.

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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 http://www.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 the rulemaking will be retained in the public comment

    file and will be considered as required under the Administrative

    Procedure Act and other applicable laws, and may be accessible under

    the Freedom of Information Act.

    FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Senior Special

    Counsel, (202) 418-5492, dandresen@cftc.gov, or David Steinberg,

    Special Counsel, (202) 418-5102, dsteinberg@cftc.gov, Division of

    Market Oversight, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street

    Reform and Consumer Protection Act (the Dodd-Frank Act).\2\ Title VII

    of the Dodd-Frank Act \3\ amended the Commodity Exchange Act (CEA or

    the Act) \4\ to establish a comprehensive new regulatory framework for

    swaps and security-based swaps. The legislation was enacted to reduce

    risk, increase transparency, and promote market integrity within the

    financial system by, among other things: (1) Providing for the

    registration and comprehensive regulation of swap dealers and major

    swap participants; (2) imposing clearing and trade execution

    requirements on standardized derivative products; (3) creating robust

    recordkeeping and real-time reporting regimes; and (4) enhancing the

    Commission's rulemaking and enforcement authorities with respect to,

    among others, all registered entities and intermediaries subject to the

    Commission's oversight.

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    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

    Dodd-Frank Act may be accessed at http://www.cftc.gov./

    LawRegulation/OTCDERIVATIVES/index.htm.

    \3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \4\ 7 U.S.C. 1 et seq.

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    Section 738 of the Dodd-Frank Act amends Section 4(b) of the CEA to

    provide that the Commission may 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 of

    the FBOT, including rules and regulations prescribing procedures and

    requirements applicable to the registration of such FBOTs. The

    Commission has determined to promulgate rules to implement these

    provisions by July 15, 2011.\5\

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    \5\ See Section 738 of the Dodd-Frank Act.

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    Accordingly, the Commission is proposing to adopt a new part 48 \6\

    to its regulations to establish a registration requirement and related

    registration procedures and conditions that apply to FBOTs that wish to

    provide their members or other participants located in the United

    States with direct access to their electronic trading and order

    matching systems. The Commission requests comment on all aspects of the

    proposed rules, as well as comment on the specific provisions and

    issues highlighted in the discussion below.

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    \6\ Commission regulations referred to herein are found at 17

    CFR Ch. 1.

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    II. Relief Granted to Foreign Boards of Trade

    Since 1996, FBOT requests to provide direct access to their

    electronic trading and order matching systems (trading systems) from

    within the U.S. have been addressed by Commission staff via the no-

    action process set forth in Commission regulation 140.99.\7\

    Specifically, an FBOT wishing to provide its U.S.-located participants

    with direct access to the FBOT's trading system traditionally has

    submitted a request for a no-action letter to the Division of Market

    Oversight (DMO). The FBOT's no-action request must be accompanied by

    representations and supporting documentation from the FBOT regarding,

    among other things, its organization, presence in the U.S.,

    participants, the products it wishes to list for direct access, its

    trading system and the regulatory regime and information-sharing

    arrangements to which the FBOT is subject. Staff then reviews the

    request and related information and documentation and, where

    appropriate, issues a ``direct access'' (formerly known as a ``foreign

    terminal'') no-action relief letter. When reviewing no-action requests,

    staff looks for a home regulatory regime that provides oversight over

    the FBOT in a manner that is comparable to the CFTC's oversight of

    DCMs. Specifically, does the FBOT's regulatory authority

    [[Page 70975]]

    support and enforce ``substantially equivalent regulatory objectives''

    in its oversight of the FBOT?

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    \7\ See, e.g., CFTC Letter No. 96-28 (February 29, 1996).

    Commission regulation 140.99 defines the term ``no-action letter''

    as a written statement issued by the staff of a Division of the

    Commission or of the Office of the General Counsel that it will not

    recommend enforcement action to the Commission for failure to comply

    with a specific provision of the Act or of a Commission rule,

    regulation or order if a proposed transaction is completed or a

    proposed activity is conducted by the beneficiary.

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    In the no-action letter, DMO staff represents that, provided the

    FBOT meets the conditions set out in the letter, DMO will not recommend

    that the Commission institute enforcement action against the FBOT for

    failure to register as a designated contract market (DCM) or

    derivatives transaction execution facility (DTEF) if the FBOT provides

    direct access to its order entry and trade matching system to FBOT

    members and other participants located in the U.S. The scope of the

    staff no-action relief has been restricted to providing relief from (1)

    the requirement that the FBOT obtain DCM or DTEF registration pursuant

    to Sections 5 and 5a of the CEA and (2) regulatory requirements related

    to the trading or offering of contracts on a DCM and DTEF if the

    contracts identified in the no-action letter (foreign futures or option

    contracts) are made available in the U.S. for trading in the manner set

    forth in the letter.

    The no-action relief also has been limited historically to FBOTs

    that provide direct access to the FBOTs' members and other participants

    that: (1) Trade in the U.S. for their proprietary accounts; (2) are

    registered with the Commission as futures commission merchants (FCM);

    or (3) are registered with the Commission as commodity pool operators

    (CPO) or are exempt from such registration and that are submitting

    orders for execution on behalf of U.S. pools they operate or commodity

    trading advisors (CTA) or are exempt from such registration and that

    are submitting orders for execution on behalf of accounts for which

    they have discretionary authority. With respect to such CPOs or CTAs,

    an FCM or a firm exempt from registration as an FCM pursuant to

    Commission Rule 30.10 (Rule 30.10 Firm) \8\ must act as a clearing firm

    and guarantees such trades. The no-action relief typically has been

    subject to numerous conditions designed to keep staff informed

    regarding the FBOT's status and activities from within the U.S.,

    additional contracts to be made available, and significant changes in

    the information provided to the Commission in support of the no-action

    request. Significant changes in information include changes in the

    membership criteria, the location of the management, personnel or

    operations (particularly changes that may suggest an increased nexus

    between the FBOT's activities and the U.S.); the basic structure,

    nature, or operation of the trading system or its clearing

    organization; the regulatory or self-regulatory regime the FBOT is

    subject to; and any change in the authorization, licensure or

    registration of the FBOT.

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    \8\ A Rule 30.10 order permits firms that are members of a self-

    regulatory organization and subject to regulation by the foreign

    regulator to conduct business from locations outside of the U.S. for

    U.S. persons on non-U.S. boards of trade without registering under

    the Act, based upon the person's substituted compliance with a

    foreign regulatory structure found comparable to that administered

    by the Commission under the CEA.

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    In 2006, following a series of market events and Commission

    deliberations, the Commission endorsed the continued use of the no-

    action process as a mechanism for facilitating direct access to an

    FBOT's trading system. On January 17, 2006, ICE Futures Europe, a U.K.

    recognized investment exchange that provided direct access to its U.S.

    members pursuant to a no-action letter,\9\ notified the Commission that

    it would list a futures contract on West Texas Intermediate (WTI) light

    sweet crude oil whose settlement price would be linked to contracts

    traded on the New York Mercantile Exchange (NYMEX).\10\ ICE Futures

    Europe's notification of the proposed contract linked to a U.S.

    domestic contract prompted the Commission to undertake an evaluation of

    the use of the no-action process to permit direct access, including a

    re-examination of certain issues with respect to the Commission's

    statutory obligations to maintain the integrity of U.S. markets and to

    protect U.S. customers. Accordingly, on May 3, 2006, the Commission

    directed its staff to initiate a formal process to define what

    constitutes a ``board of trade, exchange, or market located outside the

    United States, its territories or possessions'' as that phrase is used

    in section 4(a) of the CEA and, in furtherance of that process,

    scheduled a public hearing.\11\ The Commission also issued a related

    Request for Public Comment.\12\ On October 27, 2006, following

    extensive debate, a review of comments submitted pursuant to the

    Commission's request for public comment and the Commission Hearing,\13\

    the Commission issued a Policy Statement in which it endorsed the no-

    action process for FBOTs that want to provide direct access to their

    trading systems to U.S.-based participants.\14\

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    \9\ On November 12, 1999, the Commission's Division of Trading

    and Markets (the predecessor to the CFTC's Division of Market

    Oversight) granted no-action relief to the International Petroleum

    Exchange of London (now ICE Futures Europe), permitting it to make

    its electronic trading and order matching system, known as Energy

    Trading System II, available to its members in the United States.

    CFTC Letter No. 99-69 (November 12, 1999).

    \10\ On April 12, 2006, ICE Futures Europe notified the Division

    of Market Oversight of its intent to launch the ICE Futures New York

    Harbour Heating Oil Futures Contract and the ICE Futures New York

    Harbour Unleaded Gasoline Blendstock (RBOB) Futures Contract each of

    which is cash-settled on the price of physically-settled contracts

    traded on the NYMEX.

    \11\ The hearing was conducted on June 27, 2006, at the

    Commission's headquarters in Washington, DC.

    \12\ 71 FR 34070 (June 13, 2006). The Commission requested

    comment on the issues related to developing an objective standard

    establishing a threshold that, if crossed by a foreign board of

    trade that permits direct access, would indicate that the board of

    trade is no longer outside the United States and, accordingly, may

    be required to become registered under the CEA.

    \13\ Comments submitted in response to the request for comment

    and at the Commission's Hearing were generally supportive of the no-

    action process, praising the process in general for its flexibility.

    Many commenters suggested that the Commission should retain in large

    measure the essential contours of the no-action process. A

    transcript of the Commission's Hearing on what constitutes a board

    of trade located outside the United States under the Commodity

    Exchange Act section 4(a) (June 27, 2006), (``Hearing Tr.'') as well

    as all comment letters (``CL''), are located in comment file 06--002

    to 17 FR 34070 (June 13, 2006), available at http://www.cftc.gov/

    foia/comment06/foi06-002_1.htm.

    \14\ Boards of Trade Located Outside of the United States and

    No-Action Relief From the Requirement To Become A Designated

    Contract Market or Derivatives Transaction Execution Facility, 71 FR

    64843 (Nov. 2, 2006) (Policy Statement). In the Policy Statement,

    the Commission endorsed the no-action process for addressing FBOT

    direct access relief requests: ``The Commission endorses the

    continued use of the no-action process as an appropriate and

    flexible mechanism that should be used prospectively to facilitate

    direct access to the electronic trading system of a foreign board of

    trade by its U.S. members or authorized participants.'' Id. at

    64846.

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    In order to address concerns raised by the listing by ICE Futures

    Europe of the linked WTI contract for trading by direct access,

    Commission staff, on June 17, 2008, amended ICE Futures Europe's no-

    action relief letter by adding additional conditions. The additional

    conditions included requirements relating to the reporting of large

    trader positions, the publication of daily trading information in the

    linked contracts, and the establishment of position limits or

    accountability levels that are comparable to the position limits or

    accountability levels for the counterpart linked contracts at

    NYMEX.\15\

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    \15\ CFTC Letter No. 08-09 (June 17, 2008). The Commission

    subsequently announced in the Federal Register that these additional

    conditions would apply to any FBOT that made available for trading

    by direct access a linked contract. See Notice of Additional

    Conditions on the No-Action Relief When Foreign Boards of Trade That

    Have Received Staff No-Action Relief To Permit Direct Access to

    Their Automated Trading Systems from Locations in the United States

    List for Trading from the U.S. Linked Futures and Option Contracts

    and a Revision of Commission Policy Regarding the Listing of Certain

    New Option Contracts. 74 FR 3570 (January 21, 2009).

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    [[Page 70976]]

    Commission staff subsequently reexamined the issues raised by

    linked contracts and concluded that there were additional measures that

    should be taken to further allay concerns with respect to effective

    market surveillance and maintaining the integrity of the market.

    Accordingly, on June 20, 2009, staff again amended ICE Futures Europe's

    no-action relief by adding additional conditions with respect to linked

    contracts. These conditions included requirements that ICE Futures

    Europe provide CFTC staff trade execution and audit trail data for all

    linked contracts; copies of, or hyperlinks to, all rules, rule

    amendments, circulars and other notices published by the exchange; and

    copies of all disciplinary notices involving the linked contracts. They

    also provided for CFTC on-site visits to examine ICE Futures Europe's

    ongoing compliance with its no-action relief and, in the event that the

    CFTC directs that NYMEX take emergency action with respect to a linked

    contract (e.g., to cease trading in the contract), ICE Futures Europe,

    subject to information-sharing arrangements between the CFTC and the

    United Kingdom's Financial Services Authority (FSA), is required to

    promptly take similar action (e.g., cease trading in the contract) with

    respect to the linked contract at ICE Futures Europe.\16\

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    \16\ CFTC Letter No. 09-37 (August 20, 2009).

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    Since 1996, Commission staff has issued 23 direct access no-action

    relief letters to FBOTs, 20 of which remain active (one relief letter

    was superseded and two were revoked when the FBOTs ceased

    operations).\17\ While the no-action process has served a useful

    purpose, given the clear authority provided by Congress to create a

    registration program for FBOTs, the Commission concludes that it is in

    the public interest to replace the staff-initiated no-action process

    with a formal Commission registration provision.

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    \17\ Currently, 14 of the FBOTs with active no-action relief

    report volume originating from the U.S. via direct access.

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    The no-action process is better suited for discrete, unique factual

    circumstances and where regulations do not address the issue presented.

    In circumstances where the same type of relief is granted on a regular

    and recurring basis, as it has been with respect to permitting FBOTs to

    provide direct access to their trading systems to specified members and

    other participants that are located in the U.S., the Commission

    concludes believes that it is no longer appropriate to handle such

    matters through the no-action process. Instead, the process should

    become more transparent and standardized through generally applicable

    regulations. Among other things, a rulemaking would provide for a

    uniform application process, enhance the visibility of the process to

    both applicants and the public and assure fair and consistent treatment

    to all applicants. Further, no-action relief letters are issued by the

    staff and are not binding on the Commission and do not provide the same

    legal certainty to the FBOT recipients that a Commission-issued order

    would provide. The Commission believes that a formal registration

    procedure would provide more legal certainty for registered FBOTs and

    would be more consistent with the manner in which other countries

    permit U.S. DCMs to provide direct access internationally. Accordingly,

    for the reasons noted above and pursuant to the new authority of

    amended CEA Section 4(b), new Part 48 of the Commission's regulations,

    as proposed herein, would replace the existing policy of accepting and

    reviewing requests for no-action relief to permit an FBOT to provide

    for direct access to its trading system from within the U.S. with a

    requirement that an FBOT seeking to provide such access must apply for

    and be granted registration with the Commission.\18\

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    \18\ The proposed rules would provide for a ``limited''

    application process for FBOTs currently operating under existing no-

    action relief. The limited application would have to be submitted

    within 120 days of the effective date of the registration rules and

    the FBOT could continue to operate pursuant to the no-action relief

    during the 120 day period and until the Commission notifies the FBOT

    that the application has been approved or denied. In the event that

    the Commission denies an FBOT's application, it would expect staff

    to simultaneously withdraw the FBOT's no-action relief.

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    As a starting point for the proposed registration requirements, the

    Commission considered the experience gained from the current no-action

    review process. The proposed application submission requirements and

    staff review standards for FBOT registration under the new regulations

    generally are consistent with the application requirements and review

    standards that have guided the Commission's staff in issuing the more

    recent FBOT no-action relief letters. Under the proposed registration

    requirements, for instance, the Commission would not evaluate FBOTs for

    compliance with the core principles and/or regulatory requirements

    applicable to DCMs. Rather, the Commission would look to the FBOT's

    regulatory authority to determine that the home regulatory regime

    provides oversight over the FBOT in a manner that is comparable to the

    CFTC's oversight of DCMs. Specifically, the Commission would review the

    application to determine if the FBOT's regulatory authority supports

    and enforces substantially equivalent regulatory objectives, such as

    prevention of market manipulation and customer protection, in its

    oversight of the FBOT.

    The Commission notes that the staff's no-action process has not

    remained static since the first no-action relief letter was issued in

    1996. Instead, staff has generally been expanding the scope and level

    of its review of FBOTs to address activities not originally foreseen

    when the first no-action letter was issued. Likewise, the number and

    types of conditions imposed upon FBOTs seeking no-action relief have

    gradually expanded over time.\19\ Those conditions have generally been

    included in the proposed regulations, along with proposed conditions

    intended to address increasing technological innovation, new types of

    products, the impact on the market of different trading entities

    listing substantially similar or even connected products, and the

    requirements of the Dodd-Frank Act.

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    \19\ The first no-action relief letter required that Deutsche

    Terminborse comply with eight terms and conditions. CFTC Letter No.

    96-28 (February 29, 1996). Subsequent letters generally have

    required compliance with approximately 16 conditions, although the

    number varies based on the manner in which the FBOT operates. More

    recent additions to the conditions address, among other things,

    restriction to certain types of members, the inclusion of CTAs and

    CPOs as entities eligible for no-action relief, and a requirement

    that the FBOT provide an annual certification from its regulatory

    authority that the FBOT retains its authorization in good standing

    as an FBOT in its home country. As previously discussed, the staff

    has also added several conditions to the ICE Futures Europe no-

    action letter in order to address the listing of linked contracts.

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    III. The Proposed Rules

    The proposed regulation is divided into 10 sections and an appendix

    (Appendix), each proposed as described below.

    A. Scope

    The first section, 48.1, provides that part 48 applies to any FBOT

    that is registered or is applying to become registered with the

    Commission in order to provide its identified members or other

    participants located in the U.S.\20\ with direct access to its

    electronic trading and order matching system.

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    \20\ For purposes of FBOT registration, the term ``United

    States'' or ``U.S.'' includes the United States, its territories and

    possessions.

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    B. Definitions

    Section 48.2 includes definitions applicable to FBOT registration.

    For instance, section 48.2 defines an ``FBOT'' as any board of trade,

    exchange or market located outside the U.S., its territories or

    possessions, whether incorporated or unincorporated, where foreign

    agreements, contracts or transactions are entered into. Section 48.2

    also identifies certain criteria an FBOT would have to meet in order to

    register to provide direct access, such as possessing the attributes of

    an established, organized exchange; adhering to appropriate rules

    prohibiting abusive trading practices; and enforcing appropriate rules

    to maintain market and financial integrity. Another defined term,

    further addressed below, is ``direct access,'' which is defined in the

    Dodd-Frank Act to refer to ``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.'' Section 48.2 also

    includes definitions, for purposes of this part, of ``linked

    contract,'' ``communications,'' ``material change,'' ``clearing

    organization,'' ``existing no-action relief,'' ``swaps,'' ``affiliate''

    and ``member or other participant.''

    C. Registration Required

    Section 48.3 provides that, except as otherwise specified in

    proposed new Part 48, it shall be unlawful for an FBOT to permit direct

    access to its electronic trading and order matching system from within

    the U.S. unless and until the Commission has issued an Order of

    Registration to the FBOT pursuant to the provisions of Part 48. The

    proposal also would provide that it would be unlawful for a board of

    trade to make false or misleading statements in any application for

    registration or in connection with any application for registration.

    D. Registration Eligibility

    Section 48.4 describes registration eligibility. Generally, FBOTs

    that meet the requirements of the definition in section 48.2(b) would

    be eligible to be registered. Section 48.4 also identifies the persons

    to whom the registered FBOT could grant authority to trade by direct

    access. The Commission proposes that the 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. Specifically, an FBOT could request registration

    in order to permit direct access from within the U.S. by identified

    members and other participants \21\ that: (1) Trade in the U.S. for

    their proprietary accounts; (2) are registered with the Commission as

    FCMs and submit orders to the trading system for execution on behalf of

    U.S. customers; or (3) are, subject to a specific clearing and

    guarantee requirement, registered with the Commission as CPOs or CTAs,

    or are exempt from such registration pursuant to Commission Rules 4.13

    or 4.14. The CPOs would be permitted to submit orders for execution on

    behalf of U.S. pools they operate, and CTAs would be permitted to do so

    for accounts of U.S. customers for which they have discretionary

    authority. The Commission requests comment concerning additional

    entities that should be eligible for direct access to the trading and

    order matching systems of the FBOT from the U.S.

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    \21\ For purposes of FBOT registration, identified member or

    other participant of the FBOT shall include any affiliate of any

    registered FBOT's member or other participant that has been granted

    direct access by the registered FBOT to the trading system. An

    affiliate of a registered FBOT member or other participant shall

    mean any person, as that term is defined in section 1a(38) of the

    CEA, that: (i) Owns 50% or more of the member or other participant;

    (ii) is owned 50% or more by the member or other participant; or

    (iii) is owned 50% or more by a third person that also owns 50% or

    more of the member or other participant.

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    E. Registration Procedures

    Section 48.5 describes procedures to be followed to request and

    receive registration.\22\ The registration application must be

    submitted electronically, must be signed by the FBOT's chief executive

    officer (or functional equivalent), and must include the information

    and documentation set forth in the Appendix to Part 48 and any

    information and documentation necessary, in the discretion of the

    Commission, to effectively demonstrate that the FBOT and its clearing

    organization satisfy the registration requirements set forth in section

    48.7.

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    \22\ Draft submissions and a request for a preliminary review by

    Commission staff would be encouraged under the proposed rule. The

    Commission proposes that the final copy of an application for

    registration would be published on its Web site.

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    Section 48.5 also provides that the Commission will review the

    application for FBOT registration and may approve or deny the

    application. At this time, the proposed rule does not contain a

    timeline for Commission action.\23\ If the application is approved, the

    Commission will so notify the FBOT and will issue an Order of

    Registration. The Commission could, after appropriate notice and an

    opportunity for a hearing, amend, suspend, terminate or otherwise

    restrict the terms of the Order of Registration. If the application is

    denied, the Commission will issue a Notice of Action specifying that

    the application was not approved and the FBOT will not be registered

    and may not provide direct access to its trade matching engine from

    within the U.S. Following a denial, the FBOT may reapply for

    registration 360 days after the date of denial.

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    \23\ The Commission expects a surge of activity shortly after

    the registration rule goes into effect. Once this period has ended,

    the Commission anticipates that a timeline would be established.

    Such a timeline might require a Commission response to a completed

    application for registration within 120 days after the Commission,

    in its sole discretion, determines that the application is complete.

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    The Commission is also proposing that, in determining whether to

    grant or deny an application for FBOT registration, the Commission will

    thoroughly review the information and documentation submitted in the

    application and, as necessary, conduct an on-site due diligence visit

    at the FBOT to determine, as mandated by the Dodd-Frank Act, whether

    the FBOT and its clearing organization are subject to comprehensive

    supervision and regulation by the appropriate governmental authorities

    in their home country that is comparable to the comprehensive

    supervision and regulation to which DCMs and derivatives clearing

    organizations (DCO) are subject in the U.S.\24\ In this context, as

    previously noted, comparable does not necessarily mean identical. The

    comparability determination for registration purposes will be similar

    to that followed when reviewing direct access no-action requests. The

    Commission will evaluate whether the FBOT's home regulatory authority

    supports and enforces regulatory objectives in its oversight of the

    FBOT that are substantially equivalent to the regulatory objectives

    supported and enforced by the Commission in its oversight of DCMs.

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    \24\ The Dodd-Frank Act also mandated that the Commission

    consider any previous Commission findings that the FBOT and its

    clearing organization are subject to such comprehensive supervision

    and regulation by the appropriate government authorities in their

    home country. Such previous Commission findings would include staff

    conclusions drawn previously during the course of reviewing an

    application for direct access no-action relief.

    ---------------------------------------------------------------------------

    The Commission notes that it uses a similar ``comparability''

    analysis when evaluating foreign entities in the context of issuing

    Rule 30.10 exemptions to

    [[Page 70978]]

    intermediaries.\25\ When determining whether to issue a Rule 30.10

    exemption, staff evaluates whether the applicant is subject to a

    comparable regulatory scheme in the country in which it is located. In

    this evaluation, comparable does not necessarily mean identical: as set

    forth in Appendix A to Rule 30.10 with respect to the comparability

    determination, ``the Commission would have broad discretion to

    determine that the policies of any program element generally are met,

    notwithstanding the fact that the offshore program does not contain an

    element identical to that of the Commission's regulatory program.'' In

    the case of FBOT registration, a determination that the foreign

    regulatory authority enforces substantially equivalent regulatory

    objectives is a determination of comparability: The regulatory regime

    is comparable, although not necessarily identical, to that of the CFTC.

    ---------------------------------------------------------------------------

    \25\ See supra note 8.

    ---------------------------------------------------------------------------

    In its review, the Commission would also consider whether the FBOT

    is eligible to be registered as defined in section 48.2(b) of this part

    and whether the FBOT has adequately demonstrated that it meets the

    requirements for registration specified in section 48.7 and any other

    requirements that the Commission, in its discretion, believes are

    necessary or appropriate to impose under the facts and circumstances

    presented.

    F. FBOTs Providing Direct Access Pursuant to No-action Relief

    In Section 48.6, the Commission proposes to provide for a

    ``limited'' application process for FBOTs currently operating pursuant

    to existing no-action relief. Such FBOTs would apply for registration

    by (1) identifying the specific requirements for registration set forth

    in section 48.7 or information and documentation required by the

    Appendix to Part 48 that are satisfied by information previously

    submitted in the request for no-action relief that remain current and

    true and resubmitting such information and documentation,\26\ and (2)

    submitting any information and documentation required in a complete

    application for registration that was not previously provided or is no

    longer current. The limited application for registration would have to

    be submitted within 120 days of the effective date of the registration

    rules, during which time the FBOT could continue to operate pursuant to

    the no-action relief. The no-action relief would, upon notice to the

    FBOT, be revoked after 120 days if a complete limited application is

    not received by the Commission by that time. If the FBOT files an

    application for registration within 120 days, the FBOT could continue

    to operate pursuant to the no-action relief until notified by the

    Commission that the application has been approved or denied. If the

    Commission revokes the no-action relief or denies the application, it

    will provide for a transition period for phasing out direct access.

    ---------------------------------------------------------------------------

    \26\ The Commission is requesting resubmission of original

    documentation, where appropriate, because such documentation, some

    of which dates back as much as fourteen years, may no longer be

    readily available for review because of incomplete and or misplaced

    files.

    ---------------------------------------------------------------------------

    G. Requirements for Registration

    Section 48.7 describes the requirements that the Commission

    proposes that an FBOT would be required to demonstrate in order to be

    registered. The requirements are divided into the same seven general

    categories currently evaluated during the course of a review of an

    application for no-action relief and they would be reviewed in a

    similar manner. Whether they are successfully met would be determined

    by a review of the information and documentation submitted by the

    applicant pursuant to the Appendix to proposed Part 48, any additional

    information or documentation requested by the Commission in connection

    with the application review, and, as necessary, a Commission staff due

    diligence on-site visit to the FBOT and clearing organization.

    First, with respect to FBOT and clearing membership, the FBOT would

    be required to demonstrate that FBOT and clearing organization members

    and other participants are fit and proper and meet appropriate

    financial and professional standards; that the FBOT and clearing

    organization have adequate conflict of interest provisions; and that

    the FBOT and clearing organization have and enforce rules prohibiting

    the disclosure of material, non-public information obtained as a result

    of a member's/other participant's performance of official duties.

    Second, the FBOT's automated trading system would be required to

    comply with the Principles for the Oversight of Screen-Based Trading

    Systems for Derivative Products developed by the Technical Committee of

    the International Organization of Securities Commissions (IOSCO

    Principles) and adopted by the Commission on November 21, 1990.\27\ In

    addition, the FBOT's trade matching algorithm would be required to

    match trades fairly and timely, the audit trail would be required to

    capture all relevant data (including changes to orders), and audit

    trail data would be required to be securely maintained and available

    for an adequate time period. Trade data would be required to be made

    available to users and to the public, the trading system would be

    required to have demonstrated reliability, and access to the trading

    system would be required to be secure and protected. Finally, adequate

    provisions for emergency operations and disaster recovery would be

    required, trading data would be required to be backed up to prevent its

    loss, and only approved contracts could be made available for trading

    by direct access from the U.S.

    ---------------------------------------------------------------------------

    \27\ The Commission adopted the IOSCO Principles as a statement

    of regulatory policy for the oversight of screen-based trading

    systems for derivative products. Policy Statement Concerning the

    Oversight of Screen-Based Trading Systems, 55 FR 48670 (Nov. 21,

    1990).

    ---------------------------------------------------------------------------

    Third, the contracts to be made available by direct access in the

    U.S. would be required to be futures, option or swaps contracts that

    would be eligible to be traded on a DCM and would be subject to prior

    review by the Commission. With respect to swaps, Section 733 of the

    Dodd-Frank Act adds section 5h to the CEA, which provides that a person

    operating a facility for the trading or processing of swaps must be

    registered as a swaps execution facility (SEF) or as a DCM. Section 733

    also adds section 5(g) to the CEA which provides that the ``Commission

    may exempt, conditionally or unconditionally, a swap execution facility

    from registration under this section if the Commission finds that the

    facility is subject to comparable, comprehensive supervision and

    regulation on a consolidated basis by the [SEC], a prudential

    regulator, or the appropriate governmental authorities in the home

    country of the facility.'' The approach for granting a SEF exemption

    (namely, ``subject to comparable, comprehensive supervision and

    regulation * * * in the home country of the facility'') is similar to

    that which applies to FBOTs seeking registration. Moreover, there is

    nothing in the Dodd-Frank Act, including Section 738 of the Dodd-Frank

    Act amending Section 4(b) of the CEA, which expressly precludes a

    registered FBOT from offering swaps through direct access.\28\

    Accordingly, the Commission is proposing to permit a registered FBOT to

    offer and trade swaps though direct access, subject to the condition

    that the FBOT meet

    [[Page 70979]]

    certain standards or requirements that may apply to SEFs, as the

    Commission deems appropriate. The Commission requests comment with

    respect to whether a registered FBOT should be allowed to make

    available swaps through direct access and if so, under what conditions.

    ---------------------------------------------------------------------------

    \28\ Furthermore, under the Dodd-Frank Act, a DCM may trade

    swaps without additionally registering as a SEF.

    ---------------------------------------------------------------------------

    Contracts that are linked to a contract listed for trading on a

    U.S. registered entity would be required to be identified, as would

    contracts that share any other commonality with a contract listed for

    trading on a U.S. registered entity, i.e., both the FBOT's and the U.S.

    registered entity's contract settle to the price of the same third

    party-constructed index. Finally, the FBOT would be required to certify

    that it has listing standards in place that require that contracts not

    be readily susceptible to manipulation.\29\

    ---------------------------------------------------------------------------

    \29\ The Commission considers that contracts that can be found

    to have the following are less likely to be susceptible to

    manipulation: (1) They rely for settlement pricing on a robust and

    transparent calculation, whether based on the contract's own trading

    or an externally calculated index; (2) they are subject to measures

    to reduce the ability of any party to disrupt pricing, e.g. position

    limits, intraday surveillance, and pre-trade screens; and (3) there

    is either ample deliverable supply or flexibility in the contract

    (alternate delivery mechanisms).

    ---------------------------------------------------------------------------

    Fourth, with respect to settlement and clearing, the clearing

    organization, would be required to comply with the current

    Recommendations for Central Counterparties (RCCPs) that have been

    issued jointly by the Committee on Payment and Settlement Systems

    (CPSS) and the Technical Committee of the International Organization of

    Securities Commissions (IOSCO), as updated, revised or otherwise

    amended, or successive standards, principles and guidance for central

    counterparties or financial market infrastructures adopted jointly by

    IOSCO and CPSS, and the clearing organization would be required to be

    in good regulatory standing in its home country jurisdiction. In the

    alternative, the clearing organization may be registered with the

    Commission as a DCO.\30\

    ---------------------------------------------------------------------------

    \30\ The Commission is including the option for the clearing

    organization to be registered as a DCO because it is aware that some

    foreign clearing organizations are registered as such. These include

    ICE Clear Europe Limited, LCH Clearnet Ltd. and Natural Gas Exchange

    Inc.

    ---------------------------------------------------------------------------

    Fifth, the FBOT's and the clearing organization's regulatory

    authorities would be required to provide comprehensive supervision and

    regulation of the FBOT and the clearing organization that is comparable

    to the comprehensive supervision and regulation to which DCMs and DCOs

    are subject in the U.S., would be required to have the power to

    intervene in the market and authority to share information with the

    Commission, and would be required to provide for ongoing regulatory

    supervision of the FBOT and its trading system, the clearing

    organization and its clearing system and intermediaries--with

    particular attention to market integrity and customer protection and

    the manner in which the exchange enforces its rules. In the case of

    FBOTs with listed swaps, the Commission proposes to take into

    consideration the regulation of relevant market participants (e.g.,

    swap dealers) regarding their exchange-trading activity when analyzing

    the comparability and comprehensiveness of the regulatory regime

    applicable to exchange-listed swaps in the FBOT's home country.

    Sixth, the FBOT and the clearing organization would be required to

    have appropriate rules and would be required to enforce them. Among

    other things, the FBOT and the clearing organization would be required

    to have sufficient compliance staff and resources to fulfill their

    respective regulatory responsibilities, including the capacity to

    detect, investigate, and sanction persons who violate their respective

    rules. The FBOT would be required to implement and enforce rules

    relating to oversight of trading practices, including appropriate trade

    practice surveillance, real-time market monitoring and market

    surveillance. The FBOT's and the clearing organization's rules would be

    required to authorize the compliance staff to obtain, from market

    participants, any information and cooperation necessary to conduct

    effective rule enforcement and investigations, and the FBOT would be

    required to have and enforce rules with respect to access to the

    trading system and the means by which the connection is accomplished.

    The FBOT and the clearing organization (or their respective regulatory

    authorities) would be required to have implemented and enforce

    disciplinary procedures that empower them to recommend and prosecute

    disciplinary actions for suspected rule violations, impose adequate

    sanctions for such violations, and provide adequate protections to

    charged parties pursuant to fair and clear standards. The FBOT would be

    required to have the capacity to detect and deter market manipulation,

    attempted manipulation, price distortion, and other disruptions of the

    market and would be required to have and enforce rules designed to

    maintain market and financial integrity and prohibit other trading and

    market abuses. Finally, the FBOT would be required to have and enforce

    rules and procedures that ensure a competitive, open and efficient

    market and mechanism for executing transactions.

    Finally, satisfactory information-sharing arrangements among the

    FBOT, the clearing organization, their respective regulatory

    authorities, and the Commission would be required to be in place. The

    regulatory authorities would be required to be signatories to the IOSCO

    Multilateral Memorandum of Understanding (IOSCO MOU) \31\ or, if not

    signatories to the IOSCO MOU, would have to inform the Commission of

    the reasons why the document has not been signed, supply any additional

    information requested by the Commission, and ensure alternative

    information sharing arrangements that are satisfactory to the

    Commission are in place. The regulatory authority also would be

    required to be a signatory to the Declaration on Cooperation and

    Supervision of International Futures Exchanges and Clearing

    Organizations (Boca Declaration),\32\ or otherwise commit to share the

    types of information contemplated by the International Information

    Sharing Memorandum of Understanding and Agreement (Exchange

    International MOU) \33\ with the Commission. The FBOT would be required

    to have executed, or have committed to execute, the Exchange

    International MOU. In addition, pursuant to the proposed conditions of

    registration described in section 48.8(a)(6)(iii), the FBOT would

    [[Page 70980]]

    be required to provide certain information directly to the Commission.

    ---------------------------------------------------------------------------

    \31\ Memorandum of Understanding Concerning Consultation,

    Cooperation and the Exchange of Information of the International

    Organization of Securities Commissions, October 16, 2003. The IOSCO

    MOU is the first worldwide multilateral enforcement cooperation

    arrangement among securities and derivatives regulators. It provides

    for the exchange of essential information to investigate cross-

    border securities and derivatives violations, including the most

    serious offenses, such as manipulation, insider trading and customer

    fraud. The IOSCO MOU enables regulators to share critical

    information, including bank, brokerage, and client identification

    records and to use that information in civil and criminal

    prosecutions.

    \32\ The Boca Declaration was developed through discussions at

    the CFTC's international regulators conference, and was motivated by

    work recommendations issued from the Windsor Conference and Tokyo

    Conference, which were convened by the CFTC, the U.K. FSA and

    Japanese regulators to respond to the cross-border issues raised by

    the failure of Barings Plc. The Declaration was developed to address

    instances in which an exchange would not be able to share

    information directly with another exchange under the Exchange

    International MOU, described below.

    \33\ The development of the Exchange International MOU was one

    of the achievements that resulted from the Futures Industry

    Association-sponsored Global Task Force on Financial Integrity,

    which was convened to address the cross-border issues that were

    identified in connection with the failure of Barings Plc.

    ---------------------------------------------------------------------------

    H. Conditions Upon FBOT Registration

    As previously noted, Section 738 of the Dodd-Frank Act amends

    Section 4(b) of the CEA to provide that the Commission may adopt rules

    and regulations requiring registration with the Commission of an FBOT

    that provides identified members of the FBOT or other participants

    located in the United States with direct access to the electronic

    trading and order matching system of the FBOT, including rules and

    regulations prescribing procedures and requirements applicable to the

    registration of such FBOTs. Proposed Section 48.8 provides for certain

    procedures and requirements applicable to maintaining the registration

    of such FBOTs and describes the specified conditions upon FBOT

    registration that the Commission believes are essential in assuring

    effective market integrity and customer protection. As previously

    noted, the conditions applicable to existing no-action relief have

    expanded over time to address activities not foreseen when the earliest

    no-action letters were issued. In the proposed regulations, the

    Commission has added further conditions to address increasing

    technological innovation, new types of products, the impact on the

    market of different trading entities listing substantially similar or

    even connected products, and the requirements of the Dodd-Frank Act.

    The specified conditions are divided into three categories: Specified

    conditions for maintaining registration, other continuing obligations,

    and additional specified conditions for FBOTs with linked contracts. A

    registered FBOT would have an ongoing obligation to monitor and enforce

    compliance with the specified conditions of its registration and with

    any additional conditions that the Commission, in its discretion and

    upon notice to the FBOT and subsequent to an opportunity to be heard,

    may impose.

    (1) Specified Conditions

    With respect to the regulatory regimes under which they operate,

    the FBOT and the clearing organization, respectively, would be required

    to continue to satisfy the criteria for a regulated market and clearing

    organization pursuant to their home regulatory regimes identified in

    the application for registration and would be required to continue to

    be subject to oversight by their home regulatory authorities. In

    addition, the laws, systems, rules, and compliance mechanisms of the

    applicable regulatory regimes would be required to continue to require

    the FBOT to maintain fair and orderly markets; prohibit fraud, abuse,

    and market manipulation; and provide that such requirements are subject

    to the oversight of appropriate regulatory authorities. With respect to

    international standards, the FBOT would be required to continue to

    adhere to the IOSCO Principles, to the extent such principles do not

    contravene U.S. law. The clearing organization would be required to

    continue to satisfy, as applicable, the rules, regulations and core

    principles applicable to its registration as a DCO or the RCCPs or

    successive standards, principles or guidance that may be adopted

    jointly by IOSCO and CPSS, to the extent such recommendations,

    standards, principles or guidance do not contravene U.S. law.

    The FBOT would be required to restrict direct access to the trading

    system from the U.S. to identified members or other participants and

    take reasonable steps to prevent third parties from providing such

    access to the FBOT's trading system to persons other than the

    identified members or other participants.\34\ All orders transmitted

    through the FBOT's trading system by an FBOT-identified member or other

    participant by direct access would be required to be for the member's

    or other participant's own account unless: (a) The member or other

    participant is an FCM or (b) subject to certain clearing requirements,

    the member or other participant is a CPO or CTA, or is exempt from such

    registration pursuant to Commission regulation 4.13 or 4.14.

    ---------------------------------------------------------------------------

    \34\ The Commission believes that such steps would include

    specific prohibitions on sharing access in the FBOT's rules and

    membership agreements and a review of how access is granted by and

    to the identified member's or other participant's infrastructure

    during audits of those entities.

    The Commission will continue to evaluate new developments in

    technology and business arrangements that may be used by FBOTs to

    provide U.S. participants with direct access to its trade matching

    system in the context of these proposed rules.

    ---------------------------------------------------------------------------

    The specified conditions also include several documentation

    requirements to assist the Commission in monitoring the activities of a

    registered FBOT and the clearing organization. Each current and

    prospective member or other participant that is granted direct access

    to the FBOT's trading system from the U.S. and that is not registered

    as an FCM, a CTA or a CPO would be required to file with the FBOT (a) A

    written representation stating that the member or other participant

    agrees to and submits to the jurisdiction of the CFTC with respect to

    activities conducted pursuant to the registration; (b) a valid and

    binding appointment of a U.S. agent for service of process in the U.S.;

    and (c) a written representation that the member or other participant

    granted direct access pursuant to this regulation will provide, upon

    the request of the Commission, the U.S. Department of Justice and, if

    appropriate, the National Futures Association (NFA) (collectively, the

    U.S. Agencies), prompt access to the entity's, member's or other

    participant's original books and records or, at the election of the

    requesting U.S. 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 U.S. The FBOT and the clearing organization

    also would be required to file with the Commission a valid and binding

    appointment of an agent for service of process in the U.S. and maintain

    with the FBOT written representations concerning U.S. Agencies' access

    to original books and records or, at the election of the requesting

    U.S. 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 U.S. The FBOT would be required to maintain all the

    representations required pursuant to this regulation as part of its

    books and records and make them available upon the request of a

    Commission representative.

    With respect to information sharing, the specified conditions

    mandate that information-sharing arrangements satisfactory to the

    Commission are in effect among the Commission and the regulatory

    authorities that oversee both the FBOT and the clearing organization

    and that the Commission is able to obtain sufficient information

    regarding the FBOT, the clearing organization and their respective

    members and other participants operating pursuant to the FBOT's

    registration. The FBOT would be required to provide information

    directly to the Commission in response to a Commission request. In the

    event that the FBOT and the clearing organization are separate

    entities, the proposed rule would require the clearing organization to

    enter into a written agreement with the FBOT in which the clearing

    organization is contractually obligated to promptly provide any and all

    information and documentation that may be required of the clearing

    organization under the regulation.

    With respect to swaps contracts, if the FBOT makes swaps contracts

    available by direct access, the FBOT would be required to report to the

    public, on a real-time basis, data relating to each

    [[Page 70981]]

    swap transaction, including price and volume, as soon as

    technologically practicable after execution of the swap transaction. In

    addition, the FBOT would be required to ensure that all swap

    transaction data is timely reported to a swap data repository that is

    either registered with, or has an information-sharing arrangement with,

    the Commission. The FBOT also must agree to coordinate with the

    Commission with respect to arrangements established to address cross

    market oversight issues, including surveillance, emergency actions and

    the monitoring of trading. In addition, particularly with respect to

    the listing of swaps contracts, the Commission may, in its discretion

    and after notice and an opportunity to be heard, impose additional

    conditions upon the FBOT's registration. Finally, all futures, option

    and swaps contracts must be cleared.

    (2) Other Continuing Obligations

    Among the proposed specified conditions identified as other

    continuing obligations are quarterly, upon occurrence, and annual

    reporting requirements that the Commission determines are necessary to

    provide ongoing visibility with respect to a registered FBOT's

    performance as it relates to U.S. persons. First, as is the case now

    with the no-action relief recipients, the FBOT would be required to

    maintain and provide to the Commission on at least a quarterly basis,

    and at any time promptly upon request, volume data that reflects the

    percentage of trading originating in the U.S. Thus, the FBOT would be

    required to provide, for each contract available to be traded through

    its trading system, the following: (a) The total trade volume

    originating from electronic trading devices providing direct access to

    the trading system in the U.S., (b) the total trade volume for such

    products traded through the trading system worldwide, and (c) the total

    trade volume for such products traded on the FBOT generally. The FBOT

    would also be required to provide a listing of the names, NFA ID

    numbers (if applicable), and main business addresses in the U.S. of all

    members and other participants that have access to the trading system

    in the U.S.

    With respect to reporting the occurrence of events that may have an

    impact on the FBOT's capability to meet its registration requirements,

    the FBOT would be required to promptly provide the Commission with

    written notice of the following: (a) Any material change in the

    information provided in the FBOT's registration application or in the

    FBOT's or clearing organization's rules or in the laws, rules, and

    regulations in the home jurisdictions of the FBOT or the clearing

    organization; (b) any matter known to the FBOT or the clearing

    organization that, in their judgment, could affect the financial or

    operational viability of the FBOT or the clearing organization; (c) any

    default, insolvency, or bankruptcy of any FBOT trading member or other

    participant that may have a material, adverse impact upon the condition

    of the FBOT or upon any U.S. customer or firm, or any default,

    insolvency or bankruptcy of any member of the FBOT's clearing

    organization; (d) any known violation by the FBOT, its clearing

    organization or any trading or clearing member or other participant of

    the specified conditions of registration or failure to satisfy the

    requirements for registration; and (e) any disciplinary action taken by

    the FBOT or its clearing organization against any FBOT trading member

    or other participant or a member of the clearing organization that

    involves any market manipulation, fraud, deceit, or conversion or that

    results in suspension or expulsion that involves a contract or

    contracts available for trading from within the U.S. pursuant to

    registration.

    Finally, the FBOT or the clearing organization, as applicable,

    would be required to provide the following to the Commission on an

    annual basis: (a) A certification from the FBOT's regulatory authority

    confirming that the FBOT retains its authorization in good standing as

    a regulated market/exchange; (b) a certification from the clearing

    organization's regulatory authority confirming the clearing

    organization's regulatory status (i.e., its authorization, licensure,

    or registration) and continued ``good standing'' in its authorized

    jurisdiction; (c) if the clearing organization is not a DCO,

    recertification of the clearing organization's compliance with the

    RCCPs or successive standards, principles or guidance; (d) a

    description of any material changes to any relevant representation

    regarding the FBOT or clearing organization made to the Commission that

    have not been previously disclosed; (e) a description of any

    significant disciplinary or enforcement actions that have been

    instituted by or against the FBOT or the clearing organization or the

    senior officers of either in the prior year; and (f) a written

    description of any material changes to the regulatory regime to which

    the FBOT or the clearing organization are subject that have not been

    previously disclosed, in writing, to the Commission (or a certification

    that no material changes have been made).

    (3) Linked Contract Conditions

    The proposed rule also would include additional specified

    conditions for FBOTs that make linked contracts available for direct

    access. These proposed additional specified conditions are divided into

    two categories: Statutory conditions, which are specifically required

    by the Dodd-Frank Act, and other conditions on linked contracts, which

    are additional conditions that the Commission believes are necessary

    because such linkages create a single market for the subject contracts

    and, in the absence of certain preventive measures at the FBOT, could

    compromise the Commission's ability to carry out its market

    surveillance responsibilities. Because of the linkage, the trading of

    the linked contracts on an FBOT affects the pricing of contracts traded

    on U.S.-registered entities.

    (a) Statutory Conditions

    The statutory conditions mandated by Section 738 of the Dodd-Frank

    Act are substantially similar to the previously discussed additional

    conditions the Commission imposed on the no-action relief issued to ICE

    Futures Europe when that exchange made available a WTI futures contract

    that cash-settled on the price of a physically-settled Light Sweet

    Crude Oil futures contract traded on the NYMEX,\35\ include the

    following: (i) The FBOT must make public certain daily trading

    information regarding the linked contract; (ii) the FBOT (or its

    regulatory authority) must (A) Adopt position limits for the linked

    contract that are comparable to the position limits adopted by the

    registered entity for the contract to which it is linked; (B) have the

    authority to require or direct market participants to limit, reduce, or

    liquidate any position the FBOT (or its regulatory authority)

    determines to be necessary to prevent or reduce the threat of price

    manipulation, excessive speculation as described in section 4a of the

    Act, price distortion, or disruption of delivery or the cash settlement

    process; (C) agree to promptly notify the Commission, with regard to

    the linked contract, of any changes with respect to (i) and (ii) above

    and any other area of interest expressed by the Commission to the FBOT

    or its regulatory authority; (D) provide information to the Commission

    regarding large trader positions in the linked contract that is

    comparable to the large trader position information collected by the

    Commission for the contract to which it is linked; and (E) provide the

    Commission such information as is necessary to publish

    [[Page 70982]]

    reports on aggregate trader positions for the linked contract that are

    comparable to such reports on aggregate trader positions for the

    contract to which it is linked.

    ---------------------------------------------------------------------------

    \35\ See CFTC Letter No. 08-09 (June 17, 2008).

    ---------------------------------------------------------------------------

    One statutory condition is mandated by Section 737 of the Dodd-

    Frank Act, and would require that if the Commission establishes

    speculative position limits (including related hedge exemption

    provisions) on the aggregate number or amount of positions in a

    contract traded on a U.S. registered entity and the registered FBOT

    lists a linked contract, the FBOT (or its regulatory authority) must

    adopt position limits (including related hedge exemption provisions)

    for the linked contract as determined by the Commission.

    (b) Other Conditions on Linked Contracts

    The other conditions on linked contracts, also imposed pursuant to

    the Commission's new Section 4(b)(1)(A) authority to adopt rules and

    regulations prescribing procedures and requirements applicable to the

    registration of FBOTs, represent the second set of additional

    conditions the Commission imposed on the no-action relief issued to ICE

    Futures Europe when that exchange made available for trading by direct

    access contracts linked to the prices of contracts traded on NYMEX.\36\

    The conditions as proposed would require that the FBOT, among other

    things, (i) Inform the Commission in a quarterly report of any member

    that had positions in a linked contract above the applicable FBOT

    position limit, (ii) provide trade execution and audit trail data for

    input to the CFTC's Trade Surveillance System on a trade-date plus one

    basis, (iii) provide for CFTC on-site visits for the purpose of

    overseeing the FBOT's and the clearing organization's ongoing

    compliance with registration requirements and the conditions of

    registration, (iv) provide, at least one day prior to the effective

    date, copies of, or hyperlinks to, all rules, rule amendments,

    circulars and other notices published by the FBOT with respect to all

    linked contracts, (v) provide copies of all Disciplinary Notices

    involving the FBOT's linked contracts upon closure of the action, and

    (vi) promptly take similar action with respect to its linked contract

    in the event that the CFTC, pursuant to its emergency powers authority,

    directs that the U.S. registered entity which lists the contract to

    which the FBOT's contract is linked to take emergency action with

    respect to a linked contract (e.g., to cease trading in the contract).

    ---------------------------------------------------------------------------

    \36\ See CFTC Letter No. 09-37 (August 20, 2009).

    ---------------------------------------------------------------------------

    The Commission questions whether there are additional conditions

    that it could impose on registered FBOTs that list linked contracts to

    promote orderly markets and customer protection, such as automatic

    safety features to protect against errors in the entry of orders,

    price-banding mechanisms, maximum order size limitations, or trading

    pauses to prevent cascading stop-loss orders.\37\

    ---------------------------------------------------------------------------

    \37\ Many of these mechanisms are discussed in the Commission's

    recent joint study with the SEC of the market events of May 6, 2010.

    See Preliminary Findings Regarding the Market Events of May 6,

    2010--Report of the Staffs of the CFTC and SEC to the Joint Advisory

    Committee on Emerging Regulatory Issues (May 18, 2010), Appendix B-

    11.

    ---------------------------------------------------------------------------

    I. Revocation of Registration

    Section 48.9 addresses certain events which could lead the

    Commission to revoke an FBOT's registration. With respect to failure to

    satisfy any of the registration requirements or conditions of

    registration, the proposed rule provides that if the Commission

    believes that a registration requirement or condition is not being met,

    the Commission may request that the registered FBOT file a written

    demonstration showing it is in compliance with the requirement or

    condition. If the Commission determines that an FBOT (or its clearing

    organization) has failed to satisfy any of the registration

    requirements or conditions, the FBOT would be given an opportunity to

    bring itself into compliance with the requirement or condition. If the

    FBOT fails to make changes necessary to comply with the requirement or

    condition within 30 days after receiving a notification that it was not

    satisfying one or more requirements or conditions, the Commission may

    revoke the FBOT's registration, after appropriate notice and an

    opportunity for a hearing. If the Commission revokes the registration,

    it will provide for a transition period for phasing out direct access.

    Finally, an FBOT whose registration has been revoked for failure to

    satisfy a registration requirement or condition could apply for re-

    registration after 360 days if the deficiency causing the revocation

    has been cured or relevant facts and circumstances have changed.

    Section 48.9 of the proposed rule also identifies four other events

    that, without limitation, could result in revocation, generally after

    appropriate notice and an opportunity for a hearing. The Commission may

    revoke an FBOT's registration (1) If the Commission determines that a

    representation made in the application for registration relevant to the

    Commission's decision to register the entity is found to have been

    untrue or materially misleading; (2) if there is a material change in

    the regulatory regime applicable to the FBOT or clearing organization;

    (3) in the event of an emergency or in a circumstance where the

    Commission determines that revocation would be necessary or appropriate

    in the public interest; or (4) the FBOT or the clearing organization is

    no longer authorized, licensed or registered, as applicable, as a

    regulated market and/or exchange or clearing organization or ceases to

    operate as an FBOT or clearing organization. Revocation under these

    circumstances would not necessarily follow the procedures delineated

    for revocation for failure to continue to satisfy registration

    requirements or conditions, but would be handled by the Commission as

    relevant facts or circumstances warrant.

    The Commission acknowledges that there are other actions that, if

    undertaken by a registered FBOT, could lead the Commission to exercise

    its discretion and consider a full range of corrective actions,

    including revocation of the FBOT's registration, requiring enhanced

    information sharing arrangements and surveillance procedures, imposing

    trading restrictions on U.S. persons trading on the FBOT, imposing

    additional conditions on the registration, or taking other appropriate

    action. For instance, the Commission believes that the listing of

    certain products on an FBOT could potentially have an adverse impact on

    the market and the public interest. Thus, the Commission would take

    corrective action as necessary if it become aware that a registered

    FBOT permits the trading of products that potentially could: (1) Affect

    adversely the pricing of contracts traded on any registered entity as

    defined in section 1a(40) of the Act, or of contracts traded on any

    cash market for commodities subject to the CEA; (2) create unacceptable

    systemic risks or disruptions in those markets or the U.S. financial

    system, including capital markets; or (3) facilitate abusive trading

    practices on U.S. markets or otherwise interfere with the ability of

    the Commission to carry out its regulatory responsibilities. The

    Commission retains plenary authority to address manipulative or abusive

    trading practices that affect U.S. futures and cash markets and market

    users, and would use that enforcement authority when necessary and

    appropriate.

    [[Page 70983]]

    J. Additional Contracts

    Section 48.10 would establish the procedures for a registered FBOT

    to make available futures, option and swaps contracts that were not

    included in the registration application on a trading system to which

    FBOT members and other participants in the U.S. have been granted

    direct access. These procedures are substantially similar to the

    procedures established for the listing of additional contracts under

    direct access no-action relief.\38\ Generally, for other than security

    index futures contracts, a registered FBOT would be required to submit

    a written request prior to offering the additional futures and option

    and swaps contracts from within the U.S. Such a written request would

    include the terms and conditions of the additional contracts to be made

    available and a certification that (1) the additional contracts meet

    the requirements of Section 48.7(c) of this part and (2) the FBOT and

    the clearing organization continue to satisfy the conditions of

    registration. The FBOT would be permitted to make available for trading

    the additional contracts ten business days after the date of receipt by

    the Commission of the written request, unless the Commission notifies

    the FBOT that additional time is needed to complete its review of

    policy or other issues pertinent to the additional contracts.

    ---------------------------------------------------------------------------

    \38\ See Notice of Revision of Commission Policy Regarding the

    Listing of New Futures and Option Contracts by Foreign Boards of

    Trade That Have Received Staff No-Action Relief to Provide Direct

    Access to Their Automated Trading Systems from Locations in the

    United States. 71 FR 19877 (April 18, 2006); corrected at 71 FR

    21003 (April 24, 2006).

    ---------------------------------------------------------------------------

    A registered foreign board of trade would be permitted to list for

    trading an additional futures contract on a non-narrow-based security

    index pursuant to the no-action relief procedures set forth in Appendix

    D to Part 30 of the Commissions regulations. Such procedures would

    require that the registered FBOT's request to make the non-narrow-based

    security index futures contract available for trading by direct access

    be included in the FBOT's request that the Commission's Office of the

    General Counsel issue no-action relief providing that the non-narrow-

    based security index futures contract may be offered or sold to persons

    located within the U.S. in accordance with Section 2(a)(1)(C)(iv) of

    the Act.

    With respect to making available for trading by direct access an

    option contract on a previously approved futures contract, the proposed

    procedures are also substantially similar to the procedures established

    for the listing such option contracts under direct access no-action

    relief.\39\ The proposed procedures would provide the following,

    depending on the type of option contract. (1) If the option is on a

    futures contract that is not a linked contract, the option contract

    could be made available for trading by direct access by filing with the

    Commission no later than the business day preceding the initial listing

    of the contract: (i) A copy of the terms and conditions of the

    additional contract and (ii) a certification that the FBOT continues to

    satisfy the conditions of its registration. (2) If the option is on a

    futures contract that is a linked contract, the option contract may be

    made available for trading by direct access in the same manner as (1)

    above except that the certification must represent that the FBOT

    continues to satisfy the conditions of its registration, including the

    conditions specifically applicable to linked contracts set forth in

    Section 48.8(c). (3) If the option is on a non-narrow-based security

    index futures contract which may be offered or sold in the U.S.

    pursuant to a no-action letter issued by the Office of General Counsel,

    the option contract could be listed for direct access without further

    action by either the registered FBOT or the Commission.

    ---------------------------------------------------------------------------

    \39\ See Notice of Additional Conditions on the No-Action Relief

    When Foreign Boards of Trade That Have Received Staff No-Action

    Relief To Permit Direct Access to Their Automated Trading Systems

    from Locations in the United States List for Trading from the U.S.

    Linked Futures and Option Contracts and a Revision of Commission

    Policy Regarding the Listing of Certain New Option Contracts. 74 FR

    3570 (January 21, 2009).

    ---------------------------------------------------------------------------

    K. Appendix to Part 48--Contents of Application

    The Appendix to the proposed Part 48 includes a description of what

    the Commission believes should be included in the application for

    registration in order for the FBOT to demonstrate, and for the

    Commission to conclude, that the FBOT meets the requirements for

    registration. The Appendix reflects submission requirements in eight

    areas, including general information about the FBOT and seven areas

    that specifically address the registration requirements identified in

    Section 48.7. The Commission requests comments with respect to whether

    the application contents requirements of the Appendix are adequate to

    completely address the registration requirements.

    IV. Request for Comments Regarding the Proposed Registration Procedures

    In the proposed rule, the Commission has included swaps in the set

    of contracts that a registered FBOT may list on a trading system to

    which it has provided direct access to U.S.-located members and other

    participants. As previously stated, there is nothing in the Dodd-Frank

    Act, including Section 738 of the Dodd-Frank Act amending Section 4(b)

    of the CEA, which expressly precludes a registered FBOT from offering

    swaps through direct access. Accordingly, the Commission is proposing

    to permit a registered FBOT to offer and trade swaps though direct

    access, subject to the condition that the FBOT meet certain standards

    or requirements that may apply to SEFs, as the Commission deems

    appropriate.\40\ The Commission requests comment with respect to

    whether a registered FBOT should be allowed to make available swaps

    through direct access and if so, under what conditions. FBOTs have

    historically, at least in the context of granting direct access no-

    action relief, been viewed by Commission staff as DCM-equivalent

    entities. The proposed FBOT registration requirements are based upon

    the premise that in reviewing the FBOT for being subject to comparable,

    comprehensive supervision and regulation by the appropriate

    governmental authorities in its home country, the point of reference is

    how DCMs operate and are regulated and overseen by the CFTC.

    ---------------------------------------------------------------------------

    \40\ As previously noted, under the Dodd-Frank Act, a DCM may

    trade swaps without additionally registering as a SEF.

    ---------------------------------------------------------------------------

    Finally, the Commission requests comment on whether, to the extent

    an FBOT is permitted to list swaps on a trading system to which the

    FBOT has granted direct access to members and other participants in the

    U.S., the Commission should examine the oversight of relevant market

    participants (e.g., the functional equivalents of swap dealers and

    major swap participants, as those terms are defined by the Dodd-Frank

    Act) in the applicable home country jurisdictions when making a

    determination as to the comparability and comprehensiveness of the

    supervision and regulation of the relevant regulatory regime. For

    example, the Commission may wish to consider whether swap dealers are

    permitted to provide counterparties with the right to segregate

    collateral. In the case of swaps, certain portions of the regulatory

    regime applicable to market participants with respect to their exchange

    trading activity (e.g., business conduct standards) may be imposed by

    the primary regulatory authority in the home jurisdiction of the

    participant instead of by the exchange on which such participants

    conduct their transactions. Accordingly, it may be necessary or

    appropriate to review the

    [[Page 70984]]

    regulations applicable to such participants in order to ascertain

    whether the foreign regulatory regime with respect to the foreign board

    of trade, in its totality, is both comprehensive and comparable to that

    in the U.S. The Commission requests comment regarding whether such a

    review is necessary or appropriate. The Commission invites public

    comment with respect to all areas described in the proposed

    registration rule.

    V. Related Matters

    A. The Paperwork Reduction Act

    The purposes of the Paperwork Reduction Act (``PRA'') are, among

    other things, to minimize the paperwork burden to the private sector,

    ensure that any collection of information by a government agency is put

    to the greatest possible uses, and minimize duplicative information

    collections across government.\41\ The PRA applies with extraordinary

    breadth to all information, ``regardless of form or format,'' a

    government agency is ``obtaining, causing to be obtained [or]

    soliciting'' and includes requiring ``disclosure to third parties or

    the public, of facts or opinion,'' when the information collection

    calls for ``answers to identical questions posed to, or identical

    reporting or recordkeeping requirements imposed on, ten or more

    people.'' \42\ This provision has been determined to include not only

    mandatory but also voluntary information collections, and to not only

    written but also oral communications.\43\

    ---------------------------------------------------------------------------

    \41\ 44 U.S.C. 3501.

    \42\ 44 U.S.C. 3502.

    \43\ 5 CFR 1320.3(c)(1).

    ---------------------------------------------------------------------------

    To effect the purposes of the PRA, Congress requires all agencies

    to quantify and justify the burden of any information collection it

    imposes.\44\ This includes submitting each collection, whether or not

    it is contained in a rulemaking, to the Office of Management and Budget

    (``OMB'') for review.\45\ The OMB submission process includes

    completing a form 83-I and a supporting statement with the agency's

    burden estimate and justification for the collection. When the

    information collection is established within a rulemaking, the agency's

    burden estimate and justification should be provided in the proposed

    rulemaking, subjecting it to the rulemaking's public comment process.

    ---------------------------------------------------------------------------

    \44\ 44 U.S.C. 3506.

    \45\ 44 U.S.C. 3507.

    ---------------------------------------------------------------------------

    The Commission will protect proprietary information according to

    the Freedom of Information Act and 17 CFR part 145, ``Commission

    Records and Information.'' In addition, section 8(a)(1) of the Act

    strictly prohibits the Commission, unless specifically authorized by

    the Act, from making public ``data and information that would

    separately disclose the business transactions or market positions of

    any person and trade secrets or names of customers.'' The Commission

    also is required to protect certain information contained in a

    government system of records according to the Privacy Act of 1974, 5

    U.S.C. 552a.

    If the proposed rules are promulgated in final form, they would

    require FBOT registrants to collect and submit, pursuant to part 48 of

    the Regulations, information to the Commission, which has never been

    required. For each proposed requirement, set forth below are estimates

    of: (i) The number of respondents; (ii) the number of annual responses

    by each respondent; (iii) the average hours per response; and (iv) the

    aggregate annual reporting burden. New OMB control numbers will be

    assigned to these proposed information collection requirements.

    1. New Collection 3038-NEW

    Regulation 48.6 requires each FBOT currently providing direct

    access pursuant to no-action relief to submit a ``complete limited

    application'' with the Commission to satisfy the registration

    requirement, which includes information and documentation set forth in

    the Appendix to this part that was not previously provided or is not

    current.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 20.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 50.

    Aggregate annual reporting burden: 1,000.

    2. New Collection 3038-NEW

    Regulation 48.7 provides the information and documentation

    requirements that a new FBOT must submit to become registered with the

    Commission, including FBOT membership information, automated trading

    system, terms and conditions of contracts to be made available in the

    U.S., settlement and clearing, the regulatory regime governing the FBOT

    and clearing organization, the FBOT and clearing organization rules and

    enforcement thereof, and information sharing agreements.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 7.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 1,000.

    Aggregate annual reporting burden: 7,000.

    3. New Collection 3038-NEW

    Regulation 48.8(a)(8)(i) requires each registered FBOT that makes

    swap contracts available by direct access to report to the public, on a

    real-time basis, data relating to each swap transaction, including

    price and volume, as soon as technologically practicable after

    execution of the swap transactions.\46\

    ---------------------------------------------------------------------------

    \46\ Because the Commission has not previously regulated the

    swap market, the Commission was unable to collect data relevant to

    these estimates. Therefore, the Commission requests comment on these

    estimates.

    ---------------------------------------------------------------------------

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 4.

    Annual responses by each respondent: 250.

    Estimated average hours per response: 8.32.

    Aggregate annual reporting burden: 8,320.

    4. New Collection 3038-NEW

    Regulation 48.8(a)(8)(ii) requires each registered FBOT that makes

    swap contracts available by direct access to ensure that all swap

    transaction data is timely reported to a swap data repository.\47\

    ---------------------------------------------------------------------------

    \47\ Because the Commission has not previously regulated the

    swap market, the Commission was unable to collect data relevant to

    these estimates. Therefore, the Commission requests comment on these

    estimates.

    ---------------------------------------------------------------------------

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 4.

    Annual responses by each respondent: 250.

    Estimated average hours per response: 8.32.

    Aggregate annual reporting burden: 8,320.

    5. New Collection 3038-NEW

    Regulation 48.8(b)(1)(i)(A) and (B) requires each registered FBOT

    to provide the Commission with certain trading volume information and

    certain information regarding the FBOT members and other participants

    in the U.S. that have direct access to the FBOT's trading system on at

    least a quarterly basis.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 27.

    Annual responses by each respondent: 4.

    Estimated average hours per response: 6.

    Aggregate annual reporting burden: 648.

    6. New Collection 3038-NEW

    Regulation 48.8(b)(1)(ii)(A)-(F) requires each registered FBOT to

    [[Page 70985]]

    provide the Commission on an ongoing basis with written notice of

    certain information, including any material changes to the registration

    information and documents previously submitted to the Commission; any

    matter known to the FBOT concerning the financial or operational

    viability of the FBOT or its clearing organization; and any known

    violation by the FBOT, its clearing organization, any member of the

    FBOT or its clearing organization or any other participant of the terms

    or conditions of registration.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 27.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 2.

    Aggregate annual reporting burden: 54.

    7. New Collection 3038-NEW

    Regulation 48.8(b)(1)(iii)(A)-(F) requires each registered FBOT to

    provide the Commission on an annual basis with certain information

    including a certification from the FBOT's regulatory authority that the

    FBOT retains its authorization in good standing as a regulated exchange

    under the licensing used in the FBOT's home country, a description of

    any significant disciplinary or enforcement actions that have been

    instituted by the FBOT in the prior year, and a written description of

    any material changes to the regulatory regime to which the FBOT is

    subject to that have not previously been disclosed to the Commission.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 27.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 4.

    Aggregate annual reporting burden: 108.

    8. New Collection 3038-NEW

    Regulation 48.8(c)(1)(ii)(C)(1)-(4) requires each registered FBOT

    to promptly notify the Commission, with regard to the linked contract,

    of any changes regarding information that the FBOT will make publicly

    available, enforcement of position limits, and position reductions

    required to prevent manipulation, excessive speculation as described in

    section 4a of the Act, price distortion, or disruption of delivery or

    the cash settlement process, and any other area of interest expressed

    by the Commission to the FBOT or its regulatory authority.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 2.

    Estimated average hours per response: 3.

    Aggregate annual reporting burden: 6.

    9. New Collection 3038-NEW

    Regulation 48.8(c)(1)(ii)(D) requires each registered FBOT with a

    linked contract to provide the Commission with large trader position

    information.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 250.

    Estimated average hours per response: 2.

    Aggregate annual reporting burden: 500.

    10. New Collection 3038-NEW

    Regulation 48.8(c)(1)(ii)(E) requires each registered FBOT with a

    linked contract to provide the Commission with such information as

    necessary to publish reports on aggregate trader positions.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 250.

    Estimated average hours per response: 2.

    Aggregate annual reporting burden: 500.

    11. New Collection 3038-NEW

    Regulation 48.8(c)(2)(i) requires each registered FBOT with a

    linked contract to provide the Commission with a quarterly report of

    any member that had positions in a linked contract above the FBOT

    position limit, whether a hedge exemption was granted, and if not,

    whether a disciplinary action was taken.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 4.

    Estimated average hours per response: 3.

    Aggregate annual reporting burden: 12.

    12. New Collection 3038-NEW

    Regulation 48.8(c)(2)(ii) requires each registered FBOT with a

    linked contract to provide the Commission with trade execution and

    audit trail data on a trade-date plus one basis.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 250.

    Estimated average hours per response: 3.

    Aggregate annual reporting burden: 750.

    13. New Collection 3038-NEW

    Regulation 48.8(c)(2)(iv) requires each registered FBOT with a

    linked contract to provide the Commission with a copy of all rules,

    rule amendments, and other notices published by the FBOT with respect

    to all linked contracts.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 20.

    Estimated average hours per response: 2.

    Aggregate annual reporting burden: 40.

    14. New Collection 3038-NEW

    Regulation 48.8(c)(2)(v) requires each registered FBOT with a

    linked contract to provide the Commission with a copy of all

    disciplinary notices involving the FBOT's linked contract upon closure

    of the action.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 1.

    Annual responses by each respondent: 2.

    Estimated average hours per response: 2.

    Aggregate annual reporting burden: 4.

    15. New Collection 3038-NEW

    Regulation 48.9 requires each registered FBOT, upon request by the

    Commission, to file a written demonstration that the FBOT is in

    compliance with the conditions for registration.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 26.

    Annual responses by each respondent: .25.

    Estimated average hours per response: 8.

    Aggregate annual reporting burden: 52.

    16. New Collection 3038-NEW

    Regulation 48.10 requires each registered FBOT that wishes to list

    additional futures and options contracts for trading by direct access

    to request in writing and receive approval from the Commission prior to

    offering the contracts from within the U.S.

    OMB Control Number 3038-NEW.

    Estimated number of respondents: 27.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 4.

    Aggregate annual reporting burden: 108.

    The Commission invites the public and other Federal agencies to

    comment on any aspect of the reporting and recordkeeping burdens

    discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission

    solicits comments in order to: (i) Evaluate whether the proposed

    collection of information is necessary for the proper performance of

    the

    [[Page 70986]]

    functions of the Commission, including whether the information will

    have practical utility; (ii) evaluate the accuracy of the Commission's

    estimate of the burden of the proposed collection of information; (iii)

    determine whether there are ways to enhance the quality, utility, and

    clarity of the information to be collected; and (iv) minimize the

    burden of the collection of information on those who are to respond,

    including through the use of automated collection techniques or other

    forms of information technology.

    Comments may be submitted directly to the Office of Information and

    Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

    OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy

    of submitted comments so that all comments can be summarized and

    addressed in the final rule preamble. Refer to the Addresses section of

    this notice of proposed rulemaking for comment submission instructions

    to the Commission. A copy of the supporting statements for the

    collections of information discussed above may be obtained by visiting

    RegInfo.gov. OMB is required to make a decision concerning the

    collection of information between 30 and 60 days after publication of

    this release in the Federal Register. Consequently, a comment to OMB is

    most assured of being fully effective if received by OMB (and the

    Commission) within 30 days after publication of this notice of proposed

    rulemaking. Nothing in the foregoing affects the deadline enumerated

    above for public comment to the Commission on the proposed rules.

    B. Cost Benefit Analysis

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

    costs and benefits of its actions before issuing a new regulation or

    order under the Act.\48\ By its terms, Section 15(a) does not require

    the Commission to quantify the costs and benefits of a new rule or to

    determine whether the benefits of the adopted rule outweigh its costs.

    Rather, Section 15(a) requires the Commission to ``consider the costs

    and benefits'' of a proposed rule. Section 15(a) further specifies the

    costs and benefits of proposed rules 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. In conducting its analysis, the Commission may, in its

    discretion, give greater weight to any one of the five enumerated areas

    of concern and may determine that, notwithstanding its costs, a

    particular rule is necessary or appropriate to protect the public

    interest or to effectuate any of the provisions or to accomplish any of

    the purposes of the rule.\49\

    ---------------------------------------------------------------------------

    \48\ 7 U.S.C. 19(a).

    \49\ E.g., Fishermen's Dock Co-op., Inc v. Brown, 75 F3d 164

    (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336 (D.C.

    Cir. 1985) (agency has discretion to weigh factors in undertaking

    cost-benefit analyses).

    ---------------------------------------------------------------------------

    The proposed regulations implement the Dodd-Frank Act by

    establishing a registration requirement for all FBOTs that wish to

    provide their members or other participants located in the U.S. with

    direct access to the FBOT's electronic trading and order matching

    system. Pursuant to proposed Commission Regulation 48.5, FBOTs wishing

    to provide direct access to their trading systems to members and other

    participants located in the U.S. would be required to file an

    application for registration with the Commission that contains all of

    the information and documentation set forth in the Appendix to the Part

    48 regulations and any additional information and documentation

    required to successfully demonstrate that the FBOT satisfies the

    registration requirements contained in Rule 48.7.

    Regarding FBOTs that currently do not have no-action relief from

    Commission staff, the Commission understands that costs associated with

    the submission of an application for registration could be

    considerable. However, the cost of applying for no-action relief under

    existing procedures is substantial. FBOTs requesting no-action relief

    currently are required to provide much of the information that would be

    required under the proposed regulation. For example, FBOTs requesting

    no-action relief under existing procedures have been required to

    provide the Commission with information including the FBOT's trading

    system, terms and conditions of contracts made available in the U.S.,

    and the regulatory regime governing the FBOT in its home country. This

    same information would be required as part of the registration process

    under the proposed regulations. The additional cost of applying for

    registration rather than applying for no-action relief is significant,

    but not overly large.

    FBOTs that currently have no-action relief from the Commission

    would be required to register with the Commission and only provide a

    limited application pursuant to the proposed regulations. This should

    have the effect of limiting the costs to these FBOTs since they would

    be required only to provide information that was not previously

    provided or is not current.

    The proposed regulations would authorize the Commission to impose

    additional conditions on FBOTs that desire to make a linked contract

    available by direct access to members of the FBOT or other participants

    located in the U.S. These conditions would be required as part of the

    FBOT registration process, and include among other things, the

    imposition of speculative position limits and the submission of audit

    trail data and large trader position information to the Commission for

    all linked contracts. Any additional costs incurred by an FBOT with

    existing no-action relief would be offset in part due to the

    substantial overlap between the conditions already promulgated by the

    Commission as a general policy applicable to FBOTs with linked

    contracts and the conditions being proposed by the Commission under

    regulation 48.8.\50\

    ---------------------------------------------------------------------------

    \50\ See CFTC Letter No. 08-09, June 17, 2008.

    ---------------------------------------------------------------------------

    The proposed FBOT registration regulations offer significant

    benefits over the no-action process through which requests to provide

    direct access to FBOT trading systems were handled in the past. While

    the no-action process has served a useful purpose, the no-action

    process is designed for discrete, unique factual circumstances where

    regulations do not address the issue presented. Where the same type of

    relief is granted on a regular and recurring basis, as it has been with

    respect to direct access to FBOT trading systems, the Commission

    believes that it is more appropriate to provide the relevant relief

    through a generally applicable rulemaking. The proposed regulations

    would provide a more standardized and efficient application process,

    enhance the visibility of the process to both applicants and the

    public, and ensure fair and consistent treatment to applicants.

    Moreover, the Order of Registration issued by the Commission pursuant

    to this proposal would provide greater legal certainty to FBOTs

    operating pursuant to those Orders than no-action letters, which are

    issued by the staff and not binding on the Commission.

    In addition, there is substantial value in the information and

    documentation that the Commission will be able to obtain, and the

    obligations that may be imposed pursuant to the conditions applicable

    to FBOT registration. For example, an FBOT that lists for trading a

    contract which settles on the price of

    [[Page 70987]]

    a contract traded on a Commission-regulated exchange raises serious

    concerns for the Commission. The position limit requirement and the

    submission of large trader position information and audit trail data to

    the Commission, pursuant to the conditions placed upon an FBOT that

    offers a linked contract for trading via direct access to its members

    or other participants located in the U.S., will enhance the

    Commission's ability to carry out its market surveillance

    responsibilities. The proposed regulations and related conditions also

    will ensure that transactions executed on an FBOT do not adversely

    affect U.S. cash and futures markets, market participants, and

    customers, as well as the consumers affected by those transactions.

    Finally, the proposed regulations are designed to ensure that the U.S.

    commodity markets operate fairly and efficiently and are free from

    fraud, manipulation and other market abuses.

    After considering the costs and benefits, the Commission has

    determined to propose the regulations discussed above. The Commission

    invites public comment on its evaluation of the costs and benefits of

    the proposed regulations. Specifically, commenters are invited to

    submit data quantifying the costs and benefits of the proposed

    regulations with their comment letters.

    C. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \51\ requires that

    agencies 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 respecting the

    impact.\52\ The proposed rules detailed in this release would only

    affect FBOTs. The rules would replace the policy of issuing staff no-

    action letters to permit FBOTs to provide for direct access, defined in

    the Dodd-Frank Act to refer to an explicit grant of authority by an

    FBOT to an identified member or other participant to enter trades

    directly into the FBOT's trade matching system.

    ---------------------------------------------------------------------------

    \51\ 5 U.S.C. 601 et seq.

    \52\ 5 U.S.C. 601 et seq.

    ---------------------------------------------------------------------------

    As a threshold matter, because the proposed application

    requirements and standards for FBOT registration under the new rules

    generally are consistent with the application requirements and review

    standards that have guided the Commission's staff in issuing FBOT no-

    action relief letters, the Commission believes that these rules will

    not have a significant economic effect on any substantial number of

    FBOTs, whether they are large or small entities. Moreover, the

    Commission does not believe that FBOTs would be small entities. For

    both reasons, the Commission believes that a regulatory flexibility

    analysis is not required for this rulemaking.

    The Commission has not previously addressed the question whether

    FBOTs are, in fact, small entities for purposes of the RFA since FBOTs

    are a new category of registrant created by the Dodd-Frank Act.

    However, the term ``foreign board of trade'' has been used in the CEA

    and defined in the Commission Regulations to be a ``board of trade,

    exchange or market located outside the U.S.'' \53\ The term ``board of

    trade,'' in turn, is defined in the CEA as ``any organized exchange or

    trading facility.'' \54\ An organized exchange includes designated or

    registered exchanges, such as DCMs.\55\

    ---------------------------------------------------------------------------

    \53\ See Commission Regulation 1.33(ss). Additionally, the term

    ``board of trade, exchange or market located outside the U.S.'' is

    used interchangeably in the CEA with the term ``foreign board of

    trade.'' For example, Section 4(a) carves out ``board of trade,

    exchange or market located outside the U.S.'' from the requirement

    that futures contracts in the U.S. must be traded on a DCM or DTEF;

    new Section 4(b)(2)(C) provides that the Commission may not, except

    as provided in section 4(b)(1) and (2), directly regulate a

    ``foreign board of trade.''

    \54\ CEA Sec. 1a(2).

    \55\ CEA Sec. 1a(27).

    ---------------------------------------------------------------------------

    The Commission has previously determined that DCMs are not ``small

    entities'' for purposes of the RFA.\56\ Key to the Commission's

    determination was that DCMs perform a central role in the regulatory

    scheme for futures trading, requiring the DCM to employ significant

    resources, including personnel, in the performance of this statutory

    role. The Commission designates a contract market only when it meets

    specific criteria including expenditure of sufficient resources to

    establish and maintain adequate self-regulatory programs.

    ---------------------------------------------------------------------------

    \56\ 47 FR 18618, 18619 (April 30, 1982).

    ---------------------------------------------------------------------------

    Likewise, the Commission will register an FBOT to provide direct

    access only after it has met similar criteria. Critically, an FBOT will

    only be registered by demonstrating that it possesses the attributes of

    an established, organized exchange; adheres to appropriate rules

    prohibiting abusive trading practices; and enforces appropriate rules

    to maintain market and financial integrity. Because FBOTs and DCMs are

    functionally equivalent entities in these regards, the Commission is

    determining that FBOTs, like DCMs, are not small entities for purposes

    of the RFA. In light of the foregoing, the Chairman on behalf of the

    Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that the

    proposed rules will not have a significant impact on a substantial

    number of small entities.

    List of Subjects in 17 CFR Part 48

    Foreign boards of trade, Commodity futures, Options, Swaps, Direct

    access, Linked contract, Registration, Existing no-action relief,

    Conditions of registration.

    In consideration of the foregoing, and pursuant to the authority

    contained in the Act, and, in particular, sections 3, 4 and 8a of the

    Act, the Commission hereby proposes to amend Chapter I of Title 17 of

    the Code of Federal Regulations by adding a new part 48 to read as

    follows:

    PART 48--REGISTRATION OF FOREIGN BOARDS OF TRADE

    Sec.

    48.1 Scope.

    48.2 Definitions.

    48.3 Registration required.

    48.4 Registration eligibility.

    48.5 Registration procedures.

    48.6 Foreign boards of trade providing direct access pursuant to

    existing no-action relief.

    48.7 Requirements for registration.

    48.8 Conditions of registration.

    48.9 Revocation of registration.

    48.10 Additional contracts.

    Appendix--Part 48--Contents of Application

    Authority: 7 U.S.C. 5, 6 and 12a, unless otherwise noted.

    Sec. 48.1 Scope.

    The provisions of this part apply to any foreign board of trade

    that is registered or is applying to become registered with the

    Commission in order to provide its identified members or other

    participants located in the United States with direct access to its

    electronic trading and order matching system.

    Sec. 48.2 Definitions.

    (a) Foreign board of trade. For purposes of this part, foreign

    board of trade means any board of trade, exchange or market located

    outside the United States, its territories or possessions, whether

    incorporated or unincorporated, where foreign agreements, contracts or

    transactions are entered into.

    (b) Foreign board of trade eligible to be registered. A foreign

    board of trade eligible to be registered means a foreign board of trade

    that satisfies the requirements for registration specified in section

    48.7 of this part and

    (1) Possesses the attributes of an established, organized exchange,

    [[Page 70988]]

    (2) Adheres to appropriate rules prohibiting abusive trading

    practices,

    (3) Enforces appropriate rules to maintain market and financial

    integrity,

    (4) Has been authorized by a regulatory process that examines

    customer and market protections, and

    (5) Is subject to continued oversight by a regulator that has power

    to intervene in the market and the authority to share information with

    the Commission.

    (c) Direct access. For purposes of this part, direct access means

    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.

    (d) Linked contract. For purposes of this part, a linked contract

    is a futures or option or swaps contract made available for direct

    access from the United States by a registered foreign board of trade

    that settles against any price (including the daily or final settlement

    price) of one or more contracts listed for trading on a registered

    entity as defined in section 1a(40) of the Act.

    (e) Communications. For purposes of this part, communications is

    defined to include any summons, complaint, order, subpoena, request for

    information, notice, or any other written or electronic documentation

    or correspondence issued by or on behalf of the Commission.

    (f) Material change. For purposes of this part, material changes in

    the information provided to the Commission in support of the

    registration application would include, without limitation, a

    modification of any of the following: The membership criteria of the

    foreign board of trade or its clearing organization; the location of

    the management, personnel or operations of the foreign board of trade

    or its clearing organization (particularly changes that may suggest an

    increased nexus between the foreign board of trade's activities and the

    United States); the basic structure, nature, or operation of the

    trading system or its clearing organization; the regulatory or self-

    regulatory regime applicable to the foreign board of trade, its

    clearing organization, and their respective members and other

    participants (including, without limitation, the rules applicable to or

    oversight thereof), any change in the authorization, licensure or

    registration of the foreign board of trade or clearing organization,

    and any information that may impact the ability of the clearing

    organization to satisfy the current Recommendations for Central

    Counterparties that have been issued jointly by the Committee on

    Payment and Settlement Systems and the Technical Committee of the

    International Organization of Securities Commissions as updated,

    revised or otherwise amended, or successive standards, principles and

    guidance for central counterparties or financial market infrastructures

    adopted jointly by the International Organization of Securities

    Commissions and the Committee on Payment and Settlement Systems.

    (g) Clearing organization. For purposes of this part, clearing

    organization means the foreign board of trade, affiliate of the foreign

    board of trade or any third party clearing house, clearing association,

    clearing corporation or similar entity, facility or organization that,

    with respect to any agreement, contract or transaction executed on or

    through the foreign board of trade, would be:

    (1) Defined as a derivatives clearing organization under section

    1a(9) of the Act;

    (2) Defined as a central counterparty by the Recommendations for

    Central Counterparties that have been issued jointly by the Committee

    on Payment and Settlement Systems and the Technical Committee of the

    International Organization of Securities Commissions, as updated,

    revised or otherwise amended, or successive standards, principles and

    guidance for central counterparties adopted or financial market

    infrastructures adopted jointly by the Committee on Payment and

    Settlement Systems or the International Organization of Securities

    Commissions; or

    (3) Otherwise interposes itself between the counterparties to the

    agreements, contracts or transactions (or subset thereof) executed on

    or through the foreign board of trade, becoming the buyer to every

    seller and the seller to every buyer.

    (h) Existing no-action relief. For purposes of this part, existing

    no-action relief means a no-action letter issued by a division of the

    Commission to the foreign board of trade in which the division informs

    the foreign board of trade that it will not recommend that the

    Commission institute enforcement action against the foreign board of

    trade if the foreign board of trade does not seek designation as either

    a designated contract market pursuant to section 5 of the Act or a

    derivatives transaction execution facility pursuant to section 5a of

    the Act in connection with the provision of direct access to the

    foreign board of trade's trade matching system by its members and other

    participants located in the United States.

    (i) Swaps. For purposes of this part, swaps is defined to mean

    swaps as defined in section 1a(47) of the Act, and any Commission

    regulation adopted thereunder, and any transaction or contract that is

    regulated as a swap under the regulatory regime to which the FBOT is

    subject.

    (j) Affiliate. For purposes of this part, an affiliate of a

    registered foreign board of trade member or other participant shall

    mean any person, as that term is defined in section 1a(38) of the CEA,

    that:

    (1) Owns 50% or more of the member or other participant;

    (2) Is owned 50% or more by the member or other participant; or

    (3) Is owned 50% or more by a third person that also owns 50% or

    more of the member or other participant.

    (k) Member or other participant. For purposes this part, the terms

    member or other participant of the registered foreign board of trade

    shall include any affiliate of any registered foreign board of trade's

    member or other participant that has been granted direct access to the

    trading system by the registered foreign board of trade.

    Sec. 48.3 Registration required.

    (a) Except as specified in this part, it shall be unlawful for a

    foreign board of trade to permit direct access to its electronic

    trading and order matching system from within the United States unless

    and until the Commission has issued a valid and current Order of

    Registration to the foreign board of trade pursuant to the provisions

    of this part.

    (b) It shall be unlawful for a board of trade to make false or

    misleading statements in any application for registration or in

    connection with any application for registration under this part.

    Sec. 48.4 Registration eligibility.

    (a) Only foreign boards of trade eligible to be registered, as

    defined in Sec. 48.2(b) of this part, are eligible for registration

    with the Commission pursuant to this part.

    (b) An applicant may request foreign board of trade registration in

    order to permit direct access from within the United States to its

    members and other participants that:

    (1) Trade in the United States for their proprietary accounts;

    (2) Are registered with the Commission as futures commission

    merchants and submit orders for United States customers to the trading

    system for execution; or

    (3) Are registered with the Commission as a commodity pool

    [[Page 70989]]

    operator or commodity trading advisor, or are exempt from such

    registration pursuant to section 4.13 or 4.14 of this chapter, and that

    submit orders for execution on behalf of United States pools they

    operate or accounts of United States customers for which they have

    discretionary authority, respectively, provided that a futures

    commission merchant or a firm exempt from such registration pursuant to

    Commission Rule 30.10 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.

    Sec. 48.5 Registration procedures.

    (a) A foreign board of trade seeking registration with the

    Commission pursuant to this part must electronically file an

    application for registration, labeled as an Application for Foreign

    Board of Trade Registration pursuant to part 48 of the Commission's

    Regulations, with the Secretary of the Commission, at

    FBOTRegistration@cftc.gov.

    (b) An application for registration must be signed by the foreign

    board of trade's chief executive officer (or functional equivalent) and

    must include the information and documentation set forth in the

    Appendix to this part 48 and any information and documentation

    necessary, in the discretion of the Commission, to effectively

    demonstrate that the foreign board of trade and its clearing

    organization satisfy the registration requirements set forth in this

    part. The application must include a certification by the chief

    executive officer (or functional equivalent) of the foreign board of

    trade and the clearing organization that representations made in

    connection with, or relevant to, the application and the information

    and documentation provided in support thereof are true, correct and

    complete.

    (c) A foreign board of trade registration applicant must identify

    with particularity any information in the application that will be

    subject to a request for confidential treatment and must provide

    support for any request for confidential treatment pursuant to the

    procedures set forth in section 145.9 of this chapter.

    (d) The Commission will review the application for foreign board of

    trade registration and, if the Commission finds the application to be

    complete, may approve or deny the application. In its review, the

    Commission will consider, among other things:

    (1) Whether the foreign board of trade is eligible to be registered

    as defined in section 48.2(b) of this part;

    (2) Whether the foreign board of trade and its clearing

    organization are subject to comprehensive supervision and regulation by

    the appropriate governmental authorities in their home country that is

    comparable to the comprehensive supervision and regulation to which

    designated contract markets and derivatives clearing organizations are

    respectively subject in the United States;

    (3) Any previous Commission findings that the foreign board of

    trade and its clearing organization are subject to comprehensive

    supervision and regulation by the appropriate government authorities in

    the foreign board of trade's home country that is comparable to the

    comprehensive supervision and regulation to which designated contract

    markets and derivatives clearing organizations are subject in the

    United States; and

    (4) Whether the foreign board of trade and its clearing

    organization have adequately demonstrated that they meet the

    requirements for registration specified in section 48.7 of this part.

    (e) If the Commission approves the application, the Commission will

    register the foreign board of trade by issuing an Order of

    Registration. If the Commission does not approve the application, the

    foreign board of trade will not be registered and may not provide

    direct access to its electronic trading and order matching systems from

    within the United States, and the Commission will issue a Notice of

    Action specifying that the application was not approved and setting

    forth the reasons therefor. The Commission may, after appropriate

    notice and an opportunity for a hearing, amend, suspend, terminate or

    otherwise restrict the terms of the Order of Registration.

    (f) A foreign board of trade whose application is not approved may

    reapply for registration 360 days after the issuance of the Notice of

    Action if the foreign board of trade has addressed any deficiencies in

    its original application or facts and circumstances relevant to the

    Commission's review of the application have changed.

    Sec. 48.6 Foreign boards of trade providing direct access pursuant to

    existing no-action relief.

    (a) A foreign board of trade operating pursuant to existing no-

    action relief as of the effective date of this Part 48 must register

    with the Commission pursuant to this Part 48 in order to continue to

    provide direct access to its electronic trading and order matching

    system from the United States.

    (b) Such foreign board of trade's application for registration must

    include all of the information and documentation set forth in the

    Appendix to this part 48. To the extent that the foreign board of trade

    intends to rely upon previously submitted information or documentation

    to demonstrate that it satisfies the requirements of the Appendix or

    the registration requirements set forth in section 48.7 of this part,

    the foreign board of trade must resubmit the information or

    documentation, identify the specific requirements for registration set

    forth in section 48.7 of this part that are satisfied by the

    resubmitted information, and certify that the information remains

    current and true (limited application).

    (c) Foreign boards of trade operating pursuant to existing no-

    action relief must submit a complete limited application for

    registration within 120 days of the effective date of this regulation

    and the no-action relief will, upon notice to the foreign board of

    trade, be revoked if a complete limited application is not received by

    the Commission within that 120 days. The foreign board of trade may

    continue to provide direct access from the United States pursuant to

    the no-action relief during the 120-day period, during the period in

    which the complete limited application is being reviewed by the

    Commission, and until the Commission notifies the foreign board of

    trade that the application has been approved or not approved or that

    the existing no-action relief has otherwise been withdrawn.

    Sec. 48.7 Requirements for registration.

    An applicant for registration under this part must include all of

    the information and documentation set forth in the Appendix to this

    Part 48 and any other information and documentation necessary or

    appropriate to determine that the following requirements for

    registration are met. The Commission, in its discretion, may impose

    additional registration requirements and request additional information

    and documentation in connection with an application for registration.

    An applicant for registration must provide promptly any additional

    information or documentation requested by the Commission in connection

    with the application.

    (a) Foreign Board of Trade and Clearing Membership. An applicant

    for registration must demonstrate that:

    (1) The members and other participants of the foreign board of

    trade and its clearing organization are fit and proper and meet

    appropriate financial and professional standards,

    [[Page 70990]]

    (2) The foreign board of trade and its clearing organization have

    and enforce provisions to minimize and resolve conflicts of interest,

    and

    (3) The foreign board of trade and its clearing organization have

    and enforce rules prohibiting the disclosure of material non-public

    information obtained as a result of a member's or other participant's

    performance of duties as a member of their respective governing boards

    and significant committees.

    (b) The Automated Trading System. An applicant for registration

    must demonstrate that:

    (1) The trading system complies with Principles for the Oversight

    of Screen-Based Trading Systems for Derivative Products developed by

    the Technical Committee of the International Organization of Securities

    Commissions,

    (2) The trade matching algorithm matches trades fairly and timely,

    (3) The audit trail captures all relevant data, including changes

    to orders, and audit trail data is securely maintained and available

    for an adequate time period,

    (4) Trade data is made available to users and the public,

    (5) The trading system has demonstrated reliability,

    (6) Access to the trading system is secure and protected,

    (7) There are adequate provisions for emergency operations and

    disaster recovery,

    (8) Trading data is backed up to prevent loss of data, and

    (9) Only those futures and option contracts or swaps that have been

    identified to the Commission as part of the application or permitted to

    be made available for trading by direct access pursuant to the

    procedures set forth in section 48.10 of this part are made available

    for trading on connections in the United States.

    (c) Terms and Conditions of Contracts To Be Made Available in the

    United States.

    (1) Contracts that may be made available by direct access must meet

    the following standards:

    (i) Contracts must be futures, option or swaps contracts--only such

    contracts as would be eligible to be traded on a designated contract

    market are eligible to be traded by direct access on a registered

    foreign board of trade,

    (ii) Contracts must be cleared,

    (iii) Contracts must not be prohibited from being traded by United

    States persons, and

    (iv) Contracts must not be readily susceptible to manipulation.

    (2) Contracts that have the following characteristics must be

    identified:

    (i) Contracts that are linked to a contract listed for trading on a

    United States registered entity, and

    (ii) Contracts that share any other commonality with a contract

    listed for trading on a United States registered entity, for example,

    if both the foreign board of trade's and the United States registered

    entity's contract settle to the price of the same third party-

    constructed index.

    (d) Settlement and Clearing. An applicant for registration must

    demonstrate that:

    (1) The clearing organization complies with the current

    Recommendations for Central Counterparties that have been issued

    jointly by the Committee on Payment and Settlement Systems and the

    Technical Committee of the International Organization of Securities

    Commissions as updated, revised or otherwise amended, or successive

    standards, principles and guidance for central counterparties and

    financial market infrastructures adopted jointly by the International

    Organization of Securities Commissions and the Committee on Payment and

    Settlement Systems or is registered with the Commission as a

    derivatives clearing organization, and

    (2) The clearing organization is in good regulatory standing in its

    home country jurisdiction.

    (e) The Regulatory Regime Governing the Foreign Board of Trade and

    the Clearing Organization. An applicant for registration must

    demonstrate that:

    (1) The regulatory authorities governing the activities of the

    foreign board of trade and clearing organization provide comprehensive

    supervision and regulation of the foreign board of trade and the

    clearing organization that is comparable to the comprehensive

    supervision and regulation provided by the Commission to designated

    contract markets and derivatives clearing organizations, that is, the

    regulatory authorities support and enforce regulatory objectives in the

    oversight of the foreign board of trade and clearing organization that

    are substantially equivalent to the regulatory objectives supported and

    enforced by the Commission in its oversight of designated contract

    markets and derivatives clearing organizations,

    (2) The regulatory authorities governing the activities of the

    foreign board of trade, the clearing organization and their respective

    members and other participants engage in ongoing regulatory supervision

    and oversight of the foreign board of trade and its trading system, the

    clearing organization and its clearing system, the members,

    intermediaries and other participants of the foreign board of trade and

    clearing organization, with respect to, among other things, market

    integrity, customer protection, clearing and settlement and the

    enforcement of exchange and clearing organization rules,

    (3) The regulatory authorities governing the foreign board of trade

    and the clearing organization have the power to share information

    directly with the Commission, upon request, including information

    necessary to evaluate the continued eligibility of the foreign board of

    trade for registration and to audit for compliance with the terms and

    conditions of the registration.

    (4) The regulatory authorities governing the foreign board of trade

    and the clearing organization have the power to intervene in the

    market.

    (f) The Rules of the Foreign Board of Trade and Clearing

    Organization and Enforcement Thereof. An applicant for registration

    must demonstrate that:

    (1) The foreign board of trade and its clearing organization have

    implemented and enforce rules to ensure compliance with the

    requirements of registration contained in this part,

    (2) The foreign board of trade and its clearing organization have

    the capacity to detect, investigate, and sanction persons who violate

    their respective rules,

    (3) The foreign board of trade and the clearing organization (or

    their respective regulatory authorities) have implemented and enforce

    disciplinary procedures that empower them to recommend and prosecute

    disciplinary actions for suspected rule violations, impose adequate

    sanctions for such violations, and provide adequate protections to

    charged parties pursuant to fair and clear standards,

    (4) The foreign board of trade and its clearing organization are

    authorized by rule or by contractual agreement to obtain, from members

    and other participants, any information and cooperation necessary to

    conduct investigations, to effectively enforce their respective rules,

    and to ensure compliance with the conditions of registration,

    (5) The foreign board of trade and its clearing organization have

    sufficient compliance staff and resources, including by delegation and/

    or outsourcing to a third party, to fulfill their respective regulatory

    responsibilities, including appropriate trade practice surveillance,

    real time market monitoring, market surveillance, financial

    surveillance, protection of customer funds, enforcement of clearing and

    settlement provisions and other compliance and regulatory

    responsibilities,

    [[Page 70991]]

    (6) The foreign board of trade has implemented and enforces rules

    with respect to access to the trading system and the means by which the

    connection is accomplished,

    (7) The foreign board of trade's audit trail captures and retains

    sufficient order and trade-related data to allow its compliance staff

    to detect trading and market abuses and to reconstruct all transactions

    within a reasonable period of time,

    (8) The foreign board of trade has implemented and enforces rules

    relating to prohibited trading practices (for example wash sales or

    trading ahead),

    (9) The foreign board of trade has the capacity to detect and

    deter, and has implemented and enforces rules relating to, market

    manipulation, attempted manipulation, price distortion, and other

    disruptions of the market, and

    (10) The foreign board of trade has and enforces rules and

    procedures that ensure a competitive, open and efficient market and

    mechanism for executing transactions.

    (g) Information Sharing. An applicant for registration must

    demonstrate that:

    (1) The regulatory authorities governing the activities of and

    providing supervision and oversight of the foreign board of trade and

    the clearing organization are signatories to the International

    Organization of Securities Commissions Multilateral Memorandum of

    Understanding; if the regulatory authorities are not signatories to the

    International Organization of Securities Commissions Multilateral

    Memorandum of Understanding, they must inform the Commission of the

    reasons why the document has not been signed, supply any additional

    information requested by the Commission, and ensure alternative

    information sharing arrangements that are satisfactory to the

    Commission are in place.

    (2) The regulatory authorities governing the activities of and

    providing supervision and oversight of the foreign board of trade and

    the clearing organization are signatories to the Declaration on

    Cooperation and Supervision of International Futures Exchanges and

    Clearing Organizations or otherwise commits to share the types of

    information contemplated by the International Information Sharing

    Memorandum of Understanding and Agreement with the Commission,

    (3) The foreign board of trade has executed, or commits to execute,

    the International Information Sharing Memorandum of Understanding and

    Agreement, and

    (4) Pursuant to the conditions described in section 48.8(a)(6) of

    this part, the foreign board of trade and clearing organization must

    provide directly to the Commission information necessary to evaluate

    the continued eligibility of the foreign board of trade clearing

    organization, or their respective members or other participants for

    registration, to audit for and enforce compliance with the specified

    conditions of the registration, or to enable the Commission to carry

    out its duties under the Act and Commission regulations.

    Sec. 48.8 Conditions of registration.

    Immediately upon registration, and on an ongoing basis thereafter,

    the foreign board of trade and the clearing organization shall comply

    with the conditions of registration set forth in this section and any

    additional conditions that the Commission may impose, in its

    discretion, and after appropriate notice and opportunity for a hearing.

    Such conditions could include, but are not limited to, the conditions

    set forth in section 48.8(c) of this part and, with respect to the

    listing of swaps contracts, any additional conditions that the

    Commission deems necessary. Continued registration is expressly

    conditioned upon satisfaction of these conditions.

    (a) Specified Conditions for Maintaining Registration.

    (1) Registration Requirements: The foreign board of trade and its

    clearing organization shall continue to satisfy all of the requirements

    for registration set forth in section 48.7 and the conditions for

    maintaining registration set forth herein.

    (2) Regulatory Regime:

    (i) The foreign board of trade will continue to satisfy the

    criteria for a regulated market pursuant to the regulatory regime

    described in its application and will continue to be subject to

    oversight by the regulatory authorities described in its application

    with respect to transactions effected through the foreign board of

    trade's trading system.

    (ii) The clearing organization will continue to satisfy the

    criteria for a regulated clearing organization pursuant to the

    regulatory regime described in the application for registration; the

    clearing organization and its participants will continue to be subject

    to comprehensive supervision, regulation and oversight by the

    regulatory authorities as described in the application and that is

    comparable to the comprehensive supervision, regulation to which such

    entities would be subject in the United States; and the clearing

    organization shall continue to be in good standing with the relevant

    regulatory authority.

    (iii) The laws, systems, rules, and compliance mechanisms of the

    regulatory regime applicable to the foreign board of trade will

    continue to require the foreign board of trade to maintain fair and

    orderly markets; prohibit fraud, abuse, and market manipulation; and

    provide that such requirements are subject to the oversight of

    appropriate regulatory authorities.

    (3) Satisfaction of Comparable International Standards:

    (i) The foreign board of trade will continue to adhere to the

    Principles for the Oversight of Screen-Based Trading Systems for

    Derivative Products developed by the Technical Committee of the

    International Organization of Securities Commissions, as updated,

    revised, or otherwise amended, to the extent such principles do not

    contravene United States law.

    (ii) The clearing organization will continue to: (A) Be registered

    as a derivatives clearing organization and be in compliance with the

    laws and regulations related thereto or (B) satisfy the Recommendations

    for Central Counterparties that have been issued jointly by the

    Committee on Payment and Settlement Systems and the Technical Committee

    of the International Organization of Securities Commissions, as

    updated, revised or otherwise amended, or successive standards,

    principles and guidance for central counterparties or financial market

    infrastructures adopted jointly by the Committee on Payment and

    Settlement Systems and the Technical Committee of the International

    Organization of Securities Commissions.

    (4) Restrictions on Direct Access:

    (i) Only the foreign board of trade's identified members or other

    participants will have direct access to the foreign board of trade's

    trading system from the United States and the foreign board of trade

    will not provide, and will take reasonable steps to prevent, third

    parties from providing direct access to the foreign board of trade to

    persons other than the identified members or other participants.

    (ii) All orders that are transmitted through the foreign board of

    trade's trading system by a foreign board of trade 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 a

    commodity pool operator or commodity trading advisor, or is exempt from

    such

    [[Page 70992]]

    registration pursuant to section 4.13 or 4.14 of this chapter, provided

    that a futures commission merchant or a firm exempt from such

    registration pursuant to Commission Rule 30.10 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 on the trading system.

    (5) Submission to Commission Jurisdiction:

    (i) The 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 pursuant to the foreign

    board of trade's registration and that is not registered with the

    Commission as a futures commission merchant, 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 grants direct access to the foreign board

    of trade's trading system pursuant to the foreign board of trade

    registration, the member or other participant agrees to and submits to

    the jurisdiction of the Commission with respect to activities conducted

    pursuant to the registration.

    (ii) The foreign board of trade and its clearing organization will

    file with the Commission a valid and binding appointment of an agent

    for service of process in the United States pursuant to which the agent

    is authorized to accept delivery and service of communications issued

    by or on behalf of the Commission.

    (iii) The foreign board of trade will require that each current and

    prospective member or other participant of the foreign board of trade

    that is granted direct access to the foreign board of trade's trading

    system pursuant to the foreign board of trade's registration with the

    Commission and that is not registered with the Commission as a futures

    commission merchant, a commodity trading advisor or a commodity pool

    operator file with the foreign board of trade a valid and binding

    appointment of a United States agent for service of process in the

    United States pursuant to which the agent is authorized to accept

    delivery and service of communications issued by or on behalf of the

    Commission.

    (iv) The foreign board of trade, clearing organization, and each

    current and prospective member or other participant of either that is

    granted direct access to the foreign board of trade's trading system

    pursuant to the foreign board of trade's registration and that is not

    registered with the Commission as a futures commission merchant, 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 (the Commission, the United States Department of

    Justice, or the National Futures Association), 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.

    (v) The foreign board of trade will maintain all representations

    required pursuant to this regulation as part of its books and records

    and will make them available to the Commission upon request.

    (6) Information Sharing:

    (i) Information-sharing arrangements satisfactory to the

    Commission, including but not limited to those set forth in section

    48.7(g) of the registration requirements, are in effect between the

    Commission and the regulatory authorities that supervise both the

    foreign board of trade and the clearing organization.

    (ii) The Commission is, in fact, able to obtain sufficient

    information regarding the foreign board of trade, the clearing

    organization, their respective members and participants and the

    activities related to the foreign board of trade's registration.

    (iii) The foreign board of trade, and its clearing organization, as

    applicable, will provide directly to the Commission any information

    necessary to evaluate the continued eligibility of the foreign board of

    trade or its members or other participants for registration, the

    capability and determination to enforce compliance with these specified

    conditions of the registration or, in the event that the Commission has

    been unable to satisfactorily obtain necessary information from the

    regulatory authority, to enable the Commission to carry out its duties

    under the Act and Commission regulations and to provide adequate

    protection to the public or United States registered entities.

    (iv) In the event that the foreign board of trade and the clearing

    organization are separate entities, the foreign board of trade will

    require the clearing organization to enter into a written agreement in

    which the clearing organization is contractually obligated to promptly

    provide any and all information and documentation that may be required

    of the clearing organization under this regulation and such agreement

    shall be made available to the Commission, upon request.

    (7) Monitoring for Compliance:

    The foreign board of trade and the clearing organization will

    employ reasonable procedures for monitoring and enforcing compliance

    with the specified conditions of its registration.

    (8) Conditions Applicable to Swaps Trading:

    (i) If the foreign board of trade makes swaps contracts available

    by direct access, the foreign board of trade must report to the public,

    on a real-time basis, data relating to each swap transaction, including

    price and volume, as soon as technologically practicable after

    execution of the swap transaction.

    (ii) If the foreign board of trade makes swaps contracts available

    by direct access, the foreign board of trade must ensure that all swap

    transaction data is timely reported to a swap data repository that is

    either A. registered with the Commission, or B. has an information

    sharing arrangement with, the Commission.

    (iii) If the foreign board of trade makes swaps contracts available

    by direct access, the foreign board of trade must agree to coordinate

    with the Commission with respect to arrangements established to address

    cross market oversight issues, including surveillance, emergency

    actions and the monitoring of trading.

    (b) Other Continuing Obligations.

    (1) Foreign boards of trade registered under this part and their

    clearing organizations must also comply with the following regulatory

    obligations on an ongoing basis:

    (i) The foreign board of trade will maintain the following updated

    information and submit such information to the Commission on at least a

    quarterly basis, not later than 30 days following the end of the

    quarter, and at any time promptly upon the request of a Commission

    representative, computed based upon separating buy sides and sell

    sides:

    (A) For each contract available to be traded through the foreign

    board of trade's trading system,

    [[Page 70993]]

    (1) The total trade volume originating from electronic trading

    devices providing direct access to the trading system in the United

    States,

    (2) The total trade volume for such products traded through the

    trading system worldwide, and

    (3) The total trade volume for such products traded on the foreign

    board of trade generally; and

    (B) A listing of the names, National Futures Association

    identification numbers (if applicable), and main business addresses in

    the United States of all members and other participants that have

    direct access to the trading system in the United States.

    (ii) The foreign board of trade will promptly provide to the

    Commission written notice of the following:

    (A) Any material change in the information provided in the

    registration application.

    (B) Any material change in the foreign board of trade's or clearing

    organization's rules or the laws, rules, and regulations in the home

    country jurisdictions of the foreign board of trade or clearing

    organization relevant to futures, options and swaps contracts.

    (C) Any matter known to the foreign board of trade, the clearing

    organization or its representatives that, in the judgment of the

    foreign board of trade or clearing organization judgment, may affect

    the financial or operational viability of the foreign board of trade or

    its clearing organization with respect to contracts traded by direct

    access, including, but not limited to, any significant system failure

    or interruption.

    (D) Any default, insolvency, or bankruptcy of any foreign board of

    trade member or other participant that is or should be known to the

    foreign board of trade or its representatives or the clearing

    organization or its representatives that may have a material, adverse

    impact upon the condition of the foreign board of trade as it relates

    to trading by direct access, its clearing organization or upon any

    United States customer or firm or any default, insolvency or bankruptcy

    of any member of the foreign board of trade's clearing organization.

    (E) Any violation of the specified conditions of the foreign board

    of trade's registration or failure to satisfy the requirements for

    registration under this part that is known or should be known by the

    foreign board of trade, the clearing organization or any of their

    respective members or participants.

    (F) Any disciplinary action by the foreign board of trade or its

    clearing organization with respect to any contract available to be

    traded by direct access taken against any of their respective members

    or participants that involves any market manipulation, fraud, deceit,

    or conversion or that results in suspension or expulsion.

    (iii) The foreign board of trade and the clearing organization, as

    applicable, must provide the following to the Commission on an annual

    basis.

    (A) A certification from the foreign board of trade's regulatory

    authority confirming that the foreign board of trade retains its

    authorization, licensure or registration, as applicable, as a regulated

    market and/or exchange under the authorization, licensing or other

    registration methodology used by the foreign board of trade's

    regulatory authority and that the foreign board of trade is in

    continued good standing.

    (B) A certification from the clearing organization's regulatory

    authority confirming that the clearing organization retains its

    authorization, licensure or registration, as applicable, as a clearing

    organization under the authorization, licensing or other registration

    methodology used by the clearing organization's regulatory authority

    and is in continued good standing.

    (C) If the clearing organization is not a derivatives clearing

    organization, a recertification of the clearing organization's

    compliance with the Recommendations for Central Counterparties that

    have been issued jointly by the Committee on Payment and Settlement

    Systems and the Technical Committee of the International Organization

    of Securities Commissions, as updated, revised or otherwise amended, or

    successive standards, principles and guidance for central

    counterparties and financial market infrastructures adopted jointly by

    the Committee on Payment and Settlement Systems and the International

    Organization of Securities Commissions.

    (D) A certification that affiliates of members and other

    participants, as defined in Sec. 48.2(j) of this part continue to be

    required to comply with appropriate registration requirements,

    conditions for registration and the rules of the foreign board of trade

    and that the members or other participants to which they are affiliated

    remain responsible to the foreign board of trade for ensuring their

    affiliates' compliance.

    (E) A description of any material changes to any relevant

    representation regarding the foreign board of trade or clearing

    organization made to the Commission that have not been previously

    disclosed, in writing, or a certification that no material changes have

    been made.

    (F) A description of any significant disciplinary or enforcement

    actions that have been instituted by or against the foreign board of

    trade or the clearing organization or the senior officers of either in

    the prior year.

    (G) A written description of any material changes to the regulatory

    regime to which the foreign board of trade or the clearing organization

    are subject that have not been previously disclosed, in writing, to the

    Commission, or a certification that no material changes have occurred.

    (2) The above-referenced materials must be signed by an officer of

    the foreign board of trade or the clearing organization who maintains

    the authority to bind the foreign board of trade or clearing

    organization, as applicable, and be based on the officer's personal

    knowledge.

    (c) Additional Specified Conditions for Foreign Boards of Trade

    with Linked Contacts. If a registered foreign board of trade grants

    members or other participants located in the United States direct

    access and makes available to them a linked contract, the following

    additional conditions apply:

    (1) Statutory Conditions.

    (i) The foreign board of trade must make public daily trading

    information regarding the linked contract that is comparable to the

    daily trading information published by the registered entity for the

    contract to which the foreign board of trade's contract is linked, and

    (ii) The foreign board of trade (or its regulatory authority) must:

    (A) Adopt position limits (including related hedge exemption

    provisions) applicable to all market participants for the linked

    contract that are comparable to the position limits (including related

    hedge exemption provisions) adopted by the registered entity for the

    contract to which it is linked;

    (B) Have the authority to require or direct any market participant

    to limit, reduce, or liquidate any position the foreign board of trade

    (or its regulatory authority) determines to be necessary to prevent or

    reduce the threat of price manipulation, excessive speculation as

    described in section 4a of the Act, price distortion, or disruption of

    delivery on the cash settlement process;

    (C) Agree to promptly notify the Commission, with regard to the

    linked contract, of any change regarding--

    (1) The information that the foreign board of trade will make

    publicly available,

    (2) The position limits that foreign board of trade or its

    regulatory authority will adopt and enforce,

    [[Page 70994]]

    (3) The position reductions required to prevent manipulation,

    excessive speculation as described in section 4a of the Act, price

    distortion, or disruption of delivery or the cash settlement process,

    and

    (4) Any other area of interest expressed by the Commission to the

    foreign board of trade or its regulatory authority;

    (D) Provide information to the Commission regarding large trader

    positions in the linked contract that is comparable to the large trader

    position information collected by the Commission for the contract to

    which it is linked; and

    (E) Provide the Commission such information as is necessary to

    publish reports on aggregate trader positions for the linked contract

    that are comparable to such reports on aggregate trader positions for

    the contract to which it is linked, and

    (iii) If the Commission establishes speculative position limits

    (including related hedge exemption provisions) on the aggregate number

    or amount of positions in a contract traded on a United States

    registered entity and the registered foreign board of trade lists a

    contract that is linked to the contract listed for trading on the

    registered entity, the foreign board of trade (or its regulatory

    authority) must adopt position limits (including related hedge

    exemption provisions) for the linked contract as determined by the

    Commission.

    (2) Other Conditions on Linked Contracts:

    (i) The foreign board of trade will inform the Commission in a

    quarterly report of any member that had positions in a linked contract

    above the applicable foreign board of trade position limit, whether a

    hedge exemption was granted, and if not, whether a disciplinary action

    was taken.

    (ii) The foreign board of trade will provide Commission staff,

    either directly or through its agent, with trade execution and audit

    trail data for the Commission's Trade Surveillance System on a trade-

    date plus one basis and in a form, content and manner acceptable to the

    Commission for all linked contracts.

    (iii) The foreign board of trade and the clearing organization will

    permit and cooperate with Commission on-site visits for the purpose of

    overseeing the foreign board of trade's ongoing compliance with

    registration requirements and conditions of registration. The

    Commission will provide notice to the foreign board of trade's

    regulatory authority of any requests for an on-site visit.

    (iv) The foreign board of trade will provide to Commission staff,

    at least one day prior to the effective date thereof, except in the

    event of an emergency market situation, copies of, or hyperlinks to,

    all rules, rule amendments, circulars and other notices published by

    the foreign board of trade with respect to all linked contracts.

    (v) The foreign board of trade will provide to Commission staff

    copies of all Disciplinary Notices involving the foreign board of

    trade's linked contracts upon closure of the action. Such Notices

    should include the reason the action was undertaken, the results of the

    investigation that led to the disciplinary action, and any sanctions

    imposed.

    (vi) In the event that the Commission, pursuant to its emergency

    powers authority, directs that the United States registered entity

    which lists the contract to which the foreign board of trade's contract

    is linked take emergency action with respect to a linked contract (for

    example, to cease trading in the contract), the foreign board of trade,

    subject to information-sharing arrangements between the Commission and

    its regulatory authority, agrees to promptly take similar action with

    respect to its linked contract.

    Sec. 48.9 Revocation of registration.

    (a) Failure to Satisfy Registration Requirements or Conditions:

    Upon request by the Commission, a registered foreign board of trade

    shall file with the Commission a written demonstration, containing such

    supporting data, information, and documents, in such form and manner

    and within such timeframe as the Commission may specify, that the

    foreign board of trade or clearing organization is in compliance with

    the registration requirements or conditions for registration.

    (1) If the Commission determines that a registered foreign board of

    trade (or the clearing organization) has failed to satisfy any of the

    registration requirements or conditions for registration, the

    Commission shall notify the foreign board of trade of such

    determination and afford the foreign board of trade an opportunity to

    make appropriate changes to bring the foreign board of trade into

    compliance with the registration requirements or conditions for

    registration.

    (2) If, not later than 30 days after receiving a notification under

    subsection (1) of this paragraph, the foreign board of trade fails to

    make changes that, in the opinion of the Commission are necessary to

    comply with the registration requirements or conditions for

    registration, the Commission may revoke the foreign board of trade's

    registration, after appropriate notice and an opportunity for a

    hearing, by issuing an Order Revoking Registration which sets forth the

    reasons therefor.

    (3) A foreign board of trade whose registration has been revoked

    for failure to satisfy a registration requirement or condition of

    registration may apply for re-registration 360 days after the issuance

    of the Order Revoking Registration if the deficiency causing the

    revocation has been cured or relevant facts and circumstances have

    changed.

    (b) Other Events that Could Result in Revocation. Revocation under

    these circumstances would not necessarily follow the procedures

    delineated above, but will be handled by the Commission as relevant

    facts or circumstances warrant.

    (1) The Commission may revoke a foreign board of trade's

    registration, after appropriate notice and an opportunity for a

    hearing, if the Commission determines that a representation made in the

    application for registration is found to be untrue or materially

    misleading.

    (2) The Commission may revoke a foreign board of trade's

    registration, after appropriate notice and an opportunity for a

    hearing, if there is a material change in the regulatory regime

    applicable to the foreign board of trade or clearing organization.

    (3) The Commission may revoke a foreign board of trade's

    registration in the event of an emergency or in a circumstance where

    the Commission determines that revocation would be necessary or

    appropriate in the public interest. Following revocation, the

    Commission will provide an opportunity for a hearing.

    (4) The Commission may revoke a foreign board of trade's

    registration in the event the foreign board of trade or the clearing

    organization is no longer authorized, licensed or registered, as

    applicable, as a regulated market and/or exchange or clearing

    organization or ceases to operate as a foreign board of trade or

    clearing organization.

    Sec. 48.10 Additional contracts.

    (a) Generally. Registered foreign boards of trade that wish to list

    additional futures and option and swaps contracts for trading by direct

    access to the foreign board of trades' electronic trading and order

    matching systems from the United States must submit a written request

    prior to offering the contracts from within the United States. Such a

    written request must include the terms and conditions of the additional

    [[Page 70995]]

    futures and option and swaps contracts that the foreign board of trade

    wishes to make available and a certification that the additional

    contracts meet the requirements of section 48.7(c) of this part and the

    foreign board of trade and the clearing organization continue to

    satisfy the conditions of registration. The foreign board of trade can

    make available for trading the additional contracts ten business days

    after the date of receipt by the Commission of the written request,

    unless the Commission notifies the foreign board of trade that

    additional time is needed to complete its review of policy or other

    issues pertinent to the additional contracts. A registered foreign

    board of trade may list for trading an additional futures contract on a

    non-narrow-based security index pursuant to the procedures set forth in

    Appendix D to part 30 of this chapter.

    (b) Option contracts on previously approved futures contracts.

    (1) If the option is on a futures contract that is not a linked

    contract, the option contract may be made available for trading by

    direct access by filing with the Commission no later than the business

    day preceding the initial listing of the contract:

    (i) A copy of the terms and conditions of the additional contract

    and

    (ii) A certification that the foreign board of trade and the

    clearing organization continue to satisfy the conditions of its

    registration.

    (2) If the option is on a futures contract that is a linked

    contract, the option contract may be made available for trading by

    direct access by filing with the Commission no later than the business

    day preceding the initial listing of the contract:

    (i) A copy of the terms and conditions of the additional contract

    and

    (ii) A certification that the foreign board of trade and the

    clearing organization continue to satisfy the conditions of its

    registration, including the conditions specifically applicable to

    linked contracts set forth in section 48.8(c) of this part.

    (3) If the option is on a non-narrow-based security index futures

    contract which may be offered or sold in the United States pursuant to

    a no-action letter issued by the Commission's Office of the General

    Counsel, the option contract may be listed for trading by direct access

    without further action by either the registered foreign board of trade

    or the Commission.

    Appendix--Part 48--Contents of Application

    I. General Information and Documentation

    (a) General Information. A description of the following for the

    foreign board of trade and clearing organization: Location; history,

    size; ownership and corporate structure; governance and committee

    structure; current or anticipated presence of staff in the United

    States; and anticipated volume of business emanating from members

    and other participants that will be provided direct access to the

    foreign board of trade's trading system and the percentage of that

    volume compared to the foreign board of trade's total volume.

    (b) Initial Documentation. The following documents for the

    foreign board of trade and clearing organization:

    (1) Articles of association, constitution, or other similar

    organizational documents;

    (2) Membership and trading participant agreements;

    (3) Clearing agreements;

    (4) Terms and conditions of contracts to be available from

    within the United States pursuant to the specified conditions of

    registration;

    (5) The national statutes, laws and regulations governing the

    activities of the foreign board of trade and clearing organization

    and their respective participants;

    (6) The current rules, regulations, guidelines and bylaws of the

    foreign board of trade or clearing organization;

    (7) Evidence of the authorization, licensure or registration of

    the foreign board of trade and clearing organization pursuant to the

    regulatory regime in their home country jurisdiction and a

    representation by their respective regulators that they are in good

    regulatory standing in the capacity in which they are authorized,

    licensed or registered;

    (8) A summary of any disciplinary or enforcement actions or

    proceedings that have been brought against the foreign board of

    trade and clearing organization, or the senior officers thereof, in

    the past five years and the resolution of those actions or

    proceedings;

    (9) An undertaking by the chief compliance officer(s) (or

    functional equivalent[s]) of the foreign board of trade and the

    clearing organization to notify Commission staff promptly if any of

    the representations made in connection with or related to the

    foreign board of trade's application for registration cease to be

    true or correct, or become incomplete or misleading.

    II. Membership Criteria

    The following for the foreign board of trade and the clearing

    organization:

    (a) Membership or Participant Categories and Access.

    A description of the categories of membership and participation

    in the foreign board of trade or clearing organization and the

    access, trading and clearing privileges provided by the board of

    trade or clearing organization, as applicable. The description

    should include any restrictions thereto for all entities to which

    the foreign board of trade intends to grant direct access to its

    trading system.

    (b) Membership Criteria.

    (1) A description of requirements for membership and

    participation on the trading or clearing system, as applicable, and

    the manner in which members and other participants must demonstrate

    their compliance with these requirements.

    (2) Professional Standards. A description of the professional

    requirements, qualifications, and/or competencies required of

    members or other participants and/or their staff.

    (c) Financial Integrity.

    (1) A description of the manner in which the foreign board of

    trade and the clearing organization evaluate the financial resources

    holdings of its members or participants, including any financial

    requirements, standards, guides, or thresholds used to qualify

    members and other participants.

    (2) Describe the process by which applicants demonstrate

    compliance with financial requirements for membership participation

    including:

    (i) Working capital and collateral requirements,

    (ii) Risk management mechanisms for members allowing customers

    to place orders.

    (d) Authorization, Licensure or Registration Requirements.

    Describe any regulatory and self-regulatory authorization, licensure

    or registration requirements that the foreign board of trade and the

    clearing organization impose upon its members and other participants

    including, but not limited to any authorization, licensure or

    registration requirements imposed by the regulatory authorities in

    the home country jurisdiction(s) of the foreign board of trade and

    clearing organization. Describe the process by which the foreign

    board of trade and the clearing organization, as applicable, confirm

    compliance with those requirements.

    (e) Fit and Proper. Describe how the foreign board of trade and

    clearing organization ensure that potential members/other

    participants meet fit and proper standards.

    (f) Qualifications for Board and/or Committee Membership.

    Describe the requirements applicable to membership on the governing

    board and significant committees of the foreign board of trade and

    clearing organization, and describe how the foreign board of trade

    and clearing organization ensure that potential governing board and

    committee members/other participants meet these standards.

    (g) Conflict of Interest Provisions. Describe the provisions to

    minimize and resolve conflicts of interest with respect to

    membership on the governing board and significant committees of the

    foreign board of trade and the clearing organization.

    (h) Disclosure of Information. Describe the rules with respect

    to the disclosure of material non-public information obtained as a

    result of a member's or other participant's performance on the

    governing board or significant committee.

    III. The Automated Trading System

    (a) A description of the following:

    (1) the order matching/execution system, including a complete

    description of all permitted ways in which members or other

    participants (or their customers) may connect

    [[Page 70996]]

    to the trade matching/execution system and the related requirements

    (for example, authorization agreements, technical compliance

    verifications, identification of order routing systems and/or users,

    (2) the architecture of the systems, including hardware and

    distribution network, as well as any pre-trade risk-management

    controls that are made available to system users,

    (3) the security features of the systems,

    (4) the length of time such systems have been operating,

    (5) any significant system failures or interruptions,

    (6) the nature of any technical review of the order matching/

    execution system performed by the home country regulator,

    (7) provide a copy of any order or certification or self-

    certification received and any discrepancies between the standard of

    review and the Principles for the Oversight of Screen-Based Trading

    Systems for Derivative Products developed by the Technical Committee

    of the International Organization of Securities Commissions,

    (8) trading hours,

    (9) types and duration of orders accepted,

    (10) information that must be included on orders,

    (11) trade confirmation and trade error procedures,

    (12) anonymity of participants,

    (13) trading system connectivity with clearing system,

    (14) response time,

    (15) ability to determine depth of market,

    (16) market continuity provisions,

    (17) reporting and recordkeeping requirements, and

    (18) error trade policies.

    (b) A description of the manner in which the foreign board of

    trade assures the following with respect to the trading system:

    (1) Algorithm. The trade matching algorithm matches trades

    fairly and timely.

    (2) IOSCO Principles. The trading system's compliance with the

    Principles for the Oversight of Screen-Based Trading Systems for

    Derivative Products developed by the Technical Committee of the

    International Organization of Securities Commissions.

    (3) Audit Trail.

    (i) The audit trail captures all relevant data, including

    changes to orders.

    (ii) Audit trail data is securely maintained and available for

    an adequate time period.

    (4) Public Data. Trade data is available to users and the

    public.

    (5) Reliability. The trading system has demonstrated

    reliability.

    (6) Secure Access. Access to the trading system is secure and

    protected.

    (7) Emergency Provisions. There are adequate provisions for

    emergency operations and disaster recovery.

    (8) Data Loss Prevention. Trading data is backed up to prevent

    loss of data.

    (9) Contracts Available. Mechanisms are available to ensure that

    only those futures and option contracts or swaps that have been

    identified to the Commission as part of the application or permitted

    to be made available for trading by direct access pursuant to the

    procedures set forth in section 48.10 of this part are made

    available for trading on connections in the United States.

    (10) Predominance of the Centralized Market. Mechanisms are

    available that ensure a competitive, open and efficient market and

    mechanism for executing transactions.

    IV. The Terms and Conditions of Contracts Proposed To Be Made Available

    in the United States

    (a) Provide the terms and conditions of futures, option and

    swaps contracts intended to be made available for direct access.

    (b) Demonstrate that contracts are not prohibited from being

    traded by United States persons.

    (c) Demonstrate that contracts are cleared.

    (d) Identify any contracts that are linked to a contract listed

    for trading on a United States-registered entity, for example, a

    contract that settles against any price (including the daily or

    final settlement price) of one or more contracts listed for trading

    on a United States-registered entity.

    (e) Identify any contracts that share any other commonality with

    a contract listed for trading on a United States-registered entity,

    for example, both the foreign board of trade's and the United

    States-registered entity's contract settle to the price of the same

    third party-constructed index.

    (f) Demonstrate that the contracts are not readily susceptible

    to manipulation, as follows:

    (1) Generally. For contracts other than broad-based stock

    indexes, provide the information required in Appendix A to Part 40

    (Guideline No. 1) with regard to manipulation.

    (i) For delivered contracts: a demonstration that the terms and

    conditions of the contract will result in a deliverable supply so

    that the contract will not be conducive to price manipulation or

    distortion and that the deliverable supply reasonably can be

    expected to be available to short traders and salable by long

    traders at its market value in normal cash marketing channels.

    (ii) For cash-settled contracts: a demonstration that cash

    settlement mechanism of the contract is at a price reflecting the

    underlying cash market (or the level or index if there is no

    underlying cash market), will not be readily subject to manipulation

    or distortion, and is reliable, acceptable, publicly available and

    timely.

    (iii) To deter and detect abusive or disruptive trading behavior

    that could result in price distortions: A demonstration that the

    foreign board of trade has rules and mechanisms, for example,

    position limits, restrictions on size and pricing of block trades,

    restrictions on market on close or trade at settlement orders during

    the daily close and settlement, and prohibitions on, and the

    capacity to detect, ``marking'' of the trading close or important

    economic announcements.

    (2) Broad-Based Stock Indexes. For non-narrow based stock index

    futures contracts, provide the information required in Appendix D to

    Part 30 of this chapter. A no-action letter from the Commission's

    Office of General Counsel is required to offer futures contracts on

    non-narrow-based stock index futures contracts to United States

    citizens.

    (3) Manipulation Cases. With respect to contracts to be listed

    for trading by direct access, describe each investigation, action,

    proceeding or case involving manipulation and involving a contract

    traded on the foreign board of trade in the three years preceding

    the application date, whether initiated by the foreign board of

    trade, a regulatory or self-regulatory authority or agency or

    another government or prosecutorial agency. For each such action,

    proceeding or case, describe the alleged manipulative activity and

    the current status re resolution thereof.

    V. Settlement and Clearing

    (a) Clearing System. A description of the clearing

    organization's clearing and settlement systems.

    (b) Certification. A certification, signed by the chief

    executive officer (or functional equivalent) of the clearing

    organization, that the clearing system complies with the current

    Recommendations for Central Counterparties that have been issued

    jointly by the Committee on Payment and Settlement Systems and the

    Technical Committee of the International Organization of Securities

    Commissions, as updated, revised or otherwise amended, or successive

    standards, principles and guidance for central counterparties or

    financial market infrastructures adopted jointly by the Committee on

    Payment and Settlement Systems or the International Organization of

    Securities Commissions.

    (c) RCCP Compliance. A detailed description of the manner in

    which the clearing organization complies with each of the

    Recommendations for Central Counterparties that have been issued

    jointly by the Committee on Payment and Settlement Systems and the

    Technical Committee of the International Organization of Securities

    Commissions, as updated, revised or amended, (or successive

    standards, principles and guidance for central counterparties or

    financial infrastructures adopted jointly by the Committee on

    Payment and Settlement Systems or the International Organization of

    Securities Commissions) and documentation supporting the

    representations made, including any relevant rules or written

    policies or procedures of the clearing organization.

    VI. The Regulatory Regime Governing the Foreign Board of Trade and

    Clearing Organization in Their Home Countries

    Provide information or documentation necessary to demonstrate

    that the foreign board of trade and its clearing organization are

    subject to comprehensive supervision and regulation by the

    appropriate governmental authorities in their home countries that is

    comparable to the comprehensive supervision and regulation to which

    designated contract markets, derivatives clearing organizations and

    market participants are subject in the United States. The

    information and documentation provided must be sufficient to

    demonstrate that the foreign board of trade and clearing

    organization are subject to an established regulatory regime that is

    based upon regulatory objectives equivalent (not necessarily

    identical) to those applicable to designated contract markets and

    derivatives

    [[Page 70997]]

    clearing organizations in the United States and that provides basic

    protections for customers trading on markets and for the integrity

    of the markets themselves:

    (a) Regulatory Authority.

    (1) Structure, function and powers. Describe the regulatory

    authority's structure, resources, staff and scope of authority; the

    regulator's authorizing statutes, including the source of its

    authority to supervise the foreign board of trade and the clearing

    organization; the rules and policy statements issued by the

    regulator with respect to the authorization and continuing oversight

    of markets, electronic trading systems and clearing organizations

    and the financial protections afforded customer funds. Provide

    copies of recent public reports disclosing the regulator's oversight

    and enforcement activities which are, in the judgment of the

    regulator, relevant to the FBOT's status as a registered FBOT.

    (2) Authorization and continuing oversight of the foreign board

    of trade and clearing organization. Describe and provide copies

    (with, as applicable, English translations) of the laws, rules,

    regulations and policies applicable to the authorization, licensure

    or registration of the foreign board of trade and clearing

    organization and the continuing oversight thereof; the regulatory

    authority's program for the ongoing supervision and oversight of the

    foreign board of trade and clearing organization and the enforcement

    of their respective trading and clearing rules; the financial

    resources requirements applicable to the authorization, licensure or

    registration of the foreign board of trade and clearing organization

    and the continued operations thereof; the extent to which the

    Principles for the Oversight of Screen-Based Trading Systems for

    Derivative Products developed by the Technical Committee of the

    International Organization of Securities Commissions and the current

    Recommendations for Central Counterparties that have been issued

    jointly by the Committee on Payment and Settlement Systems and the

    Technical Committee of the International Organization of Securities

    Commissions, as updated, revised or amended, or successive

    standards, principles and guidance for central counterparties or

    financial market infrastructures adopted jointly by the Committee on

    Payment and Settlement Systems or the International Organization of

    Securities Commissions are used or applied by the regulatory

    authority in its supervision and oversight of the foreign board of

    trade or clearing organization or are incorporated into its rules

    and regulations and the extent to which the regulatory authorities

    review the applicable trading and clearing systems for compliance

    therewith; the extent to which the regulatory authority reviews and/

    or approves the trading and clearing rules of the foreign board of

    trade or clearing organization prior to their implementation; the

    extent to which the regulatory authority reviews and/or approves

    exchange contracts prior to their being listed for trading; and the

    regulatory authority's approach to the detection and deterrence of

    market manipulation and other unfair trading practices.

    (3) Intermediary Oversight. Describe the laws, rules,

    regulations and policies that govern the authorization and ongoing

    supervision and oversight of market intermediaries who may deal with

    United States participants accessing the foreign board of trade,

    including:

    (i) Recordkeeping requirements,

    (ii) The protection of customer funds, and

    (iii) Procedures for dealing with the failure of a market

    intermediary in order to minimize damage and loss to investors and

    to contain systemic risk.

    (4) Enforcement. Describe the regulatory authority's inspection,

    investigation and surveillance powers; and the program pursuant to

    which the regulatory authority uses those powers to inspect,

    investigate, and enforce rules applicable to the foreign board of

    trade and the clearing organization.

    (b) Demonstration of Continuing Regulatory ``Good Standing.''

    The regulatory authorities governing the activities of the

    foreign board of trade and clearing organization must submit a

    report confirming that the foreign board of trade and clearing

    organization are in regulatory good standing. The report should

    include:

    (1) Confirmation of regulatory status (including proper

    authorization, licensure and registration) of the foreign board of

    trade and clearing organization;

    (2) Any recent oversight reports generated by the regulatory

    authority which are, in the judgment of the regulatory authority,

    relevant to the FBOT's status as a registered FBOT;

    (3) Disclosure of any significant regulatory concerns, inquiries

    or investigations by the regulatory authority, including any

    concerns, inquiries or investigations with regard to the foreign

    board of trade's arrangements to monitor trading by members or other

    participants located in the United States, the adequacy of the risk

    management controls of the trading or of the clearing system; and

    (4) A description of any investigations (formal or informal) or

    disciplinary actions initiated by the regulatory authority or any

    other self-regulatory, regulatory or governmental entity against the

    foreign board of trade, the clearing organization or any of their

    respective senior officers during the past year.

    (c) Staff Visits with Regulatory Authorities. The regulatory

    authorities governing the activities of the foreign board of trade

    and the clearing organization must agree to cooperate with a

    Commission staff visit subsequent to the application period on an

    ``as needed basis,'' the objective of which will be to familiarize

    Commission staff with oversight supervisory staff of the regulatory

    authority; discuss any changes to the law, rules and regulations

    that formed the basis of the application; discuss the cooperation

    and coordination between the authorities, including, without

    limitation, information sharing arrangements; and discuss issues of

    concern as they may develop from time to time (for example, linked

    contracts, unusual trading that may be of concern to Commission

    surveillance staff).

    VII. The Rules of the Foreign Board of Trade and Its Clearing

    Organization and Enforcement Thereof

    With respect to the foreign board of trade and the clearing

    organization, as applicable:

    (a) Describe the regulatory or compliance department, to include

    size, experience level, competencies, duties and responsibilities.

    (b) Describe the foreign board of trade's trade practice rules.

    Include in the description the following:

    (1) Capacity of the foreign board of trade. Does the foreign

    board of trade have the capacity to detect, investigate, and

    sanction persons who violate foreign board of trade rules?

    (2) Abusive Trading Practices Prohibited. Does the foreign board

    of trade implement and enforce rules that prohibit abusive trading

    practices (for example, wash sales or trading ahead) and other

    market abuses, including the ability to detect and deter insider

    trading?

    (3) Trade Surveillance System. Does the foreign board of trade

    maintain a trade practice surveillance system appropriate to the

    foreign board of trade capable of detecting and investigating

    potential trade practice violations?

    (4) Trade Practice/Audit Trail. Does the foreign board of

    trades' audit trail capture and retain sufficient order and trade-

    related data to allow their compliance staffs to detect trading and

    market abuses and to reconstruct all transactions within a

    reasonable period of time?

    (5) Real-time Market Monitoring. Does the foreign board of trade

    maintain appropriate resources to conduct real-time supervision of

    trading?

    (6) Compliance Staff and Resources. Does the foreign board of

    trade have sufficient compliance staff and resources, including

    those outsourced or delegated to third parties, to fulfill their

    regulatory responsibilities?

    (7) Ability to Obtain Information. Do the foreign board of

    trade's rules authorize compliance staff to obtain, from market

    participants, any information and cooperation necessary to conduct

    effective rule enforcement and investigations?

    (8) Investigations and Investigation Reports. Does the foreign

    board of trade's compliance staff investigate suspected rule

    violations and prepare reports of their finding and recommendations?

    (9) Access Requirements. Does the foreign board of trade

    implement and enforce rules relating to the persons that may trade

    on the foreign board of trade, and the means by which they connect

    to it?

    (10) Jurisdiction. Does the foreign board of trade require

    market participants to submit to the foreign board of trade's

    jurisdiction as a condition of access to the market?

    (c) Describe the foreign board of trade's and, if appropriate,

    the clearing organization's disciplinary rules, addressing the

    following:

    (1) Disciplinary Authority and Procedures. Do the foreign board

    of trade and, the clearing organization, have and enforce

    disciplinary procedures that empower staff to recommend and

    prosecute disciplinary actions for suspected rule violations? Do the

    procedures include the authority to fine, suspend, or expel any

    market participant pursuant to fair and clear standards?

    (2) Warning Letters and Summary Actions. Do the foreign board of

    trade and the clearing

    [[Page 70998]]

    organization authorize staff to issue warning letters and/or summary

    fines for specified rule violations?

    (3) Review of Investigation Reports. Do the compliance staffs of

    the foreign board of trade and the clearing organization present

    their findings to a disciplinary panel or other authority for

    issuance of charges, instruction to investigate further, or finding

    that insufficient basis exists to issue charges?

    (4) Disciplinary Committees. Do the foreign board of trade and

    the clearing organization take disciplinary action via disciplinary

    committees and formal disciplinary processes unless the violation is

    subject to foreign board of trade staff's summary fining authority?

    (5) Disciplinary Decisions. Do the foreign board of trade,

    clearing organization or their regulatory authorities articulate the

    rationale for their decisions?

    (6) Adequacy of Sanctions. Are the sanctions commensurate with

    the violations committed and do they serve as effective deterrents

    to future violations?

    (d) Describe Market Surveillance rules, addressing the

    following:

    Does the foreign board of trade have a dedicated market

    surveillance department or effective delegation or outsourcing of

    that function? If so, provide a general description of the staff,

    the data collected on traders' market activity, data collected to

    determine whether prices are responding to supply and demand, data

    on the size and ownership of deliverable supplies, a description of

    the manner in which the foreign board of trade detects and deters

    market manipulation, for cash-settled contracts, methods of

    monitoring the settlement price or value, and any foreign board of

    trade large-trader or other position reporting system.

    (e) Describe the Clearing Organization rules, addressing the

    following:

    Does the clearing organization maintain rules that require that

    the clearing organization comply with the Recommendations for

    Central Counterparties that have been issued jointly by the

    Committee on Payment and Settlement Systems and the Technical

    Committee of the International Organization of Securities

    Commissions (or successive standards) and, if so, provide copies of

    the rules.

    VIII. Information Sharing Agreements Among the Commission, the Foreign

    Board of Trade, the Clearing Organization and Relevant Regulatory

    Authorities

    With respect to the foreign board of trade, the clearing

    organization, and their respective regulatory authorities:

    (a) Describe the arrangements among the Commission, the foreign

    board of trade, the clearing organization and the relevant foreign

    regulatory authorities that govern the sharing of information

    regarding the transactions that are executed pursuant to the foreign

    board of trade's registration and the clearing and settlement of

    those transactions. This discussion should include:

    (1) The foreign board of trade, clearing organization and the

    regulatory authorities governing the activities of the foreign board

    of trade and clearing organization commit, in writing to provide

    immediately and directly to the Commission information and

    documentation requested by Commission staff that Commission staff

    determines is needed:

    (i) To evaluate the continued eligibility of the foreign board

    of trade for registration,

    (ii) To enforce compliance with the specified conditions of the

    registration,

    (iii) To enable the Commission to carry out its duties under the

    Act and Commission regulations and to provide adequate protection to

    the public or registered entities,

    (iv) To respond to potential market abuse associated with

    trading by direct access on the registered foreign board of trade,

    and

    (v) Where Commission staff, in its discretion, determines that a

    contract traded on a registered foreign board of trade may affect

    the Commission's ability to carry out surveillance with respect to a

    United States-registered entity.

    (2) Exchange International MOU. The foreign board of trade must

    execute, or commit to execute, the International Information Sharing

    Memorandum of Understanding and Agreement.

    (b) Regulatory Authority and the IOSCO MOU. The regulatory

    authorities governing the activities of and providing supervision

    and oversight of the foreign board of trade and clearing

    organization must be signatories to the International Organization

    of Securities Commissions Multilateral Memorandum of Understanding.

    If the regulator is not a signatory to the International

    Organization of Securities Commissions Multilateral Memorandum of

    Understanding, the regulator must inform the Commission of the

    reasons why the document has not been signed (for example, in the

    process of applying, application is under consideration by the

    International Organization of Securities Commissions Multilateral

    Memorandum of Understanding Screening Group) and supply any

    additional information requested by the Commission. The Commission

    will determine, on a case-by-case basis, whether any interim

    information sharing arrangement will be acceptable.

    (c) Declaration on Cooperation and Supervision of International

    Futures Exchanges and Clearing Organizations (Boca Declaration). The

    regulatory authorities governing the activities of and providing

    supervision and oversight of the foreign board of trade and clearing

    organization must sign the Declaration on Cooperation and

    Supervision of International Futures Exchanges and Clearing

    Organizations or otherwise commit to share the types of information

    contemplated by the International Information Sharing Memorandum of

    Understanding and Agreement with the Commission pursuant to an

    existing memorandum of understanding or other arrangement with the

    Commission.

    Issued in Washington, DC, November 10, 2010, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    Statement of Chairman Gary Gensler

    Notice of Proposed Rulemaking--Registration of Foreign Boards of Trade

    I support the proposed rulemaking to implement a registration

    system for Foreign Boards of Trade (FBOTs) seeking to offer market

    participants in the United States direct access to the FBOTs'

    trading systems. This registration system replaces the agency's

    current practice of issuing no-action letters to such FBOTs.

    Importantly, this will bring consistency and transparency to the

    Commission's oversight of such entities. Today's proposal also

    provides that FBOTs subject to comparable, comprehensive supervision

    and regulation in their home country and that meet conditions

    outlined in the proposal would be allowed to make available swaps

    contracts through direct access to U.S. market participants.

    [FR Doc. 2010-29023 Filed 11-18-10; 8:45 am]

    BILLING CODE P

    Last Updated: November 19, 2010